Attached files
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EX-31.1 - EXHIBIT 31.1 - Rio Holdings, Inc. | ex31_1.htm |
EX-32.1 - EXHIBIT 32.1 - Rio Holdings, Inc. | ex32_1.htm |
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
ý
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the Quarterly Period Ended September 30, 2009
OR
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
|
For
the transition period
from to
Commission
file number 333-115602
Rio
Holdings, Inc.
(Exact
name of registrant as specified in its charter)
Nevada
|
74-3005133
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
600
Congress Ave., Ste. 200, Austin, TX
|
78701
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(Registrant’s
telephone number, including area code: (512) 917-1742)
Grande
Communication Holdings, Inc.
401
Carlson Circle, San Marcos, Texas 78666
(Former
Name or Former Address, if Changed Since Last Report)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes ý
No ¨
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).* Yes ¨
No ¨
*
The registrant is not subject to the requirements of Rule 405 of
Regulation S-T at this time.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ý
Smaller reporting company ¨
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨
No ý
The
number of shares of the registrant’s Common Stock outstanding as of November
13, 2009 was
12,104,072.
RIO HOLDINGS, INC. AND SUBSIDIARY
(F/K/A/GRANDE
COMMUNICATIONS HOLDINGS, INC.)
Index
Page No.
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|||||
PART
I FINANCIAL INFORMATION
|
1
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ITEM
1.
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2
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3
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4
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ITEM
2.
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10
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ITEM
3.
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20
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ITEM
4T.
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21
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PART
II OTHER INFORMATION
|
22
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ITEM
1.
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22
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ITEM
1A.
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22
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ITEM
2.
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23
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ITEM
3.
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23
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ITEM
4.
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ITEM
5.
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24
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ITEM
6.
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24
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ITEM 1. FINANCIAL
STATEMENTS
RIO
HOLDINGS, INC. (F/K/A/GRANDE
COMMUNICATIONS HOLDINGS, INC.) AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share data)
December 31,
2008
|
September 30,
2009
|
|||||||
(unaudited)
|
||||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents, net of restricted cash of $3,129 and
$0
|
$ | 26,988 | $ | 986 | ||||
Accounts
receivable, net of allowance for doubtful accounts of $1,311 and
$0
|
17,047 | — | ||||||
Prepaid
expenses and other current assets
|
2,090 | 159 | ||||||
Total
current assets
|
46,125 | 1,145 | ||||||
Property,
plant and equipment, net of accumulated depreciation of $368,907 and
$0
|
223,034 | — | ||||||
Intangible
assets, net of accumulated amortization of $1,661 and $0
|
1,154 | — | ||||||
Debt
issue costs, net
|
3,203 | — | ||||||
Restricted
cash
|
3,129 | — | ||||||
Deposits
and other long-term assets
|
790 | — | ||||||
Investment
in Grande Investment L.P.
|
— | 23,652 | ||||||
Total
assets
|
$ | 277,435 | $ | 24,797 | ||||
Liabilities
and stockholders’ equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 13,111 | $ | — | ||||
Accrued
liabilities
|
15,938 | — | ||||||
Accrued
interest payable
|
6,755 | — | ||||||
Deferred
revenue and customer deposits
|
7,598 | — | ||||||
Current
portion of long-term debt
|
1,655 | — | ||||||
Current
portion of capital lease obligations
|
4,405 | — | ||||||
Total
current liabilities
|
49,462 | — | ||||||
Deferred
rent
|
1,177 | — | ||||||
Deferred
revenue
|
4,759 | — | ||||||
Capital
lease obligations, net of current portion
|
13,380 | — | ||||||
Long
term debt, net of current portion
|
189,629 | — | ||||||
Total
liabilities
|
258,407 | — | ||||||
Stockholders’
equity:
|
||||||||
Senior
series preferred stock:
|
||||||||
Series G
preferred stock, $0.001 par value per share; 34,615,384 shares authorized,
34,615,330 shares issued and outstanding; liquidation preference of
$134,999,787
|
35 | 35 | ||||||
Junior
series preferred stock:
|
||||||||
Series A
preferred stock, $0.001 par value per share; 232,617,839 shares
authorized, 232,617,838 shares issued and outstanding; liquidation
preference of $232,617,838
|
233 | 233 | ||||||
Series B
preferred stock, $0.001 par value per share; 20,833,333 shares authorized,
issued and outstanding; liquidation preference of
$25,000,000
|
21 | 21 | ||||||
Series C
preferred stock, $0.001 par value per share; 30,000,000 shares authorized,
17,005,191 shares issued and outstanding; liquidation preference of
$20,406,229
|
17 | 17 | ||||||
Series D
preferred stock, $0.001 par value per share; 115,384,615 shares
authorized, 114,698,442 shares issued and outstanding; liquidation
preference of $149,107,975
|
115 | 115 | ||||||
Series E
preferred stock, $0.001 par value per share; 8,000,000 shares authorized,
7,999,099 shares issued and outstanding; liquidation preference of
$19,997,748
|
8 | 8 | ||||||
Series F
preferred stock, $0.001 par value per share; 12,307,792 shares authorized,
11,758,278 shares issued and outstanding; liquidation preference of
$15,285,761
|
12 | 12 | ||||||
Series H
preferred stock, $0.001 par value per share; 30,000,000 shares authorized,
no shares issued and outstanding
|
— | — | ||||||
Common
stock, $0.001 par value per share; 786,835,883 shares authorized,
13,284,072 shares issued, and 12,784,072 and 12,104,072 shares
outstanding, as of December 31, 2008 and September 30, 2009,
respectively
|
13 | 13 | ||||||
Additional
paid-in capital
|
509,696 | 510,118 | ||||||
Treasury
stock, at cost
|
(5 | ) | (12 | ) | ||||
Accumulated
deficit
|
(491,117 | ) | (485,763 | ) | ||||
Total
stockholders’ equity
|
19,028 | 24,797 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 277,435 | $ | 24,797 |
The accompanying notes are an integral
part of these condensed consolidated financial
statements.
RIO HOLDINGS, INC. (F/K/A/GRANDE COMMUNICATIONS
HOLDINGS, INC.) AND
SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In
thousands, except per share data)
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2008
|
2009
|
2008
|
2009
|
|||||||||||||
Operating
revenues
|
$ | 51,963 | $ | 41,207 | $ | 153,859 | $ | 143,953 | ||||||||
Operating
expenses:
|
||||||||||||||||
Cost
of revenues (excluding depreciation and amortization)
|
17,792 | 13,028 | 52,761 | 49,393 | ||||||||||||
Selling,
general and administrative
|
24,679 | 22,847 | 70,486 | 63,108 | ||||||||||||
Provision
for doubtful accounts
|
989 | 751 | 2,409 | 2,019 | ||||||||||||
Depreciation
and amortization
|
15,683 | 12,392 | 44,221 | 43,214 | ||||||||||||
Total
operating expenses
|
59,143 | 49,018 | 169,877 | 157,734 | ||||||||||||
Operating
loss
|
(7,180 | ) | (7,811 | ) | (16,018 | ) | (13,781 | ) | ||||||||
Other
income (expense):
|
||||||||||||||||
Interest
income
|
125 | 25 | 620 | 49 | ||||||||||||
Interest
expense, net of capitalized interest
|
(7,738 | ) | (6,424 | ) | (23,300 | ) | (22,260 | ) | ||||||||
Loss
on early extinguishment of 14% senior notes due April 1,
2011
|
— | (7,139 | ) | — | (7,139 | ) | ||||||||||
Equity
in loss from investment in Grande Investment L.P.
|
— | (570 | ) | — | (570 | ) | ||||||||||
Other
income
|
— | — | — | 241 | ||||||||||||
Gain
on sale of controlling interest in subsidiary, Grande Communications
Networks LLC
|
— | 49,252 | — | 49,252 | ||||||||||||
Net
gain on sale/disposal of assets
|
209 | 143 | 726 | 427 | ||||||||||||
Total
other income (expense)
|
(7,404 | ) | 35,287 | (21,954 | ) | 20,000 | ||||||||||
Income
(loss) before income tax expense
|
(14,584 | ) | 27,476 | (37,972 | ) | 6,219 | ||||||||||
Income
tax expense
|
(277 | ) | (280 | ) | (847 | ) | (865 | ) | ||||||||
Net
income (loss)
|
$ | (14,861 | ) | $ | 27,196 | $ | (38,819 | ) | $ | 5,354 | ||||||
Net
income (loss) per share – basic and diluted
|
$ | (1.16 | ) | $ | 0.06 | $ | (3.04 | ) | $ | 0.01 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
RIO HOLDINGS, INC. (F/K/A/GRANDE COMMUNICATIONS
HOLDINGS, INC.) AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In
thousands)
Nine
Months Ended
|
||||||||
September 30,
|
||||||||
2008
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income (loss)
|
$ | (38,819 | ) | $ | 5,354 | |||
Adjustment
to reconcile net income (loss) to net cash provided by operating
activities:
|
||||||||
Depreciation
|
44,037 | 43,044 | ||||||
Amortization
of intangible and other assets
|
184 | 170 | ||||||
Amortization
of deferred financing costs
|
789 | 739 | ||||||
Amortization
of deferred other assets
|
8 | 13 | ||||||
Provision
for doubtful accounts
|
2,409 | 2,019 | ||||||
Amortization
of debt discounts/premiums
|
942 | 1,025 | ||||||
Non-cash
compensation expense
|
299 | 417 | ||||||
Net
gain on sale/disposal of assets
|
(726 | ) | (427 | ) | ||||
Gain
on sale of controlling interest in subsidiary
|
— | (49,252 | ) | |||||
Loss
on early extinguishment of debt
|
— | 7,139 | ||||||
Equity
in loss from investment in Grande Investment L.P.
