10-Q 1 cabo20220331_10q.htm FORM 10-Q cabo20220331_10q.htm
0001632127 CABLE ONE, INC. false --12-31 Q1 2022 0.01 0.01 4,000,000 4,000,000 0 0 0 0 0.01 0.01 40,000,000 40,000,000 6,175,399 6,175,399 6,011,790 6,046,362 163,609 129,037 2.75 2.50 82.6 58 0 The Company identified a $186.6 million difference between the fair values of certain of MBI’s finite-lived intangible assets and the respective carrying values recorded by MBI, of which $84.0 million was attributable to the Company’s 45% pro rata portion. The Company is amortizing its share on an accelerated basis over the lives of the respective assets. For the three months ended March 31, 2022, the Company recognized $6.7 million of its pro rata share of MBI’s net income and $4.0 million of its pro rata share of basis difference amortization. For the three months ended March 31, 2021, the Company recognized $1.4 million of its pro rata share of MBI’s net income and $2.7 million of its pro rata share of basis difference amortization. Consists of the unfunded portion of the Company’s equity investment in Wisper ISP, LLC (“Wisper”). In March 2022, the Company funded $3.3 million of the then outstanding investment payable to Wisper. Refer to note 5 for details on this investment. Based on a conversion rate of 0.4394 shares of common stock per weighted $1,000 principal amount of Convertible Notes outstanding during both the three months ended March 31, 2022 and 2021. The Term Loan A-2 interest rate spread can vary between 1.25% and 1.75%, determined on a quarterly basis by reference to a pricing grid based on the Company’s Total Net Leverage Ratio. All other applicable margins are fixed. Payable in equal quarterly installments (expressed as a percentage of the original principal amount and subject to customary adjustments in the event of any prepayment). All loans may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions). Additions include $1.4 million of additional reserves assumed in the Hargray Acquisition. Represents the net value of the Company’s call and put options associated with the remaining equity interests in MBI (as defined in note 5), consisting of an asset of $27.6 million and a liability of $66.6 million, respectively, as of March 31, 2022 and a liability of $17.8 million and a liability of $105.8 million, respectively, as of December 31, 2021. Refer to notes 5 and 10 for further information on the MBI Net Option (as defined in note 5). Consists of approximately $2.0 billion of cash for the additional approximately 85% equity interest in Hargray that the Company did not already own and the $146.6 million May 3, 2021 fair value of the Company’s existing approximately 15% equity investment in Hargray. The Company recognized a $33.4 million non-cash gain within other income in the consolidated statement of operations and comprehensive income upon the acquisition, representing the difference between the existing equity investment’s fair value and $113.2 million carrying value. The fair value of the existing investment was calculated as approximately 15% of the fair value of Hargray’s total equity value (determined using the discounted cash flow method of the income approach, less debt), excluding the impact of any synergies or control premium that would be realized by a controlling interest. The Company holds a call option to purchase all but not less than all of the remaining equity interests in MBI that the Company does not already own between January 1, 2023 and June 30, 2024. If the call option is not exercised, certain investors in MBI hold a put option to sell (and to cause all members of MBI other than the Company to sell) to the Company all but not less than all of the remaining equity interests in MBI that the Company does not already own between July 1, 2025 and September 30, 2025. The call and put options (collectively referred to as the “MBI Net Option”) are measured at fair value using Monte Carlo simulations that rely on assumptions around MBI’s equity value, MBI’s and the Company’s equity volatility, MBI’s and the Company’s EBITDA volatility, risk adjusted discount rates and the Company’s cost of debt, among others. The final MBI purchase price allocation resulted in $630.7 million being allocated to the MBI equity investment and $19.7 million and $75.5 million being allocated to the call and put options, respectively. The MBI Net Option is remeasured at fair value on a quarterly basis. The carrying value of the MBI Net Option liability was $39.0 million and $123.6 million as of March 31, 2022 and December 31, 2021, respectively, and was included within other noncurrent liabilities in the condensed consolidated balance sheets. Refer to note 10 for further information on the MBI Net Option. 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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 March 31, 2022

 

or

 

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

 

For the transition period from _____ to _____

 

Commission File Number: 001-36863

 


 

logo01.jpg

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

(Registrants Telephone Number, Including Area Code)

 

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

 

Title of Each Class

 

Trading Symbol(s)

 

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 April 29, 2022
Common stock, par value $0.01 5,992,786

 

 

 

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 23
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 34
     
Item 4. Controls and Procedures 34
   
PART II: OTHER INFORMATION 35
   
Item 1. Legal Proceedings 35
     
Item 1A. Risk Factors 35
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
     
Item 3. Defaults Upon Senior Securities 35
     
Item 4. Mine Safety Disclosures 35
     
Item 5. Other Information 35
     
Item 6. Exhibits 36
     
SIGNATURES 37

 

References herein to “Cable One,” “us,” “our,” “we” or the “Company” refer to Cable One, Inc., together with its wholly owned subsidiaries.

 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This document contains “forward-looking statements” that involve risks and uncertainties. These statements can be identified by the fact that they do not relate strictly to historical or current facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business, strategy, acquisitions and strategic investments, dividend policy, financial results and financial condition. Forward-looking statements often include words such as “will,” “should,” “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance in connection with discussions of future operating or financial performance. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on our behalf. Important factors that could cause our actual results to differ materially from those in our forward-looking statements include government regulation, economic, strategic, political and social conditions and the following factors, which are discussed in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”):

 

 

the duration and severity of the COVID-19 pandemic and its effects on our business, financial condition, results of operations and cash flows;

 

rising levels of competition from historical and new entrants in our markets;

 

recent and future changes in technology;

 

our ability to continue to grow our business services products;

 

increases in programming costs and retransmission fees;

 

our ability to obtain hardware, software and operational support from vendors;

 

risks that we may fail to realize the benefits anticipated as a result of our purchase of the remaining interests in Hargray Acquisition Holdings, LLC (“Hargray”) that we did not already own (the “Hargray Acquisition”);

 

risks relating to existing or future acquisitions and strategic investments by us;

 

risks that the implementation of our new enterprise resource planning system disrupts business operations;

 

the integrity and security of our network and information systems;

 

the impact of possible security breaches and other disruptions, including cyber-attacks;

 

our failure to obtain necessary intellectual and proprietary rights to operate our business and the risk of intellectual property claims and litigation against us;

 

legislative or regulatory efforts to impose network neutrality and other new requirements on our data services;

 

additional regulation of our video and voice services;

 

our ability to renew cable system franchises;

 

increases in pole attachment costs;

 

changes in local governmental franchising authority and broadcast carriage regulations;

 

the potential adverse effect of our level of indebtedness on our business, financial condition or results of operations and cash flows;

 

the restrictions the terms of our indebtedness place on our business and corporate actions;

 

the possibility that interest rates will rise, causing our obligations to service our variable rate indebtedness to increase significantly;

  the transition away from the London Interbank Offered Rate ("LIBOR") and the adoption of alternative reference rates;
 

risks associated with our convertible indebtedness;

 

our ability to continue to pay dividends;

 

provisions in our charter, by-laws and Delaware law that could discourage takeovers and limit the judicial forum for certain disputes;

 

adverse economic conditions, labor shortages, supply chain disruptions and changes in rates of inflation;

  lower demand for our residential data and business services;
 

fluctuations in our stock price;

 

dilution from equity awards, convertible indebtedness and potential future convertible debt and stock issuances;

 

damage to our reputation or brand image;

 

our ability to retain key employees (whom we refer to as associates);

 

our ability to incur future indebtedness;

 

provisions in our charter that could limit the liabilities for directors; and

 

the other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”), including but not limited to those described under "Risk Factors" in our 2021 Form 10-K.

 

Any forward-looking statements made by us in this document speak only as of the date on which they are made. We are under no obligation, and expressly disclaim any obligation, except as required by law, to update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.

 

 

 

PART I:  FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

CABLE ONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(dollars in thousands, except par values)

 

March 31, 2022

  

December 31, 2021

 

Assets

        

Current Assets:

        

Cash and cash equivalents

 $368,166  $388,802 

Accounts receivable, net

  50,146   56,253 

Income taxes receivable

  8,051   24,193 

Prepaid and other current assets

  41,015   31,705 

Total Current Assets

  467,378   500,953 

Equity investments

  1,177,332   727,565 

Property, plant and equipment, net

  1,602,493   1,854,104 

Intangible assets, net

  2,744,906   2,861,137 

Goodwill

  927,981   967,913 

Other noncurrent assets

  39,330   42,322 

Total Assets

 $6,959,420  $6,953,994 
         

Liabilities and Stockholders' Equity

        

Current Liabilities:

        

Accounts payable and accrued liabilities

 $182,251  $203,387 

Deferred revenue

  23,956   26,851 

Current portion of long-term debt

  43,105   38,837 

Total Current Liabilities

  249,312   269,075 

Long-term debt

  3,788,764   3,799,500 

Deferred income taxes

  896,374   854,156 

Interest rate swap liability

  21,390   81,627 

Other noncurrent liabilities

  67,433   156,541 

Total Liabilities

  5,023,273   5,160,899 
         

Commitments and contingencies (refer to note 16)

          
         

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; 6,175,399 shares issued; and 6,011,790 and 6,046,362 shares outstanding as of March 31, 2022 and December 31, 2021, respectively)

  62   62 

Additional paid-in capital

  560,845   555,640 

Retained earnings

  1,611,357   1,456,543 

Accumulated other comprehensive loss

  (25,391)  (82,795)

Treasury stock, at cost (163,609 and 129,037 shares held as of March 31, 2022 and December 31, 2021, respectively)

  (210,726)  (136,355)

Total Stockholders' Equity

  1,936,147   1,793,095 

Total Liabilities and Stockholders' Equity

 $6,959,420  $6,953,994 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

CABLE ONE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

 

   

Three Months Ended

 
   

March 31,

 

(dollars in thousands, except per share data)

 

2022

   

2021

 

Revenues

  $ 426,726     $ 341,262  

Costs and Expenses:

               

Operating (excluding depreciation and amortization)

    119,421       101,464  

Selling, general and administrative

    87,766       69,042  

Depreciation and amortization

    87,919       68,530  

(Gain) loss on asset sales and disposals, net

    2,490       (120 )

(Gain) loss on sale of business

    (22,087 )     -  

Total Costs and Expenses

    275,509       238,916  

Income from operations

    151,217       102,346  

Interest expense

    (30,080 )     (23,581 )

Other income (expense), net

    88,060       8,100  

Income before income taxes and equity method investment income (loss), net

    209,197       86,865  

Income tax provision

    41,501       17,715  

Income before equity method investment income (loss), net

    167,696       69,150  

Equity method investment income (loss), net

    3,780       (568 )

Net income

  $ 171,476     $ 68,582  
                 

Net Income per Common Share

               

Basic

  $ 28.49     $ 11.41  

Diluted

  $ 26.85     $ 11.19  

Weighted Average Common Shares Outstanding:

               

Basic

    6,018,881       6,012,402  

Diluted

    6,444,963       6,168,261  
                 

Unrealized gain on cash flow hedges and other, net of tax

  $ 57,404     $ 55,467  

Comprehensive income

  $ 228,880     $ 124,049  

 

See accompanying notes to the condensed consolidated financial statements.

 

 

 

CABLE ONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(Unaudited)

 

          

Additional

      

Accumulated 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, 2021

  6,046,362  $62  $555,640  $1,456,543  $(82,795) $(136,355) $1,793,095 

Net income

  -   -   -   171,476   -   -   171,476 

Unrealized gain on cash flow hedges and other, net of tax

  -   -   -   -   57,404   -   57,404 

Equity-based compensation

  -   -   5,205   -   -   -   5,205 

Issuance of equity awards, net of forfeitures

  15,909   -   -   -   -   -   - 

Repurchases of common stock

  (47,800)  -   -   -   -   (69,695)  (69,695)

Withholding tax for equity awards

  (2,681)  -   -   -   -   (4,676)  (4,676)

Dividends paid to stockholders ($2.75 per common share)

  -   -   -   (16,662)  -   -   (16,662)

Balance at March 31, 2022

  6,011,790  $62  $560,845  $1,611,357  $(25,391) $(210,726) $1,936,147 

 

          

Additional

      

Accumulated 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, 2020

  6,027,704  $62  $535,586  $1,228,172  $(140,683) $(127,838) $1,495,299 

Net income

  -   -   -   68,582   -   -   68,582 

Unrealized gain on cash flow hedges and other, net of tax

  -   -   -   -   55,467   -   55,467 

Equity-based compensation

  -   -   4,127   -   -   -   4,127 

Issuance of equity awards, net of forfeitures

  10,398   -   -   -   -   -   - 

Withholding tax for equity awards

  (3,493)  -   -   -   -   (7,741)  (7,741)

Dividends paid to stockholders ($2.50 per common share)

  -   -   -   (15,087)  -   -   (15,087)

Balance at March 31, 2021

  6,034,609  $62  $539,713  $1,281,667  $(85,216) $(135,579) $1,600,647 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

 

CABLE ONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  

Three Months Ended March 31,

 

(in thousands)

 

2022

  

2021

 

Cash flows from operating activities:

        

Net income

 $171,476  $68,582 

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

        

