2018
ANNUAL REPORT
LETTER FROM THE PRESIDENT & CEO
Dear Valued Cable ONE Shareholders,
Looking back on the last year, I want to
express the deep sense of pride I feel at
Cable ONE’s achievements and gratitude
to our team of dedicated associates who
made them possible. It is truly remarkable
how much we accomplished for our
customers and our shareholders.
We continued the integration of our
legacy NewWave systems culminating
in a complex migration of their existing
billing system to Cable ONE’s superior
platform;
We announced our intention to rebrand
as Sparklight™ later this year; and
In January 2019, we closed
our acquisition of Clearwave
Communications, expanding our fiber
footprint and enterprise business
segment.
We also received a few amazing awards
along the way, including the Cable FAX
2018 MSO of the Year Award and J.D.
Power’s highest accolade — the number
one spot in the 2018 residential internet
service provider satisfaction study for the
western region of the United States. These
accomplishments reflect the true Cable
ONE spirit of our associates, who took on
many new challenges to move our business
forward while keeping our customers as
their primary focus.
AMPLIFYING OUR CORE,
HIGHER-MARGIN PRODUCTS
2018 was another step in our journey of
driving profitable growth as a connectivity
focused company, with revenue for our
higher-margin Residential high-speed
data and Business Services products
increasing more than 18% and 19% year-
over-year, respectively. These services
combined to contribute nearly 62% of our
total revenues in the fourth quarter of
2018. Our sharpened focus on these core
products is reflected in our solid financial
and operational performance. We finished
the year with nearly $1.1 billion in revenue,
Adjusted EBITDA1 growth of 12.9%, and
Adjusted EBITDA margins1 of 46.7%.
These results demonstrate the successful
execution of our long-term strategy, which
provides value to our shareholders.
EXPANDING OUR FOOTPRINT
We view ourselves as the natural
aggregator of broadband providers in rural
America. Since I became CEO in January
2017, we have made or announced three
acquisitions of scale, which have followed
our strategy of looking for accretive
targets while employing a disciplined
capital deployment strategy. While we
have grown in size, we remain committed
to delivering quality, reliability and superior
service to our customers.
We are very excited about our recently
completed acquisition of Clearwave
Communications and the announced
purchase of the data, video and voice
business of Fidelity Communications.
Clearwave is a regional fiber provider
of services to business and enterprise
customers with a 100% owned and
underground network.
Growing rapidly, Clearwave offers
tremendous opportunity for both
penetration gains and network expansion.
Meanwhile, Fidelity offers yet another tax
efficient and synergistic opportunity that is
right in our wheelhouse — a family-owned
operator providing service to residential
and business customers throughout
greater Arkansas, Illinois, Louisiana,
Missouri, Oklahoma and Texas for nearly
80 years.
Fidelity’s network passes approximately
190,000 homes and has approximately
114,000 residential primary service units
(“PSUs”) and 20,000 business PSUs. We
are happy to welcome Clearwave into our
family and look forward to the addition of
Fidelity later this year.
WE ARE
Over the past several years we have
evolved significantly — through both our
strategy and acquisitions. Beginning this
summer, we will rebrand as Sparklight
to better convey who we are and what
we stand for — a company committed
to providing our communities with
connectivity that enriches their world.
While we are introducing a new brand, our
corporate name will remain Cable One, Inc.
Sparklight reflects our transformation
from our origins as a traditional cable
company to a full-service provider that
seamlessly connects customers to the
things they care about, including family,
work, entertainment and community.
This is not simply about rebranding our
products under a new name and a new
look. We are enhancing the way we do
business so that our customers feel like
every interaction with us is effortless, our
communities know we are here for the long
term and the towns and cities we serve are
proud to call us a neighbor.
STRENGTHENING OUR COMMITMENT
TO THE COMMUNITIES WE SERVE
Our associates’ commitment to our
customers and passion for giving back to
the communities we serve has created a
unique culture that continues to flourish,
even in times of growth and change. In
keeping with our new Brand Principles –
committed, helpful, proactive and personal
– we are strengthening our engagement
to our communities through educational
programs, corporate giving and donations
of time and resources. Being a strong
community partner is central to who we
are, and we remain dedicated to making a
positive impact on the cities and towns we
also call home.
We are motivated by and looking forward
to the opportunities that 2019 will bring.
I have every confidence that our pledge
to care for our customers, serve our
communities and pursue operational
excellence will keep us on track for long-
term, sustainable growth. Thank you for
your trust as we navigate these exciting
times.
Best,
Julia M. Laulis
Chair of the Board, President &
Chief Executive Officer
1 Please refer to the section entitled “Use of Non-GAAP Financial Measures” appearing on page A-1 immediately after our Annual Report on Form 10-K.
This Annual Report 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, financial results and financial condition. Please refer to the
section entitled “Cautionary Statement Regarding Forward-Looking Statements” appearing on page 2 of our Annual Report on Form 10-K for more information.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
Commission File Number: 001-36863
Cable One, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
210 E. Earll Drive, Phoenix, Arizona
(Address of principal executive offices)
13-3060083
(I.R.S. Employer Identification No.)
85012
(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
Common Stock, par value $0.01
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☑
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or 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
Non-accelerated filer
☑
☐
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 Act). Yes ☐ No ☑
The aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 2018 was approximately $3.1
billion, based on the closing price for the registrant’s common stock on such date. For purposes of this computation only, all executive
officers, directors and 10% beneficial owners of the registrant as of June 30, 2018 are deemed to be affiliates of the registrant. Such
determination should not be deemed to be an admission that such executive officers, directors or 10% beneficial owners are, in fact, affiliates
of the registrant.
There were 5,703,322 shares of the registrant’s common stock issued and outstanding as of February 22, 2019.
Documents Incorporated by Reference
Portions of the registrant's Definitive Proxy Statement relating to its 2019 Annual Meeting of Stockholders, to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the registrant’s fiscal year ended December 31,
2018, are incorporated by reference in Part III of this Form 10-K.
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TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business .......................................................................................................................................................
Risk Factors .................................................................................................................................................
Unresolved Staff Comments ........................................................................................................................
Properties .....................................................................................................................................................
Legal Proceedings ........................................................................................................................................
Mine Safety Disclosures ..............................................................................................................................
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ......................................................................................................................................................
Selected Financial Data ................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations .......................
Quantitative and Qualitative Disclosures About Market Risk .....................................................................
Financial Statements and Supplementary Data ............................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......................
Controls and Procedures ..............................................................................................................................
Other Information ........................................................................................................................................
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance ...........................................................................
Executive Compensation .............................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ....
Certain Relationships and Related Transactions, and Director Independence .............................................
Principal Accounting Fees and Services ......................................................................................................
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19
29
29
30
30
31
33
34
49
49
49
49
50
51
51
51
51
51
PART IV
Item 15.
Item 16.
Exhibits, Financial Statement Schedules .....................................................................................................
Form 10-K Summary ...................................................................................................................................
52
54
Signatures .......................................................................................................................................................................... S-1
Index to Consolidated Financial Statements ..................................................................................................................... F-1
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, 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:
increases in programming costs and retransmission fees;
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;
●
● our ability to obtain hardware, software and operational support from vendors;
●
●
●
●
●
the effects of any acquisitions by us;
risks that our rebranding may not produce the benefits expected;
adverse economic conditions;
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;
● our ability to retain key employees;
●
legislative or regulatory efforts to impose network neutrality (“net 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 possibility that interest rates will rise, causing our obligations to service our variable rate indebtedness to increase
significantly;
●
● our ability to incur future indebtedness;
●
fluctuations in our stock price;
● our ability to continue to pay dividends;
● dilution from equity awards and potential stock issuances in connection with acquisitions;
● provisions in our charter, by-laws and Delaware law that could discourage takeovers; and
●
the other risks and uncertainties detailed in the section entitled “Risk Factors” in this Annual Report on 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.
2
ITEM 1.
BUSINESS
Overview
PART I
Cable One, Inc. (“Cable One,” “us,” “our,” “we” or the “Company”) is a fully integrated provider of data, video and voice
services in 21 Western, Midwestern and Southern states. We provide these broadband services to residential and business
customers in more than 750 communities. The markets we serve are primarily non-metropolitan, secondary markets, with
78% of our customers located in seven states: Arizona, Idaho, Illinois, Mississippi, Missouri, Oklahoma and Texas. Our
biggest customer concentrations are in the Mississippi Gulf Coast region and in the greater Boise, Idaho region. We provided
service to 804,865 residential and business customers out of approximately 2.1 million homes passed as of December 31,
2018. Of these customers, 663,074 subscribed to data services, 326,423 subscribed to video services and 125,934 subscribed
to voice services.
We generate substantially all of our revenues through five primary products. Ranked by share of our total revenues during
2018, they are residential data (46.0%), residential video (32.0%), business services (data, voice and video – 14.5%),
residential voice (3.8%) and advertising sales (2.3%). The profit margins, growth rates and capital intensity of our five
primary products vary significantly due to competition, product maturity and relative costs.
In 2018, our Adjusted EBITDA margins for residential data and business services were approximately six and seven times
greater, respectively, than for residential video. We define Adjusted EBITDA margin for a product line as Adjusted EBITDA
attributable to that product line divided by revenue attributable to that product line (see the section entitled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Use of Adjusted EBITDA” for the definition of
Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, which is the most directly comparable measure
under generally accepted accounting principles in the United States (“GAAP”)). This margin disparity is largely the result of
significant programming costs and retransmission fees incurred to deliver residential video services, which in each of the last
three years represented between 53% and 62% of total residential video revenues. None of our other product lines has direct
costs representing as substantial a portion of revenues as programming costs and retransmission fees represent for residential
video, and indirect costs are allocated equally on a per primary service unit (“PSU”) basis. Programming costs and
retransmission fees have a meaningfully lower impact on business services margins than residential video because business
services include data and voice in addition to video, diminishing the relative impact of programming costs and retransmission
fees on that product line as a whole.
Prior to 2012, we were focused on growing revenues through subscriber retention and growth in overall PSUs. Accordingly,
our strategies consisted of, among others, offering promotional discounts to new and existing subscribers adding new services
and to subscribers purchasing more than one service offering. Since 2012, we have adapted our strategy to face the industry-
wide trends of declining profitability of residential video services and declining revenues from residential voice services. We
believe the declining profitability of residential video services is primarily due to increasing programming costs and
retransmission fees and competition from other content providers, and the declining revenues from residential voice services
are primarily due to the increasing use of wireless voice services instead of residential voice services. Beginning in 2013, we
shifted our focus away from maximizing customer PSUs and towards growing our higher margin businesses, namely
residential data and business services. Separately, we have also focused on retaining customers with a high expected lifetime
value (“LTV”), who are less attracted by discounting, require less support and churn less. This strategy focuses on increasing
Adjusted EBITDA, Adjusted EBITDA less capital expenditures and margins.
The trends described above have impacted our four largest product lines in the following ways:
● Residential data. We experienced growth in the number of, and revenues from, our residential data customers every
year since 2013. We expect this growth to continue due to projected increases in the number of potential customers
for us to serve, as there are still a number of households in our markets that do not subscribe to data services from
any provider. We expect to capture a portion of these customers and anticipate capturing additional market share
from existing data subscribers due to our continued upgrades in broadband capacity, our ability to offer higher
access speeds than many of our competitors and our Wi-Fi support service.
● Residential video. Residential video service is a highly competitive business. As we focus on the higher-margin
businesses of residential data and business services, we have de-emphasized our residential video business and, as
a result, expect residential video revenues to continue to decline in the future.
3
● Residential voice. We have experienced declines in residential voice customers as a result of homes in the United
States deciding to terminate their residential voice services and exclusively use wireless voice services. We believe
this trend will continue because of competition from wireless voice service providers. Revenues from residential
voice customers have declined over recent years, and we expect this decline will continue.
● Business services. We have experienced significant growth in business data and voice customers and revenues, and
we expect this growth to continue. We attribute this growth to our strategic focus on increasing sales to business
customers and our efforts to attract enterprise business customers. Margins in products sold to business customers
have remained attractive, and we expect this trend to continue.
We continue to experience increased competition, particularly from telephone companies, cable and municipal overbuilders,
over-the-top (“OTT”) video providers and direct broadcast satellite (“DBS”) television providers. Because of the levels of
competition we face, we believe it is important to make investments in our infrastructure. We elevated our capital investments
between 2012 and 2018 to increase our plant capacities and reliability, launch all-digital video services (which has made
available approximately half of average plant bandwidth for data services) and increase data capacity by moving from four-
channel bonding to 32-channel bonding (to enable our 1 Gigabit per second (“Gbps”) download speed data service,
GigaONE®). We expect to continue devoting financial resources to infrastructure improvements, including in the new
markets we acquired in the RBI Holding LLC (“NewWave”) and Delta Communications, L.L.C. (“Clearwave”) transactions
described below, because we believe these investments are necessary to remain competitive. We expect to spend up to $35
million during 2019, in addition to the combined nearly $27 million spent for NewWave in 2018 and 2017, to enhance those
acquired operations by rebuilding low capacity markets, launching all-digital video services, implementing 32-channel
bonding, converting back office functions such as billing, accounting and service provisioning, migrating products to legacy
Cable One platforms and expanding our high-capacity fiber network. The term “legacy Cable One” in this Annual Report on
Form 10-K refers to Cable One operations excluding the impact or operations of NewWave or Clearwave.
Our primary goals are to continue growing residential data and business services, to increase profit margins and to deliver
strong Adjusted EBITDA and Adjusted EBITDA less capital expenditures. To achieve these goals, we intend to continue our
industrial engineering-driven cost management, remain focused on customers with high LTV and follow through with further
planned investments in broadband plant upgrades and new data service offerings for residential and business customers.
Our business is subject to extensive governmental regulation. Such regulation has led to increases in our operational and
administrative expenses. In addition, we could be significantly impacted by changes to the existing regulatory framework,
whether triggered by legislative, administrative or judicial rulings. In 2015, the Federal Communications Commission (the
“FCC”) used its Title II authority to regulate broadband internet access services through the Open Internet Order (the
“Order”), which imposed on all providers of broadband internet access service, including us, obligations that limit the ways
certain types of traffic can be managed and prescribes certain additional disclosure requirements. The Order was upheld in
the courts, and in November 2018 the U.S. Supreme Court declined to review the lower courts’ decisions. However, in
December 2017, the FCC rescinded the majority of the open internet rules previously adopted in the Order, with the exception
of the disclosure requirements. Several parties have challenged the FCC’s new rules in Federal courts, and those appeals are
pending. Congress and numerous states also have proposed legislation regarding net neutrality. Several states, including
Oregon and Washington (where we have subscribers), have adopted legislation that requires entities providing broadband
internet access service in the state to comply with net neutrality requirements or that prohibits state and local government
agencies from contracting with internet service providers that engage in certain network management activities based on paid
prioritization, content blocking or other discrimination. We cannot predict whether or when future changes to the regulatory
framework will occur at the FCC, in Congress, at the state level or in the courts. We also cannot predict whether or to what
extent the rules as revised by the FCC, Congress, the states or the courts may affect our operations or impose costs on our
business.
We serve our customers through a plant and network with 100% two-way capacity measuring approximately 790 megahertz
on average and DOCSIS 3.0 capabilities in all of our systems. Our technically advanced infrastructure provides for delivery
of a full suite of data, video and voice products. Our broadband plant consists of a fiber-to-the-premises or hybrid fiber-
coaxial (“HFC”) network with ample unused capacity and standard download speeds of 100 Megabits per second (“Mbps”),
which meaningfully distinguishes our offering from competitors in most of our markets. We have completed a multi-year
investment program in our plant, which resulted in increased broadband capacity and reliability and which has enabled and
will continue to enable us to offer even higher download speeds to our customers (at both the standard and enhanced data
service levels), which we believe will reinforce our competitive strength in this area.
4
Corporate History
In 1986, The Washington Post Company (the prior name of our former corporate parent, Graham Holdings Company
(“GHC”)) acquired from Capital Cities Communications, Inc. a number of other companies owning, in total, 53 cable
television systems with approximately 350,000 subscribers in 15 Western, Midwestern and Southern states. Since then, we
completed over 30 acquisitions and dispositions of cable systems, both through cash sales and system trades. In the process,
we substantially reshaped our original geographic footprint and resized our typical system, including exiting a number of
metropolitan markets and acquiring cable systems in non-metropolitan markets that fit our business model. On July 1, 2015,
we became an independent company traded under the ticker symbol “CABO” on the New York Stock Exchange after
completion of our spin-off from GHC (the “spin-off”).
On May 1, 2017, we acquired NewWave, a provider of data, video and voice services to residential and business customers
throughout non-urban areas of Arkansas, Illinois, Indiana, Louisiana, Mississippi, Missouri and Texas.
On January 8, 2019, we acquired Clearwave, a facilities-based service provider that owns and operates a high-capacity fiber
network offering dense regional coverage in Southern Illinois. The acquisition provides us with a premier fiber network
within our existing footprint, further enables us to supply our customers with enhanced business services solutions and
provides a platform to allow us to replicate Clearwave’s strategy in several of our other markets.
We will be rebranding our business as Sparklight™ beginning in the summer of 2019. This new brand is intended to better
convey who we are and what we stand for – a company committed to providing our communities with connectivity that
enriches their world. In January 2019, as part of the rebrand, we began streamlining our residential internet service plans and
pricing, offering even faster speeds, further value and the ability to include unlimited data on any plan. Sparklight will also
strengthen our commitment to the communities we serve through educational programs, corporate giving and donations of
time and resources.
Industry Overview
We are a fully integrated provider of data, video and voice services to residential and business customers across various
geographic regions. We provide services that are similar to those provided by cable companies, telephone companies and
fiber providers, among others. These providers, each to a varying degree, own and/or lease a network that allows them to
deliver their services and distribute their signals to the homes and businesses of subscribers. In addition to building their own
network backbone and/or leasing physical access to the network backbone, companies providing video services also purchase
licenses to provide their subscribers with access to television channels owned by programmers and broadcasters via
distribution over the network backbone. Companies providing video services also typically sell advertising on their video
channels.
These companies generate revenue by charging subscription fees to their residential and business customers at rates that vary
according to the data, video and/or voice services for which customers subscribe and the type of internet access and video
equipment furnished to them. These companies generally operate in their chosen geographic markets under either non-
exclusive franchises or other telecommunications licenses granted by state or local authorities for specified periods of time.
These companies generally market and sell multiple PSUs in bundles or packages in order to maximize the number of PSUs
per household, as they believe it is desirable to sell multiple products as a package as the fixed costs per customer can be
spread over multiple PSUs.
While we are smaller than the nation’s biggest providers of data, video and voice services, we have a record of consistent,
long-term financial and operational success driven by our differentiated operating philosophy. We emphasize focus as
opposed to scale, which is a departure from more conventional strategies in our industry, but is well suited to the markets in
which we operate and enables us to take advantage of our strengths.
5
Our Strengths
We leverage a variety of strengths as a service provider, stemming from, among other things, historical and ongoing capital
investments in our plant and our focus on serving customers in non-metropolitan markets. These strengths include the
following:
Attractive markets. Our customers are located primarily in non-metropolitan, secondary markets with favorable competitive
dynamics in comparison to major urban centers. In particular:
● We tend to face less vigorous competition from telephone companies than similar service providers in metropolitan
markets.
● Advances in technology often come later to our markets — for example, few competitors in our markets offer fiber-
to-the-premises.
● Our subscribers tend to be value-focused, enabling us to save video services costs by not carrying expensive
programming options with low subscriber demand.
● We are regionally diversified, reducing the impact that an economic downturn in a specific geographic market
would have on our overall business.
Deep customer understanding. We have operated as a non-metropolitan service provider for over 20 years. In order to
understand our customers’ demands and preferences, we have conducted daily customer research for more than two decades
and currently conduct thousands of customer satisfaction surveys per year. We believe we have gained valuable insight into
how to serve customers in non-metropolitan markets, including with respect to providing an optimal mix of video channel
options, price points and best-in-class customer service levels. In addition, the vast majority of our employees (who we refer
to as associates) reside and work in our markets, providing local services through education programs and donations of time
and resources that enhance our commitment to the communities we serve.
Superior broadband technology with ample unused capacity. We offer our residential and business data customers internet
products at faster speeds than those available from competitors in most of our markets. Our broadband plant consists of a
fiber-to-the-premises or HFC network with ample unused capacity. Our standard broadband offering for our residential
customers is a download speed of 100 Mbps, which is at the high end of the range of standard residential offerings in our
markets. Our fastest broadband offering for our residential customers is currently a download speed of up to 1 Gbps. We also
offer WiFi ONE™ to residential customers across the entire legacy Cable One footprint. WiFi ONE is an advanced Wi-Fi
solution that provides customers with enhanced Wi-Fi signal strength, which extends and improves the Wi-Fi signal
throughout the home. WiFi ONE is offered free of charge to residential customers who rent one or more modems from us.
In addition, we have made significant investments in our business consistent with our strategic focus to enhance sales of
residential data services and business services. We completed significant, multi-year plant and product enhancements in our
legacy Cable One markets in 2017 and continued making enhancements in our NewWave markets in 2018, which increased
our broadband capacity and reliability. These initiatives caused us to incur multiple years of higher than usual capital
spending. However, we believe the competitive benefits will be significant, particularly for data services. We also made the
following ongoing capital investments and new product introductions in 2018:
● We continued to decrease the average number of data customers per unique service group by aggressively splitting
service areas (fiber nodes), which substantially improves data throughput during periods of peak usage, minimizing
disruptions in data access speeds to our customers.
● We continued to invest in plant reinforcement projects, which have enhanced reliability, and plant extension
projects, which have expanded the number of serviceable homes and businesses.
● We virtually completed the roll out of GigaONE, our 1 Gbps data service, to legacy Cable One residential customers
(which was available to over 98% of legacy Cable One homes passed as of December 31, 2018). We have made
substantial progress in transitioning the acquired NewWave systems to 32-channel bonding, which will allow us to
launch faster speeds, including GigaONE, throughout these markets in 2019.
● We continued to deploy 10 Gbps Ethernet Passive Optical Network (“EPON”) fiber-to-the-premises technology
across multiple markets, supporting the ongoing roll-out of Piranha Fiber®, which offers market-leading
symmetrical speeds of 2 Gbps to our business customers.
6
● We introduced a new managed Wi-Fi service for our small and medium-sized businesses. The enhanced product
provides up to 10,000 square feet of Wi-Fi coverage and a variety of self-service solutions through our One
Gateway mobile application.
● We launched two new voice products for business customers — hosted voice and session initiation protocol (“SIP”)
trunking. Hosted voice is an internet-delivered voice service that eliminates the need for an onsite phone system
by providing cloud-based features and functionality. This removes the capital burden of an expensive infrastructure
for small and medium-sized businesses. SIP trunking enables scalability and flexibility, providing customers who
have modern phone systems with a more cost-effective solution compared to traditional voice services.
We anticipate that the projects we have invested in over the last several years will facilitate sustained increases in residential
data and business services revenues and customer satisfaction.
Low cost structure and competitive pricing. We believe our operating costs, taken as a whole, are as low as or lower than
any major service provider. We attribute our low-cost structure to a commitment to focusing on retaining our highest value
customers (rather than seeking to obtain as many customers as possible) and the lower costs of operating in non-metropolitan
markets compared to metropolitan markets. In addition, because we operate our residential and business data services with a
competitive plant and cost structure, we are able to offer our customers both attractive pricing and compelling products.
Customer satisfaction. We have a customer-focused approach, influencing how we are organized, how we sell our services
and how we service our customers. For example, we offer a same-day service guarantee in almost every one of our markets,
which we believe none of our major competitors in our markets currently offer. We believe that our dedication to providing
a differentiated customer experience is an important driver of our overall value proposition and creates loyalty, improves
customer retention and drives increased demand for our services. We have always focused on customer satisfaction, with an
emphasis on consistently benchmarking our customer satisfaction over time and relative to our competitors based on
internally and externally generated customer satisfaction data. We received the highest score in J.D. Power’s 2018 U.S.
Internet Service Provider Satisfaction Study for the western region. As part of rebranding our business as Sparklight, we will
continue our focus on making the lives of our customers easier by providing value-added services, such as expanding
customer self-service options through improved residential and business online portals and creating a more personalized
experience in updated and refreshed local offices.
Employee satisfaction. We have also focused on employee satisfaction, believing our customers’ satisfaction is tightly linked
to our employee satisfaction. Employee satisfaction has been consistently high throughout the past decade, based on routine
internal measurements. We currently measure our employee satisfaction monthly. None of our employees have been
unionized for over two decades.
Experienced management team. Our senior management team is comprised of senior executives who have significant
experience in our industry. Our executive management team has an average industry tenure of over 20 years and an average
tenure at Cable One (or its predecessors) of over 10 years, and we believe this team is deeply knowledgeable about cost and
competitive conditions in our markets. They also understand and are deeply committed to our strategy, which we developed,
enhanced and updated on a collaborative basis over many years.
Our Strategies
We have a multi-faceted strategy that builds upon our long track record of focusing on the right markets, the right products
and the right customers, as well as controlling our operating and capital costs. More specifically, our strategy includes the
following principal components:
Focus on larger non-metropolitan markets. We believe our decision over two decades ago to concentrate on non-
metropolitan markets has served us well, and we intend to continue to focus on offering our products primarily in these
markets. The economics of non-metropolitan markets, for which we have optimized our strategy and our operations, are
different from operations in major cities, and have yielded positive operating results for our business. Because price points
for services in non-metropolitan markets are generally lower, and customers in non-metropolitan markets tend to subscribe
to fewer PSUs, our average revenue per customer and our PSUs per customer are lower than they might be in metropolitan
markets. However, many of our costs are also lower than they would be in metropolitan markets. The dynamics of larger,
non-metropolitan markets enable us to operate at attractive margins and earn substantial returns, while remaining consistent
with our focus on meeting customer demand for low prices and simultaneously keeping costs down. In addition, we tend to
face less vigorous competition than service providers in metropolitan markets.
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Maximize Adjusted EBITDA less capital expenditures and drive profitable growth. We concentrate on the products and
customers that maximize Adjusted EBITDA less capital expenditures and provide the best opportunity for profitable growth.
We believe residential video and residential voice face inexorable long-term declines. With respect to the video product,
programmers and broadcasters are charging higher rates and retransmission fees for content to distributors providing video
services (often for content for which viewership is declining), and distributors have had to choose between absorbing those
increases to the detriment of their margins or passing on the full cost to customers, which adversely affects customer demand.
At the same time, the rapid expansion of OTT offerings via the internet has given customers new alternatives to traditional
video offerings. In addition, demand for cellular and smartphone offerings have reduced residential voice starts for us and
others in our industry. As a result, we have reduced our focus on these two products and prioritized higher growth, higher
margin opportunities such as residential data and business services.
We have declined to cross-subsidize our video business with cash flow from our higher growth, higher margin products,
which has resulted in our residential video customers declining at a faster rate than the industry average. Our residential video
customers decreased by 10.5% in 2018 versus 2017 and legacy Cable One residential video customers decreased by 11.9%
in 2017 versus 2016. While this strategy runs contrary to conventional wisdom in our industry, which puts heavy emphasis
on video customer counts and maximizing the number of PSUs per customer by bundling and discounting services, we believe
it best positions us for long-term success. For us, success in growing and retaining residential data and business customers is
far more important than the number of triple-play package customers we have.
Target higher value residential customers. Since 2013, we have introduced rigorous analytics to determine the LTV of
current and potential residential customers. We target marketing and customer service at customers who we believe are likely
to produce relatively higher value over the life of their service relationships with us, rather than seeking to maximize the
number of new customers. We analyze the net present value of every residential start and seek to identify customers with
high LTV, who are more likely to buy data service, less likely to churn and more likely to pay on time. Seeking to retain and
sell more or higher tier services to residential customers with a high LTV has enabled us to earn higher profits with fewer
customers and PSUs per customer. We believe that optimizing the LTV of data-only customers as video and voice cord-
cutting accelerates is both a necessity and an opportunity for our business.
Drive growth in residential data and business services. We believe our residential data and business services products
provide attractive current and future growth opportunities. Our disciplined prioritization of residential data and business
services is reflected in everything we do, including pricing, the allocation of sales, marketing and customer service resources,
capital spending and the way we conduct negotiations with suppliers, especially video suppliers. During 2018, we continued
to further diversify our revenue streams away from video as residential data and business services represented 60.5% of our
total revenues versus 57.1% for 2017 and 54.4% for 2016. We believe we have demonstrated that it is possible to decouple
unit growth in our residential data and residential video businesses, which historically have been marketed as a package. Our
data-only connects are growing significantly faster than any other segment of our residential business as we have focused on
selling data-only packages to new customers rather than cross-selling video services to these customers.
Our business services revenues increased 19.0% compared to 2017. We expect to generate continued growth in business
services by leveraging and investing in our existing infrastructure capabilities and footprint to offer higher broadband speeds
than other providers in our markets and to expand our business services to attract more small, medium-sized and enterprise
business customers.
Continue our culture of cost leadership. We believe our total combined operating and capital costs per customer over the
past decade have been among the lowest of any service provider with publicly reported numbers and that our operating
margins compare very favorably with those of significantly bigger companies in our industry. This is the antithesis of normal
economies-of-scale expectations, where higher volumes are expected to create lower costs per customer and increase
operating margins. Rather than increasing our size and seeking cost savings through economies-of-scale, we have achieved
our lower cost structure over many years by focusing on:
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serving primarily non-metropolitan, secondary markets, which contain different customer dynamics from those in
metropolitan markets and would require us to implement additional operational components;
the adoption of new technologies only after they have been tested by other companies in other markets, rather than
incurring the level of capital expenditures and risk necessary to be an early adopter of most new technologies;
implementing a virtually centralized call center to receive inbound customer service calls and dispatch technicians
across all of our markets, while keeping the majority of our call center employees in our non-metropolitan markets;
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standardizing our programming offerings across legacy Cable One markets, which reduces our customer service
costs, in contrast to other service providers that offer different programming packages in different markets;
focusing on retaining and seeking high-LTV customers rather than trying to maximize the number of customers or
PSUs per customer;
aligning our resources to emphasize increased sales of residential data services and sales to business customers and
continuing our industrial engineering-driven approach to cost management, rather than committing resources
equally to sales of all of our products; and
investing in self-service channels to improve customer satisfaction by allowing us to meet changing customer
expectations for round-the-clock service while also avoiding unnecessary wait times.
We believe our strategy has produced positive results, and we have begun applying this strategy in our NewWave operations.
From 2011 through December 31, 2018, legacy Cable One experienced a 60% reduction in bad debt; a 54% reduction in the
frequency of telephone customer service calls, resulting in a 46% headcount reduction in telephone customer service
personnel; a decline of 38% in the frequency of technicians being dispatched to customer locations, resulting in a 22%
headcount reduction in the staff devoted to that function; and an overall headcount reduction, primarily through attrition, of
25% of our legacy Cable One workforce. During this same period, both our customer and employee satisfaction have
remained high or improved based on internal measurements and, in the case of customer satisfaction, externally generated
data.
Balanced capital allocation. We are committed to a disciplined approach to evaluating acquisitions and internal investments,
capital structure optimization and return of capital.
Our Products
Residential Data Services
Residential data services represented 46.0%, 43.4% and 42.2% of our total revenues for 2018, 2017 and 2016, respectively.
We offer multiple tiers of data services with download speeds up to 1 Gbps to over 98% of our legacy Cable One residential
customers as of December 31, 2018 and up to 200 Mbps to our remaining residential customers. To meet the increasing
bandwidth needs of our customers who use a growing number of devices in the home, we launched WiFi ONE in 2017 to
residential customers across the entire legacy Cable One footprint. WiFi ONE is an advanced Wi-Fi solution combining state-
of-the-art technology solutions with certified Cable One technicians, who locate and configure hardware based on individual
customer need. WiFi ONE provides customers with enhanced Wi-Fi signal strength, which extends and improves the Wi-Fi
signal throughout the home.
Residential Video Services
Residential video services represented 32.0%, 34.6% and 36.0% of our total revenues for 2018, 2017 and 2016, respectively.
We offer a broad variety of residential video services, generally ranging from a basic video service to a full digital service
with access to hundreds of channels. Our basic video service generally consists of local networks, local community
programming, such as governmental and public access, and certain other channels, such as weather, shopping and religious
channels. Our digital video service includes national and regional cable networks, music channels and an interactive,
electronic programming guide with parental controls. We also offer premium channels, which include networks such as HBO,
Showtime, Starz and Cinemax, that generally offer, without commercial interruption, movies, original programming, live
sporting events and concerts and other features. Our digital video customers may also subscribe to our advanced services.
Our advanced video services include whole-home DVRs, which digitally record programming and pause and rewind live
programming, and high-definition set-top boxes, which provide high-resolution picture quality, improved audio quality and
a wide-screen format and allow our customers to access internet content on their televisions.
Our TV Everywhere product enables our video customers to stream many of their favorite channels and shows to mobile
devices and computers, expanding the value of our video services. Our TV Everywhere product includes the most popular
networks across a wide range of genres, including HBO and Cinemax.
Residential Voice Services
Residential voice services represented 3.8%, 4.6% and 5.2% of our total revenues for 2018, 2017 and 2016, respectively. Our
residential voice service transmits digital voice signals over our network and is an interconnected Voice over Internet Protocol
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(“VoIP”) service. Our voice services include unlimited local and long-distance calling, voicemail, call waiting, three-way
calling, caller ID, anonymous call rejection and other features. Our voice services also provide international calling by the
minute.
Business Services
We consider the data, voice and video products we provide to our business customers to be a separate product from our
residential versions of these services. Business services represented 14.5%, 13.7% and 12.2% of our total revenues for 2018,
2017 and 2016, respectively. We offer services for businesses ranging in size from small to mid-market, in addition to
enterprise, wholesale and carrier customers.
