Cablevision 2014 Annual Report Download - page 129

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
F-40
(a) Excludes the Cablevision senior notes held by Newsday Holdings.
NOTE 10. DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS
To manage interest rate risk, the Company has historically entered into interest rate swap contracts to adjust the proportion of total
debt that is subject to variable interest rates. Such contracts effectively fix the borrowing rates on floating rate debt to limit the
exposure against the risk of rising rates. The Company does not enter into interest rate swap contracts for speculative or trading
purposes.
The Company has entered into various transactions to limit the exposure against equity price risk on its shares of Comcast
Corporation ("Comcast") common stock. The Company has monetized all of its stock holdings in Comcast through the execution
of prepaid forward contracts, collateralized by an equivalent amount of the respective underlying stock. At maturity, the contracts
provide for the option to deliver cash or shares of Comcast stock with a value determined by reference to the applicable stock price
at maturity. These contracts, at maturity, are expected to offset declines in the fair value of these securities below the hedge price
per share while allowing the Company to retain upside appreciation from the hedge price per share to the relevant cap price.
The Company received cash proceeds upon execution of the prepaid forward contracts discussed above which has been reflected
as collateralized indebtedness in the accompanying consolidated balance sheets. In addition, the Company separately accounts
for the equity derivative component of the prepaid forward contracts. These equity derivatives have not been designated as hedges
for accounting purposes. Therefore, the net fair values of the equity derivatives have been reflected in the accompanying
consolidated balance sheets as an asset or liability and the net increases or decreases in the fair value of the equity derivative
component of the prepaid forward contracts are included in gain (loss) on derivative contracts in the accompanying consolidated
statements of income.
All of the Company's monetization transactions are obligations of its wholly-owned subsidiaries that are not part of the Restricted
Group; however, CSC Holdings has provided guarantees of the subsidiaries' ongoing contract payment expense obligations and
potential payments that could be due as a result of an early termination event (as defined in the agreements). If any one of these
contracts were terminated prior to its scheduled maturity date, the Company would be obligated to repay the fair value of the
collateralized indebtedness less the sum of the fair values of the underlying stock and equity collar, calculated at the termination
date. As of December 31, 2014, the Company did not have an early termination shortfall relating to any of these contracts.
The Company monitors the financial institutions that are counterparties to its equity derivative contracts and it diversifies its equity
derivative contracts among various counterparties to mitigate exposure to any single financial institution. All of the counterparties
to such transactions carry investment grade credit ratings as of December 31, 2014.
The following represents the location of the assets and liabilities associated with the Company's derivative instruments within the
consolidated balance sheets at December 31, 2014 and December 31, 2013:
Asset Derivatives Liability Derivatives
Derivatives Not
Designated as
Hedging
Instruments
Balance
Sheet
Location
Fair Value at
December 31,
2014
Fair Value at
December 31,
2013
Fair Value at
December 31,
2014
Fair Value at
December 31,
2013
Prepaid forward contracts ... Current derivative
contracts $ — $ — $ 93,010 $ 99,577
Prepaid forward contracts ... Long-term derivative
contracts 7,317 3,385 9,207 47,370
$ 7,317 $ 3,385 $ 102,217 $ 146,947
The following represents the impact of the Company's derivative instruments and location within the consolidated statements of
income for the years ended December 31, 2014, 2013 and 2012: