Charter 2013 Annual Report Download - page 71

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57
Due to repayment of variable rate credit facility debt without a LIBOR floor, certain interest rate derivative instruments were de-
designated as cash flow hedges during the three months ended March 31, 2013, as they no longer met the criteria for cash flow
hedging specified by GAAP. In addition, on March 31, 2013, the remaining interest rate derivative instruments that continued to
be highly effective cash flow hedges for GAAP purposes were electively de-designated. On the date of de-designation, we
completed a final measurement test for each interest rate derivative instrument to determine any ineffectiveness and such amount
was reclassified from accumulated other comprehensive loss into gain on derivative instruments, net in our consolidated statements
of operations. For the year ended December 31, 2013, a loss of $27 million related to the reclassification from accumulated other
comprehensive loss into earnings as a result of cash flow hedge discontinuance was recorded in gain on derivative instruments,
net. While these interest rate derivative instruments are no longer designated as cash flow hedges for accounting purposes,
management continues to believe 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 gain or loss
on derivative instruments, net in our consolidated statements of operations. For the year ended December 31, 2013, gains of $38
million related to the change in fair value of interest rate derivative instruments not designated as cash flow hedges was recorded
in gain on derivative instruments, net. The balance that remains in accumulated other comprehensive loss for these interest rate
derivative instruments will be amortized over the respective lives of the contracts and recorded as a loss within gain on derivative
instruments, net in our consolidated statements of operations. The net amount of existing losses that are reported in accumulated
other comprehensive loss as of December 31, 2013 that is expected to be reclassified into earnings within the next twelve months
is approximately $19 million.
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, 2013 (dollars in millions):
2014 2015 2016 2017 2018 Thereafter Total
Fair Value at
December 31, 2013
Debt:
Fixed Rate $ — $ — $ — $ 1,000 $ — $ 9,350 $10,350 $ 10,384
Average Interest Rate —% —% —% 7.25% —% 6.28% 6.37%
Variable Rate $ 414 $ 65 $ 93 $ 102 $ 673 $ 2,551 $ 3,898 $ 3,848
Average Interest Rate 2.80% 2.86% 3.84% 4.97% 5.67% 6.83% 6.01%
Interest Rate Instruments:
Variable to Fixed Rate $ 800 $ 300 $ 250 $ 850 $ — $ — $ 2,200 $ 30
Average Pay Rate 4.65% 4.99% 3.89% 3.84% —% —% 4.30%
Average Receive Rate 2.55% 2.75% 4.47% 5.48% —% —% 3.93%
At December 31, 2013, we had $2.2 billion in notional amounts of interest rate swaps outstanding. This includes $550 million in
delayed start interest rate swaps that become effective in March 2014 through March 2015. In any future quarter in which a portion
of these delayed start hedges first becomes effective, an equal or greater notional amount of the currently effective swaps are
scheduled to mature. Therefore, the $1.7 billion notional amount of currently effective interest rate swaps will gradually step
down over time as current swaps mature and an equal or lesser amount of delayed start swaps become effective.
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 is determined using a present value calculation based on an implied forward LIBOR
curve (adjusted for Charter Operating’s or counterparties’ credit risk). 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, 2013 including
applicable bank spread.
Item 8. Financial Statements and Supplementary Data.
Our consolidated financial statements, the related notes thereto, and the reports of independent accountants are included in this
annual report beginning on page F-1.