WideOpenWest, Inc. - FORM 10-Q

WideOpenWest, Inc. - FORM 10-Q - November 8, 2018

Attached files

Attached files

WideOpenWest, Inc. Reports

file	filename
EX-32.1 - EX-32.1 - WideOpenWest, Inc.	wow-20180930ex321918c08.htm
EX-31.2 - EX-31.2 - WideOpenWest, Inc.	wow-20180930ex3120c40a2.htm
EX-31.1 - EX-31.1 - WideOpenWest, Inc.	wow-20180930ex311ebd1d4.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

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

For the quarterly period ended September 30, 2018

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

For the transition period from to

Commission File Number: 001-38101

WideOpenWest, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	46-0552948 (IRS Employer Identification No.)

7887 East Belleview Avenue, Suite 1000 Englewood, Colorado (Address of Principal Executive Offices)	80111 (Zip Code)

(720) 479‑3500

(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 period that the registrant was required to file), 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 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 ☒

The number of outstanding shares of the registrant’s common stock as of November 6, 2018 was 82,694,850

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WIDEOPENWEST, INC. AND SUBSIDIARIES

FORM 10‑Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2018

TABLE OF CONTENTS

		Page
PART I. Financial Information		1
Item 1	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)	3
	Condensed Consolidated Statement of Changes in Stockholders’ Deficit	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4	Controls and Procedures	46
PART II.		47
Item 1	Legal Proceedings	47
Item 1A	Risk Factors	47
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3	Defaults Upon Senior Securities	48
Item 4	Mine Safety Disclosures	48
Item 5	Other Information	48
Item 6	Exhibits	49

This Quarterly Report on Form 10‑Q is for the three and nine months ended September 30, 2018. Any statement contained in a prior periodic report shall be deemed to be modified or superseded for purposes of this Quarterly Report to the extent that a statement contained herein modifies or supersedes such statement. The Securities and Exchange Commission allows us to “incorporate by reference” information that we file with them, which means that we can disclose important information by referring you directly to those documents. Information incorporated by reference is considered to be part of this Quarterly Report. References in this Quarterly Report to “WOW,” “we,” “us,” “our”, or “the Company” are to WideOpenWest, Inc. and its direct and indirect subsidiaries, unless the context specifies or requires otherwise.

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PART I-FINANCIAL INFORMATION

WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


	September 30,		December 31,
	2018		2017
	(in millions, except share data)
Assets
Current assets
Cash and cash equivalents	$	27.3	$	69.4
Accounts receivable—trade, net of allowance for doubtful accounts of $6.0 and $5.8, respectively		83.8		81.5
Accounts receivable—other		5.9		2.1
Prepaid expenses and other		19.1		12.2
Total current assets		136.1		165.2
Plant, property and equipment, net		997.7		924.7
Franchise operating rights		809.2		952.4
Goodwill		270.9		384.1
Intangible assets subject to amortization, net		4.0		5.5
Other noncurrent assets		32.9		9.7
Total assets	$	2,250.8	$	2,441.6
Liabilities and stockholders’ deficit
Current liabilities
Accounts payable—trade	$	34.6	$	26.1
Accrued interest		4.8		3.6
Accrued liabilities and other		90.9		94.5
Current portion of debt and capital lease obligations		24.2		24.0
Current portion of unearned service revenue		50.1		43.2
Total current liabilities		204.6		191.4
Long term debt and capital lease obligations—less current portion and debt issuance costs		2,275.0		2,227.2
Deferred income taxes, net		161.6		220.4
Other noncurrent liabilities		8.9		7.0
Total liabilities		2,650.1		2,646.0
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.01 par value, 100,000,000 shares authorized; 0 shares issued and outstanding		—		—
Common stock, $0.01 par value, 700,000,000 shares authorized; 90,573,690 and 88,887,915 issued as of September 30, 2018 and December 31, 2017, respectively; 82,694,850 and 88,426,742 outstanding as of September 30, 2018 and December 31, 2017, respectively		0.9		0.9
Additional paid-in capital		310.7		299.9
Accumulated other comprehensive income		5.4		—
Accumulated deficit		(638.3)		(500.4)
Treasury stock at cost, 7,878,840 and 461,173 shares as of September 30, 2018 and December 31, 2017, respectively		(78.0)		(4.8)
Total stockholders’ deficit		(399.3)		(204.4)
Total liabilities and stockholders’ deficit	$	2,250.8	$	2,441.6

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

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WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
	(in millions, except share data)
Revenue	$	291.6	$	297.8	$	868.4	$	895.3
Costs and expenses:
Operating (excluding depreciation and amortization)		152.7		153.2		467.9		470.4
Selling, general and administrative		37.0		38.1		116.4		100.9
Depreciation and amortization		46.3		49.0		139.0		150.1
Impairment losses on intangibles and goodwill		—		—		256.4		—
Gain on sale of assets		(1.5)		—		(1.5)		—
Management fee to related party		—		—		—		1.0
		234.5		240.3		978.2		722.4
Income (loss) from operations		57.1		57.5		(109.8)		172.9
Other income (expense):
Interest expense		(35.0)		(32.2)		(96.8)		(122.0)
Gain on sale of Lawrence, Kansas system		—		—		—		38.4
Loss on early extinguishment of debt		—		(26.1)		—		(32.1)
Other income, net		0.5		0.3		1.7		1.7
Income (loss) before provision for income tax		22.6		(0.5)		(204.9)		58.9
Income tax benefit (expense)		7.9		(1.6)		57.9		16.4
Net income (loss)	$	30.5	$	(2.1)	$	(147.0)	$	75.3

Basic and diluted earnings (loss) per common shares
Basic	$	0.38	$	(0.02)	$	(1.79)	$	0.99
Diluted	$	0.37	$	(0.02)	$	(1.79)	$	0.99
Weighted-average common shares outstanding
Basic		80,663,128		86,973,345		82,319,223		76,014,568
Diluted		81,569,173		86,973,345		82,319,223		76,096,401

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

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WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
	(in millions)
Net income (loss)	$	30.5	$	(2.1)	$	(147.0)	$	75.3
Unrealized gain on interest rate derivative instrument		6.0		—		5.4		—
Comprehensive income (loss)	$	36.5	$	(2.1)	$	(141.6)	$	75.3

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

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WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

(unaudited)


								Accumulated
		Common		Treasury		Additional		Other				Total
	Common	Stock		Stock at		Paid-in		Comprehensive		Accumulated		Stockholders'
	Stock	Par Value		Cost		Capital		Income		Deficit		Deficit
	(in millions, except share data)
Balances at January 1, 2018	88,426,742	$	0.9	$	(4.8)	$	299.9	$	—	$	(500.4)	$	(204.4)
Impact of change in accounting policy	—		—		—		—		—		9.1		9.1
Changes in accumulated other comprehensive income	—		—		—		—		5.4		—		5.4
Stock-based compensation	—		—		—		11.0		—		—		11.0
Issuance of restricted stock, net	1,685,775		—		—		—		—		—		—
Purchase of shares	(7,417,667)		—		(73.2)		—		—		—		(73.2)
Other	—		—		—		(0.2)		—		—		(0.2)
Net loss	—		—		—		—		—		(147.0)		(147.0)
Balances at September 30, 2018(1)	82,694,850	$	0.9	$	(78.0)	$	310.7	$	5.4	$	(638.3)	$	(399.3)

(1)

Included in outstanding shares as of September 30, 2018 are 2,403,512 non-vested shares of restricted stock awards granted to employees and directors.

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

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WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine Months Ended
	September 30,
	2018		2017
	(in millions)
Cash flows from operating activities:
Net income (loss)	$	(147.0)	$	75.3
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		139.0		150.1
Deferred income taxes		(59.0)		(25.0)
Provision for doubtful accounts		14.2		14.3
Gain on sale of Chicago fiber assets		(1.5)		—
Amortization of debt issuance costs and discount, net		3.6		3.8
Gain on sale of Lawrence, Kansas system		—		(38.4)
Loss on early extinguishment of debt		—		7.1
Impairment losses on intangibles and goodwill		256.4		—
Non-cash compensation		11.0		8.3
Other non-cash items		—		0.3
Changes in operating assets and liabilities:
Receivables and other operating assets		(23.4)		(23.4)
Payables and accruals		6.5		(56.0)
Net cash provided by operating activities	$	199.8	$	116.4
Cash flows from investing activities:
Capital expenditures	$	(213.8)	$	(224.3)
Proceeds from sale of Chicago fiber assets		3.4		—
Proceeds from sale of Lawrence, Kansas system		—		213.0
Other investing activities		—		0.4
Net cash used in investing activities	$	(210.4)	$	(10.9)
Cash flows from financing activities:
Proceeds from issuance of debt	$	60.0	$	2,454.3
Payments on debt and capital lease obligations		(18.1)		(2,896.2)
Proceeds from issuance of common stock, net of issuance costs		—		334.7
Contribution from former Parent		—		20.3
Payment of debt issuance costs		—		(3.7)
Repurchase of old management units		—		(8.8)
Purchase of treasury stock		(73.2)		—
Other		(0.2)		(0.5)
Net cash used in financing activities	$	(31.5)	$	(99.9)
(Decrease) increase in cash and cash equivalents		(42.1)		5.6
Cash and cash equivalents, beginning of period		69.4		30.8
Cash and cash equivalents, end of period	$	27.3	$	36.4
Supplemental disclosures of cash flow information:
Cash paid during the periods for interest	$	92.0	$	161.6
Cash paid during the periods for income taxes	$	12.0	$	4.4
Non-cash financing activities:
Capital lease additions	$	2.5	$	—
Capital expenditure accounts payable and accruals	$	11.3	$	15.0

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

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WIDEOPENWEST, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(unaudited)

Note 1. General Information

WideOpenWest, Inc. (“WOW” or the “Company”) was organized in Delaware in July 2012 as WideOpenWest Kite, Inc. WideOpenWest Kite, Inc. subsequently changed its name to WideOpenWest, Inc. in March 2017. On April 1, 2016, the Company consummated a restructuring (“Restructuring”) whereby WideOpenWest Finance, LLC (“WOW Finance”) became a wholly owned subsidiary of WOW. Previously, WOW Finance was owned by WOW, WideOpenWest Illinois, Inc., WideOpenWest Ohio, Inc. and Sigecom, Inc. (collectively, the “Members”, or WOW and “Affiliates”). Prior to the Restructuring, the Members were wholly owned subsidiaries of Racecar Acquisition, LLC (“Racecar Acquisition”).

As a result of the Restructuring, the Affiliates merged with and into WOW, WOW became the sole subsidiary of Racecar Acquisition and WOW Finance became a wholly owned subsidiary of WOW.

On May 25, 2017, the Company completed an initial public offering (“IPO”) of shares of its common stock, which are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “WOW”. Prior to its IPO, WOW was wholly owned by Racecar Acquisition, which is a wholly owned subsidiary of WideOpenWest Holdings, LLC (“Parent”). Subsequent to the IPO, Racecar Acquisition and former Parent were liquidated and the shares distributed to their respective owners. In the following context, the terms we, us, WOW, or the Company may refer, as the context requires, to WOW or, collectively, WOW and its subsidiaries.

The Company is a fully integrated provider of high-speed data (“HSD”), cable television (“Video”), and digital telephony (“Telephony”) services. The Company serves customers in nineteen Midwestern and Southeastern markets in the United States. The Company manages and operates its Midwestern systems in Detroit and Lansing, Michigan; Chicago, Illinois; Cleveland and Columbus, Ohio; Evansville, Indiana and Baltimore, Maryland. The Southeastern systems are located in Augusta, Columbus, Newnan and West Point, Georgia; Charleston, South Carolina; Dothan, Auburn, Huntsville and Montgomery, Alabama; Knoxville, Tennessee; and Panama City and Pinellas County, Florida.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

Subsequent to the Restructuring, the financial statements and notes to financial statements presented herein include the consolidated accounts of WOW and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company operates as one operating segment. Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation with no effect on the Company’s previously reported results of operations, financial position, or cash flows.

Certain employees of WOW participated in equity plans administered by the Company’s former Parent. Because the management units from the equity plan were issued from the former Parent’s ownership structure, the management units’ value directly correlated to the results of WOW, as the primary asset of the former Parent’s investment in WOW. The management units for the equity plan have been “pushed down” to the Company, as the management units had been utilized as equity-based compensation for WOW management. Immediately prior to the Company’s IPO, these management units were cancelled.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and

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Article 10 of Regulation S-X for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”); however, in our opinion, the disclosures made are adequate to make the information presented not misleading. The year-end consolidated balance sheet was derived from audited financial statements. In the opinion of management, all normally recurring adjustments considered necessary for the fair presentation of the financial statements have been included, and the financial statements present fairly the financial position and results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results expected for the full year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the 2017 Annual Report filed with the SEC on March 14, 2018.

Use of Estimates

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. These accounting principles require management to make assumptions and estimates that affect the reported amounts and disclosures of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts and disclosures of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances. To the extent there are differences between those estimates and actual results, the unaudited condensed consolidated financial statements may be materially affected.

Recently Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018 (January 1, 2019 for the Company). ASU 2016-02 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Targeted Improvements (“ASU 2018-11”).

The Company will adopt the new guidance on the effective date of January 1, 2019 and use the adoption date as the date of initial application as allowed under ASU 2018-11. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. The Company expects to elect the ‘package of practical expedients’, which permits the Company not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs, and the practical expedient pertaining to land easements, which allows the Company to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under current Topic 840. The Company does not expect to elect the use-of-hindsight transition practical expedient.

The Company’s adoption process of ASU 2016-02 is ongoing, including evaluating and quantifying the impact on the financial statements, identifying the population of leases, implementing a selected technology solution and collecting and validating lease data. While the Company continues to assess all of the effects of adoption, the Company currently believes the most significant effects relate to the recognition of new right-of-use assets and lease liabilities on the balance sheet for real estate operating leases, and providing significant new disclosures about the Company’s leasing activities.

The new standard also provides practical expedients for the Company’s ongoing accounting. The Company expects to elect the short-term lease recognition exemption for all leases that qualify, meaning the Company will not

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recognize right-of-use assets or lease liabilities for existing and new lease agreements that qualify. The Company also expects to elect the practical expedient to not separate lease and non-lease components for all of its leases, including those for which the Company is a lessee and those for which it is a lessor.

ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”), which requires a customer in a hosting arrangement that is a service contract to apply the guidance on internal-use software to determine which implementation costs to recognize as an asset and which costs to expense. Costs to develop or obtain internal-use software that cannot be capitalized under Subtopic 350-40, Internal-Use Software, such as training costs and certain data conversion costs, also cannot be capitalized for a hosting arrangement that is a service contract. The amendments require a customer in a hosting arrangement that is a service contract to determine whether an implementation activity relates to the preliminary project stage, the application development stage, or the post-implementation stage. Costs for implementation activities in the application development stage will be capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages will be expensed immediately. ASU 2018-15 is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the timing of adopting this guidance and the impact of adoption on its financial position, results of operations and cash flows.

Recently Adopted Accounting Pronouncements

ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”). ASC 606 supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity is required to follow five steps which are comprised of (a) identifying the contract(s) with a customer; (b) identifying the performance obligations in the contract; (c) determining the transaction price; (d) allocating the transaction price to the performance obligations in the contract and (e) recognizing revenue when (or as) the entity satisfies a performance obligation.

The Company adopted ASC 606 on January 1, 2018 using the modified retrospective transition method and recorded the cumulative effect to the Company’s opening accumulated deficit of $9.1 million, net of tax, representing:

(i)

the recognition of a contract liability associated with “open” or “non-completed” month-to-month and fixed term service contracts containing fees for installation related activities,

(ii)

the recognition of an asset for costs of obtaining contracts with customers, associated with “open” or “non-completed” month-to-month and fixed term service contracts, and

(iii)

the income tax impacts of items (i) and (ii) above.

A completed contract is defined in ASC 606 as a contract for which the Company has recognized all or substantially all of the revenue under the previous revenue recognition rules. In addition to applying the new revenue recognition rules under ASC 606 only to open or non-completed contracts, the Company has elected to apply the practical expedient related to contract modifications and have not separately evaluated the effects of contract modifications prior to January 1, 2018 in determining the adjustment to the Company’s opening accumulated deficit.

Prior to the adoption of ASC 606, the Company recognized revenue related to installation activities upfront to the extent of direct selling costs, which generally resulted in recognition of revenue when the installation related activities had been provided to the customer. Under ASC 606, the majority of the Company’s installation related

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activities are not considered to be separate performance obligations and non-refundable upfront fees related to installations are assessed to determine whether they provide the customer with a material right. Following the adoption of ASC 606, the Company began recognizing upfront fees for installation related activities as revenue (i) over the period which the customer is expected to benefit from the ability to avoid paying an additional fee upon renewal for month-to-month residential subscription service contracts and (ii) over the term of the contract for business subscription service contracts. In addition, the Company began recognizing an asset for costs associated with obtaining contracts with customers, including sales commissions, and amortizing these costs over the expected period of benefit.

The following tables summarize the impacts of adopting ASC 606 on the Company’s condensed consolidated balance sheet and statements of operations as of and for the three and nine months ended September 30, 2018.

Condensed Consolidated Balance Sheet


	As of September 30, 2018
					Without
					adoption of
	As reported		Adjustments		Topic 606
	(in millions)
Assets
Current assets:
Prepaid expenses and other	$	19.1	$	(5.0)	$	14.1
Total current assets		136.1		(5.0)		131.1
Other noncurrent assets		32.9		(18.1)		14.8
Total assets	$	2,250.8	$	(23.1)	$	2,227.7
Liabilities and Stockholders’ Deficit
Current liabilities:
Current portion of unearned service revenue	$	50.1	$	(3.5)	$	46.6
Total current liabilities		204.6		(3.5)		201.1
Deferred income taxes, net		161.6		(0.2)		161.4
Other noncurrent liabilities		8.9		(0.6)		8.3
Total liabilities		2,650.1		(4.3)		2,645.8
Accumulated deficit		(638.3)		(18.8)		(657.1)
Total stockholders’ deficit		(399.3)		(18.8)		(418.1)
Total liabilities and stockholders’ deficit	$	2,250.8	$	(23.1)	$	2,227.7

Condensed Consolidated Statements of Operations


	Three months ended September 30, 2018						Nine months ended September 30, 2018
					Without						Without
					adoption of						adoption of
	As reported		Adjustments		Topic 606		As reported		Adjustments		Topic 606
	(in millions)
Revenue	$	291.6	$	—	$	291.6	$	868.4	$	(2.0)	$	866.4
Costs and expenses:
Selling, general and administrative		37.0		(4.3)		32.7		116.4		(11.7)		104.7
		234.5		(4.3)		230.2		978.2		(11.7)		966.5
Income (loss) from operations		57.1		4.3		61.4		(109.8)		9.7		(100.1)
Income (loss) before provision for income taxes		22.6		4.3		26.9		(204.9)		9.7		(195.2)
Net income (loss)	$	30.5	$	4.3	$	34.8	$	(147.0)	$	9.7	$	(137.3)

ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which changes the designation and measurement guidance for

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qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 eliminates the concept of separately recognizing periodic hedge ineffectiveness for cash flow and net investment hedges. ASU 2017-12 is effective for public companies for fiscal years beginning after December 15, 2018; however, the Company elected to early adopt this ASU in the second quarter of 2018 in conjunction with entering into an interest rate derivative instrument. The adoption of this pronouncement did not have a material impact on the Company’s financial position, results of operations or cash flows.

ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The Company early adopted this standard in the fourth quarter of 2017 in conjunction with its annual goodwill impairment assessment.

ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). ASU 2016-16 eliminates the current prohibition on the recognition of the income tax effects on the transfer of assets among subsidiaries. After adoption of this ASU, the income tax effects associated with these transfers, except for the transfer of inventory, will be recognized in the period the asset is transferred versus the current deferral and recognition upon either the sale of the asset to a third party or the remaining useful life of the asset. The standard became effective for the Company beginning January 1, 2018, and requires any deferred taxes not yet recognized on intra-entity transfers to be recorded to retained earnings under a modified retrospective approach. The adoption of this pronouncement did not have a material impact on the Company’s financial position, results of operations or cash flows.

ASU 2016-15, Statement of Cash Flows (Topic 230)

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”), making changes to the classification of certain cash receipts and cash payments in order to reduce diversity in presentation. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The update addresses eight specific cash flow issues, of which only one is applicable to the Company's financial statements. The adoption of this pronouncement did not have a material impact on the Company’s financial position, results of operations or cash flows.

ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which amends the recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 contains several amendments of which only the amendment to present financial assets and financial liabilities by measurement category and form of financial asset applies to the Company. The adoption of this pronouncement did not have a material impact on the Company’s financial position, results of operations or cash flows.

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Note 3. Revenue from Contracts with Customers

Residential and Business Subscription Services

Residential and business subscription services revenue consists primarily of monthly recurring charges for HSD, Video, and Telephony services, including charges for equipment rentals and other regulatory fees, and non-recurring charges for optional services, such as pay-per-view, video-on-demand, and other events provided to the customer. Monthly charges for residential and business subscription services are billed in advance and recognized as revenue over the period of time the associated services are provided to the customer. Charges for optional services are generally billed in arrears and are recognized at the point in time when the services are provided to the customer.

HSD revenue consists primarily of fixed monthly fees for data service, including charges for rentals of modems, and revenue recognized related to non-recurring upfront fees associated with installation and other administrative activities provided to HSD customers.

Video revenue consists of fixed monthly fees for basic, premium and digital cable television services, including charges for rentals of video converter equipment and other regulatory fees, and revenue recognized related to non-recurring upfront fees associated with installation and other administrative activities provided to video customers, as well as non-recurring charges for optional services, such as pay-per-view, video-on-demand and other events provided to the customer.

Telephony revenue consists of fixed monthly fees for local services, including certain regulatory and ancillary customer fees, and enhanced services, such as call waiting and voice mail, revenue recognized related to non-recurring upfront fees associated with installation and other administrative activities provided to telephony customers as well as charges for measured and flat rate long-distance service.

The vast majority of the Company’s residential customers can cancel their subscription services at any time without paying a termination penalty. While a portion of residential customers have entered into contracts for subscription services ranging from 12 months to 24 months in length, the Company recognizes revenue for these customers on a basis that is consistent with customers that have entered into month-to-month contracts as the early termination fees within these contracts are not considered to be substantive. The Company’s business customers have entered into non-cancellable contracts for subscription services averaging 30 months.

The Company is required to pay certain cable franchising authorities an amount based on the percentage of gross revenue derived from video services. The Company generally passes these fees and other similar regulatory and ancillary fees on to the customer. Revenues from regulatory and other ancillary fees passed on to the customer are reported with the associated service revenue and the corresponding costs are reported as an operating expense.

Bundled Subscription Services

The Company often markets multiple subscription services as part of a bundled arrangement that may include a discount. When customers have entered into a bundled service arrangement, the total transaction price for the bundled arrangement is allocated between the separate services included in the bundle based on their relative stand-alone selling prices. The allocation of the transaction price in bundled services requires judgment, particularly in determining the stand-alone selling prices for the separate services included in the bundle. The stand-alone selling price for the majority of services are determined based on the prices at which the Company separately sells the service. For services sold on an infrequent basis and for a wide range of prices, the Company estimates stand-alone selling prices using the adjusted market assessment approach, which considers the prices of competitors for similar services.

Other Business Services Revenue

Other business services revenue consists primarily of monthly recurring charges for session initiated protocol, web hosting, metro Ethernet, wireless backhaul, broadband carrier, and cloud infrastructure services provided to

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business customers. Monthly charges for other business services are generally billed in advance and recognized as revenue when the associated services are provided to the customer.

Other Revenue

Other revenue consists primarily of revenue from line assurance warranty services provided to residential and business customers and revenue from advertising placement. Monthly charges for line assurance warranty services are generally billed in advance and recognized as revenue over the period of time the warranty services are provided to the customer. Charges for advertising placement are generally billed in arrears and recognized as revenue at the point in time when the advertising is distributed.

Revenue by Service Offering

Revenue by service offering is set forth in the table below:


	Three months ended September 30, 2018						Nine months ended September 30, 2018
	(in millions)
	Residential		Business		Total		Residential		Business		Total
	Subscription		Subscription		Revenue		Subscription		Subscription		Revenue
HSD	$	100.2	$	18.8	$	119.0	$	293.5	$	54.7	$	348.2
Video		115.8		3.5		119.3		353.6		10.6		364.2
Telephony		18.3		10.7		29.0		56.5		31.7		88.2
Total subscription services revenue	$	234.3	$	33.0	$	267.3	$	703.6	$	97.0	$	800.6
Other business services revenue (a)		—		—		6.6		—		—		20.6
Other revenue		—		—		17.7		—		—		47.2
Total revenue	$	234.3	$	33.0	$	291.6	$	703.6	$	97.0	$	868.4

(a)

Includes wholesale and collocation revenue of $5.0 million and $16.0 million for the three and nine months ended September 30, 2018, respectively.

Costs of Obtaining Contracts with Customers

The Company recognizes an asset for incremental costs of obtaining contracts with customers when it expects to recover those costs. Costs which would be incurred regardless of whether a contract is obtained are expensed as they are incurred. Costs of obtaining contracts with customers are amortized over the expected period of benefit, which generally ranges from three to four years for residential customers and six to seven years for business customers. As of September 30, 2018, the current portion of costs of obtaining contracts with customers of $5.0 million and non-current portion of costs of obtaining contracts with customers of $18.1 million are included in prepaid expenses and other noncurrent assets, respectively, in the Company’s condensed consolidated balance sheet. Amortization of costs of obtaining contracts with customers is included in selling, general and administrative expense in the Company’s condensed consolidated statement of operations.

Contract Liabilities

Monthly charges for residential and business subscription services are billed in advance and recorded as unearned service revenue. Residential and business customers may be charged non-recurring upfront fees associated with installation and other administrative activities. Charges for upfront fees associated with installation and other administrative activities are initially recorded as unearned services revenue and recognized as revenue over the expected period of benefit for residential customers, which has been estimated as five months, and over the contract term for business customers, which has been estimated as 30 months. The Company has estimated the expected period of benefit for residential customers based on consideration of quantitative and qualitative factors including the average installation fee charged, the average monthly revenue per customer, and customer behavior. As of September 30, 2018, the current portion of $3.5 million and the non-current portion of $0.6 million are included in current portion of unearned service revenue and other noncurrent liabilities, respectively, in the Company’s condensed consolidated balance sheet.

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Unsatisfied Performance Obligations

Revenue from month-to-month residential subscription service contracts have historically represented a significant portion of the Company’s revenue and the Company expects that this will continue to be the case in future periods. The Company has elected to apply the practical expedient in paragraph 606-10-50-14(a) and has not disclosed revenue expected to be recognized in the future related to month-to-month residential subscription services.

A summary of expected commercial revenue to be recognized in future periods related to performance obligations which have not been satisfied or are partially unsatisfied as of September 30, 2018 is set forth in the table below:


	2018		2019		2020		Thereafter		Total
	(in millions)
Subscription services	$	22.6	$	64.7	$	33.6	$	14.8	$	135.7
Other business services		1.3		4.3		1.1		0.7		7.4
Total expected revenue	$	23.9	$	69.0	$	34.7	$	15.5	$	143.1

Note 4. Plant, Property and Equipment, Net

Plant, property and equipment consists of the following:


	September 30,		December 31,
	2018		2017
	(in millions)
Distribution facilities	$	1,489.2	$	1,373.6
Customer premise equipment		439.5		414.5
Head-end equipment		320.2		320.4
Telephony infrastructure		90.7		92.4
Computer equipment and software		124.1		107.6
Vehicles		35.7		36.0
Buildings and leasehold improvements		46.0		44.6
Office and technical equipment		32.9		32.8
Land		6.2		6.2
Construction in progress (including material inventory and other)		138.8		95.2
Total plant, property and equipment		2,723.3		2,523.3
Less accumulated depreciation		(1,725.6)		(1,598.6)
	$	997.7	$	924.7

Depreciation expense for the three months ended September 30, 2018 and 2017 was $46.1 million and $48.4 million, respectively. Depreciation expense for the nine months ended September 30, 2018 and 2017 was $137.8 million and $148.6 million, respectively. Included in depreciation expense were gains (losses) on write-offs or sales of head-end and customer premise equipment totaling $0.3 million and $nil for the three months ended September 30, 2018 and 2017, respectively; and $0.5 million and $0.3 million for the nine months ended September 30, 2018 and 2017, respectively.

Note 5. Asset Sales

Sale of Chicago Fiber Network

On August 1, 2017, the Company entered into a definitive agreement to sell a portion of its fiber network in the Company’s Chicago market to a subsidiary of Verizon for $225.0 million in cash. On December 14, 2017, the Company finalized the sale by entering into an Asset Purchase Agreement (“APA”) with a subsidiary of Verizon.

