CABO Cable One Inc

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.        DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business. Cable One, Inc., together with its wholly owned subsidiaries (collectively, “Cable One,” “us,” “our,” “we” or the “Company”) is a fully integrated provider of data, video and voice services to residential and business subscribers in 21 Western, Midwestern and Southern U.S. states. As of September 30, 2019, Cable One provided service to 821,079 residential and business customers, of which 689,138 subscribed to data services, 298,063 subscribed to video services and 121,095 subscribed to voice services.

On January 8, 2019, the Company acquired Delta Communications, L.L.C. (“Clearwave”) for a purchase price of $358.8 million in cash on a debt-free basis. Refer to note 2 for details on this transaction and note 7 for details on the related financing.

On March 31, 2019, the Company entered into a definitive agreement with Fidelity Communications Co. to acquire its data, video and voice business and certain related assets (collectively, “Fidelity”) for a base purchase price of $525.9 million in cash, subject to customary adjustments. Fidelity is a cable operator that provides residential and business services to customers throughout greater Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas. Cable One and Fidelity share similar strategies, customer demographics and products. Accordingly, the Company believes the acquisition of Fidelity offers it opportunities for revenue growth and adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) margin expansion as well as the potential to realize cost synergies. The all-cash transaction was completed on October 1, 2019 and was funded through a combination of cash on hand and proceeds from new indebtedness. Refer to note 15 for details on this transaction and the related financing.

Basis of Presentation. The condensed consolidated financial statements and accompanying notes thereto have been prepared in accordance with: (i) generally accepted accounting principles in the United States (“GAAP”) for interim financial information; and (ii) the guidance of Rule 10-01 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for financial statements required to be filed with the Securities and Exchange Commission (the “SEC”). As permitted under such guidance, certain notes and other financial information normally required by GAAP have been omitted. Management believes the condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position, results of operations and cash flows as of and for the periods presented herein. These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “2018 Form 10-K”).

The December 31, 2018 year-end balance sheet data presented herein was derived from the Company’s audited consolidated financial statements included in the 2018 Form 10-K, but does not include all disclosures required by GAAP. The Company’s interim results of operations may not be indicative of its future results.

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

Segment Reporting. Accounting Standard Codification (“ASC”) 280 - Segment Reporting requires the disclosure of factors used to identify an entity’s reportable segments. The Company’s operations are organized and managed on the basis of operating systems within its geographic divisions. Each operating system derives revenues from the delivery of similar products and services to a customer base that is also similar. Each operating system deploys similar technology to deliver the Company’s products and services, operates within a similar regulatory environment, has similar economic characteristics and is managed by the Company’s chief operating decision maker as part of an aggregate of all operating systems within the Company’s material geographic divisions. Management evaluated the criteria for aggregation under ASC 280 and has concluded that the Company meets each of the respective criteria set forth therein. Accordingly, management has identified one reportable segment.

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

Recently Adopted Accounting Pronouncements. In June 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The ASU was effective January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and also simplifies the application of hedge accounting under GAAP. The ASU was effective January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to record substantially all of their leases on the balance sheet as a right-of-use (“ROU”) asset and a corresponding lease liability with the exception of short-term leases. The Company is required to classify each separate lease component as an operating or a finance lease at the lease commencement date. Initial measurement of the ROU asset and lease liability is the same for both operating and finance leases, however, expense recognition and amortization of the ROU asset differs. Operating leases reflect lease expense on a straight-line basis similar to previous operating leases while finance leases reflect a front-loaded expense pattern similar to previous capital leases. The Company adopted the updated guidance on January 1, 2019.

With respect to the adoption of ASU 2016-02, the Company elected the “Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption is as originally reported under ASC 840 - Leases. Upon adoption on January 1, 2019, the Company recorded ROU assets of $14.9 million and lease liabilities of $13.3 million. The adoption of this guidance did not have a material impact on Company’s consolidated financial statements.

ASU 2016-02 provides several optional practical expedients in transition. The Company elected the lessee and lessor transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs.

