Cogeco 2014 Annual Report Download - page 95

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94 COGECO CABLE INC. 2014 Consolidated financial statements
B) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Fair values are estimated at a specific point in time, by discounting expected cash flows at rates for assets and
liabilities of the same remaining maturities and conditions. These estimates are subjective in nature and involve uncertainties and matters
of significant judgment, 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 has determined the fair value of its financial instruments
as follows:
The carrying amount of cash and cash equivalents, trade and other receivables, bank indebtedness and trade and other payables
approximates fair value because of the short-term nature of these instruments;
Interest rates under the terms of the Corporation’s Term Revolving Facility and First Lien Facilities are based on bankers’
acceptance, US dollar base rate loans, LIBOR loans in US dollars, Euros or British Pounds loans plus applicable margin. Therefore,
the carrying value approximates fair value for these facilities, since they have conditions similar to those currently available to the
Corporation;
The fair value of the Senior Secured Debentures Series 2, 3 and 4, Senior Secured Notes Series A and B, Senior Secured Notes,
Senior Unsecured Notes and Senior Unsecured Debenture are based upon current trading values for similar financial instruments;
The fair value of finance 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:
At August 31, 2014 2013
Carrying value Fair value Carrying value Fair value
(In thousands of Canadian dollars) $ $ $ $
Long-term debt 2,718,514 2,843,458 2,892,265 2,932,422
All financial instruments recognized at fair value on the consolidated statement of financial position must be measured 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 for the asset or liability that are not based on observable market data (unobservable inputs).
The Corporation considers that its long-term debt and 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 observable market data, such as interest and currency exchange rate curves.
C) 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 debt using cash generated by operations and the level of distribution to
shareholders.
The capital structure of the Corporation is composed of shareholders’ equity, cash and cash equivalents, bank indebtedness, long-term debt
and assets or liabilities related to derivative financial instruments.
The provisions of financing agreements provide for restrictions on the activities of the Corporation. Generally, the most significant restrictions
relate to permitted investments and dividends on multiple and subordinate voting shares, as well as the maintenance of certain financial
ratios primarily linked to the adjusted EBITDA, financial expense and total indebtedness. At August 31, 2014 and August 31, 2013 the
Corporation was in compliance with all of its debt covenants and was not subject to any other externally imposed capital requirements.