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In addition to the APA, the Company and a subsidiary of Verizon entered into a Construction Services Agreement pursuant to which the Company will complete the build-out of the network in exchange for $50.0 million, which represents the estimated remaining build-out costs to complete the network. The $50.0 million will be recognized over time as such network elements are completed and accepted. The Company anticipates such network will be completed in the first half of 2019.

As a result of entering into the Construction Services Agreement, the Company concluded that the assets and liabilities associated with the build-out of the network met the criteria to be classified as held for sale. As of September 30, 2018, the Chicago fiber network has $23.5 million in total assets held for sale that are included in the Company’s condensed consolidated balance sheet which represents what the Company has spent on construction subsequent to the signing of the definitive agreement, less the costs of sites completed.

Sale of Lawrence, Kansas System

On January 12, 2017, the Company and Midcontinent Communications (“MidCo”) consummated an asset purchase agreement under which MidCo acquired the Company’s Lawrence, Kansas system for net proceeds of approximately $213.0 million in cash, subject to certain normal and customary purchase price adjustments set forth in the agreement. As a result of the asset purchase agreement, the Company recorded a gain on sale of assets of $38.4 million. The results of the Company’s Lawrence, Kansas system for the first 12 days of fiscal 2017 are included in the condensed consolidated financial statements for the nine months ended September 30, 2017, but not included in the three and nine months ended September 30, 2018 condensed consolidated financial statements. The Company and MidCo also entered into a transition services agreement under which the Company provided certain services to MidCo on a transitional basis. The transition services agreement, originally expiring on July 1, 2017, was extended to September 28, 2017. Charges for the transition services generally allowed the Company to fully recover all allowed costs and allocated expenses incurred in connection with providing these services, generally without profit.

Note 6. Franchise Operating Rights & Goodwill

Changes in the carrying amounts of the Company’s franchise operating rights and goodwill during the nine months ended September 30, 2018 are set forth below:


	December 31,								September 30,
	2017		Acquisitions		Sales		Impairment		2018
		(in millions)
Franchise operating rights	$	952.4	$	—	$	—	$	143.2	$	809.2
Goodwill		384.1		—		—		113.2		270.9
	$	1,336.5	$	—	$	—	$	256.4	$	1,080.1

Due to the decline in the Company’s stock price during the first quarter of 2018, the Company performed an evaluation of recoverability of its franchise operating rights and goodwill.

Impaired Franchise Operating Rights

Franchise operating rights are evaluated for impairment by comparing the carrying value of the intangible asset to its estimated fair value, utilizing both quantitative and qualitative methods, at the reporting unit level. Qualitative analysis is performed for franchise assets in the event the previous analysis indicates that there is a significant margin between the carrying value of franchise operating rights and the estimated fair value of those rights, and that it is more likely than not that the estimated fair value equals or exceeds carrying value.

For franchise operating rights that were evaluated using quantitative analysis, the Company calculates the estimated fair value of franchise operating rights using the multi-period excess earnings method, an income approach, which calculates the estimated fair value of an intangible asset by discounting its future cash flows. The estimated fair value is determined based on discrete discounted future cash flows attributable to each franchise operating right intangible asset using assumptions consistent with internal forecasts. Key assumptions in estimating fair value under this

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method include, but are not limited to, revenue and subscriber growth rates (less anticipated customer churn), operating expenditures, capital expenditures (including any build out), market share achieved or market multiples, contributory asset charge rates, tax rates and a discount rate. The discount rate used in the model represents a weighted average cost of capital and the perceived risk associated with an intangible asset such as the Company’s franchise operating rights. Any excess of the carrying value of franchise operating rights over the estimated fair value is expensed as an impairment loss.

During the first quarter of 2018, as a result of the quantitative analysis, the carrying value of franchise operating rights exceeded the estimated fair value in four of the Company’s reporting units resulting in non-cash impairment charges of $3.2 million, $47.5 million, $77.5 million and $15.0 million in the Panama City, FL, Montgomery, AL, Huntsville, AL and Dothan, AL reporting units, respectively. The primary driver of the impairment charges was a decline in the price of the Company’s common stock, which reduced the market multiples utilized to determine estimated fair market values of indefinite-lived intangible assets in certain reporting units. The impairment charge does not have an impact on the Company’s intent and/or ability to renew or extend existing franchise operating rights.

Impaired Goodwill

Goodwill is evaluated for impairment at the reporting unit level utilizing both quantitative and qualitative methods. Qualitative analysis is performed for goodwill assets in the event the previous analysis indicates that there is a significant margin between carrying value of goodwill and estimated fair value, and that it is more likely than not that the estimated fair value equals or exceeds carrying value.

For the quantitative evaluation of the Company’s goodwill, the Company utilizes both an income approach as well as a market approach. The income approach utilizes a discounted cash flow analysis to estimate the fair value of each reporting unit, while the market approach utilizes multiples derived from actual precedent transactions of similar businesses, the market value of the Company and market valuations of guideline public companies. Any excess of the carrying value of goodwill over the estimated fair value of goodwill is expensed as an impairment loss.

During the first quarter 2018, as a result of the quantitative analysis, the carrying value of goodwill exceeded the estimated fair value in four of the Company’s reporting units resulting in non-cash impairment charges of $23.7 million, $16.7 million, $20.2 million and $52.6 million in the Panama City, FL, Huntsville, AL, Augusta, GA and Chicago, IL reporting units, respectively. The primary driver of the impairment charges was a decline in the price of the Company’s common stock, which reduced the market multiples utilized to determine estimated fair market values of goodwill in certain reporting units.

Note 7. Accrued Liabilities and Other

Accrued liabilities and other consists of the following:


	September 30,		December 31,
	2018		2017
	(in millions)
Programming costs	$	34.5	$	32.2
Franchise and revenue sharing fees		11.4		12.2
Payroll and employee benefits		15.5		11.5
Property, income, sales and use taxes		8.0		18.9
Utility pole rentals		3.5		1.5
Other accrued liabilities		18.0		18.2
	$	90.9	$	94.5

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Note 8. Long‑Term Debt and Capital Leases

The following table summarizes the Company’s long‑term debt and capital leases:


							December 31,
	September 30, 2018						2017
	Available
	borrowing		Effective		Outstanding		Outstanding
	capacity		interest rate (1)		balance		balance
	(in millions)
Long-term debt:
Term B Loans, net(2)	$	—	5.5	%	$	2,246.0	$	2,261.4
Revolving Credit Facility(3)		234.6	5.2	%		60.0		—
Total long-term debt	$	234.6				2,306.0		2,261.4
Capital lease obligations						4.3		2.8
Total long-term debt and capital lease obligations						2,310.3		2,264.2
Debt issuance costs, net(4)						(11.1)		(13.0)
Sub-total						2,299.2		2,251.2
Less current portion						(24.2)		(24.0)
Long-term portion					$	2,275.0	$	2,227.2

(1)

Represents the effective interest rate in effect for all borrowings outstanding as of September 30, 2018 pursuant to each debt instrument including the applicable margin.

(2)

At September 30, 2018 includes $11.2 million of net discounts.

(3)

Available borrowing capacity at September 30, 2018 represents $300.0 million of total availability less borrowing of $60.0 million on the Revolving Credit Facility and outstanding letters of credit of $5.4 million. Letters of credit are used in the ordinary course of business and are released when the respective contractual obligations have been fulfilled by the Company.

(4)

At September 30, 2018, debt issuance costs include $8.1 million related to Term B Loans and $3.0 million related to the Revolving Credit Facility.

Refinancing of the Term B Loans and Revolving Credit Facility

On July 17, 2017, the Company entered into an eighth amendment (“Eighth Amendment”) to its Credit Agreement, with JPMorgan Chase Bank, N.A., as the administrative agent and revolver agent. Under the Eighth Amendment, (i) the Company borrowed new Term B loans in an aggregate principal amount of $230.5 million, for a total outstanding Term B loan principal amount of $2.28 billion and (ii) the revolving credit commitments were increased by an aggregate principal amount of $100.0 million, for a total outstanding revolving credit commitment of $300.0 million available to the Company under the revolving credit facility. The new Term B loans will mature on August 19, 2023 and bear interest, at the Company’s option, at a rate equal to ABR plus 2.25% or LIBOR plus 3.25%. Loans under the revolving credit facility will mature on May 31, 2022 and bear interest, at the Company's option, at a rate equal to ABR plus 2.00% or LIBOR plus 3.00%. The guarantees, collateral and covenants in the Eighth Amendment remain unchanged from those contained in the credit agreement prior to the Eighth Amendment. As of September 30, 2018, the Company was in compliance with all debt covenants.

On May 31, 2017, the Company entered into a seventh amendment (“Seventh Amendment”) to its Credit Agreement. The Seventh Amendment (i) refinanced the then-existing $200.0 million of borrowings available to the Company under the revolving credit facility and (ii) extended the maturity date of the revolving credit facility to May 31, 2022, unless an earlier date was triggered under certain circumstances. The interest rate margins applicable to the revolving credit facility bore interest at a rate equal to ABR plus 2.00% or LIBOR plus 3.00%. Additionally, the Company entered into an Incremental Commitment Letter to its revolving credit facility that increased the available borrowings to $300.0 million that became available upon compliance by the Company with certain conditions (see redemption of 10.25% senior notes whereby such conditionality was subsequently achieved as a result of the Eighth Amendment). The guarantees, collateral and covenants in the Seventh Amendment remained unchanged from those contained in the credit agreement prior to the Seventh Amendment.

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Redemption of 10.25% Senior Notes

On March 20, 2017, the Company utilized cash on hand to redeem $95.1 million in aggregate principal amount outstanding of the 10.25% Senior Notes due 2019 (“Senior Notes”). In addition to the partial redemption, the Company paid accrued interest on the Senior Notes of $1.7 million and a call premium of $4.9 million. The Company recorded a loss on early extinguishment of debt of $5.0 million, primarily representing the cash call premium paid.

On July 17, 2017, the Company used the proceeds of the new Term B loans under the Eighth Amendment, and borrowed $180.0 million under its revolving credit facility and cash on hand to fully redeem all of the Company’s remaining outstanding Senior Notes and to pay certain fees and expenses. In connection with the redemption of the Senior Notes, the Company satisfied and discharged the indenture governing the Senior Notes. The Company paid $729.9 million in principal amount, incurred prepayment fees of $18.7 million and paid accrued interest of $37.6 million.

Note 9. Equity

Initial Public Offering

On May 25, 2017, the Company completed an IPO of shares of its common stock, which are listed on the NYSE under the ticker symbol “WOW”.

The Company sold 20,970,589 shares of its common stock at a price of $17 per share (including the underwriters’ exercise of the overallotment option) for $356.5 million in gross proceeds. The Company incurred costs directly associated with the IPO of $22.5 million, resulting in proceeds from the IPO (net of issuance costs) of $334.0 million. Outstanding shares and per-share amounts disclosed as of September 30, 2018 and for all other comparative periods presented have been retroactively adjusted to reflect the effects of the May 25, 2017, 66,498.762 to 1 stock-split.

Common Stock

The following represents the Company’s purchase of WOW common stock during the three and nine months ended September 30, 2018. The following shares are reflected as treasury stock in the Company’s condensed consolidated balance sheet.


	Three months ended	Nine months ended
	September 30, 2018	September 30, 2018
Share buybacks	1,447,600	7,098,637
Income tax withholding	11,265	319,030
	1,458,865	7,417,667

On December 14, 2017, the Company’s Board of Directors authorized the Company to purchase up to $50.0 million of its outstanding common stock. The Company completed the buyback program on March 26, 2018, with total common stock shares repurchased of 5.1 million.

On May 10, 2018, the Board of Directors authorized the Company to repurchase up to $25.0 million of its outstanding common stock. The Company completed the buyback program on August 8, 2018, with total common stock shares repurchased of 2.5 million.

The Company has the authority to reissue shares repurchased under the buyback programs.

Note 10. Stock-Based Compensation

WOW’s 2017 Omnibus Incentive Plan provides for grants of stock options, restricted stock and performance awards. The Company’s directors, officers and other employees and persons who engage in services for the Company are eligible for grants under the 2017 Omnibus Incentive Plan. The 2017 Omnibus Incentive Plan has authorized

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6,355,054 shares of common stock to be available for issuance, subject to adjustment in the event of a reorganization, stock split, merger or similar change in the Company’s corporate structure of the outstanding shares of common stock.

The following table summarizes the restricted stock activity during the nine months ended September 30, 2018.


		Number of Unvested
		Restricted Stock
		Shares
Outstanding January 1, 2018		1,914,570
Granted		2,074,469
Cancelled		—
Vested		(1,196,833)
Forfeited		(388,694)
Outstanding September 30, 2018 (1)		2,403,512

(1)

The total outstanding non-vested shares of restricted stock awards granted to employees and directors are included in total outstanding shares as of September 30, 2018.

For restricted stock awards that contain only service conditions for vesting, the Company calculates the award fair value based on the closing stock price on the accounting grant date. Restricted stock generally vests ratably over a three or four year period based on the date of grant. Included in the vested grants are 791,280 short term grants that replaced the 2017 Management Bonus Plan, which provided for incentive cash bonuses for the majority of the Company’s employees based upon the achievement of certain business and individual or department objectives, including most prominently adjusted consolidated earnings before interest, tax, depreciation and amortization. These short term grants fully vested on June 30, 2018.

The Company recorded $2.1 million and $5.2 million for the three months ended September 30, 2018 and 2017, respectively, and recorded $11.0 million and $8.3 million for the nine months ended September 30, 2018 and 2017, respectively, of non-cash stock-based compensation expense which is reflected in selling, general and administrative expense and operating expenses (excluding depreciation and amortization), depending on the recipients’ duties, in the Company’s condensed consolidated statements of operations.

Note 11. Earnings (Loss) per Common Share

Basic earnings or loss per share attributable to the Company’s common stockholders is computed by dividing net earnings or loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings or loss per share attributable to common stockholders presents the dilutive effect, if any, on a per share basis of potential common shares (such as restricted stock units) as if they had been vested or converted during the periods presented. No such items were included in the computation of diluted loss per share for the nine months ended September 30, 2018 because the Company incurred a net loss in the period and the effect of inclusion

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would have been anti-dilutive. All of the shares outstanding and per share amounts have been retroactively adjusted to reflect the stock-split in the Company’s condensed consolidated financial statements.


