MANAGEMENT’S DISCUSSION AND ANALYSIS
The March 6, 2013 termination is related to Debt Derivatives hedging
the US $350 million senior notes due 2038 (2038 Notes). The Debt
Derivatives that were terminated on March 6, 2013 were not
designated as effective hedges for accounting purposes and had an
original term of 10 years to August 15, 2018. The new Debt Derivatives
hedge the foreign exchange risk associated with the principal and
interest obligations on the 2038 Notes to their maturity at market rates
on the respective dates of the transactions and are designated as
effective hedges for accounting purposes.
The September 27, 2013 termination is related to Debt Derivatives
hedging senior notes scheduled to mature in 2014 and 2015. Only the
fixed foreign exchange rate was changed for the new Debt Derivatives.
All other terms are the same as the terminated Debt Derivatives they
replaced. Before the Debt Derivatives were terminated on
September 27, 2013, changes in their fair value were recorded in other
comprehensive income and were periodically reclassified to net income
to offset foreign exchange gains or losses on the related debt or to
modify interest expense to its hedged amount. On the termination date,
the balance in the hedging reserve related to these Debt Derivatives was
a $10 million loss. $1 million of this related to future periodic
exchanges of interest and will be recorded in net income over the
remaining life of the related debt securities. The remaining $8 million,
net of income taxes of $1 million, will remain in the hedging reserve
until such time as the related debt is settled.
Debt Derivatives Settled at Maturity
In June 2013, when we repaid and bought our US $350 million ($356
million) senior notes due 2013, the associated Debt Derivatives were
settled at maturity, resulting in total payments of approximately $104
million.
At December 31, 2013, we had US$6.4 billion of US dollar
denominated senior notes and debentures, all of which had been
hedged using Debt Derivatives.
(In millions of dollars) December 31, 2013 December 31, 2012
US dollar denominated long-term debt US$ 6,380 US$ 4,230
Hedged with Debt Derivatives US$ 6,380 US$ 4,230
Hedged exchange rate 1.0447 1.1340
Percent hedged1 100.0% 100.0%
Amount of long-term debt at fixed rates 2
Total long-term debt Cdn$ 13,315 Cdn$ 11,447
Total long-term debt at fixed rates Cdn$ 13,315 Cdn$ 11,447
Percent of long-term debt fixed 100% 100%
Weighted average interest rate on debt 5.5 % 6.1%
Weighted average term to maturity 3 11.3 Years 9.2 Years
1 Pursuant to the requirements for hedge accounting under IAS 39, Financial
Instruments: Recognition and Measurement, on December 31, 2013, and
December 31, 2012, RCI accounted for 100% of its Debt Derivatives as hedges
against designated US dollar-denominated debt. As a result, on December 31, 2013,
100% of US dollar-denominated debt is hedged for accounting purposes compared to
100% on an economic basis.
2 Long-term debt includes the effect of the Debt Derivatives.
3 Weighted average term to maturity excludes US$1.1 billion senior notes due March
2014.
Expenditure Derivatives
We use foreign currency forward contracts (Expenditure Derivatives), to
hedge the foreign exchange risk on the notional amount of certain
forecasted expenditures. We use Expenditure Derivatives for risk-
management purposes only.
In 2013, we:
 entered into US$955 million of Expenditure Derivatives maturing
from April 2013 through December 2014 at an average rate of
$1.0341/US$1
 settled US$435 million of Expenditure Derivatives for $430 million
At December 31, 2013, we had US$900 million of Expenditure
Derivatives outstanding with terms to maturity ranging from January
2014 to December 2014 at an average rate of 1.0262/US$, all of which
have been designated as hedges for accounting purposes.
Equity Derivatives
We use stock-based compensation derivatives (Equity Derivatives), to
hedge the market price appreciation risk of the RCI Class B Non-Voting