Rogers 2010 Annual Report Download - page 98

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
102 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
In August 2010, the Company redeemed the entire outstanding
principal amount of its U.S.$490 million ($516 million) 9.625% Senior
Notes due 2011 and $460 million 7.625% Senior Notes due 2011,
resulting in a write-down of the previously recorded fair value
increment of $8 million.
(G) WEIGHTED AVERAGE INTEREST RATE:
The Company’s effective weighted average interest rate on all long-
term debt, as at December 31, 2010, including the effect of the
Derivatives, was 6.68% per annum (2009 – 7.27% per annum).
(H) PRINCIPAL REPAYMENTS:
As at December 31, 2010, principal repayments due within each of the
next five years and thereafter on all long-term debt are as follows:
2011 $ –
2012 816
2013 348
2014 1,094
2015 826
Thereafter 5,639
$ 8,723
Coincident with the maturity of the Company’s U.S. dollar denominated
long-term debt, certain of the Company’s Derivatives also mature
(note 15(d)(iii)).
(I) FOREIGN EXCHANGE:
Foreign exchange gains related to the translation of long-term debt
recorded in the consolidated statements of income totalled $20 million
(2009 – gain of $126 million).
(J) TERMS AND CONDITIONS:
The provisions of the Company’s $2.4 billion bank credit facility
described above impose certain restrictions on the operations and
activities of the Company, the most significant of which are debt
maintenance tests.
In addition, certain of the Company’s Senior Notes and Debentures
described above contain debt incurrence tests as well as restrictions
upon additional investments, sales of assets and payment of dividends,
all of which are suspended in the event the public debt securities are
assigned investment grade ratings by at least two of three specified
credit rating agencies. As at December 31, 2010, all of these public debt
securities were assigned an investment grade rating by each of the
three specified credit rating agencies and, accordingly, these restrictions
have been suspended for so long as such investment grade ratings are
maintained. The Company’s other Senior Notes do not contain any such
restrictions, regardless of the credit ratings for such securities.
In addition to the foregoing, the repayment dates of certain debt
agreements may be accelerated if there is a change in control of the
Company.
At December 31, 2010 and 2009, the Company was in
compliance with all of the terms and conditions of its long-term
debt agreements.
(A) OVERVIEW:
The Company is exposed to credit risk, liquidity risk and market risk. The
Company’s primary risk management objective is to protect its income
and cash flows and, ultimately, shareholder value. Risk management
strategies, as discussed below, are designed and implemented to ensure
the Company’s risks and the related exposures are consistent with its
business objectives and risk tolerance.
(B) CREDIT RISK:
Credit risk represents the financial loss that the Company would
experience if a counterparty to a financial instrument, in which the
Company has an amount owing from the counterparty, failed to meet
its obligations in accordance with the terms and conditions of its
contracts with the Company.
The Company’s credit risk is primarily attributable to its accounts
receivable. The amounts disclosed in the consolidated balance sheets
are net of allowances for doubtful accounts, estimated by the
Company’s management based on prior experience and their
assessment of the current economic environment. The Company
establishes an allowance for doubtful accounts that represents its
estimate of incurred losses in respect of accounts receivable. The main
components of this allowance are a specific loss component that relates
to individually significant exposures and an overall loss component
established based on historical trends. At December 31, 2010, the
Company had accounts receivable of $1,480 million (2009 – $1,310
million), net of an allowance for doubtful accounts of $138 million (2009
– $157 million). At December 31, 2010, $715 million (2009 – $563 million)
of accounts receivable is considered past due, which is defined as
amounts outstanding beyond normal credit terms and conditions for
the respective customers. The Company believes that its allowance for
doubtful accounts is sufficient to reflect the related credit risk.
The Company believes that the concentration of credit risk of accounts
receivable is limited due to its broad customer base, dispersed across
varying industries and geographic locations throughout Canada.
The Company has established various internal controls, such as credit
checks, deposits on account and billing in advance, designed to mitigate
credit risk and has also established procedures to suspend the
availability of services when customers have fully utilized approved
credit limits or have violated established payment terms. While the
Company’s credit controls and processes have been effective in
mitigating credit risk, these controls cannot eliminate credit risk and
there can be no assurance that these controls will continue to be
effective or that the Company’s current credit loss experience
will continue.
Credit risk related to Derivatives arises from the possibility that the
counterparties to the agreements may default on their respective
obligations under the agreements in instances where these agreements
have positive fair value for the Company. The Company assesses the
creditworthiness of the counterparties in order to minimize the risk of
counterparty default under the agreements. All of the portfolio is held
by financial institutions with a Standard & Poor’s rating (or the
equivalent) ranging from A to AA–. The Company does not require
collateral or other security to support the credit risk associated with
Derivatives due to the Company’s assessment of the creditworthiness of
the counterparties. The obligations under U.S.$5.1 billion aggregate
notional amount of the Derivatives are unsecured and generally rank
equally with the Company’s senior indebtedness. The credit risk of the
Company and the counterparties, as applicable, is taken into
consideration in determining the fair value of the Derivatives for
accounting purposes (note 15(d)).
15. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS: