UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~March~~June 3130, 2010


o		Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 1-16805

RCN Corporation

(Exact name of registrant as specified in its charter)

Delaware		22-3498533
Delaware (State or other jurisdiction of incorporation or organization)		22-3498533 (I.R.S. Employer Identification No.)
(State or other jurisdiction of		(I.R.S. Employer
196 Van Buren Street, Herndon, VA (Address of principal executive offices)		20170 (Zip Code)
incorporation or organization)		Identification No.)

196 Van Buren Street, Herndon, VA		20170
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (703) 434-8200

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 þ No o

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 þ No o

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. (Check one):


o Large accelerated filer		þ Accelerated filer		o Non-accelerated filer		o 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 o No þ

~~Indicate~~The bynumber ~~check~~of ~~mark~~shares ~~whether~~of the registrant’s ~~has~~common ~~filed~~stock, ~~all~~par ~~documents~~value ~~and~~of ~~reports~~$0.01 toper beshare, ~~filed~~outstanding byat ~~Sections~~August 126, 132010 orwas ~~15(d) of the Securities Exchange Act 1934 subsequent to the distribution of securities under a plan confirmed by a court~~35,741,528. ~~Yes o No o~~

The number of shares of the registrant’s common stock, par value of $0.01 per share, outstanding at May 3, 2010 was 35,303,906.

RCN CORPORATION AND SUBSIDIARIES
FORM 10-Q
Table of Contents

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009		4
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009		4
Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009		5
Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009		5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009		6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2022
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2732
Item 4. Controls and Procedures		2732
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		2732
Item 1A. Risk Factors		2833
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		2833
Item 6. Exhibits		2933
SIGNATURES		3034
Certifications		32
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Cautionary Statement Regarding Forward-Looking Statements

Certain of the statements contained in this Form 10-Q (“Report”) constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the current views of RCN Corporation (“RCN” or the “Company”) with respect to current events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “could,” “should,” and “continue” or similar words. These forward-looking statements may also use different phrases. From time to time, RCN also provides forward-looking statements in other materials RCN releases to the public or files with the Securities and Exchange Commission (“SEC”), as well as oral forward-looking statements. You should consult any further disclosures on related subjects in RCN’s Annual Reports on Form 10-K, Quarterly Reports of Form 10-Q and Current Reports on Form 8-K filed with the SEC.

While we believe the judgments we have made with respect to forward-looking statements are reasonable, you should understand that these statements are not guarantees of future performance or results and such forward-looking statements are and will be subject to many risks, uncertainties and factors, which may cause RCN’s actual results to be materially different from such forward-looking statements. Factors that could cause RCN’s actual results to differ materially from these forward-looking statements include, but are not limited to, the following:

•

our ability to operate in compliance with the terms of our financing facilities (particularly the financial covenants);

•

our ability to maintain adequate liquidity and produce sufficient cash flow to fund our capital expenditures and debt service;

•

our ability to attract and retain qualified management and other personnel;

•

our ability to maintain current price levels;

•

our ability to acquire new customers and retain existing customers;

•

changes in the competitive environment in which we operate, including the emergence of new competitors;

•

changes in government and regulatory policies;

•

deterioration in and uncertainty relating to economic conditions generally and, in particular, affecting the markets in which we operate;

•

pricing and availability of equipment and programming;

•

our ability to obtain regulatory approvals and to meet the requirements in our license agreements;

•

our ability to complete the proposed merger described herein;

•

our ability to complete acquisitions or divestitures and to integrate any business or operation acquired;

•

our ability to enter into strategic business relationships;

•

our ability to overcome significant operating losses;

•

our ability to expand our operating margins;

•

our ability to develop products and services and to penetrate existing and new markets;

•

technological developments and changes in the industry; and

•

the risks discussed in Part 1, Item 1A “Business-Risk Factors” in our Annual Report for the 2009 fiscal year, filed on March 9, 2010, or our “Annual Report”.

Statements in this Report and the exhibits to this Report should be evaluated in light of these important factors and you should not unduly rely on these forward-looking statements. RCN is not obligated to, and undertakes no obligation to publicly update any forward-looking statement due to actual results, changes in assumptions, new information or future events.