Our offerings for small businesses are generally provided over our coaxial network. Our data services offer various options
with download speeds ranging from 25 Mbps up to 500 Mbps, with varying upload speeds. Our small business voice solutions
range from one line to multi-line options, including the availability of popular calling features like simultaneous ring, hunt
groups, selective call forwarding and much more. Business video packages range from a basic service tier to a comprehensive
selection including variety, news and sports programming in high-definition.
We offer delivery of data and voice services over EPON technology primarily for mid-market customers. This shared fiber
architecture provides for a mixture of symmetrical and asymmetrical internet speeds ranging from 50 Mbps to 2 Gbps. We
expect to expand EPON to additional areas and markets each year for the foreseeable future, especially in our competitive
locations.
For enterprise and wholesale customers, we offer dedicated bandwidth in addition to multiple voice services via fiber optic
technology. Our fiber optic-based products include dark fiber in addition to dedicated internet access and ethernet private line
with speeds ranging from 10 Mbps to 10 Gbps in scalable increments. We also offer network to network interface connections
to other carriers at multiple points of presence across the United States. In 2017, we began offering ethernet services over our
coaxial network. This service offers symmetrical speeds ranging from 3 Mbps to 10 Mbps and is available directly to
enterprise customers in addition to wholesale and carrier customers.
Advertising
Advertising sales represented 2.3%, 2.6% and 3.4% of our total revenues for 2018, 2017 and 2016, respectively. Our
agreements with each of our programmers provide that we may sell a specified amount of time on our programmers’ channels,
to both local and national advertising clients. We offer a full suite of digital advertising products, including website
construction, targeted display and both short- and long-form video production.
Competition
We operate in a highly competitive, subscriber-driven and rapidly changing environment and compete with a growing number
of entities that provide a broad range of communications products, services and content to subscribers. Our competitors have
historically included, and we expect will continue to include, DBS providers, telephone companies that offer data and video
services through digital subscriber line (“DSL”) technology or fiber-to-the-node networks, municipalities with fiber-based
networks, regional fiber providers and other service providers that have been granted a franchise to operate in a geographic
market in which we are already operating.
Although approximately 71% of our footprint currently has limited competition for residential high-speed data service at
speeds comparable to our own, we anticipate a slow yet steady growth of new entrants into our markets. Currently,
approximately 9% of the residential homes passed in our markets have access to fiber-to-the-premises from our competitors
who typically offer only high-speed data service. However, AT&T and its subsidiary DirecTV also offers video and wireless
voice services along with its high-speed data service. We also face increasing competition from wireless telephone companies
for our residential voice services, as some of our customers are replacing our residential voice services with wireless voice
services. New entrants with significant financial resources may compete on a larger scale with our video and data services,
and as more wireless voice service providers offer unlimited data options, some customers may choose to forgo our data
services altogether.
A small number of municipalities have also announced plans to construct their own data networks with access speeds that
match or exceed those of our own through the use of fiber optic technology. In some cases, local government entities and
municipal utilities may legally compete with us without obtaining a franchise from a state or local governmental franchising
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authority (“LFA”), reducing their barriers to entry into our markets. The entrance of municipalities as competitors in our
markets would add to the competition we face and could lead to additional customer attrition.
While not an area of strategic focus for us, our video business also faces substantial and increasing competition from other
forms of in-home and mobile entertainment, including Amazon Prime, Apple TV, Hulu, Netflix, Sling TV, YouTube TV and
an increasing number of new entrants who offer OTT video programming, including many traditional programmers. Because
of the significant size and financial resources of many of the companies behind such service offerings, we anticipate that they
will continue to invest resources in increasing the availability of video content over the internet, which may result in less
demand for the video services we provide.
Competition for dedicated fiber-optic services for enterprise business customers is also intense as both local telephone
companies and regional overbuilders offer data and voice services over dedicated fiber connections. While certain of these
entities are currently more widely-known for dedicated fiber services than we are, we maintain a competitive advantage
through our local presence and deep customer relationships in the communities we serve.
Employees
As of December 31, 2018, we had 2,224 full-time employees, and none were represented by a union.
Available Information and Website
Our internet address is www.cableone.net. We make available free of charge through our website, http://ir.cableone.net,
copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), as soon as reasonably practicable after such documents are electronically filed with the
Securities and Exchange Commission (the “SEC”). Printed copies of these documents will be furnished without charge
(except exhibits) to any stockholder upon written request addressed to our Secretary at 210 E. Earll Drive, Phoenix, Arizona
85012. The SEC maintains a website, www.sec.gov, that contains the reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC. The contents of these websites are not incorporated by
reference into this Annual Report on Form 10-K and shall not be deemed “filed” under the Exchange Act. Further, our
references to website URLs are intended to be inactive textual references only.
Executive Officers
The following table presents certain information, as of February 27, 2019, concerning our executive officers.
Name
Age
Position
Ms. Julia M. Laulis ................ 56 Chair of the Board, President and Chief Executive Officer
Mr. Michael E. Bowker ......... 50 Chief Operating Officer
Mr. Steven S. Cochran ........... 47 Senior Vice President and Chief Financial Officer
Mr. Kenneth E. Johnson ......... 55 Senior Vice President, Technology Services
Mr. Eric M. Lardy .................. 45 Senior Vice President
Mr. Charles B. McDonald ...... 43 Senior Vice President, Operations
Mr. Peter N. Witty ................. 51 Senior Vice President, General Counsel and Secretary
Julia M. Laulis
Ms. Laulis has been Chair of the Board since January 2018, Chief Executive Officer and a member of our Board of Directors
(the “Board”) since January 2017 and President of Cable One since January 2015.
Ms. Laulis joined Cable One in 1999 as Director of Marketing – Northwest Division. In 2001, she was named Vice President
of Operations for the Southwest Division. In 2004, she accepted the additional responsibility for starting up Cable One’s
Phoenix Customer Care Center. In 2008, she was named Chief Operations Officer, and in 2012, she was named Chief
Operating Officer of Cable One. In January 2015, she was promoted to President and Chief Operating Officer of Cable One.
Prior to joining Cable One, Ms. Laulis served in various senior marketing positions with Jones Communications. Ms. Laulis
began her 30-plus-year career in the cable industry with Hauser Communications.
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Ms. Laulis serves on the boards of C-SPAN, CableLabs and The Cable Center and is a trustee of the C-SPAN Educational
Foundation.
Michael E. Bowker
Mr. Bowker has been Chief Operating Officer of Cable One since May 2017.
Mr. Bowker joined Cable One in 1999 as Advertising Regional Sales Manager. Mr. Bowker has been a Vice President of
Cable One since 2005. He was named Vice President of Sales in 2012 and was promoted to Senior Vice President, Chief
Sales and Marketing Officer in 2014.
Prior to joining Cable One, Mr. Bowker was with AT&T Media Services and TCI Cable, where he served in various sales
management positions.
Mr. Bowker serves on the board of the American Cable Association.
Steven S. Cochran
Mr. Cochran has been Senior Vice President and Chief Financial Officer of Cable One since August 2018.
Prior to joining Cable One, Mr. Cochran served as Chief Executive Officer and a member of the board of directors of
WideOpenWest, Inc. (“WOW”) after holding various other positions at the company, including Chief Financial Officer, Chief
Operating Officer and President. Prior to WOW, Mr. Cochran served in various finance and accounting roles at Millennium
Digital Media, including Senior Vice President and Chief Financial Officer. Previously, Mr. Cochran was an accountant at
Arthur Andersen LLP.
Kenneth E. Johnson
Mr. Johnson has been Senior Vice President, Technology Services of Cable One since May 2018.
Mr. Johnson joined Cable One in 2017 as Vice President, Northeast Division following Cable One’s acquisition of NewWave.
Prior to joining Cable One, Mr. Johnson served as Chief Operating Officer and Chief Technology Officer for NewWave.
Prior to NewWave, Mr. Johnson was Chief Technology Officer for SureWest Communications and Everest Connections.
Mr. Johnson serves on the board of the National Cable Television Cooperative.
Eric M. Lardy
Mr. Lardy has been a Senior Vice President of Cable One since January 2017.
Mr. Lardy joined Cable One in 1997 as a manager in one of our systems and has held a variety of positions of increasing
responsibility in marketing, operations, and system general management. Mr. Lardy was named Vice President, Strategic
Planning and Finance in 2014 and was promoted to Senior Vice President in January 2017.
Charles B. McDonald
Mr. McDonald has been Senior Vice President, Operations of Cable One since January 2016.
Mr. McDonald joined Cable One in 2008 as an Industrial Engineer. Mr. McDonald was named Vice President, Customer
Service Operations in 2014 and was promoted to Senior Vice President, Operations in January 2016.
Prior to joining Cable One, Mr. McDonald worked as a Senior Process Engineer for Three-Five Systems and Brillian Corp.
Peter N. Witty
Mr. Witty has been Senior Vice President, General Counsel and Secretary of Cable One since April 2018.
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Prior to joining Cable One, Mr. Witty served as General Counsel and Secretary for Gas Technology Institute (“GTI”), an
energy research, development and training organization. Prior to GTI, he spent 10 years with Abbott Laboratories, serving in
various positions, including as Senior Counsel and Division Counsel. Mr. Witty previously practiced law as an associate at
Latham & Watkins LLP and Ross & Hardies (now McGuireWoods LLP).
Regulation and Legislation
General
Our data, video and voice operations are subject to various requirements imposed by U.S. Federal, state and local
governmental authorities. The regulation of certain cable rates pursuant to procedures established by Congress has negatively
affected our revenues. Certain other legislative and regulatory matters discussed in this section also have the potential to
adversely affect our data, video and voice businesses. The following discussion does not purport to be a complete summary
of all the provisions of U.S. Federal and state law that may affect our operations. Proposals for additional or revised
regulations and requirements are pending before Congress, state legislatures, and state and Federal regulatory agencies. We
generally cannot predict whether new legislation or regulations, court action, or a change in the extent of application or
enforcement of current laws and regulations would have an adverse impact on our operations.
Broadband Internet Access Services
Broadband internet access service, which we currently offer in all our cable systems, is subject to some regulation at the
Federal level and is not subject to state or local government regulation at this time, except for the state net neutrality laws
discussed below.
Regulatory Reclassification and Net Neutrality Regulation. In 2015, the FCC elected, by a 3-2 vote, to reclassify broadband
internet access service as a “telecommunications service” and to subject the service to net neutrality and certain common
carrier regulations under Title II of the Communications Act of 1934, as amended (the “Communications Act”). Those
regulations: (1) prohibited broadband internet access service providers from (a) blocking access to lawful content,
applications, services or non-harmful devices; (b) impairing or degrading lawful internet traffic on the basis of content,
applications or services; or (c) favoring lawful traffic from one provider of internet content over lawful traffic of another
content provider in exchange for consideration; (2) established a new “general conduct standard” that prohibited broadband
internet access service providers from unreasonably interfering with or unreasonably disadvantaging the ability of consumers
to select, access and use the lawful internet content, applications, services or devices of their choosing; and (3) required
broadband internet access service providers to disclose information regarding network management, performance and
commercial terms of the service to their customers. The Order was upheld in the courts, and in November 2018 the U.S.
Supreme Court declined to review the lower courts’ decisions. However, in December 2017, the FCC rescinded the majority
of the open internet rules previously adopted in the Order, with the exception of the disclosure requirements. Several parties
have challenged the FCC’s new rules in Federal courts, and those appeals are pending. Congress and numerous states also
have proposed legislation regarding the net neutrality rules. Several states, including Oregon and Washington (where we have
subscribers), have adopted legislation that requires entities providing broadband internet access service in the state to comply
with net neutrality requirements or that prohibits state and local government agencies from contracting with internet service
providers that engage in certain network management activities based on paid prioritization, content blocking or other
discrimination. Net neutrality obligations could cause us to incur additional compliance costs, and the enforcement or
interpretation of these new obligations could adversely affect our business. We cannot predict whether or when future changes
to the regulatory framework will occur at the FCC, in Congress, at the state level or in the courts. We also cannot predict
whether or to what extent the rules as revised by the FCC, Congress, the states or the courts may affect our operations or
impose costs on our business.
Privacy. Broadband internet access service is subject to many of the same U.S. Federal and state privacy laws that apply to
other electronic communications. These include the Electronic Communications Privacy Act, which addresses interceptions
of electronic communications that are in transit; the Stored Communications Act, which addresses acquisitions of electronic
data in storage; and other Federal and state privacy laws and regulations. As the collection and use of consumer data becomes
more prevalent in the communications industry, our compliance obligations may grow. In November 2016, the FCC adopted
new rules for broadband internet access services to protect the privacy of certain information broadband internet access
service providers obtain about their customers. However, in April 2017, the broadband privacy and data security rules adopted
by the FCC in 2016 were repealed pursuant to the Congressional Review Act, which also restricts the FCC from adopting
“substantially similar” rules in the future. In September 2017, the FCC reinstated its previous rules applicable to customer
proprietary network information (“CPNI”) for voice services. In addition, privacy legislation has been proposed at the Federal
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and state level, some of which would require broadband service providers to apply heightened privacy and security protections
to customer data. We cannot predict whether, when or to what extent these obligations may impose costs on our business.
In addition to FCC privacy regulations governing broadband internet access service, the Federal Trade Commission also may
exercise authority over privacy by using its existing authority over unfair and deceptive acts or practices to apply greater
restrictions on the collection and use of personally identifiable and other information relating to consumers. It also has
undertaken numerous enforcement actions against parties that do not provide sufficient security protections against the loss
or unauthorized disclosure of this type of information. We also are subject to stringent data security and data retention
requirements that apply to website operators and online services directed to children under 13 years of age, or that knowingly
collect or post personal information from children under 13 years of age. Other privacy-oriented laws have been extended by
courts to online video providers and are increasingly being used in privacy lawsuits, including class actions, against providers
of video materials online. We cannot predict whether, when, or to what extent these obligations may impose costs on our
business.
We are also subject to Federal and state laws and regulations regarding data security that primarily apply to sensitive personal
information that could be used to commit identity theft. Most states have security breach notification laws that generally
require a business to give notice to consumers and government agencies when certain information has been disclosed due to
a security breach, and the FCC has adopted security breach rules for voice services. Several states have also enacted general
data security requirements to safeguard consumer information, including the proper disposal of consumer information. We
cannot predict whether, when or to what extent these obligations may impose costs on our business.
Digital Millennium Copyright Act. Owners of copyrights and trademarks actively seek to prevent use of the internet to violate
their rights. For example, copyright and trademark owners assert claims that a customer used an internet service or resources
accessed via the internet to post, download or disseminate copyrighted music, movies, software or other content without the
consent of the copyright owner. In some cases, copyright and trademark owners have sought to recover damages from the
broadband internet access service provider as well as or instead of the customer. The law relating to the potential liability of
broadband internet access service providers in these circumstances is unsettled. In 1998, Congress adopted the Digital
Millennium Copyright Act, which grants broadband internet access service providers protection against certain claims of
copyright infringement resulting from the actions of customers if the internet provider complies with certain requirements.
So far, Congress has not adopted similar immunity for broadband internet access service providers for trademark infringement
claims.
Business Data Services. In April 2017, the FCC adopted a new deregulatory framework for Business Data Services (“BDS”),
formerly known as “special access” services. These services provide dedicated point-to-point transmission of data at certain
guaranteed speeds and service levels using high-capacity connections. The new framework eliminates pricing regulation for
certain types of BDS and establishes a competitive market test for determining whether other types of BDS should remain
subject to pricing regulation. Several parties challenged the FCC’s decision in Federal court, and the court remanded a portion
of the decision back to the FCC for further consideration. At this time, we cannot predict how these rule changes will affect
our business.
Video Services
Title VI of the Communications Act establishes the principal Federal regulatory framework for our operation of cable systems
and for the provision of our video services. The Communications Act allocates primary responsibility for enforcing the
Federal policies among the FCC and state and local governmental authorities.
Franchising. We are required to obtain franchises from state or local governmental authorities to operate our cable systems.
Those franchises typically are non-exclusive and limited in time, contain various conditions and limitations and provide for
the payment of fees to the local authority, determined generally as a percentage of revenues. Failure to comply with all of the
terms and conditions of a franchise may give rise to rights of termination by the franchising authority. The FCC has adopted
rules designed to expedite the process of awarding competitive franchises and relieving applicants for competing franchises
of some locally-imposed franchise obligations. This development, which is especially beneficial to new entrants, is expected
to continue to accelerate the competition we are experiencing in the video service marketplace. In July 2017, the U.S. Court
of Appeals for the Sixth Circuit vacated and remanded to the FCC its prior determination that local franchising authorities
are prohibited from regulating non-telecommunications services provided by incumbent cable operators and that the term
“franchise fees” under the statute includes all “in-kind” payments. The FCC is reviewing these issues as a result of the remand.
We cannot predict the outcome of the remand to the FCC, and whether or to what extent the rules as revised by the FCC or
the courts may affect our operations or impose costs on our business.
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Rate Regulation. FCC regulations prohibit LFAs or the FCC from regulating the rates that cable systems charge for certain
levels of video cable service, equipment and service calls when those cable systems are subject to “effective competition.” In
2015, the FCC revised its rate regulations to create a presumption that all cable systems are subject to the effective-
competition exemption unless proven otherwise. In July 2017, the D.C. Circuit upheld the FCC’s decision on appeal.
“Must-Carry” and Retransmission Consent and Content Rules. U.S. Federal law provides that a television broadcast station
may, subject to certain limitations, insist on carriage of its signal on cable systems located within the station’s prescribed
area. As a result, certain of our cable systems must carry broadcast stations that we might not otherwise have elected to carry.
In other cases, we have been required to provide consideration to broadcasters to obtain retransmission consent, such as
commitments to carry other program services offered by a station or an affiliated company, to purchase advertising on a
station or to provide advertising availabilities on cable to a station or to provide cash compensation. This development results
in increased operating costs for cable systems, which ultimately increases the rates cable systems charge subscribers. In
March and November 2014, the FCC and Congress imposed new requirements in this area including restrictions on
broadcasters’ ability to jointly negotiate with cable providers for carriage of their stations, and the FCC is seeking comment
on possible changes to regulations in this area, which could affect our business. In July 2016, the FCC announced that it
would not adopt additional rules governing good faith negotiations for retransmission consent, but it would be prepared to
assist in negotiations when necessary. In September 2014, the FCC repealed its sports blackout rules, which prohibited cable
and satellite operators from retransmitting any sports event that was blacked out on a local broadcast station.
Media Ownership Rules. In November 2017, the FCC took steps to relax its media ownership rules, which, among other
things, would eliminate restrictions that limit the number of commonly owned television stations per market and restrict
newspaper/broadcast and radio/television station cross-ownership. These rules are in effect, but have been challenged in
Federal court. In December 2017, the FCC announced a further proceeding that could eventually lead to additional relaxation
of the FCC’s media ownership rules, including the cap on the number of television stations that one entity can control
nationwide. In December 2018, the FCC commenced the next quadrennial review of the media ownership rules. We cannot
predict the outcome of the ongoing reviews by the FCC and the Federal court and whether or to what extent the rules as
revised by the FCC or the courts may affect our operations or impose costs on our business. These changes or proposed
changes could increase the negotiating leverage that broadcasters hold in retransmission consent negotiations and thereby
possibly increase the amounts we pay to broadcasters for retransmission fees.
Independent Programming. In September 2016, the FCC initiated a rulemaking proceeding to adopt rules prohibiting certain
practices that may affect the relationship between multichannel video programming distributors (“MVPDs”), such as us, and
independent programmers. The proposal examines whether certain “most favored nation” and alternative distribution method
provisions in program carriage agreements should be prohibited and whether program bundling practices by large
programmers affect the ability of MVPDs to carry independent programmers. We cannot predict whether the FCC will pursue
this proceeding, and, if so, how it will proceed.
Pole Attachments. U.S. Federal law requires most telephone and power utilities to charge reasonable rates to cable operators
for utilizing space on utility poles or in underground conduits. In May 2010 and again in April 2011, the FCC adopted new
requirements relating to pole access and construction practices that were expected to improve the ability of cable operators
to attach to utility poles on a timely basis and to lower the pole attachment rate for telecommunications services. In October
2013, the U.S. Supreme Court declined to review a lower court’s decision to uphold the FCC’s pole attachment regulations.
The FCC further revised its pole attachment rules in November 2015 to adjust the formula for calculating pole rental rates,
which resulted in similar rates for telecommunications attachments and cable attachments and eliminated the ability of utility
companies to justify higher rates for pole attachments used to provide broadband internet access service. In July 2017, the
U.S. Court of Appeals for the Eighth Circuit upheld the FCC’s November 2015 pole attachment decision. In April 2018, the
U.S. Supreme Court declined to review that decision. In October 2017, the FCC adopted a one-touch make-ready policy for
pole attachments, which has been challenged by the utility companies. We cannot predict the outcome of this proceeding, or
how this proceeding may affect our operations or impose costs on our business. In the meantime, the appropriate method for
calculating pole attachment rates for cable operators that provide VoIP services remains unclear, although the FCC’s rule
revisions to equalize pole attachment rates and its December 2017 reversal of its previous reclassification of broadband
internet access services make this issue less significant. We cannot predict the extent to which these and other rule changes
will affect our ability over time to secure timely access to poles at reasonable rates for our data, voice and video services. As
a general matter, changes to our pole attachment rate structure could significantly increase our annual pole attachment costs.
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U.S. Federal Copyright Issues. The Copyright Act of 1976, as amended (the “Copyright Act”), gives cable systems the ability,
under certain terms and conditions and assuming that any applicable retransmission consents have been obtained, to
retransmit the signals of television stations pursuant to a compulsory copyright license.
The U.S. Copyright Office is considering requests for clarification and revisions of certain cable compulsory copyright license
reporting requirements, and from time to time, other revisions to the cable compulsory copyright rules are considered. We
cannot predict the outcome of any such inquiries. However, it is possible that changes in the rules or copyright compulsory
license fee computations or compliance procedures could have an adverse effect on our business by, for example, increasing
copyright compulsory license fee costs or by causing us to reduce or discontinue carriage of certain broadcast signals that we
currently carry on a discretionary basis.
Telephone Company Competition. U.S. Federal law permits telephone companies to offer video programming services. Over
the past decade, telephone companies have pursued multiple strategies to enter the market for the delivery of multichannel
video programming services, such as merging with DBS operators, in the case of AT&T and DirecTV, or obtaining local
franchise agreements. Increased competition from telephone companies that provide competing services could have a material
effect on our business.
Over-the-Top Video Programming. The continued proliferation of broadband services in the United States has enabled cable
programmers and broadcast television stations and networks to “stream” their video content to consumers over the internet.
Although we have benefited generally from the growth in broadband due to our role as a provider of broadband services, the
continued and growing availability of cable programming and broadcast television content on the internet may result in less
demand for our video cable service offering. Some providers of cable service are marketing their own version of OTT video
programming, thus enabling their subscribers to access cable programming outside of their home or business. Some fixed
and wireless broadband providers are excluding certain streamed content from metered data charges or data limits in an effort
to make their broadband service more attractive to consumers. In addition, online video distributors and other OTT video
distributors have begun to stream broadcast programming over the internet. In some cases, distributors streamed broadcast
programming without the consent of broadcasters and copyright owners. Broadcasters challenged this practice, and in June
2014, the U.S. Supreme Court determined that such streaming requires the consent of the applicable copyright owner.
However, there is a potential for other streaming services to attempt to enter the market, and in December 2014, the FCC
opened a proceeding concerning how OTT providers should be classified for purposes of the FCC’s rules. We cannot predict
the outcome of these proceedings, nor related litigation, nor how widespread these practices may become or the extent to
which the integrated functionality and ease of use of the cable platform will continue to appeal to the majority of our
subscribers.
Wireless Services. In 2017, the FCC completed an auction of additional spectrum, including spectrum in the television
broadcast band, for use by wireless broadband providers. The FCC process provided for both the auction of spectrum and a
“repacking,” whereby certain broadcast stations will move to new channel allotments so as to free up a nationwide block of
spectrum for wireless broadband use. The availability of more spectrum to enable wireless video services over time will
create additional competitive alternatives to cable services. The auction ended in March 2017, and in April 2017, the FCC
began the process of transitioning broadcast stations to new channel assignments. MVPDs are required to submit an estimate
of the costs incurred to continue carrying stations that were reassigned to new channels. We cannot predict the amount of
funding, if any, that we might receive from the disbursement of these funds.
Set-Top Boxes. Congress, the FCC and other government agencies have for some time been developing and implementing
regulations that affect the types of set-top boxes that cable operators can lease or deploy to their subscribers. Prior to 2015,
FCC rules banned the integration of security and non-security function in set-top boxes and required MVPDs to allow third-
party vendors to provide set-top boxes with basic converter functions. In 2015, Congress repealed the integration ban and
mandated that the FCC establish a working group to identify, report on and recommend a successor technology- and platform-
neutral security solution. In February 2016, the FCC opened a rulemaking to consider proposals that would require any retail
video device to work on any cable operator’s system, but this item was removed from active FCC review. We cannot predict
if or when new changes may be proposed, what effect such changes may have on our operations, or if they will increase our
costs and impair our ability to deliver programming to our customers.
Disability Access. In September 2010, Congress passed the Twenty-First Century Communications and Video Accessibility
Act (the “CVAA”). The CVAA directs the FCC to impose additional accessibility requirements on cable operators. For
example, cable operators that serve 50,000 or more subscribers must provide 50 hours of video description per calendar
quarter during primetime or on children’s programming on each channel on which they carry one of the top five national non-
broadcast networks. In addition, cable operators of all sizes must pass through video description that is provided for each
broadcast station or non-broadcast network that they carry. Compliance imposes certain costs on us. The CVAA also directs
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the FCC to adopt rules to help ensure that persons with disabilities have access to video programming and related information.
The FCC has adopted a requirement that equipment used by consumers to access video programming and other services
offered by cable operators make on-screen text menus and guides for the display or selection of video programming audibly
accessible to individuals who are blind or visually impaired. In October 2013, the FCC also initiated a proceeding to consider
additional rules. In February 2014, the FCC issued an order adopting closed captioning quality standards for video
programming distributors (“VPDs”) and, in February 2016, the FCC amended its rules to allocate responsibility for the quality
of closed captioning between video programmers and VPDs. The FCC also revised its procedures for the handling of
complaints regarding closed captioning quality. We cannot predict any further actions the FCC will take in this proceeding
or the extent to which any such requirements may impose new costs on us.
In 2017, the FCC increased the amount of video-described programming for covered broadcast and cable channels from 50
hours to 87.5 hours and the number of cable networks that are required to provide video-described programming. We cannot
predict how these new obligations could impose costs on our business.
ATSC 3.0. In November 2017, the FCC adopted new rules to authorize television stations to use the “Next Generation TV”
broadcast television standard, ATSC 3.0. Should use of the new standard become widespread, we could be required to deploy
new equipment and our carriage obligations may be impacted. We cannot predict the effect that use of the new standard could
have on our equipment costs, carriage obligations or retransmission fees.
Other Requirements. The FCC regulates various other aspects of cable operations, including certain terms for commercial
leased access, signal leakage, distant broadcast station signals and technical standards. We cannot predict whether, when or
to what extent changes to these and other regulations may affect our operations or costs.
Voice Services
Voice Over Internet Protocol. Service providers, including us and others, offer VoIP service, which permits users to make
voice calls over broadband communications networks, including the internet, to recipients on the public switched telephone
network (“PSTN”) and other broadband communications networks. U.S. Federal law preempts state and local regulatory
barriers to the offering of voice service by service providers, and the FCC and U.S. Federal courts generally have preempted
state laws that seek to regulate or classify VoIP.
The FCC has held that VoIP services are IP-enabled services, which are interstate in nature and thus subject exclusively to
the FCC’s U.S. Federal jurisdiction and not to state regulation. This decision was upheld on appeal, although the FCC has an
ongoing proceeding to consider whether VoIP services provided by service providers are properly classified as an
“information service,” “telecommunications service” or some other new category of service. This determination, once made,
could have numerous regulatory implications for service providers that provide interconnected VoIP services, including us.
Although the FCC has yet to ascribe a regulatory definition to VoIP services, the FCC nevertheless has imposed a number of
obligations on interconnected VoIP service providers, some of which are discussed more fully below.
The Minnesota Public Utilities Commission (“PUC”) has ruled that the VoIP service of another cable operator should be
classified and regulated as a telecommunications service in the state, subject to entry and rate regulation. In May 2017, the
U.S. District Court for the District of Minnesota held that such operator’s VoIP service is an “information service” rather
than a “telecommunications service,” which prevents the Minnesota PUC from regulating VoIP as a telecommunications
service in Minnesota. The Minnesota PUC appealed the decision to the U.S. Court of Appeals for the Eighth Circuit. The
FCC supported the cable operator in its appeal. In September 2018, the Eighth Circuit upheld the district court decision and
denied the Minnesota PUC’s petition for rehearing in December 2018. We cannot predict whether the Minnesota PUC will
ask the U.S. Supreme Court to review the Eighth Circuit decision, the outcome of the proceeding or how the proceeding may
affect our operations or impose costs on our business.
Emergency 911 Services. The FCC has ruled that an interconnected VoIP service provider that enables its customers to make
calls to and receive calls from persons who use the PSTN must provide its customers with the same enhanced 911 (“E911”)
features that traditional telephone and wireless companies are obligated to provide. This requirement was upheld on appeal.
In January 2015, the FCC established indoor location requirements when E911 calls are made by interconnected VoIP
subscribers. The FCC also requires certain providers of facilities-based fixed, residential voice services, which includes
interconnected VoIP service providers, to offer backup power options to consumers and to inform consumers of the
availability of such options.
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CALEA. FCC regulations require providers of interconnected VoIP service to comply with the requirements of the
Communications Assistance for Law Enforcement Act, which requires covered entities and their equipment suppliers to
deploy equipment that law enforcement officials can access readily for lawful wiretap purposes.
Universal Service. The FCC has determined that interconnected VoIP service providers must contribute to the Federal
Universal Service Fund (the “USF”). The amount of a company’s USF contribution is based on a percentage of revenues
earned from end-user interstate and international interconnected VoIP services. We are permitted to recover these
contributions from our customers. In October 2011, the FCC adopted an order and new rules intended to transition the USF
so that it supports the build out of broadband, rather than telecommunications facilities. The order principally addressed the
manner in which universal service funds will be distributed to network operators for broadband build out. In April 2012, the
FCC initiated a proceeding that focused on reforming the nature and manner in which entities should contribute to the USF
and at what levels. We cannot predict whether and how such reform will occur and the extent to which it may affect providers
of VoIP services, including us and our competitors. The FCC’s 2011 universal service reform order was subject to both
reconsideration requests and appeals, and in May 2014, the U.S. Court of Appeals for the Tenth Circuit upheld the order in
its entirety, and the U.S. Supreme Court declined to review the case. In November 2010, the FCC determined that states may
impose state USF fees on interconnected VoIP service providers subject to certain limitations and requirements. State USF
contributions are based on a percentage of revenues earned from end-user intrastate interconnected VoIP services, and we
are typically permitted to recover these contributions from our customers. We cannot predict whether or how the imposition
of such state-based universal service fees will affect our operations and business. In addition, the FCC has focused on
subsidizing broadband deployment and this shift could help some of our competitors. For example, the FCC substantially
revised the program that provides universal service support for services to schools and libraries to shift support from voice
services to broadband services and the deployment of Wi-Fi networks. Similarly, the FCC has expanded its Lifeline subsidy
program for low-income consumers to include broadband services in addition to voice services and is considering further
changes that may affect the Lifeline program. We cannot predict whether or how these programs will be changed.
Intercarrier Compensation. The order and new rules adopted by the FCC in October 2011 in connection with universal service
reform also addressed intercarrier compensation and specified that “VoIP-PSTN traffic,” that is, traffic exchanged over public
switched telephone network facilities that originates and/or terminates in IP format, which includes interconnected VoIP
traffic, is subject to intercarrier compensation obligations either on the basis of specified default charges or through negotiated
rates. The FCC’s order was subject to both reconsideration requests and appeals. The U.S. Court of Appeals for the Tenth
Circuit upheld the order in its entirety, and the U.S. Supreme Court declined to review the case. Future FCC determinations
regarding the rates, terms and conditions for transporting and terminating such traffic could have a profound and material
effect on the profitability of providing voice and data services.
Customer Proprietary Network Information. In 2007, the FCC adopted rules expanding the protection of CPNI and extending
CPNI protection requirements to providers of interconnected VoIP service. CPNI is information about the quantity, technical
configuration, type, location and amount of a voice customer’s use. These requirements generally have increased the cost of
providing interconnected VoIP service, as providers now must implement various safeguards to protect CPNI from
unauthorized disclosure.
Access for Persons with Disabilities. FCC regulations require providers of interconnected VoIP services to comply with all
disability access requirements that apply to telecommunications carriers, including the provision of telecommunications relay
services for persons with speech or hearing impairments. The FCC also has adopted reporting requirements associated with
disability access obligations. We and other interconnected VoIP service providers must also contribute to the interstate
Telecommunications Relay Service Fund to support such access. These requirements generally have had the effect of
increasing the cost of providing VoIP services.
Service Discontinuance and Outage Obligations. In 2009, the FCC adopted rules subjecting providers of interconnected VoIP
services to the same service discontinuance requirements applicable to providers of wireline telecommunication services. In
2012, the FCC adopted mandatory outage reporting requirements for interconnected VoIP service providers, which apply
when customers of interconnected VoIP service lose service or connectivity and, as a result, are unable to access 911 service.
Along with other FCC actions described in this section, which impose legacy telecom obligations on interconnected VoIP
providers, this development will subject our interconnected VoIP services to greater regulation and, therefore, greater burdens
and costs.
