Charter 2011 Annual Report Download - page 73

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61
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
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, 2011 and 2010, the accreted value of our debt was approximately $12.9 billion and $12.3 billion, respectively.
As of December 31, 2011 and 2010, the weighted average interest rate on the credit facility debt, including the effects of our
interest rate swap agreements, was approximately 4.3% and 3.8%, respectively, and the weighted average interest rate on the high-
yield notes was approximately 8.5% and 9.7%, respectively, resulting in a blended weighted average interest rate of 7.1% and
6.7%, respectively. The interest rate on approximately 82% and 65% of the total principal amount of our debt was effectively
fixed, including the effects of our interest rate swap agreements, as of December 31, 2011 and 2010, 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, 2011, 2010 and 2009, 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 income
(loss). For the years ended December 31, 2011, 2010 and 2009, losses of $8 million, $57 million and $9 million, respectively,
were recorded in 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 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 year ended December 31, 2009, other income (expense), net included
losses of $4 million resulting from interest rate derivative instruments not designated as hedges. We did not hold any interest rate
derivatives not designated as hedges during 2011 and 2010.