Radio Shack 2009 Annual Report Download - page 81

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74
NOTE 12 – FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Basis of Fair Value Measurements
Quoted Prices Significant
in Active Other Significant
Fair Value Markets for Observable Unobservable
of Assets Identical Items Inputs Inputs
(In millions) (Liabilities) (Level 1) (Level 2) (Level 3)
As of December 31, 2009
Derivatives Not Designated as
Hedging Instruments:
Interest rate swaps (1) (2) $ 5.3 -- $ 5.3 --
As of December 31, 2008
Derivatives Designated as
Hedging Instruments:
Interest rate swaps (1) (2) $ 6.7 -- $ 6.7 --
(1) These interest rate swaps serve as economic hedges on our 2011 Notes
(2) Included in other assets, net
The FASB’s accounting guidance utilizes a fair value hierarchy that prioritizes the inputs to the valuation
techniques used to measure fair value into three broad levels:
• Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical
assets or liabilities
• Level 2: Inputs, other than quoted prices, that are observable for the asset or liability, either directly
or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted
prices for identical or similar assets or liabilities in markets that are not active
• Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions
The fair values of our interest rate swaps are based on quotes to acquire these swaps from a commercial
bank that was ready to transact and, therefore, the interest rate swaps are considered a level 2 item.
Other financial instruments not measured at fair value on a recurring basis include cash and cash
equivalents, accounts receivable, short-term debt, accounts payable, accrued liabilities, and long-term debt.
With the exception of long-term debt, the financial statement carrying amounts of these items approximate
their fair values due to their short-term nature. Estimated fair values for long-term debt have been
determined using recent trading activity and/or bid ask spreads.
Carrying amounts and the related estimated fair value of our long-term debt are as follows:
December 31, 2009 December 31, 2008
(In millions)
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Long-term debt $ 627.8 $ 740.2 $ 659.5 $ 653.4
The fair values of our 2013 Convertible Notes and 2011 Notes at December 31, 2009, were $422.5 million
and $316.7 million, respectively, compared with $305.9 million and $346.5, respectively, at December 31,
2008.