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Section 1: 10-Q (FORM 10-Q)

cabo20190630_10q.htm
0001632127falseCABLE ONE, INC.false--12-31Q22019falsefalsetruefalse0.9noIncludes $3.3 million ROU assets acquired in the Clearwave transaction. Equity-based awards whose impact is considered to be anti-dilutive under the treasury stock method were excluded from the diluted net income per common share calculation. The excluded number of anti-dilutive equity-based awards totaled 87 and 5,176 for the three months ended June 30, 2019 and 2018, respectively, and 3,895 and 5,435 for the six months ended June 30, 2019 and 2018, 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Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q 

 

  (Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 001-36863

                  

 

Cable One, Inc. 

(Exact name of registrant as specified in its charter)

 

                  

 

Delaware

 

13-3060083

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

  

210 E. Earll Drive, Phoenix, Arizona

 

85012

(Address of Principal Executive Offices)

 

(Zip Code)

 

(602) 364-6000

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common Stock, par value $0.01

 

CABO

 

New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

   

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 
   

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐ No ☑

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

 

Description of Class Shares Outstanding as of August 2, 2019
Common stock, par value $0.01 5,706,216

  

 
 

Table of Contents

 

 

CABLE ONE, INC.

FORM 10-Q

 TABLE OF CONTENTS

 

 

PART I:  FINANCIAL INFORMATION

1

   

Item 1.     Condensed Consolidated Financial Statements

1

   

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

   

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

31

   

Item 4.     Controls and Procedures

31

   

PART II: OTHER INFORMATION

32

   

Item 1.     Legal Proceedings

32

   

Item 1A.  Risk Factors

32

   

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

32

   

Item 3.     Defaults Upon Senior Securities

32

   

Item 4.     Mine Safety Disclosures

32

   

Item 5.     Other Information

32
   

Item 6.     Exhibits

33

   

SIGNATURES

34

 

i

Table of Contents

 

PART I:  FINANCIAL INFORMATION

 

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

CABLE ONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(dollars in thousands, except par values)

 

June 30, 2019

   

December 31, 2018

 

Assets

               

Current Assets:

               

Cash and cash equivalents

  $ 102,283     $ 264,113  

Accounts receivable, net

    30,340       29,947  

Income taxes receivable

    2,693       10,713  

Prepaid and other current assets

    20,400       13,090  

Total Current Assets

    155,716       317,863  

Property, plant and equipment, net

    977,398       847,979  

Intangible assets, net

    1,035,210       953,851  

Goodwill

    355,347       172,129  

Other noncurrent assets

    25,781       11,412  

Total Assets

  $ 2,549,452     $ 2,303,234  
                 

Liabilities and Stockholders' Equity

               

Current Liabilities:

               

Accounts payable and accrued liabilities

  $ 102,817     $ 94,134  

Deferred revenue

    23,078       18,954  

Current portion of long-term debt

    17,153       20,625  

Total Current Liabilities

    143,048       133,713  

Long-term debt

    1,280,637       1,142,056  

Deferred income taxes

    263,245       242,127  

Other noncurrent liabilities

    99,614       9,980  

Total Liabilities

    1,786,544       1,527,876  
                 

Commitments and contingencies (refer to note 14)

               
                 

Stockholders' Equity

               

Preferred stock ($0.01 par value; 4,000,000 shares authorized; none issued or outstanding)

    -       -  

Common stock ($0.01 par value; 40,000,000 shares authorized; 5,887,899 shares issued; and 5,706,812 and 5,703,402 shares outstanding as of June 30, 2019 and December 31, 2018, respectively)

    59       59  

Additional paid-in capital

    45,001       38,898  

Retained earnings

    902,615       850,292  

Accumulated other comprehensive loss

    (63,135 )     (96 )

Treasury stock, at cost (181,087 and 184,497 shares held as of June 30, 2019 and December 31, 2018, respectively)

    (121,632 )     (113,795 )

Total Stockholders' Equity

    762,908       775,358  

Total Liabilities and Stockholders' Equity

  $ 2,549,452     $ 2,303,234  

 

See accompanying notes to the condensed consolidated financial statements.

 

1

Table of Contents

 

 

CABLE ONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 

(dollars in thousands, except per share data)

 

2019

   

2018

   

2019

   

2018

 

Revenues

  $ 285,650     $ 268,414     $ 564,255     $ 534,175  

Costs and Expenses:

 

Operating (excluding depreciation and amortization)

    95,688       91,783       190,206       186,522  

Selling, general and administrative

    60,103       54,196       121,546       105,145  

Depreciation and amortization

    54,835       49,033       108,679       97,811  

Loss on asset disposals, net

    910       2,734       2,013       9,368  

Total Costs and Expenses

    211,536       197,746       422,444       398,846  

Income from operations

    74,114       70,668       141,811       135,329  

Interest expense

    (18,516 )     (14,953 )     (36,612 )     (29,676 )

Other income (expense), net

    (9,632 )     882       (7,830 )     1,499  

Income before income taxes

    45,966       56,597       97,369       107,152  

Income tax provision

    9,571       12,812       22,235       22,714  

Net income

  $ 36,395     $ 43,785     $ 75,134     $ 84,438  
                                 

Net Income per Common Share:

 

Basic

  $ 6.41     $ 7.70     $ 13.24     $ 14.83  

Diluted

  $ 6.35     $ 7.65     $ 13.13     $ 14.73  

Weighted Average Common Shares Outstanding:

 

Basic

    5,673,669       5,687,095       5,673,893       5,694,774  

Diluted

    5,730,238       5,722,869       5,723,296       5,732,634  
                                 

Deferred loss on cash flow hedges and other, net of tax

  $ (33,970 )   $ -     $ (63,039 )   $ 1  

Comprehensive income

  $ 2,425     $ 43,785     $ 12,095     $ 84,439  

 

See accompanying notes to the condensed consolidated financial statements.

