Cogeco 2009 Annual Report Download - page 14

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Management’s discussion and analysis COGECO CABLE INC. 2009 13
on the consolidated balance sheet, with changes in fair value recorded in the consolidated statements of income, except for the
changes in fair value of the cross-currency swap and interest rate swap agreements, which are designated as cash flow hedges of
the Senior Secured Notes Series A and the Euro-denominated Term Loan facilities and are recorded in other comprehensive
income. The Corporation does not hold or use any derivative instruments for speculative trading purposes. Net receipts or payments
arising from cross-currency swap and interest rate swap agreements are recognized as financial expense.
CONTINGENCIES AND COMMITMENTS
The Corporation is subject to various claims and contingencies related to lawsuits, taxes and commitments under contractual and
other commercial obligations. The contractual and other commercial obligations primarily relate to network fees and operating lease
agreements for use of transmission facilities. The Corporation recognizes liabilities for contingencies and commitments when a loss
is probable and can be reasonably estimated based on currently available information. Significant changes in assumptions as to the
likelihood and estimates of a loss could result in the recognition of an additional liability.
RELATED PARTY TRANSACTIONS
Cogeco Cable is a subsidiary of COGECO Inc. (“COGECO”) which holds 32.3% of the Corporation’s equity shares, representing
82.7% of the votes attached to the Corporation’s voting shares. As of September 1, 1992, Cogeco Cable executed a management
agreement with COGECO under which the parent company agreed to provide certain executive, administrative, legal, regulatory,
strategic and financial planning services and additional services to the Corporation and its subsidiaries (the “Management
Agreement”). These services are provided by COGECO’s officers, including the President and Chief Executive Officer, the Senior
Vice President and Chief Financial Officer, the Vice President, Corporate Affairs and the Chief Legal Officer and Secretary. No direct
remuneration is payable to such officers by the Corporation. The Corporation granted 29,711 stock options to its officers, who also
are COGECO’s officers, during the 2009 fiscal year, compared to 22,683 in the 2008 fiscal year. During fiscal 2009, Cogeco Cable
charged COGECO an amount of $0.4 million with regards to Cogeco Cable’s options granted to COGECO’s employees which is the
same amount charged during fiscal 2008.
Under the Management Agreement, the Corporation pays monthly fees equal to 2% of its total revenue to COGECO for the above-
mentioned services. In 1997, the management fee was capped at $7 million per year, subject to annual increases based on the
variation in the Consumer Price Index in Canada. Accordingly, for the year ended August 31, 2009, the maximum amount of
$9 million was paid to COGECO, compared to $8.7 million in 2008, which represents about 0.7% of the Corporation’s total revenue
for fiscal 2009 compared to 0.8% for fiscal 2008. The Audit Committee of the Corporation can increase the cap under certain
circumstances upon request to that effect by COGECO. In addition, the Corporation reimburses COGECO’s out-of-pocket expenses
incurred with respect to services provided to the Corporation under the Management Agreement. In fiscal 2010, the management
fee will remain the same at $9 million pursuant to the Management Agreement.
ADOPTION OF NEW ACCOUNTING STANDARDS
ADOPTED DURING FISCAL 2009
CAPITAL DISCLOSURES AND FINANCIAL INSTRUMENTS
Effective September 1, 2008, the Corporation adopted the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section
1535, Capital Disclosures, Section 3862, Financial Instruments – Disclosures and Section 3863, Financial Instruments –
Presentation.
Capital disclosures
Section 1535 of the CICA Handbook requires that an entity disclose information that enables users of its financial statements to
evaluate the entity’s objectives, policies and processes for managing capital, including disclosures of any externally imposed capital
requirements and the consequences for non-compliance. These new disclosures are included in note 19 of the Corporation’s
consolidated financial statements.
Financial instruments
Section 3862 on financial instrument disclosures requires the disclosure of information about the significance of financial instruments
for the entity's financial position and performance and the nature and extent of risks arising from financial instruments to which the
entity is exposed during the period and at the balance sheet date, and how the entity manages those risks.
Section 3863 establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the
classification of financial instruments, from the perspective of the issuer, between liabilities and equities, the classification of related
interest, dividends, gains and losses, and circumstances in which financial assets and financial liabilities are offset.