	Three months ended					Nine months ended
	September 30,					September 30,
	2018			2017		2018		2017
		(in millions, except for per share data)
Net income (loss)	$		30.5	$	(2.1)	$	(147.0)	$	75.3

Basic weighted-average shares			80,663,128		86,973,345		82,319,223		76,014,568
Effect of dilutive securities:
Restricted stock awards			906,045		—		—		81,833
Diluted weighted-average shares			81,569,173		86,973,345		82,319,223		76,096,401

Basic net income (loss) per share	$		0.38	$	(0.02)	$	(1.79)	$	0.99
Diluted net income (loss) per share	$		0.37	$	(0.02)	$	(1.79)	$	0.99

Note 12. Fair Value Measurements

The fair values of cash and cash equivalents, receivables, trade payables and the current portions of long-term debt approximate carrying values due to the short-term nature of these instruments. For assets and liabilities of a long-term nature, the Company determines fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Market or observable inputs are the preferred source of values, followed by unobservable inputs or assumptions based on hypothetical transactions in the absence of market inputs. The Company applies the following hierarchy in determining fair value:

Level 1, defined as observable inputs being quoted prices in active markets for identical assets;

Level 2, defined as observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model‑derived valuations in which significant inputs and significant value drivers are observable in active markets; and

Level 3, defined as unobservable inputs for which little or no market data exists, consistent with reasonably available assumptions made by other participants therefore requiring assumptions based on the best information available.

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The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2018.


	Level 1		Level 2		Level 3		Total
Financial Assets	(in millions)
Interest rate swaps (1)	$	—	$	7.2	$	—	$	7.2
Total	$	—	$	7.2	$	—	$	7.2
Financial Liabilities
Interest rate swaps (1)	$	—	$	2.0	$	—	$	2.0
Long-term debt (2)		—		2,206.4		—		2,206.4
Total	$	—	$	2,208.4	$	—	$	2,208.4

(1)

Measured as the present value of all expected future cash flows based on the LIBOR-based swap yield curves as of September 30, 2018. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties.

(2)

Measured based on dealer quotes considering current market rates for the Company’s credit facility. The ratio of the Company’s aggregate debt balance has trended from quoted market prices in active markets to quoted prices in non-active markets. Debt fair value does not include debt issuance costs and discount.

There were no transfers into or out of Level 1, 2 or 3 during the three or nine months ended September 30, 2018.

Note 13. Interest Rate Hedge

The Company is exposed to certain market risks during the normal course of its business arising from adverse changes in interest rates. The Company selectively uses derivative financial instruments (“derivatives”), including interest rate swaps, to manage interest rate risk. The Company does not hold or issue derivative instruments for speculative purposes. Fluctuations in interest rates can be volatile, and the Company’s risk management activities do not totally eliminate these risks. Consequently, these fluctuations could have a significant effect on the Company’s financial results.

The Company’s exposure to interest rate risk results primarily from its variable rate borrowings. On May 9, 2018, the Company entered into variable to fixed interest rate swap agreements for a notional amount of $1,361.2 million to hedge the outstanding principal balance of its variable rate term loan debt.

As of September 30, 2018, the Company is the fixed rate payor on two interest rate swap contracts that effectively fix the LIBOR-based index used to determine the interest rates charged on a total of $2,257.2 million, not including debt issuance costs and discount, of the Company’s LIBOR-based variable rate borrowings. These contracts carry fixed rates of 2.7% and have an expiration date of May 2021. These swap agreements qualify as hedging instruments and have been designated as cash flow hedges of forecasted LIBOR-based interest payments. As all of the critical terms of each of the derivative instruments matched the underlying terms of the hedged debt and related forecasted interest payments, these hedges were considered highly effective. Based on LIBOR-based swap yield curves as of September 30, 2018, the Company expects to reclassify losses of $2.0 million out of accumulated other comprehensive income (“AOCI”) into earnings within the next 12 months.

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The following table summarizes the notional amounts, fair values and classification of the Company’s outstanding derivatives by risk category and instrument type within the condensed consolidated balance sheet as of September 30, 2018. The Company did not have any derivative instruments as of December 31, 2017.

September 30, 2018

Fair Value

Accrued

Derivative

Notional

Non-Current

Liabilities

Classification

Amount

Other Assets

and Other

Derivatives Designated as Hedging Instruments

(in millions)

Interest rate swap contracts

Cash Flow

1,354.3

7.2

2.0

Losses recognized in the condensed consolidated statements of operations for the three and nine months ended September 30, 2018 total $2.1 million and $3.4 million, respectively.

Gains and losses on derivatives designated as cash flow hedges included in the condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2018 are shown in the table below. The Company did not have any derivative instruments for the three months or nine months ended September 30, 2017.


	Three months ended				Nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
Interest rate swap contracts(1)	(in millions)
Gain recorded in AOCI on derivatives	$	6.0	$	—	$	5.4	$	—
Gain (loss) reclassified from AOCI into income		—		—		—		—

(1)

Losses on derivatives reclassified from AOCI into income will be included in “Interest expense” in the condensed consolidated statements of operations, the same income statement line item as the earnings effect of the hedged item.

For the periods presented, all cash flows associated with derivatives are classified as operating cash flows in the condensed consolidated statements of cash flows.

Note 14. Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference is expected to reverse. Additionally, the impact of changes in the tax rates and laws on deferred taxes, if any, is reflected in the condensed consolidated financial statements in the period of enactment.

The Company assesses the available positive and negative evidence to estimate whether sufficient taxable income will be generated to permit the utilization of existing deferred tax assets. On the basis of this evaluation, as of September 30, 2018, a valuation allowance of $36.4 million remains recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The valuation allowance is based on the Company’s existing positive and negative evidence. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased based on the Company’s future operating results.

The Company reported total income tax benefit of $7.9 million and expense of $1.6 million for the three months ended September 30, 2018 and 2017, respectively and reported total income tax benefit of $57.9 million and $16.4 million for the nine months ended September 30, 2018 and 2017, respectively.

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The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. For federal tax purposes, the Company’s 2014 through 2017 tax years remain open for examination by the tax authorities under the normal three year statute of limitations. Generally, for state tax purposes, the Company’s 2014 through 2017 tax years remain open for examination by the tax authorities under a three year statute of limitations. Should the Company utilize any of its U.S. or state loss carryforwards, their carryforward losses, which date back to 1995, would be subject to examination.

As of September 30, 2018, the Company recorded gross unrecognized tax benefits of $30.1 million, all of which, if recognized, would affect the Company’s effective tax rate. Interest and penalties related to income tax liabilities, if incurred, are included in income tax benefit (expense) in the condensed consolidated statement of operations. The Company has accrued gross interest and penalties of $1.8 million. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues are addressed in the Company’s tax audits in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

Unrecognized tax benefits consist primarily of tax positions related to issues associated with the Restructuring of WOW Finance and the acquisition of Knology, Inc. Depending on the resolution with certain state taxing authorities that is expected to occur within the next twelve months, there could be an adjustment to the Company’s unrecognized tax benefits for certain state tax matters.

The Company is not currently under examination for U.S. federal income tax purposes, but does have various open tax controversy matters with various state taxing authorities.

Note 15. Commitments and Contingencies

In June and July of 2018, putative class action complaints were filed in the Supreme Court of the State of New York and Colorado State Court against WideOpenWest, Inc. and certain of the Company’s current and former officers and directors, as well as Crestview Advisors, LLC (“Crestview”), Avista Capital Partners (“Avista”), and each of the underwriter banks involved with the Company’s IPO. The complaints allege violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 in connection with the IPO. The plaintiffs seek to represent a class of stockholders who purchased stock pursuant to or traceable to the IPO. The complaint seeks unspecified monetary damages and other relief. The Company believes the complaint and allegations to be without merit and intends to vigorously defend itself against these actions. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on our results of operations, financial condition, or cash flows.

On March 7, 2018, Sprint Communications Company L.P (“Sprint”) filed complaints in the U.S. District Court for the District of Delaware alleging that the Company (and other industry participants) infringe patents purportedly relating to Sprint’s Voice over Internet Protocol (“VoIP”) services. The lawsuit is part of a pattern of litigation that was initiated as far back as 2007 by Sprint against numerous broadband and telecommunications providers. The Company has multiple legal and contractual defenses and will vigorously defend against the claims. Although the outcome of the matter cannot be predicted and the impact of the final resolution of this matter on the Company’s results of operations in any particular subsequent reporting period is not known at this time, management does not believe that the ultimate resolution of the matter will have a material adverse effect on the operations or financial position of the Company or the ability of the Company to meet its financial obligations as they become due.

The Company is also party to various legal proceedings (including individual, class and putative class actions) arising in the normal course of its business covering a wide range of matters and types of claims including, but not limited to, general contracts, billing disputes, rights of access, programming, taxes, fees and surcharges, consumer protection, trademark and patent infringement, employment, regulatory, tort, claims of competitors and disputes with other carriers.

In accordance with GAAP, the Company accrues an expense for pending litigation when it determines that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. Legal defense costs are

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expensed as incurred. None of the Company’s existing accruals for pending matters are material. The Company regularly monitors its pending litigation for the purpose of adjusting its accruals and revising its disclosures accordingly, in accordance with GAAP, when required. Litigation is, however, subject to uncertainty, and the outcome of any particular matter is not predictable. The Company vigorously defends its interests in pending litigation, and as of this date, the Company believes that the ultimate resolution of all such matters, after considering insurance coverage or other indemnities to which it is entitled, will not have a material adverse effect on its condensed consolidated financial position, results of operations, or cash flows.

Note 16. Related Party Transactions

Prior to the Company’s IPO, the Company paid a quarterly management fee of $0.4 million plus travel and miscellaneous expenses, if any, to Avista and Crestview, majority owners of the Company’s former Parent. In addition, pursuant to a consulting agreement dated as of December 18, 2015 by and among former Parent, Avista and Crestview, Crestview is entitled to 50% of any management fee actually received by Avista. The obligation to pay such fees terminated in connection with the IPO. The management fee paid by the Company for the nine months ended September 30, 2018 and 2017 amounted to $nil and $1.0 million, respectively.

As of September 30, 2018, approximately 66% of the Company’s outstanding common shares were held by Avista and Crestview.

Note 17. Subsequent Event

On October 10, 2018, the Company’s network infrastructure in the Panama City, FL market was impacted by Hurricane Michael. The Company is currently directing its resources toward remediation efforts to restore services to approximately 30,000 affected customers, which may take some time. It is not possible at this time to estimate the impact that the storm and the required remediation may have on the Company’s operating results for the fourth quarter of 2018.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements contained in this Quarterly Report that are not historical facts contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our goals, beliefs, plans and expectations about our prospects for the future and other future events. Such statements involve certain risks, uncertainties and assumptions. Forward-looking statements include all statements that are not historical fact and can be identified by terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “anticipate,” “expect,” “believe,” “estimate,” “plan,” “project,” “predict,” “potential,” or the negative of these terms. Although these forward-looking statements reflect our good-faith belief and reasonable judgment based on current information, these statements are qualified by important factors, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including, but not limited to:

the wide range of competition we face;

competitors that are larger and possess more resources;

competition for the leisure and entertainment time of audiences;

whether our edge-out strategy will succeed;

dependence upon a business services strategy, including our ability to secure new businesses as customers;

conditions in the economy, including potentially uncertain economic conditions, unemployment levels and turbulent developments in the housing market;

demand for our bundled broadband communications services may be lower than we expect;

our ability to respond to rapid technological change;

increases in programming and retransmission costs;

a decline in advertising revenues;

the effects of regulatory changes in our business;

our substantial level of indebtedness;

certain covenants in our debt documents;

programming exclusivity in favor of our competitors;

inability to obtain necessary hardware, software and operational support;

loss of interconnection arrangements;

failure to receive support from various funds established under federal and state law;

exposure to credit risk of customers, vendors and third parties;

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strain on business and resources from future acquisitions or joint ventures, or the inability to identify suitable acquisitions;

potential impairments to our goodwill or franchise operating rights;

the occurrence of natural disasters in one or more of our geographic markets;

our ability to manage the risks involved in the foregoing; and

other factors described from time to time in our reports filed or furnished with the SEC, and in particular those factors set forth in the section entitled “Risk Factors” in our annual report filed on Form 10‑K with the SEC on March 14, 2018 and other reports subsequently filed with the SEC. Given these uncertainties, you should not place undue reliance on any such forward-looking statements. The forward-looking statements included in this report are made as of the date hereof or the date specified herein, based on information available to us as of such date. Except as required by law, we assume no obligation to update these forward-looking statements, even if new information becomes available in the future.

Overview

We provide high-speed data (“HSD”), cable television (“Video”), digital telephony (“Telephony”), and business-class services to a service area that includes approximately 3.1 million homes and businesses. Our services are delivered across nineteen markets via our advanced HFC cable network. Our footprint covers the states of Alabama, Florida, Georgia, Illinois, Indiana, Maryland, Michigan, Ohio, South Carolina and Tennessee. Led by our robust HSD offering, our products are available either as a bundle or as an individual service to residential and business services customers. As of September 30, 2018, approximately 805,300 customers subscribed to our services.

Since commencing operations in 2001, our focus has been to offer a competitive alternative cable service and establish a brand with a strong market position. We have scaled our business through (i) organic subscriber growth and increased penetration within our existing markets and footprint, (ii) edge-outs to grow our footprint, (iii) upgrades to introduce enhanced broadband services to networks we have acquired, (iv) entry into business services, with a broad range of HSD, Video and Telephony products, and (v) acquisitions and integration of cable systems.

We operate primarily in economically stable suburbs that are adjacent to large metropolitan areas as well as secondary and tertiary markets, which we believe have favorable competitive and demographic profiles and include businesses operating across a range of industries. We benefit from the ability to augment our footprint by pursuing value-accretive network extensions, or edge-outs, to increase our addressable market and grow our customer base. We have historically made selective capital investments in edge-outs to facilitate growth in residential and business services.

We are focused on efficient capital spending and maximizing adjusted earnings before income taxes, depreciation and amortization (“Adjusted EBITDA”) through an Internet-centric growth strategy while maintaining a profitable video subscriber base. Based on our per subscriber economics, we believe that HSD represents the greatest opportunity to enhance profitability across our residential and business markets. We believe that our advanced network is designed to meet our current and future customers’ HSD needs. We offer HSD speeds up to 1 GIG in approximately 95% of our footprint.