 

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CABLE ONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

                                   

Accumulated

                 
                   

Additional

            Other    

Treasury

   

Total

 

 

 

Common Stock

   

Paid-In

   

Retained

    Comprehensive    

Stock,

   

Stockholders’

 

(dollars in thousands, except per share data)

 

Shares

   

Amount

   

Capital

   

Earnings

    Loss    

at cost

   

Equity

 

Balance at March 31, 2019

    5,699,330     $ 59     $ 41,919     $ 877,644     $ (29,165 )   $ (121,422 )   $ 769,035  

Net income

    -       -       -       36,395       -       -       36,395  

Deferred loss on cash flow hedges and other, net of tax

    -       -       -       -       (33,970 )     -       (33,970 )

Equity-based compensation

    -       -       3,082       -       -       -       3,082  

Issuance of equity awards, net of forfeitures

    7,495       -       -       -       -       -       -  

Withholding tax for equity awards

    (13 )     -       -       -       -       (210 )     (210 )

Dividends paid to stockholders ($2.00 per common share)

    -       -       -       (11,424 )     -       -       (11,424 )

Balance at June 30, 2019

    5,706,812     $ 59     $ 45,001     $ 902,615     $ (63,135 )   $ (121,632 )   $ 762,908  

 

                                   

Accumulated

                 
                   

Additional

            Other    

Treasury

   

Total

 

 

 

Common Stock

   

Paid-In

   

Retained

    Comprehensive    

Stock,

   

Stockholders’

 

(dollars in thousands, except per share data)

 

Shares

   

Amount

   

Capital

   

Earnings

    Loss    

at cost

   

Equity

 

Balance at March 31, 2018

    5,732,441     $ 59     $ 30,750     $ 759,004     $ (351 )   $ (89,552 )   $ 699,910  

Net income

    -       -       -       43,785       -       -       43,785  

Equity-based compensation

    -       -       2,506       -       -       -       2,506  

Issuance of equity awards, net of forfeitures

    1,616       -       -       -       -       -       -  

Repurchases of common stock

    (30,717 )     -       -       -       -       (20,261 )     (20,261 )

Withholding tax for equity awards

    (3 )     -       -       -       -       (2 )     (2 )

Dividends paid to stockholders ($1.75 per common share)

    -       -       -       (10,005 )     -       -       (10,005 )

Balance at June 30, 2018

    5,703,337     $ 59     $ 33,256     $ 792,784     $ (351 )   $ (109,815 )   $ 715,933  

 

                                   

Accumulated

                 
                   

Additional

            Other    

Treasury

   

Total

 

 

 

Common Stock

   

Paid-In

   

Retained

    Comprehensive    

Stock,

   

Stockholders’

 

(dollars in thousands, except per share data)

 

Shares

   

Amount

   

Capital

   

Earnings

    Loss    

at cost

   

Equity

 

Balance at December 31, 2018

    5,703,402     $ 59     $ 38,898     $ 850,292     $ (96 )   $ (113,795 )   $ 775,358  

Lease accounting standard adoption cumulative adjustment

    -       -       -       8       -       -       8  

Net income

    -       -       -       75,134       -       -       75,134  

Deferred loss on cash flow hedges and other, net of tax

    -       -       -       -       (63,039 )     -       (63,039 )

Equity-based compensation

    -       -       6,103       -       -       -       6,103  

Issuance of equity awards, net of forfeitures

    12,717       -       -       -       -       -       -  

Repurchases of common stock

    (5,984 )     -       -       -       -       (5,073 )     (5,073 )

Withholding tax for equity awards

    (3,323 )     -       -       -       -       (2,764 )     (2,764 )

Dividends paid to stockholders ($4.00 per common share)

    -       -       -       (22,819 )     -       -       (22,819 )

Balance at June 30, 2019

    5,706,812     $ 59     $ 45,001     $ 902,615     $ (63,135 )   $ (121,632 )   $ 762,908  

 

                                   

Accumulated

                 
                   

Additional

            Other    

Treasury

   

Total

 

 

 

Common Stock

   

Paid-In

   

Retained

    Comprehensive    

Stock,

   

Stockholders’

 

(dollars in thousands, except per share data)

 

Shares

   

Amount

   

Capital

   

Earnings

    Loss    

at cost

   

Equity

 

Balance at December 31, 2017

    5,731,442     $ 59     $ 28,412     $ 728,386     $ (352 )   $ (80,058 )   $ 676,447  

Net income

    -       -       -       84,438       -       -       84,438  

Changes in pension, net of tax

    -       -       -       -       1       -       1  

Equity-based compensation

    -       -       4,844       -       -       -       4,844  

Issuance of equity awards, net of forfeitures

    15,693       -       -       -       -       -       -  

Repurchases of common stock

    (34,028 )     -       -       -       -       (22,556 )     (22,556 )

Withholding tax for equity awards

    (9,770 )     -       -       -       -       (7,201 )     (7,201 )

Dividends paid to stockholders ($3.50 per common share)

    -       -       -       (20,040 )     -       -       (20,040 )

Balance at June 30, 2018

    5,703,337     $ 59     $ 33,256     $ 792,784     $ (351 )   $ (109,815 )   $ 715,933  

 

See accompanying notes to the condensed consolidated financial statements.

 

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CABLE ONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Six Months Ended June 30,

 

(in thousands)

 

2019

   

2018

 

Cash flows from operating activities:

               

Net income

  $ 75,134     $ 84,438  

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization

    108,679       97,811  

Amortization of debt issuance cost

    2,409       2,012  

Equity-based compensation

    6,103       4,844  

Write-off of debt issuance costs

    4,207       110  

Increase in deferred income taxes

    11,647       9,559  

Loss on asset disposals, net

    2,013       9,368  

Changes in operating assets and liabilities, net of effects from acquisitions:

               

(Increase) decrease in accounts receivable, net

    901       (4,351 )

Decrease in income taxes receivable

    8,020       12,318  

Increase in prepaid and other current assets

    (6,999 )     (7,206 )

Increase (decrease) in accounts payable and accrued liabilities

    5,004       (15,439 )

Increase (decrease) in deferred revenue

    (198 )     3,783  

Other, net

    (4,426 )     (645 )

Net cash provided by operating activities

    212,494       196,602  
                 

Cash flows from investing activities:

               

Purchase of business, net of cash acquired

    (356,917 )     -  

Capital expenditures

    (110,488 )     (90,868 )

Decrease in accrued expenses related to capital expenditures

    (5,410 )     (2,517 )

Proceeds from sales of property, plant and equipment

    6,998       1,569  

Net cash used in investing activities

    (465,817 )     (91,816 )
                 

Cash flows from financing activities:

               

Proceeds from issuance of long-term debt

    825,000       -  

Payment of debt issuance costs

    (11,671 )     (2,131 )

Payments on long-term debt

    (691,180 )     (5,633 )

Repurchases of common stock

    (5,073 )     (22,556 )

Payment of withholding tax for equity awards

    (2,764 )     (7,201 )

Dividends paid to stockholders

    (22,819 )     (20,040 )

Change in cash overdraft

    -       (5,455 )

Net cash provided by (used in) financing activities

    91,493       (63,016 )
                 

Increase (decrease) in cash and cash equivalents

    (161,830 )     41,770  

Cash and cash equivalents, beginning of period

    264,113       161,752  

Cash and cash equivalents, end of period

  $ 102,283     $ 203,522  
                 

Supplemental cash flow disclosures:

               

Cash paid for interest, net of capitalized interest

  $ 34,687     $ 27,924  

Cash paid for income taxes, net of refunds received

  $ 3,001     $ 1,293  

 

See accompanying notes to the condensed consolidated financial statements.

