7.	FAIR 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 finance leases approximate carrying values due to their nature. The carrying values of the Company’s senior credit facilities and other long-term obligations of

$178,245

and

$172,494

December 31, 2019

and

2018,

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

2019

Senior Credit Facility and

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, 2019

and

2018

at each hierarchical level. There were

transfers into or out of Levels

and

during

2019.

	December 31, 2019								December 31, 2018
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Other assets:
Interest rate swaps	$	-	$	-	$	-	$	-	$	458	$	-	$	458	$	-
Liabilities:
Other long-term liabilities:
Interest rate swaps	$	288	$	-	$	288	$	-	$	-	$	-	$	-	$	-

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.

Under the terms of the

2019

Senior Credit Facility, the Company is 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,

as required under the terms of its

2017

Senior Credit Facility, 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

Upon repayment of the outstanding principal balance of the

2017

Senior Credit Facility on

January 15, 2019,

this swap was assigned to the

2019

Senior Credit Facility through its maturity date of

June 28, 2019.

June 28, 2019,

the Company entered into

two

pay-fixed, receive-floating, interest rate swaps. Each swap was in the initial notional amount of

$67,500,

has an interest rate of

6.1735%

inclusive of a

4.5%

LIBOR spread, and a maturity date of

June 30, 2022

The swaps are with different counter parties. Changes in fair value of interest rate swaps are recorded to accumulated other comprehensive loss and reclassified to interest expense when the hedged transaction is recognized in earnings. Cash payments and receipts associated with interest rate swaps are classified as cash flows from operating activities, consistent with the hedged interest payments. See Note

“

Long-Term Obligations

” and Note

“

Accumulated Other Comprehensive Loss.

”

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, 2019

and

2018.

The fair values of both interest rate swaps were liabilities at

December 31, 2019

and were hedges of the same interest rate risk.

		Notional		Fair
	Balance Sheet Location	Amount		Value
At December 31, 2019:
Interest rate swaps	Other long-term liabilities	$	133,313	$	288
At December 31, 2018:
Interest rate swaps	Other assets	$	90,000	$	458

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, 2019

and

2018.

	2019			2018

(Loss) gain recognized in accumulated other comprehensive loss	$	(40	)	$	387
Gain reclassified from accumulated other comprehensive loss	$	706		$	444

The following table presents a reconciliation of the carrying value of the Company’s interest rate swaps at

December 31, 2019

and

2018:

	2019			2018
Asset at January 1	$	458		$	515
Reclassified from other assets and other long-term liabilities to accumulated other comprehensive loss		(40	)		387
Change in fair value credited to interest expense		(706	)		(444	)
(Liability) asset at December 31	$	(288	)	$	458

The following table presents the effect of cash flow hedge accounting on the Company’s Statements of Comprehensive Income for the years ended

December 31, 2019

and

2018:

	2019			2018
Recorded as Interest Expense:
Hedged interest payments	$	(7,698	)	$	(6,370	)
Gain on interest rate swaps		706			444

Fair Value Measurements on a Non-Recurring 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

$31,113

and

$33,184

December 31, 2019

and

2018,

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, 2019

and

2018

was as follows:

	2019		2018
IRU Assets	$	1,964	$	2,041
IRU Obligations		3,441		3,594

impairment of long-lived assets was recognized during

2019

and

2018.