Cogeco 2013 Annual Report Download - page 19

18 COGECO CABLE INC. 2013 Management's discussion and analysis (“MD&A”)
FAIR VALUE MEASUREMENT OF DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of derivative financial instruments is estimated using valuation techniques based on several inputs such as interest rates, foreign
exchange rates and Corporation's or counterparties' credit risks.
MEASUREMENT OF DEFINED BENEFIT ASSETS AND LIABILITIES
The defined benefit pension plan liabilities are determined using actuarial calculations that are based on several assumptions. The actuarial
valuation uses the Corporation’s assumptions for the discount rate, expected long-term rate of return on plan assets, rate of compensation increase
and expected average remaining years of service of employees. If the actuarial assumptions are found to be significantly different from the actual
data subsequently observed, it could impact the reported amount of pension cost recognized in profit or loss, the actuarial gains and losses
recognized directly in other comprehensive income and the net assets or net liabilities related to these obligations presented in the consolidated
statement of financial position.
MEASUREMENT OF NON-FINANCIAL ASSETS
The measurement of non-financial assets requires the use of management judgment to identify the existence of impairment indicators and the
determination of cash-generating units (“CGU”s). Furthermore, when determining the recoverable amount of a CGU or an asset, the Corporation
uses significant estimates such as the estimation of future cash flows and discount rates applicable. Any significant modification of market
conditions could translate into an inability to recover the carrying amounts of non-financial assets.
DEFERRED TAXES
Deferred tax assets and liabilities require estimates about the nature and timing of future permanent and temporary differences, the expected
timing of reversals of those temporary differences and the future tax rates that will apply to those differences. Judgment is also required in
determining the tax basis of indefinite life intangible assets and the resulting tax rate used to measure deferred taxes.
FINANCIAL INSTRUMENTS
Classification and measurement
All financial instruments, including derivatives, are included in the statement of financial position initially at fair value when the Corporation becomes
a party to the contractual obligations of the instrument.
Subsequent to initial recognition, non-derivative financial instruments are measured in accordance with their classification as described below:
Loans and receivables are financial assets with fixed or determinable payments that are not quoted on an open market. Cash and cash
equivalents and trade and other receivables are classified as loans and receivables. They are measured at amortized cost using the effective
interest rate method, less any impairment loss;
Transaction costs that are directly attributable to the acquisition or related to the issuance of financial assets or liabilities (other than financial
assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial
liabilities, as required, upon initial recognition. Transaction costs directly attributable to the acquisition of financial assets or liabilities are
recognized immediately in profit or loss; and
Trade and other payables and long-term debt are classified as other liabilities. They are measured at amortized cost using the effective
interest method. Directly attributable transaction costs are added to the initial fair value of financial instruments except for those incurred
with respect to the Term Revolving Facilities which are amortized over the term of the related financing on a straight-line basis.
Derivative financial instruments and hedge accounting
The Corporation uses cross-currency swaps as derivative financial instruments to manage foreign exchange risk related to its foreign denominated
Senior Secured Notes, Series A. In addition, the Corporation uses interest rate swaps as derivative financial instruments to manage interest rate
risk related to its floating rate long-term debt. The Corporation does not hold or use any derivative financial instruments for speculative trading
purposes.
Derivatives are recognized initially at fair value and related transaction costs are recognized in profit or loss as incurred. Subsequent to initial
recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss. Net receipts or payments arising from
derivative agreements are recognized as financial expense.
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated
with a recognized asset or liability or a highly probable expected transaction that could affect profit or loss, the effective portion of changes in the
fair value of the derivative is recognized in accumulated other comprehensive income and presented in unrealized gains or losses on cash flow
hedges in equity. The amount recognized in other accumulated comprehensive income is removed and included in profit or loss in the same
period as the hedged cash flows affect profit or loss and in the same line item as the hedged item. Any ineffective portion of changes in the fair
value of the derivative is recognized immediately in profit or loss.