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EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - Atlantic Broadband Finance, LLCd231223dex321.htm
EX-31.1 - CERTIFICATION OF DAVID J. KEEFE PURSUANT TO SECTION 302 - Atlantic Broadband Finance, LLCd231223dex311.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - Atlantic Broadband Finance, LLCd231223dex322.htm
EX-31.2 - CERTIFICATION OF PATRICK BRATTON PURSUANT TO SECTION 302 - Atlantic Broadband Finance, LLCd231223dex312.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

Form 10-Q

 

 

CURRENT REPORT

(Mark One)

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

For the quarterly period ended September 30, 2011

 

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

For the transition period from                      to                      .

 

 

Atlantic Broadband Finance, LLC

(Exact Name of Registrant As Specified In Charter)

 

 

 

Delaware   333-115504   20-0226936

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

One Batterymarch Park, Suite 405

Quincy, MA 02169

(Address of Principal Executive Offices, including Zip Code)

(617) 786-8800

(Registrant’s telephone number, including area code)

 

 

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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such other shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

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

As of November 14, 2011, Atlantic Broadband Holdings I, LLC held all 1,000 outstanding membership units of the registrant’s equity.

 

 

 


Table of Contents

FORWARD LOOKING STATEMENTS

Statements in this document that are not historical facts are hereby identified as “forward looking statements” for the purposes of the safe harbor provided by Section 21E of the Securities Act of 1933 (the “Securities Act”). Atlantic Broadband Finance, LLC (the “Company”) cautions readers that such “forward looking statements”, including without limitation, those relating to the Company’s future business prospects, revenue, working capital, liquidity, capital needs, interest costs and income, wherever they occur in this document or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company’s senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the “forward looking statements”. Such “forward looking statements” should, therefore, be considered in light of the factors set forth in “Item 2. Management’s Discussion and Analysis of the Financial Condition and Results of Operations”.

The “forward looking statements” contained in this report are made under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Moreover, the Company, through its senior management, may from time to time make “forward looking statements” about matters described herein or in other matters concerning the Company.

The Company disclaims any intent or obligation to update “forward looking statements” to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

 

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Table of Contents

ATLANTIC BROADBAND FINANCE, LLC

TABLE OF CONTENTS

 

     Page  

Part 1. Financial Information

  

Item 1.

     
   Financial Statements (Unaudited)      4-14   
   Condensed Consolidated Balance Sheets - September 30, 2011 and December 31, 2010   
   Condensed Consolidated Statements of Operations – Three and nine months ended September 30, 2011 and 2010   
   Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2011 and 2010   
   Notes to Condensed Consolidated Financial Statements   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      14   

Item 3.

   Quantitative and Qualitative Disclosures of Market Risk      19   

Item 4T.

   Controls and Procedures      20   

Part 2. Other Information

  

Item 1.

   Legal Proceedings      20   

Item 1A

   Risk Factors      21   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      21   

Item 3.

   Defaults upon Senior Securities      21   

Item 4.

   Reserved      21   

Item 5.

   Other Information      21   

Item 6.

   Exhibits      21   

Signatures

     22   

Certifications

  

 

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Table of Contents

ATLANTIC BROADBAND FINANCE, LLC

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

 

     September 30,
2011
    December 31,
2010
 

Assets

    

Current assets

    

Cash and cash equivalents

   $ 5,561      $ 9,747   

Accounts receivable—net of allowance for doubtful accounts of $397 and $371, respectively

     8,459        8,260   

Accounts receivable—related party

     601        593   

Prepaid expenses and other current assets

     1,939        1,557   
  

 

 

   

 

 

 

Total current assets

     16,560        20,157   

Plant, property and equipment, net

     191,380        194,057   

Franchise rights

     524,400        524,400   

Goodwill

     35,905        35,905   

Other intangible assets, net

     768        1,229   

Debt issuance costs, net

     5,610        7,755   
  

 

 

   

 

 

 

Total assets

   $ 774,623      $ 783,503   
  

 

 

   

 

 

 

Liabilities and Member’s Equity

    

Current liabilities

    

Current portion of senior debt

   $ 5,550      $ 5,750   

Accrued interest

     4,227        6,523   

Accounts payable

     11,829        15,021   

Accrued expenses

     13,326        12,262   

Unearned service revenue

     4,903        4,835   
  

 

 

   

 

 

 

Total current liabilities

     39,835        44,391   

Long-term senior debt

     649,671        696,462   

Other long-term liabilities

     2,194        2,190   
  

 

 

   

 

 

 

Total liabilities

     691,700        743,043   
  

 

 

   

 

 

 

Member’s deficit

     (16,455     (16,221

Retained earnings

     99,378        56,681   
  

 

 

   

 

 

 

Total member’s equity

     82,923        40,460   
  

 

 

   

 

 

 

Total liabilities and member’s equity

   $ 774,623      $ 783,503   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

 

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ATLANTIC BROADBAND FINANCE, LLC

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands)

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  

Cable service revenue

   $ 82,170       $ 79,225       $ 245,925       $ 236,343   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating expenses

           

Direct operating expenses (excluding depreciation and amortization shown separately below)

     36,031         34,776         108,058         106,188   

Selling, general and administrative expenses (excluding depreciation and amortization shown separately below)

     9,510         9,658         30,915         29,284   

Depreciation and amortization

     11,139         10,774         33,177         31,824   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations

     25,490         24,017         73,775         69,047   

Interest expense

     9,918         10,632         31,078         31,717   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 15,572       $ 13,385       $ 42,697       $ 37,330   
  

 

 

    

 

 

    

 

 

    

 

 

 

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

 

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Table of Contents

ATLANTIC BROADBAND FINANCE, LLC

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

     Nine Months Ended
September 30,
 
     2011     2010  

Cash flows from operating activities

    

Net income

   $ 42,697      $ 37,330   

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

    

