2021
Annual
Report
Dear Valued Cable One Shareholders,
Cable One’s Purpose of connecting customers
and communities to what matters most proved
to be more critical than ever last year, as the
unpredictable ebbs and flows of the pandemic
continued. That disruption served as a catalyst for change, however, shifting
the way we live, work, learn and experience entertainment. But despite what
the year threw at us, our Cable One team worked with determination to deliver
on that Purpose and support the ongoing digital transformation occurring
across our footprint.
We began the year by reflecting on learnings from 2020 and focusing
our energy on truly living our Values – do right by those we serve, drive
progress, and lend a hand – which flow from our deep roots with the Graham
family. These values come to life even more vividly in times of great change.
We endeavored to “do right by those we serve” by doubling down on initiatives
that best supported our associates, our customers and our communities as
the pandemic and its ripple effects continued. We “drove progress” through
an exhaustive review of our strategic initiatives to ensure our resources – both
people and capital – are spent on the things that drive value. This resulted in
retaining some familiar pillars – a belief in sustainable growth from Residential
High Speed Data and Business Services; our ongoing focus on continuous
improvement; and a commitment to associate satisfaction – as well as the
creation of some new pillars which capitalize on emerging trends and leverage
our deep knowledge of our customers and their needs. I’ll touch on “lending a
hand” later, as that Value is driven by the passion of our associates, who have
no equals when it comes to giving back to the communities we serve.
Our Business Model
You’ve heard this from me before, but it bears repeating – we are a different
kind of operator. Our early pivot in 2013 to focus on high margin, high
growth Residential High Speed Data and Business Services has generated a
consistent record of strong financial results. This was once again proven out in
2021, which capped off one of our strongest growth years on record – on both
an organic and inorganic basis.
We choose to operate in small cities and large towns across rural America and
have a proven track record of doing so successfully. As a result, we are well-
positioned as the natural aggregator of rural broadband companies and have
demonstrated this with the 13 transactions we have successfully acquired or
partnered on to date.
In 2021, we completed our acquisitions of Hargray and CableAmerica,
invested in TriStar and Point Broadband, and further invested in Nextlink.
This represents an aggregate investment of approximately $2.2 billion and
illustrates the force multiplier effect of our capital allocation approach,
enabling opportunities for multiple types of value-enhancing investments
Our Ambition
To be the most trusted
broadband provider for
America’s small cities
and large towns.
that provide broadband connectivity to rural
communities.
This investment strategy reflects our deep
commitment to addressing digital equity
across our footprint. Through capital
investments totaling nearly $950 million
since 2019, we have built a robust and reliable
network with the capacity and reliability to
support the digital future of the more than one million customers we currently
serve, as well as extend broadband service to areas previously unserved and
underserved.
Looking to the future, we are laying the groundwork for 10 gigabit (10G)
speeds and investing in a new era of innovation that will not only further enrich
the lives of our customers but contribute to the economic development of
the communities we serve.
Building Scale
The differences in who we are, how we operate and how we create value
necessitate a tight fit across our strategy, culture, competencies and ensuing
activities. A primary focus in 2021 was building scale across every level of our
organization to further support that tight fit and deliver on our Ambition. I
want to thank our team for their relentless commitment throughout this past
year. Despite pandemic and supply chain challenges, our associates worked
to drive our business forward and came together to execute on a number of
critical projects, which included completing the acquisitions of Hargray and
Letter from the President & CEO
CableAmerica; launching our Oracle Enterprise Resource Planning system;
deploying DOCSIS 3.1; debuting customer self-help tools like SMS messaging
and Chatbot; continuing our ongoing integration work, and of course – record
Residential High Speed Data growth and double-digit Business Services
growth.
These initiatives and many more align with our overarching strategy, sharpen
our competitive mindset and provide opportunities to further invest in the
growth and development of our bench of future leaders.
Our Culture
Fueled by our Value – “lend a hand” – Cable
One associates once again rose to the
occasion in 2021, showing an unparalleled
depth of caring and commitment to the
communities we serve. Whether it was
through our “Angel Day” program, which
provides every associate with one paid
day off per year to volunteer at a nonprofit
of their choice, or during their own free
time, associates spent thousands of hours
sharing their time and talents with food
banks, animal shelters, senior centers,
health organizations, homeless centers and
hospitals, to name a few.
Title 1 Schools
2,000 Chromebooks
donated since 2014
Food Banks
32 tons of food
donated since 2019
Arbor Day Foundation
110,000 trees
planted since 2014
Partnerships
National Diversity Council
Emma Bowen Foundation
Special Olympics
Keep America Beautiful
We were also proud to launch the Cable
One Charitable Giving Fund in 2021, which
provides $250,000 in grants annually
to local nonprofit organizations in our
markets, concentrating support in the
areas of education, digital literacy, hunger
relief and community development.
Through donations of both time and money, Cable One and our family
of brands (Sparklight, Fidelity, Valu-Net, Hargray and CableAmerica) are
committed to advancing education, strengthening communities and
improving lives in the more than 1,000 cities and towns we serve across 24
states.
As we remain laser-focused on creating a workplace in which our associates
feel valued and included, we are honored that our team recognized that
commitment through our ranking on the Forbes list of America’s Best
Midsize Employers for the second year in a row, as well as in the results of our
annual associate satisfaction survey. Our associates gave highest marks for
pride in working for Cable One and taking associate safety seriously. Survey
responses illustrate that our associates believe in our Purpose and are
committed to our organization and to serving the communities in which we
live and work.
Time and again, our talented team came together to deliver and do what
we do best – remain agile and execute at the highest level. Despite facing
many uncertainties, they remained unwavering in their commitment to
keeping our customers connected to what matters most. Our associates are
unquestionably the heart of our company and the reason behind our strong
performance and long-term success.
Looking Ahead
As we enter 2022, I’m filled with optimism and confidence. We have a proven
strategy and operating playbook, exceptional momentum and a remarkable
team. Connecting our customers to what matters most and extending
broadband service to previously unserved and underserved areas in the more
rural parts of America remains at the heart of all that we do. Looking ahead, we
will continue to listen to our associates and customers and refine our products
and processes so that we make the lives of those we serve easier.
Thank you to our shareholders, partners and communities for your ongoing
trust and support as we embrace the many opportunities that lie ahead.
Best,
Julia M. Laulis
Chair of the Board,
President & Chief Executive Officer
Please refer to the back inside cover of this 2021 Annual Report for important disclaimers.
Cable One | A Different Kind of Operator
OUR 2021 RESULTS
OUR GROWING FOOTPRINT
$1.6bn
Total Revenue
21.2%
Year-over-Year
Revenue Growth
WA
OR
ID
$839mm
Adj. EBITDA1
24.5%
Year-over-Year Adj.
EBITDA Growth1
1.1mm
Residential & Business
High Speed Data PSUs
23.0%
Year-over-Year Residential
& Business High Speed
Data PSU Growth
AZ
NM
Sparklight
Fidelity
Valu-Net
Hargray
CableAmerica
ND
SD
NE
KS
MN
IA
MO
IL
IN
OK
AR
TN
GA
SC
MS
AL
TX
LA
FL
Our owner-operator heritage drives our
overall business philosophy and operating
approach
We are regionally diversified and focus on
small cities and large towns throughout
rural America
Our early pivot to focus on high margin,
high growth Residential HSD and
Business Services has generated a
consistent record of financial results
We have an inclusive culture where “Happy
Associates Make Happy Customers”
and encourage behaviors that lead to high
satisfaction and strong profitability
We are capital-efficient and invest to
ensure network capacity is never a barrier
to growth
Our capital allocation approach is a force
multiplier that enables opportunities
for multiple types of value-enhancing
investments that provide broadband
connectivity to rural communities
1Adjusted EBITDA
is defined and
reconciled to the most directly comparable GAAP financial measure on page 44
of the attached 2021 Annual Report on Form 10-K.
is a non-GAPP financial measure which
OUR RECENT TRANSACTIONS
Acquisitions
Strategic
Investments
2017
2019
2020
2021
2022
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, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-36863
Cable One, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
210 E. Earll Drive, Phoenix, Arizona
(Address of Principal Executive Offices)
13-3060083
(I.R.S. Employer Identification No.)
85012
(Zip Code)
Title of Each Class
Common Stock, par value $0.01
Name of Each Exchange on Which Registered
New York Stock Exchange
(602) 364-6000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
CABO
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
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, 2021 was approximately $7.7 billion,
based on the closing price for the registrant’s common stock on June 30, 2021. For purposes of this computation only, all executive officers,
directors and 10% beneficial owners of the registrant as of June 30, 2021 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 6,059,689 shares of the registrant’s common stock outstanding as of February 18, 2022.
Documents Incorporated by Reference
Portions of the registrant’s Definitive Proxy Statement relating to its 2022 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,
2021, are incorporated by reference in Part III of this Form 10-K.
This page intentionally left blank
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.
Item 9C.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .................
[Reserved] ................................................................................................................................................................................
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 .....................................................................................................................................................................
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.......................................................................................
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 Accountant Fees and Services ...................................................................................................................................
PART IV
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35
37
37
52
53
53
53
53
53
54
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54
54
54
Item 15.
Item 16.
Exhibits and Financial Statement Schedules .............................................................................................................................
Form 10-K Summary ................................................................................................................................................................
54
58
Signatures
.................................................................................................................................................................................................
S-1
Index to Consolidated Financial Statements ....................................................................................................................................................
F-1
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, strategy, acquisitions and strategic investments, dividend policy, financial results and financial condition as well as anticipated
impacts from, and our responses to, the COVID-19 pandemic. 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:
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the duration and severity of the COVID-19 pandemic and its effects on our business, financial condition, results of operations and cash
flows;
rising levels of competition from historical and new entrants in our markets;
recent and future changes in technology;
our ability to continue to grow our business services products;
increases in programming costs and retransmission fees;
our ability to obtain hardware, software and operational support from vendors;
risks that we may fail to realize the benefits anticipated as a result of our purchase of the remaining interests in Hargray Acquisition
Holdings, LLC (“Hargray”) that we did not already own (the “Hargray Acquisition”);
risks relating to existing or future acquisitions and strategic investments by us;
risks that the implementation of our new enterprise resource planning (“ERP”) system disrupts business operations;
the integrity and security of our network and information systems;
the impact of possible security breaches and other disruptions, including cyber-attacks;
our failure to obtain necessary intellectual and proprietary rights to operate our business and the risk of intellectual property claims and
litigation against us;
legislative or regulatory efforts to impose network neutrality (“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 restrictions the terms of our indebtedness place on our business and corporate actions;
the possibility that interest rates will rise, causing our obligations to service our variable rate indebtedness to increase significantly;
the transition away from the London Interbank Offered Rate ("LIBOR") and the adoption of alternative reference rates;
risks associated with our convertible indebtedness;
our ability to continue to pay dividends;
provisions in our charter, by-laws and Delaware law that could discourage takeovers and limit the judicial forum for certain disputes;
adverse economic conditions, labor shortages, supply chain disruptions and changes in rates of inflation;
lower demand for our residential data and business services;
fluctuations in our stock price;
dilution from equity awards, convertible indebtedness and potential future convertible debt and stock issuances;
damage to our reputation or brand image;
our ability to retain key employees (whom we refer to as associates);
our ability to incur future indebtedness;
provisions in our charter that could limit the liabilities for directors; and
the other risks and uncertainties detailed 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 to residential
and business customers in 24 Western, Midwestern and Southern states as of December 31, 2021. The markets we serve are primarily non-
metropolitan, secondary and tertiary markets, with approximately 74% of our customers located in seven states as of December 31, 2021: Arizona,
Idaho, Mississippi, Missouri, Oklahoma, South Carolina and Texas. Our biggest customer concentrations are in the Mississippi Gulf Coast region
and in the greater Boise, Idaho region. We provided service to approximately 1.2 million residential and business customers out of
approximately 2.7 million homes passed as of December 31, 2021. Of these customers, approximately 1,055,000 subscribed to data services,
261,000 subscribed to video services and 149,000 subscribed to voice services as of December 31, 2021.
We generate substantially all of our revenues through three primary product lines. Ranked by share of our total revenues during 2021, they are
residential data (52.0%), residential video (21.2%) and business services (data, voice and video: 19.2%). The profit margins, growth rates and/or
capital intensity of these three primary product lines vary significantly due to competition, product maturity and relative costs.
In 2021, our adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) margins for residential data and business
services were approximately nine and eleven 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 64% and 66% of total
residential video revenues. Neither of our other primary 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 generally allocated on a per primary service unit
(“PSU”) basis.
We focus on growing our higher margin businesses, namely residential data and business services. Beginning in 2013, we began our shift away
from our prior concentration on growing revenues through subscriber retention and maximizing customer PSUs. We adapted our strategy to face
the industry-wide trends of declining profitability of residential video services and declining revenues from residential voice services. The declining
profitability of residential video services is due primarily to increasing programming costs and retransmission fees and competition from other
content providers, and the declining revenues from residential voice services are due primarily to the increasing use of wireless voice services
instead of residential voice services. Separately, we have also focused on retaining customers who are likely to produce higher relative value over
the life of their service relationships with us, are less attracted by discounting, require less support and churn less. This strategy focuses on increasing
Adjusted EBITDA and Adjusted EBITDA less capital expenditures and producing higher margins.
Excluding the effects of our recently completed and any potential future acquisitions and divestitures, the trends described above and the COVID-
19 pandemic have impacted, and are expected to further impact, our three primary product lines in the following ways:
●
Residential data. We have experienced growth in residential data customers and revenues every year since 2013, and that growth
accelerated in 2020 and 2021, in part as a result of the COVID-19 pandemic and our associated responses discussed within the section
entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — COVID-19 Update.” We expect
growth for this product line to continue over the long-term as we believe upgrades in our broadband capacity, our ability to offer higher
access speeds than many of our competitors, the reliability and flexibility of our data service offerings and our Wi-Fi support service
will enable us to continue to grow average monthly revenue per unit ("ARPU") from our existing customers and capture additional
market share from both data subscribers who use other providers as well as households in our footprint that do not yet subscribe to data
services from any provider.
3
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Residential video. Residential video service is an increasingly costly and fragmenting business, with programming costs and
retransmission fees continuing to escalate in the face of a proliferation of streaming content alternatives. We intend to continue our
strategy of focusing on the higher-margin businesses of residential data and business services while de-emphasizing our residential video
business. As a result of our video strategy, we expect that residential video customers and revenues will decline further in the future. In
2021, we began the launch of Sparklight® TV, an internet protocol-based (“IPTV”) video service that allows customers with our
Sparklight TV app to stream our video channels from the cloud. Currently, over 90% of our homes passed have access to Sparklight TV,
and we expect to complete this offering in all non-Hargray markets by early 2022. This transition from linear to IPTV video service will
enable us to reclaim spectrum, freeing up network capacity to increase data speeds and capacity across our network.
Business services. We have experienced significant growth in business data customers and revenues, and we expect this growth to
continue over the long-term. We attribute this growth to our strategic focus on increasing sales to business customers and our efforts to
attract enterprise business customers. Margins for products sold to business customers have remained attractive, which we expect will
continue.
We continue to experience increased competition, particularly from telephone companies, fiber 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. In addition, a key objective of our capital allocation process is to invest in initiatives designed to drive
revenue and Adjusted EBITDA expansion. More than 60% of our total capital expenditures since 2017 were focused on infrastructure improvements
intended to grow these measures. We continue to invest capital to, among other things, increase fiber density and coverage, expand our footprint,
increase plant and data capacity, enhance network reliability and improve the customer experience. As of December 31, 2021, we offered Gigabit
data service to approximately 99% of our homes passed and have deployed DOCSIS 3.1, which, together with Sparklight TV, further increases our
network capacity and enables future growth in our residential data and business services product lines.
We expect to continue to devote financial resources to infrastructure improvements in existing and newly acquired markets as well as to expand
high-speed data service in areas where our consortium was designated the winning bidder for the Federal Communications Commission’s (“FCC”)
Rural Digital Opportunity Fund (“RDOF”) Phase I auction. We believe these investments are necessary to continually meet our customers’ needs
and to remain competitive. The capital enhancements associated with recent acquisitions include rebuilding low-capacity markets; reclaiming
bandwidth from analog video services; implementing 32-channel bonding; deploying DOCSIS 4.0; consolidating 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 inclusive of operations acquired in the RBI
Holding LLC (“NewWave”) transaction and excluding the impact or operations acquired in the Delta Communications, L.L.C. (“Clearwave”),
Fidelity Communications Co. (“Fidelity”), Valu-Net LLC (“Valu-Net”), Hargray and Cable America Missouri, LLC ("CableAmerica")
transactions, each of which is described below.
Our primary goals are to continue growing residential data and business services revenues, 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 disciplined cost management approach,
remain focused on customers with expected higher relative value and follow through with further planned investments in broadband plant upgrades,
including the deployment of DOCSIS 4.0 capabilities and new data service offerings for residential and business customers. At the same time, we
intend to continue balancing the impact of the COVID-19 pandemic on our business, associates, customers and other stakeholders. We also plan to
continue seeking broadband-related acquisition and strategic investment opportunities in rural markets in addition to pursuing organic growth
through market expansion projects.
Our business is subject to extensive governmental regulation, which substantially impacts 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. Congress and numerous states, including Minnesota and Missouri (where we have subscribers), have proposed legislation and/or
administrative actions that would lead to increased regulation of our provision of data services, including proposed rules regarding net neutrality.
Several states, including Oregon and Washington (where we also 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 any future changes to the regulatory framework will occur at the Federal or state level or
whether or to what extent those changes may affect our operations or impose additional costs on our business.
We serve our customers through a plant and network with capacity generally measuring 750 megahertz or higher and have DOCSIS 3.1 capabilities
in our systems. Our technically advanced infrastructure provides for delivery of a full suite of data, video and voice products. Our broadband plant
generally consists of a fiber-to-the-premises or hybrid fiber-coaxial (“HFC”) network with ample unused capacity, and nearly all of our customers
experience download speeds of 100 Megabits per second (“Mbps”) or higher, which meaningfully distinguishes our offerings from competitors in
most of our markets. As a result of multi-year investments in our legacy Cable One plant, we increased broadband capacity and reliability, which
has enabled and will continue to enable us to offer even higher download speeds to our customers. In addition, we expect to begin DOCSIS 4.0
upgrades in late 2022 which will enable symmetrical Gigabit speeds. These upgrades will allow us to further increase plant capacity in support of
ongoing increases in consumer demand. We believe these investments will reinforce our competitive strength in this area.
4
COVID-19 Update
Refer to the sections entitled “Risks Factors” for risks we face due to the COVID-19 pandemic and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — COVID-19 Update” for information on the impact of COVID-19 on the Company.
Corporate History
In 1986, The Washington Post Company (the prior name of our former corporate parent, Graham Holdings Company (“GHC”)) acquired 53 cable
television systems with approximately 350,000 subscribers in 15 Western, Midwestern and Southern states. We completed over 30 acquisitions
and dispositions of cable systems through 2015, 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.
Our recent business acquisitions include:
● 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, for a purchase price of $740.2 million.
● 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, for a purchase price of $358.8 million. On January 1, 2022, a majority of
Clearwave's operations were contributed to the Clearwave Fiber joint venture discussed below.
● On October 1, 2019, we acquired the data, video and voice business and certain related assets of Fidelity, a provider of connectivity
services to residential and business customers throughout Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas, for a purchase
price of $531.4 million.
● On July 1, 2020, we acquired Valu-Net, an all-fiber internet service provider headquartered in Kansas, for a purchase price of $38.9
million.
● On May 3, 2021, we acquired the remaining approximately 85% equity interest that we did not already own in Hargray, a data, video
and voice services provider to residential and business customers throughout Alabama, Florida, Georgia and South Carolina, for a
purchase price of approximately $2.0 billion that implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free
basis. The Hargray Acquisition was financed with cash on hand and net proceeds from indebtedness. The Hargray Acquisition
expands our presence in the Southeastern U.S. and we expect to capitalize on Hargray’s experience and expertise in fiber expansion.
● On December 30, 2021, we acquired certain assets and assumed certain liabilities from CableAmerica, a data, video and voice services
provider in central Missouri, for $113.1 million in cash on a debt-free basis, subject to customary post-closing adjustments. The
CableAmerica acquisition was financed with cash on hand and is expected to provide the Company opportunities for footprint expansion
in Missouri, margin growth and potential cost synergy realization.
In 2020, we completed the rebranding of our legacy Cable One consumer-facing business to Sparklight. The Sparklight brand better conveys who
we are and what we stand for – a company committed to providing our communities with connectivity that enriches their world. As part of the
rebranding, we began streamlining our residential internet service plans and pricing as well as offering even faster speeds, further value and the
ability to include unlimited data on any plan. In addition, we have strengthened and will continue to strengthen our commitment to the communities
we serve through educational programs, corporate giving and donations of time and resources. Acquired operations are generally transitioned to
Sparklight branding within three years of acquisition.
In recent years we made investments in several broadband-centric providers serving non-urban markets that follow various strategies similar to our
own. Our recent strategic investments include:
● On May 4, 2020, we made a minority equity investment for a less than 10% ownership interest in AMG Technology Investment Group,
LLC, a wireless internet service provider (“Nextlink”), for $27.2 million. On November 5, 2021, we invested an additional $50.0 million
in Nextlink, resulting in us owning an approximately 17% equity interest in Nextlink.
● On July 10, 2020, we acquired an approximately 40% minority equity interest in Wisper ISP, LLC, a wireless internet service provider
(“Wisper”), for total consideration of $25.3 million.
● On October 1, 2020, we contributed the assets of our Anniston, Alabama system (the “Anniston System”) to Hargray in exchange for an
approximately 15% equity interest, on a fully diluted basis, in Hargray, a data, video and voice services provider (the “Anniston
Exchange”). The Anniston System had approximately 19,000 residential data subscribers at the time of the transaction. As discussed
above, we acquired the remaining approximately 85% equity interest in Hargray on May 3, 2021.
● On November 12, 2020, we acquired a 45% minority equity interest in Mega Broadband Investments Holdings LLC, a data, video and
voice services provider (“MBI”), for $574.9 million in cash.
● On October 1, 2021, we made a minority equity investment for a less than 10% ownership interest in Point Broadband Holdings, LLC,
a fiber internet service provider ("Point Broadband"), for $25.0 million.
● On October 18, 2021, we completed a minority equity investment for a less than 10% ownership interest in Tristar Acquisition I Corp, a
special-purpose acquisition company ("Tristar"), for $20.8 million.
5
Industry Overview
We are a fully integrated provider of data, video and voice services to residential and business customers across various geographic regions in the
United States. 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 providers 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 equipment furnished to them. These companies
generally market and sell their services in bundles or packages in order to maximize the number of PSUs per household, as they believe it is
desirable to sell multiple products jointly so that the fixed costs per customer can be spread over multiple PSUs. These providers 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.
We have a record of consistent, long-term financial and operational success driven by our differentiated operating philosophy and culture. We
emphasize focus as opposed to scale, which is a departure from the historical, more conventional strategies employed in our industry, but is well
suited to the markets in which we operate and enables us to take advantage of our strengths.
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 and regional diversification. Our customers are located primarily in non-metropolitan, secondary and tertiary markets with
favorable competitive dynamics in comparison to major urban centers. In particular:
● We tend to face less vigorous competition than similar service providers in metropolitan markets at this time.
● Advances in technology often come later to our markets — for example, few competitors in our markets offer fiber-to-the-premises or
"5G" wireless service.
● 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 area would have on our overall
business.
Deep customer understanding. We have operated as a non-metropolitan service provider for over 25 years, and we are attuned to the unique needs
of customers in these areas. In order to understand our customers’ demands and preferences, we routinely conduct customer research through a
variety of methods, including customer satisfaction surveys, geo-demographic segmentation studies and other analytics. Together with the direct
customer contact we engage in through our virtual call centers and local operating offices, 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 data speeds, price points and best-in-class
customer service levels. In addition, a 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.
6
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 generally consists of a fiber-to-the-premises or HFC
network with ample unused capacity. Our starter broadband offering for residential customers is a download speed of 100 Mbps, which is at the
faster end of the range for similar residential offerings in our markets, although a growing majority of our customers now subscribe to even higher
speed offerings. Our fastest broadband offering for our residential customers is currently a download speed of up to 1 Gigabit per second (“Gbps”).
We also offer an advanced Wi-Fi solution to residential customers across substantially all of our footprint that provides customers with enhanced
Wi-Fi signal strength, which extends and improves the Wi-Fi signal throughout the home. This service 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. Since completing significant, multi-year plant and product enhancements in existing Cable One markets in 2017, we have
continued to make ongoing investments in our acquired systems, which has increased our broadband capacity and reliability. We have invested
nearly $950 million over the last three years to bring fast, reliable high-speed data service to our markets. We expect to continue to invest in strategic
capital projects, including around newly acquired operations and market expansions, because we believe the competitive benefits will be significant,
particularly for data services. We also made the following capital investments in 2021:
● 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 upgrade projects, which have enhanced reliability and allowed us to stay ahead of the consumption curve
related to broadband capacity and utilization, and plant extension projects, which have expanded the number of serviceable homes and
businesses.
● We continued to deploy 10 Gbps-capable fiber-to-the-premises technology for both residential and business customers across multiple
markets, placing fiber deeper into the network and closer to the customer.
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 committed focus 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. 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 focus 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 continue to 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.
Associate satisfaction. We have also focused on associate satisfaction. We believe our customers’ satisfaction is tightly linked to our associates’
satisfaction, which has been consistently high throughout the past decade based on routine internal measurements. We currently measure our
associate satisfaction annually along with conducting multiple periodic associate surveys.
Experienced management team. Our senior management team is comprised of executives who have significant experience in our industry. Our
executive officers have an average industry tenure of over 20 years and an average tenure at Cable One (or its predecessors) of approximately 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.
7
Our Strategy
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 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 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.
Prioritize higher growth, higher margin opportunities. 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 has given customers new alternatives to traditional video offerings. In addition, customer demand for
wireless voice services has reduced demand for residential voice services 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 in 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 legacy Cable One residential video customers decreased by
18.2% when comparing 2021 versus 2020 and 25.2% when comparing 2020 versus 2019. While this strategy runs contrary to the historical,
conventional wisdom in our industry, which put 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 maximizing the number of customers who choose triple-play packages combining data, video
and voice services.
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 generally reflected in all aspects of our
business strategy, including pricing, the allocation of sales, marketing and customer service resources, capital spending and supplier negotiations.
During 2021, we continued to further diversify our revenue streams away from video as residential data and business services represented 71.3% of
our total revenues versus 68.2% for 2020 and 64.4% for 2019. We believe we have demonstrated that it is possible to decouple unit growth in our
residential data and residential video businesses, which historically were marketed as a package. We focus on selling data-only packages to new
customers rather than cross-selling video services to these customers, and a majority of our residential customers are data-only.
Our business services revenues increased $74.1 million, or 31.6%, in 2021 compared to 2020. Approximately $60.0 million of this increase is
attributable to eight months of incremental revenues from Hargray operations after the Hargray Acquisition on May 3, 2021. 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, more choice and greater value than other providers in our markets and to expand our business services to attract more small, medium-sized
and enterprise business customers.
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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 and tertiary 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, 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 associates in our non-metropolitan markets;
standardizing our programming offerings across most of our 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 expected higher relative value 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
disciplined cost management approach, rather than committing resources equally to sales of all of our products;
investing in self-service channels to improve customer satisfaction by allowing us to meet changing customer expectations for around-
the-clock service while also avoiding unnecessary wait times; and
implementation of digital transformation initiatives that include automation and customer self-service within our processes, which
enables us to better allocate resources to more value-added activities.
We believe our strategy has produced positive results for our customers, associates and stockholders and we have begun applying this strategy in
our acquired operations. Our strategy has allowed us to continually decrease customer service phone calls and truck rolls. We have been able to
achieve these operational efficiencies at the same time as our customer base has grown rapidly, while simultaneously maintaining customer
satisfaction scores.
Balanced capital allocation. We are committed to a disciplined approach to evaluating acquisitions, internal and external investments, capital
structure optimization and return of capital in order to seek to build long-term stockholder value.
Target higher relative value residential customers. We employ rigorous analytics to gain a deeper understanding of our customers and drive
profitable decision making throughout the organization. We use data analytics to help refine our go-to-market strategy and identify customers likely
to produce higher relative value over the life of their service relationships with us, rather than seeking to maximize the number of new customers
or PSUs per household. Our investments in business intelligence have enabled us to integrate, analyze and visualize increasingly complex data sets,
in near real-time, and in a format that drives strategic and operational decisions. As a result, our organization has more rapidly identified, modeled,
tested, analyzed and implemented initiatives that align with our strategic focus of attracting and retaining higher relative value customers. Business
intelligence also enables us to be more predictive with customer habits and industrywide trends. For example, our decision to focus on data-only
customers was guided by such data analytics. We believe that optimizing our relationships with these customers, as video and voice cord-cutting
accelerates, is both a necessity and an opportunity for our business.
Our Products
Residential Data Services
Residential data services represented 52.0%, 50.5% and 46.9% of our total revenues for 2021, 2020 and 2019, respectively. As part of our rebranding
initiative beginning in 2019, we continued to evolve our pricing and packaging across the majority of our footprint to create more value for
customers. We offer simplified data plans with lower pricing and higher speeds across our premium tiers, with download speeds up to 1 Gbps
available to approximately 99% of our residential customers as of December 31, 2021. We also offer our customers the option to purchase an
unlimited data plan regardless of speed tier. Further, to meet the increasing bandwidth needs of our customers who use a growing number of devices
in the home, we offer most of our customers our advanced Wi-Fi service combining state-of-the-art technology solutions with certified technicians,
who locate and configure hardware based on individual customer needs. This service provides customers with enhanced Wi-Fi signal strength,
which extends and improves the Wi-Fi signal throughout the home.
9
Residential Video Services
Residential video services represented 21.2%, 25.1% and 28.7% of our total revenues for 2021, 2020 and 2019, 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.
Currently, over 90% of our homes passed have access to Sparklight TV, an IPTV video service that allows customers to stream our video channels
from the cloud through a new app on supported devices, such as the Amazon Firestick, Apple TV and Android-based smart televisions. We expect
to complete this offering in all non-Hargray markets by early 2022. Sparklight TV also provides a cloud-based DVR feature and it does not require
the use of a set-top box.
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 19.2%, 17.7% and 17.5% of our total revenues for 2021, 2020 and 2019, 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 1 Gbps, with varying upload speeds, along with managed Wi-Fi. Our small business voice solutions include hosted
voice with unified communications as a service from one line to multi-line options, including the availability of popular calling features like
simultaneous ring, hunt groups and selective call forwarding. 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 using fiber-to-the-premises technology primarily for mid-market customers. This shared fiber
architecture provides for symmetrical data speeds ranging from 50 Mbps to 5 Gbps. We expect to expand this technology 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 and Enterprise Wi-Fi 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 E-Line, E-Lan and E-Access Ethernet
services. We also offer network to network interface connections to other carriers at multiple points of presence across the United States.