|
— | 570 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(1,378 | ) | (5,724 | ) | ||||
Prepaid
expenses and other assets
|
(970 | ) | (556 | ) | ||||
Accounts
payable
|
1,141 | (14 | ) | |||||
Accrued
liabilities and interest payable
|
7,449 | 6,945 | ||||||
Deferred
revenue
|
1,313 | 4,091 | ||||||
Deferred
rent
|
(34 | ) | (47 | ) | ||||
Net
cash provided by operating activities
|
16,644 | 15,506 | ||||||
Cash
flows from investing activities:
|
||||||||
Purchases
of property, plant and equipment
|
(23,204 | ) | (13,769 | ) | ||||
Proceeds
from sale of controlling interest in subsidiary
|
— | 184,451 | ||||||
Proceeds
from sale of assets
|
360 | 278 | ||||||
Proceeds
from sales tax refunds
|
349 | — | ||||||
Net
cash (used in) provided by investing activities
|
(22,495 | ) | 170,960 | |||||
Cash
flows from financing activities:
|
||||||||
Payments
of long-term debt and capital lease obligations
|
(3,870 | ) | (213,492 | ) | ||||
Proceeds
from sale leaseback arrangement
|
— | 4,532 | ||||||
Net
proceeds from borrowings
|
— | 123 | ||||||
Net
repayments on zero-balance cash account
|
(892 | ) | (3,624 | ) | ||||
Other
financing activity
|
6 | (7 | ) | |||||
Net
cash used in financing activities
|
(4,756 | ) | (212,468 | ) | ||||
Net
change in cash and cash equivalents
|
(10,607 | ) | (26,002 | ) | ||||
Cash
and cash equivalents, beginning of period
|
48,138 | 26,988 | ||||||
Cash
and cash equivalents, end of period
|
$ | 37,531 | $ | 986 | ||||
Non-cash
investing and financing activity:
|
||||||||
Capital
lease obligations
|
$ | 160 | $ | 4,336 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
RIO HOLDINGS, INC. (F/K/A/GRANDE COMMUNICATIONS
HOLDINGS, INC.) AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Background
and Basis of Presentation
On
September 14, 2009, we closed the transactions contemplated by that certain
recapitalization agreement, dated August 27, 2009, by and among Grande
Communications Holdings, Inc., a Delaware corporation and
predecessor-in-interest to Rio Holdings, Inc., a Nevada Corporation (“Holdings”),
Grande Communications Networks, Inc., a Delaware corporation,
predecessor–in-interest to Grande Communications Networks LLC, a Delaware
limited liability company and our wholly-owned subsidiary prior to the closing
(“Grande
Operating”), ABRY Partners VI, L.P., a Delaware limited
partnership (“ABRY”),
Grande Investment L.P., a Delaware limited partnership and wholly-owned
subsidiary of ABRY (“Ultimate
Parent”), Grande Parent LLC, a Delaware limited liability company
and wholly-owned subsidiary of Ultimate Parent (“Parent”),
ABRY Partners, LLC, a Delaware limited liability company and Rio GP, LLC, a
Delaware limited liability company and wholly-owned subsidiary of Holdings
(“Rio
GP”), which provides for the recapitalization of Grande Operating
(the “Recapitalization
Agreement”) and pursuant to the terms of the Recapitalization
Agreement, we completed the following transactions:
(1) On
September 10, 2009, Grande Operating converted to a Delaware limited liability
company that is disregarded for Federal income tax purposes, and Holdings
extinguished any and all intercompany receivables between it and Grande
Operating simultaneous with the conversion;
(2) On
September 11, 2009, Grande Operating distributed to Holdings cash in the amount
of approximately $1.0 million for Holdings’ future working capital
needs;
(3)
Holdings contributed assets used in the operation of the business to Grande
Operating and Grande Operating assumed liabilities arising from operation of the
business;
(4) ABRY,
ABRY Investment Partnership, L.P. and Grande Manager LLC, a newly formed
wholly-owned subsidiary of ABRY (“Grande
Manager”) contributed cash in the amount of approximately $92.3 million
to Ultimate Parent (which was ultimately contributed to Grande Operating) in
return for a general partner interest and a limited partner interest
representing approximately 75.3% of the common equity of Ultimate Parent,
subject to dilution;
(5) ABRY
contributed cash in the amount of approximately $19.2 million to Ultimate Parent
(which was ultimately contributed to Grande Operating) in return for a preferred
limited partnership interest of Ultimate Parent;
(6)
Holdings contributed all of the outstanding membership interests of Grande
Operating to Ultimate Parent (which was contributed to Parent) in return for the
issuance to Rio GP of a general partner interest of Ultimate Parent representing
approximately 24.7% (subject to final closing statement adjustment) of the
common equity of Ultimate Parent, subject to dilution;
(7)
Grande Operating received net proceeds of approximately $103.8 million under a
new credit facility arranged by ABRY, consisting of a $103.8 million term loan
and a $18.7 million revolving credit facility; and
(8)
Holdings repurchased and redeemed all of its outstanding 14% senior secured
notes due 2011 and paid off certain outstanding capital lease obligations using
the net proceeds from the equity and debt financing transactions.
On
September 17, 2009, Grande Communications Holdings, Inc. merged with
and into its wholly-owned subsidiary, Rio Holdings, Inc., a Nevada corporation,
for the purpose of changing Holdings’ state of incorporation from Delaware to
Nevada (the “Reincorporation”). The
Reincorporation was accomplished pursuant to an Agreement and Plan of Merger,
dated September 2, 2009, which was approved by the requisite Grande
Communications Holdings, Inc. stockholders by written consent. The
Reincorporation did result in the change of name of Grande Communication
Holdings, Inc. to Rio Holdings, Inc. The Reincorporation did not
result in any change in the business, management, fiscal year, office locations,
assets, liabilities, or employees of Holdings.
All of
the outstanding shares of common stock and preferred stock of Holdings continue
to remain outstanding. As a result of the closing of the
recapitalization transaction, Holdings does not have any operations or material
assets other than the ownership of its general partner interest of Ultimate
Parent, through its wholly-owned subsidiary, Rio GP.
Prior to
the closing of the recapitalization transaction on September 14, 2009, the
primary business of Holdings and its then consolidated subsidiary, Grande
Operating (collectively, the “Company”)
was providing a bundled package of cable television (“video”),
telephone (“voice”),
and broadband Internet (“HSD”) and
other services to residential and business customers in Texas. The Company
provided these services in seven markets in the state of Texas using local
broadband networks that the Company acquired and/or constructed. In addition,
the Company provided broadband transport services to medium and large
enterprises and communication carriers. The Company also provided network
services by offering telecommunications and HSD products to medium and large
enterprises and communication carriers within wholesale markets.
The
accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in conformity with U.S. generally accepted accounting
principles (“GAAP”) for
interim financial information and with the rules and regulations of the
Securities and Exchange Commission (the “SEC”) that
permit reduced disclosure for interim periods. Accordingly, they do not include
all of the information and notes required by GAAP for complete financial
statements. In the opinion of management, these condensed consolidated financial
statements contain all adjustments, consisting of normal, recurring adjustments
necessary for a fair presentation of the financial position of the Company as of
September 30, 2008 and 2009, and for the three and nine months ended September
30, 2008 and 2009. Operating results for the three and nine months ended
September 30, 2009 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2009. The
December 31, 2008 balance sheet is derived from the audited financial
statements for the year ended December 31, 2008. These interim
financial statements should be read in conjunction with the consolidated
financial statements for the year ended December 31, 2008 and notes
thereto, together with management’s discussion and analysis of financial
condition and results of operations contained in the Company’s Annual Report for
the year ended December 31, 2008 on Form 10-K filed with
the SEC on March 20, 2009. Further, in connection with preparation of
the condensed consolidated financial statements and in accordance with the
recently issued Statement of Financial Accounting Standards (“SFAS”)
No. 165 Subsequent Events (“SFAS 165”),
the Company evaluated subsequent events after the balance sheet date of
September 30, 2009 through November 23, 2009, the date of filing of this
quarterly report on Form 10-Q with the Securities and Exchange
Commission.
The
consolidated financial statements include the accounts of Grande Communications
Holdings, Inc., a predecessor-in-interest to Rio Holdings, Inc., and its
consolidated subsidiary, Grande Communications Networks, Inc., a
predecessor-in-interest to Grande Communications Networks LLC, prior to the
closing of the recapitalization transactions on September 14,
2009. Subsequent to September 14, 2009, the consolidated financial
statements include the accounts of Rio Holdings, Inc. and its consolidated
subsidiary, Rio GP LLC and the equity in earnings of Ultimate Parent which is
accounted for under the equity method. All inter-company
transactions and balances have been eliminated. Preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying disclosures. These estimates are based on
management’s best knowledge of current events and actions the Company may
undertake in the future. Actual results may ultimately differ from these
estimates.
2. Summary
of Significant Accounting Policies
Equity
Investment
Investments
in which the Company has the ability to exercise significant influence and that,
in general, are at least 20 percent owned are stated at cost plus equity in
undistributed net earnings (loss), less distributions received in accordance
with the requirements of Accounting Principles Board Opinion No. 18 (“APB No.
18”), “The Equity Method of Accounting for Investments in Common
Stock.” APB No. 18 was incorporated into ASC 323 under
the FASB codification. These investments are evaluated
for impairment in accordance with APB No. 18. An impairment loss would be
recorded whenever a decline in the value of an equity investment or investment
carried at cost below its carrying amount is determined to be other than
temporary. In judging “other than temporary,” the Company
considers the length of time and extent to which the fair value of the
investment has been less than the carrying amount of the investment, the
near-term and long-term operating and financial prospects of the investee, and
the Company’s long-term intent of retaining the investment in the
investee.
Fair
Value of Financial Instruments
The
carrying amounts reflected in the balance sheets for cash, cash equivalents,
accounts receivable, accounts payable and accrued liabilities approximate fair
value due to the short-term nature of the instruments. Fair value of the
following debt instruments was estimated based on trading activity for the
senior notes and borrowing rates currently available to the Company for
equipment financing with similar terms and maturities:
December 31,
2008
|
September 30,
2009
|
|||||||||||||||
Carrying
Amount
|
Estimated
Fair Value
|
Carrying
Amount
|
Estimated
Fair Value
|
|||||||||||||
(in
millions)
|
||||||||||||||||
14%
Senior Notes
|
$ | 189.3 | $ | 142.3 | $ | — | $ | — | ||||||||
Equipment
financing
|
2.0 | 2.0 | — | — |
Recent
Accounting Pronouncements
On
July 1, 2009, the Company adopted SFAS No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles — a replacement of FASB Statement No. 162,” which was incorporated
into Accounting Standards Codification (“ASC”) 105,
“Generally Accepted Accounting Principles.” This new accounting
standard identifies the ASC as the authoritative source of GAAP in the United
States. Rules and interpretive releases of the SEC under federal securities laws
are also sources of authoritative GAAP for SEC registrants, including the
Company. The adoption of this new accounting standard did not have an impact on
the Company’s financial position, results of operations, or cash flows; however
the Company has included references to the ASC within the financial
statements.
In
May 2009, the Financial Accounting Standards Board (“FASB”)
issued Statement No. 165, “Subsequent Events” (“SFAS 165”),
which was incorporated into ASC 855, “Subsequent Events.” The provisions of
SFAS 165 set forth the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may have occurred for potential recognition or disclosure in the financial
statements, the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements
and the disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The provisions of SFAS 165
became effective for the Company on April 1, 2009 and are being
applied prospectively beginning in the second quarter of 2009.
In
April 2009, the FASB issued FASB Staff Position (“FSP”) SFAS
No. 107-1 and Accounting Principles Board 28-1 “Interim
Disclosures about Fair Value of Financial Instruments,” which was incorporated
into FASB ASC 825, “Financial Instruments.” The FSP amends SFAS
No. 107 “Disclosures about Fair Value of Financial Instruments” to
require an entity to provide disclosures about fair value of financial
instruments in interim financial information. This FSP is to be applied
prospectively and is effective for interim and annual periods ending after
June 15, 2009 with early adoption permitted for periods ending after
March 15, 2009. The Company adopted the provisions of FSP
No. 107-1 in the second quarter of 2009.
3. Equity
Investment
Three
Months Ended
|
Nine
Months Ended
|
|||||||
September 30,
2009
|
September 30,
2009
|
|||||||
Carrying
value, beginning of period
|
$ | — | $ | — | ||||
Acquisition
of interest in Grande Investment L.P. at fair value
|
24,222 | 24,222 | ||||||
Equity
in loss from Grande Investment L.P.
|
(570 | ) | (570 | ) | ||||
Carrying
value, end of period
|
$ | 23,652 | $ | 23,652 |
On
September 14, 2009, Holdings contributed all of the outstanding membership
interests of Grande Operating to Grande Investment L.P. in return for a general
partner interest of Grande Investment L.P. representing approximately 24.7%
(subject to final closing statement adjustment) of the common equity of Grande
Investment L.P. As a result of the loss of control of Grande Operating from such
transaction, we recorded a gain of $49.3 million. Such gain was determined based
upon the net proceeds received plus the fair value of our acquired 24.7%
interest (subject to final closing statement adjustment) in Grande Investment
L.P. and the carrying value of Holdings’ investment in Grande Operating as of
the date of the transactions. The interest in Grande Investment L.P. is subject
to adjustment based on the finalization of the closing statement, which is
expected to be complete by the first quarter of 2010.
The
Company records its investment in Grande Investment L.P. under the equity method
of accounting and as such presents its prorata share of the equity in earnings
and losses of Grande Investment L.P. within its quarterly and year end reported
results.
4. Net
Loss Per Share
The
Company follows the provisions of SFAS No. 128, “Earnings Per Share,”
which was incorporated into ASC 260. Basic earnings per share is computed by
dividing net income (loss) available to common stockholders by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share includes the weighted average number of common shares
outstanding and the number of equivalent shares which would be issued related to
the stock options and warrants using the treasury method, and convertible
preferred stock using the if-converted method, unless such additional equivalent
shares are anti-dilutive.
