7.	F AIR VALUE MEASUREMENTS

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

- Quoted prices for identical instruments in active markets.

●

Level

- 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

- 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 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 estimated fair value and carrying value of the Company’s

6.25%

Convertible Notes due

2018

(the

“6.25%

Notes”) of

$10,026

December 31, 2017

was estimated based on the quoted market prices for identical instruments on dates different from the trade date value (Level

). The

6.25%

Notes were repurchased on

May 1, 2018.

The carrying values of the Company’s senior credit facilities and other long-term obligations of

$172,494

December 31, 2018

approximate fair value primarily as a result of the stated interest rates of the

2017

Senior Credit Facility approximating current market rates (Level

Fair Value Measurements on a Recurring Basis

The following table presents the Company’s financial assets measured at fair value on a recurring basis as of

December 31, 2018

and

2017

at each hierarchical level. There were

transfers into or out of Levels

and

during

2018.

	December 31, 2018								December 31, 2017
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Other assets:
Interest rate swaps	$	458	$	-	$	458	$	-	$	515	$	-	$	515	$	-

Derivative Financial Instruments

The Company currently uses interest rate swaps to manage variable interest rate risk. At low LIBOR rates, payments under the swaps increase the Company’s cash interest expense, and at high LIBOR rates, they have the opposite effect.

The outstanding amount of the swaps as of a 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

of the fair value hierarchy.

Changes in fair value of the Company’s interest rate swaps are recorded to accumulated other comprehensive loss and are reclassified to interest expense when the hedged transaction is recognized in earnings. See Note

“

Long-Term Obligations

” and Note

“

Accumulated Other Comprehensive Loss.

”

Under the terms of the

2017

Senior Credit Facility, the Company was required to enter into or obtain an interest rate hedge sufficient to effectively fix or limit the interest rate on borrowings under the agreement of a minimum of

$90,000

with a weighted average life of at least

two

years. In

2017,

the Company entered into a pay-fixed, receive-floating interest rate swap in the notional amount of

$90,000,

with an interest rate of

6.49425%,

inclusive of a

5.0%

LIBOR spread, and a maturity date of

June 28, 2019.

Changes in fair value of this interest rate swap are recorded to accumulated other comprehensive loss and reclassified to interest expense when the hedged transaction is recognized in earnings. See Note

“

Long-Term Obligations

”, Note

“

Accumulated Other Comprehensive

Los

” and Note

“

Subsequ

ent Events

.”

The following table presents the notional amount, fair value and balance sheet classification of the Company’s derivative financial instruments designated as cash flow hedges as of

December 31, 2018

and

2017:

		Notional		Fair
	Balance Sheet Location	Amount		Value
At December 31, 2018:
Interest rate swaps	Other assets	$	90,000	$	458
At December 31, 2017:
Interest rate swaps	Other assets	$	90,000	$	515

The following table presents gains and losses before income taxes on the Company’s interest rate swaps designated as cash flow hedges for the years ending

December 31, 2018

and

2017.

	2018		2017

Gain recognized in accumulated other comprehensive loss	$	387	$	471
Gain (loss) reclassified from accumulated other comprehensive loss	$	444	$	(104	)
Gain recognized in interest expense (ineffective portion and amount excluded from effectiveness testing)	$	-	$	-

The following table presents a reconciliation of the carrying value of the Company’s interest rate swaps, which are included in “Other assets” at

December 31,

201

and

2018:

	2018			2017
Asset (liability) at January 1	$	515		$	(100	)
Reclassified from other assets and other long-term liabilities to accumulated other comprehensive loss		387			471
Change in fair value (debited) credited to interest expense		(444	)		144
Asset at December 31	$	458		$	515

ir Value Measurements on a Non-R

ecurring Basis

Deferred Capacity Revenue

The Company entered into an agreement to provide wholesale services to another carrier on

February 2, 2015.

A national valuation firm was engaged to assist management in the determination of the fair value of the obligation which was determined to be

$41,287

February 2, 2015.

The obligation is amortized to revenue on a straight-line basis over the contract lives of

years. The total carrying value of the service obligation was

$33,184

and

$35,255

December 31, 2018

and

2017,

respectively, and is included in “Other long-term liabilities, net of current portion” and “Accounts payable, accrued and other current liabilities” on the Consolidated Balance Sheet.

Other Items

The Company entered into agreements in connection with the acquisition of the fiber optic network on the North Slope of Alaska and the establishment of the joint venture with QHL. These transactions included the exchange of certain assets and liabilities, all of which were established at fair value on the date of the transactions.

The fair value of the IRU assets and obligations were

$2,304

and

$4,153,

respectively, at the measurement date of

April 2, 2015.

IRU assets are included in “Property, plant and equipment” and IRU obligations are included in “Accounts payable, accrued and other current liabilities” and “Other long-term obligations” on the Consolidated Balance Sheet. The carrying value of these items at

December 31, 2018

and

2017

was as follows:

	2018		2017
IRU Assets	$	2,025	$	2,118
IRU Obligations	$	3,594	$	3,747

impairment of long-lived assets was recognized during

2018

and

2017.