Residential Voice Services
Residential voice services represented 3.0%, 3.6% and 3.7% of our total revenues for 2021, 2020 and 2019, respectively. The majority of our
residential voice service offerings transmit digital voice signals over our network and are interconnected Voice over Internet Protocol (“VoIP”)
services. We also offer traditional telecommunications services through some of our subsidiaries.
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Competition
We operate in a highly competitive, subscriber-driven and rapidly changing industry 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.
In approximately 71% of our footprint, we do not have a competitor that offers residential broadband download speeds of 100 Mbps or higher,
which is our starter residential high-speed data offering. Currently, approximately 18% 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. Higher overall competition rates in 2021 were due
primarily to the impact of acquired operations and improved tracking capabilities as opposed to significant overbuilder activity. We also face
increasing competition from wireless telephone companies for our residential voice services, as our customers continue to replace 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. We may also face increasing competition from various providers of wireless internet offerings, including wireless telephone carriers
that are deploying high-speed “5G” wireless networks and public locations or commercial establishments offering Wi-Fi at no cost.
Certain municipalities have also announced plans to construct their own data networks with access speeds that match or exceed ours through the
use of fiber-to-the-node or fiber-to-the-premises 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 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 some 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, among others, Amazon Prime Video, Apple TV+, Disney+, HBO Max, Hulu, Netflix, Paramount+, Peacock,
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.
Despite the negative impact this competition has on our video business, these services also generate additional demand for our residential data
business due to customers’ continuing and growing need for data services.
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.
Human Capital Resources
Associate Metrics
At December 31, 2021, we had 3,628 full-time and part-time associates, compared to 2,716 full-time and part-time associates at December 31,
2020. None of our associates were represented by a union at December 31, 2021 or 2020. Women represented approximately 30% of our total
associate base and approximately 35% of management-level positions at December 31, 2021.
Associate Engagement, Retention and Compensation Programs and Benefits
We believe our associates are among our most important resources and are critical to our continued success. We strive to attract, develop, motivate
and retain associates with an emphasis on performance and productivity. We seek to maintain alignment, foster accountability and encourage long-
term focus throughout all levels of the Company. Our average associate tenure at Cable One (or its predecessors) is nearly 10 years.
Our senior management team is comprised of executives who have significant experience in our industry. They also understand and are deeply
committed to our strategy, which we developed, enhanced and updated on a collaborative basis over many years. Our executive officers have an
average industry tenure of over 20 years and an average tenure at Cable One (or its predecessors) of approximately 10 years, and we believe this
team is deeply knowledgeable about cost and competitive conditions in our markets.
11
Our total rewards compensation philosophy encompasses pay, health benefits, incentives, wellness and career development options. Our pay-for-
performance philosophy permeates our organization. Merit increases are based on individual performance and market conditions, and all associates
are eligible for an annual bonus based on objective corporate performance goals shared by everyone in the Company.
We also focus on associate satisfaction. We believe that customer satisfaction is tightly linked to associate satisfaction, which routine internal
measurements have shown to be consistently high throughout the past decade. We currently measure our associate satisfaction annually along with
conducting multiple periodic associate surveys. Management reviews our associate satisfaction surveys to monitor associate morale and receive
feedback on a variety of issues.
Talent Development and Training
We believe in investing in the development and careers of our associates to allow them to reach their potential in a competitive, constantly changing
and innovative industry. We engage our associates through internal and external programs to develop specialized knowledge and leadership skills.
Associates have access to online development programs for professional skills and certification preparation through our e-learning platform.
Specialized technical training for eligible associates helps them professionally as well as by providing a differentiated customer experience. Our
tuition reimbursement program enables associates to earn certificates in areas such as network programming, data analysis and network
administration and security. Others leverage our educational benefits to earn their associates, bachelor’s and master’s degrees.
To prepare non-executives for current and future leadership roles at our Company, new managers, supervisors and lead-level associates normally
attend a one-week training at our corporate headquarters to focus on self-awareness and management development. Our director-level associates
participate in a week-long leadership training program with a third-party development partner, focused on effectiveness training and coaching. Our
senior director-level associates take part in a specialized leadership program conducted with both in-house and third-party human resources
executives to develop and enhance skills in strategic thinking and team performance, which includes individual coaching and 360-degree feedback
analysis. While held virtually in 2021 due to the COVID-19 pandemic, we hope to resume these programs in-person in 2022.
We have a long track record of promoting associates from within, including Julia M. Laulis, our Chair of the Board, President and Chief Executive
Officer, who has been with Cable One for more than 20 years and began her career at Cable One as a Director of Marketing.
Health and Safety
We have a Safety Team that is responsible for education and training and that regularly analyzes indicators and areas where risks and injuries can
occur in our efforts to strive to eliminate hazards. We also have mandatory compliance and safety training for associates, with more than 20,000
instructional hours completed in these areas in 2021.
Beginning in 2020, in response to the COVID-19 pandemic, we implemented safety protocols and new procedures to protect our associates and
our customers. These protocols include complying with social distancing and other health and safety standards as required by federal, state and
local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health
authorities. In addition, we modified the way we conduct many aspects of our business to reduce the number of in-person interactions. For example,
we significantly expanded the use of virtual interactions in all aspects of our business, including customer facing activities. Many of our
administrative and operational functions during this time have required modification as well, including many of our associates working remotely.
For a detailed discussion of the impact of the COVID-19 pandemic on our human capital resources, refer to the section entitled “Risk Factors —
The COVID-19 pandemic has impacted our operations and adversely affected our business, financial results and financial condition, and the
duration and extent to which it will continue to do so is uncertain and difficult to predict.”
Diversity, Equality and Inclusion
We are an equal opportunity employer that strives to provide an inclusive and respectful environment that represents a wide range of backgrounds,
cultures and experiences. We are committed to fostering an environment in which all associates and customers are valued. We foster a diverse and
inclusive culture by offering competitive compensation, a comprehensive rewards program and opportunities for all of our associates to grow
personally and professionally. In 2020, we established an Inclusion and Diversity Advisory Board (the “I&D Advisory Board”) made up of
individuals from across the organization and ranging from frontline associates to members of management. The I&D Advisory Board was created
to further strengthen a culture of respect and inclusion at Cable One. It cultivates resources, internal communications and events to inform, educate
and provide all associates with a voice to share their unique experiences, perspectives and viewpoints.
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Available Information and Website
Our internet address is www.sparklight.com. We make available free of charge through our investor relations 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.
Information About Our Executive Officers
The following table presents certain information, as of February 24, 2022, concerning our executive officers.
Name
Julia M. Laulis ..................
Michael E. Bowker............
Steven S. Cochran .............
Christopher D. Boone ........
Megan M. Detz ...................
Kenneth E. Johnson ...........
Todd M. Koetje ..................
Eric M. Lardy ....................
James A. Obermeyer .........
Peter N. Witty ...................
Julia M. Laulis
Age
59
53
50
39
45
58
45
48
58
54
Position
Chair of the Board, President and Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Senior Vice President, Business Services and Emerging Markets
Senior Vice President, Human Resources
Senior Vice President, Technology Services
Senior Vice President, Business Development and Finance
Senior Vice President, Operations and Integration
Senior Vice President, Marketing and Sales
Senior Vice President, General Counsel and Secretary
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 became responsible for starting Cable One’s Phoenix Customer Care Center. In 2008, she was named Chief
Operations Officer, and in 2012, she was named Chief Operating Officer. In January 2015, she was promoted to President and Chief Operating
Officer.
Prior to joining Cable One, Ms. Laulis served in various marketing management positions with Jones Communications. Ms. Laulis began her 35-
plus-year career in the cable industry with Hauser Communications.
Ms. Laulis serves on the boards of The AES Corporation, C-SPAN, CableLabs and The Cable Center, and she is a trustee of the C-SPAN Education
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.
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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 as Vice Chairman of ACA — America’s Communications Association.
Steven S. Cochran
Mr. Cochran has been Chief Financial Officer of Cable One since August 2018. He served as Senior Vice President of Cable One from August
2018 through December 2020.
Prior to joining Cable One, Mr. Cochran served as Chief Executive Officer and a member of the board of directors of WideOpenWest, Inc.
(“WOW”) from April 2014 until December 2017 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.
Christopher D. Boone
Mr. Boone has been Senior Vice President, Business Services and Emerging Markets of Cable One since January 2021.
Mr. Boone joined Cable One in 2010 as a Business Sales Manager. He was named Vice President of Business Services in 2016.
Prior to joining Cable One, Mr. Boone was with Cox Communications, where he served in various sales management roles.
Megan M. Detz
Ms. Detz has been Senior Vice President, Human Resources of Cable One since May 2021.
Ms. Detz joined Cable One following the Hargray Acquisition.
Prior to joining Cable One, Ms. Detz served as Senior Vice President, Human Resources & Administration at Hargray. Prior to Hargray, Ms. Detz
was Chief People Officer at VARIDESK and Senior Vice President, Human Capital at NTT DATA, Inc.
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 Society of Cable Telecommunications Engineers.
Todd M. Koetje
Mr. Koetje has been Senior Vice President, Business Development and Finance of Cable One since August 2021.
Prior to joining Cable One, Mr. Koetje served as Managing Director & Group Head of the Technology, Media & Telecommunications Leveraged
Finance team at Truist Securities.
Eric M. Lardy
Mr. Lardy has been Senior Vice President, Operations and Integration of Cable One since June 2020.
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.
James A. Obermeyer
Mr. Obermeyer has been Senior Vice President, Marketing and Sales of Cable One since February 2020.
Prior to joining Cable One, Mr. Obermeyer served as Vice President of Marketing at Charter Communications. Prior to Charter Communications,
he was Managing Director of Brand and Consumer Marketing for NASCAR and Chief Marketing Officer for Supra Telecom.
Mr. Obermeyer serves on the board of the National Cable Television Cooperative.
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,
regulatory and judicial 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 Federal, state and local law that may affect our operations.
Proposals for additional or revised regulations and requirements are pending before Congress, state legislatures and Federal and state 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 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 2017, the FCC adopted the Restoring Internet Freedom Order (the “Internet Freedom
Order”), which reinstated broadband internet access service as an “information service” under Title I of the Communications Act of 1934, as
amended (the “Communications Act”). The Internet Freedom Order rescinded the majority of the open internet rules adopted by the FCC in 2015
in the Open Internet Order, with the exception of enhanced disclosure requirements that require broadband internet access service providers to
disclose information regarding network management, performance and commercial terms of the service to their customers. In October 2020, the
FCC reaffirmed its previous findings about the Internet Freedom Order after certain issues were remanded to it by the U.S. Court of Appeals for
the District of Columbia Circuit. In July 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy
that encouraged the FCC to consider adopting net neutrality rules similar to those originally adopted in 2015. Numerous parties also have urged
the FCC to take action regarding net neutrality. Any action by the FCC likely would be subject to further judicial review.
Congress and numerous states, including Minnesota and Missouri (where we have subscribers), have proposed legislation and/or administrative
actions that would lead to increased regulation of our provision of data services, including proposed rules regarding net neutrality. Several states,
including Oregon and Washington (where we also 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 any future changes to the regulatory framework will occur at
the Federal or state level or whether or to what extent those changes may affect our operations or impose additional costs on our business.
Disclosure and Non-Discrimination Requirements. As stated above, the FCC’s current rules require broadband internet access service providers to
disclose certain information regarding network management, performance and commercial terms of the service to their customers. As part of the
2021 Infrastructure Investment and Jobs Act, Congress ordered the FCC to conduct a rulemaking to consider imposing additional consumer
disclosure requirements on broadband internet access service providers using “broadband labels.” In addition, the 2021 Infrastructure Investment
and Jobs Act requires the FCC to adopt rules to facilitate equal access to broadband internet access service and prevent digital discrimination of
access, including the development of model policies and best practices, and a process to accept public complaints relating to digital discrimination.
Compliance with these new 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 to what extent these changes may affect our operations or impose
additional costs on our business.
Emergency Broadband Benefit and Affordable Connectivity Programs. In 2021, we participated in the FCC’s Emergency Broadband Benefit
(“EBB”) program, which provided qualifying low-income consumers a discount on certain of our broadband internet access services for which we
received reimbursement from the FCC. On December 31, 2021, the EBB program transitioned to the Affordable Connectivity Program (“ACP”)
as required by the 2021 Infrastructure Investment and Jobs Act. The ACP operates in largely the same manner as the EBB program and allows us
to seek reimbursement for certain broadband internet access service discounts provided to qualifying low-income consumers. We are subject to
various compliance obligations in connection with our participation in the EBB program and the ACP, which may cause us to incur additional
compliance costs. We cannot predict whether or when any future changes to the ACP may occur, or whether or to what extent those changes may
affect our operations or impose additional costs on our business.
Privacy. Broadband internet access service is subject to many of the same 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 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 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.
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In addition to FCC privacy regulations governing broadband internet access service, the Federal Trade Commission (the “FTC”) 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. The FTC 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. The Digital Millennium
Copyright Act 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. Congress has not adopted similar immunity for broadband internet
access service providers for trademark infringement claims.
Business Data Services. The FCC has adopted a 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 framework eliminated pricing regulation for certain types of BDS and established a competitive market test for determining
whether other types of BDS should remain subject to pricing regulation. In July 2019, the FCC reaffirmed its decision regarding the framework
and provided a transition period for further deregulation of BDS provided by incumbent carriers. At this time, we cannot predict how these or any
future 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 or authorizations 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. Federal law restricts franchise fee payments to 5% of the gross revenues of a
cable system that are derived from the provision of video services. Failure to comply with the terms and conditions of a franchise may give rise to
rights of termination by the franchising authority.
A number of states in which we operate have adopted franchising laws that provide for statewide franchising. Generally, statewide cable franchises
are issued for a fixed term, reduce many burdensome requirements contained in traditional local cable franchises and eliminate the need for local
oversight and negotiation. Various other state and local statutes, ordinances and administrative laws additionally govern our operation in particular
communities.
Prior to the scheduled expiration of our franchises, we generally initiate renewal proceedings with the granting authorities. Federal law provides
for an orderly franchise renewal process in which local authorities may not unreasonably withhold franchise renewals. In connection with the
franchise renewal process, however, many local governmental authorities require the cable operator to make additional commitments.
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In August 2019, the FCC issued an order that limits the scope of demands that state and local authorities may require in exchange for issuing or
renewing a franchise. The FCC’s order clarified that state and local franchising authorities are prohibited from using their video franchising
authority to regulate the provision of non-cable services, including broadband, Wi-Fi and VoIP services that are delivered over “mixed use” systems
that offer a variety of services. The FCC also held that non-monetary in-kind contributions required by a franchising authority count as franchise
fees subject to the 5% cap on such fees. The majority of the FCC’s order was upheld by the Sixth Circuit on appeal, and the state and local
franchising authorities currently are seeking review by the U.S. Supreme Court. We cannot predict the outcome of the court appeals 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.
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. These rules are especially beneficial to new entrants and are expected to continue to accelerate the
competition we are experiencing in the video service marketplace.
Rate Regulation. FCC regulations prohibit LFAs or the FCC from regulating the rates that cable systems charge for certain levels of video service,
equipment and service calls when those cable systems are subject to “effective competition.” The FCC’s rate regulations contain a presumption
that all cable systems are subject to the effective-competition exemption unless proven otherwise.
Carriage of Local Television Broadcast Stations. There are two alternative legal methods for carriage of local broadcast television stations on cable
systems. Federal “must carry” regulations require cable systems to carry local broadcast television stations upon the request of the local broadcaster.
As a result, certain of our cable systems must carry broadcast stations that we might not otherwise have elected to carry.
Alternatively, Federal law includes “retransmission consent” regulations, by which broadcasters can elect to prohibit cable carriage unless the cable
operator first negotiates for retransmission consent, which may be conditioned on significant payments or other concessions from cable operators,
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 channels to a station or to provide cash compensation. This development results in increased operating costs for
video service providers, which ultimately increases the rates for video subscribers.
The FCC and Congress have imposed additional requirements in this area, including restrictions on broadcasters’ ability to jointly negotiate with
video providers for carriage of their stations, and the requirement that parties negotiate retransmission consent in good faith. The FCC has stated
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. Additional government-mandated broadcast carriage obligations, including those related to the FCC’s newly adopted
enhanced technical broadcasting option (Advanced Television Systems Committee 3.0), could disrupt existing programming commitments and
increase our costs of carrying such programming.
Media Ownership Rules. The FCC took steps in 2017 to relax its media ownership rules, including restrictions on the number of commonly owned
television stations per market as well as on newspaper/broadcast and radio/television station cross-ownership. After numerous court proceedings,
the FCC’s rules were upheld by the U.S. Supreme Court in April 2021. These changes relaxing media ownership rules will likely lead to increased
consolidation of the television broadcast stations and station groups, with a corresponding increase in the negotiating leverage that broadcasters
and station groups hold in retransmission consent negotiations, thereby possibly increasing the amounts we pay to broadcasters for retransmission
consent. The FCC is now conducting its regular review of its media ownership rules. We cannot predict the outcome of the ongoing reviews by the
FCC and any subsequent review by the courts, and whether or to what extent any further revisions of the rules by the FCC or the courts may affect
our operations or impose additional costs on our business.
Pole Attachments. Federal law requires most telephone companies and electric power utilities owning utility poles to provide cable systems with
access to poles and underground conduits. Federal law also requires those entities to charge reasonable rates to cable operators for utilizing space
on such poles or in such underground conduits. The FCC’s pole attachment rules contain a formula for calculating pole rental rates that provide for
similar rates for telecommunications attachments and cable attachments and prohibit utility companies from charging higher rates for pole
attachments used to provide broadband internet access service. The FCC has also adopted rules to facilitate new attachments, including a one-touch
make-ready procedure for new attachments. Those one-touch make-ready rules took effect and were upheld in August 2020 in response to
challenges in the Federal courts by utility companies. We cannot predict how any future changes to the pole attachment rules may affect our
operations or impose costs on our business. As a general matter, changes to our pole attachment rate structure could significantly increase our
annual pole attachment costs.
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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. Copyright clearances for
non-broadcast programming services are arranged through private negotiations. Cable operators also must obtain music rights for locally originated
programming and advertising from the major music performing rights organizations. These licensing fees have been the source of litigation in the
past, and we cannot predict with certainty whether license fee disputes may arise in the future.
Customer Equipment. 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 multichannel video programming distributors 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. Various parties continue to advocate
to Congress and the administrative agencies for new regulatory approaches to reduce consumer dependency on traditional operator-provided set-
top boxes that, if adopted, could affect our business in the future. 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.
Other Regulatory Requirements. The FCC regulates various other aspects of our video business, including, among other things, equal employment
opportunity obligations; customer service standards; technical service standards; mandatory blackouts of certain network and syndicated
programming; restrictions on political advertising; restrictions on advertising in children’s programming; maintenance of public files; emergency
alert systems; inside wiring and exclusive contracts for service provided to apartment and condominium complexes; and disability access, including
requirements governing video-description and closed-captioning. Each of these regulations restricts our business practices to varying degrees and
may impose additional costs on our operations. We cannot predict whether, when or to what extent changes to these and other regulations may
affect our operations or costs.
Voice Services
Our voice services are subject to varying degrees of Federal and state regulation. Telecommunications services are subject to extensive regulation
at both the Federal and state levels while interconnected VoIP services are subject to a lesser degree of regulation.
Voice Over Internet Protocol. Service providers, including us and others, offer interconnected 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. Federal law preempts state and local regulatory barriers to the offering of voice service by service providers,
and the FCC and Federal courts generally have preempted state laws that seek to regulate or classify VoIP.
The FCC has held that VoIP services are internet protocol-enabled services, which are interstate in nature and thus subject exclusively to the FCC’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 numerous obligations on interconnected VoIP service providers, some of which are discussed more fully below.
In 2017, the U.S. District Court for the District of Minnesota held that the VoIP service of another cable operator was an “information service”
rather than a “telecommunications service,” which would have made it subject to entry and rate regulation and which prevented the Minnesota
Public Utilities Commission from regulating VoIP as a telecommunications service in Minnesota. The district court’s decision was upheld on appeal
and the U.S. Supreme Court denied review of the case. We cannot predict whether other states will attempt to subject VoIP services to entry and
rate regulation, the outcome of such proceedings or how those proceedings may affect our operations or impose costs on our business.
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State Regulation of Telecommunications Services. We offer telecommunications services as competitive local exchange carriers (“CLECs”) through
several of our subsidiaries. Providers of telecommunications services usually are required to obtain licenses or authorizations from state regulatory
commissions prior to offering intrastate telecommunications services. We hold licenses to provide CLEC telecommunications services in Alabama,
Arkansas, Florida, Georgia, Illinois, Kansas, Missouri, Oklahoma, South Carolina and Texas. We also are required to comply with state reporting,
fee payment, tariffing and other obligations imposed on telecommunications services. Many states require prior approval for corporate and financial
transactions, and compliance with these requirements could delay and increase the cost we incur to complete such transactions. Failure to comply
with requirements applicable to telecommunications services could subject us to fines, penalties or other enforcement consequences.
Incumbent Local Exchange Carrier Regulation. We offer telecommunications services as an incumbent local exchange carrier (“ILEC”) in Georgia,
Missouri and South Carolina through our subsidiaries. ILECs generally are subject to more stringent regulation than CLECs. Federal law imposes
a variety of duties on all telecommunications carriers providing local telephone services, including requirements to interconnect with other
telecommunications carriers; establish reciprocal compensation arrangements for the completion of calls; permit the resale of services; permit users
to retain their telephone numbers when changing carriers; and provide competing carriers access to poles, ducts, conduits and rights-of-way. ILECs
are subject to additional duties to offer interconnection at any technically feasible point within their networks on non-discriminatory, cost-based
terms; offer co-location of competitors’ equipment at their premises on a non-discriminatory basis; make available some of their network facilities,
features and capabilities, referred to as Unbundled Network Elements, on non-discriminatory, cost-based terms; and offer wholesale versions of
their retail services for resale at discounted rates. Our ILEC subsidiaries are currently exempt from certain of these obligations because
they qualify as “rural telephone companies” under Federal law. Failure to comply with requirements applicable to ILEC operations could subject
us to fines, penalties or other enforcement consequences.
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,
telecommunications and wireless companies are obligated to provide. The FCC has also 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. In October 2019, the FCC clarified that state, local, and tribal governments cannot charge the same class of subscribers higher total 911
fees for VoIP services than for traditional telecommunications services with the same 911 calling capability.
CALEA. FCC regulations require providers of voice services 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 Contributions. The FCC has determined that interconnected VoIP service providers must contribute to the Federal Universal
Service Fund (the “USF”). Providers of telecommunications service also are required to contribute to the Federal USF. The amount of a company’s
USF contribution is based on a percentage of revenues earned from end-user interstate and international telecommunications and/or interconnected
VoIP services. We are permitted to recover these contributions from our customers. In 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. Some have suggested that Federal USF
contribution requirements be imposed on broadband internet access service providers. We cannot predict whether and how such reform will occur
and the extent to which it may affect providers of VoIP, telecommunications and broadband internet access services, including us and our
competitors.
States also may impose state USF fees on telecommunications services, and the FCC has determined that states may impose state USF fees on
interconnected VoIP service providers subject to certain limitations and requirements. State USF contributions often are based on a percentage of
revenues earned from end-user intrastate telecommunications services and/or 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.
Federal Subsidies and Grants. The FCC has adopted rules intended to transition the USF so that it supports the build out of broadband rather than
telecommunications facilities. Certain of our subsidiaries providing telecommunications services have been designated as eligible
telecommunications carriers (“ETCs”) and as such receive or will receive Federal and state funds for operations in Georgia, Idaho, Illinois,
Louisiana, Missouri, Oklahoma and South Carolina. We also receive reimbursement from the schools and libraries universal service support
program, commonly known as E-rate, and from the Rural Health Care Fund for discounted services provided throughout our service territory. The
FCC has several proceedings pending that could affect our ability to continue receiving such Federal funding. We cannot predict whether or how
these programs will be changed, or how such changes will affect our operations or business. Some of our ILEC subsidiaries also
receive disbursements from the federal USF under Phase 2 of the FCC’s Alternative Connect America Cost Model program. To continue to receive
such disbursements, we are required to meet certain build-out milestones over the next ten years. We also were a grant recipient under the FCC’s
Rural Broadband Experiment program, which requires us to meet certain build-out and public service obligations over a five-year period. We are
also a grant recipient under the FCC’s RDOF program, which requires us to meet certain build-out and public service obligations over a ten-year
period. While we intend to satisfy these build-out obligations within the required timeframes, there can be no assurance that we will complete the
build-out in a timely manner or at all. We also cannot predict what impact the costs of complying with the build-out obligations will have on our
operations.
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In addition, the FCC has focused on subsidizing broadband deployment and this shift could help some of our competitors. For example, the FCC
revised the program that provides universal service support for services to schools and libraries to shift support from voice services to broadband
services and to deployment of Wi-Fi networks. Similarly, the FCC has expanded its Lifeline subsidy program for low-income consumers to cover
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, or the impact such changes will have on our operations or business.
Intercarrier Compensation. The FCC regulates switched access service rates imposed by local telecommunications carriers on interexchange
carriers for the origination and termination of long-distance telecommunications traffic. The FCC has adopted intercarrier compensation rules under
which switched access service rates for all traffic that interconnects with the PSTN were reduced and a uniform bill-and-keep framework for both
intrastate and interstate terminating access traffic will result. The reforms required by the FCC’s rules are being phased in over a multi-year period.
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. Telecommunications services and interconnected VoIP services are subject to CPNI protections, which
extend CPNI protection requirements to such providers. CPNI is information about the quantity, technical configuration, type, location and amount
of a voice customer’s use. These requirements generally increase the cost of providing voice service, as providers 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 services, 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 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 voice services.
Service Discontinuance and Outage Obligations. The FCC has adopted rules subjecting providers of interconnected VoIP services to the same
service discontinuance requirements applicable to providers of wireline telecommunication services. The FCC has also 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. Telecommunications services are subject to similar requirements. Along with other
FCC actions described herein that impose legacy telecom obligations on interconnected VoIP providers, this development subjects our
interconnected VoIP services to greater regulation and, therefore, greater burdens and costs.
Regulatory Fees. The FCC requires telecommunications service and 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 voice services. The FCC revises its
regulatory fees from time to time and sometimes creates new fees. We cannot predict when or the extent to which the FCC will adopt new rules or
regulatory fees affecting telecommunications service and VoIP service providers, which could affect our cost of doing business.
Local Number Portability. Providers of telecommunications services and 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 also must contribute funds to cover the
shared costs of local number portability and the costs of the North American Numbering Plan Administration. FCC rules require 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 voice service.
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Rural Calling Issues. The FCC has adopted rules to combat problems with the completion of long-distance calls to rural areas. The 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.
Robocalling. The FCC has adopted rules requiring voice providers to implement the industry-adopted STIR/SHAKEN framework in their networks
to authenticate caller ID in order to prevent spoofed robocalls from reaching consumers. The new rules require providers to certify compliance with
the framework and make compliance checks before accepting certain types of traffic for termination on their network. Compliance with these rules
subjects our voice services to greater compliance costs and have increased the cost of providing voice service.
State and Local Taxes
The Internet Tax Freedom Act prohibits most states and localities from imposing taxes on internet access service charges. In addition, the FCC’s
decision to rescind the majority of the rules adopted in the Open Internet Order may currently hinder states and localities that seek to impose
additional taxes and fees on our data services, but that could change to the extent the FCC or Congress takes further action with regard to net
neutrality requirements. 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.
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. In addition, other risks and
uncertainties either not presently known or not currently believed to be material may also adversely affect our business, financial results, financial
condition and results of operations and the actual outcome of matters as to which we have made forward-looking statements.
Risks Relating to Our Business
The COVID-19 pandemic has and may continue to impact our operations and adversely affect our business, financial results and financial
condition, and the duration and extent to which it may continue to do so is uncertain and difficult to predict.
The COVID-19 pandemic has significantly impacted the United States and other countries, which has resulted in international, Federal, state and
local governments implementing numerous measures to try to reduce the spread of the virus that causes COVID-19, including travel restrictions,
quarantines, shelter in place or total lock-down orders and business limitations and shutdowns. More recently, new variants of COVID-19, such as
the Delta and Omicron variants, have emerged. The spread of these new strains are causing many businesses and government authorities to
reimplement prior restrictions in an effort to lessen the spread of COVID-19 and its variants. The degree to which the COVID-19 pandemic impacts
our operations, business, financial results and financial condition will depend on future developments, which are highly uncertain, continuously
evolving and in many cases cannot be predicted. This includes, but is not limited to, the duration and spread of the pandemic and its variants, its
severity, the availability and efficacy of vaccines (particularly with respect to emerging strains of the virus), and the actions taken by governments
and regulators to contain the virus or treat its impact and how quickly and to what extent normal social, economic and operating conditions can
resume.
We are a part of the United States’ critical infrastructure, and our continued operation is essential to connectivity services that are vital during the
COVID‐19 pandemic. We have taken and may take further actions required by governmental authorities or that we determine are prudent to support
the well-being of our associates, customers, suppliers, business partners and others.
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Our business, financial results and financial condition have been and could be further adversely affected in a number of ways, which may include,
but are not limited to, the following:
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further disruptions to our regular, ongoing operations and restrictions on our sales and marketing efforts, especially related to business
services;
interruptions to our engineering, design and implementation of plant and infrastructure as well as other important business activities;
limitations on associate resources and availability, including in our call centers and among our technicians, due to labor shortages, health
protocols, sickness, government restrictions, the desire of associates to avoid contact with large groups of people, school closures or other
factors, which may further constrain capacity to respond to the increased demand for our products and services;
the potential further diversion of senior management’s attention in the event that key and/or large numbers of associates contract COVID-19
and, consequently, have limited ability or become unable to work;
interruptions or delays receiving and limited availability of necessary hardware, software and operational supplies, equipment and support,
including those arising as a result of global supply chain constraints;
possible reductions of revenues, Adjusted EBITDA and/or Adjusted EBITDA margin and increased expenses as well as greater difficulty in
collecting customer receivables resulting from, among other things, actions taken to assist customers and support our associates during the
COVID-19 crisis;
a fluctuation in interest rates that could result from market uncertainties;
a continuation or worsening of general economic conditions, including increased inflation;
an increase in the cost of or the difficulty to obtain debt or equity financing, which could affect our financial condition or our ability to fund
operations or future acquisition or investment opportunities;
potential legislative or regulatory efforts to impose new requirements on our data services;
changes to the carrying value of our goodwill and intangible assets; and
an increase in regulatory restrictions or continued market volatility that could hinder our ability to execute our business strategies, including
acquisitions and strategic investments, as well as negatively impact our stock price.
Additionally, the COVID-19 pandemic could negatively affect our internal control over financial reporting, including as a result of a portion of our
personnel working from home. Accordingly, new processes, procedures and controls have been and may continue to be required to respond to
changes in our business environment.
The potential effects of the COVID-19 pandemic may also impact many of our other risk factors included in this Annual Report on Form 10-K. The
degree to which the COVID-19 pandemic impacts our operations, business, financial results and financial condition will depend on future
developments, which are highly uncertain, continuously evolving and in many cases cannot be predicted.
