Cogeco 2014 Annual Report Download - page 51

50 COGECO CABLE INC. 2014 MD&A
PROVISIONS
Management's judgment is used to determine the timing, likelihood and to quantify expected cash outflows as well as the discount rate.
FAIR VALUE MEASUREMENT OF DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of derivative financial instruments is estimated using valuation techniques based on several market data such as interest rates,
foreign exchange rates and the Corporation's or counterparties' credit risks.
MEASUREMENT OF DEFINED BENEFIT OBLIGATION
The net defined benefit obligation is determined using actuarial calculations that are based on several assumptions. The actuarial valuation uses
the Corporation's assumptions for the discount rate, the expected rate of compensation increase, the indexation rate of pension paid and the
mortality table. If the actuarial assumptions are found to be significantly different from the actual data subsequently observed, it could impact the
reported amount of defined benefit pension cost recognized in profit or loss, the remeasurement of the net defined benefit asset or liability
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 at fair value through profit or loss and are recognized immediately in profit or loss; and
Bank indebtedness, 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 recorded as other assets and 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.
Derivative financial instruments are recognized initially at fair value and related transaction costs are recognized in profit or loss as incurred.
Subsequent to initial recognition, derivative financial instruments are measured at fair value, and changes therein are accounted for as described
below. Net receipts or payments arising from derivative financial instruments are recognized as financial expense.
When a derivative financial instrument 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 forecasted transaction that could affect profit or loss, the effective portion
of changes in the fair value of the derivative financial instrument is recognized in accumulated other comprehensive income and presented in
cash flow hedges reserve in equity. The amount recognized in other accumulated other comprehensive income is removed and included in profit