The
Company computed earnings per share by dividing net income (loss) by weighted
average shares outstanding using the following:
Three
Months Ended
|
Three
Months Ended
|
Nine
Months Ended
|
Nine
Months Ended
|
|||||||||||||
September 30,
2008
|
September 30,
2009
|
September 30,
2008
|
September 30,
2009
|
|||||||||||||
Basic
and Diluted EPS:
|
||||||||||||||||
Net
income (loss) available to common stockholders
|
$ | (14,861 | ) | $ | 27,196 | $ | (38,819 | ) | $ | 5,354 | ||||||
|
||||||||||||||||
Weighted
Average Shares Outstanding – Basic and Diluted:
|
||||||||||||||||
Weighted
average common stock outstanding
|
12,782 | 12,104 | 12,759 | 12,537 | ||||||||||||
Dilutive
effect of participating convertible preferred stock
|
— | 439,528 | — | 439,528 | ||||||||||||
|
||||||||||||||||
Weighted
average shares outstanding – basic and diluted
|
12,782 | 451,632 | 12,759 | 452,065 |
For the
three and nine months ended September 30, 2009, the following equivalent shares
of common stock were out of the money and were not included in the computation
of diluted EPS, as their effect was anti-dilutive:
Three
Months Ended
|
Nine
Months Ended
|
|||||||
September 30
|
September 30
|
|||||||
2009
|
2009
|
|||||||
Common
stock warrants
|
152,107,016 | 152,107,016 | ||||||
Common
stock options
|
33,993,994 | 37,492,655 | ||||||
Series H
preferred stock options
|
21,823,946 | 22,258,395 | ||||||
Total
anti-dilutive shares
|
207,924,956 | 211,858,066 |
For the
three and nine months ended September 30, 2008, the Company reported a net loss;
therefore, the following equivalent shares of common stock were not included in
the computation of diluted EPS, as their effect was anti-dilutive:
Three
Months Ended
|
Nine
Months Ended
|
|||||||
September 30
|
September 30
|
|||||||
2008
|
2008
|
|||||||
Convertible
preferred stock
|
439,527,511 | 439,527,511 | ||||||
Common
stock warrants
|
152,107,016 | 152,107,016 | ||||||
Common
stock options
|
43,413,541 | 45,268,552 | ||||||
Series H
preferred stock options
|
25,001,042 | 25,661,686 | ||||||
Total
anti-dilutive shares
|
660,049,110 | 662,564,765 |
5. Accrued
Liabilities
Accrued
liabilities consist of the following:
December 31,
2008
|
September 30,
2009
|
|||||||
(in
thousands)
|
||||||||
Accrued
property taxes
|
$ | 3,829 | $ | — | ||||
Accrued
compensation
|
2,660 | — | ||||||
Accrued
taxes—other
|
3,171 | — | ||||||
Accrued
programming
|
3,045 | — | ||||||
Accrued
other
|
3,233 | — | ||||||
Accrued
liabilities
|
$ | 15,938 | $ | — |
6. Income
Taxes
The
Company utilizes the liability method of accounting for income taxes, as set
forth in Statement of Financial Accounting Standards No. 109,
“Accounting for Income Taxes,” which was incorporated into ASC 740. Under the
liability method, deferred taxes are determined based on the difference between
the financial and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to
reverse.
The
Company’s effective income tax rate for the interim periods presented is based
on management’s estimate of the Company’s effective tax rate for the applicable
year and differs from the federal statutory income tax rate primarily due to
nondeductible permanent differences, state income taxes and changes in the
valuation allowance for deferred income taxes. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. The Company has established a valuation allowance equal to
the net deferred tax asset due to uncertainties regarding the realization of the
deferred tax asset based on the Company’s lack of earnings history. Utilization
of the net operating losses may be subject to a substantial annual limitation
due to the “change in ownership” provisions of the Internal Revenue Code of
1986. The annual limitation may result in the expiration of net operating losses
before utilization.
7. Long
Term Debt
14%
Senior Secured Notes
Long-term Debt. In
March 2004, Holdings completed a private placement offering for
136,000 units, each consisting of (1) $1,000 of senior notes due
April 1, 2011 and (2) a warrant to purchase 100.336 shares
of common stock. The senior notes accrue interest at the rate of 14% per annum
with the interest payable semi-annually in cash in arrears on April 1
and October 1. The senior notes are governed by the indenture between
the Company and U.S. Bank National Association, as Indenture Trustee, dated
March 23, 2004. In March 2006 and
July 2007, Holdings raised net proceeds of approximately $30.5
million and $25.8 million, respectively, in a private placement of an additional
$32 million and $25 million, respectively, in aggregate principal amount of
senior notes. These additional senior notes were issued under the Indenture and
are part of the same series of senior notes as those issued in
March 2004.
As of
September 14, 2009, Holdings had outstanding an aggregate of $193 million
principal amount of its senior notes, pursuant to that certain Indenture, dated
as of March 23, 2004, among Holdings, the guarantors named therein,
and U.S. Bank National Association, as trustee, as supplemented by that certain
Supplemental Indenture No. 1, dated as of July 18, 2007,
by and among Holdings, the guarantors party to the Indenture and the
trustee. Accrued but unpaid interest on the senior notes as of
September 14, 2009 was approximately $12.2 million. On August 18, 2009, Holdings
entered into a note
purchase agreement with Serengeti Overseas Ltd., Serengeti Partners LP, Goldman,
Sachs & Co., Silver Point Capital Offshore Fund, Ltd., Silver Point Capital
Fund, L.P., MAST OC I Master Fund L.P., MAST Credit Opportunities I Master Fund
Limited, Whitney Private Debt Fund, L.P. (the “Requisite
Bondholders”)
who, in the aggregate, beneficially owned approximately $191.8 million in
aggregate principal amount of the senior notes pursuant to which
these bondholders sold their senior notes to Holdings upon consummation of the
recapitalization transactions at a purchase price of 101.5% of the principal
amount of such notes, plus accrued and unpaid interest thereon through the
purchase date, which is 200 basis points lower than what would have otherwise
been required under the redemption provisions of the Indenture. In
addition, the Requisite Bondholders waived any and all registration rights they
may have had with respect to the senior notes or any outstanding equity
securities of Holdings. ABRY provided a limited guarantee of the
performance by Holdings of its obligations under the note purchase agreement,
after the consummation of the recapitalization transactions.
On
September 14, 2009, Holdings issued a mandatory redemption notice to all of the
remaining holders of its senior notes, representing approximately $1.2 million
in aggregate principal amount, which were not subject to the note purchase
agreement for the redemption of such notes, at a purchase price equal to 103.5%
of the principal amount of such notes, plus accrued and unpaid interest thereon
to the redemption date. In connection with the closing of the
recapitalization transactions, ABRY and Grande Manager contributed cash to
Ultimate Parent, caused Grande Operating to enter into a new credit agreement
and, using the net proceeds from the equity contributions and the credit
agreement, caused to be available to Holdings and Grande Operating a sufficient
amount of cash to purchase all of the senior notes (whether pursuant to the note
purchase agreement or, in the case of any senior notes which are not subject to
the note purchase agreement, the redemption provisions of the
Indenture).
All of
Holdings’ outstanding senior notes have been redeemed or repurchased and the
indenture that governed the terms of the senior notes was discharged. As a
result of these transactions, we recognized a $7.1 million loss on early
extinguishment of the senior notes.
8. Commitments
and Contingencies
Capital
Leases
During
January 2009, Grande Communications Networks, Inc. sold various
customer premise equipment for $4.5 million cash. Concurrent with the sale, the
Company leased the customer premise equipment back for a period of two years at
a monthly rental of $0.2 million. As a result of the recapitalization
transactions on September 14, 2009, this capital lease is no longer included in
the accounts of Holdings.
Legal
Proceedings
There are
no pending proceedings that are currently anticipated to have a material adverse
effect on the Company’s business, financial condition or results of
operations.
Other
Contingencies
In
June 2009, the Universal Service Administration Company (“USAC,”)
which administers the Universal Service Fund (“USF”) on
behalf of the Federal Communications Commission, provided an initial draft of
findings in an audit of Grande Communications Networks, Inc.’s contributions to
the USF program based on the Company’s 2004, 2005 and 2006 revenues. The draft
audit report was subsequently finalized in October 2009 and concluded that the
Company underreported or misclassified certain telecommunications service
revenues, resulting in a total contribution shortfall of $4.2 million for the
2005, 2006 and 2007 reporting years. The Company disagrees with the majority of
the USAC audit report and believes it has meritorious defenses for the prior USF
filings and intends to vigorously defend them during the dispute process,
appellate process and through litigation in courts, as necessary.
Pursuant
to the terms of the recapitalization agreement, liabilities in connection with
the USAC Audit and certain other regulatory liabilities of Grande Operating, if
not repaid by Holdings prior to the sale of Ultimate Parent will reduce the
distributions that would otherwise be made to Rio GP on its Class A Common Units
in such sale. In the event the results of the USAC Audit
have not been finally determined and any related appeal has not been resolved by
the time of a sale of Ultimate Parent and the acquiror in such sale requires
Grande Operating or any of its affiliates to indemnify such acquiror and/or
Grande Operating for liability in connection with the USAC Audit arising from
any period prior to September 14, 2009 that exceeds the amount of liability
accrued at September 14, 2009 and any amount reimbursed or refunded to Grande
Operating in connection with the USAC Audit, Rio GP agreed to provide such
indemnification in an amount not to exceed Rio GP’s net cash proceeds in
connection with such sale, and agreed that a portion of such proceeds in an
amount sufficient to satisfy such indemnification obligation may be placed in
escrow to serve as a source for payment of any such indemnification
obligation.
Guarantee
In
connection with the closing of the Recapitalization Agreement, Grande Operating
entered into the First Amendment to Lease to that certain Lease Agreement, dated
August 7, 2003, with respect to certain premises located in Corpus Christi,
Texas, Odessa, Texas, San Marcos, Texas and Waco, Texas with GRC (TX) Limited
Partnership to modify certain provisions of the Lease Agreement to permit a
change of control of the tenant group and certain other related transactions
(the “August 2003 Lease
Amendment”). In addition, Grande Operating entered
into a First Amendment to Lease to that certain Lease Agreement dated June 24,
2004 with respect to certain premises located in San Marcos, Texas with GRC-II
Limited Partnership to modify certain provisions of the Lease Agreement to
permit a change of control of the tenant group and certain other related
transactions (the “June 2004 Lease
Amendment” and together with the August 2003 Lease, the “Lease
Amendments”).
As a
condition to entering into the Lease Amendments, Rio GP was added as an
additional guarantor under each of the existing Guaranty and Suretyship
Agreement originally given by Holdings pursuant to the First Amendment to
Guaranty and Suretyship Agreement by and between GRC (TX) Limited Partnership,
GRC-II (TX) Limited Partnership, Holdings, and Rio GP. Holdings was
also required to enter into the First Amendment to Guaranty and Suretyship
Agreement with respect to both Leases (each a “Guarantee”
and, together, the “Guarantees”). The
guarantees are for the full and timely payment of lease payments pertaining to
the August 2003 Lease Amendment and the June 2004 Lease
Amendment. Based on management’s assessment, fair value of the
guarantee was not significant at September 30, 2009.
9. Subsequent
Event
In
connection with the closing of the transactions contemplated by the
Recapitalization Agreement, Holdings cancelled all outstanding options to
purchase 33,370,422 shares of common stock and options to purchase 21,300,000 shares of
Series H preferred
stock. As a result, after October 9, 2009, we had no outstanding
options to purchase any equity of Holdings.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
quarterly report on Form 10-Q contains statements about future
events. All statements other than statements of historical fact are,
or may be deemed to be, forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933, as amended (the “Securities
Act”), and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange
Act”). These statements can sometimes be identified by our use of
forward-looking words such as “expect,” “should,” “may,” “will,” “anticipate,”
“estimate,” or “intend” and other similar words or phrases. Similarly,
statements that describe our objectives, plans or goals are or may be
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be different from any future results, performance or
achievements expressed or implied by these statements. You should review
carefully all of the information, in this quarterly report on
Form 10-Q, including the financial statements.
These
risks and uncertainties include, without limitation, those discussed under
Part I Item 2. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and Part II
Item 1A “Risk Factors.” These factors and the other risk
factors discussed in this quarterly report on Form 10-Q are not
necessarily all of the important factors that could cause our actual results to
differ materially from those expressed in any of the forward-looking statements.
