Cogeco 2009 Annual Report Download - page 16

Management’s discussion and analysis COGECO CABLE INC. 2009 15
basis. Previously, all transaction costs were capitalized and amortized on a straight-line basis over the term of the related financing,
a period not exceeding five years. The impact of these adjustments at September 1, 2007 reduced deferred charges by $1.2 million,
reduced long-term debt by $3.1 million, increased future income tax liabilities by $0.6 million and increased retained earnings by
$1.3 million.
Cash flow hedge
All derivatives are measured at fair value with changes in fair value recorded in the consolidated statements of income unless they
are effective cash flow hedging instruments. The changes in fair value of cash flow hedging derivatives are recorded in other
comprehensive income, to the extent effective, until the variability of cash flows relating to the hedged asset or liability is recognized
in the consolidated statements of income. Any hedge ineffectiveness is recognized in the consolidated statements of income
immediately. Accordingly, the Corporation’s cross-currency swap agreements must be measured at fair value in the consolidated
financial statements. Since these cross-currency swap agreements are used to hedge cash flows on Senior Secured Notes Series A
denominated in US dollars, the changes in fair value are recorded in other comprehensive income. The impact of measuring the
cross-currency swap agreements at fair value on September 1, 2007, increased derivative financial instrument liabilities by
$83.5 million, decreased deferred credit presented in long-term debt by $80.2 million, decreased future income tax liabilities by
$1.1 million and decreased opening accumulated other comprehensive income by $2.2 million.
Net investment hedge
Financial statements of self-sustaining foreign subsidiaries are translated using the exchange rate in effect at the balance sheet date
for asset and liability items, and using the average exchange rates during the period for revenue and expenses. Adjustments arising
from this translation are deferred and recorded as foreign currency translation adjustments in accumulated other comprehensive
income and are included in income only when a reduction in the investment in these foreign subsidiaries is realized. Unrealized
foreign exchange gains and losses on long-term debt denominated in foreign currency that is designated as a hedge of a net
investment in self-sustaining foreign subsidiaries are recorded as foreign currency translation adjustments in accumulated other
comprehensive income, net of income taxes. As a result, an amount of $4.5 million was reclassified as at September 1, 2006 from
the foreign currency translation adjustment to accumulated other comprehensive income and the Corporation’s comparative
consolidated financial statements were restated in accordance with transitional provisions.
Embedded derivatives
All embedded derivatives that are not closely related to the host contracts are measured at fair value, with changes in fair value
recorded in the consolidated statements of income. On September 1, 2007, there were no significant embedded derivatives or non-
financial derivatives that require separate fair value recognition on the consolidated balance sheets. In accordance with the new
standards, the Corporation selected September 1, 2002, as its transition date for adopting the standard related to embedded
derivatives.
ACCOUNTING CHANGES
In July 2006, the CICA issued Section 1506, Accounting Changes, which modifies certain aspects of the previous standard. A
reporting entity may not change its accounting method unless required by a primary source of GAAP or to provide a reliable and
more relevant presentation of the financial statements. In addition, changes in accounting methods must be applied retroactively and
additional information must be disclosed. This Section applies to interim and annual financial statements relating to fiscal years
beginning on or after January 1, 2007. During the first quarter of fiscal 2008, the Corporation adopted this new standard and
concluded that it had no significant impact on these consolidated financial statements.
FUTURE ACCOUNTING PRONOUNCEMENTS
GOODWILL AND INTANGIBLE ASSETS
In February 2008, the CICA issued Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill and other
intangible assets and Section 3450, Research and development costs. The new Section establishes standards for the recognition,
measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented
enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. The new
Section will be applicable to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008,
with retroactive application. The adoption of this section on September 1, 2009 will decrease deferred charges by $32.3 million,
decrease future income tax liabilities by $9.6 million and decrease opening retained earnings by $22.7 million at September 1, 2008.
The impact on fiscal 2009 results will increase operating costs by $16.5 million, decrease amortization of deferred charges by $14.4
million, decrease future income tax expense by $0.6 million for a decrease in net income of $1.6 million.