Windstream 2010 Annual Report Download - page 156

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Fair Value Measurements:
Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount
that would be received to sell an asset or transfer a liability in an orderly transaction between market participants.
Authoritative guidance defines the following three tier hierarchy for assessing the inputs used in fair value
measurements:
Level 1 – Quoted prices in active markets for identical assets or liabilities
Level 2 – Observable inputs other than quoted prices in active markets for identical assets or liabilities
Level 3 – Unobservable inputs
The highest priority is given to unadjusted quoted prices in active markets for identical assets or liabilities (level 1
measurement) and the lowest priority is given to unobservable inputs (level 3 measurement). Assets and liabilities
are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The Company’s assessment of the significance of a particular input to the fair value measurement requires
judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value
hierarchy levels.
The Company’s non-financial assets and liabilities, including goodwill, intangible assets and asset retirement
obligations, are measured at fair value on a non-recurring basis. No event occurred during the year ended
December 31, 2010 requiring these non-financial assets and liabilities to be subsequently recognized at fair value.
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable,
accounts payable, long-term debt and interest rate swaps. The carrying amount of cash, accounts receivable and
accounts payable was estimated by management to approximate fair value due to the relatively short period of
time to maturity for those instruments. Cash equivalents, long-term debt and interest rate swaps are measured at
fair value on a recurring basis.
The fair values of the Company’s cash equivalents and interest rate swaps were determined using the following
inputs at December 31:
(Millions) 2010 2009
Level 1 measurements:
Cash equivalents (a) $ 0.1 $1,062.9
Level 2 measurements:
Interest rate swaps (b) (See Note 2) $(111.3) $ (117.4)
(a) Recognized at fair value in cash and cash equivalents on the consolidated balance sheet as of December 31,
2010 and 2009.
(b) Recognized at fair value in current portion of interest rate swaps and other liabilities on the consolidated
balance sheet as of December 31, 2010 and 2009.
The Company’s cash equivalents are primarily highly liquid, actively traded money market funds with next day
access. The fair values of the interest rate swaps were determined based on the present value of expected future
cash flows using LIBOR swap rates which are observable at commonly quoted intervals for the full term of the
swaps using discount rates appropriate with consideration given to the Company’s non-performance risk. As of
December 31, 2010 and 2009, the fair value of the Company’s interest rate swaps were reduced by $4.6 million
and $5.3 million, respectively, to reflect the Company’s non-performance risk. The Company’s non-performance
risk is assessed based on the current trading discount of its Tranche B senior secured credit facility as the swap
agreements are secured by the same collateral. In addition, the Company routinely monitors and updates its
evaluation of counterparty risk, and based on such evaluation has determined that the swap agreements continue to
meet the requirements of an effective cash flow hedge. The counterparty to each of the four swap agreements is a
bank with a current credit rating at or above A+.
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