PART I — FINANCIAL INFORMATION


Item 1.		Financial Statements

RCN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except share and per share data)

(Unaudited)

	For the three months ended						For the six months ended
	March 31,
	June 30,						June 30,
	2010			2009			2010			2009
Revenues	$	~~190~~194,~~103~~624		$	~~189~~192,~~228~~332		$	384,727		$	381,559
Costs and expenses:
Direct expenses		7271,~~206~~275			7069,~~281~~291			143,481			139,573
Selling, general and administrative (including stock-based compensation of $3,069 and $2,394)		67,983			69,060
Selling, general and administrative (including stock-based compensation of $2,595, $2,117, $5,664, and $4,511)		72,550			69,643			140,533			138,704
Exit costs and restructuring charges		44			295
Exit costs and restructuring charges, net		(178	)		7			(134	)		302
Depreciation and amortization		3637,~~896~~764			4850,~~508~~857			74,660			99,570
Operating income	$	1213,~~974~~213		$	12,~~084~~534		$	26,187		$	3,410
Investment (expense) income		(13	)		262
Investment income		26			53			13			315
Interest expense		(9,~~728~~701	)		(10,~~978~~983	)		(19,429	)		(21,962	)
Other income, net		1,984			—
Other (expense) income, net		(12	)		(241	)		1,972			(36	)
Income (loss) from continuing operations before income taxes		5,217			(9,632	)
Income (loss) before income taxes		3,526			(8,637	)		8,743			(18,273	)
Income tax expense		~~297~~70			—764			367			764
Net income (loss)	$	43,~~920~~456		$	(9,~~632~~401	)	$	8,376		$	(19,037	)
Basic net income (loss) per share	$	0.1410		$	(0.2726	)	$	0.24		$	(0.53	)
Diluted net income (loss) per share	$	0.1410		$	(0.2726	)	$	0.23		$	(0.53	)

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

RCN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

(Unaudited)

	March 31,			December 31,
	June 30,			December 31,
	2010			2009
ASSETS
Current Assets:
Cash and cash equivalents	$	5137,~~904~~389		$	71,808
Short-term investments		3942,~~984~~992			15,135
Accounts receivable, net of allowance for doubtful accounts of $6,560 and $6,932		59,095			65,734
Accounts receivable, net of allowance for doubtful accounts of $7,618 and $6,932		63,400			65,734
Prepayments and other current assets		1716,~~410~~887			14,727
Total current assets		~~168~~160,~~393~~668			167,404
Property, plant and equipment, net of accumulated depreciation of $873,901 and $839,998		646,289			654,678
Property, plant and equipment, net of accumulated depreciation of $907,343 and $839,998		640,163			654,678
Goodwill		15,479			15,479
Intangible assets, net of accumulated amortization of $85,543 and $84,720		105,341			106,164
Intangible assets, net of accumulated amortization of $86,208 and $84,720		105,875			106,164
Long-term restricted investments		109,~~890~~556			11,666
Deferred charges and other assets		14,~~514~~258			15,060
Total assets	$	~~960~~945,~~906~~999		$	970,451
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses related to trade creditors	$	6164,~~403~~288		$	66,166
Accrued expenses and other liabilities		60,~~278~~546			70,263
Current portion of long-term debt and capital lease obligations		257,~~760~~185			25,947
Total current liabilities		~~147~~132,~~441~~019			162,376
Long-term debt and capital lease obligations, net of current maturities		~~707~~705,~~653~~856			709,308
Other long-term liabilities		9298,~~853~~277			90,633
Total liabilities		~~947~~936,~~947~~152			962,317
Commitments and contingencies
Stockholders’ Equity:
Common stock, par value $0.01 per share, 100,000,000 shares authorized, 35,749,092 and 35,616,512 shares issued and outstanding		357			356
Common stock, par value $0.01 per share, 100,000,000 shares authorized; 36,408,108 and 35,616,512 shares issued; 35,731,752 and 35,212,173 outstanding		364			356
Additional paid-in capital		~~457~~460,~~764~~735			454,215
Treasury stock, 453,313 and 404,339 shares at cost		(6,971	)		(6,366	)
Treasury stock, 676,356 and 404,339 shares at cost		(10,281	)		(6,366	)
Accumulated deficit		(~~398~~394,~~117~~661	)		(403,037	)
Accumulated other comprehensive loss		(4046,~~074~~310	)		(37,034	)
Total stockholders’ equity		129,~~959~~847			8,134
Total liabilities and stockholders’ equity	$	~~960~~945,~~906~~999		$	970,451

