6 5 - RR DONNELLEY FINANCIAL - External Home Login

Interest Rate Risk
The table below presents principal cash flows and related weighted average interest rates by expected
maturity dates.
Years of Maturity
2011 2012 2013 2014 2015 Thereafter Total
($ in millions)
Liabilities:
Long-term debt – fixed
rate (a) .............. $ — $ — $ 500 $ — $ 1,425 $ 7,777 $ 9,702
Average interest rate . . .
Long-term debt –
— — 7.63% — 9.50% 5.29% 6.03%
variable rate ......... $ — $ — $ — $ — $ 3,706 $ — $ 3,706
Average interest rate . . . — — — — 2.13% — 2.13%
(a) This amount does not include the discount included in long-term debt of ($777) million and interest rate
derivatives of $9 million.
Changes in interest rates affect the amount of interest we earn on our cash, cash equivalents and shortterm
investments and the interest rate we pay on borrowings under our revolving bank credit facilities. All of our
other long-term indebtedness is fixed rate and, therefore, does not expose us to the risk of fluctuations in
earnings or cash flow due to changes in market interest rates. However, changes in interest rates do affect the
fair value of our fixed rate debt.
Interest Rate Derivatives
To mitigate our exposure to volatility in interest rates related to our senior notes and credit facilities, we
enter into interest rate derivatives. As of December 31, 2010, our interest rate derivative instruments consisted
of the following types of instruments:
Swaps: Chesapeake enters into fixed-to-floating interest rate swaps (we receive a fixed interest rate
and pay a floating market rate) to mitigate our exposure to changes in the fair value of our senior
notes. We enter into floating-to-fixed interest rate swaps (we receive a floating market rate and a pay
fixed interest rate) to manage our interest rate exposure related to our bank credit facility borrowings.
Call options: Occasionally we sell call options for a premium when we think it is more likely that the
option will expire unexercised. The option allows the counterparty to terminate a pre-determined open
swap at a specific date.
Swaptions: Occasionally we sell an option to a counterparty for a premium which allows the
counterparty to enter into a pre-determined swap with us on a specific date.
As of December 31, 2010, the following interest rate derivatives were outstanding:
Notional
Weighted Average Rate
Fair Value Net Fair
Amount Fixed Floating Hedge Premiums Value
(a)
($ in millions) ($ in millions)
Fixed to Floating:
Swaps
Mature 2017 -
2020 ........... $ 600 6.75% 3 mL plus 397 bp Yes $ — $ (25)
Mature 2020 ......
Call Options
$ 250 6.88% 3 mL plus 351 bp No — (4)
Expire Q2 2011 ....
Swaption
$ 250 6.88% 3 mL plus 351 bp No 7 (2)
Expire Q1 2011 ....
Floating to Fixed:
Swaps
$ 500 6.56% 3 mL plus 373 bp No 3 (13)
Mature 2014 ...... $ 1,050 2.19% 1– 6 mL No — (25)
66
$ 10 $ (69)