Depreciation and amortization

     33,177        31,824   

Amortization of debt issuance costs

     2,145        1,910   

Amortization of debt discount

     784        —     

Changes in operating assets and liabilities

    

Accounts receivable

     (207     1,280   

Prepaid expenses and other current assets

     (382     (393

Accounts payable, accrued expenses, other long-term liabilities and accrued interest

     (5,681     (4,848

Unearned service revenue

     68        (330
  

 

 

   

 

 

 

Net cash provided by operating activities

     72,601        66,773   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of plant, property and equipment

     (28,778     (25,297
  

 

 

   

 

 

 

Net cash used in investing activities

     (28,778     (25,297
  

 

 

   

 

 

 

Cash flows from financing activities

    

Repayments of debt principal

     (47,775     (3,872

Dividend to members

     (234     (15,239
  

 

 

   

 

 

 

Net cash used in financing activities

     (48,009     (19,111
  

 

 

   

 

 

 

Net change in cash and equivalents

     (4,186     22,365   

Cash and cash equivalents, beginning of period

     9,747        14,696   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 5,561      $ 37,061   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information

    

Interest paid

   $ 30,445      $ 33,323   

Supplemental disclosure of noncash investing activities

    

Capital expenditures included in accounts payable and accrued expenses

     1,261        2,523   

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

 

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Table of Contents

ATLANTIC BROADBAND FINANCE, LLC

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except where indicated)

(Unaudited)

1. Description of Business

Atlantic Broadband Finance, LLC (the “Company”) was formed in Delaware on August 26, 2003. The Company is a wholly-owned subsidiary of Atlantic Broadband Holdings I, LLC (the “Parent”). The Company and the Parent are wholly-owned indirect subsidiaries of Atlantic Broadband Group, LLC.

On September 3, 2003, the Company entered into a definitive asset purchase agreement with affiliates of Charter Communications, Inc. (“Charter”) to purchase certain cable systems in Pennsylvania, Florida, Maryland, West Virginia, Delaware and New York (together with the Aiken, SC system referred to below, the “Systems”) for approximately $738.1 million, subject to closing adjustments. The Company obtained equity and debt financing to fund the acquisition, which was consummated on March 1, 2004. On July 13, 2006, the Company entered into a definitive asset purchase agreement to purchase substantially all of the assets of G Force LLC, owner of certain cable systems in South Carolina for approximately $62.0 million. We obtained additional debt financing and issued a note payable to the seller of the assets to fund this transaction which was consummated on November 1, 2006.

The Systems offer their customers traditional cable video programming as well as high-speed data and telephony services and other advanced video related broadband services such as high definition television. The Systems sell their video programming, high-speed data, telephony and advanced broadband cable services on a subscription basis.

On September 30, 2011, the Company had approximately 258,000 cable, 147,000 residential high-speed Internet and 71,000 residential telephone subscribers on the Systems. The Company has 5 subsidiaries which operate the Systems: Atlantic Broadband (Penn), LLC, Atlantic Broadband (Delmar), LLC, Atlantic Broadband (Miami), LLC, Atlantic Broadband (SC), LLC and Atlantic Broadband Management, LLC (collectively, the “Subsidiaries”).

2. Risks and Uncertainties

The Company’s future operations involve a number of risks and uncertainties. Factors that could affect future operating results and cause actual results to vary from historical results include, but are not limited to, growth of its subscriber base and the Company’s ability to service its debt and operations with existing cash flows.

The Company plans to continue the expansion of its existing subscriber base through existing and new services, such as: digital cable, high speed Internet, high-definition television, and telephony services. The Company anticipates additional capital expenditures to facilitate this growth. Under current plans and operations, additional financing in excess of existing facilities is not expected to be required to fund operations or capital expenditures. Operating cash flows, along with availability under the Company’s revolving credit facility, are expected to be sufficient to repay current obligations and outstanding debt as they become due through at least the next twelve months. However, the Company can make no assurances that its business will generate sufficient cash flow from operations or that existing available cash or future borrowings will be available to it under the Senior Credit Facility in an amount sufficient to enable it to pay its indebtedness or to fund its other liquidity needs. Should the Company fail to meet its expectations, the Company would look to reduce capital expenditures, obtain additional financing, and/or refinance existing agreements; however, these borrowings and/or rates may not be available or favorable to the Company.

3. Summary of Significant Accounting Policies

Interim Financial Statements

The condensed consolidated financial statements as of September 30, 2011 and for the three and nine months ended September 30, 2011 and 2010 are unaudited. However, in the opinion of management, such financial statements include all adjustments (consisting primarily of normal recurring adjustments) necessary for the fair statement of the financial information included herein in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Results of operations for interim periods are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the annual financial statements and related notes included in the Company’s Annual Report on Form 10-K. The balance sheet at December 31, 2010 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by U.S. GAAP for complete financial statements.

 

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Basis of Presentation

The financial statements presented herein include the consolidated accounts of Atlantic Broadband Finance, LLC and its Subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities, derivative financial instruments and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to useful lives of property, plant and equipment and finite-lived intangible assets, the recoverability of the carrying values of goodwill, other intangible assets and fixed assets (which include capitalized labor and overhead costs) and commitments and contingencies. Actual results could differ from those estimates.

Segments

The Financial Accounting Standards Board (“FASB”) established standards for reporting information about operating segments in annual financial statements and in interim financial reports issued to shareholders. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance of the segment.

The Company manages the Systems’ operations on the basis of geographic divisional operating segments. The Company has evaluated the criteria for aggregation of the geographic operating segments using the FASB standard. In light of the Systems’ similar services, means for delivery, similarity in type of customers, the use of a unified network, similar economic characteristics and other considerations across its geographic divisional operating structure, management has determined that the Systems have one reportable segment, broadband services.