The Company also made certain lessee accounting policy elections, including a short-term lease exception policy, permitting the exclusion of short-term leases (leases with terms of 12 months or less) from the recognition requirements of ASU 2016-02, and an accounting policy to account for lease and non-lease components as a single component for all classes of assets, permitting common area maintenance, real estate taxes, fiber network power charges and routine maintenance fees to be combined with the associated lease component. The portfolio approach, which allows a lessee to account for its leases at a portfolio level, was elected for certain equipment and fiber leases in which the difference in accounting for each asset separately would not have been materially different from accounting for the assets as a combined unit. As a lessee, the Company also elected the practical expedient not to reevaluate whether any expired or existing land easements are, or contain, leases.

The Company provides residential and business customers with certain hardware to deliver data, video and voice services. As a lessor, the Company elected the practical expedient not to separate lease components from the associated non-lease component for all classes of assets. The Company concluded the non-lease components would otherwise be accounted for under the new revenue recognition standard and both the timing and pattern of transfer are the same for the non-lease components and associated lease component based on the interrelated nature of the services provided and the underlying leased hardware and, if accounted for separately, the lease component would be classified as an operating lease.

Refer to note 6 for the requisite disclosures regarding the amount, timing and any uncertainty regarding lease-related cash flows.

Recently Issued But Not Yet Adopted Accounting Pronouncements. In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation, setup and other upfront costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing such costs incurred to develop or obtain internal-use software. The ASU specifies which costs are to be expensed and which are to be capitalized, the period over which capitalized costs are to be amortized, the process for identifying and recognizing impairment and the proper presentation of such costs within the consolidated financial statements. ASU 2018-15 is effective for annual and interim periods beginning after December 15, 2019 and may be adopted either retrospectively or prospectively. The Company plans to adopt the updated guidance prospectively and is currently evaluating the expected impact of ASU 2018-15 on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires companies to recognize an allowance for expected lifetime credit losses through earnings concurrent with the recognition of a financial asset measured at amortized cost. The estimate of expected credit losses is required to be adjusted each reporting period over the life of the financial asset. The ASU is effective for annual and interim periods beginning after December 15, 2019 and requires a modified retrospective adoption approach. The Company does not expect ASU 2016-13 to have a material impact on its consolidated financial statements upon adoption, but it may have an impact in the future.

2. CLEARWAVE ACQUISITION

On January 8, 2019, the Company acquired Clearwave, a facilities-based service provider that owns and operates a high-capacity fiber network offering dense regional coverage in Southern Illinois. The Company funded the purchase price of $358.8 million with cash on hand and the additional seven-year incremental term “B” loan borrowings described in note 7. The acquisition provides the Company with a premier fiber network within its existing footprint, further enables the Company to supply its customers with enhanced business services solutions and provides a platform to allow the Company to replicate Clearwave’s strategy in several of its other markets.

The Company accounted for the Clearwave acquisition as a business combination pursuant to ASC 805 - Business Combinations. Accordingly, acquisition costs are not included as components of consideration transferred and instead are accounted for as expenses in the period in which the costs are incurred. During the three and nine months ended September 30, 2019, the Company incurred acquisition-related costs of $1.2 million and $7.3 million, respectively, including $0.1 million and $3.5 million associated with the Clearwave acquisition, respectively. The remainder of these costs was primarily associated with the Fidelity acquisition that closed on October 1, 2019. These costs are included in selling, general and administrative expenses within the Company’s condensed consolidated statement of operations and comprehensive income.

In accordance with ASC 805, the Company uses its best estimates and assumptions to assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date based on the information that was available as of the acquisition date. The Company believes that the information available provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. The preliminary measurements of fair value set forth herein are subject to change and such changes could be material. The Company expects to finalize the valuation as soon as practicable but no later than one year from the acquisition date. During the three months ended September 30, 2019, the Company recorded a measurement period adjustment increasing both deferred income taxes and goodwill by $2.7 million as a result of the Company’s election for Clearwave to be treated as a disregarded entity for Federal income tax purposes. The following table summarizes the current allocation of the purchase price consideration as of the acquisition date (in thousands):

Acquired identifiable intangible assets consist of the following (dollars in thousands):

No residual value was assigned to the acquired customer relationships.