Other unknown or unpredictable factors also could have material adverse effects
on our future results. The forward-looking statements included in this quarterly
report on Form 10-Q are made only as of the date of this quarterly
report. We cannot ensure that any projected results or events will be achieved.
We have no intention, and disclaim any obligation, to publicly update or revise
any forward-looking statements, whether as a result of new information, future
results or otherwise, except as required by law.
ITEM 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following management’s discussion and analysis should be read in conjunction
with our Condensed Consolidated Financial Statements and Notes thereto included
herewith and with our Management’s Discussion and Analysis of Financial
Condition and Results of Operations and Consolidated Financial Statements and
Notes thereto for the three-year period ended December 31, 2008,
included in our Annual Report on Form 10-K filed with the SEC on
March 20, 2009.
Unless we indicate otherwise,
references below to “we,” “us,” “our,” “the Company” and “Holdings”
mean, after the
consummation of the
transactions contemplated by the Recapitalization Agreement, Rio Holdings, Inc. (f/k/a/Grande
Communications Holdings, Inc.) and its wholly-owned subsidiary, Rio GP, LLC
and mean, before the
consummation of the transactions contemplated by the Recapitalization Agreement,
Grande Communications Holdings, Inc. and its then consolidated subsidiary,
Grande Communications Networks, Inc., taken as a whole, and references to
“Grande Operating” are to Grande Communications Networks, Inc. and its successor-in-interest,
Grande Communications Networks LLC.
Recent
Developments
Recapitalization
Transaction
On
September 14, 2009, we closed the transactions contemplated by that certain
recapitalization agreement, dated August 27, 2009, by and among Grande
Communications Holdings, Inc., a Delaware corporation and
predecessor-in-interest to Rio Holdings, Inc., a Nevada Corporation (“Holdings”),
Grande Communications Networks, Inc., a Delaware corporation,
predecessor–in-interest to Grande Communications Networks LLC, a Delaware
limited liability company and our wholly-owned subsidiary prior to the closing
(“Grande
Operating”), ABRY Partners VI, L.P., a Delaware limited partnership
(“ABRY”),
Grande Investment L.P., a Delaware limited partnership and wholly-owned
subsidiary of ABRY (“Ultimate
Parent”), Grande Parent LLC, a Delaware limited liability company and
wholly-owned subsidiary of Ultimate Parent (“Parent”),
ABRY Partners, LLC, a Delaware limited liability company and Rio GP, LLC, a
Delaware limited liability company and wholly-owned subsidiary of Holdings
(“Rio
GP”), which provides for the recapitalization of Grande Operating (the
“Recapitalization
Agreement”) and pursuant to the terms of the Recapitalization Agreement,
we completed the following transactions:
(1) On
September 10, 2009, Grande Operating converted to a Delaware limited liability
company that is disregarded for Federal income tax purposes, and Holdings
extinguished any and all intercompany receivables between it and Grande
Operating simultaneous with the conversion;
(2) On
September 11, 2009, Grande Operating distributed to Holdings cash in the amount
of approximately $1.0 million for Holdings’ future working capital
needs;
(3)
Holdings contributed assets used in the operation of the business to Grande
Operating and Grande Operating assumed liabilities arising from operation of the
business;
(4) ABRY,
ABRY Investment Partnership, L.P. and Grande Manager LLC, a newly formed
wholly-owned subsidiary of ABRY (“Grande
Manager”) contributed cash in the amount of approximately $92.3 million
to Ultimate Parent (which was ultimately contributed to Grande Operating) in
return for a general partner interest and a limited partner interest
representing approximately 75.3% of the common equity of Ultimate Parent,
subject to dilution;
(5) ABRY
contributed cash in the amount of approximately $19.2 million to Ultimate Parent
(which was ultimately contributed to Grande Operating) in return for a preferred
limited partnership interest of Ultimate Parent;
(6)
Holdings contributed all of the outstanding membership interests of Grande
Operating to Ultimate Parent (which was contributed to Parent) in return for the
issuance to Rio GP of a general partner interest of Ultimate Parent representing
approximately 24.7% (subject to final closing statement adjustment) of the
common equity of Ultimate Parent, subject to dilution;
(7)
Grande Operating received net proceeds of approximately $103.8 million under a
new credit facility arranged by ABRY, consisting of a $103.8 million term loan
and a $18.7 million revolving credit facility; and
(8)
Holdings repurchased and redeemed all of its outstanding 14% senior secured
notes due 2011 and paid off certain outstanding capital lease obligations using
the net proceeds from the equity and debt financing transactions.
On
September 17, 2009, Grande Communications Holdings, Inc. merged with
and into its wholly-owned subsidiary, Rio Holdings, Inc., a Nevada corporation,
for the purpose of changing Holdings’ state of incorporation from Delaware to
Nevada (the “Reincorporation”). The
Reincorporation was accomplished pursuant to an Agreement and Plan of Merger,
dated September 2, 2009, which was approved by the requisite Grande
Communications Holdings, Inc. stockholders by written consent. The
Reincorporation did result in the change of name of Grande Communication
Holdings, Inc. to Rio Holdings, Inc. The Reincorporation did not
result in any change in the business, management, fiscal year, office locations,
assets, liabilities, or employees of Holdings.
All of
the outstanding shares of common stock and preferred stock of Holdings continue
to remain outstanding. As a result of the closing of the
recapitalization transaction, Holdings does not have any operations or material
assets other than the ownership of its partner interest of Ultimate Parent,
through its wholly-owned subsidiary, Rio GP and only has two persons serving as
officers, Michael L. Wilfley and Walter K.L. “Scott” Ferguson, Jr., and no
employees.
In
connection with the closing of the transactions contemplated by the
Recapitalization Agreement, Holdings cancelled all outstanding options to
purchase 33,370,422 shares of common stock and options to purchase 21,300,000 shares of
Series H preferred
stock. As a result, after October 9, 2009, we had no outstanding
options to purchase any equity of Holdings.
Note
Purchase Agreement
As of
September 14, 2009, Holdings had outstanding an aggregate of $193 million
principal amount of its senior notes, pursuant to that certain Indenture, dated
as of March 23, 2004, among Holdings, the guarantors named therein,
and U.S. Bank National Association, as trustee, as supplemented by that certain
Supplemental Indenture No. 1, dated as of July 18, 2007,
by and among Holdings, the guarantors party to the Indenture and the
trustee. Accrued but unpaid interest on the senior notes as of
September 14, 2009 was approximately $12.2 million. On August 18, 2009, Holdings
entered into a note
purchase agreement with Serengeti Overseas Ltd., Serengeti Partners LP, Goldman,
Sachs & Co., Silver Point Capital Offshore Fund, Ltd., Silver Point Capital
Fund, L.P., MAST OC I Master Fund L.P., MAST Credit Opportunities I Master Fund
Limited, Whitney Private Debt Fund, L.P. (the “Requisite
Bondholders”)
who, in the aggregate, beneficially owned approximately $191.8 million in
aggregate principal amount of the senior notes pursuant to which
these bondholders sold their senior notes to Holdings upon consummation of the
recapitalization transactions at a purchase price of 101.5% of the principal
amount of such notes, plus accrued and unpaid interest thereon through the
purchase date, which is 200 basis points lower than what would have otherwise
been required under the redemption provisions of the Indenture. In
addition, the Requisite Bondholders waived any and all registration rights they
may have had with respect to the senior notes or any outstanding equity
securities of Holdings. ABRY provided a limited guarantee of the
performance by Holdings of its obligations under the note purchase agreement,
after the consummation of the recapitalization transactions.
On the
closing date of the recapitalization transactions, Holdings issued a mandatory
redemption notice to all of the remaining holders of its senior notes,
representing approximately $1.2 million in aggregate principal amount, which
were not subject to the note purchase agreement for the redemption of such
notes, at a purchase price equal to 103.5% of the principal amount of such
notes, plus accrued and unpaid interest thereon to the redemption
date. In connection with the closing of the recapitalization
transactions, ABRY and Grande Manager contributed cash to Ultimate Parent,
caused Grande Operating to enter into a new credit agreement and, used the net
proceeds from the equity contributions and the credit agreement, caused to be
available to Holdings and Grande Operating a sufficient amount of cash to
purchase all of the senior notes (whether pursuant to the note purchase
agreement or, in the case of any senior notes which are not subject to the note
purchase agreement, the redemption provisions of the Indenture).
All of
Holdings’ outstanding senior notes have been redeemed or repurchased and the
indenture that governed the terms of the senior notes was discharged. As a
result of these transactions, we recognized a $7.1 million loss on early
extinguishment of the senior notes.
Changes
in Management
As a
result of the recapitalization transactions the only officers of the Company are
Michael L. Wilfley and W.K.L. “Scott” Ferguson and the Company has no
employees. In connection with the closing of the recapitalization
transactions, on September 14, 2009, the following changes in management were
made:
(1) Roy
H. Chestnutt resigned as Chairman, Chief Executive Officer and President and as
a director of Holdings and as Chairman, Executive Officer and President and as a
member of the Board of Directors of Grande Operating.
(2) Jared
Benson resigned as Vice President of Enterprise and Wholesale Services of
Holdings and as Vice President of Enterprise and Wholesale Services of Grande
Operating.
(3) Kay
Stroman resigned as Vice President of Human Resources of Holdings and as Vice
President of Human Resources of Grande Operating.
(4)
Michael L. Wilfley resigned as Chief Financial Officer and Secretary of Grande
Operating.
(5)
W.K.L. “Scott” Ferguson, Jr. resigned as Chief Operating Officer of Holdings and
Grande Operating.
(6) John
C. Hockin resigned from his position as a member of the Board of Directors of
Grande Operating.
(7) David
C. Hull, Jr. resigned from his position as a member of the Board of Directors of
Grande Operating.
(8)
William Laverack, Jr. resigned from his position as a member of the Board of
Directors of Grande Operating.
(9)
Richard W. Orchard resigned from his position as a member of the Board of
Directors of Grande Operating.
(10) Paul
Walsh resigned from his position as a member of the Board of Directors of Grande
Operating.
On
September 14, 2009, the board of Holdings appointed Mr. Wilfley to replace Mr.
Chestnutt as Chief Executive Officer and President of Holdings and Walter K.L.
“Scott” Ferguson, Jr. was appointed to replace Mr. Wilfley as secretary of
Holdings. On September 17, 2009, the board of Holdings
appointed Michael L. Wilfley to replace Mr. Chestnutt as a director of the
Holdings and appointed Mr. Wilfley to serve as Treasurer of
Holdings. On September 17, 2009, Duncan T. Butler, Jr. was appointed
as Chairman of the Board of Directors of Holdings.
Transaction
Bonuses
A
transaction bonus plan in the amount of $1.07 million was approved by our board
of directors and was assumed by Grande Operating upon the closing of the
recapitalization transactions. The following named executive officers received
the following transaction bonuses:
Roy
H. Chestnutt
|
|
$
|
112,500
|
|
Michael
L. Wilfley
|
|
|
112,500
|
|
Walter
K.L. “Scott” Ferguson, Jr.
|
|
|
225,000
|
|
Kay
Stroman
|
|
|
50,000
|
|
Jared
P. Benson
|
|
|
62,500
|
|
Total
|
|
$
|
562,500
|
|
Severance
Payments
Pursuant
to the terms of the Chestnutt Employment Agreement, in connection with the
closing of the recapitalization transactions and Mr. Chestnutt’s resignation,
Mr. Chestnutt is entitled to $400,000, less withholding and other
required adjustments, which represents twelve months of Mr. Chestnutt’s base
salary, to be paid in twelve equal installments, which liability was assumed by
Grande Operating on September 14, 2009 upon the closing of the recapitalization
transactions. In addition, Grande Operating will continue
Mr. Chestnutt’s current insurance and health care coverage until the first
anniversary of the date of his termination, provided that Grande Operating may
cease providing such insurance and health care coverage at an earlier date if
Mr. Chestnutt receives equivalent benefits from his next full time employer. To
the extent this severance pay exceeds certain amounts, as set forth in
applicable Treasury Regulations, the excess amount of severance pay will not
begin sooner than six months following the employment termination
date.
