UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2021

or

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

Commission File Number: 001-36863

Cable One, Inc. 

(Exact name of registrant as specified in its charter)

Delaware	13-3060083
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
210 E. Earll Drive, Phoenix, Arizona	85012
(Address of Principal Executive Offices)	(Zip Code)

(602) 364-6000

(Registrant’s Telephone Number, Including Area Code)

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

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.01	CABO	New York Stock Exchange

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

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

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

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

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

Description of Class	Shares Outstanding as of October 29, 2021
Common stock, par value $0.01	6,045,473

CABLE ONE, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I:  FINANCIAL INFORMATION		1
Item 1.	Condensed Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
PART II: OTHER INFORMATION		41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
SIGNATURES		45

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements” that involve risks and uncertainties. These statements can be identified by the fact that they do not relate strictly to historical or current facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business, strategy, acquisitions and strategic investments, dividend policy, financial results and financial condition 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, which are discussed in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) and this Quarterly Report on Form 10-Q:

● 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 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;

● 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;

● fluctuations in our stock price;

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

● damage to our reputation or brand image;

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

● our ability to incur future indebtedness;

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

● the other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”), including but not limited to in our 2020 Form 10-K and this Quarterly Report on Form 10-Q.

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.

ii

PART I:  FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CABLE ONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(dollars in thousands, except par values)	September 30, 2021			December 31, 2020
Assets
Current Assets:
Cash and cash equivalents	$	489,537		$	574,909
Accounts receivable, net		55,993			38,768
Income taxes receivable		20,226			41,245
Prepaid and other current assets		33,046			17,891
Total Current Assets		598,802			672,813
Equity investments		699,105			807,781
Property, plant and equipment, net		1,801,369			1,265,460
Intangible assets, net		2,817,446			1,278,198
Goodwill		944,871			430,543
Other noncurrent assets		39,006			33,543
Total Assets	$	6,900,599		$	4,488,338
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities	$	239,107		$	174,139
Deferred revenue		23,970			21,051
Current portion of long-term debt		34,570			26,392
Total Current Liabilities		297,647			221,582
Long-term debt		3,810,324			2,148,798
Deferred income taxes		822,575			366,675
Interest rate swap liability		89,970			155,357
Other noncurrent liabilities		148,859			100,627
Total Liabilities		5,169,375			2,993,039
Commitments and contingencies (refer to note 15)
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 6,044,932 and 6,027,704 shares outstanding as of September 30, 2021 and December 31, 2020, respectively)		62			62
Additional paid-in capital		550,420			535,586
Retained earnings		1,408,346			1,228,172
Accumulated other comprehensive loss		(91,731	)		(140,683	)
Treasury stock, at cost (130,467 and 147,695 shares held as of September 30, 2021 and December 31, 2020, respectively)		(135,873	)		(127,838	)
Total Stockholders' Equity		1,731,224			1,495,299
Total Liabilities and Stockholders' Equity	$	6,900,599		$	4,488,338

See accompanying notes to the condensed consolidated financial statements.

1

CABLE ONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(dollars in thousands, except per share data)	2021			2020			2021			2020
Revenues	$	430,237		$	338,962		$	1,173,248		$	988,461
Costs and Expenses:
Operating (excluding depreciation and amortization)		121,657			107,303			335,473			319,259
Selling, general and administrative		95,103			62,596			252,160			190,474
Depreciation and amortization		92,600			71,421			246,045			202,284
(Gain) loss on asset sales and disposals, net		3,376			1,511			4,314			(3,122	)
Total Costs and Expenses		312,736			242,831			837,992			708,895
Income from operations		117,501			96,131			335,256			279,566
Interest expense		(30,495	)		(17,560	)		(83,023	)		(52,849	)
Other income (expense), net		(22,833	)		3,231			(2,584	)		6,620
Income before income taxes and equity method investment income (loss), net		64,173			81,802			249,649			233,337
Income tax provision		13,029			15,515			22,129			35,184
Income before equity method investment income (loss), net		51,144			66,287			227,520			198,153
Equity method investment income (loss), net		1,111			-			(531	)		-
Net income	$	52,255		$	66,287		$	226,989		$	198,153
Net Income per Common Share:
Basic	$	8.68		$	11.04		$	37.73		$	33.91
Diluted	$	8.33		$	10.96		$	36.24		$	33.60
Weighted Average Common Shares Outstanding:
Basic		6,019,517			6,001,561			6,015,450			5,844,330
Diluted		6,460,875			6,050,415			6,362,736			5,897,445
Unrealized gain (loss) on cash flow hedges and other, net of tax	$	9,506		$	5,807		$	48,952		$	(88,277	)
Comprehensive income	$	61,761		$	72,094		$	275,941		$	109,876

See accompanying notes to the condensed consolidated financial statements.

2

CABLE ONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

						Additional					Accumulated Other			Treasury			Total
	Common Stock					Paid-In		Retained			Comprehensive			Stock,			Stockholders’
(dollars in thousands, except per share data)	Shares			Amount		Capital		Earnings			Loss			at cost			Equity
Balance at June 30, 2021		6,036,582		$	62	$	544,992	$	1,372,724		$	(101,237	)	$	(135,696	)	$	1,680,845
Net income		-			-		-		52,255			-			-			52,255
Unrealized gain (loss) on cash flow hedges and other, net of tax		-			-		-		-			9,506			-			9,506
Equity-based compensation		-			-		5,428		-			-			-			5,428
Issuance of equity awards, net of forfeitures		8,443			-		-		-			-			-			-
Withholding tax for equity awards		(93	)		-		-		-			-			(177	)		(177	)
Dividends paid to stockholders ($2.75 per common share)		-			-		-		(16,633	)		-			-			(16,633	)
Balance at September 30, 2021		6,044,932		$	62	$	550,420	$	1,408,346		$	(91,731	)	$	(135,873	)	$	1,731,224

						Additional					Accumulated Other			Treasury			Total
	Common Stock					Paid-In		Retained			Comprehensive			Stock,			Stockholders’
(dollars in thousands, except per share data)	Shares			Amount		Capital		Earnings			Loss			at cost			Equity
Balance at June 30, 2020		6,019,834		$	62	$	527,641	$	1,085,793		$	(162,242	)	$	(127,708	)	$	1,323,546
Net income		-			-		-		66,287			-			-			66,287
Unrealized gain (loss) on cash flow hedges and other, net of tax		-			-		-		-			5,807			-			5,807
Equity-based compensation		-			-		3,867		-			-			-			3,867
Issuance of equity awards, net of forfeitures		4,216			-		-		-			-			-			-
Withholding tax for equity awards		(21	)		-		-		-			-			(38	)		(38	)
Dividends paid to stockholders ($2.50 per common share)		-			-		-		(15,070	)		-			-			(15,070	)
Balance at September 30, 2020		6,024,029		$	62	$	531,508	$	1,137,010		$	(156,435	)	$	(127,746	)	$	1,384,399

						Additional					Accumulated Other			Treasury			Total
	Common Stock					Paid-In		Retained			Comprehensive			Stock,			Stockholders’
(dollars in thousands, except per share data)	Shares			Amount		Capital		Earnings			Loss			at cost			Equity
Balance at December 31, 2020		6,027,704		$	62	$	535,586	$	1,228,172		$	(140,683	)	$	(127,838	)	$	1,495,299
Net income		-			-		-		226,989			-			-			226,989
Unrealized gain (loss) on cash flow hedges and other, net of tax		-			-		-		-			48,952			-			48,952
Equity-based compensation		-			-		14,834		-			-			-			14,834
Issuance of equity awards, net of forfeitures		20,878			-		-		-			-			-			-
Withholding tax for equity awards		(3,650	)		-		-		-			-			(8,035	)		(8,035	)
Dividends paid to stockholders ($7.75 per common share)		-			-		-		(46,815	)		-			-			(46,815	)
Balance at September 30, 2021		6,044,932		$	62	$	550,420	$	1,408,346		$	(91,731	)	$	(135,873	)	$	1,731,224

3

						Additional					Accumulated Other			Treasury			Total
	Common Stock					Paid-In		Retained			Comprehensive			Stock,			Stockholders’
(dollars in thousands, except per share data)	Shares			Amount		Capital		Earnings			Loss			at cost			Equity
Balance at December 31, 2019		5,715,377		$	59	$	51,198	$	980,355		$	(68,158	)	$	(121,885	)	$	841,569
Net income		-			-		-		198,153			-			-			198,153
Unrealized gain (loss) on cash flow hedges and other, net of tax		-			-		-		-			(88,277	)		-			(88,277	)
Equity-based compensation		-			-		10,514		-			-			-			10,514
Issuance of common stock		287,500			3		469,796		-			-			-			469,799
Issuance of equity awards, net of forfeitures		24,962			-		-		-			-			-			-
Withholding tax for equity awards		(3,810	)		-		-		-			-			(5,861	)		(5,861	)
Dividends paid to stockholders ($7.00 per common share)		-			-		-		(41,498	)		-			-			(41,498	)
Balance at September 30, 2020		6,024,029		$	62	$	531,508	$	1,137,010		$	(156,435	)	$	(127,746	)	$	1,384,399

See accompanying notes to the condensed consolidated financial statements.

4

CABLE ONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
(in thousands)	2021			2020
Cash flows from operating activities:
Net income	$	226,989		$	198,153
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		246,045			202,284
Non-cash interest expense		6,730			3,330
Equity-based compensation		14,834			10,514
Write-off of debt issuance costs		2,131			-
Change in deferred income taxes		1,680			47,826
(Gain) loss on asset sales and disposals, net		4,314			(3,122	)
Equity method investment (income) loss, net		531			-
Fair value adjustment		41,390			-
Gain on step acquisition		(33,406	)		-
Changes in operating assets and liabilities:
Accounts receivable, net		764			(11,269	)
Income taxes receivable		21,019			(40,878	)
Prepaid and other current assets		(7,149	)		(5,561	)
Accounts payable and accrued liabilities		4,216			1,882
Deferred revenue		2,919			1,427
Other		(2,721	)		(5,606	)
Net cash provided by operating activities		530,286			398,980
Cash flows from investing activities:
Purchase of business, net of cash acquired		(1,953,643	)		(38,296	)
Purchase of equity investment		-			(37,245	)
Capital expenditures		(282,024	)		(217,994	)
Change in accrued expenses related to capital expenditures		12,666			(5,638	)
Proceeds from sales of property, plant and equipment		282			617
Issuance of note and other receivables		-			(7,288	)
Settlement of note and other receivables		-			6,000
Net cash used in investing activities		(2,222,719	)		(299,844	)
Cash flows from financing activities:
Proceeds from equity issuance		-			488,750
Proceeds from long-term debt borrowings		1,695,850			100,000
Payment of equity issuance costs		-			(18,951	)
Payment of debt issuance costs		(13,741	)		-
Payments on long-term debt		(21,683	)		(121,515	)
Payment of withholding tax for equity awards		(8,035	)		(5,861	)
Dividends paid to stockholders		(46,815	)		(41,498	)
Deposits received for asset construction		1,485			-
Net cash provided by financing activities		1,607,061			400,925
Increase (decrease) in cash and cash equivalents		(85,372	)		500,061
Cash and cash equivalents, beginning of period		574,909			125,271
Cash and cash equivalents, end of period	$	489,537		$	625,332
Supplemental cash flow disclosures:
Cash paid for interest, net of capitalized interest	$	69,450		$	49,017
Cash paid for income taxes, net of refunds received	$	(1,068	)	$	28,245

See accompanying notes to the condensed consolidated financial statements.

5

CABLE ONE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.      DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business. Cable One is a fully integrated provider of data, video and voice services to residential and business customers in 24 Western, Midwestern and Southern U.S. states. Cable One provided service to approximately 1,144,000 residential and business customers, of which approximately 1,030,000 subscribed to data services, 279,000 subscribed to video services and 151,000 subscribed to voice services, as of September 30, 2021.

On July 1, 2020, the Company acquired Valu-Net LLC, an all-fiber internet service provider headquartered in Kansas (“Valu-Net”), for a purchase price of $38.9 million in cash on a debt-free basis. Refer to note 2 for details on this transaction.

On May 3, 2021, the Company acquired the remaining approximately 85% equity interest in Hargray that it did not already own for an approximately $2.0 billion cash purchase price, which implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free basis. The all-cash transaction was funded through a combination of cash on hand and proceeds from new indebtedness. The Hargray Acquisition expands the Company’s presence in the Southeastern U.S. and is expected to enable the Company to capitalize on Hargray’s experience and expertise in fiber expansion. Refer to note 2 for further details on this transaction.

Refer to note 5 for information on the Company’s equity investments.

Basis of Presentation. The condensed consolidated financial statements and accompanying notes thereto have been prepared in accordance with: (i) generally accepted accounting principles in the United States (“GAAP”) for interim financial information; and (ii) the guidance of Rule 10-01 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for financial statements required to be filed with the SEC. As permitted under such guidance, certain notes and other financial information normally required by GAAP have been omitted. Management believes the condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position, results of operations and cash flows as of and for the periods presented herein. These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the 2020 Form 10-K.

The December 31, 2020 year-end balance sheet data presented herein was derived from the Company’s audited consolidated financial statements included in the 2020 Form 10-K, but does not include all disclosures required by GAAP. The Company’s interim results of operations may not be indicative of its future results.

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

Segment Reporting. Accounting Standards Codification ("ASC") 280 - Segment Reporting requires the disclosure of factors used to identify an entity’s reportable segments. Based on the Company’s chief operating decision maker’s review and assessment of the Company’s operating performance for purposes of performance monitoring and resource allocation, the Company determined that its operations, including the decisions to allocate resources and deploy capital, are organized and managed on a consolidated basis. Accordingly, management has identified one operating segment, which is its reportable segment, under this organizational and reporting structure.

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

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 8) issued during the first quarter of 2021 under the updated guidance.

6

 

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 upon adoption.

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

2.      ACQUISITIONS

The Company accounts for certain acquisitions as business combinations pursuant to ASC 805. In accordance with ASC 805, the Company uses its best estimates and assumptions to assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date based on the information that is available as of the acquisition date. The Company believes that the information available provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed for each acquisition, however, preliminary measurements of fair value for each acquisition are subject to change during the measurement period, and such changes could be material. The Company expects to finalize the valuation after each acquisition as soon as practicable but no later than one year after the acquisition date.

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

Acquisition costs incurred by the Company are not included as components of consideration transferred and instead are accounted for as expenses in the period in which the costs are incurred. The Company incurred $0.8 million and $0.6 million of acquisition costs during the three months ended September 30, 2021 and 2020, respectively, and $10.0 million and $3.9 million during the nine months ended September 30, 2021 and 2020, respectively. These costs are included in selling, general and administrative expenses within the Company’s condensed consolidated statements of operations and comprehensive income.

The following acquisitions occurred during the periods presented:

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 is expected to enable the Company to capitalize on Hargray’s experience and expertise in fiber expansion.

7

 

The following table summarizes the allocation of the Hargray purchase price consideration as of the acquisition date (in thousands):

	Preliminary Purchase
	Price Allocation
Assets Acquired
Cash and cash equivalents	$	17,652
Accounts receivable		17,991
Prepaid and other current assets		8,006
Property, plant and equipment		457,158
Intangible assets		1,592,000
Other noncurrent assets		4,636
Total Assets Acquired		2,097,443
Liabilities Assumed
Accounts payable and accrued liabilities		36,457
Deferred revenue (short-term portion)		8,462
Current portion of long-term debt (finance leases)		1,375
Long-term debt (finance leases)		2,912
Deferred income taxes		437,725
Other noncurrent liabilities		6,974
Total Liabilities Assumed		493,905
Net assets acquired		1,603,538
Purchase price consideration(1)		2,117,866
Goodwill recognized	$	514,328

⁽¹⁾ Consists of approximately $2.0 billion of cash for the additional approximately 85% equity interest in Hargray that the Company did not already own and the $146.6 million May 3, 2021 fair value of the Company’s existing approximately 15% equity investment in Hargray. The Company recognized a $33.4 million non-cash gain within other income in the condensed consolidated statement of operations and comprehensive income upon the acquisition, representing the difference between the existing equity investment’s fair value and $113.2 million carrying value. The fair value of the existing investment was calculated as approximately 15% of the fair value of Hargray’s total equity value (determined using the discounted cash flow method of the income approach, less debt), excluding the impact of any synergies or control premium that would be realized by a controlling interest.

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

			Useful Life
	Fair Value		(in years)
Customer relationships	$	472,000		13.7
Trademark and trade name	$	10,000		4.2
Franchise agreements	$	1,110,000	Indefinite

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

The Hargray Acquisition resulted in the recognition of $514.3 million of goodwill, which is not deductible for tax purposes.

For the three months ended September 30, 2021, the Company recognized revenues of $78.4 million and net income of $6.0 million from Hargray operations, which included acquired intangible assets amortization expense of $12.8 million. For the nine months ended September 30, 2021, the Company recognized revenues of $129.0 million and net income of $10.4 million from Hargray operations since the acquisition date of May 3, 2021, which included acquired intangible assets amortization expense of $21.3 million.

8

 

The following unaudited pro forma combined results of operations information for the three and nine months ended September 30, 2021 and 2020 has been prepared as if the Hargray Acquisition had occurred on January 1, 2020 (in thousands, except per share data):

	(Unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Revenues	$	430,237	$	401,855	$	1,276,146	$	1,173,810
Net income	$	52,255	$	58,383	$	165,898	$	169,805
Net income per common share:
Basic	$	8.68	$	9.73	$	27.58	$	29.46
Diluted	$	8.33	$	9.29	$	26.24	$	28.04

The unaudited pro forma combined results of operations information reflects the following pro forma adjustments (dollars in thousands):

	(Unaudited)
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2021		2020			2021			2020
Depreciation and amortization	$	-	$	(3,387	)	$	(6,152	)	$	(9,882	)
Interest expense	$	-	$	(511	)	$	(2,867	)	$	(20,221	)
Acquisition costs	$	-	$	-		$	(15,403	)	$	-
Gain on step acquisition	$	-	$	-		$	(33,400	)	$	-
Income tax provision	$	-	$	975		$	35,593		$	7,526
Weighted average common shares outstanding - diluted		-		404,248			95,219			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):

			Useful Life
	Fair Value		(in years)
Customer relationships	$	7,700		13.5
Trademark and trade name	$	800	Indefinite
Franchise agreements	$	11,200	Indefinite

Customer relationships and franchise agreements were valued using the MPEEM of the income approach. Significant assumptions used in the valuations include projected revenue growth rates, future EBITDA margins, future capital expenditures and an appropriate discount rate. No residual value was assigned to the acquired customer relationships. The customer relationships are amortized on an accelerated basis commensurate with future anticipated cash flows.

9

 

3.      REVENUES

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Residential:
Data	$	219,942	$	174,527	$	611,196	$	493,532
Video		89,507		83,553		252,764		256,203
Voice		12,645		11,490		35,235		36,038
Business services		85,728		59,441		222,706		175,771
Other		22,415		9,951		51,347		26,917
Total revenues	$	430,237	$	338,962	$	1,173,248	$	988,461
Franchise and other regulatory fees	$	8,683	$	6,298	$	22,945	$	19,261
Deferred commission amortization	$	1,318	$	1,343	$	4,051	$	4,042

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

Fees imposed on the Company by various governmental authorities, including franchise fees, are passed through on a monthly basis to the Company’s customers and are periodically remitted to authorities. As the Company acts as principal, these fees are reported in video and voice revenues on a gross basis with corresponding expenses included within operating expenses in the condensed consolidated statements of operations and comprehensive income.

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

Current deferred revenue liabilities consist of refundable customer prepayments, up-front charges and installation fees. As of September 30, 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. Of the $21.1 million of current deferred revenue at December 31, 2020, $18.3 million was recognized during the nine months ended September 30, 2021. Noncurrent deferred revenue liabilities consist of up-front charges and installation fees from business customers.

4.      OPERATING ASSETS AND LIABILITIES

Accounts receivable consisted of the following (in thousands):

	September 30, 2021			December 31, 2020
Trade receivables	$	50,826		$	32,795
Other receivables		7,960			7,225
Less: Allowance for credit losses		(2,793	)		(1,252	)
Total accounts receivable, net	$	55,993		$	38,768

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021(1)			2020
Beginning balance	$	2,843		$	9,399		$	1,252		$	1,201
Additions - charged to costs and expenses		2,190			(796	)		4,812			7,278
Deductions - write-offs		(3,580	)		(6,482	)		(7,931	)		(9,720	)
Recoveries collected		1,340			1,102			4,660			4,464
Ending balance	$	2,793		$	3,223		$	2,793		$	3,223

⁽¹⁾ Additions include $1.4 million of additional reserves assumed in the Hargray Acquisition.

10

 

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

	September 30, 2021		December 31, 2020
Prepaid repairs and maintenance	$	4,716	$	1,013
Software implementation costs		1,202		1,035
Prepaid insurance		4,856		2,200
Prepaid rent		3,275		1,471
Prepaid software		5,217		4,544
Deferred commissions		4,159		4,026
All other current assets		9,621		3,602
Total prepaid and other current assets	$	33,046	$	17,891

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

	September 30, 2021		December 31, 2020
Operating lease right-of-use assets	$	16,544	$	13,408
Deferred commissions		7,732		5,798
Software implementation costs		8,487		6,879
Debt issuance costs		2,746		3,249
All other noncurrent assets		3,497		4,209
Total other noncurrent assets	$	39,006	$	33,543

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

	September 30, 2021		December 31, 2020
Accounts payable	$	40,520	$	22,686
Accrued programming costs		24,122		20,279
Accrued compensation and related benefits		48,130		26,467
Accrued sales and other operating taxes		13,777		7,425
Accrued franchise fees		4,078		4,021
Deposits		12,819		6,300
Operating lease liabilities		5,612		3,772
Interest rate swap liability		30,596		30,646
Accrued insurance costs		6,515		7,292
Cash overdrafts		11,639		8,847
Equity investment payable(1)		13,387		13,387
Interest payable		10,703		4,128
Amount due to Hargray(2)		-		6,822
All other accrued liabilities		17,209		12,067
Total accounts payable and accrued liabilities	$	239,107	$	174,139

(1)	Consists of the unfunded portion of the Company’s equity investment in Wisper ISP, LLC (“Wisper”). Refer to note 5 for details on this transaction.
(2)	Consists of amounts due to Hargray in connection with transition services provided as part of the Anniston Exchange (as defined in note 5). Refer to note 5 for details on this transaction.

11

 

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

	September 30, 2021		December 31, 2020
Operating lease liabilities	$	10,132	$	8,701
Accrued compensation and related benefits		14,027		10,086
Deferred revenue		6,387		4,981
MBI Net Option (as defined in note 5)(1)		114,700		73,310
All other noncurrent liabilities		3,613		3,549
Total other noncurrent liabilities	$	148,859	$	100,627

⁽¹⁾ Represents the net value of the Company’s call and put options associated with the remaining equity interests in MBI (as defined in note 5), consisting of a liability of $16.0 million and a liability of $98.7 million, respectively, as of September 30, 2021 and an asset of $0.7 million and a liability of $74.0 million, respectively, as of December 31, 2020. Refer to notes 5 and 10 for further information on the MBI Net Option (as defined in note 5).

5.     EQUITY INVESTMENTS

On May 4, 2020, the Company made a minority equity investment for a less than 10% ownership interest in AMG Technology Investment Group, LLC, a wireless internet service provider (“Nextlink”), for $27.2 million. On July 10, 2020, the Company acquired a 40.4% minority equity interest in Wisper, a wireless internet service provider, for total consideration of $25.3 million. The Company funded $11.9 million of the total consideration for Wisper in 2020 and expects to fund the remainder within the next twelve months. On October 1, 2020, the Company contributed its Anniston, Alabama system (the “Anniston System”) to Hargray, a data, video and voice services provider, in exchange for an approximately 15% equity interest in Hargray on a fully diluted basis (the “Anniston Exchange”) 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.

12

 

The carrying value of the Company’s equity investments without readily determinable fair values were determined based on fair valuations as of their respective acquisition dates, and consisted of the following (dollars in thousands):

	Ownership	September 30,		December 31,
	Percentage	2021		2020
Cost Method Investments
Hargray(1), (2)	~15%	$	-	$	113,165
Nextlink	<10%		27,245		27,245
Others	<10%		15,085		10,066
Total cost method investments		$	42,330	$	150,476
Equity Method Investments
MBI(3)	45.0%	$	626,926	$	630,679
Wisper	40.4%		29,849		26,626
Total equity method investments		$	656,775	$	657,305
Total equity investments		$	699,105	$	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, customer attrition 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 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.
(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.
(3)	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 $114.7 million and $73.3 million as of September 30, 2021 and December 31, 2020, respectively, and was included within other noncurrent liabilities in the condensed consolidated balance sheets. Refer to note 10 for further information on the MBI Net Option.

The carrying value of MBI exceeded the Company’s underlying equity in MBI’s net assets by approximately $516.8 million and $529.7 million as of September 30, 2021 and December 31, 2020, respectively.

13

 

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):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021			2020
Equity Method Investment Income (Loss)
MBI(1)	$	(132	)	$	-	$	(3,753	)	$	-
Wisper		1,243			-		3,222			-
Total	$	1,111		$	-	$	(531	)	$	-
Other Income (Expense), Net
MBI Net Option change in fair value	$	(25,600	)	$	-	$	(41,390	)	$	-

⁽¹⁾ The Company identified a $186.6 million difference between the fair values of certain of MBI’s finite-lived intangible assets and the respective carrying values recorded by MBI, of which $84.0 million was attributable to the Company’s 45% pro rata portion. The Company is amortizing its share on an accelerated basis over the lives of the respective assets. For the three months ended September 30, 2021, the Company recognized $3.8 million of its pro rata share of MBI’s net income and $4.0 million of its pro rata share of basis difference amortization. For the nine months ended September 30, 2021, the Company recognized $6.8 million of its pro rata share of MBI’s net income and  $10.6 million of its pro rata share of basis difference amortization.

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

6.      PROPERTY, PLANT AND EQUIPMENT

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

	September 30, 2021			December 31, 2020
Cable distribution systems	$	2,412,978		$	1,916,048
Customer premise equipment		314,304			283,831
Other equipment and fixtures		455,612			463,469
Buildings and improvements		138,807			117,367
Capitalized software		86,178			107,107
Construction in progress		177,092			89,488
Land		21,041			13,293
Right-of-use assets		11,241			10,314
Property, plant and equipment, gross		3,617,253			3,000,917
Less: Accumulated depreciation and amortization		(1,815,884	)		(1,735,457	)
Property, plant and equipment, net	$	1,801,369		$	1,265,460

Depreciation and amortization expense for property, plant and equipment was $69.3  million and $59.8 million for the three months ended September 30, 2021 and 2020, respectively, and $193.3 million and $168.4 million for the nine months ended September 30, 2021 and 2020, respectively.

7.      GOODWILL AND INTANGIBLE ASSETS

The carrying amount of goodwill was $944.9 million at September 30, 2021 and $430.5 at December 31, 2020, with the $514.3 million increase attributable to goodwill recognized in the Hargray Acquisition. The Company has not historically recorded any impairment of goodwill.

14

 

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

		September 30, 2021						December 31, 2020
	Useful Life	Gross				Net		Gross				Net
	Range	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	(in years)	Amount		Amortization		Amount		Amount		Amortization		Amount
Finite-Lived Intangible Assets
Customer relationships	13.5 – 17	$	841,700	$	132,811	$	708,889	$	369,700	$	81,865	$	287,835
Trademarks and trade names	2.7 – 4.2		14,300		4,302		9,998		4,300		2,552		1,748
Wireless licenses	10 – 15		1,418		71		1,347		1,418		15		1,403
Total finite-lived intangible assets		$	857,418	$	137,184	$	720,234	$	375,418	$	84,432	$	290,986
Indefinite-Lived Intangible Assets
Franchise agreements						$	2,089,712					$	979,712
Trade names							7,500						7,500
Total indefinite-lived intangible assets						$	2,097,212					$	987,212
Total intangible assets, net						$	2,817,446					$	1,278,198

Intangible asset amortization expense was $23.3 million and $11.6 million for the three months ended September 30, 2021 and 2020, respectively, and $52.8 million and $33.9 million for the nine months ended September 30, 2021 and 2020, respectively.

The future amortization of existing finite-lived intangible assets as of September 30, 2021 was as follows (in thousands):

Year Ending December 31,	Amount
2021 (remaining three months)	$	21,692
2022		87,321
2023		76,094
2024		69,745
2025		64,814
Thereafter		400,568
Total	$	720,234

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

8.      DEBT

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

	September 30, 2021			December 31, 2020
Senior Credit Facilities (as defined below)	$	2,320,323		$	1,541,621
Senior Notes (as defined below)		650,000			650,000
Convertible Notes (as defined below)		920,000			-
Finance lease liabilities		6,001			5,466
Total debt		3,896,324			2,197,087
Less: Unamortized debt discount		(21,683	)		-
Less: Unamortized debt issuance costs		(29,747	)		(21,897	)
Less: Current portion of long-term debt		(34,570	)		(26,392	)
Total long-term debt	$	3,810,324		$	2,148,798

Senior Credit Facilities. On May 3, 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 “Third Amended and Restated 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 Third Amended and Restated 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 Revolving Credit Facility also gives the Company the ability to issue letters of credit, which reduce the amount available for borrowing under the Revolving Credit Facility.

15

 

The Term Loan B-4 was drawn in full in connection with the closing of the Hargray Acquisition. The Term Loan B-4 is an obligation of the Company and is guaranteed by the Company’s wholly owned subsidiaries that guarantee the other obligations under the Third Amended and Restated Credit Agreement. The Term Loan B-4 is secured, subject to certain exceptions, by substantially all of the assets of the Company and the guarantors under the Third Amended and Restated Credit Agreement.

The interest margin applicable to the Term Loan B-4 is, at the Company’s option, equal to either LIBOR or a base rate, plus an applicable margin equal to 2.0% for LIBOR loans and 1.0% for base rate loans. The Term 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 Third Amended and Restated 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 final maturity of the Term Loan B-4 may be accelerated following an event of default under the Third Amended and Restated Credit Agreement. Other than with respect to maturity, amortization and pricing, the Term Loan B-4 contains terms that are substantially similar to the existing Term Loan B-2 and Term Loan B-3.

Refer to the table below summarizing the Company’s outstanding term loans as of September 30, 2021 and note 10 to the Company’s audited consolidated financial statements included in the 2020 Form 10-K for further details on the Senior Credit Facilities.

The Company has issued letters of credit totaling $33.0 mil