Windstream 2015 Annual Report Download - page 202

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-72
7. 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. Our 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.
Our non-financial assets and liabilities, including property, plant and equipment, 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, 2015
requiring these non-financial assets and liabilities to be subsequently recognized at fair value. Our financial instruments consist
primarily of cash and cash equivalents, restricted cash, accounts receivable, accounts receivable, investment in CS&L common
stock, accounts payable, long-term debt and interest rate swaps. The carrying amount of cash, restricted 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, investment in CS&L common stock, long-term debt and interest rate swaps are measured
at fair value on a recurring basis. Cash equivalents were not significant as of December 31, 2015 or 2014.
The fair values of cash equivalents, investment in CS&L common stock, interest rate swaps and long-term debt were determined
using the following inputs at December 31:
(Millions) 2015 2014
Recorded at Fair Value in the Financial Statements:
Investment in CS&L common stock - Level 1 $ 549.2 $ —
Derivatives:
Interest rate swap assets - Level 2 $ — $ 0.4
Interest rate swap liabilities - Level 2 $ 51.7 $ 77.2
Not Recorded at Fair Value in the Financial Statements: (a)
Long-term debt, including current maturities - Level 2 $ 4,452.7 $ 8,777.5
(a) Recognized at carrying value of $5,233.3 million and $8,651.7 million in long-term debt, including current maturities,
and excluding unamortized debt issuance costs, in the accompanying consolidated balance sheets as of December 31,
2015 and 2014, respectively.
The fair value of CS&L common stock is based on the quoted market price of the shares on the last day of the reporting period.
The CS&L common stock trades on NASDAQ.
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 Services’ own non-performance risk and non-performance risk of the respective counterparties. As of
December 31, 2015 and 2014, the fair values of the interest rate swaps were reduced by $2.9 million and $3.3 million, respectively,
to reflect non-performance risk.
In calculating the fair value of Windstream Services’ long-term debt, the fair value of the debentures and notes 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, nonperformance 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. There
were no other transfers within the fair value hierarchy during the year ended December 31, 2015.