Regulatory Fees. The FCC requires interconnected VoIP service providers to contribute to shared costs of FCC regulation
through an annual regulatory fee assessment. These fees have increased our cost of providing VoIP services. The FCC from
time to time revises its regulatory fees and sometimes creates new fees. We cannot predict when or the extent to which the
FCC will adopt new rules or regulatory fees affecting VoIP service providers, which could affect our cost of doing business.
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Local Number Portability. Providers of interconnected VoIP services and their “numbering partners” must ensure that their
subscribers have the ability to port their telephone numbers when changing service providers. We, along with other providers
of interconnected VoIP service, must contribute funds to cover the shared costs of local number portability and the costs of
North American Numbering Plan Administration. In June 2015, the FCC adopted rules requiring additional numbering
requirements, such as allowing consumers access to abbreviated dialing codes like 211 and 311 in certain circumstances, to
be applied to interconnected VoIP service providers. Although consumers’ ability to port their existing telephone numbers to
interconnected VoIP service has created additional opportunities for us to gain voice customers, the local number portability
and associated rules overall have had the effect of increasing the cost of providing VoIP service.
Rural Calling Issues. In October 2013, the FCC adopted new rules to combat problems with the completion of long-distance
calls to rural areas. The new rules applied detailed record keeping, record retention and reporting requirements on all voice
providers, including VoIP service providers, subject to certain exceptions. The rules also prohibit VoIP service providers
(and other voice providers) from using false audible ringing when originating calls. The FCC further revised its rules in April
2018, but we cannot predict how these rule changes may affect our operations or impose costs on our business.
State and Local Taxes
The Internet Tax Freedom Act prohibits most states and localities from imposing taxes on internet access service charges.
Legislative and administrative proceedings in some states and localities have imposed or are considering adopting changes
to general business taxes, central assessments for property tax and new taxes and fees applicable to our services. Often, DBS
and other competitors that deliver their services over the internet do not face similar state tax and fee burdens. In addition,
the FCC’s 2015 reclassification of broadband internet access services as Title II telecommunications services may cause or
allow, directly or indirectly, some states and localities to seek to impose additional taxes and fees on our data services.
However, such state and local actions may be hindered by the FCC’s decision to rescind the majority of the rules adopted in
the Order.
ITEM 1A.
RISK FACTORS
You should carefully consider all of the information in this Annual Report on Form 10-K and each of the risks described
below, which we believe are the principal risks that we face. Some risks relate principally to the securities markets and
ownership of our common stock.
Any of the following risks could materially and adversely affect our business, financial results, financial condition and results
of operations and the actual outcome of matters as to which forward-looking statements are made in this Annual Report on
Form 10-K.
Risks Relating to Our Business
We face significant competition from other service providers, as well as other well-capitalized entrants in the video and
data services industry, which could reduce our market share and lower our profits.
We operate in a highly competitive, subscriber-driven and rapidly changing environment and compete with a growing number
of entities that provide a broad range of communications products, services and content to subscribers. Our competitors have
historically included, and we expect will continue to include, DBS providers; telephone companies that offer data and video
services through DSL or fiber-to-the-node networks; municipalities with fiber-based networks; regional fiber providers and
other service providers that have been granted a franchise to operate in a geographic market in which we are already operating.
Our cable systems generally operate pursuant to franchises, permits and similar authorizations issued by LFAs, and these
franchises are typically non-exclusive. Accordingly, LFAs can grant additional franchises to our competitors and create
competition in our markets where none existed previously, resulting in overbuilds. In some cases, the FCC has adopted rules
that streamline entry for new competitors (particularly those affiliated with telephone companies) and reduce franchising
burdens for these new entrants. Although as a general matter internet service providers have upgraded their data networks to
enable faster upload and download speeds for their customers in metropolitan markets before upgrading their data networks
in our markets, approximately 29% of our footprint has been overbuilt and currently faces competition for residential high-
speed data service at speeds comparable to our own, and we anticipate a slow yet steady growth of new entrants into our
markets. Currently, approximately 9% of the residential homes passed in our markets have access to fiber-to-the-premises
from our competitors who typically offer only high-speed data service. Further overbuilding could cause more of our
customers to purchase data and video services from our competitors instead of from us. In certain of our markets, some of
our telephone company competitors have entered into strategic partnerships or other arrangements with DBS operators that
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permit these telephone companies to package the video services of DBS operators with their own data, residential voice and
wireless voice services. An example of such arrangement is AT&T’s ownership of DirecTV. We also face increasing
competition from wireless telephone companies for residential voice services, as some of our customers are replacing our
residential voice services completely with wireless voice services. In addition, new entrants with significant financial
resources may compete on a larger scale with our video and data services, and as more wireless voice service providers offer
unlimited data options, some customers may choose to forgo our data services altogether. We may also face increasing
competition from various providers of wireless internet offerings, including wireless telephone carriers that are developing
high-speed “5G” wireless networks and public locations or commercial establishments offering Wi-Fi at no cost.
A small number of municipalities have also announced plans to construct their own data networks with access speeds that
match or exceed those of our own through the use of fiber optic technology. In some cases, local government entities and
municipal utilities may legally compete with us without obtaining a franchise from an LFA, reducing their barriers to entry
into our markets. The entrance of municipalities as competitors in our markets would add to the competition we face and
could lead to additional customer attrition.
Our video business also faces substantial and increasing competition from other forms of in-home and mobile entertainment,
including Amazon Prime, Apple TV, Hulu, Netflix, Sling TV, YouTube TV and an increasing number of new entrants who
offer OTT video programming, including many traditional programmers. Because of the significant size and financial
resources of many of the companies behind such service offerings, we anticipate that they will continue to invest resources
in increasing the availability of video content on the internet, which may result in less demand for the video services we
provide. In addition, companies that offer OTT content in certain markets also provide data services, such as Alphabet, and
they may seek to increase sales of their streaming content by lowering the cost of data services for their customers, which
would further increase price competition for the data services we offer. In addition to creating competition for our video
services business, OTT content also significantly increases the volume of traffic on our data networks, which can lead to
decreases in access speeds for all users if data networks are not upgraded so that their broadband capacity can keep pace with
increased traffic.
Competition for dedicated fiber-optic services for enterprise business customers is also intense as both local telephone
companies and regional overbuilders offer data and voice services over dedicated fiber connections.
Any of these events could have a material negative impact on our operations, business, financial results and financial
condition.
Our business is characterized by rapid technological change, and if we do not adapt to technological changes and respond
appropriately to changes in consumer demand, our competitive position may be harmed.
Our success is, to a large extent, dependent on our ability to acquire, develop, adopt, upgrade and exploit new and existing
technologies to address consumers’ changing demands and distinguish our services from those of our competitors. We may
not be able to accurately predict technological trends or the success of new products and services. If we choose technologies
or equipment that are less effective, cost-efficient or attractive to our customers than those chosen by our competitors, or if
we offer services that fail to appeal to consumers, that are not available at competitive prices or that do not function as
expected, our competitive position could deteriorate and our business and financial results could suffer.
The ability of some of our competitors to introduce new technologies, products and services more quickly than we can may
adversely affect our competitive position. Furthermore, advances in technology, decreases in the cost of existing technologies
or changes in competitors’ product and service offerings may require us in the future to make additional research and
development expenditures or to offer at no additional charge or at a lower price certain products and services that we currently
offer to customers separately or at a premium.
In addition, we seek to leverage overall industry experience before rolling out new technology in order to avoid investing in
technology that has not been proven successful in other markets. We implement this approach to avoid costly mistakes made
by early adopters of new technology that does not provide expected returns, and it exposes us to the risk that one of our
competitors will adopt successful new technology before us and leverage this new technology to attract our customers,
increasing the level of customer attrition we experience and adversely affecting our business.
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Business services sales increasingly contribute to our results of operations, and we face risks as we attempt to further
focus on sales to our business customers.
Growth in revenue from sales to our business customers in legacy Cable One markets has exceeded 11% for each year since
we started focusing on business services sales in 2011, and we may encounter challenges as we continue our initiative to
expand sales of data, voice and video services to our business customers. To accommodate this expansion, we expect to
commit a greater proportion of our expenditures on technology, equipment and personnel toward our business customers. If
we are unable to sufficiently maintain the necessary infrastructure and internal support functions necessary to service these
customers, potential future growth of our business services revenues would be limited. In many cases, business customers
have service level agreements that require us to provide higher standards of service and reliability. If we are unable to meet
these service level requirements, or more broadly, the expectations of our business customers, we would no longer expect
business sales to increase and our results of operations may be materially negatively affected.
The increase in programming costs and retransmission fees may continue in the future, resulting in lower margins than
we anticipate.
Over the past few years, the sales margins on our residential video services, which accounted for 32.0%, 34.6% and 36.0%
of our total revenues in 2018, 2017 and 2016, respectively, have decreased as a result of increased programming costs and
retransmission fees and customer cord-cutting. Programming costs and retransmission fees paid to major programmers and
broadcasters may continue to increase as content providers are expected to ask for higher fees. Moreover, programming cost
and retransmission fee increases have caused us, and may in the future cause us, to cease carrying channels offered by certain
programmers and broadcasters, which may result in attrition of video subscribers as well as customers who subscribe to
double-play or triple-play packages that include video service. These customer losses and increased costs could result in
further decreases in our residential video margins and adversely impact our business.
We may not be able to obtain necessary hardware, software and operational support.
We depend on a limited number of third-party suppliers and licensors to supply some of the hardware and software necessary
to provide some of our services, including our access to the network backbone and the set-top boxes and modems that we
lease to our customers. Some of these vendors represent our sole source of supply or have, either through contract or as a
result of intellectual property rights, a position of some exclusivity. If any of these parties breaches or terminates its agreement
with us or otherwise fails to perform its obligations in a timely manner; demand exceeds these vendors’ capacity; they
experience operating or financial difficulties; they significantly increase the amount we pay for necessary products or services
or they cease production of any necessary product due to lack of demand, profitability, a change in their ownership or
otherwise, then our ability to provide some services may be materially adversely affected. Any of these events could adversely
affect our ability to retain and attract subscribers and have a material negative impact on our operations, business, financial
results and financial condition.
We recently made several acquisitions, and may make other acquisitions, which exposes us to risks and uncertainties
associated with acquisitions.
We completed the NewWave acquisition on May 1, 2017 and the Clearwave acquisition on January 8, 2019. In addition, we
may make other acquisitions. Such acquisitions could involve a number of risks and uncertainties, including:
●
the difficulty in integrating newly acquired businesses and operations in an efficient and effective manner;
●
the challenge in achieving strategic objectives, cost savings and other anticipated benefits;
●
the potential loss of key employees of the acquired businesses;
●
the potential diversion of senior management’s attention from our ongoing operations;
●
the difficulty of maintaining relationships with the customers, suppliers and other business partners of the acquired
business;
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●
the difficulty and amount of time necessary to realize expected synergies and other benefits of the acquisitions;
●
the risks associated with integrating financial reporting and internal control systems;
●
the difficulty in adapting and expanding information technology systems and other business processes to
incorporate the acquired businesses;
● potential future impairments of goodwill associated with the acquired businesses; and
●
in some cases, the potential for increased regulation.
If an acquired business fails to operate as anticipated, cannot be successfully integrated with our existing business or one or
more of the other risks and uncertainties identified above occur in connection with our acquisitions, our operations, business,
results of operations and financial condition could be materially negatively affected.
Our rebranding may not produce the benefits expected.
In December 2018, we announced that we will be rebranding our business as Sparklight beginning in the summer of 2019.
The rebranding will result in significant investment by us and may result in the diversion of senior management’s attention
from our ongoing operations. Furthermore, we have registered and applied for registration of certain trademarks associated
with the rebranding and we will continue to evaluate the registration and maintenance of additional trademarks associated
with the rebranding. A failure to obtain or maintain trademark registrations could limit our ability to protect and enforce our
trademarks and impede our rebranding and marketing efforts. Our rebranding could also result in the loss of brand recognition,
customer loyalty or reputation and could require us to devote additional resources to advertising and marketing our new
brand. Our rebranding initiative may not produce the benefits expected and could adversely affect our ability to retain and
attract subscribers and have a material negative impact on our operations, business, financial results and financial condition.
Adverse conditions in the U.S. economy could impact our results of operations.
Unfavorable general economic conditions, such as a recession or economic slowdown in the United States, could negatively
affect the affordability of and demand for some of our products and services. In difficult economic conditions, consumers
may seek to reduce discretionary spending by forgoing purchases of our products, electing to use fewer higher margin services
or obtaining lower cost products and services offered by other companies. Similarly, under these conditions the business
customers that we serve in the United States may delay purchasing decisions, delay full implementation of service offerings
or reduce their use of services. In addition, adverse economic conditions may lead to an increased number of our residential
and business customers that are unable to pay for services. Such conditions could also inhibit or prevent our third-party
suppliers and licensors from supplying some of the hardware and software necessary to provide some of our services. If any
of these events were to occur, it could have a material negative effect on our operations, business, financial condition and
results of operations.
We rely on network and information systems and other technology, and a disruption or failure of such networks, systems
or technology as a result of cybersecurity incidents, as well as outages, natural disasters (including extreme weather),
terrorist attacks, accidental releases of information or similar events, may disrupt our business.
Network and information systems and other technologies are critical to our operating activities, both to internal uses and in
supplying data, video and voice services to customers. Network or information system shutdowns or other service disruptions
caused by cyber-attacks, such as distributed denial of service attacks, dissemination of malware and other malicious activity,
pose increasing risks. Both unsuccessful and successful cyber-attacks on companies have continued to increase in frequency,
scope and potential harm in recent years and, because the techniques used in such attacks have become more sophisticated
and change frequently, we may be unable to anticipate these techniques or implement adequate preventative measures. From
time to time third parties make malicious attempts to access our network. Any successful attempts could result in an
unauthorized release of information, degradation to our network and information systems or disruption to our data, video and
voice services, all of which could adversely affect our reputation and results of operations.
22
Our network and information systems are also vulnerable to damage or interruption from power outages, natural disasters
(including extreme weather arising from short-term weather patterns or any long-term changes), terrorist attacks and similar
events. For example, the damage to our network infrastructure caused by Hurricanes Harvey and Katrina and the Joplin,
Missouri tornado each created a significant disruption in our ability to provide services in affected areas. Any similar events
could have an adverse impact on us and our customers in the future, including degradation of service, service disruption,
excessive call volume to call centers and damage to our plant, equipment, data and reputation. Such an event also could result
in large expenditures necessary to repair or replace such networks or information systems or to protect them from similar
events or damage in the future. Further, the impacts associated with extreme weather or any long-term changes, such as
intensified storm activity, may cause increased business interruptions.
Security breaches and other disruptions, including cyber-attacks, and our actual or perceived failure to adequately protect
business and consumer data could give rise to liability or reputational harm.
In the ordinary course of our business, we electronically maintain confidential, proprietary and personal information in our
information technology systems and networks and those of third-party vendors, including customer, personnel and vendor
data. These systems may be targets of attack by cyber criminals or other wrongdoers seeking to steal such information for
financial gain or to harm our business operations or reputation. The loss, misuse, compromise, leakage, falsification or
accidental release of such information may result in costly investigations, remediation efforts and notification to affected
consumers, personnel or vendors. Cyber-attacks could also adversely affect our operating results; consume internal resources
and result in government investigations, fines and penalties, litigation or potential liability for us and otherwise harm our
business.
Various U.S. Federal, state and international laws and regulations govern the collection, use, retention, sharing and security
of consumer data and sensitive personal information that could be used to commit identity theft. This area of the law is
evolving, and interpretations of applicable laws and regulations differ. Legislative and regulatory activity in the privacy area
may result in new laws that are relevant to our operations, for example, use of consumer data for marketing or advertising.
Claims of failure to comply with our privacy policies or applicable laws or regulations could form the basis of governmental
or private-party actions against us. Such claims and actions may cause damage to our reputation and could have an adverse
effect on our business.
We also are subject to stringent data security and data retention requirements that apply to website operators and online
services directed to children under 13 years of age, or that knowingly collect or post personal information from children under
13 years of age. Other privacy-oriented laws have been extended by courts to online video providers and are increasingly
being used in privacy lawsuits, including class actions, against providers of video materials online. Most states have security
breach notification laws that generally require a business to give notice to consumers and government agencies when certain
information has been disclosed due to a security breach, and the FCC has adopted security breach rules for voice services.
Several states have also enacted general data security requirements to safeguard consumer information, including the proper
disposal of consumer information. We cannot predict whether, when or to what extent these obligations may impose costs on
or otherwise adversely affect our business.
Intellectual property and proprietary rights of others could prevent us from using necessary technology to provide our
services or subject us to expensive intellectual property litigation.
We periodically receive claims from third parties alleging that our network and information technology infrastructure
infringes the intellectual property rights of others. We are generally named as joint defendants in these suits together with
other providers of data, video and voice services. Typically these claims allege that aspects of our cable system architecture,
electronic program guides, cable modem technology and VoIP services infringe on process patents held by third parties. It is
likely that we will continue to be subject to similar claims as they relate to our cable business. Addressing these claims is a
time-consuming and expensive endeavor, regardless of the merits of the claims. In order to resolve such a claim, we could
determine the need to change our method of doing business, enter into a licensing agreement or incur substantial monetary
liability. It is also possible that our business could be enjoined from using the intellectual property at issue, causing us to
significantly alter our operations. If any such claims are successful, then the outcome would likely affect our services utilizing
the intellectual property at issue and could have a material adverse effect on our operating results.
If we are unable to retain key employees, our ability to manage our business could be adversely affected.
Our operational results have depended, and our future results will depend, upon the retention and continued performance of
our management team. The competitive environment for management talent in the broadband communications industry could
adversely impact our ability to retain and hire new key employees for management positions. The loss of the services of key
23
members of management and the inability or delay in hiring new key employees could adversely affect our ability to manage
our business and our future operational and financial results.
Risks Relating to Regulation and Legislation
The profitability of our data service offerings may be impacted by legislative or regulatory efforts to impose net neutrality
and other new requirements on cable operators.
The majority of our Adjusted EBITDA less capital expenditures comes from residential data services, and we expect that a
majority of our residential customers will be data-only in the future. We have aligned our resources to emphasize increased
sales of data services as well as sales to business customers. In order to continue to generate Adjusted EBITDA less capital
expenditures at our desired level from data services, we need the continued flexibility to develop and refine business models
that respond to changing consumer uses and demands and to manage data usage efficiently, including by charging our data
subscribers higher rates based on the overall bandwidth capacity available to, or used by, them, referred to as “usage-based
billing.” Our ability to implement usage-based billing or other network management initiatives in the future may be restricted
by any new net neutrality requirements on cable operators.
To the extent the FCC in the future limits our ability to price our data services, we may not be able to generate the margins
on our data services that we anticipated in shifting our focus from video to data services, and our business could be materially
negatively impacted. While the FCC has eliminated most net neutrality requirements, the FCC, Congress, states or the courts
may revisit this determination in the future. For example, Congress and numerous states have proposed legislation regarding
the net neutrality rules. Several states, including Oregon and Washington (where we have subscribers), have adopted
legislation that requires entities providing broadband internet access service in the state to comply with net neutrality
requirements or that prohibits state and local government agencies from contracting with internet service providers that
engage in certain network management activities based on paid prioritization, content blocking or other discrimination.
Further, current rules only require that a portion of revenues from VoIP services be contributed to the USF and USF is not
applied to broadband services. The changes brought about by how USF monies are distributed may provide funding and
subsidies to those who either compete with us or seek to compete with us and therefore put us at a competitive disadvantage.
Moreover, if the FCC imposes USF fees on broadband services, bundled services or a larger portion of VoIP services, it
would increase the cost of our services and harm our ability to compete.
The regulation of broadband activities, including net neutrality obligations, and any related court decisions could cause us to
incur additional compliance costs, restrict our ability to profit from our existing broadband network, limit the return we can
expect to achieve on past and future investments in our broadband networks and adversely affect our business. We cannot
predict what, if any, proposals might be adopted or what effect they might have on our business.
Our video and voice services are subject to additional regulation by U.S. Federal, state and local authorities, which may
impose additional costs and restrictions on our businesses.
Our video services business operates in a highly regulated environment. Our cable systems generally operate pursuant to
franchises, permits and similar authorizations issued by LFAs controlling the public rights-of-way, which typically are non-
exclusive and limited in time, contain various conditions and limitations and provide for the payment of fees to the local
authority, determined generally as a percentage of revenues. Failure to comply with all of the terms and conditions of a
franchise may give rise to rights of termination by the franchising authority.
We have the ability, pursuant to the Copyright Act, under certain terms and conditions, to retransmit the signals of television
stations pursuant to a compulsory copyright license. From time to time, revisions to the cable compulsory copyright rules are
considered. It is possible that changes in the rules or copyright compulsory license fee computations or compliance procedures
could have an adverse effect on our business by, for example, increasing copyright compulsory license fee costs or by causing
us to reduce or discontinue carriage of certain broadcast signals that we currently carry on a discretionary basis.
In addition, Congress, the FCC and other government agencies have implemented regulations that affect the types of set-top
boxes that we can lease or deploy to our subscribers, and we expect these regulations to change in the future. Most recently,
in January 2013, the U.S. Department of Energy tentatively designated set-top boxes and network equipment as covered
consumer products and proposed to adopt a new test procedure for set-top boxes as part of its Energy Conservation Program
for Consumer Products and Certain Commercial and Industry Equipment. In December 2013, the Department of Energy
withdrew its proposed rules to designate set-top boxes and network equipment as a covered product and to establish a test
procedure for set-top boxes, but stated that it would consider reinitiating the rulemaking. Imposing energy conservation
regulations on the hardware products we provide to our customers could impede innovation and require mandatory upgrades
24
in our set-top boxes and be costly to us. In February 2016, the FCC opened a rulemaking to consider proposals that would
require any retail video device to work on any cable operator’s system, but this item was removed from active FCC review.
We cannot predict when, whether or to what extent any of these proposals will be resolved or how they will affect our
operations.
Our voice services business is also subject to a growing degree of regulation. Complying with these regulations may increase
the costs we incur and decrease the revenues we derive from our voice business. While the compliance costs associated with
the current regulatory structure applicable to our voice services business are manageable, changes in this regulatory structure
are unpredictable and have the potential to further negatively impact our voice services business by increasing compliance
costs and/or taxes.
Our cable system franchises are subject to non-renewal or termination. The failure to renew a franchise in one or more
markets could adversely affect our business.
Many of the LFAs from whom we have obtained franchises, permits and similar authorizations required to operate our video
services business have established comprehensive facilities and service requirements as well as specific customer service
standards and monetary penalties for non-compliance. In many cases, our franchises are terminable if we fail to comply with
significant provisions set forth in the applicable franchise agreement governing our video operations. Franchises are generally
granted for fixed terms and must be periodically renewed. LFAs may resist granting a renewal if either past performance or
the prospective operating proposal is considered inadequate. LFAs often demand concessions or other commitments as a
condition to renewal. The traditional cable franchising regime has recently undergone significant change as a result of various
Federal and state actions. Some state franchising laws do not allow us to immediately opt into favorable statewide franchising.
In many cases, state franchising laws will result in fewer franchise-imposed requirements for our competitors who are new
entrants than for us, until we are able to opt into the applicable state franchise. We cannot assure that we will be able to
comply with all significant provisions of our franchise agreements and certain of our franchisers have from time to time
alleged that we have not complied with these agreements. Additionally, although historically we have renewed our franchises
without incurring significant costs, we cannot assure that we will be able to renew, or to renew as favorably, our franchises
in the future. A termination of or a sustained failure to renew a franchise in one or more markets could materially negatively
affect our business in the affected geographic area.
In addition, certain of our franchise agreements require that the applicable LFA approve a transfer of control of our Company.
Although FCC rules provide that a transfer application shall be deemed granted if it is not acted upon within 120 days after
submission, as a practical matter, cable operators often waive the deadline if the LFA has not completed its review to facilitate
discussions and thereby avoid an LFA denying the transfer of control. Failure to obtain such consents on commercially
reasonable and satisfactory terms may impair our entitlement to the benefit of these franchise agreements in the event of a
potential transfer of control of our Company.
We may encounter increased pole attachment costs.
Under U.S. Federal law, we have the right to attach cables carrying video and other services to telephone and similar poles
and underground conduits owned by utility companies. In addition, U.S. Federal law requires most telephone and power
utilities to charge reasonable rates to cable operators for utilizing space on utility poles or in underground conduits in order
to transmit video services to customers. However, because these cables may carry services other than video services, such as
voice services, some utility pole owners have sought to impose on cable companies a telecommunications rate for utilizing
pole space for voice services, which is higher than the statutory rate charged to cable operators for video services. In May
2010 and again in April 2011, the FCC adopted new requirements relating to pole access and construction practices that were
expected to improve the ability of cable operators to attach to utility poles on a timely basis and to lower the pole attachment
rate for voice services. In October 2013, the U.S. Supreme Court declined to review a lower court’s decision to uphold the
FCC’s pole attachment regulations. The FCC further revised its pole attachment rules in November 2015 to adjust the formula
for calculating pole rental rates, which resulted in similar rates for telecommunications attachments and cable attachments
and eliminated the ability of utility companies to justify higher rates for pole attachments used to provide broadband internet
access service. In July 2017, the U.S. Court of Appeals for the Eighth Circuit upheld the FCC’s November 2015 pole
attachment decision. In April 2018, the U.S. Supreme Court declined to review that decision. In October 2017, the FCC
adopted a one-touch make-ready policy for pole attachments, which has been challenged by the utility companies. We cannot
predict the outcome of this proceeding, or how this proceeding may affect our operations or impose costs on our business. In
the meantime, the appropriate method for calculating pole attachment rates for cable operators that provide VoIP services
remains unclear, although the FCC’s rule revisions to equalize pole attachment rates and its December 2017 reversal of its
previous reclassification of broadband internet access services make this issue less significant. We cannot predict the extent
to which regulatory changes may affect our ability over time to secure timely access to poles at reasonable rates for our data,
25
voice and video services. As a general matter, changes to our pole attachment rate structure could significantly increase our
annual pole attachment costs and materially negatively impact our operations, business, financial condition and results of
operations.
LFAs have the ability to impose additional regulatory constraints on our business, which could further increase our
expenses.
In addition to the franchise agreement, LFAs in some jurisdictions have adopted cable regulatory ordinances that further
regulate the operation of cable systems, and the services we provide in the jurisdiction. This additional regulation increases
the cost of operating our business. LFAs may impose new and more restrictive requirements. LFAs who are certified to
regulate rates in their communities generally have the power to reduce rates and order refunds on the rates charged for basic
video service and equipment.
Changes in broadcast carriage regulations could impose significant additional costs.
Although we would likely choose to carry all primary video feeds of local broadcast stations in the markets in which we
operate voluntarily, so-called “must carry” rules could, in the future, require us to carry some local broadcast television
signals on some of our cable systems that we might not otherwise carry. If the FCC seeks to revise or expand the “must carry”
rules, such as to require carriage of multicast streams, we would be forced to carry video programming that we would not
otherwise carry and potentially drop other, more popular programming in order to free capacity for the required programming,
which could make us less competitive. Moreover, if the FCC adopts rules that are not competitively neutral, cable operators
could be placed at a disadvantage versus other video providers.
The FCC has taken steps and proceedings to relax its media ownership rules, which, among other things, would eliminate
restrictions that limit the number of commonly owned television stations per market and restrict newspaper/broadcast and
radio/television station cross-ownership and could eventually lead to increasing the cap on the number of television stations
that one entity can control nationwide. However, these rule changes have been challenged in Federal court. The FCC also has
commenced a new proceeding to review its media ownership rules. These changes or proposed changes could increase the
negotiating leverage that broadcasters hold in retransmission consent negotiations and thereby possibly increase the amounts
we pay to broadcasters to retransmit their television stations on its cable systems.
In November 2017, the FCC adopted new rules to authorize television stations to use the “Next Generation TV” broadcast
television standard, ATSC 3.0. Should use of the new standard become widespread, we could be required to deploy new
equipment and our carriage obligations may be impacted. We cannot predict the effect that use of the new standard could
have on our equipment costs, carriage obligations, or retransmission fees. Any of these events could adversely affect our
business.
Risks Relating to Our Indebtedness
We incurred indebtedness in connection with the spin-off and the NewWave and Clearwave acquisitions, and the degree
to which we are now leveraged may have a material adverse effect on our business, financial condition or results of
operations and cash flows.
In connection with the spin-off in July 2015, we incurred indebtedness in an aggregate principal amount of $550.0 million.
In connection with the NewWave acquisition in May 2017, we incurred $250.0 million and $500.0 million of senior secured
loans maturing in May 2022 and May 2024, respectively, to finance the acquisition and related fees and expenses and to pay
off $93.8 million of our then-existing term loan indebtedness. In connection with the Clearwave acquisition in January 2019,
we incurred $250.0 million of senior secured loans maturing in January 2026.
Our ability to make payments on and to refinance our indebtedness, including the debt incurred in connection with the spin-
off and the NewWave and Clearwave acquisitions, as well as any future debt that we may incur, will depend on our ability
to generate cash in the future from operations, financings or asset sales. Our ability to generate cash is subject to general
economic, financial, competitive, legislative, regulatory and other factors, some of which are beyond our control.
26
The terms of our indebtedness restrict our current and future operations, particularly our ability to incur debt that we may
need to fund initiatives in response to changes in our business, the industries in which we operate, the economy and
governmental regulations.
The terms of our indebtedness include a number of restrictive covenants that impose significant operating and financial
restrictions on us and limit our ability to engage in actions that may be in our long-term best interests. These may restrict our
ability to take some or all of the following actions:
●
incur or guarantee additional indebtedness or sell disqualified or preferred stock;
● pay dividends on, make distributions in respect of, repurchase or redeem, capital stock;
● make investments or acquisitions;
●
sell, transfer or otherwise dispose of certain assets;
●
create or allow to exist liens;
●
enter into sale/leaseback transactions;
●
enter into agreements restricting the ability to pay dividends or make other intercompany transfers;
●
consolidate, merge, sell or otherwise dispose of all or substantially all of our or our subsidiaries’ assets;
●
enter into transactions with affiliates;
● prepay, repurchase or redeem certain kinds of indebtedness;
●
issue or sell stock of our subsidiaries; and/or
●
significantly change the nature of our business.
As a result of all of these restrictions, we may be:
●
limited in how we conduct our business and pursue our strategy;
● unable to raise additional debt financing to operate during general economic or business downturns; or
● unable to compete effectively or to take advantage of new business opportunities.
A breach of any of these covenants, if applicable, could result in an event of default under the terms of our indebtedness. If
an event of default occurs, the lenders would have the right to accelerate the repayment of such debt and the event of default
or acceleration may result in the acceleration of the repayment of any other of our debt to which a cross-default or cross-
acceleration provision applies. Furthermore, the lenders of this indebtedness may require that we pledge our assets as
collateral as security for our repayment obligations. If we were unable to repay any amount of this indebtedness when due
and payable, the lenders could proceed against the collateral that secures this indebtedness. In the event our creditors
accelerate the repayment of our borrowings, we may not have sufficient assets to repay such indebtedness and our financial
condition will be materially negatively affected.
We have variable rate indebtedness that subjects us to interest rate risk, which could cause our debt service obligations to
increase significantly.
As of the end of 2018, we had $730.0 million of outstanding term loans and an additional $195.9 million of undrawn revolving
credit commitments with variable rates of interest that expose us to interest rate risks. Additionally, in January 2019, we
incurred an additional $250.0 million of term loan indebtedness with a variable rate of interest in connection with the
Clearwave acquisition. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase
even though the amount borrowed remains the same, and our net income and cash flows will correspondingly decrease. In
addition, we will be exposed to the risk of rising interest rates to the extent that we fund our operations with short-term or
variable-rate borrowings. Even if we enter into interest rate swaps in the future in order to reduce future interest rate volatility,
27
we may not elect to maintain such interest rate swaps with respect to our variable rate indebtedness, if any, and any swaps
we enter into may not fully mitigate our interest rate risk. As a result, our financial condition could be materially negatively
affected.
Our ability to incur future indebtedness, whether for general corporate purposes or for acquisitions and strategic
investments, may not be available on favorable terms, or at all.
We may need to seek additional financing for our general corporate purposes or for acquisitions and strategic investments in
the future. We may be unable to obtain additional indebtedness on terms favorable to us, or at all, including because of the
terms of our current indebtedness. If adequate funds are not available on acceptable terms, we may be unable to fund our
future activities, which could negatively affect our business. If we raise additional funds through the issuance of equity
securities, our stockholders could experience dilution of their ownership interest. If we raise additional funds by issuing debt,
we may be subject to limitations on our operations due to restrictive covenants.
Risks Relating to Our Common Stock and the Securities Market
Our stock price may fluctuate significantly, depending on many factors, some of which may be beyond our control.
The market price of our common stock may fluctuate significantly, depending on many factors, some of which may be beyond
our control, including:
●
actual or anticipated fluctuations in our operating results due to factors related to our business;
●
success or failure of our business strategies;
● our quarterly or annual earnings, or those of other companies in our industry;
● our ability to obtain financing as needed;
●
announcements by us or our competitors of significant acquisitions or dispositions;
●
changes in accounting standards, policies, guidance, interpretations or principles;
●
the failure of securities analysts to cover, or maintain coverage of, our common stock;
●
changes in earnings estimates by securities analysts or our ability to meet those estimates;
●
the operating and stock price performance of other comparable companies;
●
investor perception of our Company and our industry;
● overall market fluctuations;
●
results from any material litigation or government investigation;
●
changes in laws and regulations (including tax laws and regulations) affecting our business;
●
changes in capital gains taxes and taxes on dividends affecting stockholders; and
● general economic conditions and other external factors.