The acquisition produced $185.9 million of goodwill, increasing the Company’s goodwill balance from $172.1 million at December 31, 2018 to $358.0 million at September 30, 2019. Goodwill represents the excess of the purchase price consideration over the fair value of the underlying net assets acquired and largely results from expected future synergies from combining operations as well as an assembled workforce, which does not qualify for separate recognition. As an indefinite-lived asset, goodwill is not amortized but rather is subject to impairment testing on at least an annual basis. Goodwill arising from the Clearwave acquisition is not deductible for tax purposes.

For the three months ended September 30, 2019, the Company recognized revenues of $7.0 million and net income of $1.4 million from Clearwave operations, which reflected acquired intangible assets amortization expense of $1.2 million. For the period from January 8, 2019 to September 30, 2019, the Company recognized revenues of $19.9 million and net income of $3.6 million from Clearwave operations, which reflected acquired intangible assets amortization expense of $3.6 million.

Fees imposed on the Company by various governmental authorities are passed through monthly to the Company’s customers and are periodically remitted to authorities. These fees were $5.1 million and $4.0 million for the three months ended September 30, 2019 and 2018, respectively, and $15.1 million and $12.1 million for the nine months ended September 30, 2019 and 2018, respectively. As the Company acts as principal, these fees are reported in video and voice revenues on a gross basis with corresponding expenses included within operating expenses in the condensed consolidated statements of operations and comprehensive income.

Other revenues are comprised primarily of customer late charges and reconnect fees.

Net accounts receivable from contracts with customers totaled $30.3 million and $29.8 million at September 30, 2019 and December 31, 2018, respectively.

Deferred commissions totaled $8.2 million and $7.8 million at September 30, 2019 and December 31, 2018, respectively, and were included within prepaid and other current assets and other noncurrent assets in the condensed consolidated balance sheets. Commission amortization expense was $0.9 million and $1.0 million for the three months ended September 30, 2019 and 2018, respectively, and $2.8 million and $2.7 million for the nine months ended September 30, 2019 and 2018, respectively, and was included within selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income. Deferred commissions of $3.3 million included within prepaid and other current assets in the condensed consolidated balance sheet as of September 30, 2019 are expected to be amortized over the next 12 months.

Current deferred revenue liabilities, consisting of refundable customer prepayments, up-front charges and installation fees, were $22.6 million and $19.0 million at September 30, 2019 and December 31, 2018, respectively. As of September 30, 2019, the Company’s remaining performance obligations pertain to the refundable customer prepayments and consist of providing future data, video and voice services to customers. Of the $19.0 million of current deferred revenue at December 31, 2018, nearly all was recognized during the nine months ended September 30, 2019. Noncurrent deferred revenue liabilities, consisting of up-front charges and installation fees from business customers, were $5.8 million and $2.8 million as of September 30, 2019 and December 31, 2018, respectively, and were included within other noncurrent liabilities in the condensed consolidated balance sheets.

Depreciation expense was $44.5 million and $47.4 million for the three months ended September 30, 2019 and 2018, respectively, and $144.9 million and $139.5 million for the nine months ended September 30, 2019 and 2018, respectively.

In January 2019, the remaining portion of the Company's previous headquarters building and adjoining property was sold for $6.3 million in gross proceeds and the Company recognized a related gain of $1.6 million. The property’s carrying value of $4.6 million was included within other noncurrent assets in the condensed consolidated balance sheet as assets held for sale at December 31, 2018.

5. GOODWILL AND INTANGIBLE ASSETS

The carrying amount of goodwill was $358.0 million and $172.1 million at September 30, 2019 and December 31, 2018, respectively. The increase related to goodwill recognized upon the acquisition of Clearwave in January 2019.