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 industry 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 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.
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Our systems generally operate pursuant to franchises, permits and similar authorizations issued by state and local governments. As these franchises
are typically non-exclusive, state and local governments can grant additional franchises to other entities 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, as of December 31, 2021, approximately 29% of our footprint has been overbuilt by high-
speed data service providers offering speeds of 100 Mbps or higher. As of December 31, 2021, approximately 18% 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. Higher overall
competition rates in 2021 were due primarily to the impact of acquired operations and improved tracking capabilities as opposed to
significant overbuilder activity. Further overbuilding could cause more of our customers to purchase data and video services from our competitors
instead of from us. We also face increasing competition from wireless telephone companies for residential voice services, as our customers continue
to replace 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 deploying high-speed “5G” wireless networks and public locations or commercial
establishments offering Wi-Fi at no cost.
Certain municipalities have also announced plans to construct their own data networks with access speeds that match or exceed ours through the
use of fiber-to-the-node or fiber-to-the-premises 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, among
others, Amazon Prime Video, Apple TV+, Disney+, HBO Max, Hulu, Netflix, Paramount+, Peacock, 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, 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
changing consumer 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.
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In addition, we generally 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.
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 was 5.5% and 6.5% in 2021 and 2020, respectively, after
exceeding 10% for each year between 2019 and when we started focusing on business services sales in 2011. During 2021, the COVID-19 pandemic
and the government's associated responses resulted in suppressed sales growth from small business customers. We may encounter additional
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 our service level requirements, or more broadly, the expectations of our
business customers, or if pandemic-related headwinds associated with business sales resume, our business sales may not 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 and/or decreased demand
for our video products.
Over the past few years, the sales margins on our residential video services, which accounted for 21.2%, 25.1% and 28.7% of our total revenues in
2021, 2020 and 2019, 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 continue to seek 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, adversely impact our revenues and revenue growth rates, 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, the modems that we lease to our customers and the delivery of our IPTV video service.
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 (including due to general adverse economic
conditions); they experience shortages of electronic components as a result of the ongoing COVID-19 pandemic or labor or other supply constraints;
they significantly increase the amount we must 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 may fail to realize the benefits anticipated as a result of the Hargray Acquisition.
On May 3, 2021, we completed the Hargray Acquisition. The success of the Hargray Acquisition will depend, in part, on our ability to realize the
anticipated business opportunities and growth prospects from combining Hargray with our business. We may never realize these business
opportunities and growth prospects. We may devote significant senior management attention and resources to preparing for and then integrating
our business practices and operations with those of Hargray. We may fail to realize some of the anticipated benefits of the Hargray Acquisition or
may not realize some of the anticipated benefits within the anticipated timeframe if the integration process takes longer than expected or is more
costly than expected.
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We recently made numerous acquisitions and strategic investments, and may make other acquisitions and strategic investments in the future,
which expose us to risks and uncertainties associated with acquisitions and strategic investments.
We completed the NewWave acquisition in May 2017, the Clearwave acquisition in January 2019, the Fidelity acquisition in October 2019, the
MBI investment in November 2020, the Hargray Acquisition in May 2021 and the CableAmerica acquisition in December 2021. In addition, we
have made and may make other acquisitions and strategic investments (each such acquired business or investee, a “Strategic Acquiree” and,
collectively, the “Strategic Acquirees”). Such acquisitions and strategic investments could involve a number of risks and uncertainties, including:
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uncertainties as to the timing of any acquisition or strategic investment and the risk that such transactions may not be completed in a timely
manner or at all;
the possibility that any or all of the conditions to the consummation of any acquisition or strategic investment may not be satisfied or
waived, including failure to receive any required regulatory approvals (or any conditions, limitations or restrictions placed in connection
with such approvals);
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uncertainties related to our ability to obtain any necessary financing, or to obtain financing on favorable terms, to complete any acquisition
or strategic investment;
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the difficulty in integrating new Strategic Acquirees and their operations in an efficient and effective manner;
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the challenge in achieving strategic objectives, cost savings and other anticipated benefits;
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the potential loss of key associates of a Strategic Acquiree and the difficulties of integrating personnel;
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the potential diversion of senior management’s attention from our ongoing operations;
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the difficulty of maintaining relationships with the customers, suppliers and other business partners of a Strategic Acquiree;
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the potential loss of brand recognition, customer loyalty or reputation from any rebranding efforts;
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exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition, such as
claims from terminated employees, customers, former stockholders or other third parties;
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the difficulty and amount of time necessary to realize expected synergies and other benefits of the acquisitions or strategic investments;
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the risks associated with integrating financial reporting and internal control systems as well as with creating uniform standards, procedures,
policies and information systems;
the difficulty in adapting and expanding information technology systems and other business processes to incorporate the Strategic
Acquirees;
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potential future impairments of goodwill associated with the Strategic Acquirees;
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in some cases, the potential for increased regulation;
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risks relating to minority ownership positions in our strategic investments, including our initial minority ownership position in MBI, such
as our ability to appoint only a minority of members of the board of managers of MBI, the fact that the managers of MBI will not owe the
same fiduciary duties to us that directors of a corporation would owe to stockholders and the limited category of transactions for which our
consent will be needed under MBI’s operating agreement; and
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uncertainties related to the exercise of the Call Option or the Put Option (each as defined elsewhere in this Annual Report on Form 10-K)
in the MBI investment, including our ability to finance the purchase of the remaining equity interests in MBI on terms acceptable to us or
at all.
If a Strategic Acquiree fails to operate as anticipated, cannot be successfully integrated with our existing business or other risks and uncertainties,
including one or more of the risks and uncertainties identified above, occur in connection with our acquisitions and strategic investments, our
operations, business, results of operations and financial condition could be materially negatively affected.
Implementation of our new ERP system could disrupt business operations.
We implemented a new ERP system in the second quarter of 2021. The implementation has required and may continue to require significant
investments of time, money and resources and may result in the diversion of senior management’s attention from our ongoing operations.
Furthermore, the implementation has resulted and may continue to result in changes to many of our existing operational, financial and administrative
business processes, including, but not limited to, our budgeting, purchasing, receiving, provisioning, servicing, accounting and reporting processes.
The new ERP system has required and may continue to require both the implementation of new internal controls and changes to existing internal
control frameworks and procedures. If technical problems or other significant issues arise in connection with the implementation or operation of
the new ERP system, it could have a material negative impact on our operations, business, financial results and financial condition.
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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), pandemics, 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, ransomware, dissemination of malware and other malicious activity, pose increasing risks. Both unsuccessful and
successful cyber-attacks on companies, including ours, 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 or the networks of
third-party vendors we use. Cyber-attacks 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.
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), pandemics, terrorist attacks and similar events, and the individuals
responsible for such systems may also be imperiled by certain such events. For example, prior to 2018, 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 have been, and may continue
to 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 has resulted, and may in the future
result, in costly investigations, remediation efforts and notification to affected consumers, personnel and/or vendors. For example, in 2019 we
identified an information security incident that could affect the personal information of some of our current and former associates as well as, in
some cases, their dependents, beneficiaries and others. Cyber-attacks have consumed, and may in the future consume, internal resources, and they
could also adversely affect our operating results and result in government investigations, fines and penalties, litigation or potential liability for us
and otherwise harm our business.
Various 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.
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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 sometimes 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 system architecture, electronic program guides, modem technology or 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 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.
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 a majority of our residential customers
are data-only. 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 speed as well as 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, in
July 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy that encouraged the FCC to consider
adopting net neutrality rules similar to those originally adopted in 2015. Numerous parties also have urged the FCC to take action regarding net
neutrality. Further, Congress and numerous states, including Minnesota and Missouri (where we have subscribers) have proposed legislation and/or
administrative actions that would lead to increased regulation of our provision of data services, including proposed rules regarding net neutrality.
Several states, including Oregon and Washington (where we also 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 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 systems generally operate pursuant to franchises, permits and similar
authorizations issued by states or local governments 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.
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We have the ability, pursuant to the Copyright Act, 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. 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. Copyright clearances for
non-broadcast programming services are arranged through private negotiations. Cable operators also must obtain music rights for locally originated
programming and advertising from the major music performing rights organizations. These licensing fees have been the source of litigation in the
past, and we cannot predict with certainty whether license fee disputes may arise in the future.
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 may change in the future. The imposition of energy conservation regulations on
the hardware products we provide to our customers could impede innovation and require mandatory upgrades in our set-top boxes and be costly to
us. In addition, the FCC may revisit adopting rules requiring any retail video device to work on any cable operator’s system. Various parties
continue to advocate to Congress and the administrative agencies for new regulatory approaches to reduce consumer dependency on traditional
operator-provided set-top boxes. We cannot predict when, whether or to what extent any of these types of proposals will be adopted or how they
will affect our operations.
Our telecommunications services are subject to heightened regulatory scrutiny, and our interconnected VoIP services are 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 are manageable, changes in
this regulatory structure are unpredictable and have the potential to further negatively impact our voice services 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 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 the Company or an assignment of
a franchise to another entity. 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 the Company or transfers of
individual franchises to another entity.
We may encounter increased pole attachment costs.
Federal law requires most telephone companies and electric power utilities owning utility poles to provide cable systems with access to poles and
underground conduits. Federal law also requires those utilities to charge reasonable rates to cable operators for utilizing space on such poles or in
such underground conduits. The FCC’s pole attachment rules contain a formula for calculating pole rental rates that provide for similar rates for
telecommunications attachments and cable attachments and prohibit utility companies from charging higher rates for pole attachments used to
provide broadband internet access service. The FCC has also adopted rules to facilitate new attachments, including a one-touch make-ready
procedure for new attachments. 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.
28
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 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 took steps in 2017 to relax its media ownership rules, including restrictions on the number of commonly owned television stations per
market as well as on newspaper/broadcast and radio/television station cross-ownership. After numerous court proceedings, the FCC’s rules were
upheld by the U.S. Supreme Court in April 2021. These changes relaxing media ownership rules will likely lead to increased consolidation of the
television broadcast stations and station groups, with a corresponding increase in the negotiating leverage that broadcasters and station groups hold
in retransmission consent negotiations, thereby possibly increasing the amounts we pay to broadcasters for retransmission consent. The FCC is now
conducting its regular review of its media ownership rules. We cannot predict the outcome of the ongoing reviews by the FCC and any subsequent
review by the courts, and whether or to what extent any further revisions of the rules by the FCC or the courts may affect our operations or impose
additional costs on our business.
Additional government-mandated broadcast carriage obligations, including those related to the FCC’s enhanced technical broadcasting option
(Advanced Television Systems Committee 3.0), could disrupt existing programming commitments and increase our costs of carrying such
programming.
Risks Relating to Our Indebtedness
We have incurred substantial indebtedness, including in connection with various 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.
We currently have a substantial amount of indebtedness which could limit our ability to obtain additional financing for working capital, capital
expenditures, acquisitions, strategic investments, debt service requirements, stock repurchases or other purposes. It may also increase our
vulnerability to adverse economic, market and industry conditions (including the impact of the COVID-19 pandemic), limit our flexibility in
planning for, or reacting to, changes in our business operations or to our industry overall, and place us at a disadvantage in relation to our competitors
that have lower debt levels.
Our ability to make payments on and to refinance our indebtedness, including the debt incurred in connection with 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.
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 acquisitions or investments;
●
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.
29
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; and/or
●
unable to compete effectively or to take advantage of new business opportunities, including acquisitions and strategic investments.
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 December 31, 2021, we had approximately $2.3 billion of outstanding term loans and an additional $459.8 million of undrawn revolving
credit capacity with variable rates of interest that expose us to interest rate risks. 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 additional short-term or
variable-rate borrowings. We have entered into and in the future may enter into additional interest rate swaps in order to hedge against future
interest rate volatility. We may elect not to maintain such interest rate swaps with respect to our variable rate indebtedness, if any, and any swaps
we have entered into or may enter into may not fully mitigate our interest rate risk. As a result, our financial condition, results of operations and
cash flows could be materially negatively affected.
The transition away from LIBOR and the adoption of alternative reference rates could adversely affect the cost of servicing our indebtedness.
A substantial portion of our indebtedness bears interest at variable interest rates, primarily based on LIBOR. In recent years, initiatives have been
underway to replace LIBOR as a benchmark interest rate and, on March 5, 2021, ICE Benchmark Administration (“IBA”) confirmed it would cease
publication of Overnight, 1, 3, 6 and 12 Month US Dollar LIBOR settings immediately following the LIBOR publication on June 30, 2023. The
Alternative Reference Rates Committee, which was convened by the Federal Reserve Board and the New York Federal Reserve, has identified the
Secured Overnight Financing Rate (“SOFR”) as the recommended risk-free alternative rate for US Dollar LIBOR. We expect a substantial portion
of our indebtedness will eventually transition to bearing interest based on SOFR. At this time, it is not possible to predict the effect the anticipated
discontinuance of LIBOR, or the establishment of alternative reference rates such as SOFR, will have on us or our borrowing costs. SOFR is a
relatively new reference rate and its composition and characteristics are not the same as LIBOR. Given SOFR’s very limited history and potential
volatility as compared to other benchmark or market rates, the future performance of SOFR cannot be predicted based on historical performance.
The consequences of using SOFR could include an increase in the cost of our variable rate indebtedness.
Our inability to raise funds necessary to repurchase, or settle conversions of, either series of the Convertible Notes (as defined below), upon a
fundamental change as described in the applicable Convertible Notes Indenture (as defined below), may lead to defaults under such indenture
and under agreements governing our existing or future indebtedness.
If we repurchase the Convertible Notes for cash, which holders may require upon a fundamental change as described in the applicable Convertible
Note Indenture, or settle such Convertible Notes by cash or by a combination of cash and shares of our common stock in the event a holder elects
to convert their Convertible Notes following a fundamental change, we will be required to make cash payments with respect to the Convertible
Notes being converted or repurchased.
However, we may not have enough available cash or be able to obtain financing at the time we are required to make purchases of the Convertible
Notes being surrendered or converted. In addition, our ability to repurchase the Convertible Notes or to pay cash upon conversion of Convertible
Notes is limited by the agreements governing our existing indebtedness and may also be limited by law, by regulatory authority or by agreements
that will govern our future indebtedness. Our failure to repurchase Convertible Notes at a time when the repurchase is required by the applicable
Convertible Notes Indenture or to pay cash payable on future conversions of the Convertible Notes as required by such indenture would constitute
a default under such indenture. A default under the applicable Convertible Notes Indenture or the fundamental change itself could also lead to a
default under agreements governing our existing or future indebtedness (including the Credit Agreement and the Senior Notes Indenture, each as
defined elsewhere in this Annual Report on Form 10-K).
The conditional conversion feature of either series of the Convertible Notes, if triggered, may adversely affect our financial condition and
operating results.
In the event the conditional conversion feature of either series of the Convertible Notes is triggered, holders of the applicable Convertible Notes
will be entitled to convert such Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their
Convertible Notes, we initially elect to satisfy our conversion obligations by combination settlement. In addition, in the future, we may elect to
settle all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not
elect to convert the Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding
principal of the Convertible Notes as a current liability, rather than a long-term liability, which would result in a material reduction of our net
working capital.
Conversion of either series of the Convertible Notes will dilute the ownership interest of existing stockholders or may otherwise depress the
price of our common stock.
The conversion of some or all of the Convertible Notes will dilute the ownership interests of existing stockholders to the extent we deliver shares
of our common stock upon conversion of any of the Convertible Notes. The Convertible Notes may from time to time in the future be convertible
at the option of their holders prior to their scheduled terms under certain circumstances. Any sales in the public market of the common stock issuable
30
upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Convertible Notes
may encourage short selling by market participants because the conversion of the Convertible Notes could be used to satisfy short positions or
anticipated conversion of the Convertible Notes into shares of our common stock could depress the price of our common stock.
Risks Relating to Our Common Stock and the Securities Market
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.
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:
●
●
●
●
prior to the full declassification of our board following our annual meeting of stockholders to be held in 2023, divide our Board into classes
of directors, standing for election on a staggered basis, such that less than all 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 the 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.
Our Amended and Restated Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive
forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to
obtain a favorable judicial forum for disputes with us or our directors, officers, associates or stockholders.
Our Amended and Restated Certificate of Incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware
will be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of the Company, (ii) action asserting a claim of
breach of a fiduciary duty owed by any director, officer or associate of the Company to the Company or the Company’s stockholders, (iii) action
asserting a claim arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”) or (iv) action asserting a claim governed
by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock shall
be deemed to have notice of and to have consented to the provisions of our Amended and Restated Certificate of Incorporation described above.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or
our directors, officers or other associates, which may discourage such lawsuits against us and our directors, officers and associates. Alternatively,
if a court were to find these provisions of our Amended and Restated Certificate of Incorporation inapplicable to, or unenforceable in respect of,
one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other
jurisdictions, which could adversely affect our business and financial condition.
General Risk Factors
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, heightened inflation and the continuing
impact of the COVID-19 pandemic, 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 and services, electing to use
fewer higher margin products and 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. 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.
31
The demand for our residential data and business services may be lower than we expect.
The future growth in demand for our services is difficult to predict and may differ materially from our current expectations. Our business could be
adversely affected if the future demand for our services, including in particular our residential data and business services, is materially lower than
we expect.
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, dispositions or strategic investments;
●
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 the 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 can experience volatility that is unrelated to the operating performance of a particular company. These broad market
fluctuations could adversely affect the trading price of our common stock.
Your percentage ownership in the Company may be diluted in the future.
Your percentage ownership in the 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 associates. In addition, we may issue equity as all or part of the financing or consideration paid for acquisitions
and strategic investments that we may make in the future or as necessary to fund our ongoing operations. We also had $920.0 million of convertible
notes outstanding as of December 31, 2021 that may further dilute your percentage ownership in the Company in the future.
Any damage to our reputation or brand image could adversely affect our business, financial condition or results of operations.
Maintaining a positive reputation and brand image are important factors impacting our ability to sell our products and services. The speed at which
negative publicity is disseminated has increased dramatically through the use of electronic communication, including social media, websites and
blogs. Our success in maintaining our brand image depends on our ability to adapt to this rapidly changing media environment. Adverse publicity
or negative commentary in any media outlet could damage our reputation and reduce the demand for our products and services, which would
adversely affect our business. Our reputation or brand image could be adversely impacted by negative publicity, commentary or communications
(whether or not valid), including related to the following topics: our failure to maintain high ethical and social practices in all of our operations and
activities; our failure to be perceived as appropriately addressing matters of social responsibility; our use of social media; or public perception of
statements or positions made or taken by us, including our executives and associates.
32
If we are unable to retain key associates, 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 associates for management positions. The loss of the services of key members of management and the inability or delay in hiring new
key associates could adversely affect our ability to manage our business and our future operational and financial results.
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.
Our Amended and Restated Certificate of Incorporation includes provisions limiting the personal liability of our directors for breaches of
fiduciary duty under the DGCL.
Our Amended and Restated Certificate of Incorporation contains a provision permitted under the DGCL relating to the liability of directors. This
provision eliminates a director’s personal liability to the fullest extent permitted by the DGCL for monetary damages resulting from a breach of
fiduciary duty; provided that such provision will not eliminate or limit a director’s liability:
●
for any breach of the director’s duty of loyalty;
●
for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law;
●
under Section 174 of the DGCL (including for unlawful dividends); or
●
for any transaction from which the director derives an improper personal benefit.
The principal effect of the limitation on liability provision is that a stockholder will be unable to prosecute an action for monetary damages against
a director unless the stockholder can demonstrate a basis for liability for which indemnification is not available under the DGCL. This provision,
however, should not limit or eliminate our rights or any stockholder’s rights to seek non-monetary relief, such as an injunction or rescission, in the
event of a breach of a director’s fiduciary duty. This provision will not alter a director’s liability under federal securities laws. The inclusion of this
provision in our Amended and Restated Certificate of Incorporation may discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an action, if successful, might otherwise have benefited us and our
stockholders.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
33
ITEM 2.
PROPERTIES
Our headquarters is located in Phoenix, Arizona. The majority of the offices and headend facilities of our individual systems are located in buildings
owned by us.
Our principal physical assets consist of our broadband plant and equipment, including signal receiving, encoding and decoding devices, headend
facilities, fiber-optic transport and distribution networks and customer premise equipment for each of our systems. Our broadband plant and related
equipment generally attach to utility poles under pole rental agreements with local public utilities and telephone companies, although in certain
areas our transport and distribution network is buried in underground ducts or trenches. We own or lease real property for signal reception sites and
own most of our service vehicles.
The physical components of our broadband network requires maintenance and periodic upgrades to improve performance and capacity and support
existing and new services and products. We also operate a network operations center that monitors our network at all times.
We believe that our properties are generally in good condition and are suitable and adequate to support our operations.
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 sometimes 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 system architecture, electronic program guides,
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.
34
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
PART II
Market Information
Our common stock is publicly traded under the ticker symbol “CABO” on the New York Stock Exchange.
Holders
As of February 18, 2022, there were approximately 826 holders of record of our common stock.
Dividends
We currently expect to continue to pay comparable quarterly cash dividends on shares of our common stock, subject to approval of the Board.
Performance Graph
The following graph compares the cumulative total stockholder return of our common stock between December 31, 2016 and December 31, 2021
with the cumulative total returns of the Standard & Poor’s 500 Stock Index and a custom peer group index (the “Peer Group”). For purposes of this
graph, it assumes a hypothetical $100 investment on December 31, 2016 and that dividends, if any, were reinvested. The Peer Group of data, video
and voice services companies consists of 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 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.
35
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, 2021 (dollars in thousands, except per share
data):
Total Number of
Shares Purchased as
Part of Publicly
Approximate
Dollar
Value of Shares
that May Yet Be
Purchased
Average Price
Paid per Share
Announced Plans or Under the Plans
Programs(1)
or Programs
Total Number
of Shares
Purchased
261 $
- $
- $
261 $
1,845.13
-
-
1,845.13
- $
- $
- $
-
145,081
145,081
145,081
Period
October 1 to 31, 2021(2) .......................
November 1 to 30, 2021 ......................
December 1 to 31, 2021 .......................
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) Represents shares withheld from associates to satisfy estimated tax withholding obligations in connection with the vesting of restricted
stock and/or exercises of stock appreciation rights under the Amended and Restated Cable One, Inc. 2015 Omnibus Incentive Compensation
Plan. The average price paid per share for the common stock withheld was based on the closing price of our common stock on the applicable
vesting or exercise measurement date.
36
ITEM 6.
[RESERVED]
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited
consolidated financial statements and accompanying 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.”
Throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” all totals, percentages and year-over-
year changes are calculated using exact numbers. Minor differences may exist due to rounding.
The results discussed below include Valu-Net operations for the period since the July 1, 2020 acquisition date and Hargray operations (which
includes the Anniston System) for the period since the May 3, 2021 acquisition date and excludes the Anniston System operations for the period
from the October 1, 2020 disposition date until it was reacquired with the Hargray Acquisition. Measures as of December 31, 2021 also include
CableAmerica, which was acquired on December 30, 2021.
Overview
We are a fully integrated provider of data, video and voice services to residential and business customers in 24 Western, Midwestern and Southern
states as of December 31, 2021. The markets we serve are primarily non-metropolitan, secondary and tertiary markets, with approximately 74% of
our customers located in seven states as of December 31, 2021: Arizona, Idaho, Mississippi, Missouri, Oklahoma, South Carolina and Texas. Our
biggest customer concentrations are in the Mississippi Gulf Coast region and in the greater Boise, Idaho region. We provided service to
approximately 1.2 million residential and business customers out of approximately 2.7 million homes passed as of December 31, 2021. Of these
customers, approximately 1,055,000 subscribed to data services, 261,000 subscribed to video services and 149,000 subscribed to voice services as
of December 31, 2021.
We generate substantially all of our revenues through three primary product lines. Ranked by share of our total revenues during 2021, they are
residential data (52.0%), residential video (21.2%) and business services (data, voice and video: 19.2%). The profit margins, growth rates and/or
capital intensity of these three primary product lines vary significantly due to competition, product maturity and relative costs.
In 2021, our Adjusted EBITDA margins for residential data and business services were approximately nine and eleven 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
64% and 66% of total residential video revenues. Neither of our other primary 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 generally allocated on a per PSU basis.
37
We focus on growing our higher margin businesses, namely residential data and business services. Beginning in 2013, we began our shift away
from our prior concentration on growing revenues through subscriber retention and maximizing customer PSUs. We adapted our strategy to face
the industry-wide trends of declining profitability of residential video services and declining revenues from residential voice services. The declining
profitability of residential video services is due primarily to increasing programming costs and retransmission fees and competition from other
content providers, and the declining revenues from residential voice services are due primarily to the increasing use of wireless voice services
instead of residential voice services. Separately, we have also focused on retaining customers who are likely to produce higher relative value over
the life of their service relationships with us, are less attracted by discounting, require less support and churn less. This strategy focuses on increasing
Adjusted EBITDA and Adjusted EBITDA less capital expenditures and producing higher margins.
Excluding the effects of our recently completed and any potential future acquisitions and divestitures, the trends described above and the COVID-
19 pandemic have impacted, and are expected to further impact, our three primary product lines in the following ways:
●
●
Residential data. We have experienced growth in residential data customers and revenues every year since 2013, and that growth
accelerated in 2020 and 2021, in part as a result of the COVID-19 pandemic and our associated responses discussed below. We expect
growth for this product line to continue over the long-term as we believe upgrades in our broadband capacity, our ability to offer higher
access speeds than many of our competitors, the reliability and flexibility of our data service offerings and our Wi-Fi support service will
enable us to continue to grow ARPU from our existing customers and capture additional market share from both data subscribers who use
other providers as well as households in our footprint that do not yet subscribe to data services from any provider.
Residential video. Residential video service is an increasingly costly and fragmenting business, with programming costs and retransmission
fees continuing to escalate in the face of a proliferation of streaming content alternatives. We intend to continue our strategy of focusing
on the higher-margin businesses of residential data and business services while de-emphasizing our residential video business. As a result
of our video strategy, we expect that residential video customers and revenues will decline further in the future. In 2021, we began the
launch of Sparklight TV, an IPTV video service that allows customers with our Sparklight TV app to stream our video channels from the
cloud. Currently, over 90% of our homes passed have access to Sparklight TV, and we expect to complete this offering in all non-Hargray
markets by early 2022. This transition from linear to IPTV video service will enable us to reclaim bandwidth, freeing up network capacity
to increase data speeds and capacity across our network.
●
Business services. We have experienced significant growth in business data customers and revenues, and we expect this growth to continue
over the long-term. We attribute this growth to our strategic focus on increasing sales to business customers and our efforts to attract
enterprise business customers. Margins for products sold to business customers have remained attractive, which we expect will continue.
We continue to experience increased competition, particularly from telephone companies, fiber 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.
In addition, a key objective of our capital allocation process is to invest in initiatives designed to drive revenue and Adjusted EBITDA expansion.
More than 60% of our total capital expenditures since 2017 were focused on infrastructure improvements that were intended to grow these measures.
We continue to invest capital to, among other things, increase fiber density and coverage, expand our footprint, increase plant and data capacity,
enhance network reliability and improve the customer experience. As of December 31, 2021, we offered Gigabit data service to approximately
99% of our homes passed and have deployed DOCSIS 3.1, which, together with Sparklight TV, further increases our network capacity and enables
future growth in our residential data and business services product lines.
38
We expect to continue to devote financial resources to infrastructure improvements in existing and newly acquired markets as well as to expand
high-speed data service in areas where our consortium was designated the winning bidder for the RDOF Phase I auction. We believe these
investments are necessary to continually meet our customers’ needs and to remain competitive. The capital enhancements associated with recent
acquisitions include rebuilding low-capacity markets; reclaiming bandwidth from analog video services; implementing 32-channel bonding;
deploying DOCSIS 4.0; consolidating 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 goals are to continue growing residential data and business services revenues, 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 disciplined cost management approach,
remain focused on customers with expected higher relative value and follow through with further planned investments in broadband plant upgrades,
including the deployment of DOCSIS 4.0 capabilities and new data service offerings for residential and business customers. At the same time, we
intend to continue balancing the impact of the COVID-19 pandemic on our business, associates, customers and other stakeholders. We also plan to
continue seeking broadband-related acquisition and strategic investment opportunities in rural markets in addition to pursuing organic growth
through market expansion projects.
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 $358.8 million in cash on a debt-free basis. 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. The all-cash transaction was funded through a
combination of cash on hand and proceeds from new indebtedness. On January 1, 2022, a majority of Clearwave's operations were contributed to
the Clearwave Fiber joint venture discussed below.
On October 1, 2019, we acquired the data, video and voice business and certain related assets of Fidelity, a provider of connectivity services to
residential and business customers throughout Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas. We paid a purchase price of $531.4
million in cash on a debt-free basis. Cable One and Fidelity share similar strategies, customer demographics and products. The acquisition provides
us opportunities for revenue growth and Adjusted EBITDA margin expansion as well as the potential to realize cost synergies. The all-cash
transaction was funded through a combination of cash on hand and proceeds from new indebtedness.
On May 4, 2020, we made a minority equity investment for a less than 10% ownership interest in Nextlink for $27.2 million. On November 5,
2021, we invested an additional $50.0 million in Nextlink, resulting in us owning an approximately 17% equity interest in Nextlink.
On July 1, 2020, we acquired Valu-Net, an all-fiber internet service provider headquartered in Kansas with approximately 5,000 residential data
subscribers at the time of the acquisition. We paid a purchase price of $38.9 million in cash on a debt-free basis. The acquisition provides us the
opportunity to further grow our business in and around Emporia, Kansas and realize operational synergies and Adjusted EBITDA growth.
On July 10, 2020, we acquired an approximately 40% minority equity interest in Wisper for total consideration of $25.3 million.
On October 1, 2020, we contributed the Anniston System to Hargray in exchange for an approximately 15% equity interest in Hargray on a fully
diluted basis. The Anniston System had approximately 19,000 residential data subscribers at the time of the transaction. On May 3, 2021, we
acquired the remaining approximately 85% equity interest that we did not already own in Hargray, a data, video and voice services provider to
residential and business customers throughout Alabama, Florida, Georgia and South Carolina, for a purchase price of approximately $2.0 billion
that implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free basis. The Hargray Acquisition was financed with cash
on hand and net proceeds from indebtedness. The Hargray Acquisition expands our presence in the Southeastern U.S. and we expect to capitalize
on Hargray’s experience and expertise in fiber expansion.