Low trading volume for our stock, which may occur if an active trading market is not sustained, among other reasons, would
amplify the effect of the above factors on our stock price volatility.
Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular
company. These broad market fluctuations could adversely affect the trading price of our common stock.
28
We cannot assure you that we will continue to pay dividends on our common stock, and our indebtedness limits our ability
to pay dividends on our common stock.
The timing, declaration, amount and payment of future dividends to stockholders falls within the discretion of our Board. Our
Board’s decisions regarding the amount and payment of future dividends will depend on many factors, including our financial
condition, earnings, capital requirements of our business and covenants associated with debt obligations, as well as legal
requirements, regulatory constraints, industry practice and other factors that our Board deems relevant. There can be no
assurance that we will continue to pay any dividend in the future.
Your percentage ownership in our Company may be diluted in the future.
Your percentage ownership in our Company may be diluted in the future because of equity awards granted, and that we
expect to grant in the future, to our directors, officers and other employees. In addition, we may issue equity as all or part of
the consideration paid for acquisitions and strategic investments that we may make in the future or as necessary to finance
our ongoing operations.
Certain provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws and
Delaware law may discourage takeovers and the concentration of ownership of our common stock will affect the voting
results of matters submitted for stockholder approval.
Several provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated By-laws and Delaware
law may discourage, delay or prevent a merger or acquisition that is opposed by our Board or certain stockholders holding a
significant percentage of the voting power of our outstanding voting stock. These include provisions that:
● divide our Board into three classes of directors, standing for election on a staggered basis, such that only
approximately one-third of the directors constituting our Board may change each year;
● do not permit our stockholders to act by written consent and require that stockholder action must take place at an
annual or special meeting of our stockholders;
● provide that only our Chief Executive Officer and a majority of our directors, and not our stockholders, may call a
special meeting of our stockholders;
●
require the approval of our Board or the affirmative vote of stockholders holding at least 66 2/3% of the voting
power of our capital stock to amend our Amended and Restated By-laws; and
●
limit our ability to enter into business combination transactions with certain stockholders.
These and other provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated By-laws and
Delaware law may discourage, delay or prevent certain types of transactions involving an actual or a threatened acquisition
or change in control of our Company, including unsolicited takeover attempts, even though the transaction may offer our
stockholders the opportunity to sell their shares of our common stock at a price above the prevailing market price.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our headquarters is located in Phoenix, Arizona. The majority of the offices and headend facilities of our individual cable
systems are located in buildings owned by us.
29
ITEM 3.
LEGAL PROCEEDINGS
In the ordinary course of business, we periodically receive claims from third parties alleging that our network and information
technology infrastructure infringes the intellectual property rights of others. We have generally been named as joint
defendants in these suits together with other providers of data, video and voice services. Typically these claims allege that
aspects of our cable system architecture, electronic program guides, cable modem technology or VoIP services infringe on
process patents held by third parties. In addition, we have been subject to various civil lawsuits in the ordinary course of
business, including contract disputes, actions alleging negligence, invasion of privacy, violations of applicable wage and hour
laws and statutory and common law claims involving various other matters. We do not view any of these proceedings as
material to our business and are currently not subject to any other material legal proceedings.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
30
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is publicly traded under the ticker symbol “CABO” on the New York Stock Exchange.
Holders
As of February 22, 2019, there were 339 holders of record of our common stock and 5,703,322 shares of our common stock
outstanding.
Securities Authorized for Issuance Under Equity Compensation Plans
For equity compensation plan information, refer to Item 12 in Part III of this Annual Report on Form 10-K.
Performance Graph
The following graph compares the cumulative total stockholder return of our common stock between July 1, 2015 (the date
our stock began trading on the New York Stock Exchange) and December 31, 2018 with the cumulative total returns of the
Standard & Poor’s 500 Stock Index, a new custom peer group index (the “New Peer Group”), which was created because of
the purchase of one of our peer companies by another entity, and our prior peer group index (the “Prior Peer Group”). For
purposes of this graph, it assumes a hypothetical $100 investment on July 1, 2015 and that dividends, if any, were reinvested.
The New Peer Group of data, video and voice services companies includes Altice USA, Inc. (beginning June 22, 2017, when
it first became a publicly-traded company); Charter Communications, Inc.; Comcast Corporation; and WideOpenWest, Inc.
(beginning May 25, 2017, when it first became a publicly-traded company). The Prior Peer Group of data, video and voice
services companies includes Altice USA, Inc. (beginning June 22, 2017, when it first became a publicly-traded company);
Charter Communications, Inc.; Comcast Corporation; General Communication, Inc.; and WideOpenWest, Inc. (beginning
May 25, 2017, when it first became a publicly-traded company).
31
The stock price performance shown on this graph is based on historical results and is not necessarily indicative of future stock
price performance. The graph is furnished solely to accompany this Annual Report on Form 10-K and is not being filed for
purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that section, and shall not be deemed
to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange
Act.
32
Purchases of Equity Securities by the Issuer
The following table sets forth certain information relating to the purchases of our common stock by us and any affiliated
purchasers within the meaning of Rule 10b-18(a)(3) under the Exchange Act during the three months ended December 31,
2018 (dollars in thousands, except per share data):
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs (1)
Maximum
Dollar
Value of Shares
that May
Yet Be
Purchased
Under the Plans
or Programs
Total Number
of Shares
Purchased
Average Price
Paid Per Share
36 $
1,125 $
3,961 $
5,122 $
877.77
863.38
837.53
843.49
- $
825 $
3,961 $
4,786
154,171
153,462
150,144
Period
October 1 to 31, 2018 (2) .................
November 1 to 30, 2018 (3) .............
December 1 to 31, 2018 .................
Total ...............................................
(1) On July 1, 2015, the Board authorized up to $250.0 million of share repurchases (subject to a total cap of 600,000 shares of common stock), which
was announced on August 7, 2015. The authorization does not have an expiration date. 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.
(2) Consists of shares withheld from employees to satisfy estimated tax withholding obligations in connection with vesting of restricted stock under the
Amended and Restated Cable One, Inc. 2015 Omnibus Incentive Compensation Plan (the “2015 Plan”). The average price paid per share for the
common stock withheld was based on the closing price of our common stock on the vesting date.
Includes 300 shares purchased by an executive officer of the Company that were not under the publicly announced share repurchase program (which
should not be deemed to be an admission that such executive officer is, in fact, an affiliated purchaser of the Company).
(3)
ITEM 6.
SELECTED FINANCIAL DATA
The following table presents selected historical financial information. We derived the selected consolidated balance sheet
information as of December 31, 2018 and 2017, and the selected consolidated statement of operations information for the
years ended December 31, 2018, 2017 and 2016 from our audited consolidated financial statements included elsewhere in
this Annual Report on Form 10-K. We derived the selected consolidated balance sheet information as of December 31, 2016,
2015 and 2014, and the selected consolidated statement of operations information for the years ended December 31, 2015
and 2014 from prior consolidated financial statements not included in this Annual Report on Form 10-K.
The selected historical financial data presented below should be read in conjunction with our audited consolidated financial
statements and the accompanying notes thereto, and the section entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” included elsewhere in this Annual Report on Form 10-K. Further, the following factors
may impact the cross-period comparability of the information provided in the table below:
● For each of the periods presented prior to July 1, 2015, we were a separate wholly owned subsidiary of GHC.
The financial information for the periods prior to July 1, 2015 may not necessarily reflect what our financial
position and results of operations would have been had we been a stand-alone entity during the periods presented,
as such historical financial information includes allocations of certain GHC corporate expenses. We believe the
assumptions and methodologies underlying the allocation of those expenses were reasonable. However, such
expenses may not be indicative of the actual level of expense that we would have incurred if we had operated as
a stand-alone entity.
● The 2018 financial information includes NewWave operations and the 2017 financial information includes eight
months of NewWave operations following the completion of our acquisition of NewWave on May 1, 2017.
● The 2018 and 2017 financial information reflects the prospective adoption of a change in estimate and change
in accounting principle for capitalized labor costs effective in the first quarter of 2017.
● The 2018, 2017 and 2016 financial information reflects the adoption of the new revenue recognition accounting
standard. We have elected not to recast our financial information for 2015 or 2014 to reflect the retrospective
adoption of the new revenue recognition accounting standard, as allowed by GAAP.
33
(in thousands, except per share data)
2018
2017
2016
2015
2014
As of, and for the Year Ended December 31,
(As Recasted) (As Recasted)
Consolidated Balance Sheet Information
Cash and cash equivalents .................................... $
264,113 $
Total assets ........................................................... $ 2,303,234 $
Total debt, including capital lease obligations
and excluding unamortized debt issuance costs . $ 1,180,251 $
Total liabilities...................................................... $ 1,527,876 $
775,358 $
Total stockholders’ equity .................................... $
Consolidated Statement of Operations Information
Revenues .............................................................. $ 1,072,295 $
Net income ........................................................... $
164,760 $
Net income per common share:
Basic ................................................................. $
Diluted .............................................................. $
28.98 $
28.77 $
161,752 $
2,204,632 $
138,040 $
6,410
1,428,361 $ 1,422,466 $ 1,283,866
119,199 $
1,194,642 $
1,528,185 $
676,447 $
545,284 $
955,195 $
473,166 $
549,051 $
-
974,517 $ 420,764
447,949 $ 863,102
959,956 $
235,171 $
819,348 $
100,317 $
807,266 $ 814,812
91,822 $ 147,907
41.40 $
40.92 $
17.47 $
17.38 $
15.69 $
15.67 $
25.31
25.31
Consolidated Statement of Stockholders’ Equity Information
7.50 $
Dividends declared per common share ................. $
6.50 $
6.00 $
1.50 $
-
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with our
accompanying audited consolidated financial statements and related notes included in this Annual Report on Form 10-K, as
well as the discussion in the section of this Annual Report on Form 10-K entitled “Business.” This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual results may vary materially from those expressed
or implied by these forward-looking statements due to a number of factors, including those discussed in the sections of this
Annual Report on Form 10-K entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”
Overview
Our Business
We are a fully integrated provider of data, video and voice services in 21 Western, Midwestern and Southern states. We
provide these broadband services to residential and business customers in more than 750 communities. The markets we serve
are primarily non-metropolitan, secondary markets, with 78% of our customers located in seven states: Arizona, Idaho,
Illinois, Mississippi, Missouri, Oklahoma and Texas. Our biggest customer concentrations are in the Mississippi Gulf Coast
region and in the greater Boise, Idaho region. We provided service to 804,865 residential and business customers out of
approximately 2.1 million homes passed as of December 31, 2018. Of these customers, 663,074 subscribed to data services,
326,423 subscribed to video services and 125,934 subscribed to voice services.
We generate substantially all our revenues through five primary products. Ranked by share of our total revenues during 2018,
they are residential data (46.0%), residential video (32.0%), business services (data, voice and video – 14.5%), residential
voice (3.8%) and advertising sales (2.3%). The profit margins, growth rates and capital intensity of our five primary products
vary significantly due to competition, product maturity and relative costs.
In 2018, our Adjusted EBITDA margins for residential data and business services were approximately six and seven times
greater, respectively, than for residential video. We define Adjusted EBITDA margin for a product line as Adjusted EBITDA
attributable to that product line divided by revenue attributable to that product line (see “Use of Adjusted EBITDA” below
for the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, which is the most directly
comparable GAAP measure). This margin disparity is largely the result of significant programming costs and retransmission
fees incurred to deliver residential video services, which in each of the last three years represented between 53% and 62% of
total residential video revenues. None of our other product lines has direct costs representing as substantial a portion of
revenues as programming costs and retransmission fees represent for residential video, and indirect costs are allocated equally
on a per PSU basis. Programming costs and retransmission fees have a meaningfully lower impact on business services
34
margins than residential video because business services include data and voice, in addition to video, diminishing the relative
impact of programming costs and retransmission fees on that product line as a whole.
Prior to 2012, we were focused on growing revenues through subscriber retention and growth in overall PSUs. Accordingly,
our strategies consisted of, among others, offering promotional discounts to new and existing subscribers adding new services
and to subscribers purchasing more than one service offering. Since 2012, we have adapted our strategy to face the industry-
wide trends of declining profitability of residential video services and declining revenues from residential voice services. We
believe the declining profitability of residential video services is primarily due to increasing programming costs and
retransmission fees and competition from other content providers, and the declining revenues from residential voice services
is primarily due to the increasing use of wireless voice services instead of residential voice services. Beginning in 2013, we
shifted our focus away from maximizing customer PSUs and towards growing our higher margin businesses, namely
residential data and business services. Separately, we have also focused on retaining customers with a high expected LTV,
who are less attracted by discounting, require less support and churn less. This strategy focuses on increasing Adjusted
EBITDA, Adjusted EBITDA less capital expenditures and margins.
The trends described above have impacted our four largest product lines in the following ways:
● Residential data. We experienced growth in the number of, and revenues from, our residential data customers every
year since 2013. We expect this growth to continue due to projected increases in the number of potential customers
for us to serve, as there are still a number of households in our markets that do not subscribe to data services from
any provider. We expect to capture a portion of these customers and anticipate capturing additional market share
from existing data subscribers due to our continued upgrades in broadband capacity, our ability to offer higher
access speeds than many of our competitors and our Wi-Fi support service.
● Residential video. Residential video service is a highly competitive business. As we focus on the higher-margin
businesses of residential data and business services, we have de-emphasized our residential video business and, as
a result, expect residential video revenues to continue to decline in the future.
● Residential voice. We have experienced declines in residential voice customers as a result of homes in the United
States deciding to terminate their residential voice services and exclusively use wireless voice services. We believe
this trend will continue because of competition from wireless voice service providers. Revenues from residential
voice customers have declined over recent years, and we expect this decline will continue.
● Business services. We have experienced significant growth in business data and voice customers and revenues, and
we expect this growth to continue. We attribute this growth to our strategic focus on increasing sales to business
customers and our efforts to attract enterprise business customers. Margins in products sold to business customers
have remained attractive, and we expect this trend to continue.
We continue to experience increased competition, particularly from telephone companies, cable and municipal overbuilders,
OTT video providers and DBS television providers. Because of the levels of competition we face, we believe it is important
to make investments in our infrastructure. We elevated our capital investments between 2012 and 2018 to increase our plant
capacities and reliability, launch all-digital video services (which has made available approximately half of average plant
bandwidth for data services) and increase data capacity by moving from four-channel bonding to 32-channel bonding (to
enable our GigaONE data service). We expect to continue devoting financial resources to infrastructure improvements,
including in the new markets we acquired in the NewWave and Clearwave transactions, because we believe these investments
are necessary to remain competitive. We expect to spend up to $35 million during 2019, in addition to the combined nearly
$27 million spent for NewWave in 2018 and 2017, to enhance those acquired operations by rebuilding low capacity markets,
launching all-digital video services, implementing 32-channel bonding, converting back office functions such as billing,
accounting and service provisioning, migrating products to legacy Cable One platforms and expanding our high-capacity
fiber network.
Our primary business goals are to continue growing residential data and business services, to increase profit margins and to
deliver strong Adjusted EBITDA and Adjusted EBITDA less capital expenditures. To achieve these goals, we intend to
continue our industrial engineering-driven cost management, remain focused on customers with high LTV and follow through
with further planned investments in broadband plant upgrades and new data service offerings for residential and business
customers.
On May 1, 2017, we acquired NewWave, a provider of data, video and voice services to residential and business customers
throughout non-urban areas of Arkansas, Illinois, Indiana, Louisiana, Mississippi, Missouri and Texas. We paid a purchase
35
price of $740.2 million in cash on a debt-free basis. In connection with the transaction, we amended our existing credit
agreement and incurred $750.0 million of senior secured loans which were used to finance the acquisition, repay in full our
then-existing term loan and pay related fees and expenses. Refer to notes 4 and 9 of the notes to our consolidated financial
statements included in this Annual Report on Form 10-K for details on these transactions.
On January 8, 2019, we acquired Clearwave, a facilities-based service provider that owns and operates a high-capacity fiber
network offering dense regional coverage in Southern Illinois. We paid a purchase price of $357.0 million in cash on a debt-
free basis, subject to customary post-closing adjustments. The acquisition provides us with a premier fiber network within
our existing footprint, further enables us to supply our customers with enhanced business services solutions and provides a
platform to allow us to replicate Clearwave’s strategy in several of our other markets.
Results of Operations
PSU and Customer Counts
During 2018, our total PSUs decreased 26,491, or 2.3%, compared to our total PSUs as of December 31, 2017. Residential
data PSUs and business PSUs increased 15,862 and 4,827, respectively, while residential video PSUs and residential voice
PSUs decreased 36,237 and 10,943, respectively. Our total customer relationships increased 7,328, or 0.9%, year-over-year,
with increases of 4,089 and 3,239 in business and residential customer relationships, respectively.
During 2017, our total PSUs increased 191,957, or 20.2%, compared to our total PSUs as of December 31, 2016, with
increases in residential data, video and voice PSUs of 115,801, 40,149 and 12,289, respectively, and an increase in business
PSUs of 23,718. Our total customer relationships increased 140,315, or 21.3%, year-over-year. The year-over-year increases
were primarily attributable to new customers acquired as a result of the NewWave acquisition.
The following table provides an overview of selected customer data for the time periods specified:
2018
As of December 31,
2017
2016
Residential data PSUs .....................................................................
Residential video PSUs (1) ...............................................................
Residential voice PSUs ...................................................................
Total residential PSUs ........................................................................
600,716
310,475
99,070
1,010,261
584,854
346,712
110,013
1,041,579
Business data PSUs (2) .....................................................................
Business video PSUs ......................................................................
Business voice PSUs (3) ...................................................................
Total business PSUs ...........................................................................
62,358
15,948
26,864
105,170
58,299
17,176
24,868
100,343
Total data PSUs ..............................................................................
Total video PSUs ............................................................................
Total voice PSUs ............................................................................
Total PSUs .........................................................................................
663,074
326,423
125,934
1,115,431
643,153
363,888
134,881
1,141,922
Total residential customer relationships .............................................
Total business customer relationships ................................................
Total customer relationships ..............................................................
734,250
70,615
804,865
731,011
66,526
797,537
469,053
306,563
97,724
873,340
44,855
13,683
18,087
76,625
513,908
320,246
115,811
949,965
605,699
51,523
657,222
(1) Residential video PSUs include all basic residential customers who receive video services and may have one or more digital set-top boxes or cable
cards deployed. Residential bulk multi-dwelling accounts are included in our video PSUs at the individual unit level.
(2) Business data PSUs include commercial accounts that receive data service via a cable modem and commercial accounts that receive data service
optically via fiber connections.
(3) Business voice customers who have multiple voice lines are only counted once in the PSU total.
In recent years, our customer mix has shifted, causing subscribers to move from triple-play packages combining data, video
and voice services to single and double-play packages. This is largely because some residential video customers have defected
to DBS services and OTT offerings and more households have discontinued residential voice service. In addition, we have
focused on selling data-only packages to new customers rather than cross-selling video to these customers.
36
2018 Compared to 2017
Revenues
Revenues increased $112.3 million, or 11.7%, due primarily to increases in residential data, business services and residential
video revenues of $76.5 million, $24.9 million and $10.8 million, respectively. The increase was the result of four additional
months of NewWave operations and organic growth in our higher margin product lines of residential data and business
services.
Revenues by service offering were as follows for 2018 and 2017, together with the percentages of total revenues that each
item represented for the years presented (dollars in thousands):
Year Ended December 31,
2018
Residential data ............................. $ 492,816
343,344
Residential video ...........................
41,278
Residential voice ...........................
155,993
Business services ...........................
24,919
Advertising sales ...........................
Other ..............................................
13,945
Total revenues ............................... $ 1,072,295
2017
Revenues % of Total Revenues % of Total $ Change % Change
18.4
3.3
(5.6)
19.0
0.4
22.0
11.7
46.0 $ 416,355
332,536
32.0
43,733
3.8
131,082
14.5
24,824
2.3
11,426
1.4
100.0 $ 959,956
76,461
10,808
(2,455)
24,911
95
2,519
112,339
43.4 $
34.6
4.6
13.7
2.6
1.1
100.0 $
2018 vs. 2017
Average monthly revenue per unit for the indicated service offerings were as follows for 2018 and 2017:
Residential data (1) ........................................................................ $
Residential video (1) ...................................................................... $
Residential voice (1) ...................................................................... $
Business services (2) ...................................................................... $
68.70 $
86.96 $
32.86 $
187.32 $
Year Ended
December 31,
2018
2017
2018 vs. 2017
$ Change % Change
8.6
5.42
7.3
5.89
(2.8)
(0.94)
5.4
9.59
63.28 $
81.07 $
33.80 $
177.73 $
(1) Average monthly revenue per unit values represent the applicable annual residential service revenues (excluding installation and activation fees)
divided by the corresponding average of the number of PSUs at the beginning and end of each year, divided by 12, except that for any new PSUs
added as a result of an acquisition occurring during the reporting period, the associated average monthly revenue per unit values represent the applicable
residential service revenues (excluding installation and activation fees) divided by the pro-rated number of PSUs during such period.
(2) Average monthly revenue per unit values represent annual business services revenues (excluding installation and activation fees) divided by the
average of the number of business customer relationships at the beginning and end of each year, divided by 12, except that for any new business
customer relationships added as a result of an acquisition occurring during the reporting period, the associated average monthly revenue per unit values
represent business services revenues (excluding installation and activation fees) divided by the pro-rated number of business customer relationships
during such period.
Revenues by service offering, excluding the impact of revenues related to legacy NewWave systems, were as follows for
2018 and 2017, together with the percentages of total revenues that each item represented for the years presented (dollars in
thousands):
Year Ended December 31,
2018
Residential data ............................. $ 415,503
270,170
Residential video ...........................
34,690
Residential voice ...........................
126,032
Business services ...........................
23,484
Advertising sales ...........................
9,753
Other ..............................................
Total revenues ............................... $ 879,632
2017
Revenues % of Total Revenues % of Total $ Change % Change
11.4
(3.0)
(7.4)
12.4
(1.3)
21.8
5.6
47.2 $ 372,876
278,445
30.7
37,460
3.9
112,110
14.3
23,799
2.7
8,007
1.2
100.0 $ 832,697
42,627
(8,275)
(2,770)
13,922
(315)
1,746
46,935
44.8 $
33.4
4.5
13.5
2.9
0.9
100.0 $
2018 vs. 2017
37
Average monthly revenue per unit, excluding the impact of revenues and customers related to legacy NewWave systems,
were as follows for 2018 and 2017:
Residential data (1) ........................................................................ $
Residential video (1) ...................................................................... $
Residential voice (1) ...................................................................... $
Business services (2) ...................................................................... $
70.86 $
87.72 $
34.31 $
181.65 $
Year Ended
December 31,
2018
2017
2018 vs. 2017
$ Change % Change
8.2
5.37
9.0
7.23
2.3
0.77
5.2
9.03
65.49 $
80.49 $
33.54 $
172.62 $
(1) Average monthly revenue per unit values represent the applicable annual residential service revenues (excluding installation and activation fees)
divided by the corresponding average of the number of PSUs at the beginning and end of each year, divided by 12.
(2) Average monthly revenue per unit values represent annual business services revenues (excluding installation and activation fees) divided by the
average of the number of business customer relationships at the beginning and end of each year, divided by 12.
Residential data service revenues increased $76.5 million, or 18.4%, as a result of organic subscriber growth, an additional
four months of NewWave operations, a modem rental rate adjustment in the first quarter of 2018, a reduction in package
discounting and increased customer subscriptions to premium tiers.
Residential video service revenues increased $10.8 million, or 3.3%, due primarily to an additional four months of NewWave
operations and a broadcast television surcharge increase implemented in the first quarter of 2018, partially offset by a 10.5%
year-over-year decrease in residential video subscribers.
Residential voice service revenues decreased $2.5 million, or 5.6%, due primarily to a 9.9% year-over-year decrease in
residential voice subscribers, partially offset by an additional four months of NewWave operations.
Business services revenues increased $24.9 million, or 19.0%, due primarily to growth in our business data and voice services
to small and medium-sized businesses and enterprise customers, an additional four months of NewWave operations and a
rate adjustment for business video customers in the first quarter of 2018. Total business customer relationships increased
6.1% year-over-year.
Operating Costs and Expenses
Operating expenses (excluding depreciation and amortization) were $370.3 million for 2018 and increased $33.2 million, or
9.9%, compared to 2017. Operating expenses as a percentage of revenues were 34.5% for 2018 compared to 35.1% for 2017.
The increase in operating expenses attributable to the NewWave operations was $30.5 million. Excluding the expenses
associated with the NewWave operations, operating expenses would have been $276.6 million for 2018, an increase of $2.7
million, or 1.0%, compared to 2017. The increase was due primarily to higher repairs and maintenance costs of $1.5 million
and programming costs of $1.3 million. Operating expenses as a percentage of revenues, excluding the impact of the
NewWave operations, would have been 31.4% for 2018 compared to 32.9% for 2017.
Selling, general and administrative expenses increased $17.8 million, or 8.7%, to $222.2 million. Selling, general and
administrative expenses as a percentage of revenues were 20.7% and 21.3% for 2018 and 2017, respectively. The increase in
selling, general and administrative expenses attributable to the NewWave operations was $12.8 million, including $4.6
million for system conversion costs. Excluding the expenses associated with the NewWave operations, selling, general and
administrative expenses would have increased $5.0 million, or 2.7%, to $192.8 million due primarily to higher insurance
expense of $4.4 million, marketing costs of $2.1 million, rebranding costs of $1.0 million and compensation expense of $0.8
million, partially offset by lower acquisition-related costs of $4.1 million. Selling, general and administrative expenses as a
percentage of revenues, excluding the impact of the NewWave operations, would have been 21.9% for 2018 compared to
22.5% for 2017.
Depreciation and amortization expense increased $16.1 million, or 8.9%, including an $18.2 million increase attributable to
the NewWave operations. As a percentage of revenues, depreciation and amortization expense was 18.4% for 2018 compared
to 18.9% for 2017.
We recognized a net loss on asset disposals of $14.2 million in 2018 compared to $0.6 million in 2017. The prior year amount
consisted of a $7.2 million net loss on asset disposals and a gain on the sale of a portion of our previous headquarters property
38
of $6.6 million. The year-over-year increase in the net loss on asset disposals was primarily attributable to a write-off of
excess equipment and a higher amount of assets retired as new assets replaced them.
Interest Expense
Interest expense increased $13.6 million, or 28.9%, to $60.4 million due primarily to additional outstanding debt incurred on
May 1, 2017 to finance the NewWave acquisition and an increase in interest rates year-over-year.
Other Income
Other income for 2018 primarily consisted of interest income of $4.6 million. Other income for 2017 primarily consisted of
interest income of $1.2 million, partially offset by a $0.6 million write-off of debt issuance costs related to the additional debt
incurred to finance the NewWave acquisition.
Income Tax Provision (Benefit)
The income tax provision was $47.2 million in 2018 compared to an income tax benefit of $45.0 million in 2017. The year-
over-year change was due primarily to a one-time reduction of our 2017 net deferred income tax liability as a result of the
Federal tax reform legislation passed in the fourth quarter of 2017. Our effective tax rate was 22.3% and (23.7)% for 2018
and 2017, respectively.
2017 Compared to 2016
Revenues
Revenues increased $140.6 million, or 17.2%, due primarily to increases in residential data, residential video and business
services revenues of $70.8 million, $37.8 million and $31.0 million, respectively. The increase was the result of the NewWave
operations since May 1, 2017 and organic growth in our higher margin product lines of residential data and business services,
partially offset by a decrease in advertising sales revenues.
Revenues by service offering were as follows for 2017 and 2016, together with the percentages of total revenues that each
item represented for the years presented (dollars in thousands):
Year Ended December 31,
2017
Residential data ............................. $ 416,355
332,536
Residential video ...........................
43,733
Residential voice ...........................
131,082
Business services ...........................
Advertising sales ...........................
24,824
11,426
Other ..............................................
Total revenues ............................... $ 959,956
2016
Revenues % of Total Revenues % of Total $ Change % Change
20.5
12.8
1.8
31.0
(9.7)
34.0
17.2
43.4 $ 345,563
294,781
34.6
42,949
4.6
100,034
13.7
27,496
2.6
8,525
1.1
100.0 $ 819,348
70,792
37,755
784
31,048
(2,672)
2,901
140,608
42.2 $
36.0
5.2
12.2
3.4
1.0
100.0 $
2017 vs. 2016
Average monthly revenue per unit for the indicated service offerings were as follows for 2017 and 2016:
Residential data (1) ........................................................................ $
Residential video (1) ...................................................................... $
Residential voice (1) ...................................................................... $
Business services (2) ...................................................................... $
63.28 $
81.07 $
33.80 $
177.73 $
Year Ended
December 31,
2017
2016
2017 vs. 2016
$ Change % Change
2.6
1.60
8.3
6.23
(1.4)
(0.49)
7.1
11.81
61.68 $
74.84 $
34.29 $
165.92 $
(1) Average monthly revenue per unit values represent the applicable annual residential service revenues (excluding installation and activation fees)
divided by the corresponding average of the number of PSUs at the beginning and end of each year, divided by 12, except that for any new PSUs
added as a result of an acquisition occurring during the reporting period, the associated average monthly revenue per unit values represent the applicable
residential service revenues (excluding installation and activation fees) divided by the pro-rated number of PSUs during such period.
39
(2) Average monthly revenue per unit values represent annual business services revenues (excluding installation and activation fees) divided by the
average of the number of business customer relationships at the beginning and end of each year, divided by 12, except that for any new business
customer relationships added as a result of an acquisition occurring during the reporting period, the associated average monthly revenue per unit values
represent business services revenues (excluding installation and activation fees) divided by the pro-rated number of business customer relationships
during such period.
Revenues by service offering, excluding the impact of revenues related to legacy NewWave systems, were as follows for
2017 and 2016, together with the percentages of total revenues that each item represented for the years presented (dollars in
thousands):
Year Ended December 31,
2017
Residential data ............................. $ 372,876
278,445
Residential video ...........................
37,460
Residential voice ...........................
112,110
Business services ...........................
23,799
Advertising sales ...........................
Other ..............................................
8,007
Total revenues ............................... $ 832,697
2016
Revenues % of Total Revenues % of Total $ Change % Change
7.9
(5.5)
(12.8)
12.1
(13.4)
(6.1)
1.6
44.8 $ 345,563
294,781
33.4
42,949
4.5
100,034
13.5
27,496
2.9
8,525
0.9
100.0 $ 819,348
27,313
(16,336)
(5,489)
12,076
(3,697)
(518)
13,349
42.2 $
36.0
5.2
12.2
3.4
1.0
100.0 $
2017 vs. 2016
Average monthly revenue per unit for the indicated service offerings, excluding the impact of revenues and customers related
to legacy NewWave systems, were as follows for 2017 and 2016:
Residential data (1) ........................................................................ $
Residential video (1) ...................................................................... $
Residential voice (1) ...................................................................... $
Business services (2) ...................................................................... $
65.49 $
80.49 $
33.54 $
172.62 $
Year Ended
December 31,
2017
2016
2017 vs. 2016
$ Change % Change
6.2
3.81
7.5
5.65
(2.2)
(0.75)
4.0
6.70
61.68 $
74.84 $
34.29 $
165.92 $
(1) Average monthly revenue per unit values represent the applicable annual residential service revenues (excluding installation and activation fees)
divided by the corresponding average of the number of PSUs at the beginning and end of each year, divided by 12.
(2) Average monthly revenue per unit values represent annual business services revenues (excluding installation and activation fees) divided by the
average of the number of business customer relationships at the beginning and end of each year, divided by 12.
Residential data service revenues increased $70.8 million, or 20.5%, due primarily to an increase in residential data customers
of 24.7% year-over-year as a result of the NewWave operations and organic subscriber growth, a reduction in package
discounting and increased subscriptions to premium tiers by residential customers.
Residential video service revenues increased $37.8 million, or 12.8%, due primarily to an increase in residential video
customers of 13.1% as a result of the NewWave operations and a rate adjustment in the first quarter of 2017.
Residential voice service revenues increased $0.8 million, or 1.8%, due primarily to an increase in residential voice customers
of 12.6% as a result of the NewWave operations, partially offset by a decrease in average monthly revenue per unit.
Business services revenues increased $31.0 million, or 31.0%, due primarily to the NewWave operations, growth in our
business data and voice services to small and medium-sized businesses and enterprise customers and a rate adjustment for
business video customers in the first quarter of 2017. Total business customer relationships increased 29.1% year-over-year.
Advertising sales revenues decreased $2.7 million, or 9.7%, due primarily to a decrease in political advertising and fewer
video customers to be reached by advertising spots.
Other revenues increased $2.9 million, or 34.0%, due primarily to the NewWave operations.
Operating Costs and Expenses
Operating expenses (excluding depreciation and amortization) were $337.0 million in 2017 and increased $40.5 million, or
13.6%, compared to 2016. Operating expenses as a percentage of revenues were 35.1% for 2017 compared to 36.2% for
40
2016. Additional operating expenses attributable to the NewWave operations were $63.1 million for 2017. This increase was
partially offset by a $12.7 million decrease in labor costs associated with our change in accounting for capitalized labor, a
$3.8 million decrease in programming costs resulting from fewer video subscribers, a $3.1 million decrease in backbone and
internet connectivity fees, a $1.3 million decrease in insurance costs and a $1.0 million decrease in repair and maintenance
costs. Excluding the impact of the NewWave operations, operating expenses would have been $273.9 million in 2017, a
decrease of $22.7 million, or 7.6%. Operating expenses as a percentage of revenues, excluding the impact of the NewWave
operations, would have been 32.9% in 2017 compared to 36.2% in 2016.