 

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CABLE ONE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1.        DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Description of Business. Cable One, Inc., together with its wholly owned subsidiaries (collectively, “Cable One,” “us,” “our,” “we” or the “Company”) is a fully integrated provider of data, video and voice services to residential and business subscribers in 21 Western, Midwestern and Southern U.S. states. As of June 30, 2019, Cable One provided service to 818,579 residential and business customers, of which 681,762 subscribed to data services, 308,493 subscribed to video services and 123,672 subscribed to voice services.

 

On January 8, 2019, the Company acquired Delta Communications, L.L.C. (“Clearwave”) for a purchase price of $358.8 million in cash on a debt-free basis. Refer to note 2 for details on this transaction and note 7 for details on the related financing.

 

On March 31, 2019, the Company entered into a definitive agreement with Fidelity Communications Co. to acquire its data, video and voice business and certain related assets (collectively, “Fidelity”) for $525.9 million in cash, subject to customary post-closing adjustments. Fidelity is a cable operator that provides residential and business services to customers throughout greater Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas. Cable One and Fidelity share similar strategies, customer demographics and products. Accordingly, the Company believes the acquisition of Fidelity offers it opportunities for revenue growth and adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) margin expansion as well as the potential to realize cost synergies. The all-cash transaction is expected to be funded through a combination of cash on hand, revolving credit facility capacity and proceeds from new indebtedness. The transaction is subject to customary closing conditions and is expected to be completed early in the fourth quarter of 2019.

 

Basis of Presentation.The condensed consolidated financial statements and accompanying notes thereto have been prepared in accordance with: (i) generally accepted accounting principles in the United States (“GAAP”) for interim financial information; and (ii) the guidance of Rule 10-01 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for financial statements required to be filed with the Securities and Exchange Commission (the “SEC”). As permitted under such guidance, certain notes and other financial information normally required by GAAP have been omitted. Management believes the condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position, results of operations and cash flows as of and for the periods presented herein. These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “2018 Form 10-K”).

 

The December 31, 2018 year-end balance sheet data presented herein was derived from the Company’s audited consolidated financial statements included in the 2018 Form 10-K, but does not include all disclosures required by GAAP. The Company’s interim results of operations may not be indicative of its future results.

 

Principles of Consolidation.The accompanying condensed consolidated financial statements include the accounts of the Company, including its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

Segment Reporting.Accounting Standard Codification (“ASC”) 280 - Segment Reporting requires the disclosure of factors used to identify an entity’s reportable segments. The Company’s operations are organized and managed on the basis of operating systems within its geographic divisions. Each operating system derives revenues from the delivery of similar products and services to a customer base that is also similar. Each operating system deploys similar technology to deliver the Company’s products and services, operates within a similar regulatory environment, has similar economic characteristics and is managed by the Company’s chief operating decision maker as part of an aggregate of all operating systems within the Company's material geographic divisions. Management evaluated the criteria for aggregation under ASC 280 and has concluded that the Company meets each of the respective criteria set forth therein. Accordingly, management has identified one reportable segment.

 

Use of Estimates.The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported herein. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates and underlying assumptions.

 

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Table of Contents

 

Recently Adopted Accounting Pronouncements. In June 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The ASU was effective January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and also simplifies the application of hedge accounting under GAAP. The ASU was effective January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to record substantially all of their leases on the balance sheet as a right-of-use (“ROU”) asset and a corresponding lease liability with the exception of short-term leases. The Company is required to classify each separate lease component as an operating or a finance lease at the lease commencement date. Initial measurement of the ROU asset and lease liability is the same for both operating and finance leases, however, expense recognition and amortization of the ROU asset differs. Operating leases reflect lease expense on a straight-line basis similar to previous operating leases while finance leases reflect a front-loaded expense pattern similar to previous capital leases. The Company adopted the updated guidance on January 1, 2019.

 

With respect to the adoption of ASU 2016-02, the Company elected the “Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption is as originally reported under ASC 840 - Leases. Upon adoption on January 1, 2019, the Company recorded ROU assets of $14.9 million and lease liabilities of $13.3 million. The adoption of this guidance did not have a material impact on Company’s consolidated financial statements.

 

ASU 2016-02 provides several optional practical expedients in transition. The Company elected the lessee and lessor transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs.

 

The Company also made certain lessee accounting policy elections, including a short-term lease exception policy, permitting the exclusion of short-term leases (leases with terms of 12 months or less) from the recognition requirements of ASU 2016-02, and an accounting policy to account for lease and non-lease components as a single component for all classes of assets, permitting common area maintenance, real estate taxes, fiber network power charges and routine maintenance fees to be combined with the associated lease component. The portfolio approach, which allows a lessee to account for its leases at a portfolio level, was elected for certain equipment and fiber leases in which the difference in accounting for each asset separately would not have been materially different from accounting for the assets as a combined unit. As a lessee, the Company also elected the practical expedient not to reevaluate whether any expired or existing land easements are, or contain, leases.

 

The Company provides residential and business customers with certain hardware to deliver data, video and voice services. As a lessor, the Company elected the practical expedient not to separate lease components from the associated non-lease component for all classes of assets. The Company concluded the non-lease components would otherwise be accounted for under the new revenue recognition standard and both the timing and pattern of transfer are the same for the non-lease components and associated lease component based on the interrelated nature of the services provided and the underlying leased hardware and, if accounted for separately, the lease component would be classified as an operating lease.

 

Refer to note 6 for the requisite disclosures regarding the amount, timing and any uncertainty regarding lease-related cash flows.

 

Recently Issued But Not Yet Adopted Accounting Pronouncements. In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation, setup and other upfront costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing such costs incurred to develop or obtain internal-use software. The ASU specifies which costs are to be expensed and which are to be capitalized, the period over which capitalized costs are to be amortized, the process for identifying and recognizing impairment and the proper presentation of such costs within the consolidated financial statements. ASU 2018-15 is effective for annual and interim periods beginning after December 15, 2019 and may be adopted either retrospectively or prospectively. The Company is currently evaluating its method of adoption as well as the expected impact on its consolidated financial statements.