Our most significant competitors are other cable television operators, direct broadcast satellite providers and certain telephone companies that offer services that provide features and functionality similar to our HSD, Video and Telephony services. We believe that our strategy of operating primarily in suburban areas provides better operating and financial stability compared to the more competitive environments in large metropolitan markets. We have a history of successfully competing in chosen markets despite the presence of competing incumbent providers through attractive high value bundling of our services and investments in new service offerings.

We believe that a prolonged economic downturn, especially any downturn in the housing market, may negatively impact our ability to attract new subscribers and generate increased revenues. Additional capital and credit

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market disruptions could cause broader economic downturns, which could also lead to lower demand for our products and lower levels of advertising sales. A slowdown in growth of the housing market could severely affect consumer confidence and may cause increased delinquencies or cancellations by our customers or lead to unfavorable changes in the mix of products purchased.

In addition, we are susceptible to risks associated with the potential financial instability of our vendors and third parties on which we rely to provide products and services or to which we delegate certain functions. The same economic conditions that may affect our customers, as well as volatility and disruption in the capital and credit markets, also could adversely affect vendors and third parties and lead to significant increases in prices, reduction in output or the bankruptcy of our vendors or third parties upon which we rely. In addition, programming costs are a significant part of our operating expenses and are expected to continue to increase primarily as a result of contractual rate increases and additional service offerings.

Ownership and Basis of Presentation

WideOpenWest, LLC commenced operations in 2001. WideOpenWest, LLC was wholly owned by WideOpenWest Kite, Inc., which was wholly owned by Racecar Acquisition, LLC (“Racecar Acquisition”). Racecar Acquisition was a wholly owned subsidiary of WideOpenWest Holdings, LLC (“Parent”).

WideOpenWest, Inc. was organized in Delaware in July 2012 as WideOpenWest Kite, Inc. WideOpenWest Kite, Inc. subsequently changed its name to WideOpenWest, Inc. in March 2017.

On April 1, 2016, we consummated a restructuring (“Restructuring”) whereby WideOpenWest Finance, LLC (“WOW Finance”) became a wholly owned subsidiary of WOW. Previously, WOW Finance was owned by WideOpenWest Illinois, Inc., WideOpenWest Ohio, Inc., WideOpenWest Cleveland, Inc., WOW Sigecom, Inc. and WOW (collectively, the “Members”). Prior to the Restructuring, the Members were wholly owned subsidiaries of Racecar Acquisition.

As a result of the Restructuring, each of the Members, other than WOW, merged with and into WOW. WOW became the sole subsidiary of Racecar Acquisition and WOW Finance became a wholly owned subsidiary of WOW.

On May 25, 2017, we completed an initial public offering (“IPO”) of shares of our common stock, which are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “WOW”. Prior to our IPO, WOW was wholly owned by Racecar Acquisition, which is a wholly owned subsidiary of the Parent. Subsequent to the IPO, Racecar Acquisition and former Parent were liquidated and the shares distributed to their respective owners. In the following context, the terms we, us, WOW, or the Company may refer, as the context requires, to WOW or, collectively, WOW and its subsidiaries.

Certain employees of WOW participated in equity plans administered by the Company’s former Parent. The management units from the equity plan were issued from the former Parent’s ownership structure, the management units’ value directly correlated to the results of WOW, as the primary asset of the former Parent’s investment in WOW. The management units for the equity plan have been “pushed down” to the Company, as the management units had been utilized as equity-based compensation for WOW management. Immediately prior to the Company’s IPO, these management units were cancelled.

As of September 30, 2018, Crestview Advisors, LLC (“Crestview”) and Avista Capital Partners (“Avista”) hold approximately 66% of the Company’s outstanding shares of common stock.

Hurricane Michael

On October 10, 2018, the Company’s network infrastructure in the Panama City, FL market was significantly impacted by Hurricane Michael. The Company is currently directing its resources toward significant remediation efforts to restore services to approximately 30,000 affected customers, which may take some time. It is not possible at this time

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to estimate the impact that the storm and the required remediation may have on the Company’s operating results for the fourth quarter of 2018.

Stock Repurchase Programs

On December 14, 2017, the Board of Directors authorized the Company to repurchase up to $50.0 million of our outstanding common stock. As of March 26, 2018, we completed the stock repurchase program with total common stock shares repurchased of 5.1 million for $50.0 million.

On May 10, 2018, the Board of Directors authorized the Company to repurchase up to $25.0 million of our outstanding common stock. As of August 8, 2018, the Company completed the stock repurchase program with total common stock shares repurchased of 2.5 million for $25.0 million.

Interest Rate Swap

On May 9, 2018, we entered into interest rate swap agreements for a notional amount covering approximately 60% of the outstanding principal balance of our floating rate debt to mitigate the risk of rising interest rates.

Refinancing of the Term B Loans and Revolving Credit Facility

On July 17, 2017, we entered into an eighth amendment (“Eighth Amendment”) to our Credit Agreement, with JPMorgan Chase Bank, N.A., as the administrative agent and revolver agent. Under the Eighth Amendment, (i) we borrowed new Term B loans in an aggregate principal amount of $230.5 million, for a total outstanding Term B loan principal amount of $2.28 billion and (ii) the revolving credit commitments were increased by an aggregate principal amount of $100.0 million, for a total outstanding revolving credit commitment of $300.0 million available to us under the revolving credit facility. The new Term B loans will mature on August 19, 2023 and bear interest, at our option, at a rate equal to ABR plus 2.25% or LIBOR plus 3.25%. Loans under the revolving credit facility will mature on May 31, 2022 and bear interest, at our option, at a rate equal to ABR plus 2.00% or LIBOR plus 3.00%. The guarantees, collateral and covenants in the Eighth Amendment remain unchanged from those contained in the credit agreement prior to the Eighth Amendment.

On May 31, 2017, we entered into a seventh amendment (“Seventh Amendment”) to our Credit Agreement. The Seventh Amendment (i) refinanced the existing $200.0 million of borrowings available to us under the revolving credit facility and (ii) extended the maturity date of the revolving credit facility to May 31, 2022. The interest rate margins applicable to the revolving credit facility bore interest at a rate equal to ABR plus 2.00% or LIBOR plus 3.00%. Additionally, we entered into an Incremental Commitment Letter to our revolving credit facility that increased the available borrowings to $300.0 million. The guarantees, collateral and covenants in the Seventh Amendment remained unchanged from those contained in the credit agreement prior to the Seventh Amendment.

Redemption of 10.25% Senior Notes

On March 20, 2017, we utilized cash on hand to redeem $95.1 million in aggregate principal amount outstanding of the 10.25% Senior Notes due 2019 (“Senior Notes”). In addition to the partial redemption, we paid accrued interest on the Senior Notes of $1.7 million and a call premium of $4.9 million. We recorded a loss on early extinguishment of debt of $5.0 million, primarily representing the cash call premium paid.

On July 17, 2017, we used the proceeds of the new Term B loans, and borrowed $180.0 million under our revolving credit facility and cash on hand to fully redeem all of the Company’s remaining outstanding Senior Notes and to pay certain fees and expenses. In connection with the redemption of the Senior Notes, we satisfied and discharged the indenture governing the Senior Notes. We paid $729.9 million in principal amount, incurred prepayment fees of $18.7 million and paid accrued interest of $37.6 million.

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Sale of Chicago Fiber Network

On December 14, 2017, we finalized the sale of a portion of our fiber network in the Chicago market to a subsidiary of Verizon for $225.0 million in cash. In addition, we and a subsidiary of Verizon entered into a construction agreement pursuant to which we agreed to complete the build-out of the network in exchange for $50.0 million (which approximates our remaining estimate to complete the network build-out), recognized over time as the remaining network elements are completed and accepted. The final build-out of the network is expected to be completed during the first half of 2019.

Sale of Lawrence, Kansas System

On January 12, 2017, we and Midcontinent Communications (“MidCo”) consummated an asset purchase agreement under which MidCo acquired our Lawrence, Kansas system for net proceeds of approximately $213.0 million in cash, subject to certain normal and customary purchase price adjustments set forth in the agreement. The first 12 days of results of our Lawrence, Kansas system are included in the nine months ended September 30, 2017 unaudited condensed consolidated financial statements but not included in the three and nine months ended September 30, 2018 unaudited condensed consolidated financial statements.

Critical Accounting Policies and Estimates

In the preparation of our unaudited condensed consolidated financial statements, we are required to make estimates, judgments and assumptions we believe are reasonable based upon the information available, in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Critical accounting policies are defined as those policies that are reflective of significant judgments, estimates and uncertainties, which would potentially result in materially different results under different assumptions and conditions. We believe the following accounting policies are the most critical in the preparation of our unaudited condensed consolidated financial statements because of the judgment necessary to account for these matters and the significant estimates involved, each of which are susceptible to change.

Valuation of Plant, Property and Equipment and Intangible Assets

Carrying Value. The aggregate carrying value of our plant, property and equipment and intangible assets (including franchise operating rights and goodwill) comprised approximately 92% and 93% of our total assets at September 30, 2018 and December 31, 2017, respectively.

Plant, property and equipment are recorded at cost and include costs associated with the construction of cable transmission and distribution facilities and new service installations at customer locations. Capitalized costs include materials, labor and certain indirect costs attributable to the capitalization activity. Maintenance and repairs are expensed as incurred. Upon sale or retirement of an asset, the cost and related depreciation are removed from the related accounts, and resulting gains or losses are reflected in operating results. We make judgments regarding the installation and construction activities to be capitalized. We capitalize direct labor associated with capitalizable activities and indirect cost using standards developed from operational data, including the proportionate time to perform a new installation relative to the total technical operations activities and an evaluation of the nature of the indirect costs incurred to support capitalizable activities. Judgment is required to determine the extent to which indirect costs that have been incurred are related to capitalizable activities and, as a result, should be capitalized. Indirect costs include (i) employee benefits and payroll taxes associated with capitalized direct labor, (ii) direct variable cost of installation and construction vehicle costs, (iii) the direct variable costs of support personnel directly involved in assisting with installation activities, such as dispatchers and (iv) indirect costs directly attributable to capitalizable activities.

Intangible assets consist primarily of acquired franchise operating rights, franchise-related customer relationships and goodwill. Franchise operating rights represent the value attributable to agreements with local franchising authorities, which allows access to homes in the public right of way. Our franchise operating rights were acquired through business combinations. We do not amortize cable franchise operating rights as we have determined that

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they have an indefinite life. Costs incurred in negotiating and renewing cable franchise agreements are expensed as incurred. Franchise-related customer relationships represent the value of the benefit to us of acquiring the existing cable subscriber base and are amortized over the estimated life of the subscriber base, generally four years, on a straight-line basis. Goodwill represents the excess purchase price over the fair value of the identifiable net assets we acquired in business combinations.

Asset Impairments. Long-lived assets, including plant, property and equipment and intangible assets subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the expected undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and the carrying value of the asset.

We evaluate the recoverability of our franchise operating rights at least annually on October 1, or more frequently whenever events or substantive changes in circumstances indicate that the assets might be impaired. Franchise operating rights are evaluated for impairment by comparing the carrying value of the intangible asset to its estimated fair value, utilizing both quantitative and qualitative methods, at the reporting unit level. Qualitative analysis is performed for franchise assets in the event the previous analysis indicates that there is a significant margin between carrying value of franchise operating rights and estimated fair value of those rights, and that it is more likely than not that the estimated fair values equal or exceed carrying value.

For franchise assets that undergo quantitative analysis, we calculate the estimated fair value of franchise operating rights using the multi-period excess earnings method, an income approach, which calculates the estimated fair value of an intangible asset by discounting its future cash flows. The estimated fair value is determined based on discrete discounted future cash flows attributable to each franchise operating right intangible asset using assumptions consistent with internal forecasts. Key assumptions in estimating fair value under this method include, but are not limited to, revenue and subscriber growth rates (less anticipated customer churn), operating expenditures, capital expenditures (including any build out), market share achieved or market multiples, contributory asset charge rates, tax rates and discount rate. The discount rate used in the model represents a weighted average cost of capital and the perceived risk associated with an intangible asset such as our franchise operating rights. The estimates and assumptions made in our valuations are inherently subject to significant uncertainties, many of which are beyond our control, and there is no assurance that these results can be achieved. The primary assumptions for which there is a reasonable possibility of the occurrence of a variation that would significantly affect the measurement value include the assumptions regarding revenue growth, programming expense growth rates, the amount and timing of capital expenditures and the discount rate utilized. Any excess of the carrying value of franchise operating rights over the estimated fair value would be expensed as an impairment loss.

We conduct our cable operations under the authority of state cable television franchises, except in Alabama and parts of Michigan where we continue to operate under local franchises. Our franchises generally have service terms that last from five to 15 years, but we operate in some states that have perpetual terms. All of our term-limited franchise agreements are subject to renewal. The renewal process for our state franchises is specified by state law and tends to be a simple process, requiring the filing of a renewal application with information no more burdensome than that contained in our original application. Although renewal is not assured, there are provisions in the law that protect the Company from arbitrary or unreasonable denial. This is especially true for competitive cable providers like us. In most areas in which we operate, we are a “competitive” operator, meaning that we compete directly in the service area with at least one other franchised cable operator. The Cable Television Consumer Protection and Competition Act of 1992 (the “Cable Act”) says that “a franchising authority may not unreasonably refuse to award an additional competitive franchise.” The Cable Act also provides a formal renewal process that protects cable operators against arbitrary or unreasonable refusals to renew a franchise. In those few areas where we operate under local franchises, we can use this formal renewal process if needed.

In our experience, state and local franchising authorities encourage our entry into the market, as our competitive presence often leads to overall better service, more service options and lower prices. In our and our expert advisors’ experience, it has not been the practice for a franchising authority to deny a cable franchise renewal. We have never had a renewal denied.

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We also, at least annually on October 1, evaluate our goodwill for impairment for each reporting unit (which generally are represented by geographical operations of cable systems managed by us), utilizing both quantitative and qualitative methods. Qualitative analysis is performed for goodwill in the event the previous analysis indicates that there is a significant margin between carrying value of goodwill and estimated fair value of the reporting units, and that it is more likely than not that the estimated fair value equals or exceeds carrying value.

For our quantitative evaluation of our goodwill, we utilize both an income approach as well as a market approach. The income approach utilizes a discounted cash flow analysis to estimate the fair value of each reporting unit, while the market approach utilizes multiples derived from actual precedent transactions of similar businesses, the market value of the Company and market valuations of guideline public companies. Any excess of the carrying value of goodwill over the estimated fair value would be expensed as an impairment loss.