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

RCN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

	For the three months ended
	For the six months ended
	March 31,
	June 30,
	2010			2009
Cash flows from operating activities:
Net income (loss)	$	48,~~920~~376		$	(919,~~632~~037	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Non-cash stock-based compensation		35,~~069~~664			24,~~394~~511
Depreciation and amortization		3674,~~896~~660			4899,~~508~~570
Other, net		~~713~~1,476			~~241~~620
Net change in certain assets and liabilities		(47,~~580~~840	)		(1119,~~701~~322	)
Net cash provided by operating activities		4182,~~018~~336			2966,~~810~~342
Cash flows from investing activities:
Cash flows from (used in) investing activities:
Additions to property, plant and equipment		(3565,~~036~~055	)		(2249,~~503~~443	)
Increase in short-term investments		(24,864	)		(70	)
Investment in intangibles		(1,200	)		—
Proceeds from sale of assets		687			454
Increase in short-term investments		(27,842	)		(116	)
Decrease in restricted investments		776			3,686
Proceeds from sale of assets		977			615
Net cash used in investing activities		(58,437	)		(18,433	)
Decrease in restricted investments		2,110			3,673
Cash flows from financing activities:
Net cash used in investing activities		(91,010	)		(45,271	)
Payments of long-term debt, including capital leases		(1,842	)		(1,836	)
Cash flows from (used in) financing activities:
Dividend payments		(476	)		(641	)
Payments of long-term debt, including capital leases		(22,214	)		(3,674	)
Cost of common shares repurchased		(605	)		(1,549	)
Dividend payments		(477	)		(641	)
Proceeds from the exercise of stock options		438			—
Cost of common shares repurchased		(3,915	)		(5,713	)
Net cash used in financing activities		(2,485	)		(4,026	)
Proceeds from the exercise of stock options		861			—
Net (decrease) increase in cash and cash equivalents		(19,904	)		7,351
Net cash used in financing activities		(25,745	)		(10,028	)
Net (decrease) increase in cash and cash equivalents		(34,419	)		11,043
Cash and cash equivalents at beginning of the period		71,808			10,778
Cash and cash equivalents at end of the period	$	5137,~~904~~389		$	1821,~~129~~821
Supplemental disclosures of cash flow information
Supplemental disclosures of cash flow information:

During the ~~three~~six months ended ~~March~~June 3130, 2010 and 2009, cash paid for interest totaled $918.~~2 million~~4 million and $1020.58 million, respectively.

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

RCN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

1. ORGANIZATION AND BASIS OF PRESENTATION

RCN Corporation (“RCN” or the “Company”) is a competitive broadband services provider, delivering all-digital and high-definition video, high-speed internet and premium voice services to Residential and Small and Medium Business (“SMB”) customers under the brand names of RCN and RCN Business Services, respectively. In addition, the Company’s RCN Metro Optical Networks business unit (“RCN Metro”) delivers fiber-based high-capacity data transport services to large commercial customers, primarily large enterprises and carriers, targeting the metropolitan central business districts in RCN’s geographic markets. The Company constructs and operates its own networks, and our primary service areas include: Washington, D.C., Philadelphia, Lehigh Valley (PA), New York City, Boston and Chicago.

The Company has two principal business segments (i) Residential/SMB and (ii) RCN Metro. For financial and other information about the Company’s segments, refer to Note 13.

As previously reported by RCN in the Form 8-K filed on March 5, 2010 with the Securities and Exchange Commission (the “SEC”), RCN entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Yankee Cable Acquisition, LLC (“Cable Buyer”), Yankee Metro Parent, Inc. (“Metro Parent”) and Yankee Metro Merger Sub, Inc. (“Merger Sub”) on March 5, 2010, pursuant to which those entities agreed to acquire RCN for total consideration of approximately $1.2 billion, including the assumption of debt. Cable Buyer, Metro Parent and Merger Sub are controlled by a private equity fund associated with ABRY Partners, LLC. The transaction was approved at a special meeting of stockholders held on May 19, 2010, and is expected to be completed in the second half of 2010, subject to receipt of ~~stockholder approval,~~ regulatory approvals, ~~including the receipt of required consents and approvals of the Federal Communications Commission,~~ as well as satisfaction of other customary closing conditions. The transaction is not subject to any financing condition. ~~The foregoing description of the Merger Agreement is qualified in its entirety by~~ ~~reference to the full text of the Merger Agreement, a copy of which is attached as Exhibit 2.1 hereto, and is incorporated into this report by reference.~~