Selling, general and administrative expenses increased $19.4 million, or 10.5%, to $204.4 million for 2017. Selling, general
and administrative expenses as a percentage of revenues were 21.3% and 22.6% for 2017 and 2016, respectively. Additional
selling, general and administrative expenses attributable to the NewWave operations were $16.6 million for 2017. Increases
in severance costs of $4.4 million, deferred compensation expenses of $2.4 million and software maintenance costs of $2.1
million were partially offset by a $3.6 million decrease in labor costs associated with the capitalized labor change and a $1.8
million decrease in employee incentive costs. Excluding the incremental expenses associated with the NewWave operations,
selling, general and administrative expenses would have increased $2.8 million, or 1.5%, to $187.8 million for 2017. Selling,
general and administrative expenses as a percentage of revenues, excluding the impact of the NewWave operations, would
have been 22.5% in 2017 compared to 22.6% in 2016.
Depreciation and amortization increased $33.8 million, or 22.8%, to $181.6 million for 2017 including $32.2 million
attributable to the NewWave operations. The increase was due primarily to new assets placed in service in 2017 and 2016,
including property, plant and equipment and amortizable intangible assets acquired as part of the NewWave acquisition,
partially offset by assets that became fully depreciated during those years. As a percentage of revenues, depreciation and
amortization expense was 18.9% for 2017 compared to 18.0% for 2016.
We recognized a $0.6 million net loss on asset disposals in 2017 compared to $2.8 million in 2016. The net loss in 2017
consisted of a $7.2 million loss on disposals of property, plant and equipment, including $2.1 million associated with damage
caused by Hurricane Harvey, partially offset by a $6.6 million gain on the sale of a portion of our previous headquarters
property.
Interest Expense
Interest expense was $46.9 million and $30.2 million for 2017 and 2016, respectively. The increase was due primarily to
additional debt incurred to finance the NewWave acquisition.
Other Income
Other income for 2017 primarily consisted of interest income of $1.2 million, partially offset by a $0.6 million write-off of
debt issuance costs related to the additional debt incurred to finance the NewWave acquisition. Other income of $5.1 million
in 2016 primarily consisted of a $4.1 million net gain on the sale of a cable system and interest income.
Income Tax Provision (Benefit)
The income tax provision (benefit) decreased $106.7 million, or 173.0%, to a benefit of $45.0 million. The decrease primarily
related to a net income tax benefit of $114.0 million associated with a reduction of our net deferred income tax liability as a
result of the Federal tax reform legislation passed in the fourth quarter of 2017 and $3.4 million of income tax benefits
attributable to equity-based awards recorded throughout 2017. Our effective tax rate was (23.7)% for 2017 and 38.1% for
2016.
Use of Adjusted EBITDA
We use certain measures that are not defined by GAAP to evaluate various aspects of our business. Adjusted EBITDA is a
non-GAAP financial measure and should be considered in addition to, not as superior to, or as a substitute for, net income
reported in accordance with GAAP. Adjusted EBITDA is reconciled to net income below.
Adjusted EBITDA is defined as net income plus interest expense, income tax provision (benefit), depreciation and
amortization, equity-based compensation, severance expense, (gain) loss on deferred compensation, acquisition-related costs,
(gain) loss on asset disposals, system conversion costs, rebranding costs, other (income) expense and other unusual operating
expenses, as provided in the table below. As such, it eliminates the significant non-cash depreciation and amortization expense
that results from the capital-intensive nature of our business as well as other non-cash or special items and is unaffected by
41
our capital structure or investment activities. This measure is limited in that it does not reflect the periodic costs of certain
capitalized tangible and intangible assets used in generating revenues and our cash cost of debt financing. These costs are
evaluated through other financial measures.
We use Adjusted EBITDA to assess our performance. In addition, Adjusted EBITDA generally correlates to the measure
used in the leverage ratio calculation under our outstanding Senior Credit Facilities and Notes (each as defined under
“Financial Condition: Liquidity and Capital Resources – Financing Activity” below) to determine compliance with the
covenants contained in the Senior Credit Facilities and ability to take certain actions under the Indenture (as defined under
“Financial Condition: Liquidity and Capital Resources – Financing Activity” below) governing the Notes. Adjusted EBITDA
is also a significant performance measure used by us in our annual incentive compensation program. Adjusted EBITDA does
not take into account cash used for mandatory debt service requirements or other non-discretionary expenditures, and thus
does not represent residual funds available for discretionary uses.
(in thousands)
Net income (1) ..................................................................................... $
Year Ended December 31,
2017
2018
2016
164,760 $
235,171 $
100,317
Plus: Interest expense .......................................................................
Income tax provision (benefit).................................................
Depreciation and amortization .................................................
Equity-based compensation .....................................................
Severance expense ...................................................................
Loss on deferred compensation ...............................................
Acquisition-related costs .........................................................
Loss on asset disposals, net .....................................................
System conversion costs (2) ......................................................
Rebranding costs .....................................................................
Other income, net ....................................................................
60,415
47,224
197,731
10,486
2,347
425
1,773
14,167
5,037
968
(4,487 )
46,864
(45,028)
181,619
10,743
5,652
2,753
5,942
574
-
-
(668)
30,221
61,681
147,839
12,298
1,012
312
4,719
2,821
-
-
(5,121)
Adjusted EBITDA (1) .......................................................................... $
500,846 $
443,622 $
356,099
(1) Net income and Adjusted EBITDA for 2018 include the full impact of NewWave operations, while net income and Adjusted EBITDA for 2017 include
only eight months of NewWave operations, as NewWave was not acquired until May 1, 2017.
(2) Comprised of $4.6 million of billing system conversion costs related to NewWave and $0.4 million of enterprise resource planning system
implementation costs.
We believe Adjusted EBITDA is useful to investors in evaluating our operating performance. Adjusted EBITDA and similar
measures with similar titles are common measures used by investors, analysts and peers to compare performance in our
industry, although our measure of Adjusted EBITDA may not be directly comparable to similarly titled measures reported
by other companies.
Financial Condition: Liquidity and Capital Resources
Liquidity
Our primary funding requirements are for our ongoing operations, planned capital expenditures, payments of quarterly
dividends and share repurchases. We believe that existing cash balances, our Senior Credit Facilities and operating cash flows
will provide adequate support for these funding requirements over the next 12 months. However, our ability to fund
operations, make planned capital expenditures, pay quarterly dividends and make share repurchases depends on future
operating performance and cash flows, which, in turn, are subject to prevailing economic conditions and to financial, business
and other factors, some of which are beyond our control.
42
The following table shows a summary of our cash flows for the years indicated (in thousands):
Net cash provided by operating activities ........................................... $
Net cash used in investing activities ...................................................
Net cash provided by (used in) financing activities ............................
Increase in cash and cash equivalents ................................................
Cash and cash equivalents, beginning of period .................................
Cash and cash equivalents, end of period ........................................... $
Year Ended December 31,
2017
2018
2016
407,769 $
(214,295)
(91,113)
102,361
161,752
264,113 $
324,486 $
(891,167)
590,393
23,712
138,040
161,752 $
257,121
(141,607 )
(96,673 )
18,841
119,199
138,040
During 2018 and 2017, our cash and cash equivalents increased $102.4 million and $23.7 million, respectively. At December
31, 2018 and 2017, we had $264.1 million and $161.8 million of cash on hand and working capital of $184.2 million and
$76.7 million, respectively.
Cash provided by operating activities increased $83.3 million in 2018 compared to 2017, which was primarily attributable to
an increase in Adjusted EBITDA of $57.2 million and a decrease in cash tax payments of $57.8 million, partially offset by a
$13.7 million increase in cash paid for interest and a $1.6 million difference in changes to net operating assets and liabilities.
The change in operating cash flows in 2017 compared to 2016 was primarily attributable to an increase in Adjusted EBITDA
of $87.5 million and a decrease in cash income tax payments of $13.4 million, partially offset by an $18.8 million difference
in changes to net operating assets and liabilities and a $15.4 million increase in cash paid for interest.
Cash used in investing activities during 2018 decreased $676.9 compared to 2017 due primarily to the $727.9 million used
to purchase NewWave in 2017, partially offset by the receipt of $10.1 million of proceeds in 2017 from the sale of a non-
operating property and a $40.6 million year-over-year increase in capital spending during 2018. The higher use of cash in
2017 compared to 2016 was due primarily to $727.9 million in net cash paid for the NewWave acquisition and a $28.2 million
increase in cash paid for capital expenditures.
Cash used in financing activities was $91.1 million and $96.7 million in 2018 and 2016, respectively, and cash provided by
financing activities was $590.4 million in 2017. Cash outflows in 2018 primarily related to $42.9 million of dividends paid
to stockholders, $26.6 million of common stock repurchases, $14.4 million of long-term debt repayments and $7.2 million of
withholding tax payments associated with equity award vesting and exercise activities. Cash inflows in 2017 were primarily
attributable to $750.0 million of new debt incurred in connection with the NewWave acquisition, partially offset by long term
debt payments, including a $93.8 million term loan repayment, $37.2 million of dividends paid to stockholders, a $15.2
million payment of debt issuance costs and $5.0 million of withholding tax payments associated with equity award vesting
and exercise activities. Cash outflows in 2016 primarily consisted of $56.4 million for common stock repurchases, $34.4
million of dividends paid to stockholders, $3.8 million of long-term debt repayments and $2.2 million of withholding tax
payments for vested restricted stock awards.
On July 1, 2015, the Board authorized up to $250.0 million of share repurchases (subject to a total cap of 600,000 shares of
our 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 the end of 2018, we
have repurchased 204,647 shares of our common stock at an aggregate cost of $99.8 million. During 2018, we repurchased
38,814 shares at an aggregate cost of $26.6 million.
We currently expect to continue to pay quarterly cash dividends on shares of our common stock, subject to approval of the
Board. During the fourth quarter of 2018, the Board approved a quarterly dividend of $2.00 per share of common stock,
which was paid on December 7, 2018. On February 5, 2019, the Board approved a quarterly dividend of $2.00 per share of
common stock to be paid on March 8, 2019 to holders of record as of February 19, 2019.
Financing Activity
On June 17, 2015, we issued $450 million aggregate principal amount of 5.75% senior unsecured notes due 2022 (the
“Notes”) pursuant to an indenture (the “Indenture”) dated as of June 17, 2015. The Notes mature on June 15, 2022 and interest
is payable on June 15th and December 15th of each year. The Notes are jointly and severally guaranteed on a senior unsecured
basis (the “Guarantees”) by each of our subsidiaries that guaranteed the Senior Credit Facilities (the “Guarantors”). In
addition, if a subsidiary of the Company becomes a guarantor in respect of the Senior Credit Facilities or certain other
43
indebtedness, it is required to provide (subject to customary exceptions) a Guarantee in respect of the Notes. The Notes are
unsecured and senior obligations of the Company. The Guarantees are unsecured and senior obligations of the Guarantors.
At our option, we may redeem the Notes, in whole or in part, at any time at the redemption prices specified in the Indenture,
plus accrued and unpaid interest, if any, to (but excluding) the redemption date. The Indenture includes certain covenants
relating to debt incurrence, liens, restricted payments, asset sales, transactions with affiliates, changes in control and mergers
or sales of all or substantially all of our assets. The Indenture also provides for customary events of default (subject, in certain
cases, to customary grace periods), which include nonpayment on the Notes, breach of covenants in the Indenture, payment
defaults or acceleration of other indebtedness over a specified threshold, failure to pay certain judgments over a specified
threshold and certain events of bankruptcy and insolvency. Generally, if an event of default occurs, the trustee under the
Indenture or holders of at least 25% of the aggregate principal amount of the then outstanding Notes may declare the principal
of, and accrued but unpaid interest, if any, on the then outstanding Notes to be due and payable immediately.
On June 30, 2015, we entered into a 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. The Credit Agreement provided
for a five-year revolving credit facility in an aggregate principal amount of $200 million (the “Revolving Credit Facility”)
and a five-year term loan facility in an aggregate principal amount of $100 million (the “Original Term Loan Facility” and,
together with the Revolving Credit Facility, the “Original Credit Facilities”). Concurrently with our entry into the Credit
Agreement, we borrowed the full amount of the Original Term Loan Facility (the “Original Term Loan”).
Borrowings under the Original Credit Facilities bore interest, at our option, at a rate per annum determined by reference to
either the London Interbank Offered Rate (“LIBOR”) or an adjusted base rate, in each case plus an applicable interest rate
margin. The applicable interest rate margin with respect to LIBOR borrowings was a rate per annum between 1.50% and
2.25% and the applicable interest rate margin with respect to adjusted base rate borrowings was a rate per annum between
0.50% and 1.25%, in each case determined on a quarterly basis by reference to a pricing grid based upon our total net leverage
ratio. In addition, we are required to pay commitment fees on any unused portion of the Revolving Credit Facility at a rate
between 0.25% per annum and 0.40% per annum, determined by reference to the pricing grid.
The Revolving Credit Facility also gives us the ability to issue letters of credit, which reduce the amount available for
borrowing under the Revolving Credit Facility. Letter of credit issuances under the Revolving Credit Facility of $4.1 million
at December 31, 2018 were held for the benefit of certain general and liability insurance matters and bore interest at a rate of
1.88% per annum at December 31, 2018. We had $195.9 million available for borrowing under the Revolving Credit Facility
at December 31, 2018.
On May 1, 2017, we entered into a Restatement Agreement (the “Restatement Agreement”) with JPMorgan, as administrative
agent, and the lenders party thereto, pursuant to which we amended and restated the Credit Agreement (as so amended and
restated, the “Amended and Restated Credit Agreement”) and incurred $750.0 million of senior secured loans (the “2017
New Loans”), which were used, together with cash on hand, to (i) finance the NewWave acquisition, (ii) repay in full the
Original Term Loan and (iii) pay related fees and expenses.
The 2017 New Loans consist of (a) a five-year incremental term “A” loan in an aggregate principal amount of $250.0 million
(the “Term Loan A”) and (b) a seven-year incremental term “B” loan in an aggregate principal amount of $500.0 million (the
“Term Loan B” and, together with the Term Loan A and the Revolving Credit Facility, the “Senior Credit Facilities”). The
obligations under the Amended and Restated Credit Agreement are guaranteed by our wholly owned subsidiaries and are
secured, subject to certain exceptions, by substantially all assets of the Company and the Guarantors.
On April 23, 2018, we entered into Amendment No. 1 (the “Repricing Amendment”) to the Amended and Restated Credit
Agreement to, among other things, decrease the applicable margin for the Term Loan B to 1.75% for LIBOR borrowings and
0.75% for base rate borrowings.
The interest margins applicable to the 2017 New Loans under the Amended and Restated Credit Agreement are, at our option,
equal to either LIBOR or a base rate, plus an applicable margin equal to, (i) with respect to the Term Loan A and the Revolving
Credit Facility, 1.50% to 2.25% for LIBOR loans and 0.50% to 1.25% for base rate loans, determined on a quarterly basis by
reference to a pricing grid based on our total net leverage ratio and (ii) with respect to the Term Loan B, (x) for any date 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. The Term Loan A may be prepaid at any time without penalty or premium
(subject to customary LIBOR breakage provisions) and 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 after funding, 5.0% per annum for the second
year after funding, 7.5% per annum for the third year after funding and 10.0% per annum for the fourth and fifth years after
funding (subject to customary adjustments in the event of any prepayment), with the outstanding balance due upon maturity.
44
The Term Loan B 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 repayment), with the outstanding balance due
upon maturity. The Term Loan B may be prepaid at any time without penalty or premium (subject to customary LIBOR
breakage provisions), benefits from certain “most favored nation” pricing protections and is not subject to the financial
maintenance covenants under the Amended and Restated Credit Agreement.
We were in compliance with all debt covenants as of December 31, 2018.
As of December 31, 2018, outstanding borrowings under the Term Loan A and Term Loan B were $237.5 million and $492.5
million, respectively, and each bore interest at a rate of 4.28% per annum.
In connection with the Repricing Amendment, we incurred debt issuance costs of $2.1 million, of which $0.1 million was
expensed immediately. We recorded $4.2 million, $3.2 million and $1.6 million of debt issuance cost amortization expense
for the years ended December 31, 2018, 2017 and 2016, respectively. Unamortized debt issuance costs totaled $17.6 million
and $19.6 million at December 31, 2018 and 2017, respectively.
On January 7, 2019, we entered into Amendment No. 2 to the Amended and Restated Credit Agreement with CoBank, ACB,
as lender, and JPMorgan, as administrative agent, to provide for a new seven-year incremental term “B” loan in an aggregate
principal amount of $250.0 million (the “Term B-2 Loan”). The net proceeds from the Term B-2 Loan were used to finance,
in part, our acquisition of Clearwave.
The Term B-2 Loan is an obligation of ours and is guaranteed by our wholly owned subsidiaries that guarantee our other
obligations under the Amended and Restated Credit Agreement. The Term B-2 Loan is secured, subject to certain exceptions,
by substantially all of the assets of the Company and the Guarantors.
The interest margin applicable to the Term B-2 Loan is, at our option, equal to either LIBOR or a base rate, plus an applicable
margin equal to 2.0% for LIBOR loans and 1.0% for base rate loans. The Term B-2 Loan may be prepaid at any time without
penalty or premium (subject to customary LIBOR breakage provisions) and is not subject to the financial maintenance
covenants under the Amended and Restated Credit Agreement. The Term B-2 Loan 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 outstanding balance due upon maturity. The final maturity of the Term B-2 Loan
may be accelerated following an event of default under the Amended and Restated Credit Agreement. Other than with respect
to maturity, amortization, prepayment premiums and pricing, the Term B-2 Loan contains terms that are substantially similar
to our existing Term Loan B.
Capital Expenditures
We have significant ongoing capital expenditure requirements. In addition, we expect to spend up to $35 million during 2019,
in addition to the combined nearly $27 million spent for NewWave in 2018 and 2017, to enhance acquired operations by
rebuilding low capacity markets, launching all-digital video services, implementing 32-channel bonding, converting back
office functions such as billing, accounting and service provisioning, migrating products to legacy Cable One platforms and
expanding our high-capacity fiber network. Capital expenditures are funded primarily by cash on hand and cash flows from
operating activities.
We have adopted capital expenditure disclosure guidance as supported by the NCTA – The Internet & Television Association
(“NCTA”). These disclosures are not required under GAAP, nor do they impact our accounting for capital expenditures under
GAAP. The amounts of capital expenditures reported in this Annual Report on Form 10-K are calculated in accordance with
NCTA disclosure guidelines.
The following table presents our capital expenditures by category in accordance with NCTA disclosure guidelines for the
years ended December 31, 2018, 2017 and 2016 (in thousands):
Year Ended December 31,
2017
2018
2016
Customer premise equipment ............................................................. $
Commercial ........................................................................................
Scalable infrastructure ........................................................................
Line extensions ...................................................................................
Upgrade/rebuild ..................................................................................
Support capital....................................................................................
Total ................................................................................................... $
56,500 $
9,832
46,176
16,381
30,081
58,796
217,766 $
37,071 $
9,595
40,122
15,947
19,186
57,442
179,363 $
22,248
8,257
41,017
10,470
17,575
31,257
130,824
45
Contractual Obligations and Contingent Commitments
The following table summarizes our outstanding contractual obligations as of December 31, 2018 (in thousands):
Year Ending December 31,
2019 ....................................... $
2020 .......................................
2021 .......................................
2022 .......................................
2023 .......................................
Thereafter ..............................
Total ............................... $
Programming
Purchase
Commitments (1)
Operating
Lease
Payments
Debt
Payments (2)
Other
Purchase
Obligations (3)
201,894 $
160,489
88,872
8,910
6,162
3,726
470,053 $
1,767 $
1,219
911
398
204
299
4,798 $
20,625 $
26,892
30,017
630,017
5,017
467,683
1,180,251 $
24,385 $
17,095
9,560
2,760
1,581
3,648
59,029 $
Total
248,671
205,695
129,360
642,085
12,964
475,356
1,714,131
(1)
Programming purchase commitments represent contracts that we have with cable television networks and broadcast stations to provide programming
services to our subscribers. The amounts reported represent estimates of the future programming costs for these purchase commitments based on tier
placement as of December 31, 2018 and the estimated subscriber numbers applied to the per-subscriber rates contained in these contracts. Actual
amounts due under such contracts may differ from the amounts above based on the actual subscriber numbers and tier placements at the time. In
addition, programming purchases sometimes occur pursuant to non-binding commitments, which are not reflected in the amounts shown.
(2) Debt payments include principal repayment obligations as defined by the agreements described in the “Financing Activity” section and capital lease
payment obligations.
(3) Other purchase obligations include purchase obligations related to capital projects and other legally binding commitments. Other purchase orders made
in the ordinary course of business are excluded from the amounts shown. Any amounts for which we are liable under purchase orders are included
within accounts payable and accrued liabilities in our consolidated balance sheet.
We incur the following costs as part of our operations, however, they are not included within the contractual obligations table
above for the reasons discussed below:
● We rent space on utility poles in order to provide our services to certain subscribers. Generally, pole rentals are
cancellable on short notice. However, we anticipate that such rentals will recur. Rent expense for pole attachments
was $8.9 million, $7.8 million and $5.7 million for 2018, 2017 and 2016, respectively.
● We pay fees to franchise authorities under multi-year franchise agreements based on a percentage of revenues
generated from video service each year. Franchise fees and other franchise-related costs are included in both
revenues and operating expenses within the consolidated statements of operations and comprehensive income. Such
amounts totaled $16.1 million, $15.7 million and $14.2 million for 2018, 2017 and 2016, respectively.
● We have franchise agreements requiring plant construction and the provision of services to customers within the
franchise areas. In connection with these obligations under existing franchise agreements, we obtain surety bonds
or letters of credit guaranteeing performance to municipalities and public utilities and payment of insurance
premiums. Such surety bonds and letters of credit totaled $13.3 million and $12.0 million as of December 31, 2018
and 2017, respectively. Payments under these arrangements are required only in the remote event of
nonperformance. We do not expect that these contingent commitments will result in any amounts being paid.
Off-Balance Sheet Arrangements
With the exception of the items discussed within the preceding “Contractual Obligations and Contingent Commitments”
section, we do not have any off-balance sheet arrangements or financing arrangements with special-purpose entities.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates,
assumptions and judgments that affect the amounts reported in the consolidated financial statements. On an ongoing basis,
we evaluate our estimates and assumptions. We base our estimates on historical experience and other assumptions believed
to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value
of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
46
An accounting policy is considered to be critical if it is important to our results of operations and financial condition and if it
requires management’s most difficult, subjective and complex judgments in its application. For a summary of all our
significant accounting policies, see note 2 of the notes to our consolidated financial statements included elsewhere in this
Annual Report on Form 10-K.
Long-lived Assets
A long-lived asset or asset group is tested for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Indicators of impairment may include:
●
a significant decrease in the market value of the asset;
●
●
a significant change in the extent or manner in which an asset is used or a significant change in the physical
condition of the asset;
a significant adverse change in legal factors or in the business climate that could affect the value of an asset,
including an adverse action or assessment by a regulator;
●
an accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset;
●
●
a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection
or forecast that demonstrates continuing losses associated with an asset; and
a current expectation that, more likely than not, an asset will be sold or otherwise disposed of significantly before
the end of its estimated useful life.
When an indicator of impairment is determined, the first step is to identify the future intent of the asset or asset group: hold
for continued use, hold for sale, or dispose by a means other than sale. If the asset is held for continued use and the carrying
amount exceeds the undiscounted sum of cash flows expected from the use and eventual disposition of the property, the
impairment loss is recognized as the difference between the carrying amount and the estimated fair value of the asset or asset
group, and the new cost basis is depreciated over the remaining useful life of the asset. If the intent is to hold the asset for
sale and certain other criteria are met (e.g., the asset can be disposed of currently, appropriate levels of authority have
approved the sale, and there is an active program to locate a buyer), the impairment test involves comparing the asset’s
carrying value to its estimated fair value less disposal costs. To the extent the carrying value is greater than the asset’s
estimated fair value less disposal costs, an impairment charge is recognized for the difference. If the asset is to be disposed
by a means other than sale, the depreciation estimates are revised to reflect the use of the asset over its shortened useful life.
Significant judgments in this area involve determining whether an event has occurred, determining the future cash flows for
the assets involved and selecting the appropriate discount rate to be applied in determining estimated fair value.
Goodwill and Indefinite-Lived Intangible Assets
We have a significant amount of goodwill and indefinite-lived intangible assets that are reviewed at least annually for
impairment. These balances were as follows (dollars in thousands):
Goodwill and indefinite-lived intangible assets .............................................................. $
Total assets ...................................................................................................................... $
Goodwill and indefinite-lived intangible assets as a percentage of total assets ...............
984,500 $
2,303,234 $
42.7%
2018
2017
984,266
2,204,632
44.6%
As of December 31,
Goodwill. Goodwill is calculated as the excess of the consideration transferred over the fair value of identifiable net assets
acquired in a business combination and represents the future economic benefits expected to arise from anticipated synergies
and intangible assets acquired that do not qualify for separate recognition, including assembled workforce, noncontractual
relationships and other agreements. We assess the recoverability of our goodwill as of November 30th of each year, or more
frequently whenever events or substantive changes in circumstances indicate that the carrying amount of a reporting unit may
exceed its fair value. We test goodwill for impairment at the reporting unit level. To determine our reporting units, we evaluate
the components one level below the segment level and we aggregate the components if they have similar economic
characteristics. As a result of this assessment, our reporting units are established at the geographic division level. We evaluate
47
the determination of our reporting units used to test for impairment periodically or whenever events or substantive changes
in circumstances occur. The assessment of recoverability may first consider qualitative factors to determine whether the
existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. A quantitative assessment is performed if the qualitative assessment results in a more-
likely-than-not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether
the carrying amount of a reporting unit exceeds its fair value. Any excess amount is recorded as an impairment charge in the
current period (limited to the amount of goodwill recorded). We elected to perform a quantitative assessment for our goodwill
in 2018, for which the fair value of each geographic reporting unit was determined by applying a calculated multiple from
our peer group companies to each reporting unit’s forecasted cash flow. Based on the assessment, we concluded that the fair
value of goodwill for each geographic reporting unit exceeded its carrying value. We did not record any impairment of
goodwill in any of the periods presented.
Indefinite-Lived Intangible Assets. Intangible assets with an indefinite life are from franchise agreements that we have with
state and local governments allowing us to contract and operate our business within a specified geographic area. We expect
our franchise agreements to provide us with substantial benefit for a period that extends beyond the foreseeable horizon, and
we have historically obtained renewals and extensions of such agreements without material modifications to the agreements
for nominal costs, and these costs are expensed as incurred. We group the recorded values of our various franchise agreements
into geographic divisions or units of account.
We assess the recoverability of our indefinite-lived intangible assets as of November 30th of each year, or more frequently
whenever events or substantive changes in circumstances indicate that the assets might be impaired. We evaluate the unit of
account used to test for impairment of our indefinite-lived intangible assets periodically or whenever events or substantive
changes in circumstances occur to ensure impairment testing is performed at an appropriate level. The assessment of
recoverability may first consider qualitative factors to determine whether it is more likely than not that the fair value of an
indefinite-lived intangible asset is less than its carrying amount. A quantitative assessment is performed if the qualitative
assessment results in a more-likely-than-not determination or if a qualitative assessment is not performed. When performing
a quantitative assessment, we estimate the fair value of our indefinite-lived intangible assets primarily based on a multi-period
excess earnings method (“MPEEM”) analysis that involves significant judgment. When analyzing the fair values indicated
under the MPEEM analysis, we also consider multiples of Adjusted EBITDA generated by the underlying assets, current
market transactions, and profitability information. If the fair value of our indefinite-lived intangible assets were less than the
carrying amount, we would recognize an impairment charge for the difference between the estimated fair value and the
carrying value of the assets. We performed a qualitative assessment of our franchise assets in 2018. Based on the assessment,
we concluded that it is more likely than not that the fair value of franchise assets in each unit of account exceeded the carrying
value of such assets and, therefore, we did not perform a quantitative analysis. We did not recognize any impairment charges
in any of the periods presented.
Property, Plant and Equipment
Our industry is capital intensive, and a significant portion of our resources is spent on capital activities associated with
extending, rebuilding and upgrading our network. The following tables present certain information regarding our net property,
plant and equipment and our cash paid for property, plant and equipment for the periods indicated (dollars in thousands):
Property, plant and equipment, net .................................................................................. $
Total assets ...................................................................................................................... $
Property, plant and equipment, net as a percentage of total assets ..................................
847,979 $
2,303,234 $
36.8%
2018
2017
831,892
2,204,632
37.7%
As of December 31,
Year Ended December 31,
2018 ............................................................................................................................................................... $
2017 ............................................................................................................................................................... $
2016 ............................................................................................................................................................... $
Cash Paid for
Property,
Plant and
Equipment
215,761
175,196
147,014
48
Property, plant and equipment represents the costs incurred in the design, construction and implementation of plant,
infrastructure and capacity improvements and upgrades. Costs associated with the installation and upgrade of services and
the acquiring and deploying of customer premise equipment, including materials, internal and external labor costs and related
indirect and overhead costs, are also capitalized. Indirect and overhead costs include payroll taxes, insurance and other
benefits and vehicle, tool and supply expense related to installation activities. Capitalized labor costs include the direct costs
of engineers and technical managers involved in the design and implementation of plant and infrastructure, the costs of
technicians involved in the installation and upgrades of services and customer premise equipment, and the costs of support
personnel directly involved in capitalizable activities, such as project managers and supervisors. Internal labor costs
capitalized for engineering and technical personnel are based on standards developed by position for the percentage of time
spent on capitalized projects while internal labor costs associated with installation and other plant activities are based on
standards developed from operational data. Overhead costs are capitalized based on standards developed from historical
information. Costs for repairs and maintenance, disconnecting service or reconnecting service are expensed as incurred.
The estimated useful lives assigned to our property, plant and equipment are reviewed on an annual basis or more frequently
if circumstances warrant and such lives are revised to the extent necessary due to changing facts and circumstances. Any
changes in estimated useful lives are reflected prospectively.
Recently Adopted and Issued Accounting Pronouncements
Recent accounting pronouncements which may be applicable to us are described in note 2 to our consolidated financial
statements.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from changes in market rates and prices, such as interest rates. As described within
the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial
Condition: Liquidity and Capital Resources—Financing Activity,” our long-term debt at December 31, 2018 consisted of
$730.0 million of borrowings under the Senior Credit Facilities, which bear interest, at our option, at a rate per annum
determined by reference to either LIBOR or an adjusted base rate, in each case plus an applicable interest rate margin and
$450.0 million of the Notes. Based on the principal outstanding under our Senior Credit Facilities as of December 31, 2018,
assuming, hypothetically, that the LIBOR applicable to the Senior Credit Facilities was 100 basis points higher, our annual
interest expense would have increased $7.3 million. An increase in the market rate of interest applicable to the Notes would
not increase our interest expense with respect to the Notes since the rate of interest we are required to pay on the Notes is
fixed.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements, the related notes thereto and the report of the independent registered public accounting
firm are included in this Annual Report on Form 10-K beginning on page F-1.
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-
15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2018, the end of the period covered by this Annual Report
on Form 10-K. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Company’s disclosure controls and procedures were effective in recording, processing,
summarizing and reporting, within the time periods specified in the SEC’s rules and forms, information required to be
disclosed by the Company in the reports that it files or submits under the Exchange Act and were effective in ensuring that
information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated
and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
49
Remediation of Previously Disclosed Material Weakness
During the second quarter of 2018, the Company identified a material weakness in the Company’s internal controls over
the NewWave billing system inherited as a result of the NewWave acquisition (the “NewWave billing system”).
Specifically, the Company did not maintain effective access and change management controls to ensure that only authorized
users had access to the NewWave billing system and underlying financial data and all changes to the system were
authorized.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will
not be prevented or detected on a timely basis. The identified deficiencies did not result in a misstatement to the Company’s
consolidated financial statements or disclosures; however, the deficiencies, when aggregated, could result in misstatements
of certain account balances (such as NewWave revenues, accounts receivables and deferred revenues) or disclosures that
would result in a material misstatement to the annual or interim consolidated financial statements that would not be
prevented or detected.
During the fourth quarter of 2018, the Company successfully completed the conversion of the NewWave billing system to
the Company’s legacy billing system and the testing necessary to conclude that the material weakness described above has
been remediated.
Changes in Internal Control Over Financial Reporting
Except for the conversion of the NewWave billing system to the Company’s legacy billing system described above, there has
been no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the quarter ended December 31, 2018 that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control over
financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and directors of the Company; and (iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management conducted an assessment of the effectiveness of internal control over financial reporting as of
December 31, 2018. In making this assessment, management used the criteria set forth in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on
the results of this assessment, management has concluded that, as of December 31, 2018, the Company’s internal control over
financial reporting was effective based on these criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report beginning on page
F-2 of this Annual Report on Form 10-K.
ITEM 9B.
OTHER INFORMATION
None.
50
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be included in our Definitive Proxy Statement to be filed pursuant to Regulation
14A within 120 days after our year ended December 31, 2018 in connection with our 2019 Annual Meeting of Stockholders
(the “2019 Proxy Statement”), or in amendment to this Annual Report on Form 10-K, and is incorporated herein by reference.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this item will be included in the 2019 Proxy Statement, or in amendment to this Annual Report
on Form 10-K, and is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this item will be included in the 2019 Proxy Statement, or in amendment to this Annual Report
on Form 10-K, and is incorporated herein by reference.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item will be included in the 2019 Proxy Statement, or in amendment to this Annual Report
on Form 10-K, and is incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be included in the 2019 Proxy Statement, or in amendment to this Annual Report
on Form 10-K, and is incorporated herein by reference.
