Rogers 2006 Annual Report Download - page 50

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46 R OGE RS COM MUN I C ATIO NS I NC . 2 0 0 6 AN NUAL R EPO R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Con solidated Hedged Position
(In millions of dollars, except percentages) December 31, 2006 December 31, 2005
U.S. dollar-denominated long-term debt US $ 4,895 US $ 4,917
Hedged with cross-currency interest rate exchange agreements US $ 4,475 US $ 4,802
Hedged exchange rate 1.3229 1.3148
Percent hedged 91.4% (1) 97.7%
Amount of long-term debt (2) at fixed rates:
Total long-term debt Cdn $ 7,658 Cdn $ 8,410
Total long-term debt at fixed rates Cdn $ 6,851 Cdn $ 7,077
Percent of long-term debt fixed 89.5% 84.1%
Weighted average interest rate on long-term debt 7.98% 7.76%
(1) Pursuant to the requirements for hedge accounting under AcG-13, “Hedging Relationships”, at December 31, 2006, RCI accounted for 93.6% (2005 – 87.3%) of its cross-currency interest rate exchange agreements
as hedges against designated U.S. dollar-denominated debt. At December 31, 2006, 85.6% (2005 – 85.2%) of consolidated U.S. dollar-denominated debt was hedged for accounting purposes versus 91.4%
(2005 – 97.7%) on an economic basis.
(2) Long-term debt includes the effect of the cross-currency interest rate exchange agreements.
were financial institutions with a Standard & Poor’s rating (or other
equivalent) ranging from A+ to AA+.
Because our operating income is almost exclusively denominated in
Canadian dollars, the incurrence of U.S. dollar-denominated debt
has caused significant foreign exchange exposure. We will continue
to monitor our hedged position on an economic basis with respect
to interest rate and foreign exchange fluctuations and, depending
upon market conditions and other factors, may adjust our hedged
position with respect to foreign exchange fluctuations or interest
rates in the future by unwinding certain existing positions and/or by
entering into new cross-currency interest rate exchange agreements
or by using other instruments.
Certain of our U.S. dollar-denominated long-term debt instruments
are not hedged for accounting purposes. Changes in the foreign
exchange rate would impact the Canadian dollar carrying value, in
accordance with GAAP, of this unhedged long-term debt, as well
as our interest expense and earnings per share on a full-year basis,
as follows:
We use derivative financial instruments to manage our risks from
fluctuations in foreign exchange and interest rates. These instru-
ments include interest rate and cross-currency interest rate exchange
agreements, foreign exchange forward contracts and, from time-to-
time, foreign exchange option agreements. All such agreements are
used for risk management purposes only and are designated as a
hedge of specific debt instruments for economic purposes. In order
to minimize the risk of counterparty default under these agree-
ments, we assess the creditworthiness of these counterparties. At
December 31, 2006, all of our counterparties to these agreements
Impact of Foreign Exchange Rate Changes on EPS
(In millions of dollars, except share data) Cdn$ Change in Cdn$ Change Change in
Carrying Value of in Annual Earnings
Change in Cdn$ versus US$ Long-Term Debt (1) Interest Expense Per Share (2)
$ 0.01 $ 7 $ 0.4 $ 0.009
0.03 21 1.1 0.028
0.05 35 1.9 0.047
0.10 70 3.7 0.094
(1) Canadian equivalent of unhedged U.S. dollar-denominated debt, on a GAAP basis, if U.S. dollar costs an additional Canadian cent.
(2) Based upon the number of shares outstanding, on a post-split basis, at December 31, 2006.
At December 31, 2006 interest expense would have changed by
$8 million if there was a 1% change in the interest rates on the por-
tion of our long-term debt that is not at fixed interest rates.
OUTSTANDING SHARE DATA
Set out below is our outstanding share data as at December 31,
2006. For additional detail, refer to Note 20 to the 2006 Audited
Consolidated Financial Statements.
Outstanding Common Shares December 31, 2006
Class A Voting 112,467,648
Class B Non-Voting 523,231,804
Outstanding Options to Purchase Class B Non-Voting Shares December 31, 2006
Outstanding Options 19,694,860
Number of Outstanding Options Exercisable 14,160,866
FIXED VERSUS FLOATING DEBT COMPOSITION
(%)
Fixed 89.5%
Floating 10.5%