On November 12, 2020, we acquired a 45% minority equity interest in MBI for $574.9 million in cash. MBI provides high-speed data, video and
voice services to residential and business customers in rural markets in 16 states under the Vyve Broadband brand and is majority-owned by funds
affiliated with GTCR LLC, a private equity firm based in Chicago (“GTCR”). As of December 31, 2021, MBI’s network passed approximately
652,000 homes and has upgraded systems and a high-capacity plant with more than 15,800 network plant miles, including over 4,100 fiber route
miles, capable of delivering Gigabit speeds across its footprint. As part of this investment, we acquired the right, but not the obligation, to purchase
all but not less than all of the remaining equity interests in MBI that we do not already own between January 1, 2023 and June 30, 2024 (the “Call
Option”). If we do not exercise the Call Option, investors affiliated with GTCR have the right, but not the obligation, to sell (and to cause all
members of MBI other than us to sell) to us and, in such case, we are obligated to purchase, all but not less than all of the direct and indirect equity
interests in MBI that we do not already own between July 1, 2025 through September 30, 2025 (the “Put Option” and, together with the Call Option,
the “Call and Put Options”). The purchase price payable upon the exercise of the Call Option or the Put Option, as applicable, will be calculated
under a formula based on a multiple of MBI’s adjusted EBITDA. MBI generated revenues of approximately $287 million during 2021.
On October 1, 2021, we made a minority equity investment for a less than 10% ownership interest in Point Broadband for $25.0 million.
On October 18, 2021, we completed a minority equity investment for a less than 10% ownership interest in Tristar for $20.8 million.
On December 30, 2021, we acquired certain assets and assumed certain liabilities from CableAmerica, a data, video and voice services provider in
central Missouri, for $113.1 million in cash on a debt-free basis, subject to customary post-closing adjustments. The CableAmerica acquisition was
financed with cash on hand and is expected to provide the Company opportunities for footprint expansion in Missouri, margin growth and potential
cost synergy realization.
On January 1, 2022, we closed a joint venture transaction in which we contributed certain fiber operations (including a majority of Clearwave's
operations and certain fiber assets of Hargray) and certain unaffiliated third-party investors contributed cash, to a newly formed entity, Clearwave
Fiber LLC ("Clearwave Fiber"). The operations we contributed generated approximately 3% of our consolidated revenues for the three months
ended December 31, 2021. Our approximately 58% investment in Clearwave Fiber was valued at $440.0 million as of the closing date. Clearwave
39
Fiber is intended to accelerate deployment of fiber internet to residents and businesses in existing markets and near-adjacent areas, as well as to
provide connectivity to unserved and underserved areas in such markets via fiber-to-the-premises service. Joint ventures often involve many of the
same risks and uncertainties applicable to acquisitions and they also present additional areas of risk due to the shared ownership and control of the
venture.
Refer to our Annual Report on Form 10-K for the year ended December 31, 2020 for discussion and analysis of our financial condition and results
of operations for 2020 compared to 2019 contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
COVID-19 Update
During 2020, the COVID-19 pandemic and our associated responses negatively impacted Adjusted EBITDA by $17.6 million, primarily during
the second and third quarters of the year. The negative impacts were driven by a $12.3 million decrease in revenues largely from the now-concluded
suspensions of data overage fees, late charges and reconnect fees as well as diminished growth in business services revenues, coupled with $5.3
million of higher labor costs and other operating expenses, net of lower travel costs. These negative Adjusted EBITDA impacts were more than
offset by a greater-than-usual gain in residential data customers in 2020 and the associated increase in residential data revenues.
The actions we took during 2020 in response to the COVID-19 pandemic did not have any notable negative impact on our results for 2021, due
primarily to the resumption of billing late charges, reconnect fees and data overage fees as well as the normalization of labor costs since the fourth
quarter of 2020. We experienced a positive impact on residential data revenues during 2021 as a result of retaining a significant number of residential
data customers acquired during 2020 and continued growth of residential data customers during the period, and we expect that there will continue
to be a positive impact on future residential data revenues from these factors, albeit at a slower pace. However, we continue to face various
uncertainties related to the impact of the COVID-19 pandemic on the overall economy and our business, including whether we will be able to
sustain continued customer growth, our level of bad debt expense, supply chain disruptions, labor shortages and whether some of the expense
reductions realized during the pandemic will continue or if those expenses will return to more normal levels given the fluid situation regarding
pandemic-related restrictions across the country. In addition, the continually evolving COVID-19 pandemic and the government's associated
responses have contributed to fluctuations in our expenses from period to period and have increased the difficulty of projecting costs into the future.
40
Refer to the section entitled “Risks Factors” in this Annual Report on Form 10-K for additional risks we face due to the COVID-19 pandemic.
Results of Operations
PSU and Customer Counts
Selected subscriber data for the periods presented was as follows (in thousands, except percentages):
As of December 31,
2020
2021
Residential data PSUs ....................................................................................
Residential video PSUs ..................................................................................
Residential voice PSUs ..................................................................................
Total residential PSUs ...............................................................................
Business data PSUs ........................................................................................
Business video PSUs .....................................................................................
Business voice PSUs ......................................................................................
Total business services PSUs .....................................................................
Total data PSUs .............................................................................................
Total video PSUs ...........................................................................................
Total voice PSUs ...........................................................................................
Total PSUs .................................................................................................
Residential customer relationships .................................................................
Business customer relationships ....................................................................
Total customer relationships ......................................................................
957
247
105
1,310
97
14
44
155
1,055
261
149
1,465
1,047
105
1,152
777
248
89
1,114
80
13
35
128
857
260
124
1,242
884
85
969
Annual Net Gain/(Loss)
Change
% Change
23.2
(0.3)
17.9
17.6
180
(1)
16
196
17
1
9
27
197
0
25
223
163
20
183
21.1
7.5
25.1
20.9
23.0
0.1
19.9
17.9
18.5
23.5
18.9
In recent years, our customer mix has shifted away from double- and triple-play packages combining data, video and/or voice services, which is in
line with our strategy of focusing on our higher margin residential data and business services product lines. This is largely because some residential
video customers have defected to DBS services and OTT offerings and households continue to discontinue residential voice service. In addition,
we have focused on selling data-only packages to new customers rather than cross-selling video to these customers. Meanwhile, the COVID-19
pandemic and our responses to it have accelerated this customer mix shift.
Use of Nonfinancial Metrics and ARPU
We use various nonfinancial metrics to measure, manage and monitor our operating performance on an ongoing basis. Such metrics include homes
passed, PSUs and customer relationships. Homes passed represents the number of serviceable and marketable homes and businesses passed by our
active plant. A PSU represents a single subscription to a particular service offering. Residential bulk multi-dwelling PSUs are generally classified
as residential and are counted at the individual unit level. Business voice customers who have multiple voice lines are counted as a single PSU. A
customer relationship represents a single customer who subscribes to one or more PSUs.
We believe homes passed, PSU and customer relationship counts are useful to investors in evaluating our operating performance. Similar measures
with similar titles are common measures used by investors, analysts and peers to compare performance in our industry, although our measures of
homes passed, PSUs and customer relationships may not be directly comparable to similarly titled measures reported by other companies.
41
We use ARPU to evaluate and monitor the amount of revenue generated by each type of service subscribed to by customers and the contribution
to total revenues as well as to analyze and compare growth patterns. Residential ARPU values represent the applicable 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 period,
divided by the number of months in the period, except that for any PSUs added or subtracted as a result of an acquisition or divestiture occurring
during the period, the associated ARPU values represent the applicable residential service revenues (excluding installation and activation fees)
divided by the pro-rated average number of PSUs during such period. Business services ARPU values represent business services revenues divided
by the average of the number of business customer relationships at the beginning and end of each period, divided by the number of months in the
period, except that for any business customer relationships added or subtracted as a result of an acquisition or divestiture occurring during the
period, the associated ARPU values represent business services revenues divided by the pro-rated average number of business customer
relationships during such period.
We believe ARPU is useful to investors in evaluating our operating performance. ARPU 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 ARPU may not be directly
comparable to similarly titled measures reported by other companies.
2021 Compared to 2020
Revenues
Revenues increased $280.6 million, or 21.2%, including $206.9 million from Hargray operations. The remaining increase was due primarily to
increases in residential data, business services and other revenues of $91.7 million, $14.1 million and $5.1 million, respectively, partially offset by
decreases in residential video and residential voice revenues. In 2020, certain actions we took in response to the COVID-19 pandemic, which
concluded in 2020 and included waiving late charges, suspending collection activities (which reduced reconnect fees) and temporarily discontinuing
charging data overage fees, negatively impacted consolidated revenues by $12.3 million. This negative impact on 2020 consolidated revenues, of
which $7.4 million was associated with other revenues, was more than offset by a larger-than-usual gain in residential data customers and the
associated increase in residential data revenues related to the COVID-19 pandemic.
Revenues by service offering for 2021 and 2020, together with the percentages of total revenues that each item represented for the years
presented, were as follows (dollars in thousands):
Year Ended December 31,
835,725
Residential data .................................................... $
339,707
Residential video .................................................
47,519
Residential voice ..................................................
308,767
Business services .................................................
74,118
Other ....................................................................
Total revenues ...................................................... $ 1,605,836
2020
Revenues % of Total Revenues % of Total $ Change % Change
24.8
2.1
(0.2)
31.6
82.7
21.2
669,545
332,857
47,603
234,657
40,567
100.0 $ 1,325,229
166,180
6,850
(84)
74,110
33,551
280,607
50.5 $
25.1
3.6
17.7
3.1
100.0 $
52.0 $
21.2
3.0
19.2
4.6
2021 vs. 2020
2021
Residential data service revenues increased $166.2 million, or 24.8%, due primarily to $74.5 million from Hargray operations as well as organic
subscriber growth, a reduction in package discounting and increased customer subscriptions to premium tiers.
Residential video service revenues increased $6.9 million, or 2.1%, due primarily to $36.6 million from Hargray operations and a rate adjustment
implemented in March 2021, partially offset by a decrease in organic residential video subscribers.
Residential voice service revenues decreased $0.1 million, or 0.2%, due primarily to a decrease in organic residential voice subscribers, partially
offset by $7.4 million from Hargray operations.
Business services revenues increased $74.1 million, or 31.6%, due primarily to $60.0 million from Hargray operations and organic growth in our
business data and voice services to small and medium-sized businesses and enterprise customers.
42
Other revenues increased $33.6 million, or 82.7%, due primarily to $28.5 million mainly associated with regulatory revenues from Hargray
operations and higher advertising revenues, late charges and reconnect fees compared to the prior year period. The actions we took during 2020 in
response to the COVID-19 pandemic, including temporarily discontinuing data overage fees, waiving late charges and suspending collection
activities, negatively impacted other revenues in 2020.
ARPU for the indicated service offerings for 2021 and 2020 were as follows:
Year Ended December 31,
2021 vs. 2020
2021
2020
$ Change
Residential data .............................................................................................. $
Residential video ........................................................................................... $
Residential voice ............................................................................................ $
Business services ........................................................................................... $
78.93 $
111.44 $
38.92 $
264.76 $
74.84 $
100.67 $
40.41 $
228.35 $
Costs and Expenses
% Change
5.5
10.7
(3.7)
15.9
4.09
10.77
(1.49)
36.41
Operating expenses (excluding depreciation and amortization) were $455.4 million for 2021 and increased $36.6 million, or 8.8%, compared to
2020. The increase in operating expenses was primarily attributable to $58.8 million of additional expenses related to Hargray operations and a
$2.2 million increase in network backbone costs, partially offset by decreases of $22.7 million in programming expenses and $4.7 million in labor
and other compensation-related costs. Operating expenses for 2020 included $5.3 million of higher labor costs and other operating expenses,
partially offset by lower travel costs, as a result of actions we took in response to the COVID-19 pandemic. Operating expenses as a percentage of
revenues were 28.4% and 31.6% for 2021 and 2020, respectively.
Selling, general and administrative expenses were $347.1 million for 2021 and increased $91.9 million, or 36.0%, compared to 2020. The
increase in selling, general and administrative expenses was primarily attributable to $57.2 million of additional expenses related to
Hargray operations and increases of $14.3 million in labor and other compensation-related costs, $6.9 million in acquisition-related costs,
$6.1 million in health insurance costs, $4.2 million in marketing costs, $4.1 million in professional fees and $3.5 million in system conversion
costs, partially offset by a $3.6 million decrease in bad debt expense. The increase in labor and other compensation-related costs was due to higher
stock-based compensation and performance-based compensation, increased headcount and higher average salary rates. The increase in acquisition-
related costs was primarily due to expenses related to the Hargray and CableAmerica acquisitions. The increase in health insurance costs was the
result of lower-than-normal costs in the prior year from reduced claims activity in connection with stay-at-home orders issued during the
pandemic. Selling, general and administrative expenses as a percentage of revenues were 21.6% and 19.3% for 2021 and 2020, respectively.
Depreciation and amortization expense was $339.0 million for 2021, including $66.1 million from Hargray operations, and increased $73.4 million,
or 27.6%, compared to 2020. Depreciation and amortization expense as a percentage of revenues was 21.1% and 20.0% for 2021 and 2020,
respectively.
We recognized a net loss on asset sales and disposals of $7.8 million in 2021 and a net gain on asset sales and disposals of $1.1 million in
2020 that included a $6.6 million non-cash gain on the sale of certain tower properties.
We also recognized an $82.6 million non-cash gain on sale of business in 2020 in connection with the Anniston Exchange.
Interest Expense
Interest expense was $113.4 million for 2021 and increased $39.8 million, or 54.1%, compared to 2020, driven primarily by additional outstanding
debt and higher interest rate swap settlement expense.
Other Income (Expense), Net
Other expense, net, was $6.0 million for 2021 and consisted primarily of a $50.3 million non-cash loss on fair value adjustment associated with the
MBI Net Option and $2.1 million of debt issuance cost write-offs, partially offset by a $33.4 million non-cash gain on fair value adjustment
associated with our existing investment in Hargray upon the Hargray Acquisition, $11.6 million of investment and interest income and a $2.3
million non-cash mark-to-market investment gain. Other expense, net, was $16.4 million for 2020 and consisted primarily of a $17.5 million non-
cash loss on fair value adjustment associated with the MBI Net Option, $6.2 million of debt issuance cost write-offs and $1.2 million of financing-
related fees, partially offset by $8.5 million of investment and interest income.
43
Income Tax Provision
Income tax provision was $45.8 million for 2021 and decreased $30.6 million, or 40.0%, compared to 2020. Our effective tax rate was 13.6% and
20.1% for 2021 and 2020, respectively. The decrease in the effective tax rate was due primarily to a $35.4 million income tax benefit from the
reversal of a pre-existing deferred tax liability on the investment in Hargray, partially offset by a $13.0 million income tax benefit attributable to
the net operating loss ("NOL") carryback provision of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") in the prior
year period that did not recur in 2021 and an $8.0 million increase in income tax expense related to a change in the valuation allowance associated
with the MBI Net Option.
Net Income
Net income was $291.8 million for 2021 compared to $304.4 million for 2020. The prior year's net income included the $82.6 million pre-tax non-
cash gain on sale of business in connection with the Anniston Exchange.
Unrealized Gain (Loss) on Cash Flow Hedges and Other, Net of Tax
Unrealized gain on cash flow hedges and other, net of tax was $57.9 million for 2021 compared to an unrealized loss of $72.5 million for 2020 due
primarily to higher projected future increases in interest rates.
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, the most directly comparable GAAP financial measure.
Adjusted EBITDA is defined as net income plus interest expense, income tax provision (benefit), depreciation and amortization, equity-based
compensation, (gain) loss on deferred compensation, acquisition-related costs, (gain) loss on asset sales and disposals, system conversion costs,
rebranding costs, (gain) loss on sale of business, equity method investment (income) loss, other (income) expense and other unusual items, as
provided in the following table. 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 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
calculations under the Credit Agreement and the Senior Notes Indenture (as defined elsewhere in this Annual Report on Form 10-K) to determine
compliance with the covenants contained in the Credit Agreement and the ability to take certain actions under the Senior Notes Indenture. Adjusted
EBITDA is also a significant performance measure used by us in our incentive compensation programs. 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.
Year Ended December 31,
2021 vs. 2020
(dollars in thousands)
Net income ..................................................................................................... $
2021
2020
$ Change
291,824 $
304,391 $
(12,567)
% Change
(4.1)
Plus: Interest expense.....................................................................................
Income tax provision .........................................................................
Depreciation and amortization ..........................................................
Equity-based compensation ...............................................................
(Gain) loss on deferred compensation ...............................................
Acquisition-related costs ...................................................................
(Gain) loss on asset sales and disposals, net ......................................
System conversion costs ....................................................................
Rebranding costs ...............................................................................
Gain on sale of business ....................................................................
Equity method investment (income) loss, net ....................................
Other (income) expense, net ..............................................................
113,449
45,765
339,025
20,054
174
10,770
7,829
4,831
70
-
(468)
6,002
73,607
76,317
265,658
14,592
231
3,873
(1,072)
1,350
2,731
(82,574)
(1,376)
16,411
39,842
(30,552)
73,367
5,462
(57)
6,897
8,901
3,481
(2,661)
82,574
908
(10,409)
54.1
(40.0)
27.6
37.4
(24.7)
178.1
NM
NM
(97.4)
(100.0)
(66.0)
(63.4)
Adjusted EBITDA ......................................................................................... $
839,325 $
674,139 $
165,186
24.5
NM = Not meaningful.
44
We believe that 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, capital expenditures, potential acquisitions and strategic investments, 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 capital
expenditures, make future acquisitions and strategic investments, 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, including
the impact of the COVID-19 pandemic, some of which are beyond our control.
As part of our 45% minority equity interest in MBI, we acquired the Call Option to purchase all but not less than all of the remaining equity interests
in MBI that we do not already own, which is exercisable at any time between January 1, 2023 and June 30, 2024. If we do not exercise the Call
Option, then investors affiliated with GTCR may exercise the Put Option under which we are obligated to purchase all but not less than all of the
direct and indirect equity interests in MBI that we do not already own from all members of MBI other than us, which is exercisable at any time
between July 1, 2025 through September 30, 2025. The purchase price payable upon the exercise of the Call Option or the Put Option, as applicable,
will be calculated under a formula based on a multiple of MBI’s adjusted EBITDA. We have not yet obtained the capital that we believe will be
necessary to pay the purchase price if either the Call Option or the Put Option are exercised.
In light of the volatility in the debt markets resulting from the COVID-19 pandemic as well as our desire to enhance our flexibility in pursuing
acquisitions and strategic investments, in May 2020, we completed a public offering of 287,500 shares of our common stock (the “Public Offering”)
and raised $469.8 million, after deducting underwriting discounts and offering expenses.
The following table shows a summary of our net cash flows for the years indicated (dollars in thousands):
Year Ended December 31,
2021 vs. 2020
2021
2020
$ Change
Net cash provided by operating activities ...................................................... $
Net cash used in investing activities ..............................................................
Net cash provided by financing activities ......................................................
Increase (decrease) in cash and cash equivalents ...........................................
Cash and cash equivalents, beginning of period ............................................
Cash and cash equivalents, end of period ...................................................... $
704,341 $
(2,471,570)
1,581,122
(186,107)
574,909
388,802 $
574,371 $
(954,913)
830,180
449,638
125,271
574,909 $
129,970
(1,516,657)
750,942
(635,745)
449,638
(186,107)
% Change
22.6
158.8
90.5
(141.4)
NM
(32.4)
NM = Not meaningful.
The $130.0 million year-over-year increase in net cash provided by operating activities was primarily attributable to an increase in Adjusted
EBITDA of $165.2 million, tax refunds received compared to taxes paid in the prior year and lower system conversion costs, partially offset by a
decrease in accounts payable and accrued liabilities compared to an increase in the prior year and an increase in cash paid for interest and acquisition-
related costs.
The $1.5 billion year-over-year increase in net cash used in investing activities was due primarily to $2.1 billion in net cash paid for the Hargray
and CableAmerica acquisitions, $95.8 million invested in Nextlink, Point Broadband and Tristar and an $82.0 million increase in cash paid for
capital expenditures, partially offset by $612.1 million in equity investments in the prior year, $68.7 million in dividends received from MBI in the
current year and $38.3 million in net cash paid for Valu-Net in the prior year.
The $750.9 million year-over-year increase in net cash provided by financing activities was due primarily to net proceeds of $895.2 million and
$789.8 million from the offering of the Convertible Notes and Term Loan B-4 issuance, respectively, during 2021 compared to $1.1 billion in
proceeds in 2020 from a $650.0 million private offering of Senior Notes, $300.0 million in proceeds from the Term Loan B-3 and a $100.0 million
draw on the Revolving Credit Facility and $581.5 million in lower debt repayments, partially offset by $469.8 million of net proceeds from the
Public Offering in the prior year period that did not recur. Refer to the following section for further information on the Company's financing activity.
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 2021, we have repurchased 210,631 shares of our common stock at an aggregate cost of
$104.9 million. No shares were repurchased during 2021. Although we have not repurchased shares of our common stock in recent periods pursuant
to this authority, we may, from time to time, opportunistically repurchase shares depending on the trading price of our common stock, market
conditions and other factors.
We currently expect to continue to pay comparable quarterly cash dividends on shares of our common stock, subject to approval of the Board.
During the fourth quarter of 2021, the Board approved a quarterly dividend of $2.75 per share of common stock, which was paid on December 17,
2021, bringing total dividends distributed during 2021 to $63.5 million. On February 1, 2022, the Board approved a quarterly dividend of $2.75 per
share of common stock to be paid on March 4, 2022 to holders of record as of February 15, 2022.
45
Financing Activity
Senior Credit Facilities
In May 2021, we amended the third amended and restated credit agreement among us, JPMorgan Chase Bank, N.A., as administrative agent, and
the lenders party thereto, dated as of October 30, 2020 (as amended, the "Credit Agreement"), to provide for a new seven-year incremental term
"B" loan in an aggregate principal amount of $800.0 million maturing in 2028 (the "Term Loan B-4"). The interest margin applicable to the Term
Loan B-4 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 Loan B-4 may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions). The Term
Loan B-4 benefits from certain “most favored nation” pricing protections and is not subject to the financial maintenance covenants under the Credit
Agreement. The Term Loan B-4 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 Term
Loan B-4 was drawn in full in connection with the closing of the Hargray Acquisition.
The Credit Agreement also provides for senior secured term loans in original aggregate principal amounts of $700.0 million maturing in 2025 (the
“Term Loan A-2”), $250.0 million maturing in 2027 (the “Term Loan B-2”) and $625.0 million maturing in 2027 (the “Term Loan B-3”), as well
as a $500.0 million revolving credit facility maturing in 2025 (the “Revolving Credit Facility” and, together with the Term Loan A-2, the Term
Loan B-2, the Term Loan B-3 and the Term Loan B-4, the “Senior Credit Facilities”). Other than with respect to maturity, amortization and pricing,
the Term Loan B-4 contains terms that are substantially similar to the Term Loan B-2 and Term Loan B-3. 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.
We have issued letters of credit totaling $33.0 million under the Revolving Credit Facility on behalf of Wisper to guarantee its performance
obligations under an FCC broadband funding program. The fair value of the letters of credit approximates face value based on the short-term nature
of the agreements. We would be liable for up to the total amount outstanding under the letters of credit if Wisper were to fail to satisfy all or some
of its performance obligations under the FCC program. Wisper pledged certain assets in favor of us as collateral for issuing the letters of credit,
which pledge was terminated in the third quarter of 2020 at the same time that we closed an equity investment in Wisper, and Wisper has guaranteed
and indemnified us in connection with such letters of credit. As of December 31, 2021, we have assessed the likelihood of non-performance
associated with the guarantee to be remote, and therefore, no liability has been accrued within the condensed consolidated balance sheet. As of
December 31, 2021, letter of credit issuances under the Revolving Credit Facility totaled $40.2 million and bore interest at a rate of 1.88% per
annum.
The 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
Credit Agreement also requires that we maintain specified ratios of total net indebtedness and first lien net indebtedness to consolidated operating
cash flow. The 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 our and our restricted
subsidiaries’ other material debt, bankruptcy or insolvency, the entry against us or any of our 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.
As of December 31, 2021, we had $2.3 billion of aggregate outstanding term loans and $459.8 million available for borrowing under the Revolving
Credit Facility. A summary of our outstanding term loans as of December 31, 2021 is as follows (dollars in thousands):
Final
Balance
Original Amortization Outstanding Maturity Due Upon Benchmark Applicable Interest
Principal Per Annum(1) Principal
Varies(4)
659,590 10/30/2025 $
Margin(2) Rate
476,607 LIBOR
1.85%
Maturity
700,000
1.75%
Date
Rate
$
250,000
625,000
800,000
$ 2,375,000
1.0%
1.0%
1.0%
243,125 10/30/2027
613,175 10/30/2027
228,750 LIBOR
577,472 LIBOR
2.00%
2.00%
2.10%
2.10%
796,000 5/3/2028
746,000 LIBOR
2.00%
2.10%
$
2,311,890
$ 2,028,829
Instrument
Draw
Date(s)
Term Loan A-2 ... 5/8/2019(3) $
10/1/2019(3)
1/7/2019
Term Loan B-2 ...
Term Loan B-3 ... 6/14/2019(5)
10/30/2020(5)
5/3/2021
Term Loan B-4 ...
Total ...............
(1) Payable in equal quarterly installments (expressed as a percentage of the original principal amount and subject to customary adjustments in
the event of any prepayment). All loans may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage
provisions).
(2) The Term Loan A-2 interest rate spread can vary between 1.25% and 1.75%, determined on a quarterly basis by reference to a pricing grid
based on our Total Net Leverage Ratio (as defined in the Credit Agreement). All other applicable margins are fixed.
(3) On May 8, 2019, $250.0 million was drawn. On October 1, 2019, an additional $450.0 million was drawn. On October 30, 2020, the
amortization schedule was reset.
(4) Per annum amortization rates for years one through five following the October 30, 2020 refinancing date are 2.5%, 2.5%, 5.0%, 7.5% and
12.5%, respectively.
(5) On June 14, 2019, $325.0 million was drawn. On October 30, 2020, an additional $300.0 million was drawn.
46
Senior Notes
In November 2020, we completed a private offering of $650.0 million aggregate principal amount of 4.00% senior notes due 2030 (the
“Senior Notes”). The Senior Notes bear interest at a rate of 4.00% per annum payable semi-annually in arrears on May 15th and November 15th of
each year, beginning on May 15, 2021. The terms of the Senior Notes are governed by an indenture dated as of November 9, 2020 (the “Senior
Notes Indenture”), among the Company, the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A. (“BNY”), as trustee.
The Senior Notes are required to be guaranteed on a senior unsecured basis by each of our existing and future wholly owned domestic subsidiaries
that guarantees our obligations under the Credit Agreement or that guarantees certain capital markets debt of ours or a guarantor in an aggregate
principal amount in excess of $250.0 million.
At any time and from time to time prior to November 15, 2025, we may redeem some or all of the Senior Notes for cash at a redemption price equal
to 100% of their principal amount, plus the “make-whole” premium described in the Senior Notes Indenture and accrued and unpaid interest, if
any, to, but excluding, the applicable redemption date. Beginning on November 15, 2025, we may redeem some or all of the Senior Notes at any
time and from time to time at the applicable redemption prices listed in the Senior Notes Indenture, plus accrued and unpaid interest, if any, to, but
excluding, the applicable redemption date. In addition, at any time and from time to time prior to November 15, 2023, we may redeem up to 40%
of the aggregate principal amount of Senior Notes with funds in an aggregate amount not exceeding the net cash proceeds from one or more equity
offerings at a redemption price equal to 104% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the
applicable redemption date.
Upon the occurrence of a Change of Control and a Below Investment Grade Rating Event (each as defined in the Senior Notes Indenture), we are
required to offer to repurchase the Senior Notes at 101% of the principal amount of such Senior Notes, plus accrued and unpaid interest, if any, to,
but excluding, the date of repurchase.
Convertible Notes
In March 2021, we completed a private offering of $575.0 million aggregate principal amount of 0.000% convertible senior notes
due 2026 (the “2026 Notes”) and $345.0 million aggregate principal amount of 1.125% convertible senior notes due 2028 (the “2028 Notes” and,
together with the 2026 Notes, the “Convertible Notes,” and the Convertible Notes collectively with the Senior Notes, the "Notes"). The net proceeds
from the offering were $895.2 million after deducting initial purchaser discounts and other offering costs and expenses. We used the net proceeds
from the offering for general corporate purposes, including to finance a portion of the purchase price for the Hargray Acquisition. The Convertible
Notes are senior unsecured obligations of ours and are guaranteed by our wholly owned domestic subsidiaries that guarantee the Senior Credit
Facilities or that guarantee certain of our Notes in an aggregate principal amount in excess of $250.0 million. The 2026 Notes do not bear regular
interest, and the principal amount of the 2026 Notes do not accrete. The 2028 Notes bear interest at a rate of 1.125% per annum. Interest on the
2028 Notes is payable semiannually in arrears on March 15th and September 15th of each year, beginning on September 15, 2021, unless earlier
repurchased, converted or redeemed. The 2026 Notes are scheduled to mature on March 15, 2026, and the 2028 Notes are scheduled to mature on
March 15, 2028. The initial conversion rate for each of the 2026 Notes and the 2028 Notes is 0.4394 shares of our common stock per $1,000
principal amount of 2026 Notes and 2028 Notes, as applicable (equivalent to an initial conversion price of $2,275.83 per share of common stock).
The initial conversion price of each of the 2026 Notes and the 2028 Notes represents a premium of 25.0% over the last reported sale price of
$1,820.83 per share of our common stock on March 2, 2021. The Convertible Notes are convertible at the option of the holders. The method of
conversion into cash, shares of our common stock or a combination thereof is at our election.
47
Other Debt-Related Information
We were in compliance with all debt covenants as of December 31, 2021.
In connection with various financing transactions completed during 2021 and 2020, we capitalized $13.7 million and $15.1 million of debt issuance
costs and wrote-off $2.1 million and $6.2 million of existing unamortized debt issuance costs. We recorded debt issuance cost amortization of
$5.6 million and $4.3 million for 2021 and 2020, respectively, within interest expense in the consolidated statements of operations and
comprehensive income.
Unamortized debt issuance costs consisted of the following (in thousands):
As of December 31,
2021
2020
Revolving Credit Facility portion:
Other noncurrent assets ....................................................................................................................... $
2,576 $
3,249
Term loans and Notes portion:
Long-term debt (contra account) ........................................................................................................
Total ............................................................................................................................................... $
28,572
31,148 $
21,897
25,146
Unamortized debt discount associated with the Convertible Notes was $20.6 million as of December 31, 2021. The Company recorded debt discount
amortization of $3.5 million during 2021 within interest expense in the consolidated statement of operations and comprehensive income.
In March 2021, we terminated $900.0 million of definitive bridge loan commitments that were originally received to finance a portion of the
Hargray Acquisition purchase price.
We are party to two interest rate swap agreements to convert our interest payment obligations with respect to an aggregate of $1.2 billion of our
variable rate LIBOR indebtedness to a fixed rate. Under the first swap agreement, with respect to a notional amount of $850.0 million, our monthly
payment obligation is determined at a fixed base rate of 2.653%. Under the second swap agreement, with respect to a notional amount of $350.0
million, our monthly payment obligation is determined at a fixed base rate of 2.739%. Both interest rate swap agreements are scheduled to mature
in the first quarter of 2029 but each may be terminated prior to the scheduled maturity at our election or that of the financial institution counterparty
under the terms provided in each swap agreement. We recognized losses of $31.3 million and $22.5 million on interest rate swaps
for 2021 and 2020, respectively, which were reflected within interest expense in the consolidated statements of operations and comprehensive
income.
