Time Warner Cable 2009 Annual Report Download - page 89

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The fair value and location of the assets and liabilities associated with the Company’s derivative financial instruments recorded in
the consolidated balance sheet as of December 31, 2009 and 2008 were as follows (in millions):
Location 2009 2008 Location 2009 2008
Fair Value as of
December 31, Fair Value as of
December 31,
Asset Liability
Derivatives designated as
hedging instruments:
Interest rate swaps...... Other assets $ 25 $ — Other liabilities $ 37 $ —
Forward contracts ...... Other current assets 1 — Other current liabilities 1 6
Forward contracts ...... Other assets — — Other liabilities — 1
Total .............. 26 — 38 7
Derivatives not
designated as hedging
instruments:
Equity award
reimbursement
obligation .......... — — Other current liabilities 35 —
Total .............. — — 35 —
Total derivatives ....... $ 26 $ — $ 73 $ 7
Derivatives Designated as Fair Value Hedges
Interest Rate Swap Contracts
During 2009, the Company entered into interest rate swap contracts to increase the Company’s variable-rate debt as a percentage of
total debt. Such contracts impact the Company’s recognized interest expense by effectively converting the designated fixed-rate debt into
variable-rate debt. Under its interest rate swap contracts, the Company is entitled to receive semi-annual fixed rates of interest ranging
from 3.500% to 8.250% and is required to make semi-annual interest payments at variable rates based on LIBOR plus margins ranging
from 0.755% to 5.764%. These interest rate swaps are designated as hedges against changes in the fair value of certain identified
fixed-rate debt instruments with maturities extending through February 2015. The Company records the interest rate swaps at fair value
in the consolidated balance sheet as assets and liabilities and adjusts the fixed-rate debt instruments for changes in fair value in an amount
equal to changes in the fair value of the interest rate swap. During the year ended December 31, 2009, the Company recognized no gain or
loss related to its interest rate swap contracts because the changes in the fair values of such instruments completely offset the changes in
the fair values of the fixed-rate debt.
Derivatives Designated as Cash Flow Hedges
Interest Rate Lock Contracts
The Company periodically enters into interest rate lock contracts in order to hedge its forecasted issuances of fixed-rate debt. These
interest rate lock agreements have generally covered short periods of time (i.e., no more than a few days) prior to the issuance of fixed rate
debt. Historically, the Company’s interest rate locks have been terminated upon the issuance of the forecasted debt instrument. The
Company records the interest rate locks at fair value in the consolidated balance sheet as assets and liabilities and the effective portion of
the gain or loss on the interest rate locks is recorded as a component of equity in accumulated OCI. Such gains or losses are reclassified
out of accumulated OCI and into interest expense, net, in the consolidated statement of operations over the term of the hedged debt. The
Company records the ineffective portion of the gain or loss on the interest rate locks in interest expense, net, in the consolidated statement
of operations in the current reporting period.
Foreign Currency Forward Contracts
The Company uses foreign currency forward contracts to manage the risk associated with the volatility of future cash flows
denominated in foreign currencies. These contracts, which extend through 2011, specifically relate to forecasted payments denominated
in the Philippine peso made to vendors who provide Road Runner
TM
customer care support services. The Company records the foreign
currency forward contracts at fair value in the consolidated balance sheet as assets and liabilities. The Company records the effective
portion of the gain or loss on the foreign currency forward contracts as a component of equity in accumulated OCI and reclassifies such
gain or loss out of accumulated OCI and into costs of revenues in the same period or periods during which the hedged transaction affects
77
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)