~~RCN~~The ~~has~~accompanying ~~scheduled~~unaudited acondensed ~~special~~consolidated ~~meeting~~financial statements of ~~stockholders~~the ~~for~~Company ~~May 19, 2010 at 10:00 a.m. (Eastern~~have ~~Standard~~been ~~Time)~~prepared atin ~~which~~accordance ~~RCN~~with ~~stockholders~~rules ~~will be asked to consider~~ and ~~vote~~regulations onof ~~a proposal to adopt~~ the ~~Merger~~SEC ~~Agreement~~for ~~and~~quarterly toreports ~~approve~~on Form 10-Q (the ~~transactions contemplated thereby~~“Report”). ~~On April 21~~Accordingly, ~~2010,~~some ~~RCN filed~~information ~~with the SEC,~~ and ~~mailed~~footnote todisclosures ~~its~~required ~~stockholders~~by ofaccounting principles ~~record,~~generally aaccepted ~~definitive~~in ~~proxy~~the ~~statement~~United ~~on Schedule 14A~~States (~~the~~ “~~Definitive~~U.S. ~~Proxy Statement~~GAAP”) ~~relating~~for tocomplete ~~the~~financial ~~solicitation~~statements have ofbeen ~~proxies~~condensed byor ~~the~~omitted. ~~RCN Board~~The ofcondensed ~~Directors~~consolidated infinancial ~~favor~~statements ofinclude athe accounts ~~proposal~~of toRCN ~~adopt~~and ~~the~~its ~~Merger~~consolidated ~~Agreement~~subsidiaries. ~~and~~All tointercompany ~~approve the~~ transactions ~~contemplated~~and ~~thereby~~balances atamong consolidated ~~the~~entities ~~special~~have ~~meeting~~been eliminated.

~~The~~In ~~accompanying~~the opinion of the Company’s management, the unaudited condensed consolidated financial statements ofinclude ~~the~~all ~~Company~~adjustments ~~have been~~necessary ~~prepared~~to inpresent ~~accordance~~fairly ~~with~~the ~~rules~~consolidated financial position, results of operations and ~~regulations~~cash flows of the ~~SEC~~Company for ~~quarterly~~the ~~reports~~periods onpresented. ~~Form~~The ~~10-Q~~results (of operations for the ~~“Report”).~~six ~~Accordingly,~~months ~~some~~ended ~~information~~June 30, ~~and footnote~~2010 ~~disclosures~~are ~~required~~not bynecessarily ~~accounting~~indicative ~~principles~~of ~~generally~~operating results ~~accepted~~expected infor the ~~United~~full ~~States (“U~~year or future interim periods.S. ~~GAAP”)~~These ~~for~~unaudited ~~complete~~condensed consolidated financial statements ~~have~~should ~~been~~be ~~condensed~~read orin ~~omitted.~~conjunction ~~The~~with ~~consolidated financial~~the audited financial statements ~~include~~and notes thereto included in the ~~accounts~~Company’s ofAnnual ~~RCN~~Report ~~and~~on ~~its~~Form ~~consolidated~~10-K ~~subsidiaries.~~for ~~All~~the year ~~intercompany~~ended ~~transactions~~December 31, ~~and~~2009, ~~balances~~filed ~~among~~on ~~consolidated~~March 9, ~~entities~~2010 ~~have~~(the ~~been~~“Annual ~~eliminated~~Report”).

In the opinion of the Company’s management, the unaudited condensed consolidated financial statements include all adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company for the periods presented. The results of operations for the three months ended March 31, 2010 are not necessarily indicative of operating results expected for the full year or future interim periods. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filed on March 9, 2010 (the “Annual Report”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

For a more complete discussion of the Company’s accounting policies, refer to our annual financial statements and the notes thereto included in the Annual Report.

Use of Estimates and Assumptions

The preparation of consolidated financial statements in accordance with U.S. GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management periodically assesses the accuracy of these estimates and assumptions. Actual results could differ from those estimates. Estimates are used when accounting for various items, including but not limited to allowances for doubtful accounts; investments; derivative financial instruments; asset impairments; certain acquisition-related liabilities; programming related liabilities; revenue recognition; depreciation and amortization; income taxes; exit and restructuring costs; and legal and other contingencies. Estimates and assumptions are also used when determining the allocation of the purchase price in a business combination to the fair value of assets and liabilities and determining related useful lives.

Revisions and Reclassifications

During 2009, the Company reclassified amounts for gain/loss on disposal of assets into operating loss. As a result, depreciation and amortization expense and other income, net decreased by $0.2 million for the three months ended March 31, 2009.

