Sprint - Nextel 2008 Annual Report Download - page 136

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CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. Derivative Instruments
During 2009 and 2008, we held two interest rate swap contracts which were based on 3-month LIBOR with a
combined notional value of $600 million. We used these swaps as economic hedges of the interest rate risk related
to a portion of our Senior Term Loan Facility. The interest rate swaps were used to reduce the variability of future
interest payments on our LIBOR based debt. We were not holding these interest rate swap contracts for trading or
speculative purposes. We did not apply hedge accounting to these swaps, therefore the gains and losses due to
changes in fair value were reported in other income (expense), net in our consolidated statements of operations.
The following table sets forth information regarding our interest rate swap contracts (in thousands):
Type of
Derivative
Notional
Amount Maturity Date
Receive
Index Rate
Pay
Fixed Rate
Swap .............................. $300,000 3/5/2010 3-month LIBOR 3.50%
Swap .............................. $300,000 3/5/2011 3-month LIBOR 3.62%
Nature of Activity:
Year Ended
December 31,
2009
Periodic swap payment .................................................... $(13,915)
Unrealized gain on undesignated interest rate swap contracts ...................... 6,939
Loss on undesignated swap contracts, net(1) ................................... $ (6,976)
(1) Included in Other income (expense), net in the consolidated statements of operations.
We computed the fair value of the swaps using an income approach whereby we estimate net cash flows and
discount the cash flows at a risk-based rate. See Note 12, Fair Value, for further information. We monitor the risk
of our nonperformance as well as that of our counterparties on an ongoing basis.
At December 31, 2008, the swap fair value of $21.6 million was reported in other long-term liabilities on
our consolidated balance sheet. During the fourth quarter of 2009, we terminated the swap contracts and paid the
swap counterparties $18.4 million which consisted of $14.7 million mark to market losses and $3.7 million
accrued interest.
12. Fair Value
The following table is a description of the pricing assumptions used for instruments measured and recorded
at fair value on a recurring basis, including the general classification of such instruments pursuant to the
valuation hierarchy. A financial instrument’s categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement.
Financial Instrument Hierarchy Pricing Assumptions
Cash equivalents: Money market mutual
funds
Level 1 Market quotes
Short-term investment: U.S. Government
and Agency Issues
Level 1 Market quotes
Long-term investment: U.S. Government
and Agency Issues
Level 1 Market quotes
Long-term investment: Other debt
securities
Level 3 Discount of forecasted cash flows adjusted
for default/loss probabilities and estimate
of final maturity
Derivative: Interest rate swaps Level 3 Discount of forecasted cash flows adjusted
for risk of non-performance
F-70