 

6


 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires companies to recognize an allowance for expected lifetime credit losses through earnings concurrent with the recognition of a financial asset measured at amortized cost. The estimate of expected credit losses is required to be adjusted each reporting period over the life of the financial asset. The ASU is effective for annual and interim periods beginning after December 15, 2019 and requires a modified retrospective adoption approach. The Company does not expect ASU 2016-13 to have a material impact on its consolidated financial statements upon adoption, but it may have an impact in the future.

 

 

2.        CLEARWAVE ACQUISITION

 

On January 8, 2019, the Company acquired Clearwave, a facilities-based service provider that owns and operates a high-capacity fiber network offering dense regional coverage in Southern Illinois. The Company funded the purchase price of $358.8 million with cash on hand and the additional 7-year incremental term “B” loan borrowings described in note 7. The acquisition provides the Company with a premier fiber network within its existing footprint, further enables the Company to supply its customers with enhanced business services solutions and provides a platform to allow the Company to replicate Clearwave’s strategy in several of its other markets.

 

The Company accounted for the Clearwave acquisition as a business combination pursuant to ASC 805 - Business Combinations. Accordingly, acquisition costs are not included as components of consideration transferred and instead are accounted for as expenses in the period in which the costs are incurred. During the three and six months ended June 30, 2019, the Company incurred acquisition-related costs of $0.9 million and $6.1 million, respectively, including $0.1 million and $3.4 million associated with the Clearwave acquisition, respectively. These costs are included in selling, general and administrative expenses within the Company’s condensed consolidated statement of operations and comprehensive income.

 

In accordance with ASC 805, the Company uses its best estimates and assumptions to assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date based on the information that was available as of the acquisition date. The Company believes that the information available provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. The preliminary measurements of fair value set forth herein are subject to change and such changes could be material. The Company expects to finalize the valuation as soon as practicable but no later than one year from the acquisition date. No measurement period adjustments occurred during the three months ended June 30, 2019. The following table summarizes the current allocation of the purchase price consideration as of the acquisition date (in thousands):

 

   

Preliminary

Purchase Price

Allocation

 

Assets Acquired

       

Cash and cash equivalents

  $ 1,913  

Accounts receivable

    1,294  

Prepaid and other current assets

    311  

Property, plant and equipment

    120,472  

Intangible assets

    89,700  

Other noncurrent assets

    3,533  

Total Assets Acquired

  $ 217,223  
         

Liabilities Assumed

       

Accounts payable and accrued liabilities

  $ 2,128  

Deferred revenue

    4,322  

Deferred income taxes

    30,104  

Other noncurrent liabilities

    5,057  

Total Liabilities Assumed

  $ 41,611  
         

Net assets acquired

  $ 175,612  

Purchase price consideration

    358,830  

Goodwill recognized

  $ 183,218  

 

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Acquired identifiable intangible assets consist of the following (dollars in thousands):

 

   

Preliminary Fair

Value

   

Preliminary Useful Life

(in years)

 

Customer relationships

  $ 83,000       17  

Trademark and trade name

  $ 6,700    

Indefinite

 

 

No residual value was assigned to the acquired customer relationships.

 

The acquisition produced $183.2 million of goodwill, increasing the Company’s goodwill balance from $172.1 million at December 31, 2018 to $355.3 million at June 30, 2019. Goodwill represents the excess of the purchase price consideration over the fair value of the underlying net assets acquired and largely results from expected future synergies from combining operations as well as an assembled workforce, which does not qualify for separate recognition. As an indefinite-lived asset, goodwill is not amortized but rather is subject to impairment testing on at least an annual basis. Goodwill arising from the Clearwave acquisition is not deductible for tax purposes.

 

For the three months ended June 30, 2019, the Company recognized revenues of $6.8 million and net income of $1.2 million from Clearwave operations, which reflected acquired intangible assets amortization expense of $1.2 million. For the period from January 8, 2019 to June 30, 2019, the Company recognized revenues of $12.9 million and net income of $2.2 million from Clearwave operations, which reflected acquired intangible assets amortization expense of $2.3 million.

 

 

3.        REVENUES

 

The Company’s revenues by product line were as follows (in thousands):   

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Residential

                               

Data

  $ 132,824     $ 122,471     $ 262,635     $ 242,330  

Video

    84,033       87,462       167,836       176,219  

Voice

    10,705       10,504       20,329       21,176  

Business services

    49,759       38,485       96,903       76,177  

Advertising sales

    4,750       5,916       9,479       11,158  

Other

    3,579       3,576       7,073       7,115  

Total revenues

  $ 285,650     $ 268,414     $ 564,255     $ 534,175  

 

Fees imposed on the Company by various governmental authorities are passed through monthly to the Company’s customers and are periodically remitted to authorities. These fees were $5.9 million and $4.1 million for the three months ended June 30, 2019 and 2018, respectively, and $10.0 million and $8.2 million for the six months ended June 30, 2019 and 2018, respectively. As the Company acts as principal, these fees are reported in video and voice revenues on a gross basis with corresponding expenses included within operating expenses in the condensed consolidated statements of operations and comprehensive income.

 

Other revenues are comprised primarily of customer late charges and reconnect fees.

 

Net accounts receivable from contracts with customers totaled $29.9 million and $29.8 million at June 30, 2019 and December 31, 2018, respectively.

 

Deferred commissions totaled $8.0 million and $7.8 million at June 30, 2019 and December 31, 2018, respectively, and were included within prepaid and other current assets and other noncurrent assets in the condensed consolidated balance sheets. Commission amortization expense was $0.9 million for both the three months ended June 30, 2019 and 2018 and $1.9 million and $1.7 million for the six months ended June 30, 2019 and 2018, respectively, and was included within selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income. Deferred commissions of $3.1 million included within prepaid and other current assets in the condensed consolidated balance sheet as of June 30, 2019 are expected to be amortized over the next 12 months.

