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78 COGECO CABLE INC. 2009 Consolidated financial statements
effect of converting the US interest coupon rate of 7.00% per annum to an average Canadian dollar interest rate of 7.24% per
annum. The exchange rate applicable to the principal portion of the debt has been fixed at $1.0625. The Corporation elected to
apply cash flow hedge accounting on these derivative financial instruments.
The Corporation is also exposed to foreign exchange risk on cash and cash equivalents, bank indebtedness and accounts payable
denominated in US dollars or Euros. At August 31, 2009, cash and cash equivalents denominated in US dollars amounted to
US$5,555,000 (bank indebtedness of US$286,000 at August 31, 2008) while accounts payable denominated in US dollars
amounted to US$14,997,000 (US$16,121,000 at August 31, 2008). At August 31, 2009, Euro-denominated bank indebtedness
amounted to €299,000 (cash and cash equivalents of €219,000 at August 31, 2008) while accounts payable denominated in Euros
amounted to €26,000 (€163,000 at August 31, 2008). Due to their short-term nature, the risk arising from fluctuations in foreign
exchange rates is usually not significant, except for the unusual high volatility of the US dollar compared to the Canadian dollar
during fiscal 2009. During the fiscal year ended August 31, 2009, the exchange rate increased from $1.0620 at August 31, 2008, to
$1.0950 at August 31, 2009, reaching a high of $1.2991 on March 9, 2009. The impact of a 10% change in the foreign exchange
rates (US dollar and Euros) would change financial expense by approximately $1.1 million.
Furthermore, the Corporation’s net investment in self-sustaining foreign subsidiaries is exposed to market risk attributable to
fluctuations in foreign currency exchange rates, primarily changes in the values of the Canadian dollar versus the Euro. This risk is
mitigated since the major part of the purchase price for Cabovisão-Televisão por Cabo, S.A. was borrowed directly in Euros. At
August 31, 2009, the net investment amounted to €183,220,000 (€446,051,000 at August 31, 2008) while long-term debt
denominated in Euros amounted to €135,772,000 (€237,455,000 at August 31, 2008). The exchange rate used to convert the Euro
currency into Canadian dollars for the balance sheet accounts at August 31, 2009 was $1.5698 per Euro compared to $1.5580 per
Euro at August 31, 2008. The impact of a 10% change in the exchange rate of the Euro into Canadian dollars would change
financial expense by approximately $0.5 million and other comprehensive income by approximately $7.4 million.
FAIR VALUE
Fair value is the amount at which willing parties would accept to exchange a financial instrument based on the current market for
instruments with the same risk, principal and remaining maturity. Fair values are estimated at a specific point in time, by discounting
expected cash flows at rates for debts of the same remaining maturities and conditions. These estimates are subjective in nature
and involve uncertainties and matters of significant judgement, and therefore, cannot be determined with precision. In addition,
income taxes and other expenses that would be incurred on disposition of these financial instruments are not reflected in the fair
values. As a result, the fair values are not necessarily the net amounts that would be realized if these instruments were settled. The
Corporation uses the following methods and assumptions to evaluate fair value of financial instruments.
Cash and cash equivalents, accounts receivable, bank indebtedness and accounts payable and accrued liabilities
The carrying amount in the consolidated balance sheets approximates fair value because of the short-term nature of these
instruments.
Long-term debt
a) Financial expense under the terms of the Corporation’s Term Facility is based on bankers’ acceptance, LIBOR, EURIBOR,
bank prime rate loan or US base rate loan plus stamping fees. Therefore, the carrying value is considered to represent fair
value for the Term Facility.
b) The fair value of the Senior Secured Debentures Series 1, Senior Secured Notes Series A and B and Senior Unsecured
Debenture are based upon current trading values for similar financial instruments.
c) The carrying values of obligations under capital leases approximate fair value of these financial instruments due to their terms.
The carrying value of all the Corporation’s financial instruments approximates fair value, except as otherwise noted in the following
table:
2009
2008
(in thousands of dollars)
CARRYING
AMOUNT
$
ESTIMATED
FAIR VALUE
$
CARRYING
AMOUNT
$
ESTIMATED
FAIR VALUE
$
LONG-TERM DEBT
1,054,462
1,116,829
1,055,041
1,049,329