IPCS » Topics » (l) Derivative Financial Instruments

This excerpt taken from the IPCS 10-Q filed Nov 8, 2007.

(7)  Derivative Financial Instruments

 

On July 20, 2007, the Company entered into an interest rate swap agreement for a notional amount of $300.0 million associated with the interest on the Company’s First Lien Notes effective August 1, 2007 for a period of three years. Under this agreement, the Company receives interest at a floating rate of three-month LIBOR and pays interest at a fixed rate of 5.34%, resulting in an effective rate in relation to the First Lien Notes of 7.47% throughout the term of the swap. The interest rate swap has been designated as a cash flow hedge. The fair value of the interest rate swap is recorded in Stockholders’ Equity (Deficiency) under Accumulated other comprehensive income (loss), net of applicable income tax expense or benefit.

 

As of September 30, 2007, the fair value of the swap was $6.1 million and is recorded on the balance sheet as a long-term liability and in Accumulated other comprehensive loss. The change in fair value of the swap for the three months ended September 30, 2007 was $6.1 million. No component of the interest rate swap is excluded from the assessment of effectiveness and no ineffectiveness has been recognized on the swap since inception.

 

The amount of loss recorded in Other comprehensive loss at September 30, 2007 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is approximately $1.9 million.

 

This excerpt taken from the IPCS 8-K filed Aug 1, 2005.

(l)    Derivative Financial Instruments

        The Company utilizes derivative financial instruments to reduce interest rate risk and not for trading or speculative purposes. Interest rate swap agreements are used to hedge the exposure of the variable interest rates of certain notes payable and are designed as cash flow hedges. The interest rate swap agreements involve the periodic exchange of payments without the exchange of the notional amount upon which the payments are based. The related amount payable to or receivable from counter-parties is included as an adjustment to accrued interest. The carrying amount of the interest swap agreements is included in accrued liabilities, with the changes in carrying amounts recorded as an adjustment to other comprehensive income (loss), a component of retained deficit. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively. The swaps matured in 2003.

EXCERPTS ON THIS PAGE:

10-Q
Nov 8, 2007
8-K
Aug 1, 2005
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