Fair Value Measurements

GAAP provides guidance for a framework for measuring fair value in the form of a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Financial assets and liabilities are classified by level in their entirety based upon the lowest level of input that is significant to the fair value measurement. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability due to the fact there is no market activity. We record our interest rate swaps at fair value on the balance sheet and perform recurring fair value measurements with respect to these derivative financial instruments. The fair value measurements of our interest rate swaps were determined using cash flow valuation models. The inputs to the cash flow models consist of, or are derived from, observable data for substantially the full term of the swaps. This observable data includes interest and swap rates, yield curves and credit ratings, which are retrieved from available market data. The valuations are then adjusted for our own nonperformance risk as well as the counterparty as required by the provisions of the authoritative guidance using a discounted cash flow technique that accounts for the duration of the interest rate swaps and our and the counterparty’s risk profile.

We also have non-recurring valuations primarily associated with (i) the application of acquisition accounting and (ii) impairment assessments, both of which require that we make fair value determinations as of the applicable valuation date. In making these determinations, we are required to make estimates and assumptions that affect the recorded amounts, including, but not limited to, expected future cash flows, market comparables and discount rates, remaining useful lives of long-lived assets, replacement or reproduction costs of plant, property and equipment and the amounts to be recovered in future periods from acquired net operating losses and other deferred tax assets. To assist us in making these fair value determinations, we may engage third- party valuation specialists. Our estimates in this area impact, among other items, the amount of depreciation and amortization, and any impairment charges that we may report. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain. A significant portion of our long-lived assets were initially recorded through the application of acquisition accounting and all of our long-lived assets are subject to periodic or event-driven impairment assessments.

Legal and Other Contingencies

Legal and other contingencies have a high degree of uncertainty. When a loss from a contingency becomes estimable and probable, a reserve is established. The reserve reflects management’s best estimate of the probable cost of ultimate resolution of the matter and is revised as facts and circumstances change. A reserve is released when a matter is ultimately brought to closure or the statute of limitations lapses. The actual costs of resolving a claim may be substantially different from the amount of reserve we recorded. In addition, in the normal course of business, we are subject to various other legal and regulatory claims and proceedings directed at or involving us, which in our opinion will not have a material adverse effect on our financial position or results of operations or liquidity.

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Programming Agreements

We exercise significant judgment in estimating programming expense associated with certain video programming contracts. Our policy is to record video programming costs based on our contractual agreements with our programming vendors, which are generally multi-year agreements that provide for us to make payments to the programming vendors at agreed upon market rates based on the number of customers to which we provide the programming service. If a programming contract expires prior to the parties’ entry into a new agreement and we continue to distribute the service, we estimate the programming costs during the period there is no contract in place. In doing so, we consider the previous contractual rates, inflation and the status of the negotiations in determining our estimates. When the programming contract terms are finalized, an adjustment to programming expense is recorded, if necessary, to reflect the terms of the new contract. We also make estimates in the recognition of programming expense related to other items, such as the accounting for free periods, timing of rate increases and credits from service interruptions, as well as the allocation of consideration exchanged between the parties in multiple-element transactions.

Significant judgment is also involved when we enter into agreements which result in us receiving cash consideration from the programming vendor, usually in the form of advertising sales, channel positioning fees, launch support or marketing support. In these situations, we must determine based upon facts and circumstances if such cash consideration should be recorded as revenue, a reduction in programming expense or a reduction in another expense category (e.g., marketing).

Income Taxes

We account for income taxes under the asset and liability method. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference is expected to reverse. Additionally, the impact of changes in the tax rates and laws on deferred taxes, if any, is reflected in the unaudited condensed consolidated financial statements in the period of enactment.

As a result of the Restructuring, WOW Finance became a single member LLC for U.S. federal income tax purposes. The Restructuring is treated as a change in tax status related to WOW Finance, since a single member LLC is required to record current and deferred income taxes reflecting the results of its operations.

From time to time, we engage in transactions in which the tax consequences may be subject to uncertainty. Examples of such transactions include business acquisitions and dispositions, including dispositions designed to be tax-deferred transactions for tax purposes, investments and certain financing transactions. Significant judgment is required in assessing and estimating the tax consequences of these transactions. We prepare and file tax returns based on interpretations of tax laws and regulations. In the normal course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax, interest and penalty assessments by these taxing authorities. In determining our income tax provision for financial reporting purposes, we establish a reserve for uncertain income tax positions unless such positions are determined to be more likely than not of being sustained upon examination, based on their technical merits, and, accordingly, for financial reporting purposes, we only recognize tax benefits taken on the tax return that we believe are more likely than not of being sustained. There is considerable judgment involved in determining whether positions taken on the tax return are more likely than not of being sustained.

We adjust our tax reserve estimates periodically because of ongoing examinations by, and settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations. The condensed consolidated income tax provision of any given year includes adjustments to prior year income tax accruals that are considered appropriate and any related estimated interest. Our policy is to recognize, when applicable, interest and penalties on uncertain income tax positions as part of income tax provision.

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Homes Passed and Subscribers

We report homes passed as the number of serviceable addresses, such as single residence homes, apartments and condominium units, and businesses passed by our broadband network and listed in our database. We report total subscribers as the number of subscribers who receive at least one of our HSD, Video or Telephony services, without regard to which or how many services they subscribe. We define each of the individual HSD subscribers, Video subscribers and Telephony subscribers as a revenue generating unit (“RGU”). The following table summarizes homes passed, total subscribers and total RGUs for our services as of each respective date and does not make adjustment for any of the Company’s acquisitions or divestitures:


	Jun. 30,	Sep. 30,	Dec. 31,	Mar. 31,	Jun. 30,	Sep. 30,
	2017	2017	2017(1)	2018	2018	2018
Homes passed	3,072,500	3,097,500	3,109,200	3,129,300	3,149,200	3,160,400
Total subscribers	776,500	776,400	777,300	798,500	800,100	805,300
HSD RGUs	727,600	730,000	732,700	743,900	747,800	755,100
Video RGUs	458,200	442,500	432,600	429,000	419,900	412,800
Telephony RGUs	235,400	226,200	219,900	218,300	214,000	209,300
Total RGUs	1,421,200	1,398,700	1,385,200	1,391,200	1,381,700	1,377,200

(1)

Statistical reporting was standardized to a single reporting methodology beginning in the first quarter of 2018. Previously, the data was maintained and accumulated separately through independent processes and procedures. The standardized reporting had the following increase/(decrease) on December 31, 2017 homes passed and subscriber numbers: homes passed (700); total subscribers 14,200; HSD RGUs 2,500; Video RGUs 4,100; Telephony RGUs 2,700; and Total RGUs 9,300.

The following table displays the homes passed and subscribers related to the Company’s edge-out activities:


	Jun. 30,	Sep. 30,	Dec. 31,	Mar. 31,	Jun. 30,	Sep. 30,
	2017	2017	2017	2018	2018	2018
Homes passed	75,000	96,200	104,800	107,400	116,600	122,200
Total subscribers	16,900	22,700	26,400	28,600	30,900	33,700
HSD RGUs	16,800	22,600	26,200	28,300	30,600	33,400
Video RGUs	9,700	12,500	14,400	15,200	16,100	17,200
Telephony RGUs	3,700	4,500	5,200	5,600	6,000	6,400
Total RGUs	30,200	39,600	45,800	49,100	52,700	57,000

Subscriber information for acquired entities is preliminary and subject to adjustment until we have completed our review of such information and determined that it is presented in accordance with our policies. While we take appropriate steps to ensure subscriber information is presented on a consistent and accurate basis at any given balance sheet date, we periodically review our policies in light of the variability we may encounter across our different markets due to the nature and pricing of products and services and billing systems. Accordingly, we may from time to time make appropriate adjustments to our subscriber information based on such reviews.

Financial Statement Presentation

Revenue

Our operating revenue is primarily derived from monthly charges for HSD, Video, and Telephony to residential and business customers, other business services and other revenues.

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Telephony revenue consists primarily of fixed monthly fees for local services, including certain regulatory and ancillary customer fees, and enhanced services, such as call waiting and voice mail, revenue recognized related to non-recurring upfront fees associated with installation and other administrative activities provided to telephony customers as well as charges for measured and flat rate long-distance service.

Other business service revenue consists of session initiated protocol, web hosting, metro Ethernet, wireless backhaul, broadband carrier services, dark fiber sales, advanced collocation and cloud infrastructure services.

Other revenue consists primarily of advertising, late fees, line assurance warranty program, program guides and commissions related to the sale of merchandise by home shopping services.

Revenues attributable to monthly subscription fees charged to customers for our HSD, Video and Telephony services provided by our cable systems were 92% and 87% of total revenue for the nine months ended September 30, 2018 and 2017, respectively. The remaining percentage of non-subscription revenue is derived primarily from advertising revenues, cloud services and collocation.

Costs and Expenses

Our expenses primarily consist of operating, selling, general and administrative expenses, depreciation and amortization expense, and interest expense.

Operating expenses primarily include programming costs, data costs, transport costs and network access fees related to our HSD and Telephony services, cable service related expenses, costs of dark fiber sales, network operations and maintenance services, customer service and call center expenses, bad debt, billing and collection expenses, franchise fees and other regulatory fees.

Selling, general and administrative expenses primarily include salaries and benefits of corporate and field management, sales and marketing personnel, human resources and related administrative costs.

Operating and selling, general and administrative expenses exclude depreciation and amortization expense, which is presented separately in the Company’s unaudited condensed consolidated statements of operations.

Depreciation and amortization includes depreciation of our broadband networks and equipment, buildings and leasehold improvements and amortization of other intangible assets with definite lives primarily related to acquisitions.

We control our costs of operations by maintaining strict controls on expenditures. More specifically, we are focused on managing our cost structure by improving workforce productivity, increasing the effectiveness of our purchasing activities and maintaining discipline in customer acquisition. We expect programming expenses to continue to increase due to a variety of factors, including increased demands by owners of some broadcast stations for carriage of other services or payments to those broadcasters for retransmission consent and annual increases imposed by programmers with additional selling power as a result of media consolidation. We have not been able to fully pass these increases on to our customers without the loss of customers, nor do we expect to be able to do so in the future.

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Results of Operations

The following table summarizes our results of operations for the three months ended September 30, 2018 and 2017:


	Three months ended
	September 30,				Change
	2018		2017		$		%
	(in millions)
Revenue	$	291.6	$	297.8	$	(6.2)	(2)	%
Costs and expenses:
Operating (excluding depreciation and amortization)		152.7		153.2		(0.5)	*
Selling, general and administrative		37.0		38.1		(1.1)	(3)	%
Depreciation and amortization		46.3		49.0		(2.7)	(6)	%
Gain on sale of assets		(1.5)		—		(1.5)	*
		234.5		240.3		(5.8)	(2)	%
Income from operations		57.1		57.5		(0.4)	(1)	%
Other income (expense):
Interest expense		(35.0)		(32.2)		(2.8)	(9)	%
Loss on early extinguishment of debt		—		(26.1)		26.1	*
Other income, net		0.5		0.3		0.2	*
Income (loss) before provision for income taxes		22.6		(0.5)		23.1	*
Income tax benefit (expense)		7.9		(1.6)		9.5	*
Net income (loss)	$	30.5	$	(2.1)	$	32.6	*

*Not meaningful

The following table summarizes our results of operations for the nine months ended September 30, 2018 and 2017:


	Nine months ended
	September 30,				Change
	2018		2017		$		%
	(in millions)
Revenue	$	868.4	$	895.3	$	(26.9)	(3)	%
Costs and expenses:
Operating (excluding depreciation and amortization)		467.9		470.4		(2.5)	(1)	%
Selling, general and administrative		116.4		100.9		15.5	15	%
Depreciation and amortization		139.0		150.1		(11.1)	(7)	%
Impairment losses on intangibles and goodwill		256.4		—		256.4	*
Gain on sale of assets		(1.5)		—		(1.5)	*
Management fee to related party		—		1.0		(1.0)	*
		978.2		722.4		255.8	35	%
(Loss) income from operations		(109.8)		172.9		(282.7)	*
Other income (expense):
Interest expense		(96.8)		(122.0)		25.2	21	%
Gain on sale of Lawrence, Kansas system		—		38.4		(38.4)	*
Loss on early extinguishment of debt		—		(32.1)		32.1	*
Other income, net		1.7		1.7		—	*
(Loss) income before provision for income taxes		(204.9)		58.9		(263.8)	*
Income tax benefit		57.9		16.4		41.5	*
Net (loss) income	$	(147.0)	$	75.3	$	(222.3)	*

*Not meaningful

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Three months ended September 30, 2018 compared to the three months ended September 30, 2017

Revenue

Revenue for the three months ended September 30, 2018 decreased $6.2 million, or 2%, as compared to revenue for the three months ended September 30, 2017 as follows:


	Three months ended
	September 30,				Change
	2018		2017		$		%
	(in millions)
Residential subscription	$	234.3	$	231.9	$	2.4	1	%
Business services subscription		33.0		29.6		3.4	11	%
Total subscription		267.3		261.5		5.8	2	%
Other business services		6.6		9.6		(3.0)	(31)	%
Other		17.7		26.7		(9.0)	(34)	%
	$	291.6	$	297.8	$	(6.2)	(2)	%

Total subscription revenue increased $5.8 million, or 2%, during the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Contributing to the increase was approximately $10.4 million related to adjustments for the new revenue recognition accounting guidance.

After accounting for this non-recurring change in revenue, the resulting decline of $4.6 million in subscription revenue is primarily due to a $8.2 million reduction in average total RGUs, partially offset by an $3.6 million increase in the average revenue per unit (“ARPU”) of our customer base, which is calculated as subscription revenue for each of the HSD, Video and Telephony services divided by the average total RGUs for each service category for the respective period.

The decrease in other business services revenue of $3.0 million, or 31%, is primarily due to decreased revenue generated by network construction activities and the sale of the Chicago fiber assets and associated loss of wholesale customers.

The decrease in other revenue of $9.0 million, or 34%, is primarily due to the reclassification of franchise and installation fees to residential video subscription revenue in accordance with the new revenue recognition accounting guidance for the three months ended September 30, 2018 compared to the three months ended September 30, 2017.

The following table details subscription revenue by service offering for the three months ended September 30, 2018 and 2017:


	Three Months Ended September 30,						Subscription
	2018			2017			Revenue
	Subscription		Average	Subscription		Average	Change
	Revenue		RGUs	Revenue		RGUs	$		%
	(in millions)		(in thousands)	(in millions)		(in thousands)
HSD subscription	$	119.0	751.4	$	103.9	728.8	$	15.1	15	%
Video subscription		119.3	416.4		124.9	450.4		(5.6)	(4)	%
Telephony subscription		29.0	211.7		32.7	230.8		(3.7)	(11)	%
	$	267.3		$	261.5		$	5.8	2	%

HSD Subscription

HSD subscription revenue increased $15.1 million, or 15%, during the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The increase in HSD subscription revenue includes an increase of $2.3 million related to new revenue recognition accounting guidance.

