Radio Shack 2010 Annual Report Download - page 73

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63
In September 2009, we repurchased $43.2 million of our
7.375% unsecured notes due in 2011. A portion of these
notes were hedged by our interest rate swaps. Upon
repurchase of these notes, we were required to discontinue
the hedge accounting treatment associated with these
derivative instruments which used the short-cut method.
We intend to hold these instruments until their maturities.
Changes in fair value of these instruments are recorded in
earnings as an adjustment to interest expense. These
adjustments resulted in increases in interest expense of
$3.4 million and $0.6 million in 2010 and 2009, respectively.
NOTE 12 – FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Basis of Fair Value Measurements
Fair Value
of Assets
(Liabilities)
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In millions)
As of December 31, 2010
Derivatives Not Designated as
Hedging Instruments:
Interest rate swaps
(1) (2)
$1.9 -- $ 1.9 --
As of December 31, 2009
Derivatives Not Designated as
Hedging Instruments:
Interest rate swaps
(1) (3
)
$5.3 -- $ 5.3 --
(1) These interest rate swaps serve as economic hedges on our 2011 Notes
(2) Included in other current assets
(3) 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 the estimated
amounts we would have received to settle the agreements.
Other financial instruments not measured at fair value on a
recurring basis include cash and cash equivalents,
accounts receivable, 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 debt financial instruments are as follows:
December 31, 2010
December 31, 2009
(In millions)
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Total debt $ 639.8 $ 713.1
$ 627.8 $ 740.2
The fair values of our 2013 Convertible Notes and 2011
Notes at December 31, 2010, were $400.7 million and
$311.4 million, respectively, compared with $422.5 million
and $316.7, respectively, at December 31, 2009.