51
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
PART IV
(1) Financial Statements. The consolidated financial statements listed on the index set forth on page F-1 of this Annual
Report on Form 10-K are filed as a part of this Annual Report on Form 10-K.
(2) Financial Statement Schedules. All financial statement schedules have been omitted since the information is either
not applicable or required or is included in the financial statements or notes thereof.
(b) Exhibits.
Exhibit
Number Description
2.1
2.2
3.1
3.2
4.1
4.2
4.3
10.1
10.2
10.3
10.4
Separation and Distribution Agreement, dated as of June 16, 2015, by and between Graham Holdings
Company and Cable One, Inc. (incorporated herein by reference to Exhibit 2.1 to the Current Report on Form
8-K of Cable One, Inc. filed on June 18, 2015).
Agreement and Plan of Merger, dated as of January 17, 2017, by and among Cable One, Inc., RBI Holding
LLC, Frequency Merger Sub, LLC, RBI Blocker Corp., RBI Blocker Holdings LLC, and GTCR-RBI, LLC,
solely in its capacity as the equityholder representative (incorporated herein by reference to Exhibit 2.1 to
the Current Report on Form 8-K/A of Cable One, Inc. filed on January 20, 2017).
Amended and Restated Certificate of Incorporation of Cable One, Inc. (incorporated herein by reference to
Exhibit 3.1 to the Current Report on Form 8-K of Cable One, Inc. filed on July 1, 2015).
Amended and Restated By-laws of Cable One, Inc. (incorporated herein by reference to Exhibit 3.2 to the
Current Report on Form 8-K of Cable One, Inc. filed on July 1, 2015).
Indenture, dated as of June 17, 2015, among Cable One, Inc., the Guarantors named therein and The Bank
of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.1 to the
Current Report on Form 8-K of Cable One, Inc. filed on June 18, 2015).
First Supplemental Indenture, dated as of May 1, 2017, among Cable One, Inc., Avenue Broadband
Communications LLC, Telecommunications Management, LLC, Ultra Communications Group, LLC, and
The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit
4.1 to the Current Report on Form 8-K of Cable One, Inc. filed on May 4, 2017).
Second Supplemental Indenture, dated as of January 31, 2019, among Cable One, Inc., Delta
Communications, L.L.C. and The Bank of New York Mellon Trust Company, N.A., as trustee.*
Tax Matters Agreement, dated as of June 16, 2015, by and between Graham Holdings Company and Cable
One, Inc. (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K of Cable One,
Inc. filed on June 18, 2015).
Employee Matters Agreement, dated as of June 16, 2015, by and between Graham Holdings Company and
Cable One, Inc. (incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K of
Cable One, Inc. filed on June 18, 2015).+
Cable One, Inc. Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10.5
to the Current Report on Form 8-K of Cable One, Inc. filed on June 11, 2015).+
Cable One, Inc. Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.6 to the Current
Report on Form 8-K of Cable One, Inc. filed on June 11, 2015).+
52
Exhibit
Number Description
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
Form of Stock Appreciation Right Agreement for grants during 2015 and 2016 (incorporated herein by
reference to Exhibit 10.2 to the Current Report on Form 8-K of Cable One, Inc. filed on August 10, 2015).+
Form of Stock Appreciation Right Agreement for grants during 2017 (incorporated herein by reference to
Exhibit 10.12 to the Annual Report on Form 10-K of Cable One, Inc. filed on March 1, 2017).+
Form of Restricted Stock Award Agreement for performance-based restricted stock grants during 2017
(incorporated herein by reference to Exhibit 10.13 to the Annual Report on Form 10-K of Cable One, Inc.
filed on March 1, 2017).+
Form of Restricted Stock Award Agreement for time-based restricted stock grants during 2017 (incorporated
herein by reference to Exhibit 10.14 to the Annual Report on Form 10-K of Cable One, Inc. filed on March
1, 2017).+
Restatement Agreement, dated as of May 1, 2017, among Cable One, Inc., Cable One VoIP, LLC, JPMorgan
Chase Bank, N.A., as administrative agent, and the lenders party thereto (incorporated herein by reference
to Exhibit 10.1 to the Current Report on Form 8-K of Cable One, Inc. filed on May 4, 2017).
Amendment No. 1, dated as of April 23, 2018, to the Amended and Restated Credit Agreement among Cable
One, Inc., the lenders or other financial institutions party thereto, and JPMorgan Chase Bank, N.A., as
administrative agent (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of
Cable One, Inc. filed on April 23, 2018).
Amendment No. 2, dated as of January 7, 2019, to the Amended and Restated Credit Agreement among
Cable One, Inc., the lenders or other financial institutions party thereto, and JPMorgan Chase Bank, N.A., as
administrative agent (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of
Cable One, Inc. filed on January 8, 2019).
Amended and Restated Cable One, Inc. 2015 Omnibus Incentive Compensation Plan (incorporated herein
by reference to Exhibit 10.15 to the Annual Report on Form 10-K of Cable One, Inc. filed on March 1,
2018).+
Form of Non-Employee Director Restricted Stock Unit Agreement for grants beginning in 2017
(incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K of Cable One, Inc. filed
on May 4, 2017).+
Form of Stock Appreciation Right Agreement for grants during 2018 (incorporated herein by reference to
Exhibit 10.17 to the Annual Report on Form 10-K of Cable One, Inc. filed on March 1, 2018).+
Form of Restricted Stock Award Agreement for performance-based restricted stock grants during 2018
(incorporated herein by reference to Exhibit 10.18 to the Annual Report on Form 10-K of Cable One, Inc.
filed on March 1, 2018).+
Form of Restricted Stock Award Agreement for time-based proportional-vest restricted stock grants during
2018 (incorporated herein by reference to Exhibit 10.19 to the Annual Report on Form 10-K of Cable One,
Inc. filed on March 1, 2018).+
10.17
Form of Restricted Stock Award Agreement for time-based cliff-vest restricted stock grants during 2018.*+
53
Exhibit
Number Description
10.18
10.19
10.20
10.21
Form of Non-Employee Director Restricted Stock Unit Award Agreement for grants in lieu of annual cash
fees beginning in 2018 (incorporated herein by reference to Exhibit 10.20 to the Annual Report on Form 10-
K of Cable One, Inc. filed on March 1, 2018).+
Alan H. Silverman Separation Agreement dated November 17, 2017 (incorporated herein by reference to
Exhibit 10.21 to the Annual Report on Form 10-K of Cable One, Inc. filed on March 1, 2018).+
Steven S. Cochran Offer Letter dated July 2, 2018 (incorporated herein by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of Cable One, Inc. filed on November 8, 2018).+
Kevin P. Coyle Separation Agreement dated July 2, 2018 (incorporated herein by reference to Exhibit 10.2
to the Quarterly Report on Form 10-Q of Cable One, Inc. filed on November 8, 2018).+
10.22
Form of Stock Appreciation Right Agreement for grants beginning in 2019.*+
10.23
10.24
Form of Restricted Stock Award Agreement for performance-based restricted stock grants beginning in
2019.*+
Form of Restricted Stock Award Agreement for time-based proportional-vest restricted stock grants
beginning in 2019.*+
21.1
List of subsidiaries of Cable One, Inc.*
23.1
Consent of PricewaterhouseCoopers LLP.*
24.1
Power of Attorney (included on Signatures page of this Annual Report on Form 10-K).*
31.1
31.2
32
Principal Executive Officer Certification required by Rules 13a-14 and 15d-14 as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.*
Principal Financial Officer Certification required by Rules 13a-14 and 15d-14 as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.*
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS XBRL Instance Document.*
101.SCH XBRL Taxonomy Extension Schema Document.*
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.*
* Filed herewith.
** Furnished herewith.
+ Management contract or compensatory arrangement.
ITEM 16.
FORM 10-K SUMMARY
None.
54
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 27, 2019
CABLE ONE, INC.
(Registrant)
By: /s/ Julia M. Laulis
Julia M. Laulis
Chair of the Board, President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Julia
M. Laulis and Steven S. Cochran, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments to this Report, and to file the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and
authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Julia M. Laulis
Julia M. Laulis
/s/ Steven S. Cochran
Steven S. Cochran
Title
Date
Chair of the Board, President and Chief Executive Officer
February 27, 2019
(Principal Executive Officer)
Senior Vice President and Chief Financial Officer
February 27, 2019
(Principal Financial Officer and Principal Accounting Officer)
/s/ Brad D. Brian
Brad D. Brian
Director
/s/ Thomas S. Gayner
Thomas S. Gayner
Director
/s/ Deborah J. Kissire
Deborah J. Kissire
Director
/s/ Thomas O. Might
Thomas O. Might
Director
/s/ Alan G. Spoon
Alan G. Spoon
Director
/s/ Wallace R. Weitz
Wallace R. Weitz
Director
/s/ Katharine B. Weymouth Director
Katharine B. Weymouth
S-1
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
This page intentionally left blank
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm ....................................................................................
Consolidated Balance Sheets as of December 31, 2018 and 2017 ..........................................................................
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2018,
2017 and 2016 ....................................................................................................................................................
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2018, 2017 and 2016 ........
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016 .......................
Notes to the Consolidated Financial Statements .....................................................................................................
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Cable One, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Cable One, Inc. and its subsidiaries (the “Company”) as of December 31, 2018
and 2017, and the related consolidated statements of operations and comprehensive income, of stockholders’ equity and of cash flows for each of
the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial
statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established
in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company
as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control
- Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts
with customers in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal
Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial
statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on
a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Phoenix, Arizona
February 27, 2019
We have served as the Company’s auditor since 2014.
F-2
CABLE ONE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share data)
Assets
Current Assets:
December 31,
2018
December 31,
2017
Cash and cash equivalents ........................................................................................... $
Accounts receivable, net ..............................................................................................
Income taxes receivable ...............................................................................................
Prepaid and other current assets ...................................................................................
Total Current Assets .................................................................................................
Property, plant and equipment, net ..................................................................................
Intangible assets, net .......................................................................................................
Goodwill ..........................................................................................................................
Other noncurrent assets ...................................................................................................
Total Assets .............................................................................................................. $
264,113 $
29,947
10,713
13,090
317,863
847,979
953,851
172,129
11,412
2,303,234 $
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities ..................................................................... $
Deferred revenue .........................................................................................................
Current portion of long-term debt ................................................................................
Total Current Liabilities ...........................................................................................
Long-term debt ................................................................................................................
Deferred income taxes .....................................................................................................
Other noncurrent liabilities ..............................................................................................
Total Liabilities ........................................................................................................
94,134 $
18,954
20,625
133,713
1,142,056
242,127
9,980
1,527,876
161,752
29,930
21,331
10,898
223,911
831,892
965,745
172,129
10,955
2,204,632
117,855
15,008
14,375
147,238
1,160,682
207,154
13,111
1,528,185
Commitments and contingencies (see 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; 5,887,899
shares issued, and 5,703,402 and 5,731,442 shares outstanding as of December
31, 2018 and 2017, respectively) .............................................................................
Additional paid-in capital ............................................................................................
Retained earnings .........................................................................................................
Accumulated other comprehensive loss .......................................................................
Treasury stock, at cost (184,497 and 156,457 shares held as of December 31,
59
38,898
850,292
(96 )
59
28,412
728,386
(352)
2018 and 2017, respectively) ...................................................................................
Total Stockholders' Equity .......................................................................................
Total Liabilities and Stockholders' Equity ............................................................... $
(113,795 )
775,358
2,303,234 $
(80,058)
676,447
2,204,632
See accompanying notes to the consolidated financial statements.
F-3
CABLE ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share and share data)
Revenues ............................................................................................ $
Costs and Expenses:
Operating (excluding depreciation and amortization) .....................
Selling, general and administrative .................................................
Depreciation and amortization ........................................................
Loss on asset disposals, net .............................................................
Total Costs and Expenses ............................................................
Income from operations ......................................................................
Interest expense ..................................................................................
Other income, net ...............................................................................
Income before income taxes ...............................................................
Income tax provision (benefit) ...........................................................
Net income ......................................................................................... $
Year Ended December 31,
2017
2016
2018
1,072,295 $
959,956 $
819,348
370,269
222,216
197,731
14,167
804,383
267,912
(60,415)
4,487
211,984
47,224
164,760 $
337,040
204,384
181,619
574
723,617
236,339
(46,864)
668
190,143
(45,028)
235,171 $
296,577
185,013
147,839
2,821
632,250
187,098
(30,221 )
5,121
161,998
61,681
100,317
Net income per common share:
Basic ............................................................................................... $
Diluted ............................................................................................ $
28.98 $
28.77 $
41.40 $
40.92 $
17.47
17.38
Weighted average common shares outstanding:
Basic ...............................................................................................
Diluted ............................................................................................
5,684,375
5,725,963
5,680,073
5,747,037
5,743,568
5,770,960
Other comprehensive income, net of tax ............................................
Comprehensive income ...................................................................... $
256
165,016 $
94
235,265 $
111
100,428
See accompanying notes to the consolidated financial statements.
F-4
CABLE ONE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(dollars in thousands, except
per share and share data)
Common Stock
Shares Amount Capital
Paid-In Retained
Earnings at cost
Additional
Treasury
Stock,
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
Balance at December 31, 2015 ...... 5,833,442 $
-
Net income ......................................
-
Changes in pension, net of tax .........
-
Equity-based compensation .............
Issuance of common stock under
restricted stock unit awards .........
947
Issuance of equity awards, net of
forfeitures ....................................
4,247
Repurchase of common stock .......... (126,797)
Withholding tax for equity awards ..
(3,616)
Excess income tax benefits for
equity-based compensation
activities ......................................
Dividends paid to stockholders
($6.00 per common share) ...........
-
Balance at December 31, 2016 ...... 5,708,223
-
Net income ......................................
-
Changes in pension, net of tax .........
Equity-based compensation .............
-
Issuance of equity awards, net of
forfeitures ....................................
Repurchases of common stock ........
Withholding tax for equity awards ..
Dividends paid to stockholders
31,129
(900)
(7,010)
($6.50 per common share) ...........
-
Balance at December 31, 2017 ...... 5,731,442
-
Net income ......................................
-
Changes in pension, net of tax .........
Equity-based compensation .............
-
Issuance of equity awards, net of
forfeitures ....................................
Repurchases of common stock ........
Withholding tax for equity awards ..
Dividends paid to stockholders
20,800
(38,814)
(10,026)
59 $
-
-
-
4,929 $ 464,559 $ (16,367) $
-
-
-
- 100,317
-
-
-
12,298
-
-
-
-
(380)
-
380
-
-
-
-
-
- (56,370)
(2,190)
-
-
822
-
-
-
59
-
-
-
-
-
-
-
59
-
-
-
-
-
-
- (34,445)
-
17,669 530,431 (74,547)
-
-
-
- 235,171
-
-
-
10,743
-
-
-
-
-
-
-
(528)
(4,983)
- (37,216)
-
28,412 728,386 (80,058)
-
-
-
- 164,760
-
-
-
10,486
-
-
-
-
-
- (26,582)
(7,155)
-
(557) $
-
111
-
-
-
-
-
-
-
(446)
-
94
-
-
-
-
-
(352)
-
256
-
-
-
-
452,623
100,317
111
12,298
-
-
(56,370)
(2,190)
822
(34,445)
473,166
235,171
94
10,743
-
(528)
(4,983)
(37,216)
676,447
164,760
256
10,486
-
(26,582)
(7,155)
($7.50 per common share) ...........
-
Balance at December 31, 2018 ...... 5,703,402 $
-
59 $
- (42,854)
-
38,898 $ 850,292 $ (113,795) $
-
(96) $
(42,854)
775,358
See accompanying notes to the consolidated financial statements.
F-5
CABLE ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2017
2018
2016
164,760 $
235,171 $
100,317
(in thousands)
Cash flows from operating activities:
Net income .......................................................................................... $
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .........................................................
Amortization of debt issuance cost ..................................................
Equity-based compensation .............................................................
Write-off of debt issuance costs .......................................................
Excess income tax benefits for equity-based compensation
activities .......................................................................................
Gain on sale of cable system ............................................................
Increase (decrease) in deferred income taxes ...................................
Loss on asset disposals, net ..............................................................
Changes in operating assets and liabilities, net of effects from
acquisitions:
(Increase) decrease in accounts receivable, net ............................
(Increase) decrease in income taxes receivable ............................
(Increase) decrease in prepaid and other current assets ................
Increase (decrease) in accounts payable and accrued liabilities ...
Increase (decrease) in deferred revenue .......................................
Decrease in income taxes payable ................................................
Change in other noncurrent assets and liabilities, net ..................
Net cash provided by operating activities ................................................
Cash flows from investing activities:
Purchase of business, net of cash acquired ..........................................
Capital expenditures ............................................................................
Increase (decrease) in accrued expenses related to capital
expenditures .....................................................................................
Proceeds from sale of cable system, net ..............................................
Acquisition of cable system .................................................................
Proceeds from sales of property, plant and equipment and other ........
Net cash used in investing activities ........................................................
Cash flows from financing activities:
Proceeds from issuance of long-term debt ...........................................
Payment of debt issuance costs............................................................
Payments on long-term debt ................................................................
Repurchases of common stock ............................................................
Payment of withholding tax for equity awards ....................................
Dividends paid to stockholders ............................................................
Excess income tax benefits for equity-based compensation activities .
Deposits received for asset construction ..............................................
Increase in cash overdraft ....................................................................
Net cash provided by (used in) financing activities .................................
197,731
4,163
10,486
110
-
-
34,973
14,167
(17)
10,618
(2,192)
(27,853)
3,946
-
(3,123)
407,769
181,619
3,174
10,743
613
-
-
(87,223 )
574
18,146
(16,784 )
5,073
6,874
(20,547 )
-
(12,947 )
324,486
-
(217,766)
(727,947 )
(179,363 )
2,005
-
-
1,466
(214,295)
-
(2,131)
(14,391)
(26,582)
(7,155)
(42,854)
-
2,000
-
(91,113)
4,167
-
-
11,976
(891,167 )
750,000
(15,224 )
(100,642 )
(528 )
(4,983 )
(37,216 )
-
-
(1,014 )
590,393
147,839
1,642
12,298
-
(822 )
(4,096 )
(1,497 )
2,821
1,773
(4,547 )
(2,618 )
4,052
(1,324 )
(5,928 )
7,211
257,121
-
(130,824 )
(16,190 )
6,752
(2,672 )
1,327
(141,607 )
-
-
(3,767 )
(56,370 )
(2,190 )
(34,445 )
822
-
(723 )
(96,673 )
18,841
119,199
138,040
Increase in cash and cash equivalents......................................................
Cash and cash equivalents, beginning of period ......................................
Cash and cash equivalents, end of period ................................................ $
102,361
161,752
264,113 $
23,712
138,040
161,752 $
Supplemental cash flow disclosures:
Cash paid for interest, net of capitalized interest ................................. $
Cash paid for income taxes, net of refunds received ........................... $
56,412 $
1,811 $
43,327 $
59,622 $
28,628
73,007
See accompanying notes to the consolidated financial statements.
F-6
CABLE ONE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
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. At the end of 2018, Cable One provided service to 804,865 residential and
business customers, of which 663,074 subscribed to data services, 326,423 subscribed to video services and 125,934
subscribed to voice services.
On May 1, 2017, the Company acquired RBI Holding LLC (“NewWave”) for a purchase price of $740.2 million in cash on
a debt-free basis. Refer to note 4 for details on this transaction.
On January 8, 2019, the Company acquired Delta Communications, L.L.C. (“Clearwave”) for a purchase price of $357.0
million in cash on a debt-free basis, subject to customary post-closing adjustments. Refer to note 17 for details on this
transaction.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States (“GAAP”) and the rules and regulations of the Securities and
Exchange Commission (the “SEC”). The Company’s results of operations for the years ended December 31, 2018, 2017 and
2016 may not be indicative of the Company’s future results.
Principles of Consolidation. The accompanying 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. 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 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.
Revenue Recognition. The Company recognizes revenue in accordance with ASC 606 - Revenue from Contracts with
Customers. Residential revenues are generated through individual and bundled subscriptions for data, video and voice
services on month to month terms, without penalty for cancellation. As bundled subscriptions are typically offered at
discounted rates, the sales price is allocated amongst the respective product lines based on the relative selling price at which
each service is sold under standalone service agreements. Business revenues are generated through individual and bundled
subscriptions for data, video and voice services under contracts with terms ranging from one month to several years.
The Company also generally receives an allocation of scheduled advertising time as part of its distribution agreements with
cable and broadcast networks, which the Company sells to local, regional and national advertisers under contracts with terms
that are typically less than one year. In most instances, the available advertising time is sold directly by the Company’s
internal sales force. As the Company is acting as principal in these arrangements, the advertising that is sold is reported as
revenue on a gross basis. In instances where advertising time is sold by contracted third-party agencies, the Company is not
acting as principal and the advertising sold is therefore reported net of agency fees. Advertising revenues are recognized when
the related advertisements are aired.
F-7
The unit of account for revenue recognition is a performance obligation, which is a requirement to transfer a distinct good or
service to a customer. Customers are billed for the services to which they subscribe based upon published or contracted rates,
with the sales price being allocated to each performance obligation. For arrangements with multiple performance obligations,
the sales price is allocated based on the relative standalone selling price for each subscribed service. Generally performance
obligations are satisfied, and revenue is recognized, over the period of time in which customers simultaneously receive and
consume the Company’s defined performance obligations, which are delivered in a similar pattern of transfer. Advertising
revenue is recognized at the point in time when the underlying performance obligation is complete.
The Company also incurs certain incremental costs to acquire residential and business customers, such as commission costs
and third-party costs to service specific customers. These costs are capitalized as contract assets and amortized over the
applicable period. For commissions, the amortization period is the average customer tenure, which is approximately five
years for both residential and business customers. All other costs are amortized over the requisite contract period.
Under the terms of the Company’s franchise agreements, the Company is generally required to pay to the franchising authority
an amount based on the gross amount billed to the customer. The Company normally passes these fees to its customers and
reports the fees on a gross basis as a component of revenue with the corresponding costs included in operating expense. The
franchise authority assesses the Company directly for these fees and it is the Company’s obligation to pay the fees. The
amount of such fees recorded on a gross basis was $16.1 million, $15.7 million and $14.2 million in 2018, 2017 and 2016,
respectively.
Concentrations of Credit Risk. Financial instruments that potentially subject the Company to concentrations of credit risk
are primarily cash and accounts receivable. Concentration of credit risk with respect to the Company’s cash balance is limited.
The Company maintains or invests its cash with highly qualified financial institutions. With respect to the Company’s
receivables, credit risk is limited due to the large number of customers, individually small balances and short payment terms.
Programming Costs. The Company’s programming costs are fees paid to license the programming that is distributed to
video customers and are recorded in the period the services are provided. Programming costs are recorded based on the
Company’s contractual agreements with its programming vendors, which are generally multi-year agreements that provide
for the Company to make payments to the programming vendors at agreed upon rates based on the number of subscribers to
which the Company provides the programming service. From time to time, these agreements expire, and programming
continues to be distributed, often pursuant to an extension, to customers while the parties negotiate new contractual terms.
While payments are typically made under the prior agreement’s terms, the amount of programming costs recorded during
these interim periods is based on the Company’s estimates of the ultimate contractual terms expected to be negotiated.
Differences between actual amounts determined upon resolution of negotiations and amounts recorded during these interim
periods are recorded in the period of resolution.
Advertising Costs. The Company expenses advertising costs as incurred. The total amount of such advertising expense
recorded was $28.6 million, $25.3 million and $25.9 million in 2018, 2017 and 2016, respectively.
Cash and Cash Equivalents. For financial reporting purposes, the Company considers all highly liquid investments with
original maturities at purchase of three months or less to be cash equivalents. These investments are carried at cost, which
approximates market value.
Allowance for Doubtful Accounts. Accounts receivable have been reduced by an allowance for amounts that may be
uncollectible in the future. This estimated allowance is based primarily on the aging category, historical collection experience
and management’s evaluation of the financial condition of the customer. The Company generally considers an account past
due or delinquent when a customer misses a scheduled payment. The Company writes off accounts receivable balances
deemed uncollectible against the allowance for doubtful accounts generally when the account is turned over for collection to
an outside collection agency.
Fair Value Measurements. Fair value measurements are determined based on the assumptions that a market participant
would use in pricing an asset or liability based on a three-tiered hierarchy that draws a distinction between market participant
assumptions based on (i) observable inputs, such as quoted prices in active markets (level 1); (ii) inputs other than quoted
prices in active markets that are observable either directly or indirectly (level 2); and (iii) unobservable inputs that require the
Company to use present value and other valuation techniques in the determination of fair value (level 3). Financial assets and
liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measure. The
Company’s assessment of the significance of a particular input to the fair value measurements requires judgment and may
affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.
F-8
For assets and liabilities that are measured using quoted prices in active markets, the total fair value is the published market
price per unit multiplied by the number of units held, without consideration of transaction costs. Assets and liabilities that are
measured using significant other observable inputs are primarily valued by reference to quoted prices of similar assets or
liabilities in active markets, adjusted for any terms specific to that asset or liability.
The Company measures certain assets including goodwill, intangible assets and property, plant and equipment at fair value
on a nonrecurring basis when they are deemed to be impaired. The fair value of these assets is determined with valuation
techniques using the best information available and may include quoted market prices, market comparables and discounted
cash flow models.
Fair Value of Financial Instruments. The carrying amounts reported in the Company’s consolidated financial statements
for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because
of the short-term nature of these financial instruments.
Property, Plant and Equipment. Property, plant and equipment is recorded at cost. Replacements and major improvements
are capitalized; maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method
for all assets, with the exception of capitalized internal labor, which is depreciated using an accelerated method. The estimated
useful lives of each category of property, plant and equipment is as follows (in years):
Cable distribution systems .................................................................................................................................
Customer premise equipment ............................................................................................................................
Other equipment, vehicles and fixtures .............................................................................................................
Capitalized software ..........................................................................................................................................
Buildings and improvements .............................................................................................................................
10 – 12
3 – 5
3 – 10
3 – 7
10 – 20
The costs of leasehold improvements are amortized over the lesser of their useful lives or the remaining terms of the respective
leases.
Costs associated with the installation and upgrade of services and acquiring and deploying customer premise equipment,
including materials, internal and external labor costs and related indirect and overhead costs, are capitalized. Indirect and
overhead costs include payroll taxes, insurance and other benefits and vehicle, tool and supply expense related to installation
activities. Capitalized labor costs include the direct costs of engineers and technical managers involved in the design and
implementation of plant and infrastructure, the costs of technicians involved in the installation and upgrades of services and
customer premise equipment, and the costs of support personnel directly involved in capitalizable activities, such as project
managers and supervisors. Internal labor costs capitalized for engineering and technical personnel are based on standards
developed by position for the percentage of time spent on capitalized projects while internal labor costs associated with
installation and other plant activities are based on standards developed from operational data. Overhead costs are capitalized
based on standards developed from historical information. Costs for repairs and maintenance, disconnecting service or
reconnecting service are expensed as incurred.
The Company capitalizes certain internal and external costs incurred to acquire or develop internal-use software, including
costs associated with coding, software configuration, upgrades and enhancements.
Evaluation of Long-Lived Assets. The recoverability of property, plant and equipment and amortized intangible assets is
assessed whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. A long-
lived asset is considered to not be recoverable when the undiscounted estimated future cash flows are less than the asset’s
recorded value. An impairment charge is measured based on estimated fair market value, determined primarily using
estimated future cash flows on a discounted basis. Losses on long-lived assets to be disposed of are determined in a similar
manner, but the fair market value is reduced for estimated disposal costs.
Finite-Lived Intangible Assets. Finite-lived intangible assets consist of franchise renewals, customer relationships and
trademarks and trade names, and are amortized on a straight-line basis over the respective estimated periods for which the
assets will provide economic benefit to the Company.
Indefinite-Lived Intangible Assets. The Company’s intangible assets with an indefinite life are franchise agreements that it
has with state and local governments allowing the Company to operate our business within a specified geographic area. The
Company expects its franchise agreements to provide it with substantial benefit for a period that extends beyond the
foreseeable horizon, and the Company has historically obtained renewals and extensions of such agreements without material
F-9
modifications to the agreements for nominal costs, and these costs are expensed as incurred. The Company groups the
recorded values of its various franchise agreements into geographic divisions or units of account.
The Company assesses the recoverability of its indefinite-lived intangible assets as of November 30th of each year, or more
frequently whenever events or substantive changes in circumstances indicate that the assets might be impaired. The Company
evaluates the unit of account used to test for impairment of its indefinite-lived intangible assets periodically or whenever
events or substantive changes in circumstances occur to ensure impairment testing is performed at an appropriate level. The
assessment of recoverability may first consider qualitative factors to determine whether it is more likely than not that the fair
value of an indefinite-lived intangible asset is less than its carrying amount. A quantitative assessment is performed if the
qualitative assessment results in a more-likely-than-not determination or if a qualitative assessment is not performed. When
performing a quantitative assessment, the Company estimates the fair value of its indefinite-lived intangible assets primarily
based on a multi-period excess earnings method (“MPEEM”) analysis that involves significant judgment. When analyzing
the fair values indicated under the MPEEM analysis, the Company also considers multiples of Adjusted EBITDA generated
by the underlying assets, current market transactions, and profitability information. If the fair value of the Company’s
indefinite-lived intangible assets were less than the carrying amount, the Company would recognize an impairment charge
for the difference between the estimated fair value and the carrying value of the assets.
Goodwill. 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 acquired that do not qualify for separate recognition, including assembled workforce, noncontractual
relationships and other agreements. The Company assesses the recoverability of its goodwill as of November 30th of each
year, or more frequently whenever events or substantive changes in circumstances indicate that the carrying amount of a
reporting unit may exceed its fair value. The Company tests goodwill for impairment at the reporting unit level. To determine
its reporting units, the Company evaluates the components one level below the segment level and it aggregates the
components if they have similar economic characteristics. As a result of this assessment, the Company’s reporting units are
established at the geographic division level. The Company evaluates the determination of its reporting units used to test for
impairment periodically or whenever events or substantive changes in circumstances occur. The assessment of recoverability
may first consider qualitative factors to determine whether the existence of events or circumstances leads to a determination
that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. A quantitative assessment
is performed if the qualitative assessment results in a more-likely-than-not determination or if a qualitative assessment is not
performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value. Any
excess amount is recorded as an impairment charge in the current period (limited to the amount of goodwill recorded).
Pension and Other Postretirement Benefits. The Company maintains various pension and incentive savings plans. The
Company recognizes the overfunded or underfunded status of the defined benefit SERP (as defined in note 14) as an asset or
liability in its consolidated balance sheets and recognizes changes in that funded status in the year in which the changes occur
through comprehensive income. The Company measures changes in the funded status of its plans using the projected unit
credit cost method and several actuarial assumptions, the most significant of which is the discount rate. The Company uses a
measurement date of December 31st for its pension and other postretirement benefit plans.
Self-Insurance. The Company uses a combination of insurance and self-insurance for a number of risks, including claims
related to employee medical and dental care, disability benefits, workers’ compensation, general liability, property damage
and business interruption. Liabilities associated with these plans are estimated based on, among other things, the Company’s
historical claims experience, severity factors and other actuarial assumptions. Accruals for expected loss are based on
estimates, and, while the Company believes that the amounts accrued are adequate, the ultimate loss may differ from the
amounts provided.
Equity-Based Compensation. The Company measures compensation expense for awards settled in shares based on the grant
date fair value of the award. The Company measures compensation expense for awards settled in cash, or that may be settled
in cash, based on the fair value at each reporting date. The Company recognizes the expense over the requisite service period,
which is generally the vesting period of the award.
Income Taxes. The Company accounts for income taxes under the asset and liability method, which requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial
statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date.
F-10
The Company records net deferred tax assets to the extent that it believes these assets will more likely than not be realized.
In making such determination, the Company considers all available positive and negative evidence, including future reversals
of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial
operations. This evaluation is made on an ongoing basis. In the event the Company were to determine that it was not able to
realize all or a portion of its net deferred income tax assets in the future, the Company would record a valuation allowance,
which would impact the provision for income taxes.
The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be
sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.
The Company records a liability for the difference between the benefit recognized and measured for financial statement
purposes and the tax position taken or expected to be taken on the tax return. Changes in the estimate are recorded in the
period in which such determination is made.
Asset Retirement Obligations. Certain of the Company’s franchise agreements and lease agreements contain provisions
requiring the Company to restore facilities or remove property in the event that the franchise or lease agreement is not
renewed. The Company expects to continually renew its franchise agreements and therefore cannot reasonably estimate any
liabilities associated with such agreements. A remote possibility exists that franchise agreements could be terminated
unexpectedly, which could result in the Company incurring significant expense in complying with restoration or removal
provisions. Retirement obligations related to the Company’s lease agreements are de minimis. The Company does not have
any significant liabilities related to asset retirement obligations recorded in the consolidated financial statements.
Recently Adopted Accounting Pronouncements. In May 2017, the Financial Accounting Standards Board (the “FASB”)
issued Accounting Standards Update (“ASU”) No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of
Modification Accounting. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting in accordance with ASC 718. The ASU was effective
January 1, 2018. The adoption of this guidance did not have a material impact on the Company’s consolidated financial
statements, but may have an impact in the future.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment. ASU 2017-04 removes step two of the previous goodwill impairment test under ASC 350 and replaces
it with a simplified model. Under the simplified model, goodwill impairment will be calculated as the difference between the
carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill. The amount of any
impairment under the simplified model may differ from what would have been recognized under the previous two-step test.
