FY2016 CCDOA Financial Report as of 6302016.pdf - page 110

CLARK COUNTY DEPARTMENT OF AVIATION
CLARK COUNTY, NEVADA
Notes to Financial Statements
For the Fiscal Years Ended June 30, 2016 and 2015
97
(b) Derivative Instruments
As indicated in the previous subnote, the Department entered into various interest rate swap
agreements to hedge financial risks associated with the cost of borrowing and the cash flows
associated with the Department’s variable interest rate debt. In accordance with the
provisions of GASB Statement No. 53,
Accounting and Financial Reporting for Derivative
Instruments
, the Department is required to report the value of all derivative instruments on the
Statements of Net Position. In addition, GASB 53 requires that all derivatives be classified into
two basic categories: (1) hedging and (2) investment. Hedging derivatives are derivative
instruments that significantly reduce an identified financial risk by substantially offsetting
changes in the cash flows of an associated hedgeable item. Hedging derivatives are required
to be tested for their effectiveness. Effectiveness of hedging derivatives is first tested using the
consistent critical terms method. If critical terms analysis fails because the critical terms of the
hedged item and the hedging instrument do not match, a quantitative method is employed,
typically regression analysis. On an annual basis and consistent with the fiscal year end, the
Department uses an external consulting firm to perform this evaluation. Investment derivatives
are either derivative instruments entered into primarily for income or profit purposes or
derivative instruments that do not meet the criteria of an effective hedging derivative
instrument.
With the implementation of GASB 72, the interest rate swaps now are stated at fair value. The
information required to restate the interest rate swaps at fair value as of June 30, 2015, was not
available; therefore, the interest rate swaps for FY 2015 are presented at their mark-to-market
value. Changes in the fair value of hedging derivative instruments for FY 2016 and changes in
the mark-to-market value of hedging derivative instruments for FY 2015 are presented as
deferred inflows of resources or deferred outflows of resources on the Statements of Net
Position. Changes in the fair value of investment derivative instruments for FY 2016 and
changes in the mark-to-market value of investment derivative instruments for FY 2015 are
recognized as investment gains or losses on the Statements of Revenues, Expenses, and
Changes in Net Position, in accordance with the provisions of GASB 53.
The tables below provide the fair values as well as the changes from the mark-to-market values
to the fair values of the Department’s interest rate swap agreements for the fiscal years ended
June 30, 2016 and 2015. The valuation of all outstanding swap agreements as of June 30, 2016
and 2015, is $(107.6) million and $(53.2) million, respectively.
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