Depreciation and amortization

  87,919   68,530 

Non-cash interest expense

  2,373   1,432 

Equity-based compensation

  5,205   4,127 

Write-off of debt issuance costs

  -   487 

Change in deferred income taxes

  23,788   7,131 

(Gain) loss on asset sales and disposals, net

  2,490   (120)

Gain on sale of business

  (22,087)  - 

Equity method investment (income) loss, net

  (3,780)  568 

Fair value adjustments

  (84,735)  (5,560)

Changes in operating assets and liabilities:

        

Accounts receivable, net

  3,289   8,416 

Income taxes receivable

  16,142   26,132 

Prepaid and other current assets

  (13,408)  (12,348)

Accounts payable and accrued liabilities

  (447)  (3,042)

Deferred revenue

  (115)  2,568 

Other

  609   (2,910)

Net cash provided by operating activities

  188,719   163,993 
         

Cash flows from investing activities:

        

Cash paid for debt and equity investments

  (10,673)  - 

Capital expenditures

  (99,448)  (71,853)

Change in accrued expenses related to capital expenditures

  225   5,004 

Proceeds from sales of property, plant and equipment

  250   151 

Net cash used in investing activities

  (109,646)  (66,698)
         

Cash flows from financing activities:

        

Proceeds from long-term debt borrowings

  -   895,850 

Payment of debt issuance costs

  -   (1,291)

Payments on long-term debt

  (8,676)  (6,637)

Repurchases of common stock

  (69,695)  - 

Payment of withholding tax for equity awards

  (4,676)  (7,741)

Dividends paid to stockholders

  (16,662)  (15,087)

Net cash provided by (used in) financing activities

  (99,709)  865,094 
         

Increase (decrease) in cash and cash equivalents

  (20,636)  962,389 

Cash and cash equivalents, beginning of period

  388,802   574,909 

Cash and cash equivalents, end of period

 $368,166  $1,537,298 
         

Supplemental cash flow disclosures:

        

Cash paid for interest, net of capitalized interest

 $22,393  $15,118 

Cash paid for income taxes, net of refunds received

 $(42) $(15,586)

 

See accompanying notes to the condensed consolidated financial statements.

 

 

CABLE ONE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1.      DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Description of Business. Cable One is a fully integrated provider of data, video and voice services to residential and business customers in 24 Western, Midwestern and Southern U.S. states. Cable One provided service to approximately 1.1 million residential and business customers, of which approximately 1,057,000 subscribed to data services, 238,000 subscribed to video services and 143,000 subscribed to voice services, as of March 31, 2022.

 

On October 1, 2020, the Company contributed its Anniston, Alabama system (the “Anniston System”) to Hargray in exchange for an approximately 15% equity interest in Hargray on a fully diluted basis (the “Anniston Exchange”). On May 3, 2021, the Company acquired the remaining approximately 85% equity interest in Hargray that it did not already own for an approximately $2.0 billion cash purchase price, which implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free basis. The all-cash transaction was funded through a combination of cash on hand and proceeds from new indebtedness. Refer to note 2 for further details on this transaction.

 

On  December 30, 2021, the Company acquired certain assets and assumed certain liabilities from Cable America Missouri, LLC, a data, video and voice services provider in central Missouri ("CableAmerica"), for $113.1 million in cash on a debt-free basis. The all-cash transaction was financed with cash on hand. Refer to note 2 for further details on this transaction.

 

On  January 1, 2022, the Company closed a joint venture transaction in which the Company contributed certain fiber operations (including certain fiber assets of Hargray and a majority of the operations of Delta Communications, L.L.C. ("Clearwave")) (the "Clearwave Fiber Contribution") and certain unaffiliated third-party investors contributed cash to a newly formed entity, Clearwave Fiber LLC ("Clearwave Fiber"). The operations contributed by the Company generated approximately 3% of Cable One's consolidated revenues for the three months ended  December 31, 2021. The Company's approximately 58% investment in Clearwave Fiber was valued at $440.0 million as of the closing date. Clearwave Fiber is intended to accelerate deployment of fiber internet to residents and businesses in existing markets and near-adjacent areas, as well as to provide connectivity to unserved and underserved areas in such markets via fiber-to-the-premises service. Clearwave Fiber is reported on Cable One’s balance sheet under the equity method of accounting, with the proportionate share of its net income (loss) each period reflected within Cable One's operating results on a one quarter lag. Refer to note 5 for further details on this transaction and on the Company’s other equity investments.

 

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 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 2021 Form 10-K.

 

The December 31, 2021 year-end balance sheet data presented herein was derived from the Company’s audited consolidated financial statements included in the 2021 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 Standards Codification ("ASC") 280 - Segment Reporting requires the disclosure of factors used to identify an entity’s reportable segments. Based on the Company’s chief operating decision maker’s review and assessment of the Company’s operating performance for purposes of performance monitoring and resource allocation, the Company determined that its operations, including the decisions to allocate resources and deploy capital, are organized and managed on a consolidated basis. Accordingly, management has identified one operating segment, which is its reportable segment, under this organizational and reporting structure.

 

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.

 

5

 

Recently Adopted Accounting Pronouncements. In  November 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. ASU 2021-10 requires additional disclosure around the type of any government assistance received and its impact on the consolidated financial statements. The Company adopted the updated guidance in the first quarter of 2022. The adoption did not have a material impact on the Company's consolidated financial statements.

 

In  October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires entities to apply existing revenue recognition guidance when recognizing and measuring contract assets acquired and contract liabilities assumed in a business combination. The Company adopted the updated guidance in the first quarter of 2022. The adoption did not have a material impact on the Company's consolidated financial statements.

 

Recently Issued But Not Yet Adopted Accounting Pronouncements. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR and other reference rates that are to be discontinued. The ASU may be adopted at any time through December 31, 2022. The Company currently holds certain debt and interest rate swaps that reference LIBOR. The Company plans to adopt ASU 2020-04 when the contracts underlying such instruments are amended as a result of reference rate reform. The Company is currently evaluating the expected impact of the adoption of this guidance on its consolidated financial statements.

 

 

2.      ACQUISITIONS

 

The Company accounts for certain acquisitions as business combinations pursuant to ASC 805. 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 is 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 for each acquisition, however, preliminary measurements of fair value for each acquisition are subject to change during the measurement period, and such changes could be material. The Company expects to finalize the valuation after each acquisition as soon as practicable but no later than one year after the acquisition date.

 

Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired in a business combination and represents the future economic benefits expected to arise from anticipated synergies and intangible assets that do not qualify for separate recognition, including an assembled workforce, noncontractual relationships and other agreements. As an indefinite-lived asset, goodwill is not amortized but rather is subject to impairment testing on at least an annual basis.