Pursuant
to the terms of the Wilfley Employment Agreement, in connection with the
termination of his employment by Grande Operating on November 6, 2009, Mr.
Wilfley is entitled to $250,000, less withholding and other required
adjustments, which represents his current bi-weekly base salary multiplied by
26, to be paid in equal bi-weekly installments over 52 weeks, which liability
was assumed by Grande Operating on September 14, 2009 upon the closing of the
recapitalization transactions. In addition, Grande
Operating will continue Mr. Wilfley’s current insurance and health care coverage
until the first anniversary of the date of his termination. To the extent this
severance pay exceeds certain amounts, as set forth in applicable Treasury
Regulations, the excess amount of severance pay will not begin sooner than six
months following the employment termination date.
Overview
As a
result of the closing of the recapitalization transaction, as of September 14,
2009, Holdings does not have any operations or material assets other than the
ownership of its 24.7% (subject to final closing statement adjustment) common
equity interest in Ultimate Parent, through its wholly-owned subsidiary Rio GP
and only has two persons serving as officers, Michael L. Wilfley and Walter K.L.
“Scott” Ferguson, Jr., and no employees. The discussion in this
Management Discussion and Analysis of Financial Condition and Results of
Operations relates to our consolidated operations through September 13, 2009,
transactions on September 14, 2009 as a result of the closing of the
recapitalization transactions and Holdings’ equity in earnings (loss), through
Rio GP, of the minority interest in Ultimate Parent subsequent to September 14,
2009. Holdings expects to file a Form 15 with the SEC to suspend its
reporting obligations under the Exchange Act immediately following the filing of
its Annual Report on Form 10-K for the year ended December 31, 2009. As a result
of filing the Form 15, the Company’s obligation to file certain reports and
forms including Annual Reports on Form 10-K, Quarterly reports on Form 10-Q and
Current Reports on Form 8-K will be suspended.
Prior to
the closing of the recapitalization transactions, Holdings’ primary business was
providing a bundled package of video, voice, and HSD and other services to
residential and business customers in Texas. We provided these services in seven
markets in the state of Texas using local broadband networks that we acquired
and/or constructed.
We refer
to the homes and businesses that our network was capable of providing services
to as “marketable homes passed.” We believed that an important measure of our
growth potential was the number of marketable homes passed by our networks and
the marketable homes we were able to pass in the future in the markets in which
we operated. Marketable homes passed are the number of residential and business
units, such as single residential homes, apartment units and condominium units,
passed by our networks. Since 2001, we had grown our marketable homes passed
through acquisitions and the construction of our networks. The expansion of our
networks had, in turn, allowed us to pursue a retail strategy of offering
bundled video, voice and HSD services to residential and business customers. As
of September 30, 2008 and September 13, 2009, we had the ability to market
services to 340,048 and 339,671 distinct homes and businesses over our networks,
respectively, and had 146,513 and 143,104 residential and business customers,
respectively. Operating revenues from bundled services were $42.2 million and
$125.3 million during the three and nine months ended September 30, 2008,
respectively, and $35.6 million and $122.7 million for the three and nine months
ended September 30, 2009, respectively.
In
addition, we leveraged our retail metro network build-out with the 2003
acquisition of a long haul fiber optic network which allowed us to provide
broadband transport services to medium and large enterprises and communications
carriers. Operating revenues for broadband transport services were $3.9 million
and $9.3 million during the three and nine months ended September 30, 2008,
respectively, and $2.8 million and $9.8 million for the three and nine months
ended September 30, 2009, respectively.
In
July 2000, when our network construction was still in a very early
stage, we acquired substantially all of the assets of Thrifty Call, Inc. which
had an established telephone and data network that served as the Company’s
platform for the provisioning of residential voice and HSD services and was also
the platform that provides wholesale network services to medium and large
enterprises and communications carriers in the wholesale market. Operating
revenues for network services were $5.8 million and $19.3 million during the
three and nine months ended September 30, 2008, respectively, and $2.8 million
and $11.5 million for the three and nine months ended September 30, 2009,
respectively.
Our
network services were primarily provided using our then existing infrastructure
and personnel. By leveraging our brand, communications infrastructure, voice and
data volume, and personnel that predominantly supported our core retail business
and its products, we believe that we had gained efficiencies of scale by
offering telecommunications and HSD products into wholesale
markets.
We have
incurred net losses for the past five years and, now that we have no operations,
expect to continue to incur net losses in the future. As a result, the Company
had federal net operating loss carry-forwards and has established a valuation
allowance equal to the net deferred tax asset due to uncertainties regarding the
realization of the deferred tax asset based on our lack of earnings history.
Utilization of the net operating losses may be subject to a substantial annual
limitation due to the “change in ownership” provisions of the Internal Revenue
Code of 1986. The annual limitation may result in the expiration of net
operating losses before utilization. However, we had positive Adjusted EBITDA
during the past five years as well as for each of the three and nine months
ended September 30, 2008 and 2009. See “Non-GAAP Financial Measures” below for a
discussion of this non-GAAP measure of our operating performance as well as our
use of Adjusted EBITDA.
Marketable
Homes Passed, Customers and Connections
We report
marketable homes passed as the number of residential and business units, such as
single family residence homes, apartments and condominium units, passed by our
networks. As of September 30, 2008 and September 13, 2009, our networks passed
340,048 and 339,671 marketable homes, respectively, and we had 146,513 and
143,104 residential and business customers, respectively.
Because
we delivered multiple services to our customers, we report our total number of
connections for video, voice, HSD and other services in addition to our total
number of customers. We count each video, voice, HSD and other service purchase
as a separate connection. For example, a single customer who purchases video,
voice and HSD service would count as three connections. Similarly, a single
customer who purchases our HSD service and our voice service would count as two
connections. We did not record the purchase of long distance telephone service
by a local telephone customer or digital cable services by an analog cable
customer as additional connections. However, we did record each purchase of an
additional telephone line by a local telephone customer as an additional
connection. As of September 30, 2008 and September 13, 2009, we had 317,751 and
308,441 connections, respectively.
Operating
Data — Bundled Services
Quarter
Ended
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September 30,
2008
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December 31,
2008
|
March 31,
2009
|
June 30,
2009
|
September 30,
2009(1)
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Operating
Data:
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Marketable
homes passed
|
340,048 | 340,681 | 340,999 | 339,910 | 339,671 | |||||||||||||||
Customers
|
146,513 | 146,210 | 146,433 | 144,166 | 143,104 | |||||||||||||||
Number
of connections:
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||||||||||||||||||||
Video
|
101,673 | 101,864 | 101,744 | 99,488 | 98,681 | |||||||||||||||
Voice
|
115,078 | 114,512 | 113,208 | 111,292 | 108,216 | |||||||||||||||
HSD
and other
|
101,000 | 101,502 | 102,826 | 101,684 | 101,544 | |||||||||||||||
Total
connections
|
317,751 | 317,878 | 317,778 | 312,464 | 308,441 | |||||||||||||||
Average
monthly revenue per:
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||||||||||||||||||||
Customer
– bundled services
|
$ | 96.22 | $ | 98.09 | $ | 99.34 | $ | 99.82 | $ | 82.70 | ||||||||||
Video
connection
|
57.45 | 58.16 | 60.49 | 61.63 | 51.41 | |||||||||||||||
Voice
connection
|
41.38 | 41.15 | 40.58 | 40.01 | 32.99 | |||||||||||||||
HSD
and other connection
|
35.11 | 36.65 | 36.80 | 37.20 | 31.21 |
____________________
(1)
|
Information
presented for the quarter ended September 30, 2009 is as of
September 13, 2009, the final day of operations prior to the date of
closing of the recapitalization
transactions.
|
Results
of Operations (in millions)
Three
Months Ended
|
Nine
Months Ended
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September 30,
|
September 30,
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2008
|
Percent
of Operating Revenues
|
2009
|
Percent
of Operating Revenues
|
Var
|
2008
|
Percent
of Operating Revenues
|
2009
|
Percent
of Operating Revenues
|
Var
|
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Consolidated
Financial Data
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Operating
revenues:
|
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Video
|
$ | 17.4 | 33 | % | $ | 15.2 | 37 | % | $ | (2.2 | ) | $ | 52.5 | 34 | % | $ | 52.3 | 36 | % | $ | (0.2 | ) | ||||||||||||||||||
Voice
|
14.3 | 28 | 10.9 | 26 | (3.4 | ) | 42.4 | 27 | 38.2 | 27 | (4.2 | ) | ||||||||||||||||||||||||||||
HSD
and other
|
10.5 | 20 | 9.5 | 23 | (1.0 | ) | 30.4 | 20 | 32.2 | 22 | 1.8 | |||||||||||||||||||||||||||||
Bundled
services
|
42.2 | 81 | 35.6 | 86 | (6.6 | ) | 125.3 | 81 | 122.7 | 85 | (2.6 | ) | ||||||||||||||||||||||||||||
Broadband
transport services
|
3.9 | 8 | 2.8 | 7 | (1.1 | ) | 9.3 | 6 | 9.8 | 7 | 0.5 | |||||||||||||||||||||||||||||
Network
services
|
5.8 | 11 | 2.8 | 7 | (3.0 | ) | 19.3 | 13 | 11.5 | 8 | (7.8 | ) | ||||||||||||||||||||||||||||
Total
operating revenues
|
51.9 | 100 | 41.2 | 100 | (10.7 | ) | 153.9 | 100 | 144.0 | 100 | (9.9 | ) | ||||||||||||||||||||||||||||
Operating
expenses:
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Cost
of revenues
|
17.8 | 34 | 13.0 | 32 | (4.8 | ) | 52.8 | 34 | 49.4 | 34 | (3.4 | ) | ||||||||||||||||||||||||||||
Selling,
general and administrative
|
24.7 | 48 | 22.8 | 55 | (1.9 | ) | 70.5 | 46 | 63.1 | 44 | (7.4 | ) | ||||||||||||||||||||||||||||
Provision
for doubtful accounts
|
0.9 | 2 | 0.8 | 2 | (0.1 | ) | 2.4 | 1 | 2.0 | 1 | (0.4 | ) | ||||||||||||||||||||||||||||
Depreciation
and amortization
|
15.7 | 30 | 12.4 | 30 | (3.3 | ) | 44.2 | 29 | 43.2 | 30 | (1.0 | ) | ||||||||||||||||||||||||||||
Total
operating expenses
|
59.1 | 114 | 49.0 | 119 | (10.1 | ) | 169.9 | 110 | 157.7 | 109 | (12.2 | ) | ||||||||||||||||||||||||||||
Operating
loss
|
(7.2 | ) | (14 | ) | (7.8 | ) | (19 | ) | (0.6 | ) | (16.0 | ) | (10 | ) | (13.7 | ) | (9 | ) | 2.3 | |||||||||||||||||||||
Other
income (expense):
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Interest
income
|
0.1 | — | — | — | (0.1 | ) | 0.6 | 0.5 | 0.1 | — | (0.5 | ) | ||||||||||||||||||||||||||||
Interest
expense
|
(7.7 | ) | (15 | ) | (6.4 | ) | (16 | ) | 1.3 | (23.3 | ) | (15 | ) | (22.3 | ) | (15 | ) | 1.0 | ||||||||||||||||||||||
Loss
on early extinguishment of debt
|
— | — | (7.1 | ) | (17 | ) | (7.1 | ) | — | — | (7.1 | ) | (5 | ) | (7.1 | ) | ||||||||||||||||||||||||
Equity
in loss from investee
|
— | — | (0.6 | ) | (1 | ) | (0.6 | ) | — | — | (0.6 | ) | — | (0.6 | ) | |||||||||||||||||||||||||
Other
income
|
— | — | — | — | — | — | — | 0.2 | — | 0.2 | ||||||||||||||||||||||||||||||
Gain
on sale of subsidiary
|
— | — | 49.3 | 120 | 49.3 | — | — | 49.3 | 34 | 49.3 | ||||||||||||||||||||||||||||||
Net
gain on sale of assets
|
0.2 | 1 | 0.1 | — | (0.1 | ) | 0.7 | 0.5 | 0.4 | — | (0.3 | ) | ||||||||||||||||||||||||||||
Total
other income (expense)
|
(7.4 | ) | (14 | ) | 35.3 | 86 | 42.7 | (22.0 | ) | (14 | ) | 20.0 | 14 | 42.0 | ||||||||||||||||||||||||||
Income
(loss) before income tax expense
|
(14.6 | ) | (28 | ) | 27.5 | 67 | 42.1 | (38.0 | ) | (24 | ) | 6.3 | 5 | 44.3 | ||||||||||||||||||||||||||
Income
tax expense
|
(0.3 | ) | (1 | ) | (0.3 | ) | (1 | ) | — | (0.8 | ) | (1 | ) | (0.9 | ) | (1 | ) | (0.1 | ) | |||||||||||||||||||||
Net
income (loss)
|
$ | (14.9 | ) | (29 | )% | $ | 27.2 | 66 | % | $ | 42.1 | $ | (38.8 | ) | (25 | )% | $ | 5.4 | 4 | % | $ | 44.2 |
Three
and Nine Months Ended September 30, 2008 Compared to Three and Nine
Months Ended September 30, 2009
The
following discussion relates to our consolidated operations through September
13, 2009, transactions on September 14, 2009 as a result of the closing of the
recapitalization transactions and Holdings’ equity in earnings (loss), through
Rio GP, of the minority interest in Ultimate Parent subsequent to September 13,
2009.