The ASU is effective for annual and any interim impairment tests performed for periods beginning after December 15, 2019,
with early adoption permitted. The Company elected to early adopt the standard on January 1, 2018. The adoption of this
guidance did not have a material impact on the Company’s consolidated financial statements, but may have an impact in the
future.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business. The purpose of the amendment is to clarify the definition of a business with the objective of adding guidance to
assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or
businesses. The ASU was effective January 1, 2018. The adoption of this guidance did not have an impact on the Company’s
consolidated financial statements, but may have an impact in the future.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments. The guidance clarifies the way in which certain cash receipts and cash payments should be
classified within the consolidated statements of cash flows and also how the predominance principle should be applied when
cash receipts and cash payments have aspects of more than one class of cash flows. ASU 2016-15 was effective January 1,
2018. The adoption of this guidance did not have a material impact on the classification of any cash flows within the
Company’s consolidated statements of cash flows, but may have an impact in the future.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09
provides new guidance related to how an entity should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. The new standard provides a single principles-based, five step model to be applied to all contracts with customers:
(i) identify the contract(s) with the customer, (ii) identify the performance obligation(s) in the contract, (iii) determine the
transaction price, (iv) allocate the transaction price to the performance obligation(s) in the contract and (v) recognize revenue
when each performance obligation is satisfied. The updated guidance also requires additional disclosures regarding the nature
and timing of revenue recognition as well as any uncertainty surrounding potential revenue recognition. The Company
F-11
adopted the updated guidance on January 1, 2018 on a full retrospective basis, which required all periods presented to reflect
the impact of the updated guidance. Upon adoption, the Company also implemented changes in the presentation of certain
revenues and expenses, which resulted in the deferral of all business installation revenues and residential and business
customer acquisition costs, to be recognized over a period of time instead of immediately. Refer to note 3 for further details
of the impact on the Company’s 2017 and 2016 consolidated financial statements and the requisite disclosures pertaining to
the transition to the new standard.
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 update 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, with early adoption
permitted, and may be adopted either retrospectively or prospectively. The Company is currently evaluating the method of
adoption to pursue as well as the expected impact on its consolidated financial statements.
In June 2018, the FASB issued 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 update is effective for the first quarter of
2019, with early adoption permitted. The Company does not expect ASU 2018-07 to have a material impact on the Company’s
consolidated financial statements upon adoption, but it may have an impact in the future.
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 update is
effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted, 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.
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 asset and a corresponding lease liability, with the
exception of short-term leases. The Company will be required to classify each separate lease component as either an operating
lease or a finance lease at the lease commencement date. Initial measurement of the right-of-use asset and lease liability is
the same for both operating and finance leases, however, expense recognition and amortization of the right-of-use asset
differs. Operating leases will reflect lease expense on a straight-line basis similar to current operating leases while finance
leases will reflect a front-loaded expense pattern similar to current capital leases. The Company will adopt this guidance
beginning in the first quarter of 2019 and anticipates utilizing the modified retrospective transition method by recognizing a
cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjusting prior
period reported amounts. The Company expects to elect certain practical expedients permitted under the transition guidance.
The adoption of this guidance will result in the Company implementing new systems, processes and internal controls and will
require additional quantitative and qualitative disclosures around the amount, timing and uncertainty of lease-related cash
flows and significant judgments utilized. The Company’s lease portfolio primarily consists of building, land, tower, fiber,
equipment and colocation site leases, among others. The Company is currently in the process of determining the impact that
the adoption of ASU 2016-02 will have on its consolidated financial statements.
F-12
3.
ADOPTION OF NEW REVENUE RECOGNITION STANDARD
The Company adopted ASC 606 on January 1, 2018 using the full retrospective method, resulting in a recasting of prior
period consolidated financial statements. The adoption resulted in the deferral of all business installation revenues and
residential and business customer acquisition costs, to be recognized over a period of time, instead of immediately. The
impact of the ASC 606 adoption on the comparative 2017 and 2016 consolidated financial statements was as follows (in
thousands, except per share data):
As Reported
December 31, 2017
ASC 606
Adjustment
As Recasted
Consolidated Balance Sheet Information
Assets
Current Assets:
Accounts receivable, net ............................................................................ $
Prepaid and other current assets .................................................................
Total Current Assets ...............................................................................
Other noncurrent assets ..................................................................................
Total Assets ............................................................................................ $
51,141 $
8,160
242,384
6,179
2,218,329 $
(21,211 ) $
2,738
(18,473 )
4,776
(13,697 ) $
29,930
10,898
223,911
10,955
2,204,632
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities.................................................... $
Deferred revenue ........................................................................................
Total Current Liabilities .........................................................................
Deferred income taxes....................................................................................
Other noncurrent liabilities.............................................................................
Total Liabilities ......................................................................................
117,963 $
38,266
170,604
205,636
9,991
1,546,913
(108 ) $
(23,258 )
(23,366 )
1,518
3,120
(18,728 )
117,855
15,008
147,238
207,154
13,111
1,528,185
Stockholders' Equity
Retained earnings .......................................................................................
Total Stockholders' Equity .....................................................................
Total Liabilities and Stockholders' Equity.............................................. $
723,354
671,416
2,218,329 $
5,032
5,031
(13,697 ) $
728,386
676,447
2,204,632
Year Ended December 31, 2017
ASC 606
Adjustment
As Recasted
As Reported
Consolidated Statement of Operations and Comprehensive Income Information
Revenues ........................................................................................................ $
Costs and Expenses:
960,029 $
(73 ) $
959,956
Selling, general and administrative ............................................................
Total Costs and Expenses .......................................................................
Income from operations .................................................................................
Income before income taxes ...........................................................................
Income tax benefit ..........................................................................................
Net income ..................................................................................................... $
204,799
724,032
235,997
189,801
(44,227)
234,028 $
(415 )
(415 )
342
342
(801 )
1,143 $
204,384
723,617
236,339
190,143
(45,028 )
235,171
Net income per common share:
Basic ........................................................................................................... $
Diluted ....................................................................................................... $
41.20 $
40.72 $
0.20 $
0.20 $
41.40
40.92
Comprehensive income .................................................................................. $
234,122 $
1,143 $
235,265
Consolidated Statement of Cash Flows Information
Net income ..................................................................................................... $
Decrease in deferred income taxes .................................................................
(Increase) decrease in accounts receivable, net ..............................................
Decrease in prepaid and other current assets ..................................................
Increase (decrease) in accounts payable and accrued liabilities .....................
Increase (decrease) in deferred revenue .........................................................
Change in other noncurrent assets and liabilities, net .....................................
Net cash provided by operating activities ...................................................... $
234,028 $
(86,357)
(3,065)
4,950
6,982
1,560
(13,551)
324,486 $
1,143 $
(866 )
21,211
123
(108 )
(22,107 )
604
- $
235,171
(87,223 )
18,146
5,073
6,874
(20,547 )
(12,947 )
324,486
F-13
Year Ended December 31, 2016
ASC 606
Adjustment
As Recasted
As Reported
Consolidated Statement of Operations and Comprehensive Income Information
Revenues ........................................................................................................ $
Costs and Expenses:
819,625 $
(277) $
819,348
Selling, general and administrative ............................................................
Total Costs and Expenses .......................................................................
Income from operations .................................................................................
Income before income taxes ...........................................................................
Income tax provision ......................................................................................
Net income ..................................................................................................... $
184,024
631,261
188,364
163,264
62,162
101,102 $
989
989
(1,266)
(1,266)
(481)
(785) $
185,013
632,250
187,098
161,998
61,681
100,317
Net income per common share:
Basic ........................................................................................................... $
Diluted ....................................................................................................... $
17.60 $
17.52 $
(0.13) $
(0.14) $
17.47
17.38
Comprehensive income .................................................................................. $
101,213 $
(785) $
100,428
Consolidated Statement of Cash Flows Information
Net income ..................................................................................................... $
Increase (decrease) in deferred income taxes .................................................
(Increase) decrease in prepaid and other current assets ..................................
Decrease in deferred revenue .........................................................................
Change in other noncurrent assets and liabilities, net .....................................
Net cash provided by operating activities ...................................................... $
101,102 $
(1,090)
243
(173)
2,007
257,121 $
(785) $
(407)
(2,861)
(1,151)
5,204
- $
100,317
(1,497)
(2,618)
(1,324)
7,211
257,121
The adoption of ASC 606 did not result in any changes to previously reported total net cash flows from operating, financing
or investing activities.
A summary of changes in timing and presentation to the Company’s historical consolidated financial statements is presented
below:
● The net decrease in total assets reflects a decrease in accounts receivable to remove amounts billed to customers for
which the associated performance obligations have not yet been satisfied, partially offset by the deferral of incremental
costs incurred to obtain customers, which were historically expensed immediately.
● The net decrease in total liabilities reflects a decrease in deferred revenue to remove amounts billed to customers for
which the associated performance obligations have not yet been satisfied, partially offset by the recognition of deferred
revenue related to certain up-front and installation fees collected from business customers, which were historically
recognized when billed and the net tax effect of these adjustments on deferred assets and liabilities.
● The changes in revenues and expenses are a result of the deferred recognition of incremental customer acquisition costs
and up-front and installation business services fees over a period of time, compared to the historical treatment of
immediate recognition.
4.
NEWWAVE ACQUISITION
On May 1, 2017, the Company acquired all the outstanding equity interests in NewWave for $740.2 million in cash on a debt-
free basis. Refer to note 9 for details regarding the financing of the transaction. NewWave provides data, video and voice
services to residential and business customers throughout non-urban areas of Arkansas, Illinois, Indiana, Louisiana,
Mississippi, Missouri and Texas. Cable One and NewWave shared similar strategies, customer demographics, and products.
Accordingly, the acquisition of NewWave offers the Company 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.
F-14
The following table summarizes the allocation of the purchase price consideration as of the acquisition date, reflecting all
measurement period adjustments recorded in 2017 (in thousands):
Assets Acquired
Cash and cash equivalents ..................................................................................................................................... $
Accounts receivable ...............................................................................................................................................
Prepaid and other current assets .............................................................................................................................
Property, plant and equipment ...............................................................................................................................
Intangible assets .....................................................................................................................................................
Other noncurrent assets ..........................................................................................................................................
Total Assets Acquired ....................................................................................................................................
Liabilities Assumed
Accounts payable and accrued liabilities ...............................................................................................................
Deferred revenue ....................................................................................................................................................
Deferred income taxes ...........................................................................................................................................
Total Liabilities Assumed ..............................................................................................................................
Net Assets Acquired .............................................................................................................................................
Purchase price consideration ..................................................................................................................................
Goodwill Recognized ........................................................................................................................................... $
Purchase Price
Allocation
12,220
15,027
2,286
192,234
476,300
1,184
699,251
25,125
14,516
6,644
46,285
652,966
740,166
87,200
The measurement period ended on April 30, 2018 and no measurement period adjustments were recorded during 2018.
The following unaudited pro forma combined results of operations for the years ended December 31, 2017 and 2016 have
been prepared as if the acquisition of NewWave had occurred on January 1, 2016 and include adjustments for depreciation
and amortization expense of $0.6 million and $0.4 million, interest expense from financing of $2.2 million and $6.0 million,
non-recurring acquisition-related costs of $13.6 million and zero and the related aggregate impact on the income tax provision
(benefit) of $1.2 million and $7.5 million for 2017 and 2016, respectively (in thousands, except per share data):
Revenues ........................................................................................................................................ $
Net income ..................................................................................................................................... $
Net income per common share:
Basic ........................................................................................................................................... $
Diluted ....................................................................................................................................... $
(Unaudited)
Year Ended December 31,
2016
2017
1,023,945 $
235,809 $
1,001,246
89,121
41.52 $
41.03 $
15.52
15.44
The pro forma combined results of operations is provided for informational purposes only and is not necessarily indicative
of or intended to represent the results that would have been achieved had the NewWave acquisition been consummated as of
January 1, 2016 or the results that may be achieved in the future.
5.
REVENUES
The Company’s revenues by product line were as follows (in thousands):
Year Ended December 31,
2017
2018
2016
Residential
Data ............................................................................................................ $
Video ..........................................................................................................
Voice ..........................................................................................................
Business services............................................................................................
Advertising sales ............................................................................................
Other ..............................................................................................................
Total revenues ................................................................................................ $
492,816 $
343,344
41,278
155,993
24,919
13,945
1,072,295 $
416,355 $
332,536
43,733
131,082
24,824
11,426
959,956 $
345,563
294,781
42,949
100,034
27,496
8,525
819,348
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 $16.1 million, $15.7 million and $14.2 million for 2018, 2017
F-15
and 2016, respectively. Further, as the Company acts as principal, these fees are reported in video revenues on a gross basis
with corresponding expenses included within operating expenses in the consolidated statements of operations and
comprehensive income.
Other revenues are comprised primarily of customer late charges and reconnect fees.
A significant portion of the Company’s revenues are derived from customers who may cancel their subscriptions at any time
without penalty. As such, the amount of deferred revenue related to unsatisfied performance obligations is not necessarily
indicative of the future revenue to be recognized from the Company’s existing customers. Revenues from customers with
contractually specified terms and non-cancelable service periods are recognized over the terms of the underlying contracts,
which generally range from one to five years.
Contract Costs. The Company capitalizes the incremental costs incurred in obtaining customers, such as commission costs
and certain third-party costs. Commission expense is recognized using a portfolio approach over the calculated average
residential and business customer tenure. Deferred commissions totaled $7.8 million and $7.5 million as of December 31,
2018 and 2017, respectively, and were included within prepaid and other current assets and other noncurrent assets in the
consolidated balance sheets. Commission amortization expense was $3.6 million, $3.1 million and $3.7 million for 2018,
2017 and 2016, respectively, and was included within selling, general and administrative expenses in the consolidated
statements of operations and comprehensive income. Deferred commissions of $2.9 million included within prepaid and other
current assets in the consolidated balance sheet as of December 31, 2018 are expected to be amortized over the next 12
months.
Contract Liabilities. As residential and business customers are billed for subscription services in advance of the service
period, the timing of revenue recognition differs from the timing of billing. Deferred revenue liabilities are recorded when
the Company collects payments in advance of providing the associated services. Current deferred revenue liabilities,
consisting of refundable customer prepayments, up-front charges and installation fees, were $19.0 million and $15.0 million
as of December 31, 2018 and 2017, respectively. Nearly all the deferred revenue liabilities existing at December 31, 2017
were recognized within revenues in the consolidated statement of operations and comprehensive income during 2018.
Noncurrent deferred revenue liabilities, consisting of up-front charges and installation fees from business customers, were
$2.8 million and $3.1 million as of December 31, 2018 and 2017, respectively, and were included within other noncurrent
liabilities in the consolidated balance sheets.
Significant Judgments. The Company often provides multiple services to a single customer. The provision of customer
premise equipment, installation services and service upgrades may be highly integrated and interdependent with the data,
video or voice services provided. Judgment is required to determine whether the provision of such customer premise
equipment, installation services and service upgrades is considered distinct and accounted for separately, or not distinct and
accounted for together with the related subscription service.
The transaction price for a bundle of services is frequently less than the sum of the standalone selling prices of each individual
service. The Company allocates the sales price for such bundles to each individual service provided based on the relative
standalone selling price for each subscribed service. Standalone selling prices of the Company’s residential data and video
services are directly observable, while standalone selling prices for the Company’s residential voice services are estimated
using the adjusted market assessment approach, which relies upon information from peer companies who sell residential
voice services individually.
The Company also uses significant judgment to determine the appropriate period over which to amortize deferred residential
and business commission costs, which was determined to be the average customer tenure. Based on historical data and current
expectations, the Company determined the average customer tenure for both residential and business customers to be
approximately five years.
6.
ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts receivable consisted of the following (in thousands):
Trade receivables, net..................................................................................................................... $
Other receivables ............................................................................................................................
Accounts receivable, net ................................................................................................................ $
28,128 $
1,819
29,947 $
25,014
4,916
29,930
As of December 31,
2018
2017
F-16
The changes in the allowance for doubtful accounts were as follows (in thousands):
Balance at
Beginning
of
Period
Additions –
Charged to
Costs and
Expenses(1) Deductions
Balance at
End of
Period
2018 .............................................................................................. $
2017 .............................................................................................. $
2016 .............................................................................................. $
1,876 $
505 $
864 $
5,101 $
4,925 $
2,316 $
(4,932) $
(3,554) $
(2,675) $
2,045
1,876
505
(1) Additions for 2017 include a $1.1 million allowance for doubtful accounts assumed as part of the NewWave acquisition.
Accounts payable and accrued liabilities consisted of the following (in thousands):
Accounts payable ............................................................................................................ $
Programming costs ..........................................................................................................
Accrued compensation and related benefits ....................................................................
Accrued sales and other operating taxes..........................................................................
Cash overdrafts ................................................................................................................
Franchise fees ..................................................................................................................
Subscriber deposits ..........................................................................................................
Customer refunds ............................................................................................................
Accrued insurance costs ..................................................................................................
Other accrued expenses ...................................................................................................
Total accounts payable and accrued liabilities ............................................................. $
7.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
Cable distribution systems ............................................................................................... $
Customer premise equipment ..........................................................................................
Other equipment and fixtures ..........................................................................................
Buildings and leasehold improvements ...........................................................................
Capitalized software ........................................................................................................
Construction in progress ..................................................................................................
Land.................................................................................................................................
Property, plant and equipment, gross ...........................................................................
Less accumulated depreciation ........................................................................................
Property, plant and equipment, net .............................................................................. $
As of December 31,
2018
2017
20,790 $
17,092
21,314
8,149
4,689
3,870
5,180
1,863
3,976
7,211
94,134 $
21,670
19,500
35,189
6,113
8,994
4,457
6,540
3,498
3,312
8,582
117,855
As of December 31,
2018
1,421,820 $
220,571
406,011
100,625
94,801
69,163
11,946
2,324,937
(1,476,958 )
847,979 $
2017
1,329,451
200,175
378,968
95,314
89,773
67,564
11,585
2,172,830
(1,340,938)
831,892
The Company’s industry is capital intensive, and a significant portion of the Company’s resources are spent on capital
activities associated with extending, rebuilding and upgrading its network. For the years ended December 31, 2018, 2017 and
2016, cash paid for property, plant and equipment was $215.8 million, $175.2 million and $147.0 million, respectively.
Depreciation expense was $186.0 million, $173.6 million and $147.7 million in 2018, 2017 and 2016, respectively.
In 2017, the Company sold a portion of its previous headquarters property for $10.1 million in gross proceeds and recognized
a related gain of $6.6 million. The remaining portion of the property’s carrying value of $4.6 million is included within other
noncurrent assets in the consolidated balance sheets as assets held for sale at both December 31, 2018 and 2017.
As previously disclosed in note 2 to the Company’s consolidated financial statements included in its Annual Report on Form
10-K for the fiscal year ended December 31, 2017 (the "2017 Form 10-K"), the Company changed its accounting for the
capitalization of certain internal labor and related costs associated with construction and customer installation activities
F-17
commencing in the first quarter of 2017. The Company initially classified the entire change as a change in accounting
estimate. During the fourth quarter of 2017, the Company determined that a portion of what had previously been reflected as
a change in estimate should have been categorized as a change in accounting principle, a portion was determined to be a
correction of an error and a portion remained a change in estimate. The changes determined to be a change in estimate or
change in accounting principle were applied prospectively for all of 2017. The Company revised its historical consolidated
financial statements to properly reflect the impact of the labor capitalization, including the related impact to depreciation
expense and income taxes, and corrected for other previously identified immaterial errors, as disclosed in the 2017 Form
10-K.
The Company estimates that the change in principle resulted in a decrease in operating expenses (excluding depreciation and
amortization) of approximately $11.3 million and $11.5 million, a decrease in selling, general and administrative expenses
of approximately $0.2 million and $0.2 million and an increase in depreciation and amortization expense of $2.9 million and
$1.0 million for the years ended December 31, 2018 and 2017, respectively, compared to the results under the prior principle.
8.
GOODWILL AND INTANGIBLE ASSETS
The carrying amount of goodwill at both December 31, 2018 and 2017 was $172.1 million. The Company elected to perform
a quantitative assessment for its goodwill in 2018, for which the fair value of each geographic reporting unit was determined
by applying a calculated multiple from the Company’s peer group companies to each reporting unit’s forecasted cash flow.
Based on the assessment, the Company concluded that the fair value of goodwill for each geographic reporting unit exceeded
its carrying value. The Company did not record any impairment of goodwill in any of the periods presented.
Intangible assets (excluding goodwill) consisted of the following (dollars in thousands):
December 31, 2018
December 31, 2017
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 ..............................
Customer relationships ........................
Trademarks and trade names ...............
Total Finite-Lived Intangible
1 – 25
14
2.7
$
2,927 $
160,000
1,300
40 $
2,887 $
4,138 $
19,047 140,953 160,000
1,300
813
487
3,886 $
252
7,619 152,381
975
325
Assets ..........................................
$ 164,227 $
22,747 $ 141,480 $ 165,438 $
11,830 $ 153,608
Indefinite-Lived Intangible Assets
Franchise agreements ......................
$ 812,371
$ 812,137
Intangible asset amortization expense was $11.7 million, $8.0 million and less than $0.1 million in 2018, 2017 and 2016,
respectively.
As of December 31, 2018, the future amortization of currently held intangible assets was as follows (in thousands):
Year Ending December 31,
2019 ............................................................................................................................................................... $
2020 ...............................................................................................................................................................
2021 ...............................................................................................................................................................
2022 ...............................................................................................................................................................
2023 ...............................................................................................................................................................
Thereafter ......................................................................................................................................................
Total ....................................................................................................................................................... $
Amount
11,925
11,437
11,436
11,433
11,431
83,818
141,480
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.
The Company performed a qualitative assessment of its franchise assets in 2018. Based on the assessment, the Company
concluded that it is more likely than not that the fair value of franchise assets in each unit of account exceeded the carrying
value of such assets and, therefore, the Company did not perform a quantitative analysis. The Company did not recognize
any impairment charges in any of the periods presented.
F-18
9.
LONG-TERM DEBT
Notes. On June 17, 2015, the Company issued $450 million aggregate principal amount of 5.75% senior unsecured notes due
2022 (the “Notes”) pursuant to an indenture (the “Indenture”) dated as of June 17, 2015. The Notes mature on June 15, 2022
and interest is payable on June 15th and December 15th of each year.
The Notes are jointly and severally guaranteed on a senior unsecured basis (the “Guarantees”) by each of the Company’s
subsidiaries that guaranteed the Senior Credit Facilities (as defined below) (the “Guarantors”). In addition, if a subsidiary of
the Company becomes a guarantor in respect of the Senior Credit Facilities or certain other indebtedness, it is required to
provide (subject to customary exceptions) a Guarantee in respect of the Notes. The Notes are unsecured and senior obligations
of the Company. The Guarantees are unsecured and senior obligations of the Guarantors.
At the option of the Company, the Notes are redeemable, in whole or in part, at any time at the redemption prices specified
in the Indenture, plus accrued and unpaid interest, if any, to (but excluding) the redemption date.
The Indenture includes certain covenants relating to debt incurrence, liens, restricted payments, asset sales, transactions with
affiliates, changes in control and mergers or sales of all or substantially all of the Company’s assets. The Indenture also
provides for customary events of default (subject, in certain cases, to customary grace periods), which include nonpayment
on the Notes, breach of covenants in the Indenture, payment defaults or acceleration of other indebtedness over a specified
threshold, failure to pay certain judgments over a specified threshold and certain events of bankruptcy and insolvency.
Generally, if an event of default occurs, the trustee under the Indenture or holders of at least 25% of the aggregate principal
amount of the then outstanding Notes may declare the principal of, and accrued but unpaid interest, if any, on the then
outstanding Notes to be due and payable immediately.
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. The Credit Agreement provided for a five-year revolving credit facility in an aggregate
principal amount of $200 million (the “Revolving Credit Facility”) and a five-year term loan facility in an aggregate principal
amount of $100 million (the “Original Term Loan Facility” and, together with the Revolving Credit Facility, the “Original
Credit Facilities”). Concurrently with its entry into the Credit Agreement, the Company borrowed the full amount of the
Original Term Loan Facility (the “Original Term Loan”).
Borrowings under the Original Credit Facilities bore interest, at the Company’s option, at a rate per annum determined by
reference to either the London Interbank Offered Rate (“LIBOR”) or an adjusted base rate, in each case plus an applicable
interest rate margin. The applicable interest rate margin with respect to LIBOR borrowings was a rate per annum between
1.50% and 2.25% and the applicable interest rate margin with respect to adjusted base rate borrowings was a rate per annum
between 0.50% and 1.25%, in each case determined on a quarterly basis by reference to a pricing grid based upon the
Company’s total net leverage ratio. In addition, the Company is required to pay commitment fees on any unused portion of
the Revolving Credit Facility at a rate between 0.25% per annum and 0.40% per annum, determined by reference to the
pricing grid.
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. Letter of credit issuances under the Revolving Credit Facility of $4.1
million at December 31, 2018 were held for the benefit of certain general and liability insurance matters and bore interest at
a rate of 1.88% per annum at December 31, 2018. The Company had $195.9 million available for borrowing under the
Revolving Credit Facility at December 31, 2018.
On May 1, 2017, the Company entered into a Restatement Agreement (the “Restatement Agreement”) with JPMorgan, as
administrative agent, and the lenders party thereto, pursuant to which the Company amended and restated the Credit
Agreement (as so amended and restated, the “Amended and Restated Credit Agreement”) and incurred $750.0 million of
senior secured loans (the “2017 New Loans”) which were used, together with cash on hand, to (i) finance the NewWave
acquisition, (ii) repay in full the Original Term Loan and (iii) pay related fees and expenses.
The 2017 New Loans consist of (a) a five-year incremental term “A” loan in an aggregate principal amount of $250.0 million
(the “Term Loan A”) and (b) a seven-year incremental term “B” loan in an aggregate principal amount of $500.0 million (the
“Term Loan B” and, together with the Term Loan A and the Revolving Credit Facility, the “Senior Credit Facilities”). The
obligations under the Amended and Restated Credit Agreement are guaranteed by the Company’s wholly owned subsidiaries
and are secured, subject to certain exceptions, by substantially all assets of the Company and the Guarantors.
F-19
On April 23, 2018, the Company entered into Amendment No. 1 (the “Repricing Amendment”) to the Amended and Restated
Credit Agreement to, among other things, decrease the applicable margin for the Term Loan B to 1.75% for LIBOR
borrowings and 0.75% for base rate borrowings.
The interest margins applicable to the 2017 New Loans under the Amended and Restated Credit Agreement 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 and the Revolving Credit Facility, 1.50% to 2.25% for LIBOR loans and 0.50% to 1.25% for base rate loans, determined
on a quarterly basis by reference to a pricing grid based on the Company’s total net leverage ratio and (ii) with respect to the
Term Loan B, (x) for any date 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. The Term Loan A may be prepaid at any time
without penalty or premium (subject to customary LIBOR breakage provisions) and 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 after funding, 5.0%
per annum for the second year after funding, 7.5% per annum for the third year after funding and 10.0% per annum for the
fourth and fifth years after funding (subject to customary adjustments in the event of any prepayment), with the outstanding
balance due upon maturity. The Term Loan B 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 repayment), with the
outstanding balance due upon maturity. The Term Loan B may be prepaid at any time without penalty or premium (subject
to customary LIBOR breakage provisions), benefits from certain “most favored nation” pricing protections and is not subject
to the financial maintenance covenants under the Amended and Restated Credit Agreement.
The Company may, subject to the terms and conditions of the Amended and Restated Credit Agreement, obtain additional
credit facilities of up to $425 million under the Amended and Restated Credit 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 Amended and Restated Credit
Agreement) is no greater than 1.80 to 1.00. The Amended and Restated Credit Agreement contains customary representations,
warranties and affirmative and negative covenants, including limitations on indebtedness, liens, restricted payments,
prepayments of certain indebtedness, investments, dispositions of assets, restrictions on subsidiary distributions and negative
pledge clauses, fundamental changes, transactions with affiliates and amendments to organizational documents. The
Amended and Restated Credit Agreement also requires the Company to maintain specified ratios of total net indebtedness
and first lien net indebtedness to consolidated operating cash flow. The Amended and Restated Credit Agreement also
contains customary events of default, including non-payment of principal, interest, fees or other amounts, material inaccuracy
of any representation or warranty, failure to observe or perform any covenant, default in respect of other material debt of the
Company and of its restricted subsidiaries, bankruptcy or insolvency, the entry against the Company or any of its restricted
subsidiaries of a material judgment, the occurrence of certain ERISA events, impairment of the loan documentation and the
occurrence of a change of control.
The Company was in compliance with all debt covenants as of December 31, 2018.
As of December 31, 2018, outstanding borrowings under the Term Loan A and Term Loan B were $237.5 million and $492.5
million, respectively, and each bore interest at a rate of 4.28% per annum.
In connection with the Repricing Amendment, the Company incurred debt issuance costs of $2.1 million, of which $0.1
million was expensed immediately. The Company recorded $4.2 million, $3.2 million and $1.6 million of debt issuance cost
amortization for the years ended December 31, 2018, 2017 and 2016, respectively. These amounts are reflected within interest
expense in the consolidated statements of operations and comprehensive income. Unamortized debt issuance costs totaled
$17.6 million and $19.6 million at December 31, 2018 and 2017, respectively. These balances are reflected within long-term
debt in the consolidated balance sheets.
The carrying amount of long-term debt consisted of the following (in thousands):
Notes ............................................................................................................................... $
Senior Credit Facilities ....................................................................................................
Capital lease obligation ...................................................................................................
Total debt .....................................................................................................................
Less unamortized debt issuance costs .............................................................................
Less current portion .........................................................................................................
Total long-term debt .................................................................................................... $
F-20
As of December 31,
2018
2017
450,000 $
730,000
251
1,180,251
(17,570 )
(20,625 )
1,142,056 $
450,000
744,375
267
1,194,642
(19,585)
(14,375)
1,160,682
As of December 31, 2018, the future maturities of outstanding debt, including capital lease payment obligations, were as
follows (in thousands):
Year Ending December 31,
2019 ............................................................................................................................................................... $
2020 ...............................................................................................................................................................
2021 ...............................................................................................................................................................
2022 ...............................................................................................................................................................
2023 ...............................................................................................................................................................
Thereafter ......................................................................................................................................................
Total ....................................................................................................................................................... $
Amount
20,625
26,892
30,017
630,017
5,017
467,683
1,180,251
10.
INCOME TAXES
The Company recognized the income tax effects of the 2017 Federal tax reform legislation (the “2017 Tax Act”) in its
consolidated financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance
for the application of ASC 740 – Income Taxes. As such, the Company’s consolidated financial statements for 2017 reflected
the income tax effects of the 2017 Tax Act for which the accounting under ASC 740 was complete as well as provisional
amounts for those specific income tax effects of the 2017 Tax Act for which the accounting under ASC 740 was incomplete
but a reasonable estimate could be determined. The Company recognized the provisional tax impacts related to acceleration
of depreciation and the revaluation of deferred tax assets and liabilities in its 2017 consolidated financial statements. The
accounting was completed when the Company’s 2017 Federal corporate income tax return was filed in 2018.
The income tax provision (benefit) consisted of the following (in thousands):
Year Ended December 31, 2018
U.S. Federal ........................................................................................ $
State and local ....................................................................................
Total ................................................................................................ $
10,214 $
2,284
12,498 $
32,176 $
2,550
34,726 $
42,390
4,834
47,224
Current
Deferred
Total
Year Ended December 31, 2017
U.S. Federal ........................................................................................ $
State and local ....................................................................................
Total ................................................................................................ $
38,033 $
4,164
42,197 $
(91,271) $
4,046
(87,225) $
(53,238 )
8,210
(45,028 )
Year Ended December 31, 2016
U.S. Federal ........................................................................................ $
State and local ....................................................................................
Total ................................................................................................ $
56,564 $
6,688
63,252 $
(2,172) $
601
(1,571) $
54,392
7,289
61,681
The income tax provision (benefit) is different than the amount of income tax determined by applying the U.S. Federal
statutory rate of 21% for 2018 and 35% for 2017 and 2016 to income before income taxes as a result of the following (in
thousands):
U.S. Federal taxes at statutory rate ..................................................... $
State and local taxes, net of U.S. Federal tax .....................................
Benefit from remeasurement of deferred taxes due to the 2017
Tax Act ...........................................................................................
Equity-based compensation ................................................................
Other ...................................................................................................
Income tax provision (benefit) ........................................................... $
Year Ended December 31,
2017
2018
2016
44,517 $
3,816
-
(3,690)
2,581
47,224 $
66,550 $
5,487
(113,976)
(3,089)
-
(45,028) $
56,699
3,994
-
-
988
61,681
F-21
The net deferred income tax liability consisted of the following (in thousands):
As of December 31,
2018
2017
Other benefit obligations ................................................................................................. $
Equity-based compensation .............................................................................................
Net operating losses ........................................................................................................
Accrued bonus .................................................................................................................
Reserves ..........................................................................................................................
Other ................................................................................................................................
Deferred tax assets .......................................................................................................
Property, plant and equipment .........................................................................................
Goodwill and other intangible assets ...............................................................................
Prepaid commissions .......................................................................................................
Accrued bonus .................................................................................................................
Deferred tax liabilities .................................................................................................
Net deferred income tax liability .............................................................................. $
1,940 $
4,080
1,983
1,826
365
1,204
11,398
119,851
131,765
1,909
-
253,525
242,127 $
5,779
4,711
2,992
-
760
542
14,784
95,345
123,745
1,793
1,055
221,938
207,154
The Company has not established valuation allowances against any U.S. Federal or state deferred tax assets.