Capitalization of Labor and Overhead Costs

The cable industry is capital intensive, and a large portion of our resources are spent on capital activities associated with extending, building and upgrading the cable network. Costs associated with network construction, initial customer installations, installation refurbishments and the addition of network equipment necessary to enable advanced services are capitalized. Costs capitalized as part of initial customer installations include materials, direct labor costs associated with capital projects and certain indirect costs. The Company capitalizes direct labor costs associated with personnel based upon the specific time devoted to construction and customer installation activities. Indirect costs are associated with the activities of personnel who assist in connecting and activating the new service and consist of compensation and overhead costs associated with these support functions. The costs of disconnecting service at a customer’s dwelling or reconnecting service to a previously installed dwelling are charged to operating expense in the period incurred. Costs for repairs and maintenance are charged to operating expense as incurred, while equipment replacement and betterments, including replacement of cable drops from the pole to dwelling, are capitalized.

The Company amortizes the capitalized labor and overhead costs over the life of the related equipment which ranges from 4-15 years. The vast majority of these capitalized costs relate to customer installation activity and related equipment additions. Accordingly, such assets are amortized over the same five year period as the fixed assets acquired as part of the installation.

Judgment is required to determine the extent to which indirect costs, or overhead, are incurred as a result of specific capital activities and, therefore, should be capitalized. The Company capitalizes overhead based upon an allocation of the portion of indirect costs that contribute to capitalizable activities using an overhead rate applied to the amount of direct labor capitalized. The Company has established overhead rates based on an analysis of the nature of costs incurred in support of capitalizable activities and a determination of the portion of costs which is directly attributable to capitalizable activities. The primary costs that are included in the determination of overhead rates are (i) employee benefits and payroll taxes associated with capitalized direct labor, (ii) direct variable costs associated with capitalizable activities, consisting primarily of installation and construction vehicle costs, (iii) the cost of support personnel, such as dispatch that directly assist with capitalizable installation activities, and (iv) other costs directly attributable to capitalizable activities.

 

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Goodwill and Intangible Assets

Intangible assets consist primarily of acquired franchise operating rights and subscriber relationships. Franchise operating rights represent the value attributable to agreements with local franchising authorities, which allows access to homes in the public right of way acquired through a business combination. Subscriber relationships represent the value to the Company of the benefit of acquiring the existing cable television subscriber base. The Company considers franchise operating rights to have an indefinite life. The Company reached its conclusion regarding the indefinite useful life of its franchise operating rights principally because (i) there are no legal, regulatory, contractual, competitive, economic, or other factors limiting the period over which these rights will continue to contribute to the Company’s cash flows (ii) as an incumbent franchisee, the Company’s renewal applications are granted by the local franchising authority on their own merits and not as part of a comparative process with competing applications and (iii) under the 1984 Cable Act, a local franchising authority may not unreasonably withhold the renewal of a cable system franchise. The Company will reevaluate the expected life of its cable franchise rights each reporting period to determine whether events and circumstances continue to support an indefinite useful life. The subscriber relationships are being amortized over the estimated useful life of the subscriber base. The useful lives for the subscriber relationships is estimated to be approximately three years and at the end of each reporting period, or earlier if circumstances warrant, the Company reassesses the estimated useful life of the relationships.

Goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated fair value of each of the Company’s four reporting units to its carrying amount, including goodwill. In performing the first step, the Company determines the fair value of a reporting unit using a combination of a discounted cash flow (“DCF”) analysis and a market-based approach. Determining fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, perpetual growth rates, the amount and timing of expected future cash flows, as well as relevant comparable company earnings multiples for the market-based approach. The cash flows employed in the DCF analyses are based on the Company’s most recent budget and, for years beyond the budget, the Company’s estimates, which are based on assumed growth rates. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units. In addition, the market-based approach utilizes comparable company public trading values, research analyst estimates and, where available, values observed in private market transactions. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with its carrying amount to measure the amount of impairment, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment is recognized in an amount equal to that excess.

The impairment test for other intangible assets not subject to amortization involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of intangible assets not subject to amortization are determined using a DCF valuation analysis. The DCF methodology used to value cable franchise rights entails identifying the projected discrete cash flows related to such cable franchise rights and discounting them back to the valuation date. Significant judgments inherent in this analysis include the selection of appropriate discount rates, estimating the amount and timing of estimated future cash flows attributable to cable franchise rights and identification of appropriate terminal growth rate assumptions. The discount rates used in the DCF analyses are intended to reflect the risk inherent in the projected future cash flows generated by the respective intangible assets.

The Company tests for impairment of its goodwill and franchise operating rights annually or whenever events or changes in circumstances indicate that these assets might be impaired. An impairment assessment of goodwill and franchise operating rights could be triggered by a significant reduction in operating results or cash flows at one of more of the Company’s systems, or a forecast of such reductions, a significant adverse change in the locations in which the Company’s systems operate, or by adverse changes to ownership rules, among others. The Company completed its annual impairment evaluation on March 1, 2011 and did not identify any impairment or note any reporting units at risk of failing the first step.

 

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Recently Issued Accounting Standards

In October 2009, the FASB issued authoritative guidance related to Multiple-Deliverable Revenue Arrangements. The guidance addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. The guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

In January 2010, the FASB issued amended guidance for fair value measurements and disclosures. The guidance requires new disclosures about the activity in Level 3 fair value measurements and the transfers between Levels 1, 2, and 3. The guidance also clarifies existing disclosures about the different classes of assets and liabilities measured at fair value and the valuation techniques and inputs used. This guidance is effective for interim and annual periods beginning after December 15, 2009, except for the separate disclosures of purchases, sales, issuances and settlements related to amounts reported as Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of this guidance did not have a material impact, nor do we expect any future material impact to our consolidated financial statements as result of adopting the remaining guidance.

