Chart compares the past five quarters of financial results for MI-Connection. The third-quarter of fiscal 2012 (right column) showed improvement in all major areas. (SOURCE: MI-Connection quarterly reports, 2011-12)

By DAVID BORAKS
DavidsonNews.net

The MI-Connection Communications System continued its gradual improvement over the past three months, reporting its highest-ever revenues and lower expenses, leading to a record operating income. Meanwhile, the state’s Local Government Commission remains has sent its annual letter expressing concern about MI-Connection’s long-term financial health, but this year’s was shorter, with fewer specific concerns than past years.

The system, owned by Davidson and Mooresville, also added customers in all three of its businesses – cable TV, internet access and telephone.

The gains weren’t enough to avoid more red ink, but the company’s overall loss shrank by 25 percent, to $1.25 million – the lowest level in a year and the second lowest loss ever.

Download a quarterly report below. (SOURCE: MI-Connection)

MI-Connection saved money on administrative and transition expenses, mainly because of the towns’ takeover of most day-to-day operations from Bristol Virginia Utilities, Chief Executive David Auger told the MI-Connection board Thursday night. BVU formerly ran the communications network under contract to the towns.

“Overall a very good [quarter],” Mr. Auger said. “We’re really trending in the right direction and I think you’re going to see more of the same in the next quarter, particularly as we see the impact of passing some of our costs on to our customers that our programmers passed on to us Jan. 1st.”

He was referring to price increases that took effect April 1, and which should be reflected in revenues beginning in May. On the TV side, the price increases will help MI-Connection pay for rising programming costs, including a nearly 39 percent jump in the fees over-the-air broadcasters charge for their signals.

MI-Connection’s revenues totaled $3,985,904 for the three months that ended March 31, up slightly from the second quarter and the highest since Mooresville and Davidson bought the system in 2007. Expenses declined by about $400,000, to $3.17 million.

The company’s income from day to day operations (EBIDA, or earnings before interest, depreciation and amortization), more than doubled from the second quarter, to $812,457. That also was the highest in the history of MI-Connection, according to Mr. Auger.

John Venzon of Davidson, the volunteer board chair of MI-Connection, applauded the result. “I think it’s encouraging that we continue to have strong growth,” he said.

Last month, MI-Connection restated its 2011-12 budget to acknowledge lower than expected income this fiscal year. Officials blamed the shortfall on delays in the takeover of key business functions from BVU. Because of that situation, MI-Connection asked Davidson and Mooresville for an additional $1.1 million to balance its budget this fiscal year.

On Thursday, Mr. Auger said MI-Connection’s revenues appear to be running slightly ahead of the restated budget.

STATE WARNING LETTER

MI-Connection officials on Thursday made public the third letter in three years it received from the Local Government Commission, a division of the state treasurer’s office that oversees borrowing by N.C. cities and towns.

In the March 31 letter, state officials actually praised the system for its 2011 financial results, in particular improvements in cash flow from operations. “We commend the unit’s management and staff for that improvement,” the letter says.

But the letter also expresses continued concerns about the system’s financial condition. While MI-Connection’s revenues are paying for its day-to-day expenses, they still aren’t enough to cover its debt, which totaled about $84 million as of June 30, 2011.

“We noted various signs of financial weakness indicating that the system will have to take significant additional measures to achieve fiscal stability,” the letter said.

The letter also took note of concerns raised last fall by the system’s auditors, Dixon Hughes Goodman, including a question about whether the company’s financial officers were properly bonded – a state requirement for any public officials with responsibility for public funds. System officials said Thursday that issue has already been cleared up and that the system was never in violation of the law. Instead, they said, the confusion arose because of the system’s transition from BVU’s management to a stand-alone company.

Nick Miller, the board’s lawyer, said this year’s LGC letter was a positive one. “This letter this year recognizes how much the system has improved. The LGC still has a statutory obligation to oversee the system, and they have a couple of relatively minor points that have been fixed already,” Mr. Miller told the board.

But, he added, “There’s really no substantial criticisms in this that warrant an immediate response.”

Nonetheless, the board and staff agreed to draft and send a response within a couple of weeks, and to remain in close contact with the LGC about developments in MI-Connection’s finances.

Mr. Venzon said later that after a couple of years of reacting to the LGC’s concerns, the company is now in a regular, more “healthy dialog” with the agency. And in turn, he said, “They are working with us. … I believe we all see the same problem and are getting more oars pulling in the same direction.”

OTHER ISSUES

The board on Thursday also briefly discussed an issue that came up last week involving advertising on the MI-Connection cable TV system.

MI-Connection contracts with a third party, Viamedia of Lexington, Ky., to sell on-air advertising time. A state Senate candidate in Iredell County, Karen Ray, publicly criticized the system and threatened a lawsuit when Viamedia paused to review the accuracy of one of her campaign commercials. MI-Connection ultimately aired the commercial, even though Viamedia said she did not verify the accuracy of information in the ad. The ad criticized state Sen. Chris Carney for voting in favor of the towns’ purchase of MI-Connection when he served on the Mooresville Town Board.

At the end of the meeting, board went into closed session to discuss what was described as a legal issue. Mr. Auger said during the meeting that the discussion concerned the interlocal agreement between Davidson and Mooresville that governs MI-Connection. MI-Connection’s board last year began discussing a possible revision of the agreement to change the way the system’s ownership is calculate – and how profits/losses are allocated.

RELATED LINKS

April 26, 2012, MI-Connection financial report for the third quarter of Fiscal 2012, which ended March 31. (PDF)

March 21, 2012, Local Government Commission letter to MI-Connection

March 13, 2012, DavidsonNews.net, “MI-Connection to restate budget, needs more cash from towns.”