Fair Value Measurements (Restated)

9 Months Ended

Sep. 30, 2013

4.	FAIR VALUE MEASUREMENTS (RESTATED)

The fair values of cash equivalents, restricted cash, other short-term monetary assets and liabilities and capital leases approximate carrying values due to their nature. The non-monetary consideration exchanged in the Company’s deconsolidation, related to the AWN transaction, has been valued using multiple valuation methods using significant unobservable inputs (Level 3). The fair value of the Company’s Senior Credit Facility, convertible notes and other long-term obligations of $438,756 at September 30, 2013, were estimated based primarily on quoted market prices (Level 1). The carrying values of these liabilities totaled $457,647 at September 30, 2013.

The Company has developed valuation techniques based upon observable and unobservable inputs to calculate the fair value of non-current monetary assets and liabilities. Observable inputs reflect market data obtained from independent sources while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

•

Level 1 - Quoted prices for identical instruments in active markets

•

Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable

•

Level 3 - Significant inputs to the valuation model are unobservable

Financial assets and liabilities are classified within the fair value hierarchy in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company’s assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured, as well as their level within the fair value hierarchy.

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012, at each hierarchical level:


	September 30, 2013										December 31, 2012
	Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3
Other long-term liabilities:
Interest rate swaps		(3,619	)		—		(3,619	)		—		(9,819	)		—		(9,819	)		—

Fair Value of AWN

As described in Note 3 Equity Method Investments, a national valuation firm was engaged by ACS and GCI to assist in the determination of the enterprise fair value of AWN and the allocation of the purchase price to the assets and liabilities. The valuation report is in the process of being finalized which we anticipate to be completed by the time we file our Form 10-Q for the period ended March 31, 2014. The estimate of fair value of the Company’s interest in AWN is $266,000 and the contributed network usage rights are $68,182. The estimates may be adjusted upon finalization. The deferred AWN capacity revenue represents the value of the capacity contributions and the operations and maintenance support of these facilities. The benefit of this deferred revenue is being amortized on a straight-line basis to revenue in the “Consolidated Statements of Comprehensive Income (Loss)”, over the 20 year contract period for which the Company has contracted to provide service.

The following table represents certain valuation techniques used to measure the fair value of such instruments, and the significant unobservable inputs and values for those inputs:


Description	Estimated Fair Value		Valuation Technique	Level 3 Unobservable Inputs	Significant Input Values
Investment in AWN	$	266,000	Discounted Cash Flow	Weighted Average Cost of Capital		7.8% - 11.5	%
				Annual cash flow projections		$50,000 - $65,000
				Non-controlling interest discount		0.00	%

Deferred AWN Capacity Revenue	$	68,182	Cost / Replacement Value	Weighted Average Cost of Capital		11.50	%
				Cost trend factor		1.00% - 2.17	%
				Estimated % used by AWN		4% - 100	%
				Historical cost of underlying assets		Actual cost

Derivative Financial Instruments

Prior to the AWN transaction, the Company had three floating-to-fixed interest rate swaps to manage variable interest rate risk. The notional amount of these swaps was $192,500, $115,500 and $77,000 with interest rates of 6.963%, 6.970% and 6.975%, respectively, inclusive of a 4.5% LIBOR spread. The swaps began on June 30, 2012 and expire on September 30, 2015. At low LIBOR rates, payments under the swaps increased the Company’s cash interest expense. On November 1, 2012, the effective date of the amendment to the Company’s Senior Credit Facility, and as a result of the incremental $65,000 AWN transaction principal payment on the term loan required by this amendment, it was determined that the swap in the notional amount of $192,500 no longer met the hedge effectiveness criteria under ASC 815 Derivatives and Hedging. Accordingly, hedge accounting treatment was discontinued prospectively on this swap effective November 1, 2012, and subsequent changes in the fair value were recognized as interest expense. Amounts recorded to other comprehensive loss from the date of the swap’s inception through October 31, 2012 were amortized to interest expense over the period of the originally scheduled interest payments. On July 19, 2013, when the Company received final approval from the SEC regarding the investment company act, the AWN transaction moved from “possible” to “probable” and triggered the movement of $707 from other comprehensive loss to loss on the extinguishment of debt, representing the portion of the $192,500 swap that was over-hedged when the $65,000 payment was made. The remaining amount will be amortized from other comprehensive loss to interest expense over the life of the term loan. The $192,500 swap settled on August 1, 2013 for $4,073 in cash and, simultaneously, the marked-to-market resulted in an adjustment to interest expense of $231.

In conjunction with the November 1, 2012 amendment, the notional amount of the two remaining swaps are $115,500 and $77,000 with interest rates of 7.220% and 7.225%, respectively, inclusive of a 4.75% LIBOR spread. The outstanding amount of the two remaining swaps as of period-end are reported on the balance sheet at fair value, represented by the estimated amount the Company would receive, or pay, to terminate the swaps. They are valued using models based on readily observable market parameters for all substantial terms of the contracts and are classified within Level 2 of the fair value hierarchy.

The following table presents information about the floating-to-fixed interest rate swap in the notional amount of $192,500 as of and for the three and nine-month periods ending September 30, 2013:


	Three			Nine
	Months			Months
Reclassified from accumulated other comprehensive loss to interest expense	$	(1,082	)	$	(1,948	)
Change in fair value credited to interest expense	$	(231	)	$	785
Estimated amount of accumulated other comprehensive loss to be reclassified to interest expense within the next twelve months				$	(1,424	)

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References+ Details