 

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Current deferred revenue liabilities, consisting of refundable customer prepayments, up-front charges and installation fees, were $23.1 million and $19.0 million at June 30, 2019 and December 31, 2018, respectively. As of June 30, 2019, the Company’s remaining performance obligations pertain to the refundable customer prepayments and consist of providing future data, video and voice services to customers. Of the $19.0 million of current deferred revenue at December 31, 2018, nearly all was recognized during the six months ended June 30, 2019. Noncurrent deferred revenue liabilities, consisting of up-front charges and installation fees from business customers, were $4.8 million and $2.8 million as of June 30, 2019 and December 31, 2018, respectively, and were included within other noncurrent liabilities in the condensed consolidated balance sheets.

 

 

4.        PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consisted of the following (in thousands):  

 

   

June 30, 2019

   

December 31, 2018

 

Cable distribution systems

  $ 1,593,313     $ 1,421,820  

Customer premise equipment

    227,278       220,571  

Other equipment and fixtures

    413,364       406,011  

Buildings and leasehold improvements

    103,520       100,625  

Capitalized software

    97,790       94,801  

Construction in progress

    75,536       69,163  

Land

    12,252       11,946  

Right-of-use assets

    5,358       -  

Property, plant and equipment, gross

    2,528,411       2,324,937  

Less accumulated depreciation

    (1,551,013 )     (1,476,958 )

Property, plant and equipment, net

  $ 977,398     $ 847,979  

 

Depreciation expense was $50.6 million and $46.0 million for the three months ended June 30, 2019 and 2018, respectively, and $100.3 million and $92.1 million for the six months ended June 30, 2019 and 2018, respectively.

 

In January 2019, the remaining portion of the Company's previous headquarters building and adjoining property was sold for $6.3 million in gross proceeds and the Company recognized a related gain of $1.6 million. The property’s carrying value of $4.6 million was included within other noncurrent assets in the condensed consolidated balance sheet as assets held for sale at December 31, 2018.

 

 

5.        GOODWILL AND INTANGIBLE ASSETS

 

The carrying amount of goodwill was $355.3 million and $172.1 million at June 30, 2019 and December 31, 2018, respectively. The increase related to goodwill recognized upon the acquisition of Clearwave in January 2019. The Company has not historically recorded any impairment of goodwill.

 

 

Intangible assets (excluding goodwill) consisted of the following (dollars in thousands):   

 

               

June 30, 2019

   

December 31, 2018

 
   

Useful Life

Range

(in years)

   

Gross

Carrying

Amount

   

Accumulated

Amortization

   

Net

Carrying

Amount

   

Gross

Carrying

Amount

   

Accumulated

Amortization

   

Net

Carrying

Amount

 

Finite-Lived Intangible Assets

                                                 

Franchise renewals

  1 25     $ 2,927     $ 2,891     $ 36     $ 2,927     $ 2,887     $ 40  

Customer relationships

  14 17       243,000       27,141       215,859       160,000       19,047       140,953  

Trademark and trade name

    2.7         1,300       1,056       244       1,300       813       487  

Total Finite-Lived Intangible Assets

    $ 247,227     $ 31,088     $ 216,139     $ 164,227     $ 22,747     $ 141,480  
                                                             

Indefinite-Lived Intangible Assets

                                                 

Franchise agreements

              $ 812,371                     $ 812,371                  

Trademark and trade name

                6,700                       -                  

Total Indefinite-Lived Intangible Assets

    $ 819,071                     $ 812,371                  

 

Intangible asset amortization expense was $4.2 million and $3.0 million for the three months ended June 30, 2019 and 2018, respectively, and $8.3 million and $5.7 million for the six months ended June 30, 2019 and 2018, respectively.

 

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As of June 30, 2019, the future amortization of intangible assets was as follows (in thousands):

 

Year Ending December 31,

   

Amount

 

2019 (remaining six months)

  $ 8,357  

2020

    16,319  

2021

      16,318  

2022

    16,315  

2023

    16,313  

Thereafter

    142,517  

Total

  $ 216,139  

 

Actual amortization expense in future periods may differ from the amounts above as a result of new intangible asset acquisitions or divestitures, changes in useful life estimates, impairments or other relevant factors.

 

 

6.        LEASES

 

As a lessee, the Company has operating leases for buildings, equipment, data centers, fiber optic networks and towers and finance leases for certain buildings and fiber optic networks. These leases have remaining lease terms ranging from under 1 year to 24 years, with some including an option to extend the lease for up to 15 additional years and some including an option to terminate the lease within 1 year.

 

As a lessor, the Company has operating leases for the use of its fiber optic networks, towers and customer premise equipment. These leases have remaining lease terms ranging from under 1 year to 8 years, with some including a lessee option to extend the leases for up to 5 additional years and some including an option to terminate the lease within 1 year.

 

Significant judgment is required when determining whether a fiber optic contract contains a lease, defining the duration of the lease term and selecting the discount rate.

 

 

The Company concluded it was the lessee or lessor for fiber arrangements only when the asset is specifically identifiable and both substantially all the economic benefit is obtained and the right to direct the use of the asset exists.

 

 

The Company’s lease terms are only for periods in which there are enforceable rights. A lease is no longer enforceable when both the lessee and the lessor each have the right to terminate the lease without permission from the other party with no more than an insignificant penalty. The Company’s lease terms are impacted by options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

 

 

Most of the Company’s leases do not contain an implicit interest rate. Therefore, the Company held discussions with lenders, evaluated its published credit score and incorporated interest rates on currently held debt in determining discount rates that reflect what the Company would pay to borrow on a collateralized basis over similar terms for its lease obligations.

 

As of June 30, 2019, additional operating leases that have not yet commenced were not material.

 

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Lessee Financial Information. The Company’s ROU assets and lease liabilities consisted of the following (in thousands):

 

   

June 30, 2019

 

ROU Assets

       

Property, plant and equipment, net:

       

Finance leases

  $ 5,163  

Other noncurrent assets:

       

Operating leases

  $ 15,618  
         

Lease Liabilities

       

Accounts payable and accrued liabilities:

       

Operating leases

  $ 4,214  

Current portion of long-term debt:

       

Finance leases

  $ 153  

Long-term debt:

       

Finance leases

  $ 3,187  

Other noncurrent liabilities:

       

Operating leases

  $ 11,231  

Total:

       

Finance leases

  $ 3,340  

Operating leases

  $ 15,445  

 

The components of the Company’s lease expense were as follows (in thousands):

 

   

Three Months Ended

June 30, 2019

   

Six Months Ended

June 30, 2019

 

Finance lease expense:

               

Amortization of ROU assets

  $ 101     $ 210  

Interest on lease liabilities

    64       132  

Operating lease expense

    1,284       2,462  

Short-term lease expense

    228       472  

Variable lease expense

    31       98  

Total lease expense

  $ 1,708     $ 3,374  

 

Finance lease expense is included within depreciation and amortization expense and interest expense, and operating lease expense is included within operating expenses and selling, general and administrative expenses in the condensed consolidated statement of operations and comprehensive income.