Use of Estimates and Assumptions

Revenue Recognition

Revenues are principally derived from fees associated with the Company’s video, telephone, high-speed data and transport services and are recognized as earned when the services are rendered, evidence of an arrangement exists, the fee is fixed and determinable and collection is probable. Payments received in advance are deferred and recognized as revenue when the service is provided. Installation fees charged to the Company’s residential and small business customers are less than related direct selling costs and therefore, are recognized in the period the service is provided. Installation fees charged to larger commercial customers are generally recognized over the contract life which is not materially different than the service life. Reciprocal compensation revenue, the fees that local exchange carriers pay to terminate calls on each other’s networks, is based upon calls terminated on the Company’s network at contractual rates. Under the terms of applicable franchise agreements, the Company is generally required to pay an amount based on gross video revenues to the local franchising authority. These fees are normally passed through to the Company’s cable subscribers and accordingly, the fees are classified as revenue with the corresponding cost included in direct expenses. Certain other taxes imposed on revenue producing transactions, such as Universal Service Fund fees, are also presented as revenue and expense.

Sales of Multiple Products or Services

When the Company enters into sales contracts for the sale of multiple products or services, the Company evaluates whether it has fair value evidence for each deliverable in the transaction. If the Company has fair value evidence for each deliverable in the transaction, then it accounts for each deliverable in the transaction separately, based on the relevant revenue recognition accounting policies. For example, the Company sells video, high-speed data and voice services to subscribers in a bundled package at a rate lower than if the subscriber purchases each product on an individual basis. Subscription revenues received from such subscribers are allocated to each product in a pro-rata manner based on the fair value of each of the respective services.

Concentration and Monitoring of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, restricted investments, accounts receivable, interest rate swap agreements, and undrawn revolving line of credit commitments.

The Company invests its cash and cash equivalents and short-term investments in accordance with the terms and conditions of its First-Lien Credit Agreement, which seeks to ensure both liquidity and safety of principal. The Company’s policy limits investments to instruments issued by the U.S. government and commercial institutions with strong investment grade credit ratings, and places restrictions on the length of maturity. The Company monitors the third-party depository institutions that hold its cash and cash equivalents, and short-term investments. As of ~~March~~June 3130, 2010, the Company held no direct investments in auction rate securities, collateralized debt obligations, structured investment vehicles or non-government guaranteed mortgage backed securities.

The Company’s restricted investments are either held in escrow or in deposit accounts with institutions having strong investment grade credit ratings.

The Company’s trade receivables reflect a diverse customer base. Up front credit evaluation and account monitoring procedures are used to minimize the risk of loss. As a result, concentrations of credit risk are limited. The Company believes that its allowances for doubtful accounts are adequate to cover these risks.

The Company has potential exposure to credit losses in the event of nonperformance by the counterparties to its revolving line of credit specifically related to undrawn commitments, including amounts utilized as collateral for letters of credit, and interest rate swap agreements. The Company anticipates however, that the counterparties will be able to fully satisfy their obligations under these agreements, given that they are very large, highly rated financial institutions who are also key lenders under the Company’s First Lien Credit Agreement.

Goodwill and Intangible Assets

Goodwill represents the excess of the acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired. In accordance with the provisions of FASB ASC Topic 350 Intangibles — Goodwill and Other (“ASC Topic 350”), goodwill is not amortized but is tested for impairment on an annual basis or between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Goodwill at March 31, 2010 and December 31, 2009 totaled $15.5 million. The Company conducted an annual impairment test of its goodwill during the fourth quarter of 2009. The Company used an income-based approach and discounted the cash flows attributable to the RCN Metro reporting unit to estimate its fair value. Several estimates were incorporated into this analysis, including projected net monthly installed revenue, related operating and capital spending projections, cost of capital and estimated terminal value. In addition, comparative market multiples were used to corroborate discounted cash flow results. The impairment test indicated that the goodwill was not impaired.

Goodwill and Intangible Assets

Goodwill represents the excess of the acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired. In accordance with the provisions of FASB ASC Topic 350 Intangibles — Goodwill and Other (“ASC Topic 350”), goodwill is not amortized but is tested for impairment on an annual basis or between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Goodwill at June 30, 2010 and December 31, 2009 totaled $15.5 million. The Company conducted an annual impairment test of its goodwill during the fourth quarter of 2009. The Company used an income-based approach and discounted the cash flows attributable to the RCN Metro reporting unit to estimate its fair value. Several estimates were incorporated into this analysis, including projected net monthly installed revenue, related operating and capital spending projections, cost of capital and estimated terminal value. In addition, comparative market multiples were used to corroborate discounted cash flow results. The impairment test indicated that the goodwill was not impaired.