During the third quarter of 2019, the Company prospectively changed its annual goodwill impairment testing date from November 30 to October 1. The voluntary change was to better align its goodwill impairment testing procedures with its annual planning and budgeting process. This change did not delay, accelerate, or avoid an impairment loss, nor did the change have a cumulative effect on pre-tax income, net income, retained earnings, or net assets. This change was applied prospectively beginning on October 1, 2019.

The Company has not historically recorded any impairment of goodwill.

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

Intangible asset amortization expense was $4.2 million and $3.0 million for the three months ended September 30, 2019 and 2018, respectively, and $12.6 million and $8.7 million for the nine months ended September 30, 2019 and 2018, respectively.

As of September 30, 2019, the future amortization of intangible assets was as follows (in thousands):

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

6. LEASES

As a lessee, the Company has operating leases for buildings, equipment, data centers, fiber optic networks and towers and finance leases for certain buildings and fiber optic networks. These leases have remaining lease terms ranging from under 1 year to 24 years, with some including an option to extend the lease for up to 15 additional years and some including an option to terminate the lease within 1 year.

As a lessor, the Company has operating leases for the use of its fiber optic networks, towers and customer premise equipment. These leases have remaining lease terms ranging from under one year to eight years, with some including a lessee option to extend the leases for up to five additional years and some including an option to terminate the lease within one year.

Significant judgment is required when determining whether a fiber optic contract contains a lease, defining the duration of the lease term and selecting the discount rate.

As of September 30, 2019, additional operating leases that have not yet commenced were not material.

Lessee Financial Information. The Company’s ROU assets and lease liabilities consisted of the following (in thousands):

The components of the Company’s lease expense were as follows (in thousands):

Finance lease expense is included within depreciation and amortization expense and interest expense, and operating lease expense is included within operating expenses and selling, general and administrative expenses in the condensed consolidated statement of operations and comprehensive income.

Supplemental lessee financial information is as follows (dollars in thousands):

As of September 30, 2019, the future maturities of existing lease liabilities were as follows (in thousands):

As of December 31, 2018, the Company’s outstanding operating lease obligations under the previous accounting guidance were as follows (in thousands):

Lessor Financial Information. The Company’s lease income, which is included within revenues in the condensed consolidated statements of operations and comprehensive income, was as follows (in thousands):

As of September 30, 2019, the future maturities of existing lease receivables were as follows (in thousands):

As of September 30, 2019, the current and noncurrent portions of operating lease receivables were $0.5 million and $0.4 million, respectively, and were included within accounts receivable, net and other noncurrent assets in the condensed consolidated balance sheet, respectively.

Notes. On June 17, 2015, the Company issued $450 million aggregate principal amount of 5.75% senior unsecured notes due 2022 (the “Notes”). The Notes were jointly and severally guaranteed on a senior unsecured basis by each of the subsidiaries that guarantee the Senior Credit Facilities (as defined below). The Notes were scheduled to mature on June 15, 2022 and interest was payable on June 15th and December 15th of each year. The indenture governing the Notes provided for early redemption of the Notes, at the option of the Company, at the prices and subject to the terms specified in the indenture.

On June 15, 2019, the Company redeemed all $450 million aggregate principal amount of outstanding Notes. In conjunction with the redemption, the Company incurred a $6.5 million call premium and wrote off the remaining $3.8 million debt issuance cost associated with the Notes. These amounts are recorded within other income (expense), net in the condensed consolidated statement of operations and comprehensive income.

Senior Credit Facilities. On June 30, 2015, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, as borrower, the lenders party thereto, JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent, and the other agents party thereto, which provided for a five-year revolving credit facility in an aggregate principal amount of $200 million (the “Original Revolving Credit Facility”) and a five-year term loan facility (the “Original Term Loan”).