Refer to notes 10 and 12 to the consolidated financial statements for further details regarding our financing activity, outstanding debt and interest
rate swaps.
Capital Expenditures
We have significant ongoing capital expenditure requirements as well as capital enhancements associated with acquired operations, including
rebuilding low-capacity markets; reclaiming bandwidth from analog video services; implementing 32-channel bonding; deploying DOCSIS 4.0;
consolidating 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.
Our capital expenditures by category for the years ended December 31, 2021 and 2020 were as follows (in thousands):
Customer premise equipment(1) ............................................................................................................... $
Commercial(2) .........................................................................................................................................
Scalable infrastructure(3) .........................................................................................................................
Line extensions(4) ....................................................................................................................................
Upgrade/rebuild(5) ...................................................................................................................................
Support capital(6) .....................................................................................................................................
Total ................................................................................................................................................... $
Year Ended December 31,
2020
2021
70,763 $
64,603
56,179
50,616
75,876
73,897
391,934 $
70,554
48,019
37,039
19,746
61,330
56,541
293,229
(1) Customer premise equipment includes costs incurred at customer locations, including installation costs and customer premise equipment (e.g.,
modems and set-top boxes).
(2) Commercial includes costs related to securing business services customers and PSUs, including small and medium-sized businesses and
enterprise customers.
(3) Scalable infrastructure includes costs not related to customer premise equipment to secure growth of new customers and PSUs or provide
service enhancements (e.g., headend equipment).
(4) Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment,
make-ready and design engineering).
(5) Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including betterments.
(6) Support capital includes costs associated with the replacement or enhancement of non-network assets due to technological and physical
obsolescence (e.g., non-network equipment, land, buildings and vehicles) and capitalized internal labor costs not associated with customer
installation activities.
48
Contractual Obligations and Contingent Commitments
The following table summarizes our outstanding contractual obligations as of December 31, 2021 (in thousands):
Programming
Other
Purchase
Lease
Debt
Purchase
Year Ending December 31,
2022 .................................................................................. $
2023 ..................................................................................
2024 ..................................................................................
2025 ..................................................................................
2026 ..................................................................................
Thereafter .........................................................................
Total ......................................................................... $
Commitments(1) Payments(2) Payments(3) Obligations(4)
7,158 $
5,480
3,169
2,300
1,886
9,048
29,041 $
37,986 $
55,008
76,285
557,147
591,709
2,563,755
3,881,890 $
200,257 $
169,051
106,868
48,445
-
-
524,621 $
53,885 $
16,562
5,694
2,079
1,405
6,365
299,286
246,101
192,016
609,971
595,000
2,579,168
85,990 $ 4,521,542
Total
(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 estimated subscriber numbers, tier placements as of December 31, 2021 and the per-subscriber rates contained in the
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. Programming purchases pursuant to non-binding commitments are not reflected in the amounts shown.
(2) Lease payments include payment obligations related to our outstanding finance and operating lease arrangements as of December 31, 2021.
(3) Debt payments include principal repayment obligations for our outstanding debt instruments as of December 31, 2021.
(4) 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 but 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 $11.5 million and $10.5 million for 2021 and
2020, respectively.
●
Fees imposed on us by various governmental authorities, including franchise fees, are passed through monthly to our customers and are
periodically remitted to authorities. These fees were $31.4 million and $25.2 million for 2021 and 2020, respectively. As we act as principal
in these arrangements, these fees are reported in video and voice revenues on a gross basis with corresponding expenses included within
operating expenses in the consolidated statements of operations and comprehensive income.
● 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 $42.1 million and
$31.6 million as of December 31, 2021 and 2020, 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
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.
49
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):
As of December 31,
2021
2020
Goodwill and indefinite-lived intangible assets ...................................................................................... $
Total assets ............................................................................................................................................. $
Goodwill and indefinite-lived intangible assets as a percentage of total assets .......................................
3,114,725 $
6,953,994 $
44.8%
1,417,755
4,488,338
31.6%
Goodwill Reporting Unit. 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 an assembled workforce, noncontractual relationships and other agreements. We assess the
recoverability of our goodwill as of October 1st 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, for which we
have identified a single goodwill reporting unit based on the chief operating decision maker’s performance monitoring and resource allocation
process and the similarity of our geographic divisions.
50
Indefinite-Lived Intangible Assets Units of Accounting. Our intangible assets with an indefinite life are from franchise agreements that we have
with state and local governments and certain trade names. Franchise agreements allow us to contract and operate our business within specified
geographic areas. 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 currently expect to utilize certain of our trade names for a period that extends beyond
the foreseeable horizon and expect the cost to maintain such asset to be nominal.
We assess the recoverability of our indefinite-lived intangible assets as of October 1st of each year, or more frequently whenever events or
substantive changes in circumstances indicate that the assets might be impaired. We have identified a single unit of accounting for our franchise
agreements for use in impairment assessments based on our current operations and the use of our assets.
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):
As of December 31,
2021
2020
Property, plant and equipment, net ......................................................................................................... $
Total assets ............................................................................................................................................. $
Property, plant and equipment, net as a percentage of total assets ..........................................................
1,854,104 $
6,953,994 $
26.7%
1,265,460
4,488,338
28.2%
Year Ended December 31,
2021 ........................................................................................................................................................................................... $
2020 ........................................................................................................................................................................................... $
2019 ........................................................................................................................................................................................... $
Cash Paid for
Property, Plant
and Equipment
384,527
302,517
257,841
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.
51
Capitalized labor costs include the direct costs of engineers and technical personnel 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. These costs are capitalized based on
internally developed standards by position, which are updated annually (or more frequently if required). These standards are developed utilizing a
combination of actual costs incurred where applicable, survey information, operational data and management judgment. Overhead costs are
capitalized based on standards developed from historical information. Indirect and overhead costs include payroll taxes; insurance and other
benefits; and vehicle, tool and supply expense related to installation activities. 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.
Business Combination Purchase Price Allocation
The application of the acquisition method requires the allocation of the purchase price amongst the acquisition date fair values of identifiable assets
acquired and liabilities assumed in a business combination. Fair values are determined using the income approach, market approach and/or cost
approach depending on the nature of the asset or liability being valued and the reliability of available information. The income approach estimates
fair value by discounting associated lifetime expected future cash flows to their present value and relies on significant assumptions regarding future
revenues, expenses, working capital levels and discount rates. The market approach estimates fair value by analyzing recent actual market
transactions for similar assets or liabilities. The cost approach estimates fair value based on the expected cost to replace or reproduce the asset or
liability and relies on assumptions regarding the occurrence and extent of any physical, functional and/or economic obsolescence.
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. As of December 31, 2021, our market risk sensitive instruments
consisted of our Senior Credit Facilities and interest rate swaps, as each is 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” and
notes 10 and 12 to the consolidated financial statements. None of these instruments were entered into for trading purposes and all instruments relate
to the interest rate risk exposure category.
Outstanding borrowings under our Senior Credit Facilities, which bear interest, at our option, at a rate per annum determined by reference to either
LIBOR or a base rate, in each case plus an applicable interest rate margin, were approximately $2.3 billion at December 31, 2021. We are also
party to two interest rate swap agreements to effectively convert the variable rate interest to fixed base rates of 2.653% and 2.739% for $850.0
million and $350.0 million of such outstanding debt, respectively. Based on the principal outstanding under our Senior Credit Facilities with
exposure to LIBOR at December 31, 2021, assuming, hypothetically, that the LIBOR applicable to the Senior Credit Facilities was 100 basis points
higher, our annual interest expense would have increased $11.1 million.
Additionally, as of December 31, 2021, we had $650.0 million, $575.0 million and $345.0 million aggregate principal amount of the Senior Notes,
2026 Notes and 2028 Notes, respectively, outstanding. Although the Senior Notes and 2028 Notes are based on fixed rates and the 2026 Notes do
not bear interest, changes in interest rates could impact the fair market value of such notes. As of December 31, 2021, the fair market values of the
Senior Notes, 2026 Notes and 2028 Notes were $640.3 million, $551.5 million and $341.8 million, respectively.
As of December 31, 2020, outstanding borrowings under our Senior Credit Facilities were approximately $2.2 billion and the notional amount of
our effective interest rate swap agreement was $1.2 billion. Based on the principal then-outstanding under our Senior Credit Facilities with exposure
to LIBOR at December 31, 2020, assuming, hypothetically, that the LIBOR applicable to the Senior Credit Facilities was 100 basis points higher,
our annual interest expense would have been $3.4 million higher in 2020.
52
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 and are incorporated by reference herein.
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, 2021, 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 ensuring that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms 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.
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, 2021. 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). The Company acquired Hargray on May 3, 2021. As permitted by SEC guidance,
the Company excluded from the scope of its assessment of internal control over financial reporting the operations and related assets of Hargray.
Hargray’s total tangible assets and total revenues represented 7.9% and 12.9%, respectively, of the Company’s total assets and revenues as of and
for the year ended December 31, 2021. Based on the results of this assessment, management has concluded that, as of December 31, 2021, 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, 2021 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.
Changes in Internal Control Over Financial Reporting
As a result of the Hargray Acquisition on May 3, 2021, the Company has implemented internal controls over financial reporting to include
consolidation of Hargray and acquisition-related accounting and disclosures. The Hargray operations utilize separate information and accounting
systems and processes. The Company has designed and implemented internal control over financial reporting relating to the Hargray operations
effective January 1, 2022.
Except as disclosed 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, 2021 that has materially affected, or is reasonably likely
to materially affect, the Company’s internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
53
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The names of the executive officers of the Company and their ages, titles and biographies as of February 24, 2022 are incorporated by reference
from the section of this Annual Report on Form 10-K entitled “Business — Information About Our Executive Officers.”
The other 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, 2021 in connection with our 2022 Annual Meeting of Stockholders (the “2022 Proxy Statement”), or in an
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 2022 Proxy Statement, or in an 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 2022 Proxy Statement, or in an 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 2022 Proxy Statement, or in an amendment to this Annual Report on Form 10-K, and
is incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be included in the 2022 Proxy Statement, or in an amendment to this Annual Report on Form 10-K, and
is incorporated herein by reference.
ITEM 15.
EXHIBITS AND 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.
54
Exhibit
Number
Description
2.1
2.2
2.3
2.4
2.5
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
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).
Stock Purchase Agreement, dated as of March 31, 2019, by and among Cable One, Inc. and Fidelity Communications Co.
(incorporated herein by reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q of Cable One, Inc. filed on May 10, 2019).
Equity Purchase Agreement, dated as of September 28, 2020, by and among Cable One, Inc., Mega Broadband Investments
Holdings LLC, Mega Broadband Splitter, LP, Mega Broadband Blocker, Inc., and GTCR Fund XII/C LP (incorporated herein
by reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q of Cable One, Inc. filed on November 6, 2020).
Agreement and Plan of Merger, dated as of February 12, 2021, by and among Cable One, Inc., Hargray Acquisition Holdings,
LLC, Lighthouse Merger Sub LLC, and TPO-Hargray, LLC, in its capacity as the equityholders’ representative (incorporated
herein by reference to Exhibit 2.1 to the Current Report on Form 8-K of Cable One, Inc. filed on February 16, 2021).
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 May 18, 2020).
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).
Amendment to the Amended and Restated By-laws of Cable One, Inc. effective February 14, 2022 (incorporated herein by
reference to Exhibit 3.1 to the Current Report on Form 8-K of Cable One, Inc. filed on February 14, 2022).
Description of securities of Cable One, Inc. registered under Section 12 of the Exchange Act.*
Indenture, dated as of November 9, 2020, by and among Cable One, Inc., the guarantors from time to time party thereto and The
Bank of New York Mellon Trust Company, N.A., as trustee (including Form of 4.00% Senior Notes due 2030) (incorporated
herein by reference to Exhibit 4.1 to the Current Report on Form 8-K of Cable One, Inc. filed on November 9, 2020).
Indenture, dated as of March 5, 2021, by and among Cable One, Inc., the guarantors from time to time party thereto and The
Bank of New York Mellon Trust Company, N.A., as trustee, relating to the 0.000% Convertible Senior Notes due 2026
(incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K of Cable One, Inc. filed on March 8, 2021).
Indenture, dated as of March 5, 2021, by and among Cable One, Inc., the guarantors from time to time party thereto and The
Bank of New York Mellon Trust Company, N.A., as trustee, relating to the 1.125% Convertible Senior Notes due 2028
(incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K of Cable One, Inc. filed on March 8, 2021).
Form of 0.000% Convertible Senior Notes due 2026 (included in Exhibit 4.3).
Form of 1.125% Convertible Senior Notes due 2028 (included in Exhibit 4.4).
First Supplemental Indenture, dated as of June 30, 2021, to that certain Indenture, dated as of November 9, 2020, by and among
Cable One, Inc., the guarantors from time to time party thereto and The Bank of New York Mellon Trust Company, N.A., as
trustee, relating to the 4.00% Senior Notes due 2030 (incorporated herein by reference to Exhibit 4.1 to the Quarterly Report on
Form 10-Q of Cable One, Inc. filed on August 9, 2021).
First Supplemental Indenture, dated as of June 30, 2021, to that certain Indenture, dated as of March 5, 2021, by and among Cable
One, Inc., the guarantors from time to time party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee,
relating to the 0.000% Convertible Senior Notes due 2026 (incorporated herein by reference to Exhibit 4.2 to the Quarterly Report
on Form 10-Q of Cable One, Inc. filed on August 9, 2021).
First Supplemental Indenture, dated as of June 30, 2021, to that certain Indenture, dated as of March 5, 2021, by and among Cable
One, Inc., the guarantors from time to time party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee,
relating to the 1.125% Convertible Senior Notes due 2028 (incorporated herein by reference to Exhibit 4.3 to the Quarterly Report
on Form 10-Q of Cable One, Inc. filed on August 9, 2021).
4.10
Second Supplemental Indenture, dated as of February 14, 2022, to that certain Indenture, dated as of November 9, 2020, by and
among Cable One, Inc., the guarantors from time to time party thereto and The Bank of New York Mellon Trust Company, N.A.,
as trustee, relating to the 4.00% Senior Notes due 2030.*
55
4.11
4.12
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
Second Supplemental Indenture, dated as of February 14, 2022, to that certain Indenture, dated as of March 5, 2021, by and
among Cable One, Inc., the guarantors from time to time party thereto and The Bank of New York Mellon Trust Company, N.A.,
as trustee, relating to the 0.000% Convertible Senior Notes due 2026.*
Second Supplemental Indenture, dated as of February 14, 2022, to that certain Indenture, dated as of March 5, 2021, by and
among Cable One, Inc., the guarantors from time to time party thereto and The Bank of New York Mellon Trust Company, N.A.,
as trustee, relating to the 1.125% Convertible Senior Notes due 2028.*
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).
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).+
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).+
Second Restatement Agreement, dated as of May 8, 2019, among Cable One, Inc., its wholly owned subsidiaries, 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 9, 2019).
Amendment No. 1, dated as of November 15, 2019, to the Second Amended and Restated Credit Agreement among Cable One,
Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated herein by reference to
Exhibit 10.9 to the Annual Report on Form 10-K of Cable One, Inc. filed on February 28, 2020).
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 during 2017 through 2019 (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).+
Form of Restricted Stock Award Agreement for time-based cliff-vest restricted stock 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 February 28, 2019).+
Form of Non-Employee Director Restricted Stock Unit Award Agreement for grants in lieu of annual cash fees during 2018 and
2019 (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).+
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).+
Peter N. Witty Offer Letter dated February 12, 2018 (incorporated herein by reference to Exhibit 10.7 to the Quarterly Report on
Form 10-Q of Cable One, Inc. filed on May 10, 2019).+
56
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
Form of Stock Appreciation Right Agreement for grants during 2019 (incorporated herein by reference to Exhibit 10.22 to the
Annual Report on Form 10-K of Cable One, Inc. filed on February 28, 2019).+
Form of Restricted Stock Award Agreement for performance-based restricted stock grants during 2019 (incorporated herein by
reference to Exhibit 10.23 to the Annual Report on Form 10-K of Cable One, Inc. filed on February 28, 2019).+
Form of Restricted Stock Award Agreement for time-based proportional-vest restricted stock grants during 2019 (incorporated
herein by reference to Exhibit 10.24 to the Annual Report on Form 10-K of Cable One, Inc. filed on February 28, 2019).+
Form of Stock Appreciation Right Agreement for grants beginning in 2020 (incorporated herein by reference to Exhibit 10.22 to
the Annual Report on Form 10-K of Cable One, Inc. filed on February 28, 2020).+
Form of Restricted Stock Award Agreement for performance-based restricted stock grants beginning in 2020 (incorporated herein
by reference to Exhibit 10.23 to the Annual Report on Form 10-K of Cable One, Inc. filed on February 28, 2020).+
Form of Restricted Stock Award Agreement for time-based proportional-vest restricted stock grants beginning in
2020 (incorporated herein by reference to Exhibit 10.24 to the Annual Report on Form 10-K of Cable One, Inc. filed on February
28, 2020).+
Form of Restricted Stock Award Agreement for time-based cliff-vest restricted stock grants beginning in 2020 (incorporated
herein by reference to Exhibit 10.25 to the Annual Report on Form 10-K of Cable One, Inc. filed on February 28, 2020).+
Form of Non-Employee Director Restricted Stock Unit Award Agreement for annual equity grants beginning in 2020
(incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Cable One, Inc. filed on August 7,
2020).+
Form of Non-Employee Director Restricted Stock Unit Award Agreement for grants in lieu of annual cash fees beginning in
2020 (incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Cable One, Inc. filed on August
7, 2020).+
Third Restatement Agreement, dated as of October 30, 2020, among Cable One, Inc., certain of its wholly owned subsidiaries
party thereto, 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 October 30, 2020).
Second Amended and Restated Limited Liability Company Agreement, dated as of November 12, 2020, by and among Mega
Broadband Investments Holdings LLC, Cable One, Inc., and the other unitholders party thereto (incorporated herein by reference
to Exhibit 10.29 to the Annual Report on Form 10-K of Cable One, Inc. filed on February 26, 2021).†
Amendment No. 1, dated as of March 1, 2021, to the Third Amended and Restated Credit Agreement, dated as of October 30,
2020, among Cable One, Inc., certain of its wholly owned subsidiaries party thereto, 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 March 1, 2021).
Amendment No. 2, dated as of May 3, 2021, to the Third Amended and Restated Credit Agreement, dated as of October 30, 2020,
among Cable One, Inc., certain of its wholly owned subsidiaries party thereto, 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 3, 2021).
James A. Obermeyer Offer Letter dated January 22, 2020. (incorporated herein by reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q of Cable One, Inc. filed on May 7, 2021).+
Cable One, Inc. 2022 Senior Executive Severance Pay Plan (incorporated herein by reference to Exhibit 10.1 to the Current
Report on Form 8-K of Cable One, Inc. filed on January 3, 2022).+
10.34
Megan M. Detz Offer Letter dated February 12, 2021.*+
10.35
Megan M. Detz Offer Letter dated March 5, 2021.*+
10.36
Todd M. Koetje Offer Letter dated May 27, 2021.*+
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
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.*
57
31.2
32
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
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document).
101.SCH
Inline XBRL Taxonomy Extension Schema Document.*
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.*
104
The cover page of this Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL (included
within the Exhibit 101 attachments).
*
Filed herewith.
** Furnished herewith.
+ Management contract or compensatory arrangement.
†
Certain information of the exhibit (indicated by “[***]”) has been excluded as the Company has determined the omitted information (i) is not
material and (ii) would likely cause competitive harm to the Company if publicly disclosed.
ITEM 16.
FORM 10-K SUMMARY
None.
58
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 24, 2022
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 Annual Report on Form 10-K, 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
Title
/s/ Julia M. Laulis
Julia M. Laulis
/s/ Steven S. Cochran
Steven S. Cochran
/s/ Brad D. Brian
Brad D. Brian
/s/ Thomas S. Gayner
Thomas S. Gayner
/s/ Deborah J. Kissire
Deborah J. Kissire
/s/ Mary E. Meduski
Mary E. Meduski
/s/ Thomas O. Might
Thomas O. Might
/s/ Kristine E. Miller
Kristine E. Miller
/s/ Sherrese M. Smith
Sherrese M. Smith
/s/ Wallace R. Weitz
Wallace R. Weitz
/s/ Katharine B. Weymouth
Katharine B. Weymouth
Chair of the Board, President and Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
S-1
Date
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
This page intentionally left blank
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 238) .....................................................................................
Consolidated Balance Sheets as of December 31, 2021 and 2020 ........................................................................................................
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019 .........
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019 ......................................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 .....................................................
Notes to the Consolidated Financial Statements ...................................................................................................................................
Page
F-2
F-5
F-6
F-7
F-8
F-9
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, 2021
and 2020, 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, 2021, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2021 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, 2021, based on criteria established in Internal Control
- Integrated Framework (2013) issued by the COSO.
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.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Hargray from its assessment of
internal control over financial reporting as of December 31, 2021, because it was acquired by the Company in a purchase business combination
during 2021. We have also excluded Hargray from our audit of internal control over financial reporting. Hargray is a wholly-owned subsidiary
whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent
7.9% and 12.9%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.
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.
F-2
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were
communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the
consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Capitalization of Internal Labor Costs
As described in Notes 2 and 7 to the consolidated financial statements, capitalized labor costs include the direct costs of engineers and technical
personnel 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. These costs are
capitalized based on internally developed standards by position, which are updated annually (or more frequently if required). These standards are
developed utilizing a combination of actual costs incurred, survey information, operational data and management judgment. Capitalized labor costs
represent a portion of the consolidated balance of property, plant and equipment, net of $1.9 billion as of December 31, 2021.
The principal considerations for our determination that performing procedures relating to capitalization of internal labor costs is a critical audit
matter are (i) the significant judgment by management in determining the internal labor costs to be capitalized and (ii) a high degree of auditor
judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the determination of internal labor costs to be
capitalized related to survey responses and operational data.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to capitalization of internal labor costs.
These procedures also included, among others (i) evaluating the appropriateness of management’s process for determining the standard labor costs
by position, (ii) testing the data inputs related to payroll and benefits, and (iii) evaluating the reasonableness of the factors considered by
management related to survey responses received and the analysis of operational data. Evaluating the reasonableness of the factors involved
evaluating whether the factors were consistent with information contained in the survey responses received and the expected time spent on
capitalizable activities.
Fair Value of MBI net option
As described in Note 6 to the consolidated financial statements, the Company acquired a 45.0% minority equity interest in Mega Broadband
Investments Holdings LLC (“MBI”) in 2020. The Company holds a call option to purchase all but not less than all of the remaining equity interests
in MBI that the Company does not already own between January 1, 2023 and June 30, 2024. If the call option is not exercised, certain investors in
MBI hold a put option to sell (and to cause all members of MBI other than the Company to sell) to the Company all but not less than all of the
remaining equity interests in MBI that the Company does not already own between July 1, 2025 and September 30, 2025. The call and put options
(collectively referred to as the “MBI net option”) are measured at fair value using Monte Carlo simulations that rely on assumptions around MBI’s
equity value, MBI’s and the Company’s equity volatility, MBI’s and the Company’s EBITDA volatility, risk adjusted discount rates and the
Company’s cost of debt, among others. The value of the MBI net option liability was $123.6 million as of December 31, 2021 and was included
within other noncurrent liabilities. The MBI net option is remeasured at fair value on a quarterly basis resulting in a $50.3 million change in fair
value of the net option during the year ended December 31, 2021 which is reported within other income (expense), net.
The principal considerations for our determination that performing procedures relating to the fair value of the MBI net option associated with MBI
is a critical audit matter are (i) the significant judgment by management in developing the fair values of these options using the Monte Carlo
simulations, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant
assumption related to MBI’s equity value, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to the fair value of the MBI net option,
including controls over MBI’s equity value assumption. These procedures also included, among others, developing an independent range of values
for each option and performing a comparison of management’s estimate to the independently developed range to evaluate the reasonableness of
management’s estimate. Developing the independent range of values involved (i) developing an independent Monte Carlo simulation model, (ii)
testing the completeness and accuracy of the contractual information used by management to calculate the agreed-upon price to acquire the
remaining equity interests in MBI, and (iii) evaluating the reasonableness of MBI’s equity value assumption used by management. Professionals
with specialized skill and knowledge were used to assist in developing the independent Monte Carlo simulation model and developing the
independent range of values.
F-3
Acquisition of Hargray – Valuation of Acquired Customer Relationships and Franchise Agreements Intangible Assets
As described in Notes 1, 3 and 6 to the consolidated financial statements, the Company completed the acquisition of the remaining approximately
85% equity interest in Hargray that it did not already own in 2021 for net consideration of $2.1 billion, which resulted in $1.6 billion of intangible
assets. The intangible assets were comprised primarily of customer relationships of $472 million and franchise agreements of $1.1 billion.
Management recorded the customer relationships and franchise agreements at fair value on the date of the acquisition using the multi-period excess
earnings method of the income approach. Significant assumptions and estimates used in this method include projected revenue growth rates,
customer attrition rates, future EBITDA margins, future capital expenditures, synergies, and appropriate an appropriate the discount rates.
The principal considerations for our determination that performing procedures relating to the valuation of customer relationships and franchise
agreements intangible assets acquired in the acquisition of Hargray is a critical audit matter are (i) the significant judgment by management in
determining the fair value of customer relationships and franchise agreements intangible assets acquired, (ii) a high degree of auditor judgment,
subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to one customer attrition rate and
future EBITDA margins for the customer relationships intangible asset, projected revenue growth rates for the franchise agreements intangible
asset, as well as future capital expenditures, synergies, and discount rates for both intangible assets; and (iii) the audit effort involved the use of
professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to business combinations, including
controls over management’s valuation of the intangible assets development of the significant assumptions related to projected revenue growth rates,
customer attrition rate, future EBITDA margins, future capital expenditures, synergies, and discount rates. These procedures also included, among
others, reading the purchase agreement and testing management’s process for determining the fair value of the customer relationships and franchise
agreements intangible assets. Testing management’s process included (i) evaluating the appropriateness of the multi-period excess earnings method
of the income approach, (ii) testing the completeness and accuracy of the underlying data used in the multi-period excess earnings method, and (iii)
evaluating the reasonableness of significant assumptions related to customer attrition rate, future EBITDA margins, future capital expenditures,
synergies, and discount rate for the customer relationships intangible asset and projected revenue growth rates, future capital expenditures,
synergies, and discount rate for the franchise agreements intangible asset. Evaluating the reasonableness of the projected revenue growth rates,
customer attrition rate, future EBITDA margins, future capital expenditures, and synergies involved considering (i) the past performance of the
acquired business, (ii) comparable businesses, industry and peer data, and (iii) whether they were consistent with evidence obtained in other areas
of the audit. The discount rates were evaluated by considering the cost of capital of comparable businesses and other industry factors. Professionals
with specialized skill and knowledge were used to assist in the evaluation of the multi-period excess earnings method and the discount rate
assumptions.
/s/ PricewaterhouseCoopers LLP
Phoenix, Arizona
February 24, 2022
We have served as the Company’s auditor since 2014.
F-4
CABLE ONE, INC.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2021
2020
(dollars in thousands, except par values)
Assets
Current Assets:
Cash and cash equivalents ........................................................................................................................... $
Accounts receivable, net ..............................................................................................................................
Income taxes receivable ...............................................................................................................................
Prepaid and other current assets ...................................................................................................................
Total Current Assets ................................................................................................................................
Equity investments ...........................................................................................................................................
Property, plant and equipment, net ..................................................................................................................
Intangible assets, net ........................................................................................................................................
Goodwill ..........................................................................................................................................................
Other noncurrent assets ....................................................................................................................................
Total Assets ............................................................................................................................................. $
388,802 $
56,253
24,193
31,705
500,953
727,565
1,854,104
2,861,137
967,913
42,322
6,953,994 $
574,909
38,768
41,245
17,891
672,813
807,781
1,265,460
1,278,198
430,543
33,543
4,488,338
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 .....................................................................................................................................
Interest rate swap liability ................................................................................................................................
Other noncurrent liabilities ..............................................................................................................................
Total Liabilities .......................................................................................................................................
203,387 $
26,851
38,837
269,075
3,799,500
854,156
81,627
156,541
5,160,899
174,139
21,051
26,392
221,582
2,148,798
366,675
155,357
100,627
2,993,039
Commitments and contingencies (refer to note 18)
Stockholders' Equity
Preferred stock ($0.01 par value; 4,000,000 shares authorized; none issued or outstanding) ......................
Common stock ($0.01 par value; 40,000,000 shares authorized; 6,175,399 shares issued; and 6,046,362
and 6,027,704 shares outstanding as of December 31, 2021 and 2020, respectively) ..............................
Additional paid-in capital ............................................................................................................................
Retained earnings ........................................................................................................................................
Accumulated other comprehensive loss .......................................................................................................
Treasury stock, at cost (129,037 and 147,695 shares held as of December 31, 2021 and 2020,
-
-
62
555,640
1,456,543
(82,795)
62
535,586
1,228,172
(140,683)
respectively) ............................................................................................................................................
Total Stockholders' Equity ......................................................................................................................
Total Liabilities and Stockholders' Equity ............................................................................................... $
(136,355)
1,793,095
6,953,994 $
(127,838)
1,495,299
4,488,338
See accompanying notes to the consolidated financial statements.
F-5
CABLE ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(dollars in thousands, except per share data)
Revenues ............................................................................................................................ $
Costs and Expenses:
Operating (excluding depreciation and amortization) ....................................................
Selling, general and administrative ................................................................................
Depreciation and amortization .......................................................................................
(Gain) loss on asset sales and disposals, net ..................................................................
Gain on sale of business ................................................................................................
Total Costs and Expenses ..........................................................................................
Income from operations .....................................................................................................
Interest expense .................................................................................................................
Other income (expense), net ..............................................................................................
Income before income taxes and equity method investment income (loss), net .................
Income tax provision .........................................................................................................
Income before equity method investment income (loss), net .............................................
Equity method investment income (loss), net ....................................................................
Net income ......................................................................................................................... $
Year Ended December 31,
2020
1,325,229 $
2021
1,605,836 $
2019
1,167,997
455,352
347,058
339,025
7,829
-
1,149,264
456,572
(113,449)
(6,002)
337,121
45,765
291,356
468
291,824 $
418,704
255,163
265,658
(1,072)
(82,574)
855,879
469,350
(73,607)
(16,411)
379,332
76,317
303,015
1,376
304,391 $
388,552
245,120
216,687
7,187
-
857,546
310,451
(71,729)
(4,907)
233,815
55,233
178,582
-
178,582
Net Income per Common Share:
Basic .............................................................................................................................. $
Diluted ........................................................................................................................... $
48.49 $
46.49 $
51.73 $
51.27 $
31.45
31.12
Weighted Average Common Shares Outstanding:
Basic ..............................................................................................................................
Diluted ...........................................................................................................................