 

Acquisition costs incurred by the Company are not included as components of consideration transferred and instead are accounted for as expenses in the period in which the costs are incurred. The Company incurred $1.3 million and $4.4 million of acquisition costs during the three months ended March 31, 2022 and 2021, respectively. These costs are included in selling, general and administrative expenses within the Company’s condensed consolidated statements of operations and comprehensive income.

 

The following acquisitions occurred during the periods presented:

 

CableAmerica. On  December 30, 2021, the Company acquired certain assets and assumed certain liabilities of CableAmerica, a data, video and voice services provider in central Missouri, for a preliminary purchase price of $113.1 million on a cash-free and debt-free basis.

 

Acquired identifiable intangible assets associated with the CableAmerica acquisition consisted of the following (dollars in thousands):

 

           

Useful Life

 
   

Fair Value

   

(in years)

 

Customer relationships

  $ 15,400       14.0  

Trademark and trade name

  $ 500       3.0  

Franchise agreements

  $ 49,600    

Indefinite

 

 

Customer relationships and franchise agreements were valued using the multi-period excess earnings method (“MPEEM”) of the income approach. Significant assumptions used in the valuations include projected revenue growth rates, customer attrition rates, future earnings before interest, taxes, depreciation and amortization (“EBITDA” and as adjusted, “Adjusted EBITDA”) margins, future capital expenditures and appropriate discount rates. No residual value was assigned to the acquired customer relationships, trademark and trade name or franchise agreements. The customer relationships are amortized on an accelerated basis commensurate with future anticipated cash flows. The trademark and trade name are amortized on a straight-line basis. The total weighted average amortization period for the acquired finite-lived intangible assets is 13.7 years.

 

The CableAmerica acquisition resulted in the recognition of $25.6 million of goodwill, which is deductible for tax purposes.

 

6

 

Hargray. On May 3, 2021, the Company acquired the remaining approximately 85% equity interest in Hargray, a data, video and voice services provider, that it did not already own for an approximately $2.0 billion cash purchase price, which implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free basis. 

 

The following table summarizes the allocation of the Hargray purchase price consideration as of the acquisition date, reflecting immaterial measurement period adjustments (in thousands):

 

   

Initial Purchase Price Allocation

   

Measurement Period Adjustments

   

Purchase Price Allocation

 

Assets Acquired

                       

Cash and cash equivalents

  $ 17,652     $ -     $ 17,652  

Accounts receivable

    17,991       (62 )     17,929  

Income taxes receivable

    -       720       720  

Prepaid and other current assets

    8,006       -       8,006  

Property, plant and equipment

    457,158       (525 )     456,633  

Intangible assets

    1,592,000       -       1,592,000  

Other noncurrent assets

    4,636       2,940       7,576  

Total Assets Acquired

    2,097,443       3,073       2,100,516  
                         

Liabilities Assumed

                       

Accounts payable and accrued liabilities

    36,457       1,770       38,227  

Deferred revenue (short-term portion)

    8,462       -       8,462  

Current portion of long-term debt

    1,375       (1,375 )     -  

Long-term debt

    2,912       (2,912 )     -  

Deferred income taxes

    437,725       923       438,648  

Other noncurrent liabilities

    6,974       2,912       9,886  

Total Liabilities Assumed

    493,905       1,318       495,223  
                         

Net assets acquired

    1,603,538       1,755       1,605,293  

Purchase price consideration(1)

    2,117,866       (756 )     2,117,110  

Goodwill recognized

  $ 514,328     $ (2,511 )   $ 511,817  

 


(1)

Consists of approximately $2.0 billion of cash for the additional approximately 85% equity interest in Hargray that the Company did not already own and the $146.6 million May 3, 2021 fair value of the Company’s existing approximately 15% equity investment in Hargray. The Company recognized a $33.4 million non-cash gain within other income in the condensed consolidated statement of operations and comprehensive income upon the acquisition, representing the difference between the existing equity investment’s fair value and $113.2 million carrying value. The fair value of the existing investment was calculated as approximately 15% of the fair value of Hargray’s total equity value (determined using the discounted cash flow method of the income approach, less debt), excluding the impact of any synergies or control premium that would be realized by a controlling interest.

 

Acquired identifiable intangible assets associated with the Hargray Acquisition consisted of the following (dollars in thousands):

 

           

Useful Life

 
   

Fair Value

   

(in years)

 

Customer relationships

  $ 472,000       13.7  

Trademark and trade name

  $ 10,000       4.2  

Franchise agreements

  $ 1,110,000    

Indefinite

 

 

Customer relationships and franchise agreements were valued using the MPEEM of the income approach. Significant assumptions used in the valuations include projected revenue growth rates, customer attrition rates, future EBITDA margins, future capital expenditures and appropriate discount rates. No residual value was assigned to the acquired customer relationships, trademark and trade name or franchise agreements. The customer relationships are amortized on an accelerated basis commensurate with future anticipated cash flows. The trademark and trade name are amortized on a straight-line basis. The total weighted average amortization period for the acquired finite-lived intangible assets is 13.5 years.

 

The Hargray Acquisition resulted in the recognition of $511.8 million of goodwill, which is not deductible for tax purposes.

 

7

 
 

3.      REVENUES

 

Revenues by product line and other revenue-related disclosures were as follows (in thousands):   

 

   

Three Months Ended

 
   

March 31,

 
   

2022

   

2021

 

Residential:

               

Data

  $ 230,153     $ 183,605  

Video

    84,658       76,017  

Voice

    11,896       10,477  

Business services

    76,498       60,362  

Other

    23,521       10,801  

Total revenues

  $ 426,726     $ 341,262  
                 

Franchise and other regulatory fees

  $ 8,094     $ 6,152  

Deferred commission amortization

  $ 1,253     $ 1,468  

 

Other revenues are comprised primarily of regulatory revenues, advertising sales, late charges and reconnect fees.

 

Fees imposed on the Company by various governmental authorities, including franchise fees, are passed through on a monthly basis to the Company’s customers and are periodically remitted to authorities. 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.

 

Deferred commission amortization expense is included within selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income.

 

Current deferred revenue liabilities consist of refundable customer prepayments, up-front charges and installation fees. As of March 31, 2022, 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 $26.9 million of current deferred revenue at December 31, 2021, $22.1 million was recognized during the three months ended March 31, 2022. Noncurrent deferred revenue liabilities consist of up-front charges and installation fees from business customers.