 

Supplemental lessee financial information is as follows (dollars in thousands):

 

   

Three Months Ended

June 30, 2019

   

Six Months Ended

June 30, 2019

 

Cash paid for amounts included in the measurement of lease liabilities:

               

Finance leases - financing cash flows

  $ 399     $ 555  

Finance leases - operating cash flows

  $ 64     $ 132  

Operating leases - operating cash flows

  $ 1,331     $ 2,560  

ROU assets obtained in exchange for new lease liabilities:

               

Finance leases

  $ 524     $ 1,101  

Operating leases (1)

  $ 2,100     $ 7,082  

                               

(1)

Includes $3.3 million of ROU assets acquired in the Clearwave transaction.

 

   

June 30, 2019

 

Weighted average remaining lease term:

       

Finance leases (years)

    13.5  

Operating leases (years)

    4.7  

Weighted average discount rate:

       

Finance leases

    8.12 %

Operating leases

    5.07 %

 

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As of June 30, 2019, the future maturities of existing lease liabilities were as follows (in thousands):

 

 

Year Ending December 31,

   

Finance

Leases

   

Operating

Leases

 

2019 (remaining six months)

  $ 135     $ 2,553  

2020

    401       4,500  

2021

    412       3,384  

2022

      423       2,508  

2023

    429       2,191  

Thereafter

    3,705       2,272  

Total

    5,505       17,408  

Less present value discount

    (2,165 )     (1,963 )

Lease liability

  $ 3,340     $ 15,445  

 

As of December 31, 2018, the Company’s outstanding operating lease obligations under the previous accounting guidance were as follows (in thousands):

 

Year Ending December 31,

   

Operating Leases

 

2019

  $ 1,767  

2020

    1,219  

2021

      911  

2022

    398  

2023

    204  

Thereafter

    299  

Total

  $ 4,798  

 

Lessor Financial Information. The Company’s lease income, which is included within revenues in the condensed consolidated statements of operations and comprehensive income, was as follows (in thousands):

 

   

Three Months Ended

June 30, 2019

   

Six Months Ended

June 30, 2019

 

Lease income relating to lease payments

  $ 139     $ 258  

 

As of June 30, 2019, the future maturities of existing lease receivables were as follows (in thousands):

 

Year Ending December 31,

   

Operating

Leases

 

2019 (remaining six months)

  $ 312  

2020

    411  

2021

    248  

2022

      45  

2023

    33  

Thereafter

    78  

Total

  $ 1,127  

 

As of June 30, 2019, the current and noncurrent portions of operating lease receivables were $0.5 million and $0.6 million, respectively, and were included within accounts receivable, net and other noncurrent assets in the condensed consolidated balance sheet, respectively.

 

 

7.        DEBT

 

The carrying amount of long-term debt consisted of the following (in thousands):

 

   

June 30, 2019

   

December 31, 2018

 

Notes (as defined below)

  $ -     $ 450,000  

Senior Credit Facilities (as defined below)

    1,314,375       730,000  

Lease liabilities

    3,340       251  

Total debt

    1,317,715       1,180,251  

Less unamortized debt issuance costs

    (19,925 )     (17,570 )

Less current portion

    (17,153 )     (20,625 )

Total long-term debt

  $ 1,280,637     $ 1,142,056  

 

Notes. On June 17, 2015, the Company issued $450 million aggregate principal amount of 5.75% senior unsecured notes due 2022 (the “Notes”). The Notes were jointly and severally guaranteed on a senior unsecured basis by each of the subsidiaries that guarantee the Senior Credit Facilities (as defined below). The Notes were scheduled to mature on June 15, 2022 and interest was payable on June 15th and December 15th of each year. The indenture governing the Notes provided for early redemption of the Notes, at the option of the Company, at the prices and subject to the terms specified in the indenture.

 

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On June 15, 2019, the Company redeemed all $450 million aggregate principal amount of outstanding Notes. In conjunction with the redemption, the Company incurred a $6.5 million call premium and wrote off the remaining $3.8 million debt issuance cost associated with the Notes. These amounts are recorded within other income (expense), net in the condensed consolidated statement of operations and comprehensive income.

 

Senior Credit Facilities. On June 30, 2015, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, as borrower, the lenders party thereto, JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent, and the other agents party thereto, which provided for a 5-year revolving credit facility in an aggregate principal amount of $200 million (the “Original Revolving Credit Facility”).

 

On May 1, 2017, the Company and the lenders amended and restated the Credit Agreement (the “Amended and Restated Credit Agreement”) and the Company incurred $750 million of senior secured term loans (the “2017 New Loans”), the proceeds of which were used, together with cash on hand, to finance the acquisition of NewWave Communications (“NewWave”), repay in full the then-existing term loans and pay related fees and expenses. The 2017 New Loans consist of a 5-year term “A” loan in an original aggregate principal amount of $250 million (the “Term Loan A-1”) and a 7-year term “B” loan in an original aggregate principal amount of $500 million (the “Term Loan B-1”).

 

On January 7, 2019, the Company entered into Amendment No. 2 to the Amended and Restated Credit Agreement (“Amendment No. 2”) with CoBank, ACB (“CoBank”), as lender, and JPMorgan, as administrative agent, and incurred a new 7-year incremental term “B” loan in an aggregate principal amount of $250 million (the “Term Loan B-2”), the proceeds of which were used to finance, in part, the Clearwave acquisition.

 

On April 12, 2019, the Company entered into Amendment No. 3 to the Amended and Restated Credit Agreement (“Amendment No. 3”) with CoBank, as lender, and JPMorgan, as administrative agent, to provide for a new delayed draw incremental term “B” loan in an aggregate principal amount of $325 million (the “Term Loan B-3”). The Term Loan B-3 was drawn in full on June 14, 2019.

 

The Term Loan B-3 will mature on January 7, 2026 and may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions). The interest rate applicable to the Term Loan B-3 is equal to, at the Company’s option, LIBOR or a base rate, plus an applicable margin equal to 2.0% for LIBOR loans and 1.0% for base rate loans. The principal amount of the Term Loan B-3 amortizes in equal quarterly installments at a rate (expressed as a percentage of the original principal amount) of 1.0% per annum (subject to customary adjustments in the event of any prepayment), with the balance due upon maturity.