On May 1, 2017, the Company and the lenders amended and restated the Credit Agreement (the “Amended and Restated Credit Agreement”) and the Company incurred $750 million of senior secured term loans (the “2017 New Loans”), the proceeds of which were used, together with cash on hand, to finance the acquisition of NewWave Communications (“NewWave”), repay in full the Original Term Loan and pay related fees and expenses. The 2017 New Loans consist of a five-year term “A” loan in an original aggregate principal amount of $250 million (the “Term Loan A-1”) and a seven-year term “B” loan in an original aggregate principal amount of $500 million (the “Term Loan B-1”).

On January 7, 2019, the Company entered into Amendment No. 2 to the Amended and Restated Credit Agreement (“Amendment No. 2”) with CoBank, ACB (“CoBank”), as lender, and JPMorgan, as administrative agent, and incurred a new seven-year incremental term “B” loan in an aggregate principal amount of $250 million (the “Term Loan B-2”), the proceeds of which were used to finance, in part, the Clearwave acquisition.

On April 12, 2019, the Company entered into Amendment No. 3 to the Amended and Restated Credit Agreement (“Amendment No. 3”) with CoBank, as lender, and JPMorgan, as administrative agent, to provide for a new delayed draw incremental term “B” loan in an aggregate principal amount of $325 million (the “Term Loan B-3”). The Term Loan B-3 was drawn in full on June 14, 2019.

On May 8, 2019, the Company entered into a Second Restatement Agreement with JPMorgan, as administrative agent, and the lenders party thereto, to amend and restate the Amended and Restated Credit Agreement (the “Second Restatement Agreement”). The Second Restatement Agreement provides for a new senior secured term “A” loan in an aggregate principal amount of $250 million (the “Term Loan A-2”), a new senior secured delayed draw term “A” loan in an aggregate principal amount of $450 million (the “Delayed Draw Term Loan A-2”) and a new $350 million senior secured revolving credit facility (the “New Revolving Credit Facility” and, together with the Term Loan A-2, the Delayed Draw Term Loan A-2, the Term Loan B-1, the Term Loan B-2 and the Term Loan B-3, the “Senior Credit Facilities”). The Second Restatement Agreement did not alter the principal terms of the Company’s previously established Term Loan B-1, Term Loan B-2 or Term Loan B-3.

A portion of the proceeds from the Term Loan A-2, the Term Loan B-3 and the New Revolving Credit Facility, together with cash on hand, were used to refinance the Original Revolving Credit Facility and Term Loan A-1, to redeem the Notes and for other general corporate purposes. The remaining proceeds, together with proceeds from the Delayed Draw Term Loan A-2 and cash on hand, were used to finance the acquisition of Fidelity and for other general corporate purposes. Refer to note 15 for additional details.

The Term Loan B-1 will mature on May 1, 2024 and both the Term Loan B-2 and the Term Loan B-3 will mature on January 7, 2026. The principal amounts of these term loans amortize in equal quarterly installments at a rate (expressed as a percentage of the original principal amount) of 1.0% per annum (subject to customary adjustments in the event of any prepayment), with the balance due upon maturity.

The Term Loan A-2, Delayed Draw Term Loan A-2 and New Revolving Credit Facility will mature on May 8, 2024 (unless certain of the Company’s existing indebtedness remains outstanding after certain specified dates, in which case the final maturity date of both facilities will be an earlier date as specified in the Second Restatement Agreement).

The principal amounts of the Term Loan A-2 and the Delayed Draw Term Loan A-2 amortize in equal quarterly installments at a rate (expressed as a percentage of the original principal amount) of 2.5% per annum for the first year following the closing date, 2.5% per annum for the second year following the closing date, 5.0% per annum for the third year following the closing date, 7.5% per annum for the fourth year following the closing date and 12.5% per annum for the fifth year following the closing date (in each case subject to customary adjustments in the event of any prepayment), with the balance due upon maturity.

Loans under the Delayed Draw Term Loan A-2 have the same terms as, and constitute one class of term loans with, the loans under the Term Loan A-2 described above. The Company was required to pay a ticking fee, which accrued at a per annum rate of 0.30% on the average daily undrawn portion of the Delayed Draw Term Loan A-2 accruing during the period commencing on June 15, 2019 up to, but excluding, October 1, 2019.