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After accounting for this non-recurring change in revenue, the remaining increase of $12.8 million in HSD subscription revenue is primarily due to a $3.5 million increase in average HSD RGUs and a $9.3 million increase in HSD ARPU.

Video Subscription

Video subscription revenue decreased $5.6 million, or 4%, during the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The decrease includes an increase of $9.0 million related to new revenue recognition accounting guidance.

After accounting for this non-recurring change in revenue, the resulting decrease of $14.6 million in Video subscription revenue is primarily due to a $9.0 million decrease in average Video RGUs and a $5.6 million decrease in Video ARPU.

Telephony Subscription

Telephony subscription revenue decreased $3.7 million, or 11%, during the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The decrease includes a decrease of $0.9 million related to new revenue recognition accounting guidance.

After accounting for this non-recurring change in revenue, the remaining $2.8 million decrease in Telephony subscription revenue is primarily due to a $2.7 million decrease in average Telephony RGUs and a $0.1 million decrease in Telephony ARPU.

Operating expenses (excluding depreciation and amortization)

Operating expenses (excluding depreciation and amortization) declined $0.5 million from the three months ended September 30, 2018 compared to the three months ended September 30, 2017. While operating expenses remained fairly consistent period over period, we experienced an increase in eligible capitalizable costs, partially offset by increases in employee related costs and repair and maintenance.

Incremental contribution

A presentation of incremental contribution, a non-GAAP measure, is included below.

Incremental contribution is included herein because we believe that it is a key metric used by our management to assess the financial performance of the business by showing how the relative relationship of the various components of subscription services contributes to our overall consolidated historical results. Our management further believes that it provides useful information to investors in evaluating our financial condition and results of operations because the additional detail illustrates how an incremental dollar of revenue, by particular service type, generates cash, before any unallocated costs are considered, which we believe is a key component of our overall strategy and important for understanding what drives our cash flow position relative to our historical results. We believe that when evaluating our business, investors apply varying degrees of importance to the different types of subscription revenue we generate and providing supplemental detail on these services, as well as third party costs associated with each service, is useful to investors because it allows investors to better evaluate these aspects of our performance. Incremental contribution is defined by us as the components of subscription revenue, less costs directly incurred from third parties in connection with the provision of such services to our customers.

Incremental contribution is not calculated in accordance with GAAP and our use of the term incremental contribution varies from others in our industry. Incremental contribution has important limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP as it does not identify or allocate any other operating costs and expenses that are components of our income from operations to specific subscription revenues as we do not measure or record such costs and expenses in a manner that would allow attribution to a specific component of subscription revenue. Accordingly, incremental contribution should not be

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considered as an alternative to operating income or any other performance measures derived in accordance with GAAP as measures of operating performance or operating cash flows, or as measures of liquidity.

The following tables provide the most comparable GAAP measurements (i.e. income from operations) for the three months ended September 30, 2018 and 2017:

Incremental contribution for the provision of such services for the three months ended September 30, 2018 and 2017 are as follows:


	Three months ended
	September 30,				Change
	2018		2017		$		%
		(in millions)
HSD subscription revenue	$	119.0	$	103.9	$	15.1	15	%
HSD expenses(1)		3.7		3.5		0.2	6	%
HSD incremental contribution	$	115.3	$	100.4	$	14.9


	Three months ended
	September 30,				Change
	2018		2017		$		%
		(in millions)
Video subscription revenue	$	119.3	$	124.9	$	(5.6)	(4)	%
Video expenses(2)		91.6		80.1		11.5	14	%
Video incremental contribution	$	27.7	$	44.8	$	(17.1)


	Three months ended
	September 30,				Change
	2018		2017		$		%
		(in millions)
Telephony subscription revenue	$	29.0	$	32.7	$	(3.7)	(11)	%
Telephony expenses(3)		3.1		1.7		1.4	82	%
Telephony incremental contribution	$	25.9	$	31.0	$	(5.1)

(1)

HSD expenses represent costs incurred from third-party vendors related to maintaining our network and internet connectivity fees.

(2)

Video expenses represent fees paid to content providers for programming.

(3)

Telephony expenses represent costs incurred from third-party providers for circuit rental, interconnectivity and switching costs.

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The following table provides a reconciliation of incremental contribution to income from operations, which is the most directly comparable GAAP measure, for the three months ended September 30, 2018 and 2017:


	Three months ended
	September 30,
	2018		2017
	(in millions)
Income from operations	$	57.1	$	57.5
Revenue (excluding subscription revenue)		(24.3)		(36.3)
Other non-allocated operating expense (excluding depreciation and amortization)(1)		54.3		67.9
Selling, general and administrative(1)		37.0		38.1
Depreciation and amortization(1)		46.3		49.0
Gain on sale of assets(1)		(1.5)		—
	$	168.9	$	176.2
HSD incremental contribution		115.3		100.4
Video incremental contribution		27.7		44.8
Telephony incremental contribution		25.9		31.0
Total incremental contribution	$	168.9	$	176.2

(1)

Operating expenses (other than third-party direct expenses excluding depreciation and amortization); selling, general and administrative; depreciation and amortization; and gain on sale of assets are not allocated by product or location for either internal or external reporting.

Selling, general and administrative (SG&A) expenses

Selling, general and administrative expenses decreased $1.1 million, or 3%, in the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The decrease is primarily due to lower employee non-cash compensation cost as a result of the June 30, 2018 vesting of short-term restricted stock awards combined with a decrease in commission expense due to the impact of the new revenue recognition accounting guidance. The overall decrease is partially offset by increases in employee salaries and benefits.

Depreciation and amortization expenses

Depreciation and amortization expenses decreased $2.7 million, or 6%, in the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The decrease is primarily due to the disposition of Chicago fiber assets.

Gain on sale of assets

On December 14, 2017, we sold a portion of our Chicago fiber network to a subsidiary of Verizon for $225.0 million in cash. In addition, we and a subsidiary of Verizon entered into a construction agreement pursuant to which we agreed to complete the build-out of the network in exchange for $50.0 million (which approximates our remaining estimate to complete the network build-out), recognized over time as the remaining network elements are completed and accepted. During the three months ended September 30, 2018, we completed several elements of the construction agreement. We recognized a $1.5 million gain as a result of the completion and acceptance of such elements.

Interest expense

Interest expense increased $2.8 million, or 9%, in the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The increase is primarily due to the interest rate swap agreements entered into in May 2018 combined with increasing interest rates.

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Income tax benefit (expense)

We reported an income tax benefit of $7.9 million and income tax expense of $1.6 million for the three months ended September 30, 2018 and 2017, respectively. The income tax benefit reported during the three months ended September 30, 2018 is primarily due to a change in the valuation allowance that was recorded. This change was the result of recording indefinite lived deferred tax assets related to a business interest expense limitation and net operating loss carryforwards. As a result of these indefinite lived deferred tax assets, we recorded an income tax benefit of approximately $7.4 million for the three months ended September 30, 2018.

Nine months ended September 30, 2018 compared to the nine months ended September 30, 2017

Revenue

Revenue for the nine months ended September 30, 2018 decreased $26.9 million, or 3%, as compared to revenue for the nine months ended September 30, 2017 as follows:


	Nine Months Ended
	September 30,				Change
	2018		2017		$		%
	(in millions)
Residential subscription	$	703.6	$	695.6	$	8.0	1	%
Business services subscription		97.0		86.4		10.6	12	%
Total subscription		800.6		782.0		18.6	2	%
Other business services		20.6		31.3		(10.7)	(34)	%
Other		47.2		82.0		(34.8)	(42)	%
	$	868.4	$	895.3	$	(26.9)	(3)	%

Total subscription revenue increased $18.6 million, or 2%, during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Contributing to the increase was approximately $30.0 million related to adjustments for the new revenue recognition accounting guidance, partially offset by a decrease of $1.3 million related to the disposition of our Lawrence, Kansas system on January 12, 2017.

After accounting for these non-recurring changes in revenue, the resulting decline of $10.1 million in subscription revenue is primarily due to a $34.6 million reduction in average total RGUs, partially offset by an $24.5 million increase in ARPU of our customer base, which is calculated as subscription revenue for each of the HSD, Video and Telephony services divided by the average total RGUs for each service category for the respective period.

The decrease in other business services revenue of $10.7 million, or 34%, is primarily due to decreased revenue generated by network construction activities and the sale of the Chicago fiber assets and associated loss of wholesale customers.

The decrease in other revenue of $34.8 million, or 42%, is primarily due to the reclassification of franchise and installation fees to residential video subscription revenue in accordance with the new revenue recognition accounting guidance for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.

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The following table details subscription revenue by service offering for the nine months ended September 30, 2018 and 2017:


	Nine Months Ended September 30,						Subscription
	2018			2017			Revenue
	Subscription		Average	Subscription		Average	Change
	Revenue		RGUs	Revenue		RGUs(1)	$		%
	(in millions)		(in thousands)	(in millions)		(in thousands)
HSD subscription	$	348.2	743.9	$	300.7	738.7	$	47.5	16	%
Video subscription		364.2	422.7		379.6	472.0		(15.4)	(4)	%
Telephony subscription		88.2	214.6		101.7	242.1		(13.5)	(13)	%
	$	800.6		$	782.0		$	18.6	2	%

(1)

Average subscribers, presented in thousands, is calculated based on reported subscribers and is not adjusted for changes related to the disposition of our Lawrence, Kansas system.

HSD Subscription

HSD subscription revenue increased $47.5 million, or 16%, during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase in HSD subscription revenue includes an increase of $5.8 million related to new revenue recognition accounting guidance, partially offset by a decrease of $0.6 million related to the disposition of our Lawrence, Kansas system on January 12, 2017.

After accounting for these non-recurring changes in revenue, the remaining increase of $42.3 million in HSD subscription revenue is primarily due to a $9.0 million increase in average HSD RGUs and a $33.3 million increase in HSD ARPU.

Video Subscription

Video subscription revenue decreased $15.4 million, or 4%, during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The decrease includes an increase of $27.8 million related to new revenue recognition accounting guidance, partially offset by a decrease of $0.6 million related to the disposition of our Lawrence, Kansas system on January 12, 2017.

After accounting for these non-recurring changes in revenue, the resulting decrease of $42.6 million in Video subscription revenue is primarily due to a $33.3 million decrease in average Video RGUs and a $9.3 million decrease in Video ARPU.

Telephony Subscription

Telephony subscription revenue decreased $13.5 million, or 13%, during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The decrease includes a $3.6 million decrease related to new revenue recognition accounting guidance and $0.1 million decrease related to the disposition of our Lawrence, Kansas system on January 12, 2017.

After accounting for these non-recurring changes in revenue, the remaining $9.8 million decrease in Telephony subscription revenue is primarily due to a $10.3 million decrease in average Telephony RGUs, partially offset by a $0.5 million increase in Telephony ARPU.

Operating expenses (excluding depreciation and amortization)

Operating expenses (excluding depreciation and amortization) declined $2.5 million, or 1%, from the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. While operating expenses remained fairly consistent period over period, we experienced an increase in eligible capitalizable costs and a

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decrease in compensation and commission cost. The overall decrease is partially offset by increases in direct expense, installation, and repair and maintenance costs.

Incremental contribution

A presentation of incremental contribution, a non-GAAP measure, is included below. See prior presentation of incremental contribution for the three months ended September 30, 2018 for an explanation of why we present this metric and the limitations thereof.

The following tables provide the most comparable GAAP measurements (i.e. income from operations) for the nine months ended September 30, 2018 and 2017:

Incremental contribution for the provision of such services for the nine months ended September 30, 2018 and 2017 are as follows:


	Nine months ended
	September 30,				Change
	2018		2017		$		%
		(in millions)
HSD subscription revenue	$	348.2	$	300.7	$	47.5	16	%
HSD expenses(1)		11.1		10.3		0.8	8	%
HSD incremental contribution	$	337.1	$	290.4	$	46.7


	Nine months ended
	September 30,				Change
	2018		2017		$		%
		(in millions)
Video subscription revenue	$	364.2	$	379.6	$	(15.4)	(4)	%
Video expenses(2)		279.5		255.0		24.5	10	%
Video incremental contribution	$	84.7	$	124.6	$	(39.9)


	Nine months ended
	September 30,				Change
	2018		2017		$		%

Telephony subscription revenue	$	88.2	$	101.7	$	(13.5)	(13)	%
Telephony expenses(3)		9.6		8.5		1.1	13	%
Telephony incremental contribution	$	78.6	$	93.2	$	(14.6)

(1)

HSD expenses represent costs incurred from third-party vendors related to maintaining our network and internet connectivity fees.

(2)

Video expenses represent fees paid to content providers for programming.

(3)

Telephony expenses represent costs incurred from third-party providers for circuit rental, interconnectivity and switching costs.

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The following table provides a reconciliation of incremental contribution to income from operations, which is the most directly comparable GAAP measure, for the nine months ended September 30, 2018 and 2017:


	Nine months ended
	September 30,
	2018		2017
	(in millions)
(Loss) income from operations	$	(109.8)	$	172.9
Revenue (excluding subscription revenue)		(67.8)		(113.3)
Other non-allocated operating expense (excluding depreciation and amortization)(1)		167.7		196.6
Selling, general and administrative(1)		116.4		100.9
Depreciation and amortization(1)		139.0		150.1
Impairment losses on intangibles and goodwill(1)		256.4		—
Gain on sale of assets(1)		(1.5)		—
Management fee to related party(1)		—		1.0
	$	500.4	$	508.2
HSD incremental contribution		337.1		290.4
Video incremental contribution		84.7		124.6
Telephony incremental contribution		78.6		93.2
Total incremental contribution	$	500.4	$	508.2

(1)

Operating expenses (other than third-party direct expenses excluding depreciation and amortization); selling, general and administrative; depreciation and amortization; impairment losses on intangibles and goodwill; gain on sale of assets; and management fees to related party are not allocated by product or location for either internal or external reporting.

Selling, general and administrative (SG&A) expenses

Selling, general and administrative expenses increased $15.5 million, or 15%, in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase is primarily due to higher employee related salary and non-cash compensation costs, an increase in third party professional fees, and an increase in hardware and software support costs. The overall increase partially offset by a decrease in commission expense due to the impact of the new revenue recognition accounting guidance.

