Subsequent Events

9 Months Ended

Sep. 30, 2012

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

10. SUBSEQUENT EVENTS

Amendment of CBA

The Company entered into a three-year amendment (“Amendment”) extending its Collective Bargaining Agreement with the IBEW through December 31, 2015. The Amendment was ratified by a vote of the Company’s represented employees on October 4, 2012. In addition to certain procedural and administrative matters, the Amendment provides for:

a. The waiver of certain of the CBA’s requirements related to the transfer of the Company’s assets for the limited purpose of allowing the Asset Purchase and Contribution Agreement between ACS and GCI to proceed;

b. A no lay-off provision and incentive and reclassification options for employees affected by the Asset Purchase and Contribution Agreement;

c. Additional flexibility for the Company’s subsequent business decisions, subject to the Company providing affected employees certain incentive and reclassification options;

d. The creation of an annual bonus structure, which together with annual wage increases beginning January 1, 2013, will total at least the amount of increase in the consumer price index increase for Anchorage, Alaska;

e. A 5% annual increase in the Company’s contributions to the IBEW’s health and welfare trust plan on behalf of covered employees; and

f. Represented employees hired after January 1, 2013, to have either:

(i) In the case of sales and service associates, a reduced rate of Company-provided pension contributions and a new matching program for their 401(k) plans, or

(ii) In the case of all other employees, an obligation to contribute 25% of the IBEW pension contributions (which were previously paid 100% by the Company).

Amendment of Senior Credit Facility

The Company’s Senior Credit Facility, consisting of a $440,000 term loan and an undrawn $30,000 revolving credit facility, was amended effective November 1, 2012 (“Amended Senior Credit Facility” or “Credit Amendment”).

Material amended terms effective on November 1, 2012, regardless of consummation of the AWN Transaction are:

a. Quarterly principal payments on the term loan will increase from 0.25% of the original principal balance, or $1,100, to $1,825 in the quarter beginning January 1, 2013, $3,300 in the quarter beginning January 1, 2014, $3,675 in the quarter beginning January 1, 2015, and decrease to $3,300 in the quarter beginning January 1, 2016.

b. Payment of cash dividends on common stock is not permitted until such time that the Company’s Total Leverage Ratio is not more than 3.50 to 1.00. The previous limit was 5.00 to 1.00.

Material amended terms effective upon consummation of the AWN Transaction are:

a. The interest rates of the term loan and revolving credit facility are increased from LIBOR plus 4.0% with a LIBOR floor of 1.5% to LIBOR plus 4.75% with a LIBOR floor of 1.5%. In the event the AWN Transaction is not consummated by March 31, 2013, the existing rates of LIBOR plus 4.0% will increase 25 basis points beginning March 31, 2012, and every other month thereafter until LIBOR plus 4.75% is achieved (or if earlier, the date the AWN Transaction is consummated). The interest rates of the term loan and revolving credit facility will be reduced to LIBOR plus 4.50% when the Company’s Total Leverage Ratio reaches 4.00 to 1.00 or lower.

b. Relative to the sale of assets to the GCI member and the contribution of assets to AWN in connection with the AWN Transaction:

(i) The sale of assets to the GCI member will be permitted;

(ii) The Company will make a $65,000 principal payment on the term loan upon closing of the AWN Transaction;

(iii) Collateral on the assets contributed to AWN will be released; and

(iv) The Company’s equity interests in AWN will be pledged as collateral.

c. Certain definitions are amended to take into account cash distributions from AWN, transaction costs and swap breakage related expenses.

d. Financial covenants are amended as follows:

(i) Total Leverage to Adjusted EBITDA Ratio: Not to exceed 6.00 to 1.00 through June 30, 2014; 5.50 to 1.00 through December 31, 2014; and 5.25 to 1.00 thereafter.

(ii) Senior Secured Leverage to Adjusted EBITDA Ratio: Not to exceed 4.75 to 1.00 through June 30, 2014; 4.50 to 1.00 through December 31, 2014; and 4.25 to 1.00 thereafter.

(iii) Adjusted EBITDA to Fixed Charges Coverage Ratio: Not to fall below 2.25 to 1.00 through June 30, 2014; 2.50 to 1.00 through September 30, 2015 and 2.75 to 1.00 thereafter.

Forward Floating-to-Fixed Interest Rate Swaps

As of September 30, 2012, the Company was engaged in negotiations with its lenders to amend its Senior Credit Facility, primarily to effect consummation of the AWN Transaction, and was also assessing the potential impact of any potential amendment on its cash flow hedging strategy. Based on the status of these negotiations, as well as the status of the other open conditions required to consummate the AWN Transaction as of September 30, 2012, the Company concluded that the hedged variable rate interest payments underlying its forward floating-to-fixed interest rate swaps were probable of occurring within the designated time frames. Accordingly, the Company concluded that its forward floating-to-fixed interest rate swaps were highly effective hedges as of September 30, 2012, and would remain highly effective throughout their terms.

On November 1, 2012, the effective date of the Credit Amendment, and as a result of the potential incremental $65,000 principal payment on the term loan required by the Credit Amendment, the Company determined that its forward floating-to-fixed interest rate swap in the notional amount of $192,500 no longer met the hedge effectiveness criteria of ASC Topic 815, Derivatives and Hedging. Accordingly, hedge accounting treatment was discontinued on this swap effective November 1, 2012, and future changes in its fair value will be recognized as interest expense. Amounts recorded to accumulated other comprehensive loss from the date of the swap’s inception through October 31, 2012 will be amortized to interest expense over the period of the originally designated hedged variable rate interest payments.