The Senior Credit Facilities are guaranteed by the Company’s wholly owned subsidiaries (the “Guarantors”) and are secured, subject to certain exceptions, by substantially all of the assets of the Company and the Guarantors.

The Senior Credit Facilities may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions).

The interest margins applicable to the Senior Credit Facilities are, at the Company’s option, equal to either LIBOR or a base rate, plus an applicable margin equal to, (i) with respect to the Term Loan A-2, Delayed Draw Term Loan A-2 and New Revolving Credit Facility, 1.25% to 1.75% for LIBOR loans and 0.25% to 0.75% for base rate loans, determined on a quarterly basis by reference to a pricing grid based on the Company’s total net leverage ratio, (ii) with respect to the Term Loan B-1, (x) for any day on or prior to April 22, 2018, 2.25% for LIBOR loans and 1.25% for base rate loans and (y) for any day thereafter, 1.75% for LIBOR loans and 0.75% for base rate loans, and (iii) with respect to the Term Loan B-2 and Term Loan B-3, 2.0% for LIBOR loans and 1.0% for base rate loans.

The Company may, subject to certain specified terms and provisions, obtain additional credit facilities of up to $600 million under the Second Restatement Agreement plus an unlimited amount so long as, on a pro forma basis, the Company’s First Lien Net Leverage Ratio (as defined in the Second Restatement Agreement) is no greater than 3.0 to 1.0.

The Company was in compliance with all debt covenants as of September 30, 2019. 

As of September 30, 2019, outstanding borrowings under the Term Loan A-2, Term Loan B-1, Term Loan B-2 and Term Loan B-3 were $248.4 million, $488.8 million, $248.8 million and $324.2 million, respectively, and bore interest at rates ranging from 3.55% to 4.05% per annum. Letter of credit issuances under the New Revolving Credit Facility totaled $6.7 million and the Company had $343.3 million available for borrowing under the New Revolving Credit Facility at September 30, 2019.

In connection with the financing transactions during 2019, the Company incurred $11.8 million of debt issuance costs. The Company also wrote-off $4.2 million of existing unamortized debt issuance costs, including the $3.8 million associated with the Notes for the nine months ended September 30, 2019. The Company recorded $1.1 million of debt issuance cost amortization for both the three months ended September 30, 2019 and 2018 and $3.5 million and $3.1 million of debt issuance cost amortization for the nine months ended September 30, 2019 and 2018, respectively. These amounts are reflected within interest expense in the condensed consolidated statements of operations and comprehensive income. Unamortized debt issuance costs totaled $21.6 million and $17.6 million at September 30, 2019 and December 31, 2018, respectively, of which $2.6 million and $0 are reflected within other noncurrent assets, respectively, and $19.0 million and $17.6 million are reflected as reductions to long-term debt in the condensed consolidated balance sheets, respectively.

As of September 30, 2019, the future maturities of outstanding debt, excluding lease liability payment obligations, were as follows (in thousands): 

8. INTEREST RATE SWAPS

The Company is party to two interest rate swap agreements, designated as cash flow hedges, to manage the risk of fluctuations in interest expense on its variable rate LIBOR debt. Under the first swap agreement, with respect to a notional amount of $850 million, the Company’s monthly payment obligation is determined at a fixed base rate of 2.653% beginning in March 2019. Under the second swap agreement, which is a forward-starting interest rate swap with respect to a notional amount of $350 million, the Company’s monthly payment obligation beginning in June 2020 is determined at a fixed base rate of 2.739%. Both interest rate swap agreements are scheduled to mature in the first quarter of 2029 but may be terminated prior to their scheduled maturity at the election of the Company or the financial institution counterparty as provided in each swap agreement. The Company does not hold any derivative instruments for speculative trading purposes. As of September 30, 2019, the Company’s interest rate swap liabilities were recorded at their combined fair value of $120.9 million, with the $9.8 million current and $111.1 million noncurrent portions reflected in accounts payable and accrued expenses and other noncurrent liabilities, respectively, within the condensed consolidated balance sheet.