In December 2010, the FASB issued authoritative guidance that provides additional guidance on when to perform the second step of the goodwill impairment test for reporting units with zero or negative carrying amounts. Under this guidance, an entity is required to perform the second step of the goodwill impairment test for reporting units with zero or negative carrying amounts if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The guidance is effective for fiscal years beginning after December 15, 2010. The adoption of this guidance did not have a material impact on our consolidated financial statements.

4. Plant, Property and Equipment

Plant, property and equipment consist of the following:

 

     September 30,
2011
     December 31,
2010
 

Distribution facilities

   $ 256,950       $ 244,419   

Subscriber equipment

     71,042         68,160   

Headend equipment

     57,447         50,868   

Buildings and leasehold improvements

     11,315         11,044   

Office equipment and other

     22,205         21,018   

Vehicles and equipment

     13,330         12,160   

Land

     2,018         2,012   

Construction in progress

     753         157   

Material inventory

     3,679         3,686   
  

 

 

    

 

 

 

Total plant, property and equipment

     438,739         413,524   

Less: accumulated depreciation

     247,359         219,467   
  

 

 

    

 

 

 

Plant, property and equipment, net

   $ 191,380       $ 194,057   
  

 

 

    

 

 

 

Depreciation expense for the three and nine months ended September 30, 2011 was $10,985 and $32,716, respectively, and for the three and nine month ended September 30, 2010 was $10,620 and $31,363, respectively.

5. Goodwill and Intangible Assets

The carrying value of goodwill at September 30, 2011 and December 31, 2010 was $35,905. For the three and nine months ended September 30, 2011 and 2010, there were no impairments and no additional goodwill recognized.

The carrying value of franchise rights at September 30, 2011 and December 31, 2010 was $524,400. For the three and nine months ended September 30, 2011 and 2010, there were no impairments and no additional franchise rights recognized.

 

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Intangible assets consist of the following as of September 30, 2011:

 

     Cost      Accumulated
Amortization
    Net
intangible
asset
 

Subscriber relationships

   $ 47,254       $ (46,486   $ 768   

Other intangible assets

     2,200         (2,200     —     
  

 

 

    

 

 

   

 

 

 

Total finite lived intangible assets

   $ 49,454       $ (48,686   $ 768   
  

 

 

    

 

 

   

 

 

 

Intangible assets consist of the following as of December 31, 2010:

 

     Cost      Accumulated
Amortization
    Net
intangible
asset
 

Subscriber relationships

   $ 47,254       $ (46,025   $ 1,229   

Other intangible assets

     2,200         (2,200     —     
  

 

 

    

 

 

   

 

 

 

Total finite lived intangible assets

   $ 49,454       $ (48,225   $ 1,229   
  

 

 

    

 

 

   

 

 

 

Amortization expense for the three and nine months ended September 30, 2011 was $154 and $461, respectively, and for the three and nine months ended September 30, 2010 was $154 and $461, respectively.

6. Accrued Expenses

Accrued expenses consist of the following:

 

     September 30,
2011
     December 31,
2010
 

Franchise, copyright and revenue sharing fees

   $ 2,701       $ 2,873   

Payroll and related taxes

     3,704         3,802   

Other accrued expenses

     6,921         5,587   
  

 

 

    

 

 

 

Total accrued liabilities

   $ 13,326       $ 12,262   
  

 

 

    

 

 

 

 

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7. Debt

On June 8, 2009, the Company amended its old senior credit facility to extend the maturity date of $325.0 million in old term loan principal from September 2011 to June 2013. The remaining outstanding old term loan debt of $118.8 million remained unchanged and was scheduled to mature in September 2011. As a result of the modification to the old senior credit facility, the Company incurred $5.9 million of debt financing costs, $4.6 million of which was expensed as a loss on extinguishment of debt and the remaining $1.3 million was scheduled to be amortized to interest expense over the remaining life of the old senior credit facility for lenders who continued to be lenders under the new facilities described below.

On November 29, 2010. the Company entered into a new $575.0 million term loan facility (the “New Term Loan Facility”) and a $25.0 million revolving credit facility (the “New Revolver Facility” and, together with the New Term Loan Facility, collectively the “New Senior Credit Facility”) with a group of banks and institutional investors led by Credit Suisse Securities (USA) LLC and SunTrust Robinson Humphrey, Inc. The New Senior Credit Facility is governed by a single credit agreement dated November 29, 2010. The proceeds of the New Term Loan Facility were used (a) to repay in full all indebtedness and other amounts due or outstanding under the Old Senior Credit Facility, (b) to consummate a cash dividend payment of approximately $110.7 million to the shareholders of Atlantic Broadband Holdings I, LLC and (c) to pay approximately $39.3 million in aggregate amount to Atlantic Broadband Holdings I, LLC to facilitate the redemption of certain of its preferred stock. As a result of the issuance of the New Senior Credit Facility, the Company incurred $5.4 million of debt financing costs, expensed as a loss on extinguishment of debt $1.2 million of previously capitalized costs with the remaining costs being amortized to interest expense over the life of the New Senior Credit Facility.

On March 8, 2011, the Company amended its New Senior Credit Facility to reduce the interest rate margins by 0.5% and the “LIBOR Floor” by 0.5%. In addition, the maturity dates for the New Term Loan and New Revolver were reset to the fifth and fourth anniversary dates from the March 8, 2011 amendment date in each case subject to an earlier maturity in the event that the Company’s 9.375% senior subordinated notes due 2014 remain outstanding on or prior to September 17, 2013. The Company expensed all costs incurred with the amendment.

The New Senior Credit Facility contains certain restrictive financial covenants that, among other things, require the Company to maintain certain debt service coverage, interest coverage, fixed charge coverage, leverage ratios and a certain level of EBITDA and places certain limitations on additional debt and investments. The New Senior Credit Facility contains conditions precedent to borrowing, events of default (including change of control) and covenants customary for facilities of this nature. The New Senior Credit Facility is collateralized by substantially all of the assets of the Company and its subsidiaries.