6,017,778
6,387,354
5,884,780
5,937,582
5,678,990
5,737,856
Unrealized gain (loss) on cash flow hedges and other, net of tax ....................................... $
Comprehensive income ...................................................................................................... $
57,888 $
349,712 $
(72,525) $
231,866 $
(68,062)
110,520
See accompanying notes to the consolidated financial statements.
F-6
CABLE ONE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(dollars in thousands, except per share
data)
Common Stock
Shares
Additional
Paid-In
Amount Capital
59
Retained Comprehensive Stock,
at cost
Earnings
(96 ) (113,795 )
38,898 850,292
Loss
Total
Stockholders’
Equity
Accumulated
Other
Treasury
Balance at December 31, 2018 ............ 5,703,402
Lease accounting standard adoption
cumulative adjustment .......................
Net income ............................................
Unrealized loss on cash flow hedges
and other, 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 ($8.50
-
-
-
-
21,480
(5,984 )
(3,521 )
per common share) ............................
-
Balance at December 31, 2019 ............ 5,715,377
Net income ............................................
-
Unrealized loss on cash flow hedges
-
and other, net of tax ...........................
Equity-based compensation ...................
-
Issuance of common stock ..................... 287,500
Issuance of equity awards, net of
forfeitures ..........................................
Withholding tax for equity awards ........
Dividends paid to stockholders ($9.50
28,688
(3,861 )
per common share) ............................
-
Balance at December 31, 2020 ............ 6,027,704 $
Net income ............................................
-
Unrealized gain on cash flow hedges
and other, net of tax ...........................
Equity-based compensation ...................
Issuance of equity awards, net of
forfeitures ..........................................
Withholding tax for equity awards ........
Dividends paid to stockholders ($10.50
-
-
22,569
(3,911 )
-
-
-
-
-
-
-
-
8
- 178,582
-
12,300
-
-
-
-
-
-
-
-
-
59
-
-
(48,527 )
51,198 980,355
- 304,391
-
-
3
-
-
-
14,592
469,796
-
-
-
-
-
-
-
-
(68,062 )
-
-
-
-
-
-
-
-
-
(5,073 )
(3,017 )
-
-
(68,158 ) (121,885 )
-
-
(72,525 )
-
-
-
775,358
8
178,582
(68,062 )
12,300
-
(5,073 )
(3,017 )
(48,527 )
841,569
304,391
(72,525 )
14,592
469,799
-
-
-
(5,953 )
-
(5,953 )
-
(56,574 )
-
62 $ 535,586 $ 1,228,172 $
- 291,824
-
-
-
(140,683 ) $ (127,838 ) $
-
-
-
-
-
-
-
20,054
-
-
-
-
-
-
57,888
-
-
-
-
-
-
(8,517 )
(56,574 )
1,495,299
291,824
57,888
20,054
-
(8,517 )
per common share) ............................
-
Balance at December 31, 2021 ............ 6,046,362 $
-
(63,453 )
-
62 $ 555,640 $ 1,456,543 $
-
-
(82,795 ) $ (136,355 ) $
(63,453 )
1,793,095
See accompanying notes to the consolidated financial statements.
F-7
CABLE ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income .................................................................................................................... $
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ...................................................................................
Non-cash interest expense .........................................................................................
Equity-based compensation .......................................................................................
Write-off of debt issuance costs ................................................................................
Change in deferred income taxes ...............................................................................
(Gain) loss on asset sales and disposals, net ..............................................................
Gain on sale of business ............................................................................................
Equity method investment (income) loss, net ............................................................
Fair value adjustments ...............................................................................................
Gain on step acquisition ............................................................................................
Changes in operating assets and liabilities:
Accounts receivable, net ........................................................................................
Income taxes receivable ........................................................................................
Prepaid and other current assets ............................................................................
Accounts payable and accrued liabilities ...............................................................
Deferred revenue ...................................................................................................
Other .....................................................................................................................
Net cash provided by operating activities ..........................................................................
Cash flows from investing activities:
Purchase of businesses, net of cash acquired .................................................................
Purchase of equity investments ......................................................................................
Dividends received ........................................................................................................
Proceeds from sale of equity investment .......................................................................
Capital expenditures ......................................................................................................
Change in accrued expenses related to capital expenditures ..........................................
Purchase of wireless licenses .........................................................................................
Proceeds from sales of property, plant and equipment ...................................................
Issuance of note and other receivables ...........................................................................
Settlement of note and other receivables .......................................................................
Net cash used in investing activities ..................................................................................
Cash flows from financing activities:
Proceeds from equity issuance .......................................................................................
Proceeds from long-term debt borrowings .....................................................................
Payment of equity issuance costs ...................................................................................
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 ......................................................................................
Deposits received for asset construction ........................................................................
Net cash provided by financing activities ..........................................................................
Year Ended December 31,
2020
2021
2019
291,824 $
304,391 $
178,582
339,025
9,157
20,054
2,131
28,993
7,829
-
(468)
48,027
(33,406)
1,884
17,772
(5,595)
(23,184)
2,543
(2,245)
704,341
(2,065,982)
(95,800)
68,706
5,325
(391,934)
7,407
-
708
-
-
(2,471,570)
-
1,695,850
-
(13,742)
(30,501)
-
(8,517)
(63,453)
1,485
1,581,122
265,658
4,305
14,592
6,181
87,182
(1,072)
(82,574)
(1,376)
17,510
-
139
(39,099)
(2,189)
11,781
(2,961)
(8,097)
574,371
(38,296)
(612,124)
-
-
(293,229)
(9,288)
(1,418)
730
(7,288)
6,000
(954,913)
488,750
1,050,000
(18,951)
(15,064)
(612,028)
-
(5,953)
(56,574)
-
830,180
216,687
4,646
12,300
4,210
50,011
7,187
-
-
-
-
(3,520)
8,567
(462)
16,452
(1,432)
(1,487)
491,741
(883,440)
-
-
-
(262,352)
4,511
-
7,039
-
-
(1,134,242)
-
1,275,000
-
(11,844)
(702,880)
(5,073)
(3,017)
(48,527)
-
503,659
Increase (decrease) in cash and cash equivalents ...............................................................
Cash and cash equivalents, beginning of period ................................................................
Cash and cash equivalents, end of period .......................................................................... $
(186,107)
574,909
388,802 $
449,638
125,271
574,909 $
(138,842)
264,113
125,271
Supplemental cash flow disclosures:
Cash paid for interest, net of capitalized interest ........................................................... $
Cash paid for income taxes, net of refunds received ...................................................... $
102,891 $
(1,243) $
65,007 $
28,230 $
67,907
(3,585)
See accompanying notes to the consolidated financial statements.
F-8
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” or the “Company”), is a fully integrated provider of data,
video and voice services to residential and business subscribers in 24 Western, Midwestern and Southern U.S. states. At the end of 2021, Cable
One provided service to approximately 1.2 million residential and business customers, of which approximately 1,055,000 subscribed to data
services, 261,000 subscribed to video services and 149,000 subscribed to voice services.
On January 8, 2019, the Company acquired Delta Communications, L.L.C. (“Clearwave”) for a purchase price of $358.8 million. On October 1,
2019, the Company acquired Fidelity Communications Co.’s data, video and voice business and certain related assets (collectively, “Fidelity”) for
a purchase price of $531.4 million. On July 1, 2020, the Company acquired Valu-Net LLC (“Valu-Net”) for a purchase price of $38.9 million. The
purchase price for each of these transactions was in cash on a debt-free basis. Refer to note 3 for details on these transactions.
On October 1, 2020, the Company contributed its Anniston, Alabama system (the “Anniston System”) to Hargray Acquisition Holdings, LLC, a
data, video and voice services provider (“Hargray”), in exchange for an approximately 15% equity interest in Hargray on a fully diluted basis (the
“Anniston Exchange”). On May 3, 2021, the Company acquired the remaining approximately 85% equity interest in Hargray that it did not already
own for an approximately $2.0 billion cash purchase price, which implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-
free basis (the "Hargray Acquisition"). The all-cash transaction was funded through a combination of cash on hand and proceeds from new
indebtedness. Refer to notes 3 and 6 for further details on this transaction.
On December 30, 2021, the Company acquired certain assets and assumed certain liabilities from Cable America Missouri, LLC, a data, video and
voice services provider in central Missouri ("CableAmerica"), for $113.1 million in cash on a debt-free basis, subject to customary post-closing
adjustments. The CableAmerica acquisition was financed with cash on hand. Refer to note 3 for further details on this transaction.
The Company also made various strategic equity investments during 2020 and 2021. Refer to note 6 for further information.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting
principles 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, 2021, 2020 and 2019 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 Standards Codification (“ASC”) 280 - Segment Reporting requires the disclosure of factors used to identify an
entity’s reportable segments. Based on the Company’s chief operating decision maker’s review and assessment of the Company’s operating
performance for purposes of performance monitoring and resource allocation, the Company determined that its operations, including the decisions
to allocate resources and deploy capital, are organized and managed on a consolidated basis. Accordingly, management has identified one operating
segment, which is its reportable segment, under this organizational and reporting structure.
Use of Estimates. The preparation of the 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. Such subscriptions are generally on month
to month terms, and generally 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.
The unit of accounting 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.
F-9
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.
Fees imposed on the Company by various governmental authorities, including franchise fees, are passed through on a monthly basis to the
Company’s customers and are periodically remitted to authorities. As the Company acts as principal, these fees are reported in video and voice
revenues on a gross basis with corresponding expenses included within operating expenses in the consolidated statements of operations and
comprehensive income.
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 $40.1 million,
$31.6 million and $34.3 million in 2021, 2020 and 2019, respectively.
Cash Equivalents. 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 plus accrued interest and dividends, which approximates market value.
Allowance for Credit Losses. 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 credit losses 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
measurement. 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.
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. Assets and liabilities that are measured using significant unobservable inputs are valued using various valuation techniques,
including Monte Carlo simulations.
The Company measures certain assets, including property, plant and equipment, intangible assets and goodwill, 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.
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.
F-10
Equity Investments. Equity investments that do not provide the Company the ability to exert significant influence over the operating or financial
decisions of the investee are accounted for under the fair value measurement alternative. This method requires the initial fair value of the investment
to be recorded as an asset within the consolidated balance sheet and any dividends received from the investee to be recorded as other income within
the consolidated statement of operations and comprehensive income. If observable price changes for identical or similar investments in the same
investee are identified, the recorded carrying value will be adjusted to its current estimated fair value, with the change recorded within other income
or expense.
Equity investments that do provide the Company with the ability to exert significant influence over the operating or financial decisions of the
investee are accounted for under the equity method. The equity method requires the initial fair value of the investment to be recorded as an asset
within the consolidated balance sheet. Based on its ownership percentage, the Company then recognizes its proportionate share of the investee’s
net income (loss) each period within equity method investment income (loss) in the consolidated statement of operations and comprehensive income
and a corresponding increase (decrease) to the investment’s carrying value within the consolidated balance sheet. As permitted by GAAP, the
Company elected to recognize its proportionate share of such net income (loss) for each of its equity method investments on a one quarter lag.
Additionally, any dividends received from an equity method investee are accounted for as a reduction in the carrying value of the investment within
the consolidated balance sheet. Dividends deemed to be a return on investment are classified as operating cash flows within the consolidated
statements of cash flows, while dividends deemed to be a return of investment are classified as investing cash flows. Further, any material difference
between the carrying value of an equity method investment and the Company’s underlying equity in the net assets of the investee attributable to
depreciable property, plant and equipment and/or amortizable intangible assets will result in an adjustment to the amount of net income (loss)
recognized by the Company each period.
For each of the Company’s equity investments that have readily determinable fair values, the Company assesses each investment for indicators of
impairment on a quarterly basis based primarily on the investee’s most recently available financial and operating information. If it is determined
that the fair value of an investment has fallen below its carrying value, the carrying value is adjusted down to fair value and an impairment loss
equal to the amount of the adjustment is recognized within the period’s statement of operations and comprehensive income.
Property, Plant and Equipment. Property, plant and equipment is recorded at cost less accumulated depreciation and amortization. Costs for
replacements and major improvements are capitalized while costs for maintenance and repairs are expensed as incurred. Depreciation and
amortization are calculated using the straight-line method for all assets, with the exception of capitalized internal and external labor, which are
depreciated using an accelerated method. The estimated useful life ranges for each category of property, plant and equipment are as follows (in
years):
Cable distribution systems ................................................................
Customer premise equipment ............................................................
Other equipment and fixtures ............................................................
Buildings and improvements ............................................................
Capitalized software .........................................................................
Right-of-use (“ROU”) assets ............................................................
5 – 25
3 – 5
3 – 10
10 – 20
3 – 7
1 – 5
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 of customer premise equipment, including materials,
internal and external labor costs and related indirect and overhead costs, are capitalized.
Capitalized labor costs include the direct costs of engineers and technical personnel 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. These costs are capitalized based on
internally developed standards by position, which are updated annually (or more frequently if required). These standards are developed utilizing a
combination of actual costs incurred where applicable, survey information, operational data and management judgment. Overhead costs are
capitalized based on standards developed from historical information. Indirect and overhead costs include payroll taxes; insurance and other
benefits; and vehicle, tool and supply expense related to installation activities. 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, on-premises and cloud-based software,
including costs associated with coding, software configuration, upgrades and enhancements.
Evaluation of Long-Lived Assets. The recoverability of property, plant and equipment and finite-lived 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 customer relationships, trademarks and trade names and wireless licenses
and are amortized using a straight-line or accelerated method over the respective estimated periods for which the assets will provide economic
benefit to the Company.
F-11
Indefinite-Lived Intangible Assets. The Company’s intangible assets with an indefinite life are franchise agreements that it has with state and
local governments and certain trade names. Franchise agreements allow the Company to contract and operate its business within specified
geographic areas. 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 modifications to the
agreements for nominal costs, and these costs are expensed as incurred. The Company currently expects to utilize certain trade names for a period
that extends beyond the foreseeable horizon and expects the cost to maintain such asset to be nominal.
The Company has identified a single unit of accounting for its franchise agreements for use in impairment assessments based on the Company’s
current operations and use of its assets.
The Company assesses the recoverability of its indefinite-lived intangible assets as of October 1st 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 accounting used to test for
impairment 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 franchise agreements primarily based on a multi-period excess earnings method (“MPEEM”) analysis and
estimates the fair value of certain trade names primarily based on a relief-from-royalty analysis, both of which involve significant judgment. When
analyzing the fair values indicated under the MPEEM analysis, the Company also considers multiples of earnings before interest, taxes, depreciation
and amortization (“EBITDA” and as adjusted, “Adjusted EBITDA”) generated by the underlying assets, current market transactions and
profitability information. If the fair value of indefinite-lived intangible assets were determined to be 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 an assembled workforce, noncontractual relationships and other agreements. The Company assesses the
recoverability of its goodwill as of October 1st 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, for which it has identified a single goodwill reporting unit based on the
chief operating decision maker’s performance monitoring and resource allocation process and the similarity of its geographic divisions.
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).
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 accrued.
Equity-Based Compensation. The Company measures compensation expense related to equity-based awards based on the grant date fair value of
the awards. The Company recognizes the expense on a straight-line basis over the requisite service period, which is generally the vesting period of
the award, with forfeitures recognized as incurred.
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 consolidated 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.
The Company records 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 deferred 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
F-12
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.
Business Combination Purchase Price Allocation. The application of the acquisition method under ASC 805 - Business Combinations (“ASC
805”) requires the Company to allocate the purchase price amongst the acquisition date fair values of identifiable assets acquired and liabilities
assumed in a business combination. The Company determines fair values using the income approach, market approach and/or cost approach
depending on the nature of the asset or liability being valued and the reliability of available information. The income approach estimates fair value
by discounting associated lifetime expected future cash flows to their present value and relies on significant assumptions regarding future revenues,
expenses, working capital levels and discount rates. The market approach estimates fair value by analyzing recent actual market transactions for
similar assets or liabilities. The cost approach estimates fair value based on the expected cost to replace or reproduce the asset or liability and relies
on assumptions regarding the occurrence and extent of any physical, functional and/or economic obsolescence.
Recently Adopted Accounting Pronouncements. In August 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting
Standards Update (“ASU”) No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-
Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-
06 simplifies the accounting for certain financial instruments with characteristics of both liabilities and equity by reducing the number of applicable
accounting models and improving the decision usefulness and relevance of the information provided to financial statement users. As it relates to
convertible instruments, this update amends existing guidance to reduce certain form-over-substance-based accounting conclusions, provides
additional earnings per share guidance and improves disclosure effectiveness. The Company early adopted ASU 2020-06 on January 1, 2021 and
accounted for the Convertible Notes (as defined and described in note 10) issued during the first quarter of 2021 under the updated guidance.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12
removes certain exceptions related to intraperiod tax allocations, foreign subsidiaries and interim reporting that are present within existing GAAP.
The ASU also provides updated guidance regarding the tax treatment of certain franchise taxes, goodwill and nontaxable entities, among other
items. In addition, ASU 2019-12 clarifies that the effect of a change in tax laws or rates should be reflected in the annual effective tax rate
computation during the interim period that includes the enactment date. Certain provisions must be adopted on prescribed retrospective, modified
retrospective and prospective bases, while other provisions may be adopted on either a retrospective or modified retrospective basis. The
Company adopted ASU 2019-12 on January 1, 2021 on a prospective basis. The adoption did not have a material impact on the
Company's consolidated financial statements.
Recently Issued But Not Yet Adopted Accounting Pronouncements. In November 2021, the FASB issued ASU No. 2021-10, Government
Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. ASU 2021-10 requires additional disclosure around the
type of any government assistance received and its impact on the consolidated financial statements. The ASU may be adopted at any time through
December 31, 2022. The Company is currently evaluating the timing and expected impact of the adoption of this guidance on its consolidated
financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers. ASU 2021-08 will require entities to apply Topic 606 to recognize and measure contract assets and contract
liabilities in a business combination. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The
Company is currently evaluating the expected impact of the adoption of this guidance on its consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other
transactions that reference London Interbank Offered Rate (“LIBOR”) and other reference rates expected to be discontinued at the end of 2021.
The ASU may be adopted at any time through December 31, 2022. The Company currently holds certain debt and interest rate swaps that reference
LIBOR. The Company plans to adopt ASU 2020-04 when the contracts underlying such instruments are amended as a result of reference rate
reform. The Company is currently evaluating the expected impact of the adoption of this guidance on its consolidated financial statements.
3.
ACQUISITIONS
The Company accounts for certain acquisitions as business combinations pursuant to ASC 805. In accordance with ASC 805, the Company uses
its best estimates and assumptions to assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the
acquisition date based on the information that is available as of the acquisition date. The Company believes that the information available provides
a reasonable basis for estimating the fair values of assets acquired and liabilities assumed for each acquisition, however, preliminary measurements
of fair value for each acquisition are subject to change during the measurement period, and such changes could be material. The Company expects
to finalize the valuation after each acquisition as soon as practicable but no later than one year after the acquisition date.
Customer relationships and franchise agreements acquired in acquisitions are valued using the MPEEM of the income approach. Significant
assumptions used in the valuations include projected revenue growth rates, customer attrition rates, future EBITDA margins, future capital
expenditures, synergies and appropriate discount rates.
F-13
Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired in a business
combination and represents the future economic benefits expected to arise from anticipated synergies and intangible assets that do not qualify for
separate recognition, including an assembled workforce, noncontractual relationships and other agreements. As an indefinite-lived asset, goodwill
is not amortized but rather is subject to impairment testing on at least an annual basis. The change in carrying value of goodwill as a result of
acquisitions during the periods presented was as follows (in thousands):
Balance at December 31, 2019 .................................................................................................................................................... $
Valu-Net acquisition goodwill recognized .....................................................................................................................................
Anniston Exchange goodwill disposed ..........................................................................................................................................
Balance at December 31, 2020 .................................................................................................................................................... $
Hargray Acquisition goodwill recognized .....................................................................................................................................
CableAmerica acquisition goodwill recognized .............................................................................................................................
Balance at December 31, 2021 .................................................................................................................................................... $
429,597
5,279
(4,333)
430,543
511,817
25,553
967,913
Goodwill
Acquisition costs incurred by the Company are not included as components of consideration transferred and instead are accounted for as expenses
in the period in which the costs are incurred. The Company incurred $10.8 million, $3.9 million and $9.6 million of acquisition-related costs in
2021, 2020 and 2019, respectively. These costs are included within selling, general and administrative expenses in the Company’s consolidated
statements of operations and comprehensive income.
The following acquisitions occurred during the periods presented:
CableAmerica. On December 30, 2021, the Company acquired CableAmerica, a data, video and voice services provider in central Missouri, for a
purchase price of $113.1 million. The CableAmerica acquisition is expected to provide the Company opportunities for footprint expansion in
Missouri, margin growth and potential cost synergy realization.
Acquired identifiable intangible assets associated with the CableAmerica acquisition consisted of the following (dollars in thousands):
Fair Value
Useful Life
(in years)
Customer relationships ........................................................................................................................... $
Trademark and trade name ...................................................................................................................... $
Franchise agreements .............................................................................................................................. $
15,400
500
49,600
14.0
3.0
Indefinite
No residual value was assigned to the acquired customer relationships, trademark and trade name or franchise agreements. The customer
relationships are amortized on an accelerated basis commensurate with future anticipated cash flows. The trademark and trade name are amortized
on a straight-line basis. The total weighted average amortization period for the acquired finite-lived intangible assets is 13.7 years.
Hargray. On May 3, 2021, the Company acquired the remaining approximately 85% equity interest in Hargray, a data, video and voice services
provider, that it did not already own for an approximately $2.0 billion cash purchase price, which implied a $2.2 billion total enterprise value for
Hargray on a cash-free and debt-free basis. The all-cash transaction was funded through a combination of cash on hand and proceeds from
indebtedness. The Hargray Acquisition expands the Company’s presence in the Southeastern U.S. and the Company expects to capitalize on
Hargray’s experience and expertise in fiber expansion.
F-14
The following table summarizes the allocation of the Hargray purchase price consideration as of the acquisition date, reflecting immaterial
measurement period adjustments (in thousands):
Preliminary
Purchase
Measurement
Period
Price Allocation Adjustments
Preliminary
Purchase
Price Allocation
Assets Acquired
Cash and cash equivalents .................................................................................... $
Accounts receivable ..............................................................................................
Income taxes 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 (short-term portion) ..................................................................
Current portion of long-term debt .........................................................................
Long-term debt .....................................................................................................
Deferred income taxes ..........................................................................................
Other noncurrent liabilities ...................................................................................
Total Liabilities Assumed .....................................................................................
17,652 $
17,991
-
8,006
457,158
1,592,000
4,636
2,097,443
36,457
8,462
1,375
2,912
437,725
6,974
493,905
Net assets acquired .............................................................................................
Purchase price consideration(1) ..............................................................................
Goodwill recognized ........................................................................................... $
1,603,538
2,117,866
514,328 $
- $
(62)
720
-
(525)
-
2,940
3,073
1,770
-
(1,375)
(2,912)
923
2,912
1,318
1,755
(756)
(2,511) $
17,652
17,929
720
8,006
456,633
1,592,000
7,576
2,100,516
38,227
8,462
-
-
438,648
9,886
495,223
1,605,293
2,117,110
511,817
(1) Consists of approximately $2.0 billion of cash for the additional approximately 85% equity interest in Hargray that the Company
did not already own and the $146.6 million May 3, 2021 fair value of the Company’s existing approximately 15% equity investment in
Hargray. The Company recognized a $33.4 million non-cash gain within other income in the consolidated statement of operations and
comprehensive income upon the acquisition, representing the difference between the existing equity investment’s fair value and
$113.2 million carrying value. The fair value of the existing investment was calculated as approximately 15% of the fair value of Hargray’s
total equity value (determined using the discounted cash flow method of the income approach, less debt), excluding the impact of any
synergies or control premium that would be realized by a controlling interest.
F-15
Acquired identifiable intangible assets associated with the Hargray Acquisition consist of the following (dollars in thousands):
Fair Value
Useful Life
(in years)
Customer relationships ........................................................................................................................... $
Trademark and trade name ...................................................................................................................... $
Franchise agreements .............................................................................................................................. $
472,000
10,000
1,110,000
13.7
4.2
Indefinite
No residual value was assigned to the acquired customer relationships, trademark and trade name or franchise agreements. The customer
relationships are amortized on an accelerated basis commensurate with future anticipated cash flows. The trademark and trade name are amortized
on a straight-line basis. The total weighted average original amortization period for the acquired finite-lived intangible assets is 13.5 years.
The Hargray Acquisition resulted in the recognition of $511.8 million of goodwill, which is not deductible for tax purposes.
For the year ended December 31, 2021, the Company recognized revenues of $206.9 million and net income of $15.4 million from Hargray
operations since the acquisition date of May 3, 2021, which included acquired intangible assets amortization expense of $34.0 million.
The following unaudited pro forma combined results of operations information has been prepared as if the Hargray Acquisition had occurred
on January 1, 2020 (in thousands, except per share data):
Revenues ................................................................................................................................................. $
Net income .............................................................................................................................................. $
Net income per common share:
Basic ....................................................................................................................................................... $
Diluted .................................................................................................................................................... $
(Unaudited)
Year Ended December 31,
2020
2021
1,708,734 $
230,685 $
1,584,384
273,483
38.33 $
36.51 $
46.47
44.11
The unaudited pro forma combined results of operations information reflects the following pro forma adjustments (dollars in thousands):
(Unaudited)
Year Ended December 31,
2020
2021
Depreciation and amortization ................................................................................................................ $
Interest expense ...................................................................................................................................... $
Acquisition costs ..................................................................................................................................... $
Gain on step acquisition .......................................................................................................................... $
Income tax provision .............................................................................................................................. $
Weighted average common shares outstanding – diluted ........................................................................
(6,152 ) $
(2,804 ) $
(15,403 ) $
(33,400 ) $
33,577 $
71,219
(14,866 )
(21,001 )
-
-
8,967
404,248
The unaudited pro forma combined results of operations information is provided for informational purposes only and is not necessarily intended to
represent the results that would have been achieved had the Hargray Acquisition been consummated on January 1, 2020 or indicative of the results
that may be achieved in the future.
Valu-Net. On July 1, 2020, the Company acquired Valu-Net, an all-fiber internet service provider headquartered in Kansas, for a purchase price of
$38.9 million.
Acquired identifiable intangible assets associated with the Valu-Net acquisition consisted of the following (dollars in thousands):
Fair Value
Useful Life
(in years)
Customer relationships ........................................................................................................................... $
Trademark and trade name ...................................................................................................................... $
Franchise agreements .............................................................................................................................. $
7,700
800
11,200
13.5
Indefinite
Indefinite
No residual value was assigned to the acquired customer relationships, trademark and trade name or franchise agreements. The customer
relationships are amortized on an accelerated basis commensurate with future anticipated cash flows.
Fidelity. On October 1, 2019, the Company acquired Fidelity, a provider of data, video and voice services to residential and business customers
throughout Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas for a purchase price of $531.4 million. Cable One and Fidelity share
similar strategies, customer demographics and products. The Fidelity acquisition provides the Company opportunities for revenue growth and
Adjusted EBITDA margin expansion as well as the potential to realize cost synergies.
F-16
A summary of the allocation of the Fidelity purchase price consideration as of the acquisition date, reflecting all measurement period adjustments,
was as follows (in thousands):
Purchase Price
Allocation
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, short-term portion .............................................................................................................................................
Other noncurrent liabilities ............................................................................................................................................................
Total Liabilities Assumed ..........................................................................................................................................................
Net assets acquired ......................................................................................................................................................................
Purchase price consideration ..........................................................................................................................................................
Goodwill recognized .................................................................................................................................................................... $
4,869
3,691
1,756
173,904
288,000
1,895
474,115
8,795
1,796
3,715
14,306
459,809
531,392
71,583
Acquired identifiable intangible assets associated with the Fidelity acquisition consisted of the following (dollars in thousands):
Customer relationships ........................................................................................................................... $
Trademark and trade name ...................................................................................................................... $
Franchise agreements .............................................................................................................................. $
119,000
3,000
166,000
14
3
Indefinite
No residual value is assigned to the acquired customer relationships, trademark and trade name or franchise agreements. The customer relationships
are amortized on an accelerated basis commensurate with future anticipated cash flows. The trademark and trade name are amortized on a straight-
line basis. The total weighted average original amortization period for the acquired finite-lived intangible assets is 13.7 years.
Fair Value
Useful Life
(in years)
The measurement period ended on September 30, 2020.
The Fidelity acquisition resulted in the recognition of $71.6 million of goodwill, which is deductible for tax purposes.
Clearwave. On January 8, 2019, the Company acquired Clearwave, a facilities-based service provider that owns and operates a high-capacity fiber
network offering dense regional coverage in Southern Illinois for a purchase price of $358.8 million. The Clearwave 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.
A summary of the allocation of the Clearwave purchase price consideration as of the acquisition date, reflecting all measurement period adjustments,
is as follows (in thousands):
Purchase Price
Allocation
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, short-term portion .............................................................................................................................................
Deferred income taxes ...................................................................................................................................................................
Other noncurrent liabilities ............................................................................................................................................................
Total Liabilities Assumed ..........................................................................................................................................................
Net assets acquired ......................................................................................................................................................................
Purchase price consideration ..........................................................................................................................................................
Goodwill recognized .................................................................................................................................................................... $
1,913
1,294
311
120,472
89,700
3,533
217,223
2,128
4,322
32,771
5,057
44,278
172,945
358,830
185,885
F-17
Acquired identifiable intangible assets associated with the Clearwave acquisition consisted of the following (dollars in thousands):
Customer relationships ........................................................................................................................... $
Trade name ............................................................................................................................................. $
83,000
6,700
17
Indefinite
No residual value is assigned to the acquired customer relationships or trademark and trade name. The customer relationships are amortized on a
straight-line basis.
The measurement period ended on January 7, 2020.
The Clearwave acquisition resulted in the recognition of $185.9 million of goodwill, which is not deductible for tax purposes.
Fair Value
Useful Life
(in years)
4.
REVENUES
Revenues by product line and other revenue-related disclosures were as follows (in thousands):
Year Ended December 31,
2020
2021
2019
Residential
Data ............................................................................................................................... $
Video .............................................................................................................................
Voice .............................................................................................................................
Business services ...............................................................................................................
Other ..................................................................................................................................
Total revenues ........................................................................................................... $
835,725 $
339,707
47,519
308,767
74,118
1,605,836 $
669,545 $
332,857
47,603
234,657
40,567
1,325,229 $
547,240
335,190
43,521
204,500
37,546
1,167,997
Franchise and other regulatory fees ................................................................................... $
Deferred commission amortization .................................................................................... $
31,418 $
5,405 $
25,206 $
5,478 $
22,702
3,992
Other revenues are comprised primarily of regulatory revenues, advertising sales, late charges and reconnect fees.
Fees imposed on the Company by various governmental authorities, including franchise fees, are passed through on a monthly basis to the
Company’s customers and are periodically remitted to authorities. As the Company acts as principal, these fees are reported in video and voice
revenues on a gross basis with corresponding expenses included within operating expenses in the consolidated statements of operations and
comprehensive income.
