Charter 2010 Annual Report Download - page 75

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In October 2009, the FASB issued guidance included in ASU 2009-
13, Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”).
ASU 2009-13 sets forth requirements that must be met for an entity
to recognize revenue from the sale of a delivered item that is part of a
multiple-element arrangement when other items have not yet been
delivered. We adopted ASU 2009-13 on January 1, 2011. e
adoption did not have a material impact to our consolidated financial
statements.
In January 2010, the FASB issued guidance included in ASU
2010-06, Fair Value Measurements and Disclosures – Improving
Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU
2010-06 provides amendments to Topic 820 to provide more robust
fair value disclosures. e disclosures about purchases, sales, issuances
and settlements relating to Level 3 measurements is effective for
fiscal years beginning after December 15, 2010 and all interim
periods within. We adopted ASU 2010-06 on January 1, 2011.
e adoption did not have a material impact on our consolidated
financial statements.
 Quantitative and Qualitative Disclosures
About Market Risk.
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We are exposed to various market risks, including fluctuations in
interest rates. We have used interest rate swap agreements to manage
our interest costs and reduce our exposure to increases in floating
interest rates. We manage our exposure to fluctuations in interest
rates by maintaining a mix of fixed and variable rate debt. Using
interest rate swap agreements, we agree to exchange, at specified
intervals through 2015, the difference between fixed and variable
interest amounts calculated by reference to agreed-upon notional
principal amounts.
As of December 31, 2010 and 2009, the accreted value of our debt
was approximately $12.3 billion and $13.3 billion, respectively. As
of December 31, 2010 and 2009, the weighted average interest rate
on the credit facility debt, including the effects of our interest rate
swap agreements, was approximately 3.8% and 2.6%, respectively,
and the weighted average interest rate on the high-yield notes was
approximately 9.7% and 10.4%, respectively, resulting in a blended
weighted average interest rate of 6.7% and 5.5%, respectively. e
increase in the credit facility and blended weighted average interest
rates is primarily due to the $2.0 billion notional amount of interest
rate swap agreements entered into in April 2010. e interest rate
on approximately 65% and 37% of the total principal amount of our
debt was effectively fixed, including the effects of our interest rate
swap agreements, as of December 31, 2010 and 2009, respectively.
We do not hold or issue derivative instruments for speculative trading
purposes. We have interest rate derivative instruments that have been
designated as cash flow hedging instruments. Such instruments effectively
convert variable interest payments on certain debt instruments into
fixed payments. For qualifying hedges, realized derivative gains and
losses offset related results on hedged items in the consolidated statements
of operations. We formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. For each
of the years ended December 31, 2010, 2009 and 2008, there was no
cash flow hedge ineffectiveness on interest rate swap agreements.
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 effectiveness criteria are
reported in other comprehensive loss. For the years ended December
31, 2010, 2009 and 2008, losses of $57 million, $9 million and $180
million, respectively, were recorded in other comprehensive loss. e
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 earnings (losses).
Certain interest rate derivative instruments were not designated as
hedges as they did not meet effectiveness criteria. However, management
believes such instruments were closely correlated with the respective
debt, thus managing associated risk. Interest rate derivative instruments
not designated as hedges were marked to fair value, with the impact
recorded as other income (expenses), net in our consolidated
statements of operations. For the years ended December 31, 2009
and 2008, other income (expense), net included losses of $4 million
and $62 million, respectively, resulting from interest rate derivative
instruments not designated as hedges. We did not hold any interest
rate derivatives not designated as hedges during 2010.