At September 30, 2011, there was $507.2 million outstanding under the Term Loans and no borrowings under the Revolver. At December 31, 2010, there was $555.0 million outstanding under the Term Loans and no borrowings under the Revolver. The carrying value of the Senior Credit Facility at September 30, 2011 and December 31, 2010 approximates fair value. The New Term Loans have quarterly principal payments of 1.0% per annum with a LIBOR margin of 3.0% and a “LIBOR floor” of 1.0%. The weighted average interest rate for 2011 and 2010 on the Term Loan and Revolver was 4.30% and 5.68%, respectively. Interest payments on Base Rate Loans shall be payable in arrears on the last day of each calendar quarter and at maturity. Interest payments on Eurodollar Loans shall be payable on the last day of each interest period relating to such loan and at maturity.

As of September 30, 2011, there was approximately $25.0 million of unused commitments under the Revolver all of which could be drawn in compliance with the financial covenants under the Senior Credit Facility. In order to maintain the revolving lines of credit, the Company is obligated to pay certain commitment fees at nominal interest rates on the unused portions of the loans.

The Company can make no assurances that it will be able to satisfy and comply with the covenants under the Senior Credit Facility. The Company’s ability to maintain its liquidity and maintain compliance with its covenants under the Senior Credit Facility is dependent upon its ability to successfully execute its current business plan. The Company believes that the cash generated from operations will be sufficient to meet its debt service, capital expenditures and working capital requirements for at least the next twelve months.

Term Loan installments began on September 30, 2011. The New Term Loan Facility has a five-year maturity and the New Revolver Facility has a four-year maturity, in each case subject to an earlier maturity in the event that the Company’s 9.375% senior subordinated notes due 2014 remain outstanding on or prior to September 17, 2013. Principal payments under the Senior Credit Facility for each year ending December 31, 2011 through maturity are as follows:

 

2011

   $ 1,387   

2012

     5,550   

2013

     5,550   

2014

     5,550   

2015

     5,550   

Thereafter

     483,638   
  

 

 

 
   $ 507,225   
  

 

 

 

 

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Senior Subordinated Notes

On February 10, 2004, the Company and Atlantic Broadband Finance, Inc., a 100% owned finance subsidiary of the Company, co-issued $150.0 million of 9 3/8% senior subordinated notes (the “Notes”). The Notes mature on January 15, 2014. Interest is payable every six months in arrears on January 15 and July 15. The Notes are guaranteed by each of the Company’s existing and future domestic subsidiaries on a senior subordinated basis to the Senior Credit Facility. The guarantees are full and unconditional and joint and several. Each of the subsidiary guarantors are 100% owned by the Company and the Company has no independent assets or operations other than those of its Subsidiaries. The proceeds of the offering were used to finance the acquisition of the Systems. The carrying value of the Notes at September 30, 2011 and December 31, 2010 approximates fair value.

Interest Rate Cap Agreements

In February 2011, the Company entered into four interest rate cap contracts for a total notional value of $180.0 million with a 2 year term and a rate of 5.0% and one interest rate cap contract for a notional value of $25.0 million with a 1 year term and a rate of 5.0%. The current fair values of these agreements are not considered significant.

Debt Covenants

The Senior Credit Agreement and the Notes described above contain covenants which require the Company to comply with certain financial ratios, capital expenditures and other limits. The Company was in compliance with all such covenants at September 30, 2011 and December 31, 2010.

On March 6, 2007, the Company further amended its Senior Credit Agreement to increase capital expenditure limits and to adjust certain financial covenant ratios for periods beginning in 2007. The amended financial covenant ratios are less restrictive than the previously effective ratios.

8. Member’s Equity

The Parent owns all 1,000 units issued by the Company. The Parent contributed $1.7 million in 2003 to effect its formation. In 2004, the Parent contributed $260.8 million which the Company used to acquire the Systems. The Company provided dividends totaling $87.7 million during the 2007, $10.1 million during 2008, $15.3 million during 2009, $165.4 million during 2010 and $0.2 million during the nine months ended September 30, 2011.

9. Management Services Agreement

On September 14, 2009, a majority investor of the Company acquired a majority interest in Grande Communications Networks, LLC (“Grande”), a retail and wholesale provider of cable video programming, high speed data, telephony and other advanced broadband services. Concurrent with this acquisition, the Company entered into a Management Services Agreement (the “Agreement”) with Grande and Grande Manager LLC to provide management and other services to Grande. Under the terms of the Agreement, designated personnel of the Company will provide general managerial oversight and such management services as mutually agreed upon by and between the Company and Grande with respect to the business and operations of Grande, subject to the authority of Grande’s board of directors. In consideration for the Company providing such services, Grande agreed to pay to the Company on a quarterly basis a fee equal to the lesser of 50% of the quarterly expenses associated with the designated Company personnel providing managerial services to Grande, or 5.5% of Grande’s total quarterly revenue less certain expenses as further described in the Agreement (the “Management Fee”). The Management Fee contemplates the recovery of costs to provide managerial services and may not be indicative of the service fee charged by an independent party. The Agreement commenced upon execution and will terminate upon certain events specified within the Agreement, or as mutually agreed upon by the Company and Grande. Any Management Fee earned by the Company will reduce the related selling, general and administrative expense during the period recognized. $459 and $1,363 in Management Fees were recorded during the three and nine months ended September 30, 2011, respectively. $461 and $1,251 in Management Fees were recorded during the three and nine months ended September 30, 2010, respectively. As of September 30, 2011 and December 31, 2010, $601 and $593 in management fees and reimbursable expenses were unpaid and recorded in accounts receivable.