Changes in the fair values of the interest rate swaps are reported through other comprehensive income (loss) until the underlying hedged debt’s interest expense impacts net income, at which point the corresponding change in fair value is reclassified from accumulated other comprehensive income (loss) to interest expense. Losses of $37.2 million ($28.1 million net of tax) and $120.9 million ($91.1 million net of tax) were recorded through other comprehensive loss within the condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2019, respectively. The Company expects that $9.8 million of the accumulated other comprehensive loss within the condensed consolidated balance sheet will be reclassified to interest expense within the condensed consolidated statement of operations and comprehensive income within the next 12 months. The Company recognized losses of $0.9 million and $1.3 million on interest rate swaps during the three and nine months ended September 30, 2019, respectively, which were reflected in interest expense within the condensed consolidated statements of operations and comprehensive income.

9. FAIR VALUE MEASUREMENTS

Financial Assets and Liabilities. The Company has estimated the fair values of its financial instruments as of September 30, 2019 using available market information or other appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the following fair value estimates are not necessarily indicative of the amounts the Company would realize in an actual market exchange.

The carrying amounts, fair values and related fair value hierarchy levels of the Company’s financial assets and liabilities as of September 30, 2019 were as follows (dollars in thousands):

Money market investments are primarily held in U.S. Treasury securities and registered money market funds and are valued using a market approach based on quoted market prices (Level 1). Money market investments with original maturities of three months or less are included within cash and cash equivalents in the condensed consolidated balance sheets. The fair value of the Senior Credit Facilities is estimated based on market prices for similar instruments in active markets (Level 2). Interest rate swaps are measured at fair value within the condensed consolidated balance sheets on a recurring basis, with fair value determined using standard valuation models with assumptions about interest rates being based on those observed in underlying markets (Level 2).

The Company’s deferred compensation liability was $2.6 million and $3.0 million at September 30, 2019 and December 31, 2018, respectively. The current portion of this liability is included within accounts payable and accrued liabilities and the noncurrent portion is included within other noncurrent liabilities in the condensed consolidated balance sheets. This liability represents the market value of participant balances in a notional investment account that is comprised primarily of mutual funds, whose value is based on observable market prices. However, since the deferred compensation liability is not exchanged in an active market, it is classified as Level 2 in the fair value hierarchy.

The carrying amounts of accounts receivable, accounts payable and other financial assets and liabilities approximate fair value because of the short-term nature of these instruments.

Nonfinancial Assets and Liabilities. The Company’s nonfinancial assets, such as property, plant and equipment, intangible assets and goodwill, are not measured at fair value on a recurring basis. The assets acquired, including identifiable intangible assets and goodwill, and liabilities assumed in the Clearwave acquisition were recorded at fair value on the acquisition date of January 8, 2019, subject to potential future measurement period adjustments discussed in note 2. Nonfinancial assets are subject to fair value adjustments when there is evidence that impairment may exist. No material impairments were recorded during the nine months ended September 30, 2019 or 2018.

10. TREASURY STOCK

Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the condensed consolidated financial statements.

Share Repurchase Program. On July 1, 2015, the Company’s board of directors (the “Board”) authorized up to $250 million of share repurchases (subject to a total cap of 600,000 shares of common stock). Purchases under the share repurchase program may be made from time to time on the open market and in privately negotiated transactions. The size and timing of these purchases are based on a number of factors, including share price and business and market conditions. Since the inception of the share repurchase program through September 30, 2019, the Company had repurchased 210,631 shares of its common stock at an aggregate cost of $104.9 million. During the nine months ended September 30, 2019, the Company repurchased 5,984 shares at an aggregate cost of $5.1 million. No shares were repurchased during the three months ended September 30, 2019.

