FairPoint Communications 2013 Annual Report Download - page 81

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79
notional amount. The Company does not hold or issue any derivative financial instruments for speculative trading purposes.
In the third quarter of 2013, the Company entered into interest rate swap agreements with a combined notional amount
of $170.0 million with three counterparties that are effective for a two year period beginning on September 30, 2015 and maturing
on September 30, 2017. Each respective swap agreement requires the Company to pay a fixed rate of 2.665% and provides that
the Company will receive a variable rate based on the three month LIBOR rate subject to a minimum LIBOR floor of 1.25%.
Amounts payable by or due to the Company will be net settled with the respective counterparties on the last business day of each
fiscal quarter, commencing December 31, 2015.
The effect of the Company’s interest rate swap agreements on the consolidated balance sheet at December 31, 2013 is
shown below (in thousands):
As of December 31, 2013
Derivatives designated as hedging instruments: Balance Sheet Location Fair Value
Interest rate swaps Other long-term liabilities $ 1,005
The effect of the Company’s interest rate swap agreements on the consolidated statements of comprehensive (loss) income
for the year ended December 31, 2013 is shown below (in thousands):
Amount of Loss Recognized in Other Comprehensive Loss on
Derivative (Effective Portion)
Year Ended December 31, 2013
Interest Rate Swaps $ 601
There were no amounts reclassified into current earnings due to ineffectiveness during the periods presented. The Company
estimates that none of the amount reported in accumulated other comprehensive loss for interest rate swaps is expected to be
reclassified to interest expense in the next 12 months as the interest rate swap agreements are not effective until September 30,
2015.
Each interest rate swap agreement contains a provision whereby if the Company defaults on any of its indebtedness, the
Company may also be declared in default under the interest rate swap agreements.
(10) Fair Value
The Fair Value Measurements and Disclosures Topic of the ASC defines fair value, establishes a framework for measuring
fair value and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value. The Fair Value
Measurements and Disclosures Topic of the ASC also expands financial statement disclosures about fair value measurements.
In determining fair value, the Company uses a hierarchy for inputs used in measuring fair value that maximizes the use
of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when
available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to
access.
Level 2 - Valuations based on quoted prices for similar instruments in active markets or quoted prices in markets that are not
active or for which all significant inputs are observable, either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The Company's non-financial assets and liabilities, including its long-lived assets and indefinite-lived intangible assets,
are measured and subsequently adjusted, if necessary, to fair value on a non-recurring basis. The Company periodically performs
routine reviews of triggering events and/or an impairment test, as applicable. Based on these procedures, the Company did not
require an adjustment to fair value to be recorded in 2013 or 2012.
The Company's financial instruments, other than interest rate swap agreements and long-term debt, consist primarily of
cash, restricted cash, accounts receivable and accounts payable. The carrying amounts of these financial instruments are estimated
to approximate fair value due to the relatively short period of time to maturity for these instruments. As of December 31, 2013,
interest rate swap agreements are carried at their fair value and measured on a recurring basis as follows (in thousands):