 

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10. Contingencies

In the normal course of business, there are various legal proceedings outstanding. In the opinion of management, these proceedings will not have a material adverse effect on the financial position or results of operations or liquidity of the Company.

 

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

The following discussion and analysis is based upon our unaudited interim consolidated financial statements, and our review of the business and operations of each of the Systems.

Overview of Operations

The operating revenue of the Company is derived primarily from monthly subscription fees charged to customers for video, data and telephony services, equipment rental and ancillary services provided by the Systems. Generally, the customer subscriptions may be discontinued by the customer at any time. In addition, the Company derives revenue from installation and reconnection fees charged to customers to commence and reinstate service, pay-per-view programming where users are charged a fee for individual programs viewed, advertising revenues and franchise fee revenues, which are collected by the Systems and then paid to local franchising authorities.

Expenses consist primarily of operating costs, selling, general and administrative expenses, depreciation and amortization expenses and interest expense. Operating costs primarily include programming costs, the cost of the System’s workforce, cable service related expenses, franchise fees and expenses related to customer billings.

 

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Historical Performance

Operating Data

 

     September 30,
2011
    December 31,
2010
    September 30,
2010
 

Equivalent Basic Units (“EBU’s”)

     193,058        201,706        204,264   

Digital subscribers

     94,984        92,671        89,767   

High Speed Data (“HSD”) residential subscribers

     147,493        143,476        140,362   

Telephone residential subscribers

     70,880        68,340        67,463   

Homes passed

     510,503        509,720        509,159   

Internet-ready homes passed

     501,632        502,119        501,558   

Telephone-ready homes passed

     499,703        497,052        493,377   

Basic subscribers

     257,937        265,955        268,762   

Basic penetration of homes passed

     50.5     52.2     52.8

Digital penetration of basic subscribers

     36.8     34.8     33.4

HSD penetration of internet-ready homes passed

     29.4     28.6     28.0

Telephone penetration of telephone-ready homes passed

     14.2     13.7     13.7

 

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Results of Operations

The following tables set forth a summary of the Systems’ operations for the periods indicated and their percentages of total revenue:

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2010     2011     2010  
     Amount     %     Amount     %     Amount     %     Amount     %  
     (dollars in thousands)     (dollars in thousands)  

Revenue:

                

Video

   $ 40,610        49.4   $ 40,778        51.5   $ 122,868        50.0   $ 123,054        52.1

High Speed Data

     16,326        19.9        15,172        19.2        48,452        19.7        44,766        18.9   

Telephone

     7,438        9.0        6,916        8.7        22,128        9.0        20,180        8.5   

Advertising Sales

     1,881        2.3        1,921        2.4        5,731        2.3        5,740        2.4   

Commercial

     9,715        11.8        8,483        10.7        28,227        11.5        24,710        10.5   

Other

     6,200        7.6        5,955        7.5        18,519        7.5        17,893        7.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 82,170        100.0   $ 79,225        100.0   $ 245,925        100.0   $ 236,343        100.0

Costs and expenses:

                

Operating (excluding depreciation and amortization and selling, general and administrative listed below)

     36,031        43.8     34,776        43.9     108,058        43.9     106,188        44.9

Selling, general and administrative

     9,510        11.6     9,658        12.2     30,915        12.6     29,284        12.4

Depreciation and amortization

     11,139        13.6     10,774        13.6     33,177        13.5     31,824        13.5
  

 

 

     

 

 

     

 

 

     

 

 

   

Income from operations

     25,490          24,017          73,775          69,047     

Other Income (expenses):

                

Interest expense

     (9,918       (10,632       (31,078       (31,717  
  

 

 

     

 

 

     

 

 

     

 

 

   

Net income

   $ 15,572        $ 13,385        $ 42,697        $ 37,330     
  

 

 

     

 

 

     

 

 

     

 

 

   

Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010.

Revenue for the three months ended September 30, 2011 was $82.2 million as compared to $79.2 million for the three months ended September 30, 2010, an increase of $3.0 million or 3.8%. This increase was mainly the result of (i) an increase in high-speed data revenue of $1.2 million or 7.6% from continued marketing focus for this service offering driving HSD subscriber growth; (ii) a $0.5 million increase in telephone revenue generated by increases in subscriber levels and (iii) a $1.2 million increase in commercial revenue as we continue to expand our non-residential customer base through targeted marketing efforts. We expect revenues to continue to increase resulting from subscriber growth in our residential digital and residential and commercial high-speed data and telephone service offerings.

Operating expenses for the three months ended September 30, 2011 were $36.0 million as compared to $34.8 million for the same period in 2010. The $1.2 million increase was mainly the result of increased programming costs in conjunction with annual contractual increases, increased HSD and telephone direct costs associated with higher subscriber levels in both residential and commercial subscribers, offset by reductions in direct operating costs such as maintenance and telephone expenses with reductions in these areas resulting from past infrastructure investments in our technical plant and operating facilities. We expect operating expenses to continue to increase as growth in total revenue generating units will result in increased direct expenses, while technical and customer support levels should remain relatively stable.

 

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Selling, general and administrative expenses for the three months ended September 30, 2011 were $9.5 million as compared to $9.7 million for the three months ended September 30, 2010, a decrease of $0.2 million. This decrease is the result of reductions in general and administrative costs mainly related to certain one-time bonus payments made in 2010. We expect to see flat expense trends in selling, general and administrative expenses as we maintain consistent levels of spending in these expense categories.

Depreciation of plant, property and equipment and amortization expense was $11.1 million for the three months ended September 30, 2011, compared with $10.8 million for the same period in 2010, an increase of $0.3 million or 2.7%. This increase is the result of higher levels of capital expenditures in 2011 as compared to prior years as we make continued investment in our video offerings, with all-digital conversions in portions of our PA system, and in our HSD offering with the upgrade to DOCSIS 3.0 in our PA and Aiken systems.

