Charter 2002 Annual Report Download - page 67

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The table set forth below summarizes the fair values and contract terms of Ñnancial instruments subject
to interest rate risk maintained by us as of December 31, 2002 (dollars in millions):
Fair Value at
December 31,
2003 2004 2005 2006 2007 Thereafter Total 2002
Debt
Fixed RateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 67 $ 1 $750 $ 632 $ 600 $9,853 $11,903 $4,374
Average Interest Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11.84% 7.50% 5.75% 4.75% 8.25% 10.51% 9.80%
Variable Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 169 $ 192 $460 $1,358 $2,048 $3,562 $ 7,789 $6,367
Average Interest Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.55% 4.46% 5.60% 6.22% 6.75% 7.75% 6.92%
Interest Rate Instruments
Variable to Fixed Swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 435 $ 715 $990 $ 873 $ 400 $ Ì $ 3,413 $ (258)
Average Pay RateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8.12% 7.45% 7.15% 7.33% 7.33% Ì 7.40%
Average Receive Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.12% 4.70% 5.87% 6.53% 6.86% Ì 5.69%
The notional amounts of interest rate instruments do not represent amounts exchanged by the parties and,
thus, are not a measure of our exposure to credit loss. The amounts exchanged are determined by reference to
the notional amount and the other terms of the contracts. The estimated fair value approximates the costs
(proceeds) to settle the outstanding contracts. Interest rates on variable debt are estimated using the average
implied forward London Interbank OÅering Rate (LIBOR) rates for the year of maturity based on the yield
curve in eÅect at December 31, 2002.
At December 31, 2002 and 2001, we had outstanding $3.4 billion and $3.3 billion and $520 million and
$520 million, respectively, in notional amounts of interest rate swaps and collars, respectively. The collar
agreements are structured so that if LIBOR falls below 5.3%, we pay 6.7%. If the LIBOR rate is between 5.3%
and 8.0%, we pay LIBOR. If LIBOR falls between 8.0% and 9.9%, the LIBOR rate is capped at 8.0%. If rates
go above 9.9%, the cap is removed. The fair value of the collar agreements is a liability of $34 million at
December 31, 2002.
We do not hold collateral for these instruments and are therefore subject to credit loss in the event of
nonperformance by the counter party to the interest rate exchange agreement. However the counterparties are
banks and we do not anticipate nonperformance by any of them on the interest rate exchange agreement.
CHANGE IN PRINCIPAL ACCOUNTING FIRM
In April 2002, the Board of Directors dismissed Arthur Andersen LLP and appointed KPMG LLP as the
Company's independent public accountants for the year ended 2002 in accordance with the recommendation
of the Audit Committee. Arthur Andersen LLP served as the Company's independent public accountants for
the year ended December 31, 2001.
Arthur Andersen's report on the Company's Ñnancial statements for the Company's two Ñscal years
ended December 31, 2001 and 2000 did not contain an adverse opinion or a disclaimer of opinion, nor was it
qualiÑed or modiÑed as to uncertainty, audit scope or accounting principles. During the Company's two Ñscal
years ended December 31, 2001 and 2000 and the subsequent interim period through April 22, 2002, there
were no disagreements with Arthur Andersen LLP on any matter of accounting principles or practices,
Ñnancial statement disclosure, or auditing scope or procedure which, if not resolved to Arthur Andersen LLP's
satisfaction would have caused them to make reference to the subject matter of the disagreement in
connection with the audit reports on the Company's consolidated Ñnancial statements for such years, and there
were no reportable events as deÑned in Item 304(a)(1)(v) of Regulation S-K.
The Company provided Arthur Andersen LLP with a copy of the foregoing disclosures and Arthur
Andersen LLP agreed with such statements in a letter dated April 26, 2002 that was Ñled with the SEC. In
2003, KPMG re-audited the Company's 2000 and 2001 Ñnancial statements. See ""Management's Discussion
and Analysis of Financial Condition and Results of Operations Ì Restatement of Prior Results'' and Note 3
to our consolidated Ñnancial statements.
65