Cogeco 2010 Annual Report Download - page 72

Consolidated Financial Statements COGECO CABLE INC. 2010 71
b) Interest rates under the terms of the Corporation’s Term Revolving Facility and Term Facility are based on bankers’ acceptance, LIBOR,
EURIBOR, bank prime rate loan or US base rate loan plus the applicable margin. Therefore, the carrying value is considered to represent
fair value for the Term Revolving Facility and Term Facility.
c) 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.
d) The fair values of obligations under capital leases are not significantly different from their carrying amounts.
The carrying value of all the Corporation’s financial instruments approximates fair value, except as otherwise noted in the following table:
2010 2009
Carrying
amount
Estimated fai
r
value
Carrying
amount
Estimated fai
r
value
(in thousands of dollars) $ $ $ $
Long-term debt 954,983 1,050,696 1,054,462 1,116,829
In accordance with CICA Handbook Section 3862, Financial instruments – disclosures, all financial instruments recognized at fair value on the
consolidated balance sheet must be classified based on the three fair value hierarchy levels, which are as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices)
or indirectly (i.e., derived from prices); and
• Level 3: inputs that are not based on observable market date (unobservable inputs).
The Corporation considers that its derivative financial instruments are classified as Level 2 under the fair value hierarchy. The fair value of
derivative financial instruments is estimated using valuation models that reflect projected future cash flows over contractual terms of the
derivative financial instruments and factor observable in external markets data, such as interest and currency exchange rate curves.
B) Capital management
The Corporation’s objectives in managing capital are to ensure sufficient liquidity to support the capital requirements of its various businesses,
including growth opportunities. The Corporation manages its capital structure and makes adjustments in light of general economic conditions,
the risk characteristics of the underlying assets and the Corporation’s working capital requirements. Management of the capital structure
involves the issuance of new debt, the repayment of existing debts using cash generated by operations and the level of distribution to
shareholders.
The capital structure of the Corporation is composed of shareholders’ equity, bank indebtedness, long-term debt and assets or liabilities related
to derivative financial instruments.
The provisions under the Term Revolving Facility provide for restrictions on the operations and activities of the Corporation. Generally, the most
significant restrictions relate to permitted investments and dividends on multiple and subordinate voting shares, as well as incurrence and
maintenance of certain financial ratios primarily linked to the operating income before amortization, financial expense and total indebtedness. At
August 31, 2010 and 2009, the Corporation was in compliance with all of its debt covenants and was not subject to any other externally
imposed capital requirements.
The following table summarizes certain of the key ratios used by management to monitor and manage the Corporation’s capital structure:
2010 2009
(restated)
Net indebtedness(1) / shareholders’ equity 0.8 1.0
Net indebtedness(1) / operating income before amortization 1.8 2.0
Operating income before amortization / financial expense 7.9 7.3
(1) Net indebtedness is defined as the total of bank indebtedness, principal on long-term debt and obligations under derivative financial instruments, less cash and
cash equivalents.