Net accounts receivable from contracts with customers totaled $39.4 million and $31.5 million at December 31, 2021 and 2020, respectively.
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.
Commission amortization expense is included within selling, general and administrative expenses in the consolidated statements of operations and
comprehensive income.
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 consist of refundable customer prepayments, up-front charges and
installation fees. As of December 31, 2021, the Company’s remaining performance obligations pertain to the refundable customer prepayments and
consist of providing future data, video and voice services to customers. The $21.1 million of current deferred revenue at December 31, 2020 was
recognized within revenues in the consolidated statement of operations and comprehensive income during 2021. Noncurrent deferred revenue
liabilities consist of up-front charges and installation fees from business customers.
F-18
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 a
distinct service 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 used 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.
5.
OPERATING ASSETS AND LIABILITIES
Accounts receivable consisted of the following (in thousands):
As of December 31,
2021
2020
Trade receivables ............................................................................................................................................. $
Other receivables .............................................................................................................................................
Less: Allowance for credit losses .....................................................................................................................
Total accounts receivable, net ...................................................................................................................... $
41,947 $
16,847
(2,541)
56,253 $
32,795
7,225
(1,252)
38,768
The changes in the allowance for credit losses were as follows (in thousands):
Beginning balance ............................................................................................................ $
Additions - charged to costs and expenses .........................................................................
Deductions - write-offs ......................................................................................................
Recoveries collected ..........................................................................................................
Ending balance ................................................................................................................. $
1,252 $
5,965
(10,587)
5,911
2,541 $
1,201 $
7,527
(13,603)
6,127
1,252 $
2,045
6,500
(13,504)
6,160
1,201
Year Ended December 31,
2020
2021(1)
2019
(1) Additions include $1.4 million of additional reserves assumed in the Hargray Acquisition.
Prepaid and other current assets consisted of the following (in thousands):
As of December 31,
2021
2020
Prepaid repairs and maintenance ...................................................................................................................... $
Software implementation costs ........................................................................................................................
Prepaid insurance .............................................................................................................................................
Prepaid rent ......................................................................................................................................................
Prepaid software ..............................................................................................................................................
Deferred commissions .....................................................................................................................................
All other current assets ....................................................................................................................................
Total prepaid and other current assets .......................................................................................................... $
4,788 $
1,199
3,325
2,107
6,982
4,295
9,009
31,705 $
1,013
1,035
2,200
1,471
4,544
4,026
3,602
17,891
Other noncurrent assets consisted of the following (in thousands):
Operating lease ROU assets ............................................................................................................................. $
Deferred commissions .....................................................................................................................................
Software implementation costs ........................................................................................................................
Debt issuance costs ..........................................................................................................................................
Assets held for sale ..........................................................................................................................................
All other noncurrent assets ...............................................................................................................................
Total other noncurrent assets ....................................................................................................................... $
15,501 $
8,624
7,782
2,576
3,819
4,020
42,322 $
13,408
5,798
6,879
3,249
-
4,209
33,543
As of December 31,
2021
2020
F-19
Accounts payable and accrued liabilities consisted of the following (in thousands):
As of December 31,
2021
2020
Accounts payable ............................................................................................................................................. $
Accrued programming costs ............................................................................................................................
Accrued compensation and related benefits .....................................................................................................
Accrued sales and other operating taxes ..........................................................................................................
Accrued franchise fees .....................................................................................................................................
Deposits ...........................................................................................................................................................
Operating lease liabilities .................................................................................................................................
Interest rate swap liability ................................................................................................................................
Accrued insurance costs ...................................................................................................................................
Cash overdrafts ................................................................................................................................................
Equity investment payable(1) ............................................................................................................................
Interest payable ................................................................................................................................................
Amount due to Hargray(2) ................................................................................................................................
All other accrued liabilities ..............................................................................................................................
Total accounts payable and accrued liabilities ............................................................................................. $
35,716 $
23,703
34,731
12,872
4,397
6,840
5,633
26,662
5,542
11,517
13,387
5,172
-
17,215
203,387 $
22,686
20,279
26,467
7,425
4,021
6,300
3,772
30,646
7,292
8,847
13,387
4,128
6,822
12,067
174,139
(1) Consists of the unfunded portion of the Company’s equity investment in Wisper. Refer to note 6 for details on this transaction.
(2) Consists of amount due to Hargray in connection with transition services provided as part of the Anniston Exchange. Refer to note 6 for
details on this transaction.
Other noncurrent liabilities consisted of the following (in thousands):
Operating lease liabilities ................................................................................................................................. $
Accrued compensation and related benefits .....................................................................................................
Deferred revenue .............................................................................................................................................
MBI Net Option (as defined in note 6)(1) .........................................................................................................
All other noncurrent liabilities .........................................................................................................................
Total other noncurrent liabilities .................................................................................................................. $
9,098 $
11,010
6,854
123,620
5,959
156,541 $
8,701
10,086
4,981
73,310
3,549
100,627
As of December 31,
2021
2020
(1) Represents the net value of the Company’s call and put options associated with the remaining equity interests in MBI (as defined in note 6),
consisting of a liability of $17.8 million and a liability of $105.8 million, respectively, as of December 31, 2021 and an asset of $0.7 million
and a liability of $74.0 million, respectively, as of December 31, 2020. Refer to notes 6 and 13 for further information on the MBI Net Option
(as defined in note 6).
6.
EQUITY INVESTMENTS
On May 4, 2020, the Company made a minority equity investment for a less than 10% ownership interest in AMG Technology Investment Group,
LLC, a wireless internet service provider (“Nextlink”), for $27.2 million. On July 10, 2020, the Company acquired a 40.4% minority equity interest
in Wisper ISP, LLC, a wireless internet service provider (“Wisper”), for total consideration of $25.3 million. The Company funded $11.9 million
of the total consideration for Wisper in 2020 and expects to fund the remainder in 2022. On October 1, 2020, the Company contributed the Anniston
System to Hargray in exchange for an approximately 15% equity interest on a fully diluted basis and recognized an $82.6 million non-cash gain.
On November 12, 2020, the Company acquired a 45.0% minority equity interest in Mega Broadband Investments Holdings LLC, a data, video and
voice services provider (“MBI”), for $574.9 million in cash.
On May 3, 2021, the Company acquired the remaining approximately 85% equity interest in Hargray that it did not already own for an
approximately $2.0 billion cash purchase price, which implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free basis and
recognized a $33.4 million non-cash gain as a result of the fair value remeasurement of the Company’s existing equity interest on the acquisition
date.
On October 1, 2021, the Company made a minority equity investment for a less than 10% ownership interest in Point Broadband Holdings, LLC,
a fiber internet service provider ("Point Broadband"), for $25.0 million. On October 18, 2021, the Company completed a minority equity investment
for a less than 10% ownership interest in Tristar Acquisition I Corp, a special-purpose acquisition company ("Tristar"), for $20.8 million. On
November 5, 2021, the Company invested an additional $50.0 million to acquire preferred units in Nextlink, increasing its equity interest to
approximately 17%.
F-20
The carrying value of the Company’s equity investments without readily determinable fair values are determined based on fair valuations as of
their respective acquisition dates. As Tristar is publicly traded, the carrying value of the Company's Tristar investment is remeasured to fair value
on a quarterly basis using market information.
The carrying value of the Company's equity investments consisted of the following (dollars in thousands):
Ownership
Percentage
As of December 31,
2021
2020
Cost Method Investments
Hargray(1), (2) .........................................................................................................................
Nextlink ...............................................................................................................................
Point Broadband ..................................................................................................................
Tristar ..................................................................................................................................
Others ..................................................................................................................................
Total cost method investments ........................................................................................
~15%
<20%
<10%
<10%
<10%
Equity Method Investments
MBI(3) ..................................................................................................................................
Wisper .................................................................................................................................
45.0%
40.4%
Total equity method investments .....................................................................................
$
$
$
$
- $
77,245
25,000
23,083
13,170
138,498 $
113,165
27,245
-
-
10,066
150,476
557,715 $
31,352
589,067 $
630,679
26,626
657,305
Total equity investments ......................................................................................................
$
727,565 $
807,781
(1) Upon initial investment, the Company calculated the fair value of Hargray’s total enterprise value using a hybrid of both the discounted cash flow
method of the income approach and the guideline public company method of the market approach. Significant assumptions used in the valuation
include projected revenue growth rates, future EBITDA margins, future capital expenditures and an appropriate discount rate. The enterprise value
less Hargray’s debt and unamortized debt issuance costs was multiplied by Cable One’s minority equity interest percentage to determine the Hargray
investment’s carrying value. The resulting $82.6 million non-cash gain was calculated as the difference between this carrying value and the book value
of the Anniston System’s net assets, including its proportionate share of the Company’s franchise agreement and goodwill assets. The approximately
15% equity interest in Hargray as of December 31, 2020 was on a fully diluted basis.
(3)
(2) As a result of the Company’s May 3, 2021 acquisition of the remaining equity interests in Hargray that it did not already own, Hargray’s assets and
liabilities were separately reflected within the Company’s consolidated balance sheet as of the acquisition date and the existing cost method investment
was eliminated, resulting in a $33.4 million non-cash gain recognized within other income in the condensed consolidated statement of operations and
comprehensive income on the acquisition date.
The Company holds a call option to purchase all but not less than all of the remaining equity interests in MBI that the Company does not already own
between January 1, 2023 and June 30, 2024. If the call option is not exercised, certain investors in MBI hold a put option to sell (and to cause all
members of MBI other than the Company to sell) to the Company all but not less than all of the remaining equity interests in MBI that the Company
does not already own between July 1, 2025 and September 30, 2025. The call and put options (collectively referred to as the "MBI Net Option") are
measured at fair value using Monte Carlo simulations that rely on assumptions around MBI’s equity value, MBI’s and the Company’s equity volatility,
MBI’s and the Company’s EBITDA volatility, risk adjusted discount rates and the Company’s cost of debt, among others. The final MBI purchase
price allocation resulted in $630.7 million being allocated to the MBI equity investment and $19.7 million and $75.5 million being allocated to the
call and put options, respectively. The MBI Net Option is remeasured at fair value on a quarterly basis. The carrying value of the MBI Net Option
liability was $123.6 million and $73.3 million as of December 31, 2021 and December 31, 2020, respectively, and was included within other
noncurrent liabilities in the consolidated balance sheets. Refer to note 13 for further information on the MBI Net Option.
On December 28, 2021, the Company received a $68.7 million dividend distribution from MBI, which resulted in a corresponding decrease to the
carrying value of the MBI investment. The carrying value of MBI exceeded the Company’s underlying equity in MBI’s net assets by
approximately $508.3 million and $529.7 million as of December 31, 2021 and 2020, respectively.
Equity method investment income (losses), which increase (decrease) the carrying value of the respective investment, and the change in fair value
of the MBI Net Option were as follows (in thousands):
Year Ended December 31,
2020
2021
Equity Method Investment Income (Loss)
MBI(1) ..................................................................................................................................................... $
Wisper ....................................................................................................................................................
Total ........................................................................................................................................................ $
(4,258 ) $
4,726
468 $
-
1,376
1,376
Other Income (Expense), Net
MBI Net Option change in fair value ...................................................................................................... $
(50,310 ) $
(17,500 )
(1) The Company identified a $186.6 million difference between the fair values of certain of MBI’s finite-lived intangible assets and the respective
carrying values recorded by MBI, of which $84.0 million was attributable to the Company’s 45% pro rata portion. The Company is amortizing
its share on an accelerated basis over the lives of the respective assets. The Company recognized $10.3 million of its pro rata share of MBI’s
net income and $14.5 million of its pro rata share of basis difference amortization during 2021.
The Company assesses each equity investment for indicators of impairment on a quarterly basis. No impairments were recorded for any of the
periods presented.
F-21
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 improvements ...........................................................................................................................
Capitalized software ........................................................................................................................................
Construction in progress ..................................................................................................................................
Land .................................................................................................................................................................
ROU assets ......................................................................................................................................................
Property, plant and equipment, gross ...........................................................................................................
Less: Accumulated depreciation and amortization ...........................................................................................
Property, plant and equipment, net .............................................................................................................. $
As of December 31,
2021
2,509,795 $
320,937
472,319
142,754
89,662
172,706
12,134
11,241
3,731,548
(1,877,444)
1,854,104 $
2020
1,916,048
283,831
463,469
117,367
107,107
89,488
13,293
10,314
3,000,917
(1,735,457)
1,265,460
The Company acquired $456.6 million and $22.0 million of property, plant and equipment in the Hargray and CableAmerica acquisitions,
respectively.
Depreciation and amortization expense for property, plant and equipment was $264.4 million, $220.2 million and $197.5 million in 2021, 2020 and
2019, respectively.
In 2019, a portion of the Company’s previous headquarters building and adjoining property was sold for $6.3 million in gross proceeds and the
Company recognized a related gain of $1.6 million.
8.
GOODWILL AND INTANGIBLE ASSETS
The carrying amount of goodwill was $967.9 million and $430.5 million at December 31, 2021 and 2020, respectively, with the increase attributable
to $511.8 million and $25.6 million of goodwill recognized in the Hargray and CableAmerica acquisitions, respectively. The Company has not
historically recorded any impairment of goodwill.
Intangible assets consisted of the following (dollars in thousands):
Useful
Life
December 31, 2021
December 31, 2020
Range Gross
Net
Gross
Net
(in
Carrying Accumulated Carrying Carrying Accumulated Carrying
years) Amount Amortization Amount Amount Amortization Amount
Finite-Lived Intangible Assets
Customer relationships ............................... 13.5 – 17 $ 857,100 $
13,500
Trademarks and trade names....................... 2.7 – 4.2
1,418
Wireless licenses ......................................... 10 – 15
$ 872,018 $
Total finite-lived intangible assets ..........
Indefinite-Lived Intangible Assets
Franchise agreements ..................................
Trade names ................................................
Total indefinite-lived intangible assets ...
Total intangible assets, net ..........................
153,699
3,852
142
703,401 369,700
3,000
1,418
157,693 $ 714,325 $ 374,118 $
9,648
1,276
$ 2,139,312
7,500
$ 2,146,812
$ 2,861,137
81,865
1,252
15
287,835
1,748
1,403
83,132 $ 290,986
$ 979,712
7,500
$ 987,212
$ 1,278,198
The increase in intangible assets from December 31, 2020 to December 31, 2021 related to customer relationships, trade names and franchise
agreements acquired in the Hargray and CableAmerica acquisitions.
Intangible asset amortization expense was $74.6 million, $45.5 million and $19.2 million in 2021, 2020 and 2019, respectively.
The future amortization of existing finite-lived intangible assets as of December 31, 2021 was as follows (in thousands):
Year Ending December 31,
2022 ............................................................................................................................................................................................... $
2023 ...............................................................................................................................................................................................
2024 ...............................................................................................................................................................................................
2025 ...............................................................................................................................................................................................
2026 ...............................................................................................................................................................................................
Thereafter ......................................................................................................................................................................................
Total ...................................................................................................................................................................................... $
Amount
89,312
78,075
71,248
65,964
60,086
349,640
714,325
F-22
Actual amortization expense in future periods may differ from the amounts above as a result of intangible asset acquisitions or divestitures, changes
in useful life estimates, impairments or other relevant factors.
9.
LEASES
As a lessee, the Company has operating leases for buildings, equipment, data centers, fiber optic networks and towers and finance leases for
buildings and fiber optic networks. These leases have remaining lease terms ranging from less than 1 year to 25 years, with some including an
option to extend the lease for up to 15 additional years and some including an option to terminate the lease within 1 year.
As a lessor, the Company has operating leases for the use of its fiber optic networks, towers and customer premise equipment. These leases have
remaining lease terms ranging from less than 1 year to 15 years, with some including a lessee option to extend the leases for up to 5 additional
years and some including an option to terminate the lease within 1 year.
Significant judgment is required when determining whether a fiber optic network access contract contains a lease, defining the duration of the lease
term and selecting an appropriate discount rate, as discussed below:
●
●
The Company concluded it was the lessee or lessor for fiber optic network access arrangements only when the asset is specifically
identifiable and both substantially all the economic benefit is obtained by the lessee and the lessee’s right to direct the use of the asset
exists.
The Company’s lease terms are only for periods in which there are enforceable rights. For accounting purposes, a lease is no longer
enforceable when both the lessee and the lessor each have the right to terminate the lease without requiring permission from the other
party with no more than an insignificant penalty. The Company’s lease terms are impacted by options to extend or terminate the lease
when it is reasonably certain that the Company will exercise such options.
● Most of the Company’s leases do not contain an implicit interest rate. Therefore, the Company held discussions with lenders, evaluated
its published credit rating and incorporated interest rates on currently held debt in determining discount rates that reflect what the
Company would pay to borrow on a collateralized basis over similar terms for its lease obligations.
As of December 31, 2021, additional operating leases that have not yet commenced were not material. Additionally, lessor accounting disclosures
were not material as of and for the years ended December 31, 2021 and 2020.
Lessee Financial Information. The Company’s ROU assets and lease liabilities consisted of the following (in thousands):
As of December 31,
2021
2020
ROU Assets
Property, plant and equipment, net:
Finance leases .............................................................................................................................................. $
8,959 $
8,979
Other noncurrent assets:
Operating leases ........................................................................................................................................... $
15,501 $
13,408
Lease Liabilities
Accounts payable and accrued liabilities:
Operating leases ........................................................................................................................................... $
5,633 $
3,772
Current portion of long-term debt:
Finance leases .............................................................................................................................................. $
851 $
661
Long-term debt:
Finance leases .............................................................................................................................................. $
4,770 $
4,805
Other noncurrent liabilities:
Operating leases ........................................................................................................................................... $
9,098 $
8,701
Total:
Finance leases .............................................................................................................................................. $
Operating leases ........................................................................................................................................... $
5,621 $
14,731 $
5,466
12,473
The components of the Company’s lease expense were as follows (in thousands):
Finance lease expense:
Amortization of ROU assets ............................................................................. $
Interest on lease liabilities ................................................................................
Operating lease expense ........................................................................................
Short-term lease expense ......................................................................................
Variable lease expense ..........................................................................................
Total lease expense ....................................................................................... $
2021
Year Ended December 31,
2020
2019
945 $
369
6,362
-
-
7,676 $
812 $
382
5,480
113
23
6,810 $
537
302
5,260
940
168
7,207
Amortization of ROU assets is included within depreciation and amortization expense; interest on lease liabilities is included within interest
expense; and operating, short-term and variable lease expense is included within operating expenses and selling, general and administrative
expenses in the consolidated statements of operations and comprehensive income.
F-23
Supplemental lessee financial information is as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Finance leases - financing cash flows ............................................................... $
Finance leases - operating cash flows ............................................................... $
Operating leases - operating cash flows ............................................................ $
ROU assets obtained in exchange for lease liabilities:
Finance leases(1) ................................................................................................ $
Operating leases(2) ............................................................................................. $
2021
Year Ended December 31,
2020
2019
770 $
369 $
6,190 $
1,089 $
7,700 $
604 $
382 $
5,370 $
127 $
1,131 $
925
302
5,293
5,408
9,767
(1) The amount for 2019 includes $3.9 million of ROU assets acquired in the Fidelity transaction.
(2) The amount for 2021 includes $4.3 million of ROU assets acquired in the Hargray Acquisition. The amount for 2019 includes $3.3 million
and $1.4 million of ROU assets acquired in the Clearwave and Fidelity transactions, respectively.
Weighted average remaining lease term:
Finance leases (in years) ..............................................................................................................................
Operating leases (in years) ...........................................................................................................................
Weighted average discount rate:
Finance leases ..............................................................................................................................................
Operating leases ...........................................................................................................................................
As of December 31, 2021, the future maturities of existing lease liabilities were as follows (in thousands):
Year Ending December 31,
2022 ................................................................................................................................................................. $
2023 .................................................................................................................................................................
2024 .................................................................................................................................................................
2025 .................................................................................................................................................................
2026 .................................................................................................................................................................
Thereafter ........................................................................................................................................................
Total ............................................................................................................................................................
Less: Present value discount ............................................................................................................................
Lease liability .......................................................................................................................................... $
10.
DEBT
The carrying amount of long-term debt consisted of the following (in thousands):
Senior Credit Facilities (as defined below) ...................................................................................................... $
Senior Notes (as defined below) ......................................................................................................................
Convertible Notes (as defined below) ..............................................................................................................
Finance lease liabilities ....................................................................................................................................
Total debt .....................................................................................................................................................
Less: Unamortized debt discount .....................................................................................................................
Less: Unamortized debt issuance costs ............................................................................................................
Less: Current portion of long-term debt ...........................................................................................................
Total long-term debt ................................................................................................................................ $
As of December 31,
2021
2020
11.2
4.2
6.03 %
4.75 %
12.8
4.4
6.22%
4.72%
Finance
Leases
Operating
Leases
1,181 $
1,188
1,170
1,046
958
7,933
13,476
(7,855 )
5,621 $
5,977
4,292
1,999
1,254
928
1,115
15,565
(834)
14,731
As of December 31,
2021
2,311,890 $
650,000
920,000
5,621
3,887,511
(20,602)
(28,572)
(38,837)
3,799,500 $
2020
1,541,621
650,000
-
5,466
2,197,087
-
(21,897)
(26,392)
2,148,798
F-24
Senior Credit Facilities. In May 2021, the Company amended the third amended and restated credit agreement among the Company and its
lenders, dated as of October 30, 2020 (as amended, the “Credit Agreement”), to provide for a new seven-year incremental term “B” loan in an
aggregate principal amount of $800.0 million maturing in 2028 (the “Term Loan B-4”). The Credit Agreement also provides for senior secured
term loans in original aggregate principal amounts of $700.0 million maturing in 2025 (the “Term Loan A-2”), $250.0 million maturing in 2027 (the
“Term Loan B-2”) and $625.0 million maturing in 2027 (the “Term Loan B-3”), as well as a $500.0 million revolving credit facility maturing
in 2025 (the “Revolving Credit Facility” and, together with the Term Loan A-2, the Term Loan B-2, the Term Loan B-3 and the Term Loan B-
4, the “Senior Credit Facilities”).
The interest margins applicable to the Senior Credit Facilities are, at the Company’s option, equal to either LIBOR or a base rate, plus an applicable
margin equal to, (i) with respect to the Term Loan A-2 and the Revolving Credit Facility, 1.25% to 1.75% for LIBOR loans and 0.25% to 0.75%
for base rate loans, determined on a quarterly basis by reference to a pricing grid based on the Company’s Total Net Leverage Ratio (as defined in
the Credit Agreement), (ii) with respect to the Term Loan B-1, 1.75% for LIBOR loans and 0.75% for base rate loans, and (iii) with respect to the
Term Loan B-2 and the Term Loan B-3, 2.0% for LIBOR loans and 1.0% for base rate loans. Other than with respect to maturity, amortization and
pricing, the Term Loan B-4 contains terms that are substantially similar to the Term Loan B-2 and Term Loan B-3.
The Senior Credit Facilities are guaranteed by the Company’s wholly owned subsidiaries (the “Guarantors”) and are secured, subject to certain
exceptions, by substantially all of the assets of the Company and the Guarantors. The Company may, subject to certain specified terms and
provisions, obtain additional credit facilities of up to $700.0 million under the 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 Credit Agreement) is no greater than 3.0 to 1.0.
The 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
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 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 Revolving Credit Facility gives the Company the ability to issue letters of credit, which reduce the amount available for borrowing under the
Revolving Credit Facility. The Company is required to pay commitment fees on any unused portion of the Revolving Credit Facility at a rate
between 0.20% per annum and 0.30% per annum, determined on a quarterly basis by reference to a pricing grid based on the Company’s Total Net
Leverage Ratio. The Company has issued letters of credit totaling $33.0 million under the Revolving Credit Facility on behalf of Wisper to guarantee
its performance obligations under a Federal Communications Commission (“FCC”) broadband funding program. The fair value of the letters of
credit approximates face value based on the short-term nature of the agreements. The Company would be liable for up to the total amount
outstanding under the letters of credit if Wisper were to fail to satisfy all or some of its performance obligations under the FCC program. Wisper
pledged certain assets in favor of the Company as collateral for issuing the letters of credit, which pledge was terminated in the third quarter of
2020 at the same time that the Company closed an equity investment in Wisper, and Wisper has guaranteed and indemnified the Company in
connection with such letters of credit. As of December 31, 2021, the Company has assessed the likelihood of non-performance associated with the
guarantee to be remote, and therefore, no liability has been accrued within the consolidated balance sheet.
F-25
As of December 31, 2021, the Company had $2.3 billion of aggregate outstanding term loan borrowings, $40.2 million of letter of credit issuances
held for the benefit of performance obligations under government grant programs and certain general and liability insurance matters that bore
interest at a rate of 1.88% per annum and $459.8 million available for borrowing under the Revolving Credit Facility. A summary of the Company’s
outstanding term loans under the Senior Credit Facilities as of December 31, 2021 is as follows (dollars in thousands):
Final
Balance
Draw
Date(s)
Original
Principal Per Annum(1) Principal
Amortization Outstanding Maturity Due Upon Benchmark Applicable Interest
700,000 Varies(4)
$
Date
659,590 10/30/2025 $
Maturity
Rate
Margin(2) Rate
476,607 LIBOR
1.75%
1.85%
Instrument
Term Loan A-2 . 5/8/2019(3) $
10/1/2019(3)
Term Loan B-2 . 1/7/2019
Term Loan B-3 . 6/14/2019(5)
10/30/2020(5)
250,000
625,000
1.0%
1.0%
243,125 10/30/2027
613,175 10/30/2027
228,750 LIBOR
577,472 LIBOR
2.00%
2.00%
2.10%
2.10%
Term Loan B-4 . 5/3/2021
Total .................
800,000
1.0%
796,000 5/3/2028
746,000 LIBOR
2.00%
2.10%
$ 2,375,000
$ 2,311,890
$ 2,028,829
(1) Payable in equal quarterly installments (expressed as a percentage of the original principal amount and subject to customary adjustments in
the event of any prepayment). All loans may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage
provisions).
(2) The Term Loan A-2 interest rate spread can vary between 1.25% and 1.75%, determined on a quarterly basis by reference to a pricing grid
based on the Company’s Total Net Leverage Ratio. All other applicable margins are fixed.
(3) On May 8, 2019, $250.0 million was drawn. On October 1, 2019, an additional $450.0 million was drawn. On October 30, 2020, the
amortization schedule was reset.
(4) Per annum amortization rates for years one through five following the October 30, 2020 refinancing date are 2.5%, 2.5%, 5.0%, 7.5% and
12.5%, respectively.
(5) On June 14, 2019, $325.0 million was drawn. On October 30, 2020, an additional $300.0 million was drawn.
Notes.
Senior Notes
In November 2020, the Company issued $650.0 million aggregate principal amount of 4.00% senior notes due 2030 (the “Senior Notes”). The
Senior Notes bear interest at a rate of 4.00% per annum payable semi-annually in arrears on May 15th and November 15th of each year, beginning
on May 15, 2021. The terms of the Senior Notes are governed by an indenture dated as of November 9, 2020 (the “Senior Notes Indenture”), among
the Company, the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A. (“BNY”), as trustee.
At any time and from time to time prior to November 15, 2025, the Company may redeem some or all of the Senior Notes for cash at a redemption
price equal to 100% of their principal amount, plus the “make-whole” premium described in the Senior Notes Indenture and accrued and unpaid
interest, if any, to, but excluding, the applicable redemption date. Beginning on November 15, 2025, the Company may redeem some or all of the
Senior Notes at any time and from time to time at the applicable redemption prices listed in the Senior Notes Indenture, plus accrued and unpaid
interest, if any, to, but excluding, the applicable redemption date. In addition, at any time and from time to time prior to November 15, 2023, the
Company may redeem up to 40% of the aggregate principal amount of Senior Notes with funds in an aggregate amount not exceeding the net cash
proceeds from one or more equity offerings at a redemption price equal to 104% of the principal amount thereof, plus accrued and unpaid interest,
if any, to, but excluding, the applicable redemption date.
Upon the occurrence of a Change of Control and a Below Investment Grade Rating Event (each as defined in the Senior Notes Indenture), the
Company is required to offer to repurchase the Senior Notes at 101% of the principal amount of such Senior Notes, plus accrued and unpaid interest,
if any, to, but excluding, the date of repurchase.
F-26
Convertible Notes
In March 2021, the Company issued $575.0 million aggregate principal amount of 0.000% convertible senior notes due 2026 (the “2026 Notes”)
and $345.0 million aggregate principal amount of 1.125% convertible senior notes due 2028 (the “2028 Notes” and, together with the 2026 Notes,
the “Convertible Notes,” and the Convertible Notes collectively with the Senior Notes, the “Notes”). The terms of the 2026 Notes and
the 2028 Notes are each governed by a separate indenture dated as of March 5, 2021 (collectively, the “Convertible Notes Indentures” and together
with the Senior Notes Indenture, the “Indentures”), in each case, among the Company, the guarantors party thereto and BNY, as trustee.
The 2026 Notes do not bear regular interest, and the principal amount of the 2026 Notes does not accrete. The 2028 Notes bear interest at a rate
of 1.125% per annum. Interest on the 2028 Notes is payable semiannually in arrears on March 15th and September 15th of each year, beginning
on September 15, 2021, unless earlier repurchased, converted or redeemed. The 2026 Notes are scheduled to mature on March 15, 2026, and
the 2028 Notes are scheduled to mature on March 15, 2028. The initial conversion rate for each of the 2026 Notes and the 2028 Notes
is 0.4394 shares of the Company’s common stock per $1,000 principal amount of 2026 Notes and 2028 Notes, as applicable (equivalent to an initial
conversion price of $2,275.83 per share of common stock).
The Convertible Notes are convertible at the option of the holders. The method of conversion into cash, shares of the Company’s common stock or
a combination thereof is at the election of the Company. Prior to the close of business on the business day immediately preceding December 15,
2025, the 2026 Notes will be convertible at the option of the holders only upon the satisfaction of specified conditions and during certain periods.
On or after December 15, 2025, holders may convert their 2026 Notes at any time prior to the close of business on the second scheduled trading
day immediately preceding the relevant maturity date. Prior to the close of business on the business day immediately preceding December 15,
2027, the 2028 Notes will be convertible at the option of the holders only upon the satisfaction of specified conditions and during certain periods.
On or after December 15, 2027, holders may convert their 2028 Notes at any time prior to the close of business on the second scheduled trading
day immediately preceding the relevant maturity date. If the Company undergoes a “Fundamental Change” (as defined in the applicable Convertible
Notes Indenture), holders of the applicable series of Convertible Notes may require the Company to repurchase for cash all or part of their
Convertible Notes of such series at a purchase price equal to 100% of the principal amount of the Convertible Notes of such series to be repurchased,
plus accrued and unpaid interest to, but not including, the fundamental change repurchase date.
the 2026 Notes prior
to March 20,
to March 20, 2024 and
The Company may not redeem
2025. No “sinking fund” is provided for the Convertible Notes. On or after March 20, 2024 and prior to December 15, 2025, the
Company may redeem for cash all or any portion of the 2026 Notes, at its option, and on or after March 20, 2025 and prior to December 15,
2027, the Company may redeem for cash all or any portion of the 2028 Notes, at its option, in each case, if the last reported sale price per share of
common stock has been at least 130% of the conversion price for such series of Convertible Notes then in effect for at least 20 trading days (whether
or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during
any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides
notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Notes of such series to be redeemed, plus
accrued and unpaid interest to, but not including, the redemption date.
the 2028 Notes prior
it may not redeem
In addition, following a “make-whole fundamental change” (as defined in the applicable Convertible Notes Indenture) or if the Company delivers
a notice of redemption in respect of any Convertible Notes of a series, in certain circumstances, the conversion rate applicable to such series of
Convertible Notes will be increased for a holder who elects to convert any of such Convertible Notes in connection with such a make-whole
fundamental change or convert any of such Convertible Notes called (or deemed called) for redemption during the related redemption period, as
the case may be.
The carrying amounts of the Convertible Notes consisted of the following (in thousands):
2026 Notes
December 31, 2021
2028 Notes
Total
Gross carrying amount .......................................................................................... $
Less: Unamortized discount ..................................................................................
Less: Unamortized debt issuance costs .................................................................
Net carrying amount ............................................................................................. $
575,000 $
(12,611)
(344)
562,045 $
345,000 $
(7,991)
(226)
336,783 $
920,000
(20,602)
(570)
898,828
Interest expense on the Convertible Notes consisted of the following (dollars in thousands):
Contractual interest expense ................................................................................. $
Amortization of discount ......................................................................................
Amortization of debt issuance costs ......................................................................
Total interest expense ........................................................................................... $
- $
2,483
68
2,551 $
3,202 $
1,065
30
4,297 $
3,202
3,548
98
6,848
2026 Notes
Year Ended December 31, 2021
2028 Notes
Total
General
The Notes are senior unsecured obligations of the Company and are guaranteed by the Company’s wholly owned domestic subsidiaries that
guarantee the Senior Credit Facilities or that guarantee certain capital market debt of the Company in an aggregate principal amount in excess
of $250.0 million.
Each Indenture contains covenants that, among other things and subject to certain exceptions, limit (i) the Company’s ability to consolidate or
merge with or into another person or sell or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries (taken as
F-27
a whole) and (ii) the ability of the guarantors to consolidate with or merge with or into another person. The Senior Notes Indenture also contains a
covenant that, subject to certain exceptions, limits the Company’s ability and the ability of its subsidiaries to incur any liens securing indebtedness
for borrowed money.
Each Indenture provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others,
default in payment of principal or interest, breach of other agreements or covenants in respect of the relevant Notes by the Company or any
guarantors, failure to pay certain other indebtedness at final maturity, acceleration of certain indebtedness prior to final maturity, failure to pay
certain final judgments, failure of certain guarantees to be enforceable and certain events of bankruptcy, insolvency or reorganization; and, in the
case of each Convertible Notes Indenture, failure to comply with the Company’s obligation to convert the relevant Convertible Notes under the
applicable Convertible Notes Indenture and failure to give a fundamental change notice or a notice of a make-whole fundamental change under the
applicable Convertible Notes Indenture.
Other. In connection with various financing transactions completed during 2021, 2020 and 2019 the Company capitalized $13.7 million, $15.1
million and $11.8 million of debt issuance costs and wrote-off to other expense $2.1 million, $6.2 million and $4.2 million of existing unamortized
debt issuance costs, respectively. The Company recorded debt issuance cost amortization of $5.6 million, $4.3 million and $4.6 million during
2021, 2020 and 2019, respectively, within interest expense in the consolidated statements of operations and comprehensive income.
Unamortized debt issuance costs consisted of the following (in thousands):
Revolving Credit Facility portion:
Other noncurrent assets ................................................................................................................................ $
2,576 $
3,249
Term loans and Notes portion:
Long-term debt (contra account) .................................................................................................................
Total ........................................................................................................................................................ $
28,572
31,148 $
21,897
25,146
The future maturities of outstanding borrowings as of December 31, 2021 were as follows (in thousands):
As of December 31,
2021
2020
Year Ending December 31,
2022 ........................................................................................................................... $
2023 ...........................................................................................................................
2024 ...........................................................................................................................
2025 ...........................................................................................................................
2026 ...........................................................................................................................
Thereafter ..................................................................................................................
Total .................................................................................................................. $
37,986
55,008
76,285
557,147
591,709
2,563,755
3,881,890
Amount
The Company was in compliance with all debt covenants as of December 31, 2021.
In March 2021, the Company terminated $900.0 million of definitive bridge loan commitments that were originally received to finance a portion
of the Hargray Acquisition purchase price.
11.
INCOME TAXES
The income tax provision (benefit) consisted of the following (in thousands):
Current
Deferred
Total
Year Ended December 31, 2021
U.S. Federal ....................................................................................................................... $
State and local ....................................................................................................................
Total .............................................................................................................................. $
11,010 $
5,296
16,306 $
36,514 $
(7,055)
29,459 $
Year Ended December 31, 2020
U.S. Federal ....................................................................................................................... $
State and local ....................................................................................................................
Total .............................................................................................................................. $
(14,633) $
3,764
(10,869) $
74,164 $
13,022
87,186 $
Year Ended December 31, 2019
U.S. Federal ....................................................................................................................... $
State and local ....................................................................................................................
Total .............................................................................................................................. $
1,249 $
3,678
4,927 $
43,270 $
7,036
50,306 $
47,524
(1,759)
45,765
59,531
16,786
76,317
44,519
10,714
55,233
F-28
The income tax provision is different than the amount of income tax calculated by applying the U.S. Federal statutory rate of 21.0% to income
before income taxes as a result of the following items (in thousands):
Year Ended December 31,
2020
2021
2019
U.S. Federal taxes at statutory rate ..................................................................................... $
State and local taxes, net of U.S. Federal tax .....................................................................
CARES Act benefit (as defined and described below) .......................................................
Reversal of deferred tax liability on minority interest ........................................................
Equity-based compensation ...............................................................................................
Valuation allowance ..........................................................................................................
Section 162(m) limitation ..................................................................................................
Other items ........................................................................................................................
Income tax provision ......................................................................................................... $
70,902 $
(1,389)
-
(29,138)
(5,651)
10,111
2,205
(1,275)
45,765 $
79,660 $
13,261
(13,039)
-
(10,993)
4,322
1,564
1,542
76,317 $
49,101
8,464
-
-
(5,296)
-
656
2,308
55,233
The net deferred income tax liability consisted of the following (in thousands):
Other benefit obligations.................................................................................................................................. $
Equity-based compensation .............................................................................................................................
Net operating losses .........................................................................................................................................
Accrued bonus .................................................................................................................................................
Reserves ...........................................................................................................................................................
Lease liabilities ................................................................................................................................................
State tax credit .................................................................................................................................................
Interest rate swap .............................................................................................................................................
Unrealized capital losses ..................................................................................................................................
Other items ......................................................................................................................................................
Deferred tax assets, gross ............................................................................................................................
Less: Valuation allowance ...............................................................................................................................
Deferred tax assets, net ................................................................................................................................
Property, plant and equipment .........................................................................................................................
Goodwill and other intangible assets ...............................................................................................................
Investments in subsidiaries and partnerships ...................................................................................................
ROU assets ......................................................................................................................................................
Prepaid expenses ..............................................................................................................................................
Other items ......................................................................................................................................................
Deferred tax liabilities .................................................................................................................................
As of December 31,
2021
2020
2,991 $
4,725
4,062
4,941
2,152
3,624
5,347
26,416
16,544
3,887
74,689
(16,544)
58,145
335,429
553,691
12,230
5,638
4,874
439
912,301
1,789
4,324
2,951
3,947
1,194
3,079
-
45,913
4,322
3,856
71,375
(4,322)
67,053
233,427
160,442
29,043
5,121
3,500
2,195
433,728
Net deferred income tax liability ............................................................................................................. $
854,156 $
366,675
Pursuant to the Hargray Acquisition, deferred tax liabilities resulting from the book fair value adjustment increased significantly and future taxable
income that will result from the reversal of existing taxable temporary differences for which deferred tax liabilities are recognized is sufficient to
conclude it is more likely than not that the Company will realize all of its gross deferred tax assets, except those deferred tax assets against which
a valuation allowance has been recorded which relate to unrealized capital losses from the MBI Net Option cumulative loss that may not be realized.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted in response to the COVID-19
pandemic. The CARES Act, among other things, permits net operating loss ("NOL") carrybacks to offset up to 100% of taxable income for taxable
years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2021, 2020 and 2019 to be carried back to each of the five
preceding taxable years to generate a refund of previously paid income taxes. As a result, the Company carried its 2019 U.S. Federal tax NOL back
and generated a $13.0 million tax benefit in 2020, as a portion of the NOL was carried back to years that had higher enacted income tax rates.
On October 1, 2020, the Company acquired an approximately 15% equity interest in Hargray, a partnership. A deferred tax liability was recorded
at that time to reflect the book and tax difference on the partnership’s outside basis. On May 3, 2021, the Company acquired the remaining
approximately 85% equity interest in Hargray and subsequently filed an election to treat Hargray, now wholly owned, as a corporation. ASC 740
requires that deferred tax liabilities be recognized unless the tax law provides a means by which the investment in a domestic subsidiary can be
recovered tax free. Due to the election to treat Hargray as a wholly owned corporation, the Company expects to recover its outside basis in Hargray
through tax-free means. The deferred tax liability recorded on the outside basis difference in Hargray was therefore reversed in the second quarter,
resulting in a $29.1 million Federal deferred income tax benefit and a $6.0 million state deferred income tax benefit.
The Company had $5.3 million and $4.1 million of state tax credits and tax-effected state NOL carryforwards, respectively, at December 31, 2021,
which will have expiration dates at various points between 2022 and 2040.
The Company is required to file annual corporate income tax returns for U.S. Federal as well as for various states where business is conducted. The
Company is subject to examination by the Internal Revenue Service (the "IRS") and local taxing authorities in various states. The Company’s U.S.
Federal income tax returns remain subject to examination by the IRS for the years 2018 onward. The Company’s state income tax returns are
F-29
subject to examination by tax authorities for years 2017 onward, however, the NOL carryforwards and credit carryforwards arising prior to that
year are still subject to adjustment by tax authorities.
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 recognizes penalties and interest, if applicable, associated with any uncertain tax positions within selling, general and
administrative expenses in the consolidated statements of operations and comprehensive income.
12.
INTEREST RATE SWAPS
The Company is party to two interest rate swap agreements, designated as cash flow hedges, to manage the risk of fluctuations in interest rates on
its variable rate LIBOR debt. Changes in the fair values of the interest rate swaps are reported through other comprehensive income until the
underlying hedged debt’s interest expense impacts net income, at which point the corresponding change in fair value is reclassified from
accumulated other comprehensive income to interest expense.
A summary of the significant terms of the Company’s interest rate swap agreements is as follows (dollars in thousands):
Entry
Date
Effective Maturity
Date
Date(1)
Notional
Amount
Settlement Type
Swap A ..... 3/7/2019 3/11/2019 3/11/2029 $
Swap B ..... 3/6/2019 6/15/2020 2/28/2029
$
Total .....
850,000 Receive one-month LIBOR, pay fixed
350,000 Receive one-month LIBOR, pay fixed
1,200,000
Fixed
Settlement
Frequency Base Rate
2.653%
Monthly
2.739%
Monthly
(1) Each swap may be terminated prior to the scheduled maturity at the election of the Company or the financial institution counterparty under
the terms provided in each swap agreement.
The combined fair values of the Company’s interest rate swaps are reflected within the consolidated balance sheets as follows (in thousands):
As of December 31,
2021
2020
Liabilities:
Current portion:
Accounts payable and accrued liabilities ................................................................................................. $
26,662 $
30,646
Noncurrent portion:
Interest rate swap liability ........................................................................................................................ $
Total ................................................................................................................................................................. $
81,627 $
108,289 $
155,357
186,003
Stockholders’ Equity:
Accumulated other comprehensive loss ........................................................................................................... $
81,873 $
140,090
The combined effect of the Company’s interest rate swaps on the consolidated statements of operations and comprehensive income is as follows
(in thousands):
Interest expense ............................................................................................................................................... $
31,311 $
22,509
Unrealized (gain) loss on cash flow hedges, gross ........................................................................................... $
Less: Tax effect................................................................................................................................................
Unrealized (gain) loss on cash flow hedges, net of tax .................................................................................... $
(77,716) $
19,499
(58,217) $
96,346
(23,812)
72,534
The Company does not hold any derivative instruments for speculative trading purposes.
Year Ended December 31,
2021
2020
F-30
13.
FAIR VALUE MEASUREMENTS
Financial Assets and Liabilities. The Company has estimated the fair values of its financial instruments as of December 31, 2021 using available
market information or other appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the following fair value estimates are not necessarily indicative of the amounts the Company would realize in
an actual market exchange.
The carrying amounts, fair values and related fair value hierarchy levels of the Company’s financial assets and liabilities as of December 31, 2021
were as follows (dollars in thousands):
December 31, 2021
Carrying
Amount
Fair
Value
Fair Value
Hierarchy
Assets:
Cash and cash equivalents:
Money market investments ................................................................................... $
315,984 $
315,984
Level 1
Liabilities:
Long-term debt (including current portion):
Term loans ............................................................................................................ $
Senior Notes ......................................................................................................... $
Convertible Notes ......................................................................................................... $
2,311,890 $
650,000 $
920,000 $
2,312,723
640,250
893,240
Level 2
Level 2
Level 2
Interest rate swap liability (including current portion):
Interest rate swaps ................................................................................................ $
108,289 $
108,289
Level 2
Other noncurrent liabilities:
MBI Net Option.................................................................................................... $
123,620 $
123,620
Level 3
Money market investments are held primarily 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 value of the term loans and Notes are estimated based on market prices for similar
instruments in active markets (level 2). Interest rate swaps are measured at fair value within the consolidated balance sheets on a recurring basis,
with fair value determined using standard valuation models with assumptions about interest rates being based on those observed in underlying
markets (level 2). The fair value of the MBI Net Option is measured using Monte Carlo simulations that use inputs considered unobservable and
significant to the fair value measurement (level 3).
The assumptions used to determine the fair value of the MBI Net Option as of December 31, 2021 consisted of the following:
Equity volatility ............................................................................................
EBITDA volatility ........................................................................................
EBITDA risk-adjusted discount rate .............................................................
Cost of debt ...................................................................................................
December 31, 2021
Cable One MBI
30.0%
10.0%
5.0%
4.0%
30.0%
10.0%
6.5%
December 31, 2020
Cable One MBI
28.0%
10.0%
5.0%
4.0%
30.0%
10.0%
6.5%
The Company regularly evaluates each of the assumptions used in establishing the fair value of the MBI Net Option. Significant changes in any of
these assumptions could result in a significantly lower or higher fair value measurement. A change in one of these assumptions is not necessarily
accompanied by a change in another assumption. Refer to note 6 for further information on the MBI Net Option.
The carrying amounts of accounts receivable, accounts payable and other financial assets and liabilities approximate fair value because of the short-
term nature of these instruments.
Nonfinancial Assets and Liabilities. The Company’s nonfinancial assets, such as property, plant and equipment, intangible assets and goodwill,
are not measured at fair value on a recurring basis. Assets acquired, including identifiable intangible assets and goodwill, and liabilities assumed
in acquisitions are recorded at fair value on the respective acquisition dates, subject to potential future measurement period adjustments.
Nonfinancial assets are subject to fair value adjustments when there is evidence that impairment may exist. No material impairments were recorded
during any of the periods presented.
14.
STOCKHOLDERS’ EQUITY
Equity Offering. In May 2020, the Company completed a public offering of 287,500 shares of its common stock for total net proceeds of $469.8
million, after deducting underwriting discounts and offering expenses. The Company used a portion of the net proceeds to repay in full its then-
outstanding borrowings of $100.0 million under the Revolving Credit Facility and used the remainder for general corporate purposes, including for
acquisitions and strategic investments.
Treasury Stock. Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the consolidated financial statements.
Treasury shares of 129,037 held at December 31, 2021 include shares repurchased under the Company’s share repurchase program and shares
withheld for withholding tax, as described below.
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
F-31
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, 2021, the Company has repurchased
210,631 shares of its common stock at an aggregate cost of $104.9 million. No shares were repurchased during 2021.
Tax Withholding for Equity Awards. At the employee’s option, shares of common stock are withheld by the Company upon the vesting of
restricted stock and exercise of stock appreciation rights (“SARs”) to cover the applicable statutory minimum amount of employee withholding
taxes, which the Company then pays to the taxing authorities in cash. The amounts remitted during 2021, 2020 and 2019 were $8.5 million,
$6.0 million and $3.0 million, for which the Company withheld 3,911, 3,861 and 3,521 shares of common stock, respectively.
15.
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 on 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 would 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, employees and consultants of the Company 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, 2021, 82,314 shares were available
for issuance under the 2015 Plan.
Compensation expense associated with equity-based awards is recognized on a straight-line basis over the requisite service period, which is
generally the vesting period of the award, with forfeitures recognized as incurred. The Company’s equity-based compensation expense, included
within selling, general and administrative expenses in the consolidated statements of operations and comprehensive income, was as follows (in
thousands):
Year Ended December 31,
2020
2021
2019
Restricted stock (as defined below) ................................................................................... $
SARs ..................................................................................................................................
Total .............................................................................................................................. $
17,014 $
3,040
20,054 $
11,476 $
3,116
14,592 $
7,994
4,306
12,300
The Company recognized excess tax benefits of $6.7 million, $11.1 million and $5.3 million related to equity-based awards during 2021, 2020 and
2019, respectively. The deferred tax asset related to all outstanding equity-based awards was $4.7 million as of December 31, 2021.
Restricted Stock. The Company has granted restricted shares of Company common stock subject to performance-based and/or service-based
vesting conditions to certain employees of the Company. Restricted share awards generally cliff-vest on the three-year anniversary of the grant date
or in three or 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), although certain individual awards have been granted with shorter vesting
periods from time to time. Performance-based restricted shares are or were subject to performance metrics related primarily to three-year cumulative
growth in Adjusted EBITDA less capital expenditures or year-over-year growth in Adjusted EBITDA and annual adjusted capital expenditures as
a percentage of total revenues or Adjusted EBITDA. 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 Company’s non-employee directors are entitled to an annual cash retainer of $75,000, plus an additional annual cash retainer for each committee
chair or the 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 all or a portion of
such settlement until his or her separation from service from the Board or a specified date. Non-employee directors may elect to defer their annual
retainer and receive RSUs in lieu of annual cash fees. Any dividends associated with RSUs granted prior to the 2017 annual grant of RSUs are
converted into dividend equivalent units (“DEUs”), which will be delivered at the time of settlement of the associated RSUs.
F-32
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, 2018 .............................................................................................................
Granted ............................................................................................................................................................
Forfeited ..........................................................................................................................................................
Vested and issued ............................................................................................................................................
Outstanding as of December 31, 2019 .............................................................................................................
Granted ............................................................................................................................................................
Forfeited ..........................................................................................................................................................
Vested and issued ............................................................................................................................................
Outstanding as of December 31, 2020 .............................................................................................................
Granted ............................................................................................................................................................
Forfeited ..........................................................................................................................................................
Vested and issued ............................................................................................................................................
Outstanding as of December 31, 2021 .............................................................................................................
40,876 $
13,374 $
(4,111 ) $
(11,266 ) $
38,873 $
12,352 $
(5,491 ) $
(10,790 ) $
34,944 $
12,525 $
(1,468 ) $
(11,975 ) $
34,026 $
610.88
885.66
710.87
493.80
728.77
1,573.50
752.39
682.84
1,037.83
2,144.03
1,414.01
872.38
1,487.02
Vested and deferred as of December 31, 2021 .................................................................................................
5,978 $
756.32
At December 31, 2021, there was $25.2 million of unrecognized compensation expense related to Restricted Stock, which is expected to be
recognized over a weighted average period of 1.1 years.
Stock Appreciation Rights. The Company has granted SARs to certain executives and other employees of the Company. The SARs are generally
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
Grant Date
Fair
Value
Aggregate
Intrinsic
Value
(in thousands)
Weighted
Average
Remaining
Contractual
Term
(in years)
7.2
8.8
-
7.5
9.5
-
7.3
9.5
-
7.1
6.1
Outstanding as of December 31, 2018 ..............
Granted .............................................................
Exercised ..........................................................
Forfeited ...........................................................
Outstanding as of December 31, 2019 ..............
Granted .............................................................
Exercised ..........................................................
Forfeited ...........................................................
Outstanding as of December 31, 2020 ..............
Granted .............................................................
Exercised ..........................................................
Forfeited ...........................................................
Outstanding as of December 31, 2021 ..............
90,605 $
29,000 $
(26,092) $
(3,103) $
90,410 $
8,000 $
(33,154) $
(6,891) $
58,365 $
5,500 $
(16,524) $
(1,601) $
45,740 $
550.60 $
900.90 $
491.12 $
659.01 $
676.41 $
1,701.74 $
553.69 $
846.81 $
866.54 $
1,970.24 $
658.98 $
834.92 $
1,075.34 $
122.29 $
209.57 $
105.94 $
154.49
153.90 $
423.92 $
120.91 $
199.27
204.29 $
530.05 $
148.76 $
201.50
263.62 $
24,673
-
20,143
73,419
-
39,099
79,446
-
21,298
32,897
Exercisable as of December 31, 2021 ...............
20,678 $
792.50 $
186.30 $
20,149
F-33
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 2021, 2020 and 2019 were as follows:
Expected volatility .............................................................................................................
Risk-free interest rate .........................................................................................................
Expected term (in years) ....................................................................................................
Expected dividend yield .....................................................................................................
27.44%
0.96%
6.25
0.53%
26.61%
0.43%
6.25
0.56%
21.69%
2.25%
6.25
0.92%
2021
2020
2019
The Black-Scholes model used to estimate the grant date fair value of the Company’s SARs requires the input of highly subjective assumptions.
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 for future SAR grants. The assumptions for 2021 SAR grants
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 — The Company estimated the expected future stock price volatility for its common stock by using its life-to-date
historical volatility based on daily price observations since it became a publicly traded company on July 1, 2015.
● 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 being valued.
●
●
Expected Term — The expected term represents the period that the Company’s SARs are expected to be outstanding. The expected term
of the Company’s SARs is based on the “simplified method” which defines the expected term as the average of the contractual term 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 Company’s current annual dividend divided by the Company’s closing stock price on the grant date.
At December 31, 2021, there was $6.0 million of unrecognized compensation expense related to SARs, which is expected to be recognized over a
weighted average period of 1.1 years.
16.
OTHER INCOME AND EXPENSE
Other income (expense) consisted of the following (in thousands):
2021
Year Ended December 31,
2020
2019
Gain on Hargray step acquisition .......................................................................... $
MBI Net Option fair value adjustment ..................................................................
Tristar mark-to-market adjustment .......................................................................
Write-off of debt issuance costs ............................................................................
Debt redemption call premium .............................................................................
Financing-related fees ...........................................................................................
Interest and investment income .............................................................................
Other .....................................................................................................................
Other income (expense), net ............................................................................. $
33,406 $
(50,310)
2,283
(2,131)
-
(198)
11,580
(632)
(6,002) $
- $
(17,510)
-
(6,181)
-
(1,237)
8,517
-
(16,411) $
-
-
-
(4,210)
(6,471)
(703)
6,477
-
(4,907)
F-34
17.
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. The denominator used in calculating diluted net income per common share further includes any common shares available to be issued
upon vesting or exercise of outstanding equity-based compensation awards if such inclusion would be dilutive, calculated using the treasury stock
method, and any common shares to be issued upon conversion of the Convertible Notes, calculated using the if-converted method.
The computation of basic and diluted net income per common share was as follows (dollars in thousands, except per share amounts):
Year Ended December 31,
2020
2021
2019
Numerator:
Net income – basic ............................................................................................................. $
Add: Convertible Notes interest expense, net of tax ..........................................................
Net income – diluted .......................................................................................................... $
291,824 $
5,136
296,960 $
304,391 $
-
304,391 $
178,582
-
178,582
Denominator:
Weighted average common shares outstanding – basic .....................................................
Effect of dilutive equity-based compensation awards(1) .....................................................
Effect of dilution from if-converted Convertible Notes(2) ..................................................
Weighted average common shares outstanding – diluted ...................................................
6,017,778
36,547
333,029
6,387,354
5,884,780
52,802
-
5,937,582
5,678,990
58,866
-
5,737,856
Net Income per Common Share:
Basic .............................................................................................................................. $
Diluted ........................................................................................................................... $
48.49 $
46.49 $
51.73 $
51.27 $
31.45
31.12
Supplemental Net Income per Common Share Disclosure:
Anti-dilutive shares from equity-based compensation awards(1) ........................................
3,444
288
409
(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.
(2) Based on a conversion rate of 0.4394 shares of common stock per weighted $1,000 principal amount of Convertible Notes outstanding.
18.
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 goods and services to be used in the normal course of the Company’s operations.
In accordance with applicable accounting rules, the future rights and obligations pertaining to firm commitments, such as certain purchase
obligations under contracts, are not reflected as assets or liabilities in the consolidated balance sheets.
The following table summarizes the Company’s outstanding contractual obligations as of December 31, 2021 (including amounts associated with
data processing services, high-speed data connectivity and fiber-related obligations) and the estimated effect and timing that such obligations are
expected to have on the Company’s liquidity and cash flows in future periods (in thousands):
Programming
Other
Purchase
Lease
Debt
Purchase
Year Ending December 31,
2022 .................................................................................. $
2023 ..................................................................................
2024 ..................................................................................
2025 ..................................................................................
2026 ..................................................................................
Thereafter .........................................................................
Total ......................................................................... $
Commitments(1) Payments(2) Payments(3) Obligations(4)
7,158 $
5,480
3,169
2,300
1,886
9,048
29,041 $
37,986 $
55,008
76,285
557,147
591,709
2,563,755
3,881,890 $
200,257 $
169,051
106,868
48,445
-
-
524,621 $
53,885 $
16,562
5,694
2,079
1,405
6,365
299,286
246,101
192,016
609,971
595,000
2,579,168
85,990 $ 4,521,542
Total
(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 estimated subscriber numbers, tier placements as of December 31, 2021 and the per-subscriber rates contained in the
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. Programming purchases pursuant to non-binding commitments are not reflected in the amounts shown.
(2) Lease payments include payment obligations related to the Company’s outstanding finance and operating lease arrangements as of December
31, 2021.
(3) Debt payments include principal repayment obligations for the Company’s outstanding debt instruments as of December 31, 2021.
(4) 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 but are included within accounts payable and accrued
liabilities in the consolidated balance sheet.
F-35
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 $11.5 million, $10.5 million and
$9.5 million for 2021, 2020 and 2019, respectively.
Fees imposed on the Company by various governmental authorities, including franchise fees, are passed through on a monthly basis to the
Company’s customers and are periodically remitted to authorities. These fees were $31.4 million, $25.2 million and $22.7 million for 2021,
2020 and 2019, respectively. As the Company acts as principal in these arrangements, these fees are reported in video and voice revenues
on a gross basis with corresponding expenses included within operating expenses in the consolidated statements of operations and
comprehensive income.
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 $42.1 million and $31.6 million as of December 31, 2021 and 2020, 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.
The Company issued letters of credit totaling $33.0 million on behalf of Wisper to guarantee its performance obligations under an FCC
broadband funding program. As of December 31, 2021, the Company has assessed the likelihood of non-performance associated with the
guarantee to be remote, and therefore, no liability has been accrued within the consolidated balance sheet. Refer to note 10 for further
details on this transaction.
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, and 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 Company’s operations are extensively regulated by 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. Future legislative and regulatory changes could adversely affect the Company’s operations.
19.
SUBSEQUENT EVENT
On January 1, 2022, the Company closed a joint venture transaction in which the Company contributed certain fiber operations (including a majority
of Clearwave's operations and certain fiber assets of Hargray) and certain unaffiliated third-party investors contributed cash to a newly formed
entity, Clearwave Fiber LLC ("Clearwave Fiber"). The operations contributed by the Company generated approximately 3% of Cable
One's consolidated revenues for the three months ended December 31, 2021. The Company's approximately 58% investment in Clearwave
Fiber was valued at $440.0 million as of the closing date. Clearwave Fiber is intended to accelerate deployment of fiber internet to residents and
businesses in existing markets and near-adjacent areas, as well as to provide connectivity to unserved and underserved areas in such markets via
fiber-to-the-premises service. Clearwave Fiber will be reported on Cable One’s balance sheet under the equity method of accounting, with the
proportionate share of its net income (loss) each period reflected within Cable One's operating results on a one quarter lag.
F-36
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Board of Directors
Julia M. Laulis
Chair of the Board, President &
Chief Executive Officer
Brad D. Brian
Director
Thomas S. Gayner
Lead Independent Director;
Chair, Executive Committee
and Nominating & Governance
Committee
Mary E. Meduski
Director
Thomas O. Might
Director
Sherrese M. Smith
Director
Wallace R. Weitz
Director
Deborah J. Kissire
Chair, Audit Committee
Kristine E. Miller
Chair, Compensation & Talent
Management Committee
Katharine B. Weymouth
Director
Executive Team
Julia M. Laulis
Chair of the Board, President & Chief Executive Officer
Michael E. Bowker
Chief Operating Officer
Steven S. Cochran
Chief Financial Officer
Christopher D. Boone
Senior Vice President,
Business Services & Emerging Markets
Megan M. Detz
Senior Vice President, Human Resources
Kenneth E. Johnson
Senior Vice President, Technology Services
Todd M. Koetje
Senior Vice President, Business Development &
Finance
Eric M. Lardy
Senior Vice President, Operations & Integration
James A. Obermeyer
Senior Vice President, Marketing & Sales
Peter N. Witty
Senior Vice President, General Counsel & Secretary
This document contains “forward-looking statements” that
involve risks and
uncertainties. These statements can be identified by the fact that they do not relate
strictly to historical or current facts, but rather are based on current expectations,
estimates, assumptions and projections about our industry, business, strategy,
acquisitions and strategic investments, dividend policy, financial results and financial
condition as well as anticipated impacts from, and our responses to, the COVID-19
pandemic. Please refer to the section entitled “Cautionary Statement Regarding
Forward-Looking Statements” appearing on page 2 of the attached 2021 Annual
Report on Form 10-K and in our other filings with the SEC for more information. The
contents of our website is not incorporated by reference into this 2021 Annual Report.
Annual Meeting
The annual meeting of stockholders will be held on
MAY 20, 2022 | 8 AM PDT
The annual meeting will be held in a virtual
meeting format only and will be conducted
via live audio webcast.
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:
www.computershare.com/us/investor-inquiries
OUR AMBITION
OUR AMBITION
To be the most
To be the most
trusted broadband
trusted broadband
provider for
provider for
America’s small cities
America’s small cities
and large towns.
and large towns.
210 E. Earll Drive | Phoenix, Arizona 85012
(602) 364-6000 | cableone.biz
210 E. Earll Drive | Phoenix, Arizona 85012
(602) 364-6000 | cableone.biz