There were $1.8 million of tax-effected U.S. Federal tax net operating losses available for carryforward at December 31,
2018, which were generated by NewWave prior to the acquisition and have expiration dates through 2036. The use of pre-
acquisition operating losses is subject to limitations imposed by the Internal Revenue Code of 1986, as amended. The
Company does not anticipate that these limitations will affect utilization of the carryforwards prior to their expiration. The
Company had $0.2 million of tax-effected state tax net operating loss carryforwards at December 31, 2018 with varying
expiration dates through 2036.
The Company endeavors to comply with tax laws and regulations where it does business, but cannot guarantee that, if
challenged, the Company’s interpretation of all relevant tax laws and regulations will prevail and that all tax benefits recorded
in the consolidated financial statements will ultimately be recognized in full. The Company has taken reasonable efforts to
address uncertain tax positions and has determined that there are no material transactions and no material tax positions taken
by the Company that would fail to meet the more-likely-than-not threshold for recognizing transactions or tax positions in
the consolidated financial statements. Accordingly, the Company has not recorded a reserve for uncertain tax positions in the
consolidated financial statements, and the Company does not expect any significant tax increase or decrease to occur within
the next 12 months with respect to any transactions or tax positions taken and reflected in the consolidated financial
statements. In making these determinations, the Company presumes that taxing authorities pursuing examinations of the
Company’s compliance with tax law filing requirements will have full knowledge of all relevant information, and, if
necessary, the Company will pursue resolution of disputed tax positions by appeals or litigation. The Company classifies
penalties, if applicable, associated with any uncertain tax positions as a component of selling, general and administrative
expenses in the consolidated statements of operations and comprehensive income.
11.
FAIR VALUE MEASUREMENTS
The carrying amounts, fair values and related fair value hierarchies of the Company’s financial assets and liabilities as of
December 31, 2018 were as follows (in thousands):
December 31, 2018
Carrying
Amount
Fair
Value
Fair Value
Hierarchy
Assets:
Cash and cash equivalents:
Money market investments ............................................................. $
238,222 $
238,222
Level 1
Liabilities:
Long-term debt, including current portion:
Notes ............................................................................................... $
Senior Credit Facilities .................................................................... $
450,000 $
730,000 $
452,250
698,975
Level 2
Level 2
F-22
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). Money market investments with original maturities of three
months or less are included within cash and cash equivalents in the consolidated balance sheets. The fair values of the Notes
and Senior Credit Facilities are estimated based on market prices for similar instruments in active markets (level 2).
The Company’s deferred compensation 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.
12.
TREASURY STOCK
Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the consolidated financial
statements.
Share Repurchase Program. On July 1, 2015, the Company’s board of directors (the “Board”) authorized up to $250.0
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 December 31, 2018, the Company had repurchased 204,647 shares of its
common stock at an aggregate cost of $99.8 million. During 2018, the Company repurchased 38,814 shares at an aggregate
cost of $26.6 million.
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 2018 and 2017 were $7.2 million and $5.0 million, for which the Company
withheld 10,026 and 7,010 shares of common stock, respectively. Treasury shares of 184,497 held at December 31, 2018
include such shares withheld for withholding tax.
13.
EQUITY-BASED COMPENSATION
On June 5, 2015, the Board adopted the Cable One, Inc. 2015 Omnibus Incentive Compensation Plan (the “Original 2015
Plan”), which became effective July 1, 2015. On May 2, 2017, the Company’s stockholders approved the Amended and
Restated Cable One, Inc. 2015 Omnibus Incentive Compensation Plan (the “2015 Plan”), which automatically terminated,
replaced and superseded the Original 2015 Plan, except that any outstanding awards granted under the Original 2015 Plan
will remain in effect pursuant to their terms. The 2015 Plan is designed to promote the interests of the Company and its
stockholders by providing the employees and directors of the Company with incentives and rewards to encourage them to
continue in the service of the Company and with a proprietary interest in pursuing the long-term growth, profitability and
financial success of the Company. Any of the directors, officers and employees of the Company and its affiliates are eligible
to be granted one or more of the following types of awards under the 2015 Plan: (1) incentive stock options, (2) non-qualified
stock options, (3) restricted stock awards, (4) SARs, (5) restricted stock units (“RSUs”), (6) cash-based awards, (7)
performance-based awards, (8) dividend equivalents and (9) other stock-based awards, including, without limitation,
performance stock units and deferred stock units. Unless the 2015 Plan is sooner terminated by the Board, no awards may be
granted under the 2015 Plan after May 2, 2027.
The 2015 Plan provides that, subject to certain adjustments for specified corporate events, the maximum number of shares of
Company common stock that may be issued under the 2015 Plan is 334,870, which is equal to the number of remaining shares
of Company common stock available for future issuance under the Original 2015 Plan as of May 2, 2017, regardless of
whether such shares were subject to outstanding awards as of such date, and no more than 329,962 shares may be issued
pursuant to incentive stock options. At December 31, 2018, 236,547 shares were available for issuance under the 2015 Plan.
Total equity-based compensation expense recognized was $10.5 million, $10.7 million and $12.3 million for 2018, 2017 and
2016, respectively, and was included within selling, general and administrative expenses in the consolidated statements of
operations and comprehensive income. The Company recognized an income tax benefit of $3.7 million related to equity-
based awards during 2018. The deferred tax asset related to all outstanding equity-based awards was $4.1 million as of
December 31, 2018.
Restricted Stock Awards. The Company has granted restricted shares of Company common stock subject to service-based
and performance-based vesting conditions to employees of the Company. Restricted share awards generally cliff-vest on the
F-23
three-year anniversary of the grant date or in four equal ratable installments beginning on the first anniversary of the grant
date (generally subject to the holder’s continued employment with the Company through the applicable vesting date), except
in the case of awards made to individuals (i) whose equity awards issued by GHC were forfeited in connection with the
Company’s spin-off from GHC (the “Replacement Shares”), which Replacement Shares vested on December 12, 2016 (with
certain exceptions as provided in the applicable award agreement), or (ii) who did not receive an equity award from GHC in
2015 in anticipation of the spin-off (the “Staking Shares”), which Staking Shares cliff-vested on January 2,
2018. Performance-based restricted shares are or were subject to performance metrics related primarily to year-over-year or
three-year cumulative growth in Adjusted EBITDA less capital expenditures or year-over-year growth in Adjusted EBITDA
and capital expenditures as a percentage of total revenues. Restricted shares are subject to the terms and conditions of the
Original 2015 Plan or the 2015 Plan (in the case of awards made on or following May 2, 2017) and are otherwise subject to
the terms and conditions of the applicable award agreement.
The current compensation arrangements for the Company’s non-employee directors provide that each non-employee director
is entitled to an annual retainer of $75,000 in cash, plus an additional annual cash retainer for each non-employee director
who serves as a committee chair or as lead independent director and approximately $125,000 in RSUs. Such RSUs will
generally be granted on the date of the Company’s annual stockholders’ meeting and will vest on the earlier of the first
anniversary of the grant date or the annual stockholders’ meeting date immediately following the grant date, subject to the
director’s continued service through such vesting date. Settlement of such RSUs will be in the form of one share of the
Company’s common stock and will follow vesting, unless the director has previously elected to defer such settlement until
his or her separation from service from the Board. Non-employee directors may elect to defer their annual retainer and receive
RSUs in lieu of annual cash fees. Such RSU awards granted on January 3, 2018 vested in full on the date immediately
preceding the date of the 2018 annual stockholders’ meeting date and future awards will vest on the date immediately
preceding the date of the annual stockholders’ meeting immediately following the grant date, subject to the director’s
continued service through such vesting date. Any dividends associated with RSUs granted prior to the 2017 annual grant of
RSUs will be converted into dividend equivalent units (“DEUs”), which will be delivered at the time of settlement of the
associated RSUs. Commencing with the 2017 annual grant of RSUs, dividends associated with RSUs will be paid out in cash
at the time of settlement. As of December 31, 2018, 4,144 RSUs, including DEUs, were vested and deferred.
Restricted shares, RSUs and DEUs are collectively referred to as “restricted stock.” A summary of restricted stock activity is
as follows:
Weighted
Average
Grant Date
Fair Value
Per Share
Restricted
Stock
Outstanding as of December 31, 2015 ...........................................................................................
Granted ...........................................................................................................................................
Forfeited .........................................................................................................................................
Vested and issued ...........................................................................................................................
Outstanding as of December 31, 2016 ...........................................................................................
Granted ...........................................................................................................................................
Granted due to performance achievement ......................................................................................
Forfeited .........................................................................................................................................
Vested and issued ...........................................................................................................................
Outstanding as of December 31, 2017 ...........................................................................................
Granted ...........................................................................................................................................
Forfeited .........................................................................................................................................
Vested and issued ...........................................................................................................................
Outstanding as of December 31, 2018 ...........................................................................................
39,744 $
10,369 $
(1,343) $
(10,345) $
38,425 $
17,245 $
5,006 $
(6,223) $
(3,163) $
51,290 $
17,098 $
(2,455) $
(25,057) $
40,876 $
383.18
454.75
389.33
383.61
402.13
633.34
433.66
469.23
415.39
472.89
715.74
636.64
397.53
610.88
Vested and unissued as of December 31, 2018 ..............................................................................
4,144 $
493.96
Compensation expense associated with restricted stock is recognized on a straight-line basis over the vesting period, with
forfeitures recognized as incurred. Equity-based compensation expense for restricted stock was $6.8 million, $7.5 million
and $9.4 million for 2018, 2017 and 2016, respectively. At December 31, 2018, there was $9.7 million of unrecognized
compensation expense related to restricted stock, which is expected to be recognized over a weighted average period of 1.1
years.
F-24
Stock Appreciation Rights. The Company has granted SARs to certain executives and other employees of the Company.
The SARs are scheduled to vest in four equal ratable installments beginning on the first anniversary of the grant date
(generally subject to the holder’s continued employment with the Company through the applicable vesting date). The SARs
are subject to the terms and conditions of the Original 2015 Plan or the 2015 Plan (in the case of awards made on or following
May 2, 2017) and will otherwise be subject to the terms and conditions of the applicable award agreement.
A summary of SAR activity is as follows:
Stock
Appreciation
Rights
Weighted
Average
Exercise
Price
Weighted
Average
Fair
Value
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(in
thousands)
1,539
-
Outstanding as of December 31, 2015 ..........................
Granted ..........................................................................
Forfeited ........................................................................
Outstanding as of December 31, 2016 ..........................
Granted ..........................................................................
Exercised .......................................................................
Forfeited ........................................................................
Outstanding as of December 31, 2017 ..........................
Granted ..........................................................................
Exercised .......................................................................
Forfeited ........................................................................
Outstanding as of December 31, 2018 ..........................
135,600 $
6,100 $
(5,700) $
136,000 $
24,432 $
(41,603) $
(16,371) $
102,458 $
21,000 $
(27,060) $
(5,793) $
90,605 $
422.31 $
522.50 $
422.31 $
426.80 $
632.15 $
424.02 $
422.31 $
477.62 $
744.47 $
435.11 $
502.08 $
550.60 $
87.22 $
106.15 $
87.22
88.07 $
140.44 $
87.54
87.22
100.91 $
181.21 $
90.06
108.22
122.29 $
26,510
-
23,173
-
24,673
Vested and exercisable as of December 31, 2018 .........
26,935 $
465.74 $
98.09 $
9,545
8.7
9.1
8.1
8.7
7.2
6.4
The grant date fair value of the Company’s SARs is measured using the Black-Scholes valuation model. The weighted average
inputs used in the model for grants awarded during 2018, 2017 and 2016 were as follows:
Expected volatility ....................................................................................
Risk-free interest rate ...............................................................................
Expected term (in years) ...........................................................................
Expected dividend yield ...........................................................................
2018
22.22%
2.53%
6.25
0.97%
2017
20.83%
2.13%
6.25
0.95%
2016
21.63%
1.39%
6.25
1.16%
Compensation expense associated with SARs is recognized on a straight-line basis over the vesting period, with forfeitures
recognized as incurred. Equity-based compensation expense for SARs was $3.7 million, $3.3 million and $2.9 million for
2018, 2017 and 2016, respectively. At December 31, 2018, there was $6.3 million of unrecognized compensation expense
related to SARs, which is expected to be recognized over a weighted average period of 1.1 years.
The Black-Scholes model used to estimate the fair value of the Company’s SARs requires the input of highly subjective
assumptions, including the expected volatility of the price of the Company’s common stock, the risk-free interest rate, the
expected term of the SARs and the expected dividend yield of the Company’s common stock. These estimates involve
inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used,
the Company’s equity-based compensation expense could be materially different in the future. These assumptions for 2018
were determined as follows:
● Fair Value of Common Stock — Valued by reference to the closing price of the Company’s publicly traded common
stock on the date of grant.
● Expected Volatility — Prior to the spin-off the Company did not have a history of market prices for its common stock,
and through 2018 it did not have what the Company considered a sufficient trading history for its common stock to
exclusively use historical market prices for its common stock to estimate future volatility. Accordingly, the Company
estimated the expected stock price volatility for its common stock by using a combination weighting between its life-
to-date historical daily volatility and a leverage-adjusted average volatility of industry peers based on daily price
observations over a period equivalent to the expected term of the SAR grants. Industry peers consist of public
F-25
companies in the cable, satellite and integrated telecommunication services industry similar in size, stage of life cycle
and financial leverage.
● Risk-Free Interest Rate — The risk-free interest rate assumption was based on the yields of U.S. Treasury securities
with maturities similar to the expected term of the SARs.
● Expected Term — The expected term represents the period that the Company’s stock-based awards were expected to
be outstanding. Prior to the spin-off, the Company did not have stock-based awards specific to Cable One and therefore
did not have a history of the period that its stock-based awards were expected to be outstanding. Accordingly, the
expected terms of the awards were based on the “simplified method” which defines the expected term as the average
of the contractual term of the SARs and the weighted-average vesting period for all tranches.
● Expected Dividend Yield — The Company expects to continue to pay quarterly dividends in the future and, as such,
the expected dividend yield was calculated as the expected future annual dividend divided by the Company’s closing
stock price on the grant date.
14.
POSTEMPLOYMENT BENEFIT PLANS
Pension Plans. The Company’s Supplemental Executive Retirement Plan (the “SERP”) includes a defined benefit portion
(the “DB SERP”) and a defined contribution portion (the “DC SERP”). As the DB SERP is unfunded, the Company makes
contributions to the DB SERP based on actual benefit payments. No participant or Company contributions to the DC SERP
occurred during any of the periods presented in the consolidated financial statements.
The following table sets forth obligation information for the DB SERP (in thousands):
Benefit obligation at beginning of period ....................................................................................... $
Interest cost ....................................................................................................................................
Actuarial gain .................................................................................................................................
Benefits paid ..................................................................................................................................
Benefit obligation at end of period ................................................................................................. $
5,187 $
179
(437)
(289)
4,640 $
5,125
196
(123)
(11)
5,187
The accumulated benefit obligation for the DB SERP at December 31, 2018 and 2017 was $4.6 million and $5.2 million,
respectively. The amounts recorded in the consolidated balance sheets for the DB SERP were as follows (in thousands):
As of December 31,
2018
2017
As of December 31,
2018
2017
Accounts payable and accrued liabilities ....................................................................................... $
Other noncurrent liabilities.............................................................................................................
Total liabilities ............................................................................................................................... $
282 $
4,358
4,640 $
323
4,864
5,187
Key assumptions utilized for determining the benefit obligation included the use of a discount rate of 4.27% and 3.56% for
2018 and 2017, respectively.
The Company recognized $0.2 million in DB SERP expense for each of 2018, 2017 and 2016, which was recorded within
selling, general and administrative expenses in the consolidated statements of operations and comprehensive income.
Company contributions to the DB SERP were $0.3 million for the year ended December 31, 2018 and were not material for
the years ended December 31, 2017 and 2016.
At December 31, 2018, future estimated benefit payments for the next 10 years were as follows (in thousands):
Year Ending December 31,
2019 ..................................................................................................................................................................... $
2020 .....................................................................................................................................................................
2021 .....................................................................................................................................................................
2022 .....................................................................................................................................................................
2023 .....................................................................................................................................................................
2024 – 2028..........................................................................................................................................................
Total ............................................................................................................................................................. $
Estimated Benefit
Payments
288
288
287
287
286
1,459
2,895
The actuarial loss expected to be recognized during 2019 as a component of net periodic cost for the DB SERP is immaterial.
F-26
401(k) Plans. The Company sponsors a 401(k) savings plan (the “401(k) Plan”), which allows eligible employees to
contribute a portion of their compensation to the 401(k) Plan, and in some cases, a matching contribution to the 401(k) Plan
is made by the Company. The Company recorded matching contributions to the 401(k) Plan of $3.6 million, $3.1 million and
$2.8 million for 2018, 2017 and 2016, respectively.
Deferred Compensation. The Company has and may continue to enter into arrangements under the Cable One, Inc. Deferred
Compensation Plan with certain current and former executives and officers of the Company who desire to defer all or a
portion of their annual cash-based incentives. Upon execution of the agreements, the Company transfers the deferred incentive
to a long-term liability. Realized and unrealized market-based gains and losses are applied to the respective outstanding
balances at each reporting period such that market-based period gains represent additional compensation expense to the
Company and market-based losses represent a reduction of compensation expense.
The Company’s deferred compensation expense was $0.4 million, $2.8 million and $0.3 million for 2018, 2017 and 2016,
respectively, and was included within selling, general and administrative expenses in the consolidated statements of
operations and comprehensive income. The deferred compensation liability as of December 31, 2018 and 2017 was $3.0
million and $20.2 million, 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 consolidated balance sheets. The
Company distributed $17.1 million of deferred compensation payments in 2018.
15.
NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing net income by the weighted average number of common shares
outstanding during the period. Diluted net income per common share further includes any common shares available to be
issued upon vesting or exercise of outstanding equity awards if such inclusion would be dilutive, calculated using the treasury
stock method.
The following table sets forth the computation of basic and diluted net income per common share (in thousands, except share
and per share amounts):
Numerator:
Net income ......................................................................................... $
Denominator:
Weighted average common shares outstanding - basic ..................................
Effect of dilutive equity-based awards (1) ...........................................
Weighted average common shares outstanding - diluted ...................
Year Ended December 31,
2017
2018
2016
164,760 $
235,171 $
100,317
5,684,375
41,588
5,725,963
5,680,073
66,964
5,747,037
5,743,568
27,392
5,770,960
Net income per common share:
Basic ............................................................................................... $
Diluted ............................................................................................ $
28.98 $
28.77 $
41.40 $
40.92 $
17.47
17.38
(1)
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 1,811, 2,600 and 438 for 2018, 2017 and 2016,
respectively.
16.
COMMITMENTS AND CONTINGENCIES
Contractual Obligations. The Company has obligations to make future payments for goods and services under certain
contractual arrangements. These contractual obligations secure the future rights to various assets and services to be used in
the normal course of the Company’s operations. For example, the Company is contractually committed to make certain
minimum lease payments for the use of property under operating lease agreements. In accordance with applicable accounting
rules, the future rights and obligations pertaining to firm commitments, such as operating lease obligations and certain
purchase obligations under contracts, are not reflected as assets or liabilities in the consolidated balance sheets.
The Company’s rent expense, which primarily includes facility and pole rental expense, was $13.1 million, $11.1 million and
$8.1 million for 2018, 2017 and 2016, respectively. The Company has lease obligations under various operating leases,
including minimum lease obligations for real estate.
F-27
The following table summarizes the Company’s outstanding contractual obligations as of December 31, 2018 (including
amounts associated with data processing services, high-speed data connectivity and fiber-related obligations) and the
estimated timing and effect that such obligations are expected to have on the Company’s liquidity and cash flows in future
periods (in thousands):
Year Ending December 31,
2019 .................................................... $
2020 ....................................................
2021 ....................................................
2022 ....................................................
2023 ....................................................
Thereafter ............................................
Total ............................................ $
Programming
Purchase
Commitments (1)
Operating
Lease
Payments
Debt
Other
Purchase
Payments (2)
Obligations (3)
Total
201,894 $
160,489
88,872
8,910
6,162
3,726
470,053 $
1,767 $
1,219
911
398
204
299
4,798 $
20,625 $
26,892
30,017
630,017
5,017
467,683
1,180,251 $
24,385 $
17,095
9,560
2,760
1,581
3,648
59,029 $
248,671
205,695
129,360
642,085
12,964
475,356
1,714,131
(1)
Programming purchase commitments represent contracts that the Company has with cable television networks and broadcast stations to provide
programming services to subscribers. The amounts reported represent estimates of the future programming costs for these purchase commitments
based on tier placement as of December 31, 2018 and the estimated subscriber numbers applied to the per-subscriber rates contained in these contracts.
Actual amounts due under such contracts may differ from the amounts above based on the actual subscriber numbers and tier placements at the time.
In addition, programming purchases sometimes occur pursuant to non-binding commitments, which are not reflected in the amounts shown.
(2) Debt payments include principal repayment obligations as defined by the agreements described in note 9 and capital lease payment obligations.
(3) Other purchase obligations include purchase obligations related to capital projects and other legally binding commitments. Other purchase orders made
in the ordinary course of business are excluded from the amounts shown. Any amounts for which the Company is liable under purchase orders are
included within accounts payable and accrued liabilities in the consolidated balance sheet.
The Company incurs the following costs as part of its operations, however, they are not included within the contractual
obligations table above for the reasons discussed below:
● The Company rents space on utility poles in order to provide services to subscribers. Generally, pole rentals are
cancellable on short notice. However, the Company anticipates that such rentals will recur. Rent expense for pole
attachments was $8.9 million, $7.8 million and $5.7 million for 2018, 2017 and 2016, respectively.
● The Company pays fees to franchise authorities under multi-year franchise agreements based on a percentage of
revenues generated from video service each year. Franchise fees and other franchise-related costs are included in both
revenues and operating expenses within the consolidated statements of operations and comprehensive income. Such
amounts totaled $16.1 million, $15.7 million and $14.2 million for 2018, 2017 and 2016, respectively.
● The Company has franchise agreements requiring plant construction and the provision of services to customers within
the franchise areas. In connection with these obligations under existing franchise agreements, the Company obtains
surety bonds or letters of credit guaranteeing performance to municipalities and public utilities and payment of
insurance premiums. Such surety bonds and letters of credit totaled $13.3 million and $12.0 million as of December
31, 2018 and 2017, respectively. Payments under these arrangements are required only in the remote event of
nonperformance. The Company does not expect that these contingent commitments will result in any amounts being
paid.
Litigation and Legal Matters. The Company is subject to complaints and administrative proceedings and has been a
defendant in various civil lawsuits that have arisen in the ordinary course of its business. Such matters include contract
disputes; actions alleging negligence; invasion of privacy; trademark, copyright and patent infringement; violations of
applicable wage and hour laws; statutory or common law claims involving current and former employees; and other matters.
Although the outcomes of any legal claims and proceedings against the Company cannot be predicted with certainty, based
on currently available information, the Company believes that there are no existing claims or proceedings that are likely to
have a material adverse effect on its business, financial condition, results of operations or cash flows.
Regulation in the Company’s Industry. The operation of a cable system is extensively regulated by the Federal
Communications Commission (the “FCC”), some state governments and most local governments. The FCC has the authority
to enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the
imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission
facilities used in connection with cable operations. The Telecommunications Act of 1996 altered the regulatory structure
governing the nation’s communications providers. It removed barriers to competition in both the cable television market and
the voice services market. Among other things, it reduced the scope of cable rate regulation and encouraged additional
F-28
competition in the video programming industry by allowing telephone companies to provide video programming in their own
telephone service areas. Future legislative and regulatory changes could adversely affect the Company’s operations.
GHC Agreements. On June 16, 2015, Cable One entered into several agreements with GHC that set forth the principal
actions taken in connection with the spin-off and that govern the relationship of the parties following the spin-off, including
a Separation and Distribution Agreement, a Tax Matters Agreement and an Employee Matters Agreement. The aggregate
costs and reimbursements paid to GHC totaled $0.4 million, $0.4 million and $5.5 million in 2018, 2017 and 2016,
respectively.
17.
SUBSEQUENT EVENTS
On November 9, 2018, the Company entered into an agreement to acquire Clearwave, a facilities-based service provider that
owns and operates a high-capacity fiber network offering dense regional coverage in Southern Illinois. 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 transaction closed on January 8, 2019 and was funded with cash on hand and the
additional term loan borrowings described below. The Company paid a purchase price of $357.0 million in cash on a debt-
free basis, subject to customary post-closing adjustments.
On January 7, 2019, the Company entered into Amendment No. 2 to the Amended and Restated Credit Agreement with
CoBank, ACB, as lender, and JPMorgan, as administrative agent, to provide for a new seven-year incremental term “B” loan
in an aggregate principal amount of $250 million (the “Term B-2 Loan”).
The Term B-2 Loan is an obligation of the Company and is guaranteed by the wholly owned subsidiaries that guarantee the
other obligations under the Amended and Restated Credit Agreement. The Term B-2 Loan is secured, subject to certain
exceptions, by substantially all of the assets of the Company and the Guarantors.
The interest margin applicable to the Term B-2 Loan is, at the Company’s option, equal to either LIBOR or a base rate, plus
an applicable margin equal to 2.0% for LIBOR loans and 1.0% for base rate loans. The Term B-2 Loan may be prepaid at
any time without penalty or premium (subject to customary LIBOR breakage provisions) and is not subject to the financial
maintenance covenants under the Amended and Restated Credit Agreement. The Term B-2 Loan 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 outstanding balance due upon maturity. The final maturity of the Term
B-2 Loan may be accelerated following an event of default under the Amended and Restated Credit Agreement. Other than
with respect to maturity, amortization, prepayment premiums and pricing, the Term B-2 Loan contains terms that are
substantially similar to the existing Term Loan B.
The Company is currently in the process of finalizing the accounting for the acquisition of Clearwave and expects to complete
the preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed by the end of the first
quarter 2019.
18.
SUMMARY OF QUARTERLY OPERATING RESULTS (UNAUDITED)
Year Ended December 31, 2018
(Unaudited)
Second
(in thousands, except per share and share data)
Quarter
Revenues ...................................................................................... $ 265,761 $ 268,414 $
Total costs and expenses .............................................................. $ 201,100 $ 197,746 $
70,668 $
Income from operations ................................................................ $
43,785 $
Net income ................................................................................... $
64,661 $
40,653 $
Quarter
First
Third
Quarter
268,268 $
204,949 $
63,319 $
38,314 $
Fourth
Quarter
269,852
200,588
69,264
42,008
Net income per common share:
Basic ......................................................................................... $
Diluted ...................................................................................... $
7.13 $
7.08 $
7.70 $
7.65 $
6.75 $
6.70 $
7.40
7.34
Weighted average common shares outstanding:
Basic ......................................................................................... 5,702,539 5,687,095 5,674,224 5,674,067
Diluted ...................................................................................... 5,742,648 5,722,869 5,717,575 5,723,528
F-29
Year Ended December 31, 2017
(Unaudited)
Second
Quarter (2)
(in thousands, except per share and share data)
Revenues ...................................................................................... $ 207,434 $ 240,991 $
Total costs and expenses .............................................................. $ 148,858 $ 183,497 $
57,494 $
Income from operations ................................................................ $
27,860 $
Net income ................................................................................... $
First
Quarter (1)
58,576 $
32,113 $
Third
Quarter
253,833 $
192,918 $
60,915 $
30,905 $
Fourth
Quarter
257,698
198,344
59,354
144,293
Net income per common share:
Basic ......................................................................................... $
Diluted ...................................................................................... $
5.66 $
5.60 $
4.91 $
4.85 $
5.44 $
5.37 $
25.38
25.09
Weighted average common shares outstanding:
Basic ......................................................................................... 5,671,838 5,678,394 5,680,600 5,684,785
Diluted ...................................................................................... 5,730,901 5,745,617 5,753,910 5,750,420
(1) Does not include NewWave operations.
(2)
Includes two months of NewWave operations.
F-30
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Use of Non-GAAP Financial Measures
Cable One, Inc. (the “Company”) uses certain measures that are not defined by generally accepted accounting principles in the United
States (“GAAP”) to evaluate various aspects of its business. Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial
measures and should be considered in addition to, not as superior to, or as a substitute for, net income or net profit margin reported in
accordance with GAAP. Adjusted EBITDA is reconciled to net income and Adjusted EBITDA margin is reconciled to net profit margin
below.
“Adjusted EBITDA” is defined as net income plus interest expense, income tax provision (benefit), depreciation and amortization,
equity-based compensation, severance expense, (gain) loss on deferred compensation, acquisition-related costs, (gain) loss on asset
disposals, system conversion costs, rebranding costs, other (income) expense and other unusual operating expenses, as provided in the
table below. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive
nature of the Company’s business as well as other non-cash or special items and is unaffected by the Company’s capital structure or
investment activities. This measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible
assets used in generating revenues and the Company’s cash cost of debt financing. These costs are evaluated through other financial
measures.
“Adjusted EBITDA margin” is defined as Adjusted EBITDA divided by total revenues.
The Company uses Adjusted EBITDA and Adjusted EBITDA margin to assess its performance. In addition, Adjusted EBITDA
generally correlates to the measure used in the leverage ratio calculations under the Company’s credit facilities and senior unsecured
notes to determine compliance with the covenants contained in the credit facilities and ability to take certain actions under the indenture
governing the notes. Adjusted EBITDA is also a significant performance measure used by the Company in its annual incentive
compensation program. Adjusted EBITDA does not take into account cash used for mandatory debt service requirements or other non-
discretionary expenditures, and thus does not represent residual funds available for discretionary uses.
The Company believes Adjusted EBITDA and Adjusted EBITDA margin are useful to investors in evaluating the operating performance
of the Company. Adjusted EBITDA, Adjusted EBITDA margin and similar measures with similar titles are common measures used by
investors, analysts and peers to compare performance in the Company’s industry, although the Company’s measures of Adjusted
EBITDA and Adjusted EBITDA margin may not be directly comparable to similarly titled measures reported by other companies.
(dollars in thousands)
Revenues ........................................................................... $
2018
2017 (1)
% Change
1,072,295
$
959,956
11.7%
Year Ended December 31,
Net income ........................................................................ $
Net profit margin ...............................................................
Interest expense ..................................................
Plus:
Income tax provision (benefit) ............................
Depreciation and amortization ............................
Equity-based compensation ................................
Severance expense ..............................................
Loss on deferred compensation ..........................
Acquisition-related costs.....................................
Loss on asset disposals, net .................................
System conversion costs (2) .................................
Rebranding costs .................................................
Other income, net ................................................
164,760
15.4%
60,415
47,224
197,731
10,486
2,347
425
1,773
14,167
5,037
968
(4,487)
500,846
46.7%
$
235,171
24.5%
46,864
(45,028)
181,619
10,743
5,652
2,753
5,942
574
-
-
(668)
443,622
46.2%
(29.9)%
28.9%
NM
8.9%
(2.4)%
(58.5)%
(84.6)%
(70.2)%
NM
NM
NM
NM
12.9%
Adjusted EBITDA ............................................................. $
Adjusted EBITDA margin .................................................
________
NM = Not meaningful.
(1) Results for 2017 include only eight months of NewWave Communications (“NewWave”) operations, as NewWave was not acquired until May
$
1, 2017.
(2) Comprised of $4.6 million of billing system conversion costs related to NewWave and $0.4 million of enterprise resource planning system
implementation costs.
A-1
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BOARD OF DIRECTORS
Julia M. Laulis
Chair of the Board,
President &
Chief Executive Officer
Thomas S. Gayner
Lead Independent Director;
Chair, Executive Committee and
Nominating & Governance Committee
Thomas O. Might
Director
Wallace R. Weitz
Chair, Compensation
Committee
Brad D. Brian
Director
Deborah J. Kissire
Chair, Audit Committee
Alan G. Spoon
Director
Katharine B. Weymouth
Director
EXECUTIVE TEAM
ANNUAL MEETING
Julia M. Laulis
Chair of the Board, President & Chief Executive Officer
The annual meeting of stockholders will be held on
Michael E. Bowker
Chief Operating Officer
Steven S. Cochran
Senior Vice President, Chief Financial Officer
Stephen A. Fox
Senior Vice President, Network Architecture
Kenneth E. Johnson
Senior Vice President, Technology Services
Eric M. Lardy
Senior Vice President
Charles B. McDonald
Senior Vice President, Operations
Peter N. Witty
Senior Vice President, General Counsel & Secretary
Christopher D. Boone
Vice President, Business Services
Michelle D. Cameron
Vice President, West Division
Tina M. Evangelista
Vice President, Human Resources
Gary A. McDonald
Vice President, Northeast Division
Amish M. Patel
Vice President, Customer Operations
Kishore K. Reddy
Vice President, Product Support Development
William R. Robertson
Vice President, South Central Division
Julie A. Seff
Vice President, Residential Services
Raymond L. Storck, Jr.
Vice President, Finance & Treasurer
Cary T. Westmark
Vice President, Information Technology
MAY 17, 2019 - 8 a.m. MST
Cable ONE Corporate Office
210 East Earll Drive
Phoenix, Arizona 85012
STOCK EXCHANGE
Cable ONE common stock is traded on the New York
Stock Exchange under the symbol
CABO
STOCK TRANSFER AGENT
AND REGISTRAR
GENERAL SHAREHOLDER CORRESPONDENCE
Computershare
PO Box 505000
Louisville, KY 40233-5000
TRANSFERS BY OVERNIGHT COURIER
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
SHAREHOLDER INQUIRIES
Communication concerning transfer requirements, lost
certificates, dividends and changes of address should be
directed to Computershare Investor Services
Telephone: (800) 446-2617 | (781) 575-2723
TDD: (800) 952-9245
Questions also may be sent via the website:
us.computershare.com/investor/contact
210 E. Earll Drive | Phoenix, Arizona 85012 | (602) 364-6000 | cableone.net