Cogeco 2014 Annual Report Download - page 69

68 COGECO CABLE INC. 2014 Consolidated financial statements
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustment arising on acquisition, are translated to
Canadian dollars using exchange rates prevailing at the end of the reporting period.
Revenue and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly
or significant transactions occurred during that period, in which case the exchange rates at the date of the transactions are used.
Exchange differences arising from the translation process of net investments in foreign operations are recognized as foreign currency
translation adjustments in other comprehensive income and accumulated in equity.
The Corporation applies hedge accounting to foreign currency differences arising between the functional currency of the foreign operation
and the Parent Corporation's functional currency. Foreign currency differences arising on the translation of long-term debt designated
as hedges of a net investment in foreign operations are recognized in other comprehensive income to the extent that the hedge is
effective, and are presented within equity in the foreign currency translation balance. To the extent that the hedge is ineffective, such
differences are recognized in profit or loss. When the hedged portion of a net investment is disposed of, the relevant amount in the
cumulative amount of foreign currency translation adjustments is transferred to profit or loss as part of the profit or loss on disposal.
M) 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 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 at fair value through profit or loss 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 revolving facilities which are recorded as other assets and
amortized over the term of the related financing on a straight-line basis.
Financial assets are derecognized only when the Corporation no longer holds the contractual rights to the cash flows of the asset or
when the Corporation transfers substantially all the risks and rewards of ownership of the financial asset to another entity. Financial
liabilities are derecognized only when the Corporation's obligations are discharged, cancelled or expired.
Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there
is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the
assets and settle the liabilities simultaneously.
Derivative financial instruments, including 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.
On initial designation of the hedge, the Corporation formally documents the relationship between the hedging instrument(s) and the
hedged item(s), including the risk management objectives and strategy in undertaking the hedging transaction, together with the methods
that will be used to assess the effectiveness of the hedging relationship. The Corporation makes an assessment, both at the inception
of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in
offsetting the changes in the cash flows of the respective hedged items during the period for which the hedge is designated and whether
the actual results of each hedging relationship are within a range of 80-125 percent. For a cash flow hedge of a forecasted transaction,
the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately
affect reported profit or loss.