Tax Withholding for Equity Awards. At the employee’s option, shares of common stock are withheld by the Company upon vesting of restricted stock and exercise of stock appreciation rights (“SARs”) to pay the applicable statutory minimum amount of employee withholding taxes. The Company then pays the applicable statutory minimum amount of withholding taxes in cash. The amounts remitted during the three and nine months ended September 30, 2019 were $0.1 million and $2.9 million, for which the Company withheld 101 and 3,424 shares of common stock, respectively.

Treasury shares of 178,306 held at September 30, 2019 include shares withheld for withholding tax and shares repurchased under the repurchase program.

11. EQUITY-BASED COMPENSATION 

The Amended and Restated Cable One, Inc. 2015 Omnibus Incentive Compensation Plan (the “2015 Plan”) provides for grants of incentive stock options, non-qualified stock options, restricted stock awards, SARs, restricted stock units (“RSUs”), cash-based awards, performance-based awards, dividend equivalent units (“DEUs”) and other stock-based awards, including performance stock units and deferred stock units. Directors, officers and employees of the Company and its affiliates are eligible for grants under the 2015 Plan as part of the Company’s approach to long-term incentive compensation. At September 30, 2019, 183,197 shares were available for issuance under the 2015 Plan.

Compensation expense associated with equity-based awards is recognized on a straight-line basis over the vesting period, with forfeitures recognized as incurred. Equity-based compensation expense was $3.1 million and $2.4 million for the three months ended September 30, 2019 and 2018, respectively, and $9.2 million and $7.3 million for the nine months ended September 30, 2019 and 2018, respectively, and was included within selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income. The Company recognized an income tax benefit of $3.7 million related to equity-based awards during the nine months ended September 30, 2019. The deferred tax asset related to all outstanding equity-based awards was $4.1 million as of September 30, 2019.

Restricted Stock Awards. Restricted shares, RSUs and DEUs are collectively referred to as “restricted stock.” A summary of restricted stock activity during the nine months ended September 30, 2019 is as follows:

Equity-based compensation expense for restricted stock was $2.0 million and $1.5 million for the three months ended September 30, 2019 and 2018, respectively, and $5.7 million and $4.5 million for the nine months ended September 30, 2019 and 2018, respectively. At September 30, 2019, there was $11.3 million of unrecognized compensation expense related to restricted stock, which is expected to be recognized over a weighted average period of 1.2 years.

Stock Appreciation Rights. A summary of SAR activity during the nine months ended September 30, 2019 is as follows:

The grant date fair value of the Company’s SARs is measured using the Black-Scholes valuation model. The weighted average inputs used in the model for grants awarded during the nine months ended September 30, 2019 were as follows:  

Equity-based compensation expense for SARs was $1.1 million and $0.9 million for the three months ended September 30, 2019 and 2018, respectively, and $3.5 million and $2.8 million for the nine months ended September 30, 2019 and 2018, respectively. At September 30, 2019, there was $7.2 million of unrecognized compensation expense related to SARs, which is expected to be recognized over a weighted average period of 1.4 years.

12. INCOME TAXES

The Company’s effective tax rate was 24.1% and 22.4% for the three months ended September 30, 2019 and 2018, respectively, and 23.3% and 21.6% for the nine months ended September 30, 2019 and 2018, respectively. The increase in the effective tax rate for the three months ended September 30, 2019 compared to the same quarter in the prior year primarily related to a decrease in income tax benefits attributable to state effective tax rate changes, partially offset by an increase in income tax benefits attributable to equity-based compensation awards. The increase in the effective tax rate for the nine months ended September 30, 2019 compared to the prior year period primarily related to a decrease in income tax benefits attributable to state effective tax rate changes, partially offset by an increase in income tax benefits attributable to equity-based compensation awards.

13. NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share further includes any common shares available to be issued upon vesting or exercise of outstanding equity awards if such inclusion would be dilutive, calculated using the treasury stock method.

The following table sets forth the computation of basic and diluted net income per common share (in thousands, except share and per share amounts):