Charter 2007 Annual Report Download - page 67

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represent cash flow hedge ineffectiveness on interest rate hedge
agreements. This ineffectiveness arises from differences between
critical terms of the agreements and the related hedged
obligations.
Changes in the fair value of interest rate agreements that are
designated as hedging instruments of the variability of cash flows
associated with floating-rate debt obligations, and that meet the
effectiveness criteria of SFAS No. 133 are reported in accumu-
lated other comprehensive income (loss). For the years ended
December 31, 2007, 2006, and 2005, losses of $123 million and
$1 million and a gain of $16 million, respectively, related to
derivative instruments designated as cash flow hedges, were
recorded in accumulated other comprehensive income (loss).
The amounts are subsequently reclassified as an increase or
decrease to interest expense in the same periods in which the
related interest on the floating-rate debt obligations affects earn-
ings (losses).
Certain interest rate derivative instruments are not desig-
nated as hedges as they do not meet the effectiveness criteria
specified by SFAS No. 133. However, management believes such
instruments are closely correlated with the respective debt, thus
managing associated risk. Interest rate derivative instruments not
designated as hedges are marked to fair value, with the impact
recorded as a change in value of derivatives in our statements of
operations. For the years ended December 31, 2007, 2006, and
2005, change in value of derivatives includes losses of $46 million,
and gains of $4 million and $47 million, respectively, resulting
from interest rate derivative instruments not designated as
hedges.
The table set forth below summarizes the fair values and contract terms of financial instruments subject to interest rate risk maintained
by us as of December 31, 2007 (dollars in millions):
2008 2009 2010 2011 2012 Thereafter Total
Fair Value at
December 31,
2007
Debt
Fixed Rate $—$ 237 $2,231 $ 282 $1,654 $8,340 $12,744 $10,574
Average Interest Rate —9.29% 10.26% 11.25% 7.75% 10.70% 10.23%
Variable Rate $65 $ 65 $ 65 $ 65 $ 65 $6,870 $ 7,195 $ 6,723
Average Interest Rate 5.94% 5.59% 6.16% 6.51% 6.77% 6.41% 6.40%
Interest Rate Instruments
Variable to Fixed Swaps $—$—$ 500 $ 300 $2,500 $1,000 $ 4,300 $ (169)
Average Pay Rate ——6.81% 6.98% 6.95% 6.94% 6.93%
Average Receive Rate ——6.25% 6.35% 6.90% 6.95% 6.80%
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 approxi-
mates the costs (proceeds) to settle the outstanding contracts.
Interest rates on variable debt are estimated using the average
implied forward LIBOR for the year of maturity based on the
yield curve in effect at December 31, 2007 including applicable
bank spread.
At December 31, 2007 and 2006, we had outstanding
$4.3 billion and $1.7 billion, respectively, in notional amounts of
interest rate swaps. The notional amounts of interest rate instru-
ments do not represent amounts exchanged by the parties and,
thus, are not a measure of exposure to credit loss. The amounts
exchanged are determined by reference to the notional amount
and the other terms of the contracts.
CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K
56