 

 

4.      OPERATING ASSETS AND LIABILITIES

 

Accounts receivable consisted of the following (in thousands):

 

   

March 31, 2022

   

December 31, 2021

 

Trade receivables

  $ 38,192     $ 41,947  

Other receivables

    14,534       16,847  

Less: Allowance for credit losses

    (2,580 )     (2,541 )

Total accounts receivable, net

  $ 50,146     $ 56,253  

 

The changes in the allowance for credit losses were as follows (in thousands):

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 

Beginning balance

  $ 2,541     $ 1,252  

Additions - charged to costs and expenses

    1,718       643  

Deductions - write-offs

    (3,261 )     (2,451 )

Recoveries collected

    1,582       1,930  

Ending balance

  $ 2,580     $ 1,374  

 

8

 

Prepaid and other current assets consisted of the following (in thousands):

 

   

March 31, 2022

   

December 31, 2021

 

Prepaid repairs and maintenance

  $ 11,091     $ 4,788  

Software implementation costs

    1,336       1,199  

Prepaid insurance

    1,637       3,325  

Prepaid rent

    3,187       2,107  

Prepaid software

    7,820       6,982  

Deferred commissions

    3,609       4,295  

All other current assets

    12,335       9,009  

Total prepaid and other current assets

  $ 41,015     $ 31,705  

 

Other noncurrent assets consisted of the following (in thousands):

 

  

March 31, 2022

  

December 31, 2021

 

Operating lease right-of-use assets

 $12,354  $15,501 

Deferred commissions

  8,673   8,624 

Software implementation costs

  7,457   7,782 

Debt issuance costs

  2,410   2,576 

Debt investment

  2,000   - 

Assets held for sale

  3,896   3,819 

All other noncurrent assets

  2,540   4,020 

Total other noncurrent assets

 $39,330  $42,322 

 

Accounts payable and accrued liabilities consisted of the following (in thousands):

 

   

March 31, 2022

   

December 31, 2021

 

Accounts payable

  $ 35,640     $ 35,716  

Accrued programming costs

    24,425       23,703  

Accrued compensation and related benefits

    24,833       34,731  

Accrued sales and other operating taxes

    8,879       12,872  

Accrued franchise fees

    3,734       4,397  

Deposits

    6,796       6,840  

Operating lease liabilities

    4,386       5,633  

Interest rate swap liability

    11,068       26,662  

Accrued insurance costs

    5,307       5,542  

Cash overdrafts

    13,479       11,517  

Equity investment payable(1)

    10,087       13,387  

Interest payable

    10,414       5,172  

All other accrued liabilities

    23,203       17,215  

Total accounts payable and accrued liabilities

  $ 182,251     $ 203,387  

 


(1)

Consists of the unfunded portion of the Company’s equity investment in Wisper ISP, LLC (“Wisper”). In March 2022, the Company funded $3.3 million of the then outstanding investment payable to Wisper. Refer to note 5 for details on this investment.

 

9

 

Other noncurrent liabilities consisted of the following (in thousands):

 

   

March 31, 2022

   

December 31, 2021

 

Operating lease liabilities

  $ 7,235     $ 9,098  

Accrued compensation and related benefits

    10,218       11,010  

Deferred revenue

    6,358       6,854  

MBI Net Option (as defined in note 5)(1)

    39,010       123,620  

All other noncurrent liabilities

    4,612       5,959  

Total other noncurrent liabilities

  $ 67,433     $ 156,541  

 


(1)

Represents the net value of the Company’s call and put options associated with the remaining equity interests in MBI (as defined in note 5), consisting of an asset of $27.6 million and a liability of $66.6 million, respectively, as of March 31, 2022 and a liability of $17.8 million and a liability of $105.8 million, respectively, as of December 31, 2021. Refer to notes 5 and 10 for further information on the MBI Net Option (as defined in note 5).

 

 

5.     EQUITY INVESTMENTS

 

On May 4, 2020, the Company made a minority equity investment for a less than 10% ownership interest in AMG Technology Investment Group, LLC, a wireless internet service provider (“Nextlink”), for $27.2 million. On July 10, 2020, the Company acquired a 40.4% minority equity interest in Wisper, a wireless internet service provider, for total consideration of $25.3 million. The Company has funded $15.2 million of the total consideration for Wisper and expects to fund the remainder within the next twelve months. On October 1, 2020, the Company contributed the Anniston System to Hargray, a data, video and voice services provider, in exchange for an approximately 15% equity interest in Hargray on a fully diluted basis and recognized an $82.6 million non-cash gain. On November 12, 2020, the Company acquired a 45.0% minority equity interest in Mega Broadband Investments Holdings LLC, a data, video and voice services provider (“MBI”), for $574.9 million in cash.

 

On May 3, 2021, the Company acquired the remaining approximately 85% equity interest in Hargray that it did not already own for an approximately $2.0 billion cash purchase price, which implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free basis, and recognized a $33.4 million non-cash gain as a result of the fair value remeasurement of the Company’s existing equity interest on the acquisition date. On   October 1, 2021, the Company made a minority equity investment for a less than 10% ownership interest in Point Broadband Holdings, LLC, a fiber internet service provider ("Point Broadband"), for $25.0 million. On  October 18, 2021, the Company completed a minority equity investment for a less than 10% ownership interest in Tristar Acquisition I Corp, a special-purpose acquisition company ("Tristar"), for $20.8 million. On  November 5, 2021, the Company invested an additional $50.0 million to acquire preferred units in Nextlink, increasing its equity interest to approximately 17%.


On  January 1, 2022, the Company closed a joint venture transaction in which the Company contributed certain fiber operations (including certain fiber assets of Hargray) and certain unaffiliated third-party investors contributed cash to a newly formed entity, Clearwave Fiber. The operations contributed by the Company generated approximately 3% of Cable One's consolidated revenues for the three months ended  December 31, 2021. The Company's approximately 58% investment in Clearwave Fiber was valued at $440.0 million as of the closing date. The Company recognized a non-cash gain of $22.1 million associated with this transaction. On March 1, 2022, the Company funded Wisper $3.3 million of the then outstanding investment payable. On March 24, 2022, the Company invested an additional $5.4 million in Point Broadband, increasing its equity interest to approximately 7%.

 

10

 

The carrying value of the Company’s equity investments without readily determinable fair values are determined based on fair valuations as of their respective acquisition dates. As Tristar is publicly traded, the carrying value of the Company's Tristar investment is remeasured to fair value on a quarterly basis using market information.

