Rogers 2015 Annual Report Download - page 119

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARKET RISK
Market risk is the risk that changes in market prices, such as
fluctuations in the market prices of our available-for-sale
investments, our share price, foreign exchange rates, and interest
rates, will affect our income, cash flows, or the value of our financial
instruments. The derivative instruments we use to manage this risk
are described in this note.
Market price risk – publicly traded investments
We manage risk related to fluctuations in the market prices of our
investments in publicly traded companies by regularly reviewing
publicly available information related to these investments to
ensure that any risks are within our established levels of risk
tolerance. We do not engage in risk management practices such as
hedging, derivatives, or short selling with respect to our publicly
traded investments.
Market price risk – Rogers Class B shares
Our liability related to stock-based compensation is marked to
market each period. Stock-based compensation expense is
affected by the change in the price of our Class B Non-Voting
shares during the life of an award, including stock options, RSUs,
and DSUs. We use equity derivatives from time to time to manage
our exposure in our stock-based compensation liability. With
respect to our stock-based compensation, as a result of our equity
derivatives, a one dollar change in the price of a Rogers Class B
Non-Voting share would not have a material effect on net income.
Foreign exchange and interest rates
We use debt derivatives to manage risks from fluctuations in
foreign exchange rates associated with our US dollar-denominated
debt instruments, designating the debt derivatives as hedges of
specific debt instruments for accounting purposes. We use
expenditure derivatives to manage the foreign exchange risk in our
operations, designating them as hedges for certain of our
forecasted operational and capital expenditures. As at
December 31, 2015, all of our US dollar-denominated long-term
debt was hedged against fluctuations in foreign exchange rates
using debt derivatives. With respect to our long-term debt, as a
result of our debt derivatives, a one cent change in the Canadian
dollar relative to the US dollar would have no effect on net income.
A portion of our accounts receivable and accounts payable and
accrued liabilities is denominated in US dollars. Due to the short-
term nature of these receivables and payables, they carry no
significant market risk from fluctuations in foreign exchange rates as
at December 31, 2015.
We are exposed to risk of changes in market interest rates due to
the impact this has on interest expense for our short-term
borrowings, bank credit facilities, and our $250 million floating rate
senior unsecured notes. As at December 31, 2015, 90.3% of our
outstanding long-term debt and short-term borrowings was at
fixed interest rates.
The table below summarizes a sensitivity analysis for significant
exposures with respect to our publicly traded investments, equity
derivatives, expenditure derivatives, and senior notes as at
December 31, 2015 and 2014 with all other variables held
constant. It shows how net income and other comprehensive
income would have been affected by changes in the relevant risk
variables.
Net income
Other
comprehensive
income
(Change in millions of dollars) 2015 2014 2015 2014
Share price of publicly
traded investments
$1 change ––14 14
Expenditure derivatives – change in
foreign exchange rate
$0.01 change in Cdn$ relative
to US$ ––87
Short-term borrowings
1% change in interest rates 66––
Senior notes (floating)
1% change in interest rates 22––
Bank credit facilities (floating)
1% change in interest rates 4–––
DERIVATIVE INSTRUMENTS
As at December 31, 2015, all of our US dollar-denominated long-
term debt instruments were hedged against fluctuations in foreign
exchange rates for accounting purposes.
The tables below show our derivatives net asset (liability) position.
As at December 31, 2015
(In millions of dollars, except
exchange rates)
Notional
amount
(US$)
Exchange
rate
Notional
amount
(Cdn$)
Fair
value
(Cdn$)
Debt derivatives accounted for
as cash flow hedges:
As assets 5,900 1.0755 6,345 2,032
As liabilities 300 1.3367 401 (4)
Net mark-to-market asset
debt derivatives 2,028
Bond forwards accounted for
as cash flow hedges:
As liabilities – – 1,400 (91)
Expenditure derivatives
accounted for as cash flow
hedges:
As assets 1,140 1.2410 1,415 158
Equity derivatives not accounted
for as hedges:
As liabilities – – 286 (15)
Net mark-to-market asset 2,080
2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 117