Operating Revenues. Our
operating revenues decreased $10.7 million, or 20.6%, during the three months
ended September 30, 2009 and decreased $9.9 million, or 6.4%, during
the nine months ended September 30, 2009. The decrease during the
three months ended September 30, 2009 was driven primarily by a $6.6
million decrease in our bundled services revenue, a $3.0 million decrease in
revenues from network services and a $1.1 million decrease in broadband
transport services revenue. The decrease during the nine months ended
September 30, 2009 was driven primarily by decreases in revenues from
both network services and bundled services of $7.8 million and $2.6 million,
respectively, partially offset by a $0.5 million increase in our revenues from
broadband transport services.
Operating
revenues for our video services decreased $2.2 million, or 12.6%, during the
three months ended September 30, 2009 and decreased $0.2 million, or 0.4%,
during the nine months ended September 30, 2009. Decreases during both the three
and nine months ended September 30, 2009 were primarily related to: (a) a 3%
decline in the number of connections, from 101,673 as of September 30, 2008 to
98,681 as of September 13, 2009; (b) declines in all video services
revenues due to a partial month in September 2009; (c) a $0.2 million and $0.3
million decline in pay per view services due to a partial month in September
2009 and timing of such purchases; and (d) such declines were partially offset
by increases in both periods for video revenues due to our annual rate increase,
which occurred in January 2009. Video services revenues from commercial business
customers remained flat at $0.3 million and $0.9 million during the three and
nine months ended September 30, 2009, respectively
Operating
revenues for our voice services decreased $3.4 million, or 23.8%, during the
three months ended September 30, 2009 and decreased $4.2 million, or
10%, during the nine months ended September 30, 2009. We experienced a decrease
in residential voice services revenue due to competitive pressures and changing
consumer preferences, as more customers choose to adopt VoIP products or use
their wireless phones as their primary phone line. Decreases during
both the three and nine months ended September 30, 2009 were primarily related
to: (a) a 6% decline in the number of connections, from 115,078 as of September
30, 2008 to 108,216 as of September 13, 2009; (b) declines in both
residential and commercial recurring voice services revenues due to a partial
month in September 2009; and (c) a $0.2 million and $0.5 million decline in long
distance usage charges due in part to a partial month in September
2009. Our voice services revenues from commercial business customers
decreased 12.5% to $3.5 million during the three months ended September 30, 2009
and increased 3% to $11.8 million, during the nine months ended
September 30, 2009.
Operating
revenues for our HSD and other services decreased $1.0 million, or 9.5%, during
the three months ended September 30, 2009 and increased $1.8 million, or 6%,
during the nine months ended September 30, 2009. Overall HSD and other services
experienced a decline in revenues as a result of the partial month for September
2009. This decline was partially offset by increases in revenue as a
result of a 1% increase in the number of connections, from 101,000 as of
September 30, 2008 to 101,544 as of September 13, 2009. HSD services
revenues from commercial business customers increased 10% to $2.2 million,
during the three months ended September 30, 2009, and increased 33% to $6.9
million, during the nine months ended September 30, 2009.
Operating
revenues for our broadband transport services decreased $1.1 million, or 28%,
during the three months ended September 30, 2009 and increased $0.5 million, or
5.4%, during the nine months ended September 30, 2009. Overall
broadband transport services experienced a decline in revenues as a result of
the partial month for September 2009. The remaining decreases in both
the three and nine months ended September 30, 2009 were primarily the result of
a decrease in construction revenue partially offset by increases due to moderate
customer growth. Additionally, during the nine months ended September
30, 2009, we experienced an increase in private line revenue from existing
customers.
Operating
revenues for our network services decreased $3.0 million, or 52%, during the
three months ended September 30, 2009 and decreased $7.8 million, or 40%, during
the nine months ended September 30, 2009. Overall network services experienced a
decline in revenues as a result of the partial month for September 2009. The
decreases during both reporting periods was primarily related to a $1.8 million
and $4.9 million decrease in revenue from termination services, respectively, to
carriers and other telecommunications companies due to a decrease in volume as
well as a decrease in rates per minute. Common carrier traffic routed to us for
termination is largely dependent on traffic routed to our common carrier
customers by their customers. Competitive pricing pressures and changing
consumer preferences for voice services continue to evolve in the markets served
by our common carrier customers. If, as a result, our customers’ traffic is
reduced, or if their competitors’ costs to terminate or originate traffic are
reduced, our traffic will also likely be reduced. We also experienced decreases
in revenue from data services of $1.0 million and $2.2 million during the three
and nine months ended September 30, 2009, respectively, as the result of
decreases in customer volume.
Cost of Revenues. Our cost of
revenues decreased $4.8 million, or 27%, during the three months ended September
30, 2009 and decreased $3.4 million, or 6%, during the nine months ended
September 30, 2009. Overall cost of revenues experienced a decline as a result
of the partial month for September 2009. Cost of revenues related to video
services decreased approximately $1.2 million during the three months ended
September 30, 2009 and increased $1.7 million during the nine months ended
September 30, 2009. Other costs supporting broadband transport services, voice
services, HSD and other services, and certain network services such as access
fees and other fees that we pay to other carriers to carry calls outside our
networks and HSD transport costs decreased $2.5 million during the three months
ended September 30, 2009 and decreased $1.7 million during the nine months ended
September 30, 2009. Costs associated with termination services to carriers and
other telecommunications companies and national directory assistance fees
decreased $1.1 million during the three months ended September 30, 2009 and
decreased $3.4 million during the nine months ended September 30, 2009.
Excluding the decrease in video services as a result of the partial month in
September 2009 and a 3% decline in the number of cable connections, direct costs
of video services increased as a result of programming cost increases, which
have been increasing on a per connection basis due to an increase in costs per
channel during both the three and nine months ended September 30, 2009, as well
as increases in retransmission fees. We expect this trend to continue and may
not be able to pass these higher costs on to customers because of competitive
factors, which could adversely affect our operations. The decrease in other
costs supporting broadband transport services, voice services, HSD and other
services, and certain network services is primarily related to: (a) a
decrease in broadband transport construction costs; (b) a decrease in
access and other carrier fees associated with costs that are variable
usage-based costs, which increase or decrease as customer usage varies;
partially offset by (c) an increase related to an accrual during the
second quarter of 2009 for an estimated liability related to the initial audit
findings from the Universal Service Administration Company (“USAC”)
that administers the Universal Service Fund (“USF”) on
behalf of the Federal Communications Commission.
Selling, General and Administrative
(“SG&A”) Expense. Our SG&A
expense decreased $1.9 million, or 8% during the three months ended September
30, 2009 and decreased $7.4 million, or 10% during the nine months ended
September 30, 2009. Overall SG&A expense experienced a decline as a result
of the partial month for September 2009. Additionally, during the first quarter
of 2009, we implemented a company wide cost reduction initiative, which included
a reduction in force and voluntary and involuntary unpaid employee furloughs as
well as the suspension of certain elements of our compensation program such as
our annual merit increase and matching of 401k contributions applicable to all
employees of Grande. These actions were the primary driver in the decrease in
employee compensation and benefits during the three and nine months ended
September 30, 2009. Also included in SG&A expenses are non-recurring
expenses incurred in association with the exploration of strategic alternatives
and the recapitalization transactions of $0.7 million and $1.5 million during
the three and nine months ended September 30, 2008, respectively and $6.0
million and $6.6 million during the three and nine months ended September 30,
2009, respectively. Excluding the strategic exploration costs discussed above,
other decreases in SG&A expense during the three months ended September 30,
2009 related to employee compensation and benefits, network repairs and
maintenance, utility expenses, property taxes, sales and marketing expense,
customer billing expenses, vehicle related expenses, and other miscellaneous
expenses that totaled approximately $8.2 million. These decreases during the
three months ended September 30, 2009 were partially offset by a reduction in
the amount of indirect overhead costs capitalized to construction projects based
on a reduction in capital projects, and increases in other miscellaneous
expenses that totaled approximately $1.1 million. Excluding the strategic
exploration costs discussed above, other decreases in SG&A expense during
the nine months ended September 30, 2009 related to employee compensation and
benefits, network repairs and maintenance, legal and other professional
services, utility expenses, property taxes, software licensing costs, sales and
marketing expense, customer billing expenses, vehicle related expenses, and
other miscellaneous expenses that totaled approximately $14.6 million. These
decreases during the nine months ended September 30, 2009 were partially offset
by a reduction in the amount of indirect overhead costs capitalized to
construction projects based on a reduction in capital projects, and increases in
other miscellaneous expenses that totaled approximately $2.1
million.
Depreciation and Amortization
Expense. Our depreciation and amortization expense decreased $3.3
million, or 21%, during the three months ended September 30, 2009 and decreased
$1.0 million, or 2%, during the nine months ended September 30, 2009. The
decreases were related to sales and dispositions as well as certain assets that
became fully depreciated during the period from October 1, 2008
through September 30, 2009. Partially offsetting the decrease related
to these sales and disposals were increases in depreciation expense related to
capital lease transactions primarily associated with customer premise equipment
and property, plant and equipment additions during the period from October 1,
2008 through September 30, 2009.
Loss on early extinguishment of
debt. As discussed above under the caption, Note Purchase
Agreement, we entered into a note purchase agreement with the Requisite
Bondholders to which these bondholders sold their senior notes to Holdings upon
consummation of the recapitalization transactions at a purchase price of 101.5%
of the principal amount of such notes, plus accrued and unpaid interest thereon
through the purchase date, which is 200 basis points lower than what would have
otherwise been required under the redemption provisions of the
Indenture. On the closing date of the recapitalization transactions,
Holdings issued a mandatory redemption notice to all of the remaining holders of
its senior notes which were not subject to the note purchase agreement for the
redemption of such notes, at a purchase price equal to 103.5% of the principal
amount of such notes, plus accrued and unpaid interest thereon to the redemption
date. As a result of these transactions, we recognized a $7.1 million
loss on early extinguishment of the senior notes. All of Holdings’ outstanding
senior notes have been redeemed or repurchased and the indenture that governed
the terms of the senior notes was discharged.
Gain on sale of controlling
interests in subsidiary. On September 14, 2009 in connection
with the closing of the transactions contemplated by the Recapitalization
Agreement, we contributed all of the outstanding membership interests of our
wholly-owned subsidiary, Grande Operating, to Grande Investment L.P. As a result
of the loss of control of Grande Operating from such transaction, we recorded a
gain of $49.3 million. Such gain was determined based upon the net proceeds
received plus the fair value of our acquired 24.7% interest (subject to final
closing statement adjustment) in Grande Investment L.P. and the carrying value
of Holding’s investment in Grande Operating as of the date of the transactions.
The interest in Grande Investment L.P. is subject to adjustment based on the
finalization of the closing statement, which is expected to be complete by the
first quarter of 2010.