 

The carrying value of the Company's equity investments consisted of the following (dollars in thousands):

 

   

Ownership

 

March 31,

   

December 31,

 
   

Percentage

 

2022

   

2021

 

Cost Method Investments

                   

Nextlink

 

<20%

  $ 77,245     $ 77,245  

Point Broadband

  <10%     30,373       25,000  

Tristar

 

<10%

    23,208       23,083  

Others

 

<10%

    13,658       13,170  

Total cost method investments

      $ 144,484     $ 138,498  
                     

Equity Method Investments

                   

Clearwave Fiber

 

~58%

  $ 440,000     $ -  

MBI(1)

 

45.0%

    560,496       557,715  

Wisper

 

40.4%

    32,352       31,352  

Total equity method investments

      $ 1,032,848     $ 589,067  
                     

Total equity investments

      $ 1,177,332     $ 727,565  

 


(1)

The Company holds a call option to purchase all but not less than all of the remaining equity interests in MBI that the Company does not already own between January 1, 2023 and June 30, 2024. If the call option is not exercised, certain investors in MBI hold a put option to sell (and to cause all members of MBI other than the Company to sell) to the Company all but not less than all of the remaining equity interests in MBI that the Company does not already own between July 1, 2025 and September 30, 2025. The call and put options (collectively referred to as the “MBI Net Option”) are measured at fair value using Monte Carlo simulations that rely on assumptions around MBI’s equity value, MBI’s and the Company’s equity volatility, MBI’s and the Company’s EBITDA volatility, risk adjusted discount rates and the Company’s cost of debt, among others. The final MBI purchase price allocation resulted in $630.7 million being allocated to the MBI equity investment and $19.7 million and $75.5 million being allocated to the call and put options, respectively. The MBI Net Option is remeasured at fair value on a quarterly basis. The carrying value of the MBI Net Option liability was $39.0 million and $123.6 million as of March 31, 2022 and December 31, 2021, respectively, and was included within other noncurrent liabilities in the condensed consolidated balance sheets. Refer to note 10 for further information on the MBI Net Option.

 

The carrying value of MBI exceeded the Company’s underlying equity in MBI’s net assets by approximately $502.9 million and $508.3 million as of March 31, 2022 and December 31, 2021, respectively.

 

11

 

Equity method investment income (losses), which increase (decrease) the carrying value of the respective investment, and which are recorded on a one quarter lag, and the change in fair value of the MBI Net Option were as follows (in thousands):

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 

Equity Method Investment Income (Loss)

               

MBI(1)

  $ 2,781     $ (1,214 )

Wisper

    999       646  

Total

  $ 3,780     $ (568 )
                 

Other Income (Expense), Net

               

MBI Net Option change in fair value

  $ 84,610     $ 5,560  

 


(1)

The Company identified a $186.6 million difference between the fair values of certain of MBI’s finite-lived intangible assets and the respective carrying values recorded by MBI, of which $84.0 million was attributable to the Company’s 45% pro rata portion. The Company is amortizing its share on an accelerated basis over the lives of the respective assets. For the three months ended March 31, 2022, the Company recognized $6.7 million of its pro rata share of MBI’s net income and $4.0 million of its pro rata share of basis difference amortization. For the three months ended  March 31, 2021, the Company recognized $1.4 million of its pro rata share of MBI’s net income and $2.7 million of its pro rata share of basis difference amortization.

 

The Company assesses each equity investment for indicators of impairment on a quarterly basis. No impairments were recorded for any of the periods presented.

 

 

6.      PROPERTY, PLANT AND EQUIPMENT

 

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

 

  

March 31, 2022

  

December 31, 2021

 

Cable distribution systems

 $2,291,433  $2,509,795 

Customer premise equipment

  323,982   320,937 

Other equipment and fixtures

  464,784   472,319 

Buildings and improvements

  138,436   142,754 

Capitalized software

  91,802   89,662 

Construction in progress

  167,104   172,706 

Land

  12,363   12,134 

Right-of-use assets

  11,241   11,241 

Property, plant and equipment, gross

  3,501,145   3,731,548 

Less: Accumulated depreciation and amortization

  (1,898,652)  (1,877,444)

Property, plant and equipment, net

 $1,602,493  $1,854,104 

 

The Company contributed $280.0 million of property, plant and equipment to the Clearwave Fiber joint venture on January 1, 2022.

 

The Company classified $3.9 million of property, plant and equipment as held for sale as of March 31, 2022. Such assets are included within other noncurrent assets in the condensed consolidated balance sheet.

 

Depreciation and amortization expense for property, plant and equipment was $67.1 million and $58.0 million for the three months ended March 31, 2022 and 2021, respectively.

 

 

7.      GOODWILL AND INTANGIBLE ASSETS

 

The carrying amount of goodwill was $928.0 million at March 31, 2022 and $967.9 at December 31, 2021, with the $39.9 million decrease attributable to goodwill divested in the Clearwave Fiber transaction on January 1, 2022. The Company has not historically recorded any impairment of goodwill.

 

12

 

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

 

     

March 31, 2022

  

December 31, 2021

 
  

Useful Life

  

Gross

      

Net

  

Gross

      

Net

 
  

Range

  

Carrying

  

Accumulated

  

Carrying

  

Carrying

  

Accumulated

  

Carrying

 
  

(in years)

  

Amount

  

Amortization

  

Amount

  

Amount

  

Amortization

  

Amount

 

Finite-Lived Intangible Assets

                           

Customer relationships

 13.517  $788,042  $164,237  $623,805  $857,100  $153,699  $703,401 

Trademarks and trade names

 2.74.2   11,922   4,429   7,493   13,500   3,852   9,648 

Wireless licenses

 1015   1,418   178   1,240   1,418   142   1,276 

Total finite-lived intangible assets

    $801,382  $168,844  $632,538  $872,018  $157,693  $714,325 
                            

Indefinite-Lived Intangible Assets

                           

Franchise agreements

            $2,111,568          $2,139,312 

Trade names

             800           7,500 

Total indefinite-lived intangible assets

            $2,112,368          $2,146,812 
                            

Total intangible assets, net

            $2,744,906          $2,861,137 

 

The $116.2 million decrease in the net carrying amount of intangible assets from December 31, 2021 to March 31, 2022 included $59.7 million of customer relationships, $8.1 million of trademarks and trade names and $27.7 million of franchise agreements divested in the Clearwave Fiber transaction on January 1, 2022.

 

Intangible asset amortization expense was $20.8 million and $10.5 million for the three months ended March 31, 2022 and 2021, respectively.

 

The future amortization of existing finite-lived intangible assets as of March 31, 2022 was as follows (in thousands):

 

Year Ending December 31,

 

Amount

 

2022 (remaining nine months)

 $63,181 

2023

  73,111 

2024

  66,307 

2025

  61,279 

2026

  55,681 

Thereafter

  312,979 

Total

 $632,538 

 

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

 

 

8.      DEBT

 

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

 

   

March 31, 2022

   

December 31, 2021

 

Senior Credit Facilities (as defined below)

  $ 2,303,458     $ 2,311,890  

Senior Notes (as defined below)

    650,000       650,000  

Convertible Notes (as defined below)

    920,000       920,000  

Finance lease liabilities

    5,378       5,621  

Total debt

    3,878,836       3,887,511  

Less: Unamortized debt discount

    (19,544 )     (20,602 )

Less: Unamortized debt issuance costs

    (27,423 )     (28,572 )

Less: Current portion of long-term debt

    (43,105 )     (38,837 )

Total long-term debt

  $ 3,788,764     $ 3,799,500  

 

Senior Credit Facilities. The Company has in place a credit agreement (the "Credit Agreement") that provides for senior secured term loans in original aggregate principal amounts of $700.0 million maturing in 2025 (the “Term Loan A-2”), $250.0 million maturing in 2027 (the “Term Loan B-2”), $625.0 million maturing in 2027 (the “Term Loan B-3”) and $800.0 million maturing in 2028 (the "Term Loan B-4"), as well as a $500.0 million revolving credit facility maturing in 2025 (the “Revolving Credit Facility” and, together with the Term Loan A-2, the Term Loan B-2, the Term Loan B-3 and the Term Loan B-4, the “Senior Credit Facilities”). The Revolving Credit Facility also gives the Company the ability to issue letters of credit, which reduce the amount available for borrowing under the Revolving Credit Facility.