Depreciation and amortization expenses

Depreciation and amortization expenses decreased $11.1 million, or 7%, in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The decrease is primarily due to the disposition of Chicago fiber assets.

Impairment losses on intangibles and goodwill

As a result of a decline in the Company’s stock price during the three months ended March 31, 2018, we recorded a non-cash impairment charge of $143.2 million related to certain franchise operating rights and a $113.2 million non-cash impairment charge of goodwill in certain of our markets. The primary driver of the impairment charges was decline in the price of our common stock, which reduced the market multiples utilized to determine estimated fair market values of indefinite-lived intangible assets and goodwill in certain reporting units. See Note 6 — Franchise Operating Rights & Goodwill for discussion of non-cash impairment charges recognized for the nine months ended September 30, 2018.

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Gain on sale of assets

Management fee to related party expenses

Prior to our IPO, we paid a quarterly management fee of approximately $0.4 million per quarter plus any travel and miscellaneous expenses to Avista. In addition, pursuant to a consulting agreement dated as of December 18, 2015 by and among former Parent, Avista and Crestview, Crestview is entitled to 50% of any management fee actually received by Avista. In connection with our IPO, this obligation terminated and we no longer pay any management fee to Avista or Crestview.

Interest expense

Interest expense decreased $25.2 million, or 21%, in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The decrease is primarily due to lower overall debt and a lower blended interest rate mainly related to the redemption of the 10.25% Senior Notes on July 17, 2017.

Income tax benefit

We reported total income tax benefit of $57.9 million and $16.4 million for the nine months ended September 30, 2018 and 2017, respectively. An income tax benefit recorded in the first quarter of the current year was primarily due to recording a non-cash impairment charge on certain franchise operating rights and goodwill which are indefinite lived assets. As a result of this impairment, we recorded an income tax benefit of approximately $45.9 million for the nine months ended September 30, 2018.

On January 12, 2017, the Company and MidCo consummated the Asset Purchase Agreement under which MidCo acquired the Company’s Lawrence, Kansas system, for gross proceeds of approximately $213.0 million in cash, subject to certain normal and customary purchase price adjustments set forth in the agreement. As a result of the Lawrence sale, the Company recorded $11.1 million of associated income tax expense in the first quarter of 2017. In addition, a deferred income tax benefit of $39.3 million was recognized in the first quarter of 2017 as a result of the change in valuation allowance. The change in valuation allowance was due primarily to the utilization of NOLs from the disposal of indefinite lived assets related to the Lawrence sale transaction.

Liquidity and Capital Resources

At September 30, 2018, we had $136.1 million in current assets, including $27.3 million in cash and cash equivalents, and $204.6 million in current liabilities. Our outstanding consolidated debt and capital lease obligations aggregated to $2,299.2 million, of which $24.2 million is classified as current in our unaudited condensed consolidated balance sheet as of such date.

On December 14, 2017, our Board of Directors authorized us to repurchase up to $50.0 million of our outstanding common stock. As of March 26, 2018, we completed such stock repurchase program with total common stock shares repurchased of 5.1 million for $50.0 million.

On May 10, 2018, the Board of Directors authorized the Company to repurchase up to $25.0 million of our outstanding common stock. As of August 8, 2018, we completed such stock repurchase program with total common stock shares repurchased of 2.5 million for $25.0 million.

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On December 14, 2017, we completed our asset purchase agreement with a subsidiary of Verizon and entered into a Construction Services Agreement pursuant to which agreed to complete the build-out of the network in exchange for $50.0 million. The $50.0 million will be recognized over time as such network elements are completed and accepted. We have incurred expenses of approximately $30.4 million on the construction as of September 30, 2018.

We are required to prepay principal amounts under our Senior Secured Credit Facilities credit agreement if we generate excess cash flow, as defined in the credit agreement. As of September 30, 2018, we had borrowing capacity of $234.6 million under our Revolving Credit Facility and were in compliance with all our debt covenants. Accordingly, we believe that we have sufficient resources to fund our obligations and anticipated liquidity requirements in the foreseeable future.

Historical Operating, Investing, and Financing Activities

Operating Activities

Net cash provided by operating activities increased from $116.4 million for the nine months ended September 30, 2017 to $199.8 million for the nine months ended September 30, 2018. The increase is primarily due to working capital fluctuations regarding the timing of accrued liabilities and interest associated with the redemption of the 10.25% Senior Notes and Term B loan restructuring in July 2017.

Investing Activities

Net cash used in investing activities increased from $10.9 million for the nine months ended September 30, 2017 to $210.4 million for the nine months ended September 30, 2018. The increase in cash used is attributable to net cash proceeds from the sale of our Lawrence, Kansas system in 2017 in the amount of $213.0 million which offset capital expenditures in 2017. The overall increase is partially offset by cash received associated with the construction services agreement with a subsidiary of Verizon and a decrease in capital expenditures of $10.5 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.

We have ongoing capital expenditure requirements related to the maintenance, expansion and technological upgrades of our cable network. Capital expenditures are funded primarily through a combination of cash on hand and cash flow from operations. Our capital expenditures were $213.8 million and $224.3 million for the nine months ended September 30, 2018 and 2017, respectively. The $10.5 million decrease from the nine months ended September 30, 2017 to the nine months ended September 30, 2018 is primarily due to the decrease in capital expenditures related to the Chicago fiber network.

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The following table sets forth additional information regarding our capital expenditures for the periods presented:


	For the nine months ended
	September 30,
	2018		2017
	(in millions)
Capital Expenditures
Customer premise equipment(1)	$	89.6	$	77.9
Scalable infrastructure(2)		24.9		27.2
Line extensions(3)		55.2		83.8
Upgrade / rebuild(4)		—		0.3
Support capital(5)		44.1		35.1
Total	$	213.8	$	224.3
Capital expenditures included in total related to:
Edge-outs(6)	$	23.9	$	38.7
Business services(7)	$	38.3	$	55.9

(1)

Customer premise equipment, or CPE, includes equipment and installation costs incurred to deliver services to residential and business services customers. CPE includes the costs of acquiring and installing our set-top boxes and modems, as well as the cost of customer connections to our network.

(2)

Scalable infrastructure includes costs, not directly related to customer acquisition activity, to support new customer growth and provide service enhancements (e.g., headend equipment).

(3)

Line extensions include costs associated with new home development within our footprint and edge-outs (e.g., fiber / coaxial cable, amplifiers, electronic equipment, make-ready and design engineering).

(4)

Upgrade / rebuild includes costs to modify or replace existing HFC network, including enhancements.

(5)

Support capital includes all other non-network-related costs to support day-to-day operations, including land, buildings, vehicles, office equipment, tools and test equipment.

(6)

Edge-outs represent costs to extend our network into new adjacent service areas, including the associated CPE.

(7)

Business services represent costs associated with the build-out of our network to support business services customers, including the associated CPE, as well as the construction of the Chicago fiber network.

Financing Activities

Net cash used in financing activities decreased from $99.9 million for the nine months ended September 30, 2017 to $31.5 million for the nine months ended September 30, 2018. The decrease is primarily due to the redemption of the 10.25% Senior Notes during the nine months ended September 30, 2017. The redemption of the 10.25% Senior Notes was partially offset by the receipt of cash proceeds from our initial public offering of $334.7 million and a $20.3 million capital contribution from our former Parent during the same period ended September 30, 2017. Additionally, we completed $73.2 million of share repurchases associated with stock buyback programs during the nine months ended September 30, 2018.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is limited and primarily related to fluctuating interest rates associated with our variable rate indebtedness under our Senior Secured Credit Facility. As of September 30, 2018, borrowings under our Term B Loans and Revolving Credit Facility bear interest at our option at a rate equal to either an adjusted LIBOR rate (which is subject to a minimum rate of 1.00% for Term B Loans) or an ABR (which is subject to a minimum rate of 1.00% for Term B Loans), plus the applicable margin. The applicable margins for the Term B Loans is 3.25% for adjusted LIBOR loans and 2.25% for ABR loans. The applicable margin for borrowings under the Revolving Credit Facility is 3.00% for adjusted LIBOR loans and 2.00% for ABR loans. A hypothetical 100 basis point (1%) change in LIBOR interest rates (based on the interest rates in effect under our Senior Secured Credit Facility as of September 30, 2018) would result in an annual interest expense change of up to approximately $9.6 million on our Senior Secured Credit Facility.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures with respect to the information generated for use in this quarterly report. The evaluation was based in part upon reports and certifications provided by a number of executives. Based upon, and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon the above evaluation, we believe that our controls and procedures provide such reasonable assurances.

Changes in Internal Control over Financial Reporting

On January 1, 2018, we adopted Accounting Standards Codification 606, Revenue from Contracts with Customers, and as a result, we have incorporated internal controls over significant process changes for revenue recognition that we believe to be appropriate and necessary in consideration of the related integration of the new standard. There were no other changes in our internal control over financial reporting during the quarter ended September 30, 2018, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a‑15 and 15d‑15 under the Exchange Act, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

In June and July of 2018, putative class action complaints were filed in the Supreme Court of the State of New York and Colorado State Court against WideOpenWest, Inc. and certain of the Company’s current and former officers and directors, as well as Crestview Advisors, L.L.C., Avista Capital Partners, and each of the underwriter banks involved with the Company’s IPO. The complaints allege violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 in connection with the IPO. The plaintiffs seek to represent a class of stockholders who purchased stock pursuant to or traceable to the IPO. The complaint seeks unspecified monetary damages and other relief. The Company believes the complaint and allegations to be without merit and intends to vigorously defend itself against these actions. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on our results of operations, financial condition, or cash flows.

On March 7, 2018, Sprint Communications Company L.P (“Sprint”) filed complaints in the U.S. District Court for the District of Delaware alleging that the Company (and other industry participants) infringe patents purportedly relating to Sprint’s Voice over Internet Protocol (“VoIP”) services. The lawsuit is part of a pattern of litigation that was initiated as far back as 2007 by Sprint against numerous broadband and telecommunications providers. The Company has multiple legal and contractual defenses and will vigorously defend against the claims. Although the outcome of the matter cannot be predicted and the impact of the final resolution of this matter on the Company’s results of operations in any particular subsequent reporting period is not known, at this time, management does not believe that the ultimate resolution of the matter will have a material adverse effect on the operations or financial position of the Company or the ability of the Company to meet its financial obligations as they become due.

The Company is party to various legal proceedings (including individual, class and putative class actions) arising in the normal course of its business covering a wide range of matters and types of claims including, but not limited to, general contracts, billing disputes, rights of access, programming, taxes, fees and surcharges, consumer protection, trademark and patent infringement, employment, regulatory, tort, claims of competitors and disputes with other carriers.

In accordance with GAAP, WOW accrues an expense for pending litigation when it determines that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. Legal defense costs are expensed as incurred. None of the Company’s existing accruals for pending matters are material. WOW regularly monitors its pending litigation for the purpose of adjusting its accruals and revising its disclosures accordingly, in accordance with GAAP, when required. Litigation is, however, subject to uncertainty, and the outcome of any particular matter is not predictable. The Company vigorously defends its interests in pending litigation, and as of this date, WOW believes that the ultimate resolution of all such matters, after considering insurance coverage or other indemnities to which it is entitled, will not have a material adverse effect on its unaudited condensed consolidated financial position, results of operations, or cash flows.

Item 1A. Risk Factors

Our Annual Report on Form 10‑K for the year ended December 31, 2017 includes “Risk Factors” under Item 1A of Part 1. There have been no material changes from the updated risk factors described in our Form 10‑K.

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Item 2. Unregistered Sales of Equity Proceeds and Use of Proceeds

Purchases of Equity Securities by the Issuer

The following table presents WOW’s purchases of equity securities completed during the third quarter of 2018 (dollars in millions, except per share amounts):


					Approximate Dollar Value of
				Total Number of Shares	Shares that May Yet be
	Number of Shares	Average Price		Purchased as Part of Publicly	Purchased Under the Plans
Period	Purchased (1)	Paid per Share		Announced Plans or Programs(2)	or Programs(2)
July 1 - 31, 2018	1,196,046	$	10.60	2,221,000	$	2.7
August 1 - 31, 2018	254,393	$	10.88	2,473,600	$	—
September 1 - 30, 2018	8,426	$	11.21	—	$	—

(1)

Includes 1,046 shares, 1,793 shares, and 8,426 shares withheld from employees for the payment of taxes upon the vesting of restricted stock awards for the months of July, August, and September 2018, respectively.

(2)

As announced on May 11, 2018, on May 10, 2018, the Board of Directors authorized the Company to repurchase up to $25.0 million of outstanding common stock. As of August 8, 2018, we completed such stock repurchase program with total common stock shares repurchased of 2.5 million for $25.0 million.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Adoption of CIC Severance Plan

On November 6, 2018, the Board of Directors (the “Board”) of the Company approved a Change in Control Severance Plan (the “CIC Plan”) applicable to each of the Company’s “officers” as defined in Rule 16a-1(f) under the Securities and Exchange Act of 1934 (each such officer referred to herein as an “Executive Officer”), effective immediately. Under the terms of the CIC Plan, in the event the employment of any Executive Officer is terminated by the Company for cause or by the Executive Officer for good reason within two years of a change in control of the Company, such Executive Officer would be entitled to cash severance as follows. The chief executive officer would be entitled to receive (a) 2.5 times the sum of (i) the then applicable base salary plus (ii) the target bonus of the chief executive officer applicable to the year in which such termination occurs, plus (b) a prorated portion of the target bonus applicable to the year in which such termination occurs. Each other Executive Officer would be entitled to receive (a) 2.0 times the sum of (i) the then applicable base salary plus (ii) the target bonus of such Executive Officer applicable to the year in which such termination occurs, plus (b) a prorated portion of the target bonus applicable to the year in which such termination occurs.

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Item 6. Exhibits

Exhibit
Number

Exhibit Description

Form

File Number

Date of First
Filing

Exhibit
Number

Filed
Herewith

10.1

Letter Agreement of Employment, dated August 23, 2018 between the Company and Donald Schena

8-K

001-38101

August 29, 2018

10.1

31.1

Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	WIDEOPENWEST, INC.

November 8, 2018	By:	/s/ TERESA ELDER
		Teresa Elder
		Chief Executive Officer

	By:	/s/ RICHARD E. FISH, JR.
		Richard E. Fish, Jr.
		Chief Financial Officer

Three months ended

September 30,

(in millions)

Income from operations