Non-GAAP
Financial Measures
We use
EBITDA and Adjusted EBITDA to measure our operating performance on net income
(loss), the most directly comparable GAAP financial measure, before interest
income, interest expense, income taxes, franchise taxes, depreciation and
amortization, referred to as “EBITDA.” Adjusted EBITDA is equal to EBITDA plus
non-cash compensation expense and other expense (income). EBITDA and Adjusted
EBITDA are not measures of financial performance under GAAP. We believe EBITDA
and Adjusted EBITDA are a useful measure of a company’s operating performance
and that they are a significant basis for our management to use in measuring the
operating performance of our business.
Because
we have funded the build-out of our networks by raising and expending large
amounts of capital, our results of operations reflect significant charges for
depreciation, amortization, and interest expense. EBITDA, which excludes this
information, provides helpful information about the operating performance of our
business, apart from the expenses associated with our physical plant or capital
structure. A limitation of this measure, however, is that it does not reflect
the periodic costs of certain capitalized tangible and intangible assets used in
generating revenues of our businesses. EBITDA is frequently used as a basis for
comparing businesses in our industry, although our measure of EBITDA may not be
comparable to similarly titled measures of other companies. EBITDA and Adjusted
EBITDA do not purport to represent operating loss or cash flow from operating
activities, as those terms are defined under GAAP, and should not be considered
as an alternative to those measurements as an indicator of our
performance.
Adjusted
EBITDA decreased $4.3 million, or 49%, during the three months ended September
30, 2009 and increased $0.5 million, or 2%, during the nine months ended
September 30, 2009. Overall, during both periods, Adjusted EBITDA decreased as a
result of the partial month of operations during September 2009. The
decrease in Adjusted EBITDA during the three months ended September 30, 2009 was
primarily due to a $10.7 million decrease in revenues, a $0.6 million increase
in equity in loss from investee, and a $0.1 million decrease in net gain on
sale/disposal of assets, partially offset by a combined decrease in provision
for doubtful accounts and SG&A expense of approximately $2.3 million,
excluding non-cash compensation expense, as well as a $4.8 million decrease in
costs of revenues. The increase in Adjusted EBITDA during the nine months ended
September 30, 2009 was primarily due to a combined decrease in provision for
doubtful accounts and SG&A expense of approximately $7.9 million, excluding
non-cash compensation expense as well as a $3.4 million decrease in costs of
revenues partially offset by a $9.9 million decrease in revenues, a $0.6 million
increase in loss from investee, and a $0.3 million decrease in net gain on
sale/disposal of assets.
The
reconciliation of EBITDA/Adjusted EBITDA to net income (loss) is as
follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2008
|
2009
|
2008
|
2009
|
|||||||||||||
(in
thousands)
|
(in
thousands)
|
|||||||||||||||
Net
income (loss) as reported
|
$ | (14,861 | ) | $ | 27,196 | $ | (38,819 | ) | $ | 5,354 | ||||||
Add
back non-EBITDA/Adjusted EBITDA items included in net
loss:
|
||||||||||||||||
Interest
income
|
(125 | ) | (25 | ) | (620 | ) | (49 | ) | ||||||||
Interest
expense, net of capitalized interest
|
7,738 | 6,424 | 23,300 | 22,260 | ||||||||||||
Income
tax expense
|
277 | 280 | 847 | 865 | ||||||||||||
Depreciation
and amortization
|
15,683 | 12,392 | 44,221 | 43,214 | ||||||||||||
EBITDA
|
8,712 | 46,267 | 28,929 | 71,644 | ||||||||||||
Gain
on sale of controlling interests in subsidiary
|
— | (49,252 | ) | — | (49,252 | ) | ||||||||||
Loss
on early extinguishment of senior notes
|
— | 7,139 | — | 7,139 | ||||||||||||
Non-cash
compensation expense
|
92 | 300 | 299 | 417 | ||||||||||||
Other
income
|
— | — | — | (241 | ) | |||||||||||
Adjusted
EBITDA
|
$ | 8,804 | $ | 4,454 | $ | 29,228 | $ | 29,707 |
Liquidity
and Capital Resources
Sources
and Uses of Funds
Since
inception, we had been funded primarily with private equity investments,
issuance of debt securities and cash provided by operating activities. Our
current primary source of liquidity is cash on hand as we will not have any
future cash flows from operating activities. As of September 30,
2009, we had total cash and cash equivalents of $1.0 million and no long-term
debt and capital lease obligations.
Subject
to the risk factors set forth under Part II Item 1A—Risk Factors, we expect that
our available cash and cash equivalents will be sufficient to fund our expenses
over the next twelve months through September 30, 2010 assuming we
will no longer be a reporting company and our estimates regarding expected
future costs is accurate. Our costs may exceed our estimates, our
estimates may change, and future developments may affect our
estimates. Any of these factors may increase our need for additional
funds. However, we may not be able to raise additional funds on
favorable terms or at all.
Cash
Flows from Operating Activities
Net cash
provided by operating activities consisted of the following
components:
Nine
Months ended
|
||||||||
September 30,
|
||||||||
2008
|
2009
|
|||||||
(in
thousands)
|
||||||||
Cash
collected from customers
|
$ | 153,331 | $ | 142,273 | ||||
Interest
income received
|
583 | 49 | ||||||
Other
income received
|
— | 241 | ||||||
Sales
tax refund received
|
626 | — | ||||||
Payments
to vendors and employees
|
(121,980 | ) | (108,229 | ) | ||||
Interest
expense paid
|
(14,814 | ) | (15,010 | ) | ||||
Prepayment
penalty on early extinguishment of debt
|
— | (2,922 | ) | |||||
Income
taxes paid
|
(1,102 | ) | (896 | ) | ||||
Net
cash provided by operating activities
|
$ | 16,644 | $ | 15,506 |
The
decrease in cash collected from customers is due to the decrease in operating
revenues and timing of collections. The decrease in payments to vendors and
employees is the result of the decrease in SG&A expenses requiring cash
outlays and the timing of cash payments as well as the decrease in cost of
revenues.
Cash
Flows from Investing Activities
Net cash
(used in) provided by investing activities consisted of the following
components:
Nine
Months ended
|
||||||||
September 30,
|
||||||||
2008
|
2009
|
|||||||
(in
thousands)
|
||||||||
Purchases
of property, plant and equipment
|
$ | (23,204 | ) | $ | (13,769 | ) | ||
Investment
in Grande Investment L.P.
|
— | (30,276 | ) | |||||
Proceeds
from sale of controlling interest in subsidiary
|
— | 214,727 | ||||||
Proceeds
from sale of assets
|
360 | 278 | ||||||
Proceeds
from sales tax refunds
|
349 | — | ||||||
Net
cash (used in) provided by investing activities
|
$ | (22,495 | ) | $ | 170,960 |
The
decrease in capital expenditures during the nine months ended September 30, 2009
primarily related to a partial month of operations in September 2009 as well as
a reduction in: purchases of customer premise equipment; initial customer
installation costs; and network equipment. See “Capital Expenditures” below for
a more detailed discussion of capital expenditures.
Cash
Flows from Financing Activities
Net cash
used in financing activities consisted of the following components:
Nine
Months ended
|
||||||||
September 30,
|
||||||||
2008
|
2009
|
|||||||
(in
thousands)
|
||||||||
Payments
of long-term debt and capital lease obligations
|
$ | (3,870 | ) | $ | (213,492 | ) | ||
Proceeds
from sale leaseback arrangement
|
— | 4,532 | ||||||
Net
proceeds from borrowings
|
— | 123 | ||||||
Net
borrowings (repayments) on zero-balance cash account
|
(892 | ) | (3,624 | ) | ||||
Other
financing activity
|
6 | (7 | ) | |||||
Net
cash used in financing activities
|
$ | (4,756 | ) | $ | (212,468 | ) |
During
January 2009, the Company sold various customer premise equipment for
$4.5 million cash. Concurrent with the sale, the Company leased the customer
premise equipment back for a period of two years at a monthly rental of $0.2
million. As a result of the recapitalization transactions on
September 14, 2009, this capital lease is no longer included in the accounts of
Holdings, and the outstanding senior notes were redeemed or repurchased and the
indenture that governed the terms of the senior notes was
discharged.
Capital
Expenditures
We had
capital expenditures of approximately $23.2 million during the nine months ended
September 30, 2008 and $13.8 million during the nine
months ended September 30, 2009, including capitalized interest. These capital
expenditures relate to: network construction; initial customer installation
costs; the purchase of customer premise equipment, such as cable set-top boxes
and cable modems; corporate and network equipment, such as switching and
transport equipment; and billing and information systems. The decrease in
capital expenditures during the nine months ended September 30, 2009 primarily
related to a partial month of operations in September 2009 as well as a
reduction in: purchases of customer premise equipment; initial customer
installation costs; and network equipment.
Contractual
Obligations and Commercial Commitments
During
the nine months ended September 30, 2009, our aggregate contractual obligations
decreased $328.7 million, or 100%, compared to those previously described in
Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and
Results of Operation” under the caption “Contractual Obligations and Commercial
Commitments” included in our Annual Report on Form 10-K for the year
ended December 31, 2008, primarily as a result of the September 14,
2009 recapitalization transactions and the assumption by the acquirer of all of
Grande Operating’s outstanding contractual obligations and the redemption or
repurchase of Holdings’ senior notes.
Critical
Accounting Policies and Estimates
Our
consolidated financial statements are prepared in accordance with accounting
principles that are generally accepted in the United States. To prepare these
financial statements, we must make estimates, judgments and assumptions that we
believe are reasonable based upon the information available. These estimates and
assumptions affect the reported amounts of assets, liabilities, revenues and
expenses as well as the disclosure of contingent assets and liabilities. We
periodically evaluate our estimates and assumptions and base our estimates and
assumptions on our best knowledge of current events and actions we may undertake
in the future. Actual results may ultimately differ from these
estimates.
Prior to
the recapitalization transactions on September 14, 2009, there were no material
changes to the critical accounting policies and estimates previously described
in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition
and Results of Operation” under the caption “Critical Accounting Policies and
Estimates” included in Grande’s Annual Report on Form 10-K for the
year ended December 31, 2008.
Subsequent
to the recapitalization transactions, See Note 2 to the accompanying
consolidated financial statements for our critical accounting
policies.
Recent
Accounting Pronouncements
See Note
2 to the accompanying consolidated financial statements for other accounting
standards adopted in 2009 and accounting standards not yet adopted.
Also
refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operation” under the caption “Recent Accounting
Pronouncements” included in our Annual Report on Form 10-K for the
year ended December 31, 2008.
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
There
have been no significant changes to our market risk since
December 31, 2008.
ITEM 4T.
|
CONTROLS
AND PROCEDURES
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer, who is our
principal executive officer, and our Chief Financial Officer, who is our
principal financial officer, have evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) or
Rule 15d-15(e), as applicable, under the Exchange Act) as of
September 30, 2009. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that as of September 30, 2009,
our disclosure controls and procedures are effective. Disclosure controls and
procedures are controls and other procedures that are designed to ensure that
information required to be disclosed in our reports filed under the Exchange
Act, is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports that are filed under the
Exchange Act, is accumulated and communicated to management, including our chief
Executive Officer and our Chief Financial Officer as appropriate to allow timely
decisions regarding required disclosure.
Changes
in Internal Control over Financial Reporting
During
the nine months ended September 30, 2009, there was no change in our internal
control over financial reporting that has materially affected, or that is
reasonably likely to materially affect, our internal control over financial
reporting. As a result of the recapitalization transactions, which
closed on September 14, 2009, Holdings does not have any operations or material
assets other than the ownership of its partner interest in Ultimate
Parent. In conjunction with the recapitalization transactions, all of
our employees were either terminated or transferred with Grande Operating which
was contributed by Holdings to Ultimate Parent. Substantial changes
have been made to the Company’s internal controls as a result of the lack of
employees and operations.
In
designing and evaluating the disclosure controls and procedures and internal
control over financial reporting, 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.