 

13

 
Refer to the table below summarizing the Company’s outstanding term loans as of March 31, 2022 and note 10 to the Company’s audited consolidated financial statements included in the 2021 Form 10-K for further details on the Senior Credit Facilities.
 
The Company has issued letters of credit totaling $44.1 million under the Revolving Credit Facility on behalf of Wisper to guarantee its performance obligations under a Federal Communications Commission (“FCC”) broadband funding program, as of March 31, 2022. The fair value of the letters of credit approximates face value based on the short-term nature of the agreements. The Company would be liable for up to the total amount outstanding under the letters of credit if Wisper were to fail to satisfy all or some of its performance obligations under the FCC program. Wisper has guaranteed and indemnified the Company in connection with such letters of credit. As of March 31, 2022, the Company has assessed the likelihood of non-performance associated with the guarantee to be remote, and therefore, no liability has been accrued within the condensed consolidated balance sheets. Total letter of credit issuances under the Revolving Credit Facility were  $51.2 million at March 31, 2022 and bore interest at a rate of 1.88% per annum.
 
As of March 31, 2022, the Company had approximately  $2.3 billion of aggregate outstanding term loans and $448.8 million available for borrowing under the Revolving Credit Facility. A summary of the Company’s outstanding term loans as of March 31, 2022 is as follows (dollars in thousands):

 

Instrument

 

Draw Date(s)

 

Original Principal

   

Amortization Per Annum(1)

   

Outstanding Principal

 

Final Maturity Date

 

Final Scheduled Principal Payment

 

Benchmark Rate

 

Applicable Margin(2)

   

Interest Rate

 

Term Loan A-2

 

5/8/2019(3) 10/1/2019(3)

  $ 700,000    

Varies(4)

    $ 655,335  

10/30/2025

  $ 476,607  

LIBOR

 

1.75%

   

2.21%

 

Term Loan B-2

 

1/7/2019

    250,000    

1.0%

      242,500  

10/30/2027

    228,750  

LIBOR

 

2.00%

   

2.46%

 

Term Loan B-3

 

6/14/2019(5) 10/30/2020(5)

    625,000    

1.0%

      611,623  

10/30/2027

    577,472  

LIBOR

 

2.00%

   

2.46%

 

Term Loan B-4

 

5/3/2021

    800,000    

1.0%

      794,000  

5/3/2028

    746,000  

LIBOR

 

2.00%

   

2.46%

 

Total

  $ 2,375,000           $ 2,303,458       $ 2,028,829                

 


(1)

Payable in equal quarterly installments (expressed as a percentage of the original principal amount and subject to customary adjustments in the event of any prepayment). All loans may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions).

(2)

The Term Loan A-2 interest rate spread can vary between 1.25% and 1.75%, determined on a quarterly basis by reference to a pricing grid based on the Company’s Total Net Leverage Ratio (as defined in the Credit Agreement). All other applicable margins are fixed.

(3)

On May 8, 2019, $250.0 million was drawn. On October 1, 2019, an additional $450.0 million was drawn. On October 30, 2020, the amortization schedule was reset.

(4)

Per annum amortization rates for years one through five following October 30, 2020 are 2.5%, 2.5%, 5.0%, 7.5% and 12.5%, respectively.

(5)

On June 14, 2019, $325.0 million was drawn. On October 30, 2020, an additional $300.0 million was drawn.

 

Senior Notes. In November 2020, the Company issued $650.0 million aggregate principal amount of 4.00% senior notes due 2030 (the “Senior Notes”). The Senior Notes bear interest at a rate of 4.00% per annum payable semi-annually in arrears on May 15th and November 15th of each year. The terms of the Senior Notes are governed by an indenture dated as of November 9, 2020 (the “Senior Notes Indenture”), among the Company, the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A. (“BNY”), as trustee.

 

At any time and from time to time prior to November 15, 2025, the Company may redeem some or all of the Senior Notes for cash at a redemption price equal to 100% of their principal amount, plus the “make-whole” premium described in the Senior Notes Indenture and accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Beginning on November 15, 2025, the Company may redeem some or all of the Senior Notes at any time and from time to time at the applicable redemption prices listed in the Senior Notes Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, at any time and from time to time prior to November 15, 2023, the Company may redeem up to 40% of the aggregate principal amount of Senior Notes with funds in an aggregate amount not exceeding the net cash proceeds from one or more equity offerings at a redemption price equal to 104% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

 

Upon the occurrence of a Change of Control and a Below Investment Grade Rating Event (each as defined in the Senior Notes Indenture), the Company is required to offer to repurchase the Senior Notes at 101% of the principal amount of such Senior Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.

 

Convertible Notes. In March 2021, the Company issued $575.0 million aggregate principal amount of 0.000% convertible senior notes due 2026 (the “2026 Notes”) and $345.0 million aggregate principal amount of 1.125% convertible senior notes due 2028 (the “2028 Notes” and, together with the 2026 Notes, the “Convertible Notes,” and the Convertible Notes collectively with the Senior Notes, the “Notes”). The terms of the 2026 Notes and the 2028 Notes are each governed by a separate indenture dated as of March 5, 2021 (collectively, the “Convertible Notes Indentures” and together with the Senior Notes Indenture, the “Indentures”), in each case, among the Company, the guarantors party thereto and BNY, as trustee.

 

The 2026 Notes do not bear regular interest, and the principal amount of the 2026 Notes does not accrete. The 2028 Notes bear interest at a rate of 1.125% per annum. Interest on the 2028 Notes is payable semiannually in arrears on March 15th and September 15th of each year, unless earlier repurchased, converted or redeemed. The 2026 Notes are scheduled to mature on March 15, 2026, and the 2028 Notes are scheduled to mature on March 15, 2028. The initial conversion rate for each of the 2026 Notes and the 2028 Notes is 0.4394 shares of the Company’s common stock per $1,000 principal amount of 2026 Notes and 2028 Notes, as applicable (equivalent to an initial conversion price of $2,275.83 per share of common stock).