 

On May 8, 2019, the Company entered into a Second Restatement Agreement with JPMorgan, as administrative agent, and the lenders party thereto, to amend and restate the Amended and Restated Credit Agreement (the “Second Restatement Agreement”). The Second Restatement Agreement provides for a new senior secured term “A” loan in an aggregate principal amount of $250 million (the “Term Loan A-2”), a new senior secured delayed draw term “A” loan in an aggregate principal amount of $450 million (the “Delayed Draw Term Loan A-2”) and a new $350 million senior secured revolving credit facility (the “New Revolving Credit Facility” and, together with the Term Loan A-2, the Delayed Draw Term Loan A-2, the Term Loan B-1, the Term Loan B-2 and the Term Loan B-3, the “Senior Credit Facilities”). The Second Restatement Agreement did not alter the principal terms of the Company’s previously established Term Loan B-1, Term Loan B-2 or Term Loan B-3.

 

A portion of the proceeds from the Term Loan A-2, the Term Loan B-3 and the New Revolving Credit Facility, together with cash on hand, were used to refinance the Original Revolving Credit Facility and Term Loan A-1, to redeem the Notes and for other general corporate purposes. The Company intends to use the remaining proceeds, together with proceeds from the Delayed Draw Term Loan A-2 and cash on hand, to finance the acquisition of Fidelity and for other general corporate purposes.

 

The Term Loan A-2 and New Revolving Credit Facility will mature on May 8, 2024 (unless certain of the Company’s existing indebtedness remains outstanding after certain specified dates, in which case the final maturity date of both facilities will be an earlier date as specified in the Second Restatement Agreement).

 

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The principal amount of the Term Loan A-2 amortizes in equal quarterly installments at a rate (expressed as a percentage of the original principal amount) of 2.5% per annum for the first year following the closing date, 2.5% per annum for the second year following the closing date, 5.0% per annum for the third year following the closing date, 7.5% per annum for the fourth year following the closing date and 12.5% per annum for the fifth year following the closing date (in each case subject to customary adjustments in the event of any prepayment or in the event the Delayed Draw Term Loan A-2 is drawn), with the balance due upon maturity.

 

The Delayed Draw Term Loan A-2 will be available in a single drawing until February 8, 2020. Any loans under the Delayed Draw Term Loan A-2 will have the same terms as, and will constitute one class of term loans with, the loans under the Term Loan A-2 described above. The Company is required to pay a ticking fee, which accrues at a per annum rate of 0.30% on the average daily undrawn portion of the Delayed Draw Term Loan A-2 accruing during the period commencing on June 15, 2019 up to, but excluding, the date on which the lender’s commitments under the Delayed Draw Term Loan A-2 terminate.

 

The Senior Credit Facilities are guaranteed by the Company’s wholly owned subsidiaries (the “Guarantors”) and are secured, subject to certain exceptions, by substantially all of the assets of the Company and the Guarantors.

 

The Senior Credit Facilities may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions).

 

The interest margins applicable to the Senior Credit Facilities are, at the Company’s option, equal to either LIBOR or a base rate, plus an applicable margin equal to, (i) with respect to the Term Loan A-2, Delayed Draw Term Loan A-2 and New Revolving Credit Facility, 1.25% to 1.75% for LIBOR loans and 0.25% to 0.75% for base rate loans, determined on a quarterly basis by reference to a pricing grid based on the Company’s total net leverage ratio, (ii) with respect to the Term Loan B-1, (x) for any day on or prior to April 22, 2018, 2.25% for LIBOR loans and 1.25% for base rate loans and (y) for any day thereafter, 1.75% for LIBOR loans and 0.75% for base rate loans, and (iii) with respect to the Term Loan B-2 and Term Loan B-3, 2.0% for LIBOR loans and 1.0% for base rate loans.

 

The Company may, subject to certain specified terms and provisions, obtain additional credit facilities of up to $600 million under the Second Restatement Agreement plus an unlimited amount so long as, on a pro forma basis, the Company’s First Lien Net Leverage Ratio (as defined in the Second Restatement Agreement) is no greater than 3.0 to 1.0.

 

The Company was in compliance with all debt covenants as of June 30, 2019. 

 

As of June 30, 2019, outstanding borrowings under the Term Loan A-2, Term Loan B-1, Term Loan B-2 and Term Loan B-3 were $250.0 million, $490.0 million, $249.4 million and $325.0 million, respectively, and bore interest at rates ranging from 3.91% to 4.41% per annum. Letter of credit issuances under the New Revolving Credit Facility totaled $5.5 million and the Company had $344.5 million available for borrowing under the New Revolving Credit Facility at June 30, 2019.

 

In connection with the financing transactions during 2019, the Company incurred $12.4 million of debt issuance costs, of which $11.7 million was capitalized. The Company also wrote-off $4.2 million of existing unamortized debt issuance costs, including the $3.8 million associated with the Notes. The Company recorded $1.3 million and $1.0 million of debt issuance cost amortization for the three months ended June 30, 2019 and 2018, respectively, and $2.4 million and $2.0 million for the six months ended June 30, 2019 and 2018, respectively. These amounts are reflected within interest expense in the condensed consolidated statements of operations and comprehensive income. Unamortized debt issuance costs totaled $22.6 million and $17.6 million at June 30, 2019 and December 31, 2018, respectively, of which $2.7 million and $0 are reflected within other noncurrent assets, respectively, and $19.9 million and $17.6 million are reflected as reductions to long-term debt in the condensed consolidated balance sheets, respectively.

 

As of June 30, 2019, the future maturities of outstanding debt, excluding lease liability payment obligations, were as follows (in thousands): 

 

Year Ending December 31,

   

Amount

 

2019 (remaining six months)

  $ 8,500  

2020

    17,000  

2021

    20,125  

2022

      26,375  

2023

    35,750  

Thereafter

    1,206,625  

Total

  $ 1,314,375  

 

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8.        INTEREST RATE SWAPS

 

The Company is party to two interest rate swap agreements, designated as cash flow hedges, to manage the risk of fluctuations in interest expense on its variable rate LIBOR debt. Under the first swap agreement, with respect to a notional amount of $850 million, the Company’s monthly payment obligation is determined at a fixed base rate of 2.653% beginning in March 2019. Under the second swap agreement, which is a forward-starting interest rate swap with respect to a notional amount of $350 million, the Company’s monthly payment obligation beginning in June 2020 is determined at a fixed base rate of 2.739%. Both interest rate swap agreements are scheduled to mature in the first quarter of 2029 but may be terminated prior to their scheduled maturity at the election of the Company or the financial institution counterparty as provided in each swap agreement. The Company does not hold any derivative instruments for speculative trading purposes. As of June 30, 2019, the Company’s interest rate swap liabilities were recorded at their combined fair value of $83.7 million, with the current and noncurrent portions reflected in accounts payable and accrued expenses and other noncurrent liabilities, respectively, within the condensed consolidated balance sheet.