PART II OTHER INFORMATION
ITEM
1.
|
LEGAL
PROCEEDINGS
|
None
ITEM 1A.
|
RISK
FACTORS
|
Holdings
may not have enough cash on-hand to meet future expenses.
As a
result of the closing of the recapitalization transaction, Holdings does not
have any operations or material assets other than the ownership of its 24.7%
(subject to final closing statement adjustment) interest common equity interest
in Ultimate Parent and cash and cash equivalents of approximately $1.0 as of
September 30, 2009. Although Holdings has no operations it does
continue to expect to incur certain expenses and given Holdings’ limited
resources it may not be able to meet such future expense
obligations.
We
are subject to the requirements of Section 404 of the Sarbanes-Oxley
Act. Because of our limited cash and employee resources, we may
unable to timely comply with Section 404 which could have a
materially adversely impact on Holdings.
We are
required to comply with the provisions of Section 404 of the
Sarbanes-Oxley Act of 2002. Section 404 requires that we document and
test our internal control over financial reporting and issue management’s
assessment of our internal control over financial reporting. We may
be required to hire an outside consulting firm to work with Holdings in
assessing our internal controls. During the course of our ongoing evaluation and
integration of the internal control over financial reporting, we may identify
areas requiring improvement, and we may have to design enhanced processes and
controls to address issues identified through this review. We believe
that the out-of-pocket costs and resource demand caused by the need to comply
with the requirements of Section 404 of the Sarbanes-Oxley Act could
be significant as compared to our very limited activity.
Our
stock is not publicly traded, listed or quoted on a national securities
exchange, so you may be unable to sell our stock.
Our stock
is not publicly traded, listed or quoted on a national securities exchange, so
you may be unable to sell our Common Stock. There is no existing
market for our stock, and we do not expect any such market to
develop. No class or series of our equity securities are registered
under the Securities Act and may not be resold unless registered or unless an
exemption from registration is available. Even if our stock is registered under
the Securities Act or is exempt from registration, state securities laws may
prohibit or limit its transferability in some jurisdictions. Further,
in connection with the recapitalization transactions, certain requisite
stockholders of Holdings approved the Sixth Amended and Restated Investor Rights
Agreement. Prior to this amendment and restatement, the investor
rights agreement provided for a broad range of registration rights with respect
to the equity securities of Holdings, together with certain information rights
and related obligations of Holdings. In recognition of the changes
resulting from the recapitalization transactions, the requisite parties to the
investor rights agreement expressly waived all such registration rights and
obligations in the Sixth Amended and Restated Investor Rights
Agreement. In addition to the existing transfer restrictions
contained in the prior investor rights agreement, the Sixth Amended and Restated
Investor Rights Agreement includes, among other things, additional transfer
restrictions requiring the approval of Holdings for any transfer of its equity
securities that would (1) increase the number of record holders of any class of
Holdings’ equity securities, (2) require registration of such equity securities
under the Securities Act, (3) subject Holdings to the periodic reporting
requirements of the Exchange Act, or (4) subject Holdings to the registration
requirements of, or limit the availability of any exemptions from registration
under, the Investment Company Act of 1940, as amended. Due to these
conditions, you may not be able to sell your shares if you need money or
otherwise desire to liquidate your shares.
We
have not, and currently do not anticipate, paying dividends on our
stock.
We have
never declared or paid any cash dividends on our capital stock and do not
anticipate paying cash dividends on our capital stock in the foreseeable
future. Future declaration and payment of dividends, if any, will be
determined based on the then-current conditions, including whether Holdings has
received any dividends or other distributions resulting from its investment in
Ultimate Parent our capital requirements, and other factors the board of
directors deems relevant. Pursuant to our articles of incorporation, holders of
our preferred stock are entitled to any dividends that may be declared from time
to time by our board of directors on a pari passu basis with any dividend on our
common stock (payable other than in our common stock or other securities and
rights convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of our common stock), on an as-converted to common
stock basis.
During
a liquidation, our obligations to the holders of shares of our preferred stock
must be satisfied before any payments are made to the holders of our common
stock.
If we are
liquidated, the holders of our preferred stock will be entitled to be paid in
full before any payments are made to the holders of our common stock. Our
outstanding preferred stock has an aggregate liquidation preference of $597.4
million as of September 30, 2009. Refer to the condensed consolidated balance
sheets included in the accompanying consolidated financial statements for the
detail of liquidation preference by series of stock. Any funds used to pay the
holders of our preferred stock will restrict our ability to use such funds for
to cover expenses and must be paid before any amounts may be paid to the holders
of our common stock.
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
None
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
None
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
On
September 10, 2009, in accordance with applicable law, our charter and the Fifth
Amended and Restated Investor Rights Agreement, Holdings received the written
consent of its stockholders with respect to the following matters:
|
(1)
|
The
adoption of the recapitalization agreement and the approval of the
recapitalization transactions, including the contribution of Grande
Operating equity to Ultimate Parent was approved by holders of (i)
approximately 67% of the outstanding shares of our common stock and
preferred stock, voting together as a single class, as if all the
preferred stock had been converted into common stock, and (ii)
approximately 68.8% of the outstanding shares of all series of our
preferred stock (other than the Series H preferred stock), voting together
as a separate class, as if all the preferred stock had been converted into
common stock.
|
|
(2)
|
The
agreement that the recapitalization transactions will not be deemed a
liquidation, dissolution or winding up of Holdings and that the closing
could occur at any time following the effectiveness of the written consent
received the consent of the holders of (i) approximately 68.8%
of the outstanding shares of preferred stock (other than the Series H
preferred stock), voting together as a separate class, as if all the
preferred stock had been converted into common stock, and
(ii) approximately 78.6% of the outstanding shares of Series G
preferred stock voting together as a separate class, as if all such shares
of preferred stock had been converted into common
stock.
|
|
(3)
|
The
Sixth Amended and Restated Investor Rights Agreement was approved by the
holders of approximately 68.4% of the outstanding shares of our common
stock and preferred stock, including any shares issuable pursuant to
outstanding warrants and options, that are held by holders of preferred
stock that are party to the Fifth Amended and Restated Certificate of
Incorporation, together as a single class, as if all preferred stock had
been converted into common stock.
|
|
(4)
|
The
redomestication of Holdings from Delaware to Nevada pursuant to a plan of
merger (the “Merger”)
and the change of the name of Grande Communications Holdings,
Inc. to Rio Holdings, Inc. and the adoption of the articles of
incorporation and bylaws of Rio Holdings, Inc. in the Merger, received the
consent of the holders of (i) approximately 67% of the outstanding shares
of our common stock and preferred stock, voting together as a single
class, as if all the preferred stock had been converted into common stock,
and (ii) approximately 68.8% of the outstanding shares of
preferred stock (other than the Series H preferred stock), voting together
as a separate class, as if all the preferred stock had been converted into
common stock.
|
|
(5)
|
The
amendment of the Series G Warrants (i) to provide that the Series G
Warrants become exercisable for the same number and type of shares of
common stock of the surviving corporation in the Merger and (ii) to permit
the assumption by the surviving corporation in the Merger of all Holdings’
obligations under the warrants and (iii) to provide that Holdings could
effect the Merger at any time following the closing of the
recapitalization transactions, received the consent of the holders of
approximately 78.6% of the shares of common stock issuable upon exercise
of the Series G Warrants.
|
Such
action by written consent was sufficient to adopt the stockholder approval
matters without the affirmative vote of any other Holdings
stockholder.
ITEM
5.
|
OTHER
INFORMATION
|
None
ITEM
6.
|
EXHIBITS
|
Unless
designated by an asterisk indicating that such document has been filed herewith,
the Exhibits listed below have been heretofore filed by the Company pursuant to
Section 13 or 15(d) of the Exchange Act and are hereby incorporated herein by
reference to the pertinent prior filing.
Exhibit
No.
|
Description
|
|
2.1
|
Agreement
and Plan of Merger (previously filed as exhibit 2.1 to Form 8-K dated
September 18, 2009).
|
|
3.1
|
Articles
of Incorporation of Rio Holdings, Inc. (previously filed as exhibit 3.1 to
Form 8-K dated September 18, 2009).
|
|
3.2
|
Bylaws
of Rio Holdings, Inc. (previously filed as exhibit 3.2 to Form 8-K dated
September 18, 2009).
|
|
10.1
|
Form
of Indemnification Agreement entered into by each Member of the
Registrant’s Board of Directors and each of Registrant’s Officers
(previously filed as exhibit 10.1 to Form 8-K dated
July 22, 2009).
|
|
10.2
|
Note
Purchase Agreement, dated as of August 18, 2009, by and among Grande
Communications Holdings, Inc., a Delaware corporation, each of the Holders
party thereto, and ABRY Partners VI, LP, a Delaware limited partnership
(previously filed as exhibit 10.1 to Form 8-K dated August 24,
2009).
|
|
10.3
|
Contribution
Agreement, dated September 14, 2009, by and among Grande Communications
Holdings, Inc., Grande Communications Networks LLC, Grande Investment L.P.
and Grande Parent LLC (previously filed as exhibit 10.1 to Form 8-K dated
September 18, 2009).
|
|
10.4
|
Ultimate
Parent Limited Partnership Agreement, dated September 14, 2009, by and
among Grande Communication Holdings, Inc., Rio GP, LLC, Grande Manager
LLC, ABRY Partners VI, L.P. and ABRY Investment Partnership, L.P.
(previously filed as exhibit 10.2 to Form 8-K dated September 18,
2009).
|
|
10.5
|
Ultimate
Parent Partners Agreement, dated September 14, 2009, by and among Grande
Investment L.P., Rio GP, LLC, Grande Manager LLC, ABRY Partners VI, L.P.
and ABRY Investment Partnership, L.P. (previously filed as exhibit 10.3 to
Form 8-K dated September 18, 2009).
|
|
10.6
|
Ultimate
Parent Registration Rights Agreement, dated September 14, 2009, by and
among Grande Investment L.P., Rio GP, LLC, ABRY Partners VI, L.P. and ABRY
Investment Partnership, L.P. (previously filed as exhibit 10.4 to Form 8-K
dated September 18, 2009).
|
|
10.7
|
First
Amendment to Guaranty and Suretyship Agreement, dated September 14, 2009,
by and between Grande Communications Holdings, Inc., Rio GP, LLC and GRC
(TX) Limited Partnership (August 2003 Lease) (previously filed as exhibit
10.7 to Form 8-K dated September 18, 2009).
|
|
10.8
|
First
Amendment to Guaranty and Suretyship Agreement, dated September 14, 2009,
by and between Grande Communications Holdings, Inc., Rio GP, LLC and
GRC-II (TX) Limited Partnership (June 2004 Lease) (previously filed as
exhibit 10.8 to Form 8-K dated September 18, 2009).
|
|
10.9
|
Sixth
Amended and Restated Investor Rights Agreement, dated September 14, 2009,
by and among Grande Communications Holdings, Inc. and the investors named
therein (previously filed as exhibit 10.9 to Form 8-K dated September 18,
2009).
|
|
10.10
|
Recapitalization
Agreement, dated as of August 27, 2009, by and among Grande
Communications Holdings, Inc., a Delaware corporation, Grande
Communications Networks, Inc. a Delaware corporation ABRY
Partners VI, L.P., a Delaware limited partnership, Grande Investment L.P.,
a Delaware limited partnership, Grande Parent LLC, a Delaware limited
liability company, and ABRY Partners, LLC, a Delaware limited
liability company (previously filed as exhibit 10.1 to Form 8-K dated
August 31, 2009).
|
|
Certification
of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 13a – 14(a) promulgated
under the Exchange Act.
|
||
Certification
pursuant to Rule 13a – 14(b) promulgated under the Exchange Act
and 18 U.S.C.
Section 1350.
|
* Filed
herewith.
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.
Rio
Holdings, Inc.
|
||
(Registrant)
|
||
Date:
November 23, 2009
|
By:
|
/s/ MICHAEL L. WILFLEY
|
Michael
L. Wilfley
|
||
Chief
Executive Officer, Chief Financial Officer,
|
||
President
and Treasurer
|
||
(Duly
Authorized Officer, Principal Executive Officer and Principal Financial
Officer)
|
25