 

14

 

The Convertible Notes are convertible at the option of the holders. The method of conversion into cash, shares of the Company’s common stock or a combination thereof is at the election of the Company. Prior to the close of business on the business day immediately preceding December 15, 2025, the 2026 Notes will be convertible at the option of the holders only upon the satisfaction of specified conditions and during certain periods. On or after December 15, 2025, holders may convert their 2026 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the relevant maturity date. Prior to the close of business on the business day immediately preceding December 15, 2027, the 2028 Notes will be convertible at the option of the holders only upon the satisfaction of specified conditions and during certain periods. On or after December 15, 2027, holders may convert their 2028 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the relevant maturity date. If the Company undergoes a “fundamental change” (as defined in the applicable Convertible Notes Indenture), holders of the applicable series of Convertible Notes may require the Company to repurchase for cash all or part of their Convertible Notes of such series at a purchase price equal to 100% of the principal amount of the Convertible Notes of such series to be repurchased, plus accrued and unpaid interest to, but not including, the fundamental change repurchase date.

 

The Company may not redeem the 2026 Notes prior to March 20, 2024 and it may not redeem the 2028 Notes prior to March 20, 2025. No “sinking fund” is provided for the Convertible Notes. On or after March 20, 2024 and prior to December 15, 2025, the Company may redeem for cash all or any portion of the 2026 Notes, at its option, and on or after March 20, 2025 and prior to December 15, 2027, the Company may redeem for cash all or any portion of the 2028 Notes, at its option, in each case, if the last reported sale price per share of common stock has been at least 130% of the conversion price for such series of Convertible Notes then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Notes of such series to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date.

 

In addition, following a “make-whole fundamental change” (as defined in the applicable Convertible Notes Indenture) or if the Company delivers a notice of redemption in respect of any Convertible Notes of a series, in certain circumstances, the conversion rate applicable to such series of Convertible Notes will be increased for a holder who elects to convert any of such Convertible Notes in connection with such a make-whole fundamental change or convert any of such Convertible Notes called (or deemed called) for redemption during the related redemption period, as the case may be.

 

The carrying amounts of the Convertible Notes consisted of the following (in thousands):

 

   

March 31, 2022

   

December 31, 2021

 
   

2026 Notes

   

2028 Notes

   

Total

   

2026 Notes

   

2028 Notes

   

Total

 

Gross carrying amount

  $ 575,000     $ 345,000     $ 920,000     $ 575,000     $ 345,000     $ 920,000  

Less: Unamortized discount

    (11,871 )     (7,673 )     (19,544 )     (12,611 )     (7,991 )     (20,602 )

Less: Unamortized debt issuance costs

    (324 )     (217 )     (541 )     (344 )     (226 )     (570 )

Net carrying amount

  $ 562,805     $ 337,110     $ 899,915     $ 562,045     $ 336,783     $ 898,828  

 

Interest expense on the Convertible Notes consisted of the following (dollars in thousands):

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 
   

2026 Notes

   

2028 Notes

   

Total

   

2026 Notes

   

2028 Notes

   

Total

 

Contractual interest expense

  $ -     $ 970     $ 970     $ -     $ 291     $ 291  

Amortization of discount

    740       318       1,058       222       95       317  

Amortization of debt issuance costs

    20       9       29       6       2       8  

Total interest expense

  $ 760     $ 1,297     $ 2,057     $ 228     $ 388     $ 616  
                                                 

Effective interest rate

    0.5 %     1.5 %             0.5 %     1.5 %        

 

General. The Notes are senior unsecured obligations of the Company and are guaranteed by the Company’s wholly owned domestic subsidiaries that guarantee the Senior Credit Facilities or that guarantee certain capital market debt of the Company in an aggregate principal amount in excess of $250.0 million.

 

15

 

Each Indenture contains covenants that, among other things and subject to certain exceptions, limit (i) the Company’s ability to consolidate or merge with or into another person or sell or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries (taken as a whole) and (ii) the ability of the guarantors to consolidate with or merge with or into another person. The Senior Notes Indenture also contains a covenant that, subject to certain exceptions, limits the Company’s ability and the ability of its subsidiaries to incur any liens securing indebtedness for borrowed money.

 

Each Indenture provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others, default in payment of principal or interest, breach of other agreements or covenants in respect of the relevant Notes by the Company or any guarantors, failure to pay certain other indebtedness at final maturity, acceleration of certain indebtedness prior to final maturity, failure to pay certain final judgments, failure of certain guarantees to be enforceable and certain events of bankruptcy, insolvency or reorganization; and, in the case of each Convertible Notes Indenture, failure to comply with the Company’s obligation to convert the relevant Convertible Notes under the applicable Convertible Notes Indenture and failure to give a fundamental change notice or a notice of a make-whole fundamental change under the applicable Convertible Notes Indenture.

 

Unamortized debt issuance costs consisted of the following (in thousands):

 

   

March 31, 2022

   

December 31, 2021

 

Revolving Credit Facility portion:

               

Other noncurrent assets

  $ 2,410     $ 2,576  

Term loans and Notes portion:

               

Long-term debt (contra account)

    27,423       28,572  

Total

  $ 29,833     $ 31,148  

 

The Company recorded debt issuance cost amortization of $1.3 million and $1.1 million for the three months ended March 31, 2022 and 2021, respectively, within interest expense in the condensed consolidated statements of operations and comprehensive income.

 

The future maturities of outstanding borrowings as of March 31, 2022 were as follows (in thousands):

 

Year Ending December 31,

 

Amount

 

2022 (remaining nine months)

  $ 29,554  

2023

    55,008  

2024

    76,285  

2025

    557,147  

2026

    591,709  

Thereafter

    2,563,755  

Total

  $ 3,873,458  

 

The Company was in compliance with all debt covenants as of March 31, 2022

 

 

9.      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 rates on its variable rate LIBOR debt. Changes in the fair values of the interest rate swaps are reported through other comprehensive income 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 to interest expense.

 

16

 

A summary of the significant terms of the Company’s interest rate swap agreements is as follows (dollars in thousands):

 

  

Entry

 

Effective

 

Maturity

 

Notional

 

Settlement

 

Settlement

 

Fixed

  

Date

 

Date

 

Date(1)

 

Amount

 

Type

 

Frequency

 

Base Rate

Swap A

 

3/7/2019

 

3/11/2019

 

3/11/2029

 $850,000 

Receive one-month LIBOR, pay fixed

 

Monthly

 

2.653%

Swap B

 

3/6/2019

 

6/15/2020

 

2/28/2029

  350,000 

Receive one-month LIBOR, pay fixed

 

Monthly

 

2.739%

Total

 $