Windstream 2014 Annual Report Download - page 178

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-62
6. Fair Value Measurements, Continued:
The fair values of interest rate swaps and long-term debt were determined using the following inputs at December 31:
(Millions) 2014 2013
Recorded at Fair Value in the Financial Statements:
Derivatives:
Interest rate swap assets - Level 2 $ 0.4 $ —
Interest rate swap liabilities - Level 2 $ 77.2 $ 71.8
Not Recorded at Fair Value in the Financial Statements: (a) (b)
Long-term debt, including current maturities - Level 1 $ — $ 5,270.0
Long-term debt, including current maturities - Level 2 8,777.5 3,738.2
$ 8,777.5 $ 9,008.2
(a) Recognized at carrying value of $8,651.7 million and $8,707.2 million in long-term debt, including current maturities,
in the accompanying consolidated balance sheets as of December 31, 2014 and 2013, respectively.
(b) Due to a lack of new borrowings and other refinancing activities in 2014 resulting in a decline in the frequency and
volume of market activity related to Windstream Corp.’s debt obligations, we have reclassified all long-term debt as Level
2.
The fair values of interest rate swaps are determined based on the present value of expected future cash flows using observable,
quoted LIBOR swap rates for the full term of the swaps and also incorporate credit valuation adjustments to appropriately reflect
both Windstream Corp.’s own non-performance risk and non-performance risk of the respective counterparties. As of December 31,
2014 and 2013, the fair values of the interest rate swaps were reduced by $3.3 million and $2.6 million, respectively, to reflect
non-performance risk.
The fair value of the corporate bonds was calculated based on quoted market prices of the specific issuances in an active market
when available. The fair value of the other debt obligations was estimated based on appropriate market interest rates applied to
the debt instruments. In calculating the fair value of the Windstream Holdings of the Midwest, Inc. notes, an appropriate market
price of similar instruments in an active market considering credit quality, non-performance risk and maturity of the instrument
was used.
We do not have any assets or liabilities measured for purposes of the fair value hierarchy at fair value using significant unobservable
inputs (Level 3). We recognize transfers between levels of the fair value hierarchy as of the end of the reporting period. Except
for the change in classifying Windstream Corp.’s debt obligations, there were no other transfers within the fair value hierarchy
during the year ended December 31, 2014.