 

Changes in the fair values of the interest rate swaps are reported through other comprehensive income (loss) until the underlying hedged debt’s interest expense impacts net income, at which point the corresponding change in fair value is reclassified from accumulated other comprehensive income (loss) to interest expense. Losses of $45.1 million ($34.0 million net of tax) and $83.7 million ($63.0 million net of tax) were recorded through other comprehensive loss within the condensed consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2019, respectively. The Company expects that $7.0 million of the accumulated other comprehensive loss within the condensed consolidated balance sheet will be reclassified to interest expense within the condensed consolidated statement of operations and comprehensive income within the next 12 months. The Company recognized losses of $0.4 million and $0.5 million on interest rate swaps during the three and six months ended June 30, 2019, respectively, which were reflected in interest expense within the condensed consolidated statements of operations and comprehensive income.

 

 

9.        FAIR VALUE MEASUREMENTS

 

Financial Assets and Liabilities. The Company has estimated the fair values of its financial instruments as of June 30, 2019 using available market information or other appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the following fair value estimates are not necessarily indicative of the amounts the Company would realize in an actual market exchange.

 

The carrying amounts, fair values and related fair value hierarchy levels of the Company’s financial assets and liabilities as of June 30, 2019 were as follows (dollars in thousands):

 

   

June 30, 2019

   

Carrying

   

Fair

 

Fair Value

   

Amount

   

Value

 

Hierarchy

Assets:

                 

Cash and cash equivalents:

                 

Money market investments

  $ 53,574     $ 53,574  

Level 1

Commercial paper

  $ 30,007     $ 29,820  

Level 2

Liabilities:

                 

Long-term debt, including current portion, excluding debt issuance costs:

                 

Senior Credit Facilities

  $ 1,314,375     $ 1,306,131  

Level 2

Other noncurrent liabilities, including current portion:

                 

Interest rate swaps

  $ 83,672     $ 83,672  

Level 2

 

Money market investments are primarily held in U.S. Treasury securities and registered money market funds and are valued using a market approach based on quoted market prices (Level 1). Commercial paper is primarily held with high-quality companies and is valued using quoted market prices for investments similar to the commercial paper (Level 2). Money market investments and commercial paper with original maturities of three months or less are included within cash and cash equivalents in the condensed consolidated balance sheets. The fair value of the Senior Credit Facilities is estimated based on market prices for similar instruments in active markets (Level 2). Interest rate swaps are measured at fair value within the condensed consolidated balance sheets on a recurring basis, with fair value determined using standard valuation models with assumptions about interest rates being based on those observed in underlying markets (Level 2).

 

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The Company’s deferred compensation liability was $2.5 million and $3.0 million at June 30, 2019 and December 31, 2018, respectively. The current portion of this liability is included within accounts payable and accrued liabilities and the noncurrent portion is included within other noncurrent liabilities in the condensed consolidated balance sheets. This liability represents the market value of participant balances in a notional investment account that is comprised primarily of mutual funds, whose value is based on observable market prices. However, since the deferred compensation liability is not exchanged in an active market, it is classified as Level 2 in the fair value hierarchy.

 

The carrying amounts of accounts receivable, accounts payable and other financial assets and liabilities approximate fair value because of the short-term nature of these instruments.

 

Nonfinancial Assets and Liabilities. The Company’s nonfinancial assets, such as property, plant and equipment, intangible assets and goodwill, are not measured at fair value on a recurring basis. The assets acquired, including identifiable intangible assets and goodwill, and liabilities assumed in the Clearwave acquisition were recorded at fair value on the acquisition date of January 8, 2019, subject to potential future measurement period adjustments discussed in note 2. Nonfinancial assets are subject to fair value adjustments when there is evidence that impairment may exist. No material impairments were recorded during the six months ended June 30, 2019 or 2018.

 

 

10.        TREASURY STOCK

 

Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the condensed consolidated financial statements.

 

Share Repurchase Program. On July 1, 2015, the Company’s board of directors (the “Board”) authorized up to $250 million of share repurchases (subject to a total cap of 600,000 shares of common stock). Purchases under the share repurchase program may be made from time to time on the open market and in privately negotiated transactions. The size and timing of these purchases are based on a number of factors, including share price and business and market conditions. Since the inception of the share repurchase program through June 30, 2019, the Company had repurchased 210,631 shares of its common stock at an aggregate cost of $104.9 million. During the six months ended June 30, 2019, the Company repurchased 5,984 shares at an aggregate cost of $5.1 million. No shares were repurchased during the three months ended June 30, 2019.

 

Tax Withholding for Equity Awards. At the employee’s option, shares of common stock are withheld by the Company upon vesting of restricted stock and exercise of stock appreciation rights (“SARs”) to pay the applicable statutory minimum amount of employee withholding taxes. The Company then pays the applicable statutory minimum amount of withholding taxes in cash. The amounts remitted during the three and six months ended June 30, 2019 were $0.2 million and $2.8 million, for which the Company withheld 13 and 3,323 shares of common stock, respectively. Treasury shares of 181,087 held at June 30, 2019 include such shares withheld for withholding tax.

 

 

11.        EQUITY-BASED COMPENSATION 

 

The Amended and Restated Cable One, Inc. 2015 Omnibus Incentive Compensation Plan (the “2015 Plan”) provides for grants of incentive stock options, non-qualified stock options, restricted stock awards, SARs, restricted stock units (“RSUs”), cash-based awards, performance-based awards, dividend equivalent units (“DEUs”) and other stock-based awards, including performance stock units and deferred stock units. Directors, officers and employees of the Company and its affiliates are eligible for grants under the 2015 Plan as part of the Company’s approach to long-term incentive compensation. At June 30, 2019, 185,696 shares were available for issuance under the 2015 Plan.

 

Compensation expense associated with equity-based awards is recognized on a straight-line basis over the vesting period, with forfeitures recognized as incurred. Equity-based compensation expense was $3.1 million and $2.5 million for the three months ended June 30, 2019 and 2018, respectively, and $