Cogeco 2015 Annual Report Download - page 95

Download and view the complete annual report

Please find page 95 of the 2015 Cogeco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 109

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109

94 COGECO CABLE INC. 2015 Consolidated financial statements
C) EXPOSURE TO ACTUARIAL RISKS
The Corporation is exposed to the following actuarial risks:
Investment risk
The investment strategy of the plans is to diversify the nature of the returns on assets. Given the long-term nature of the defined benefit
obligation, a portion of the assets are invested in equity securities in order to maximize return. Since equity securities are inherently volatile
and risky, the Corporation sets investment goals, both in terms of asset mix percentage and target return, which is monitored monthly and
adjusted as needed.
Interest rate risk
A decrease in the interest rate on investment-grade fixed-rate Corporate bonds, which would reduce the discount rate used, will increase
the present value of the defined benefit obligation. However, this increase would be partly offset by an increase in the value of plan investments
in debt securities.
Salary risk
The present value of the defined benefit obligation is calculated using management's best estimate of the following actuarial assumption
for each identified risk:
Risk Assumption Change in assumption Potential impact
Salary Expected rate of compensation
increase of plan members
Increase in the expected rate of
compensation increase of plan
members Increase
D) SENSITIVITY ANALYSIS
The sensitivity analyses of the defined benefit obligation were calculated based on reasonably possible changes to each key actuarial
assumption without considering simultaneous changes to several key actuarial assumptions. A change in one actuarial assumption could
trigger a change in another actuarial assumption, which could amplify or mitigate the impact of the change in these assumptions on the
present value of the defined benefit obligation. The sensitivity analyses were prepared in accordance with the Corporation's accounting
policies described in Note 2 K). The actual results of items subject to estimates may differ.
Change in
assumption Impact of change
in assumption
At August 31, 2015 % $
Discount rate 0.10 583
Expected rate of compensation increase 0.25 101
21. FINANCIAL INSTRUMENTS
A) FINANCIAL RISK MANAGEMENT
Management’s objectives are to protect the Corporation and its subsidiaries against material economic exposures and variability of results,
and against certain financial risks including credit, liquidity, interest rate and foreign exchange risks.
Credit risk
Credit risk represents the risk of financial loss for the Corporation if a customer or counterparty to a financial asset fails to meet its contractual
obligations. The Corporation is exposed to credit risk arising from the derivative financial instruments, cash and cash equivalents and trade
accounts receivable, the maximum exposure of which is represented by the carrying amounts reported on the statement of financial position.
Credit risk from derivative financial instruments arises from the possibility that counterparties to the cross-currency swaps may default on
their obligations in instances where these agreements have positive fair values for the Corporation. The Corporation reduces this risk by
completing transactions with financial institutions that carry a credit rating equal to or superior to its own credit rating. The Corporation
assesses the creditworthiness of the counterparties in order to minimize the risk of counterparties default under the agreements. At August 31,
2015, management believes that the credit risk relating to its derivative financial instruments is minimal, since the lowest credit rating of the
counterparties to the agreements is "A" by Standard & Poor’s rating services ("S&P") and "AA (low)" by Dominion Bond Rating Services
("DBRS").