Income from operations for the three months ended September 30, 2011 was $25.5 million as compared to $24.0 million for the same period in 2010 for the reasons described above.

Interest expense, including amortization of debt financing costs, for the three months ended September 30, 2011 was $9.9 million as compared to $10.6 million for the three months ended September 30, 2010. This decrease was primarily attributable to lower interest rate spreads resulting from the March 2011 amendment to our Senior Credit Agreement.

As a result of the factors described above, the net income was $15.6 million for the three months ended September 30, 2011 as compared to $13.4 million for the three months ended September 30, 2010.

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010

Revenue for the nine months ended September 30, 2011 was $245.9 million as compared to $236.3 million for the nine months ended September 30, 2010, an increase of $9.6 million or 4.1%. This increase was mainly the result of (i) a $3.7 million or 8.2% increase in high-speed data revenue resulting from continued marketing focus for this service offering driving HSD subscriber growth; (ii) a $1.9 million increase in telephone revenue generated by this service offering through subscriber growth and (iii) a $3.5 million increase in commercial revenue as we continue to expand our non-residential customer base through targeted marketing efforts.

Operating expenses for the nine months ended September 30, 2011 were $108.1 million as compared to $106.2 million for the same period in 2010. The $1.9 million increase was mainly the result of increased programming costs in conjunction with annual contractual increases, coupled with the incurrence of higher levels of direct costs associated with our continued expansion of high speed data and cable telephony services, offset by reductions in direct operating costs such as maintenance and telephone expenses with reductions in these areas resulting from past infrastructure investments in our technical plant and operating facilities.

Selling, general and administrative expenses for the nine months ended September 30, 2011 were $30.9 million as compared to $29.3 million for the nine months ended September 30, 2010, an increase of $1.6 million. This increase is the result of the incurrence of $2.8 million in fees associated with the Company’s March 2011 Senior Debt re-pricing, offset by reductions of $0.8 million in general and administrative costs mainly related to certain one-time bonus payments made in 2010 coupled with reductions in employee benefit and insurance costs, as well as a $0.3 million decrease in sales and marketing expenses due to lower levels of spending as we apply more targeted marketing campaigns.

Depreciation of plant, property and equipment and amortization expense was $33.2 million for the nine months ended September 30, 2011, compared with $31.8 million for the same period in 2010, an increase of $1.4 million. This increase is the result of higher levels of capital expenditures in 2011 as compared to prior years as we make continued investment in our video offerings, with all-digital conversions in portions of our PA system, and in our HSD offering with the upgrade to DOCSIS 3.0 in our PA and Aiken systems.

Income from operations for the nine months ended September 30, 2011 was $73.8 million as compared to $69.0 million for the same period in 2010 for the reasons described above.

Interest expense, including amortization of debt financing costs, for the nine months ended September 30, 2011 was $31.1 million as compared to $31.7 million for the nine months ended September 30, 2010. This $0.6 million decrease was primarily attributable to higher senior debt levels offset by lower interest rate spreads resulting from the March 2010 amendment to our Senior Credit Agreement.

 

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As a result of the factors described above, net income was $42.7 million for the nine months ended September 30, 2011 as compared to a net income of $37.3 million for the nine months ended September 30, 2010.

Liquidity and Capital Resources

The Company’s primary source of liquidity is cash flow from operations. We also have available funds under our revolving credit facility of $25.0 million at September 30, 2011, subject to certain conditions. Our primary liquidity requirements will be for debt service, capital expenditures and working capital.

In connection with the acquisition of the Systems, we have incurred substantial amounts of debt, including amounts outstanding under our Senior Credit Facility and our 9 3/8% Senior Subordinated Notes. Interest payments on this indebtedness will significantly reduce our cash flows from operations. As of September 30, 2011, the Company has total debt outstanding of $657.2 million.

We have a $532.2 million Senior Credit Facility, consisting of a $25.0 million Revolver and a $507.2 million Term Loan. At September 30, 2011, none of the Revolver was outstanding, with $25.0 million of unused senior credit commitments under the revolving credit facility. The Revolver commitment terminates on November 29, 2014. We will be able to prepay revolving credit loans and reborrow amounts that are repaid, up to the amount of the revolving credit commitment then in effect, subject to customary conditions. We also have $150.0 million senior subordinated notes that mature on January 15, 2014.

The Term Loans mature in March 2016.

The Senior Credit Facility contains certain restrictive financial covenants that, among other things, require the Company to maintain certain debt service coverage, interest coverage, fixed charge coverage, leverage ratios and a certain level of EBITDA and places certain limitations on additional debt and investments. The Senior Credit Facility contains conditions precedent to borrowing, events of default (including change of control) and covenants customary for facilities of this nature. The Senior Credit Facility is collateralized by substantially all of the assets of the Company and its Subsidiaries.

The Company can make no assurances that it will be able to satisfy and comply with the covenants under the Senior Credit Facility. The Company’s ability to maintain its liquidity and maintain compliance with its covenants under the Senior Credit Facility is dependent upon its ability to successfully execute its current business plan. The Company can make no assurances, however, that its business will generate sufficient cash flow from operations or that existing available cash or future borrowings will be available to it under the Senior Credit Facility in an amount sufficient to enable it to pay its indebtedness or to fund its other liquidity needs.

We expect to incur capital expenditures in 2011 at a level consistent with that of 2010 as we have substantially completed the deployment of all major product offerings, including high-speed data, telephone and video on demand services to the majority of our systems. We expect subsequent year capital expenditure levels to remain relatively consistent, reflecting more maintenance and discretionary capital spending.

We believe that the cash generated from operations will be sufficient to meet our debt service, capital expenditures and working capital requirements for the foreseeable future. Subject to restrictions on our Senior Credit Facility and the indenture governing our Senior Subordinated Notes, we may incur more debt for working capital, capital expenditures, acquisitions and for other purposes. In addition, we may require additional financing if our plans materially change in an adverse manner or prove to be materially inaccurate. There can be no assurance that such financing, if permitted under the terms of our debt agreement, will be available on terms acceptable to us or at all.

