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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
104 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
2010
U.S. $
notional
Exchange
rate
Cdn. $
notional
Unadjusted
mark-to-
market
value
on a
risk free
basis
Estimated
fair value,
being
carrying
amount on
a credit risk
adjusted
basis
Derivatives accounted for as cash flow hedges:
As assets $ 575 1.0250 $ 589 $ 7 $ 7
As liabilities 4,125 1.2021 4,959 (918) (901)
Net mark-to-market liability (911) (894)
Derivatives not accounted for as hedges:
As liabilities 350 1.0258 359 (6) (6)
Net mark-to-market liability (6) (6)
Net mark-to-market liability $ (917) $ (900)
Less net current liability portion (66)
Net long-term liability portion $ (834)
In 2010, nil (2009 – $1 million increase) related to hedge ineffectiveness
was recognized in net income.
The long-term portion above comprises a derivative instruments
liability of $840 million and a derivative instruments asset of $6 million
as at December 31, 2010.
At December 31, 2010, all of the Company’s long-term debt was at fixed
interest rates.
US$350 million of the Company’s U.S. dollar-denominated long-term
debt instruments are not hedged for accounting purposes and, therefore,
a one cent change in the Canadian dollar relative to the U.S. dollar
would have resulted in a $4 million change in the carrying value of long-
term debt at December 31, 2010. In addition, this would have resulted in
a $3 million change in net income, net of income taxes of $1 million.
A portion of the Company’s accounts receivable and accounts payable
and accrued liabilities is denominated in U.S. dollars; however, due to
their short-term nature, there is no significant market risk arising from
fluctuations in foreign exchange rates.
All of the Company’s Derivatives are unsecured obligations of RCI. In
addition, RCP has provided unsecured guarantees for all of the
Company’s Derivatives (notes 14(e) and 15(b)).
At December 31, 2009, 93.7% of the Company’s U.S. dollar-denominated
long-term debt instruments were hedged against fluctuations in
foreign exchange rates for accounting purposes. At December 31, 2009,
details of the Derivatives net liability position are as follows:
All of the $17 million related to Derivatives accounted for as hedges was
recorded in other comprehensive income.
On August 27, 2010, the Company redeemed all of the U.S.$490 million
principal amount of its 9.625% Senior Notes due 2011 and, concurrently
with this redemption, on August 27, 2010, the Company terminated the
associated Derivatives aggregating U.S.$500 million notional principal
amount, including the U.S.$10 million notional principal amount which
were not accounted for as hedges. The Company made a net payment
of approximately $269 million to terminate these Derivatives.
The effect of estimating fair value using credit-adjusted interest rates
on the Company’s Derivatives at December 31, 2009 is illustrated in the
table below. As at December 31, 2009, the credit-adjusted net liability
position of the Company’s Derivative portfolio was $1,002 million,
which is $25 million less than the unadjusted risk-free mark-to-market
net liability position.
As at December 31, 2009
Derivatives
in an asset
position (A)
Derivatives
in a liability
position (B)
Net liability
position
(A) + (B)
Mark-to-market value – risk-free analysis $ 94 $ (1,121) $ (1,027)
Mark-to-market value – credit-adjusted estimate (carrying value) 82 (1,084) (1,002)
Difference $ (12) $ 37 $ 25
Of the $25 million impact, ($1) million was recorded in the consolidated
statements of income related to Derivatives not accounted for as
hedges and $26 million related to Derivatives accounted for as hedges
was recorded in other comprehensive income.
At December 31, 2010, 93.1% of the Company’s U.S. dollar-denominated
long-term debt instruments were hedged against fluctuations in
foreign exchange rates for accounting purposes. At December 31, 2010,
details of the Derivatives net liability position are as follows: