Comcast 2008 Annual Report Download - page 38

Item 7A: Quantitative and Qualitative
Disclosures About Market Risk
Interest Rate Risk Management
We maintain a mix of fixed-rate and variable-rate debt. As of
December 31, 2008, approximately 93% of our total debt of
$32.5 billion was at fixed rates with the remaining debt at variable
rates. We are exposed to the market risk of adverse changes in
interest rates. In order to manage the cost and volatility relating to
the interest cost of our outstanding debt, we enter into various
interest rate risk management derivative transactions in accord-
ance with our policies.
We monitor our interest rate risk exposures using techniques that
include market value and sensitivity analyses. We do not engage in
any speculative or leveraged derivative transactions.
We manage the credit risks associated with our derivative financial
instruments through the evaluation and monitoring of the
creditworthiness of the counterparties. Although we may be
exposed to losses in the event of nonperformance by the
counterparties, we do not expect such losses, if any, to be sig-
nificant.
Our interest rate derivative financial instruments, which can include
swaps, rate locks, caps and collars, represent an integral part of
our interest rate risk management program. Our interest rate
derivative financial instruments reduced the portion of our total
debt at fixed rates from 93% to 82% as of December 31, 2008.
The effect of our interest rate derivative financial instruments
(decreased) increased our interest expense by approximately $(34)
million, $43 million and $39 million in 2008, 2007 and 2006,
respectively. Interest rate risk management instruments may have
a significant effect on our interest expense in the future, including
as a result of proposed changes in accounting for these instru-
ments.
The table below summarizes the fair values and contract terms of financial instruments subject to interest rate risk maintained by us as of
December 31, 2008.
(in millions) 2009 2010 2011 2012 2013 Thereafter Total
Fair Value
12/31/08
Debt
Fixed rate $ 1,029 $ 1,172 $ 1,796 $ 831 $ 3,757 $ 21,547 $ 30,132 $ 29,693
Average interest rate 7.3% 5.7% 6.1% 9.4% 8.6% 6.6% 6.9%
Variable rate $ 1,249 $ 11 $ 14 $ 22 $ 1,011 $ 17 $ 2,324 $ 2,308
Average interest rate 2.2% 3.2% 4.5% 6.2% 3.2% 3.4% 2.7%
Interest rate instruments
Fixed to variable swaps $ 750 $ 200 $ 750 $ — $ — $ 1,800 $ 3,500 $ 309
Average pay rate 4.9% 2.7% 3.4% —% —% 3.2% 3.6%
Average receive rate 6.9% 5.9% 5.5% —% —% 5.5% 5.8%
We use the notional amounts on the instruments to calculate the interest to be paid or received. The notional amounts do not represent
the amount of our exposure to credit loss. The estimated fair value approximates the payments necessary or proceeds to be received to
settle the outstanding contracts. We estimate interest rates on variable debt and swaps using the average implied forward London Inter-
bank Offered Rate (“LIBOR”) for the year of maturity based on the yield curve in effect on December 31, 2008, plus the applicable margin
in effect on December 31, 2008.
As a matter of practice, we typically do not structure our financial contracts to include credit-ratings-based triggers that could affect our
liquidity. In the ordinary course of business, some of our swaps could be subject to termination provisions if we do not maintain investment
grade credit ratings. As of December 31, 2008 and 2007, the estimated fair value of those swaps was an asset of $44 million and a liability
of $3 million, respectively. The amount to be paid or received upon termination, if any, would be based on the fair value of the outstanding
contracts at that time.
Comcast 2008 Annual Report on Form 10-K 36