 

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Contractual Obligations

The following table sets forth our long-term contractual cash obligations as of September 30, 2011 (dollars in thousands):

 

     Years Ending December 31,  
     Total      Remainder
of 2011
     2012      2013      2014      2015      Thereafter  

Senior secured credit facilities

   $ 507,225       $ 1,387       $ 5,550       $ 5,550       $ 5,550       $ 5,550       $ 483,638   

9 3/8% Senior Subordinated Notes due 2014

     150,000         —           —           —           150,000         —           —     

Cash interest

     120,115         8,588         34,213         33,991         20,292         19,484         3,547   

Operating leases

     1,628         194         467         387         236         167         177   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total cash contractual obligations

   $ 778,968       $ 10,169       $ 40,230       $ 39,928       $ 176,078       $ 25,201       $ 487,362   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash Flows

Cash provided by operations increased to $72.6 million for the nine months ended September 30, 2011 as compared to $66.8 million for the same period in 2010. This is mainly the result of the increase in the Company’s Income from Operations as discussed above.

Cash used in investing activities increased to $28.8 million for the nine months ended September 30, 2011 from $25.3 million for the same period in 2010. This increase is the result of higher levels of capital expenditures in 2011 as compared to prior years as we make continued investment in our video offerings, with all-digital conversions in portions of our PA system, and in our HSD offering with the upgrade to DOCSIS 3.0 in our PA and Aiken systems.

Cash used in financing activities for the nine months ended September 30, 2010 included a $15.2 million dividend to its members, while the nine months ended September 30, 2011 included optional reductions of senior term debt outstanding of $45.0 million.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reported period. In making these estimates and assumptions, management employs critical accounting policies. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the year ended December 31, 2010.

Inflation and Changing Prices

Our costs and expenses will be subject to inflation and price fluctuations. We do not expect that such changes are likely to have a material effect on our results of operations.

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks as part of our ongoing business operations. Primary exposure will include changes in interest rates as borrowings under our senior secured credit facilities bear interest at floating rates based on LIBOR or the base rate, in each case plus an applicable borrowing margin. We manage our interest rate risk by balancing the amount of fixed-rate and floating-rate debt. For fixed-rate debt, interest rate changes do not affect earnings or cash flows. Conversely, for floating-rate debt, interest rate changes generally impact our earnings and cash flows, assuming other factors are held constant.

 

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The following table estimates the changes to cash flow from operations if interest rates were to fluctuate by 100 or 50 basis points, or BPS (where 100 basis points represents one percentage point), for a twelve-month period after giving effect to the interest rate swap agreements described below:

 

     Interest rate decrease      No change  to
interest rate
     Interest rate increase  
     100 BPS      50 BPS         50 BPS      100 BPS  
     (dollars in thousands)  

Senior credit facilities

   $ 17,779       $ 20,473       $ 23,167       $ 25,860       $ 28,554   

9.375% senior subordinated notes due 2014

     14,063         14,063         14,063         14,063         14,063   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 31,842       $ 34,536       $ 37,230       $ 39,923       $ 42,617   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

We use derivative instruments to manage our exposure to interest rate risks. Our objective for holding derivatives is to minimize the risks using the most effective methods to eliminate or reduce the impacts of these exposures. We use interest rate swap agreements, not designated as hedging instruments under the authoritative guidance associated with accounting for derivative instruments and hedging activities, in connection with our variable rate senior credit facility. We do not use derivative financial instruments for speculative or trading purposes. At September 30, 2011, the Company had no interest rate swap agreements in place. In February 2011, we entered into four interest rate cap contracts for a total notional value of $180.0 million with a 2 year term and a rate of 5.0% and one interest rate cap contract for a notional value of $25.0 million with a 1 year term and a rate of 5.0%.

 

ITEM 4T. Controls and Procedures

The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2011. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that 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. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company’s disclosure controls and procedures as of September 30, 2011 the Company’s chief executive officer and chief financial officer concluded that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

There was no change in the internal control over financial reporting that occurred during the period ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART 2. OTHER INFORMATION

 

ITEM 1. Legal Proceedings

In the normal course of business, the Company is party to various claims and legal proceedings. The Company records a reserve for these matters when an adverse outcome is probable and they can reasonably estimate its potential liability. Although the ultimate outcome of these matters is currently not determinable, the Company does not believe that the resolution of these matters in a manner adverse to their interest will have a material effect upon their financial condition, results of operations or cash flows for an interim or annual period.

 

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ITEM 1A. Risk Factors

For a more detailed explanation of the factors affecting our business, please refer to the Risk Factors section in Item 1A of our 2010 Form 10-K.

 

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

None.

 

ITEM 3. Defaults upon Senior Securities

None.

 

ITEM 4. Reserved

 

ITEM 5. Other Information

None.

 

ITEM 6. Exhibits
 
(a)    Exhibits
31.1    Certification of David J. Keefe pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certification of Patrick Bratton pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.
32.2    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.
101*    The following materials from the Atlantic Broadband Finance, LLC Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows and (iv) related notes.

 

* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

Exhibit 101.INS

   XBRL Instance Document.

Exhibit 101.SCH

   XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL

   XBRL Taxonomy Calculation Linkbase Document.

Exhibit 101.LAB

   XBRL Taxonomy Label Linkbase Document.

Exhibit 101.PRE

   XBRL Taxonomy Presentation Linkbase Document.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934 the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized on November 14, 2011.

 

Atlantic Broadband Finance, LLC

/s/    David J. Keefe        

David J. Keefe

Chief Executive Officer and Director

 

/s/    Patrick Bratton         

Patrick Bratton

Chief Financial Officer

 

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