Indefinite-Lived Intangibles

In accordance with the provisions of FASB ASC Topic 350, indefinite-lived intangible assets are tested for impairment on an annual basis or between annual tests if events occur or circumstances change that would indicate that the assets might be impaired. The Company’s indefinite-lived intangible assets consist of certain franchise rights associated with the Residential/SMB segment as well as certain rights-of-way acquired in the NEON transaction. The Company conducted an annual impairment test of its indefinite-lived assets during the fourth quarter of 2009 at the units of accounting level. The units of accounting were determined under the provisions of FASB ASC Topic 350 to be the Company’s franchise rights in the Pennsylvania market and certain rights-of-way acquired in the NEON transaction. The Company used an income-based approach and discounted the cash flows attributable to the applicable franchise rights to estimate their fair value. Several estimates and assumptions were incorporated into this analysis including existing customers, expected penetration level of marketable homes within the franchised areas, expected average revenue per customer, projected operating expenses, contributory asset charges, applicable cost of capital, estimated terminal value and present value of tax benefits. The fair value of the rights-of-way was estimated using a replacement cost approach using internal personnel involved in the original construction and attainment of the rights-of-way. The impairment tests performed indicated that the franchise rights and rights-of-way were not impaired. While management believes the estimates used in the impairment tests of goodwill and the indefinite-lived intangibles are reasonable, actual results may differ significantly from these assumptions, which could materially affect the valuation.

Other Intangibles

The costs of other intangible assets, including trademarks, trade names, customer relationships and software, are amortized over their estimated useful lives. Amortizable intangible assets are tested for impairment based on undiscounted cash flows in accordance with FASB ASC Topic 350 and, if impaired, are written down to fair value based on discounted cash flows. See Note 7 for the ranges of useful lives of the amortizable intangible assets.

Recently Issued Accounting Pronouncements

In January 2010, the FASB issued ASU 2010-6, Fair Value Measurements and Disclosures, that amends existing disclosure requirements under ASC Topic 820 by adding required disclosures about items transferring into and out of Levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchase, sales, issuances, and settlements relative to Level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. This ASU is effective for annual and interim reporting periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity between purchases, sales, issuances, and settlements on a gross basis. That requirement is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. This pronouncement is related to disclosure only. ~~and~~We ithave isadopted ~~not~~the ~~anticipated~~disclosure torequirement ~~have~~in aeffect after December 15, 2009 with no material impact on the Company’s consolidated financial statements and we anticipate no material impact to the Company’s consolidated financial statements for the disclosure requirement in effect after December 15, 2010.

In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, which amends the criteria for when to evaluate individual delivered items in a multiple deliverable arrangement and how to allocate the consideration received. This ASU is effective for fiscal years beginning on or after June 15, 2010, which is January 1, 2011 for the Company. This ASU is effective prospectively for revenue arrangements entered into or materially modified after January 1, 2011. The Company is currently evaluating the impact that this new accounting guidance will have on its consolidated financial statements.

In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, which amends the criteria for when to evaluate individual delivered items in a multiple deliverable arrangement and how to allocate the consideration received. This ASU is effective for fiscal years beginning on or after June 15, 2010, which is January 1, 2011 for the Company. This ASU is effective prospectively for revenue arrangements entered into or materially modified after January 1, 2011. The Company is currently evaluating the impact that this new accounting guidance will have on its consolidated financial statements.

3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The Company has two primary components of other comprehensive income (loss): changes in the fair value of interest rate swaps, and unrealized appreciation (depreciation) on investments. The following table reflects the components of accumulated other comprehensive loss (dollars in thousands):

	March 31,			December 31,
	June 30,			December 31,
	2010			2009
Fair value of interest rate swaps	$	(4046,~~074~~310	)	$	(37,018	)
Unrealized depreciation on investments		—			(16	)
Accumulated other comprehensive loss		(4046,~~074~~310	)		(37,034	)

4. EXIT COSTS AND RESTRUCTURING CHARGES

Total exit costs and restructuring charges for the three and six months ended ~~March~~June 3130, 2010 and ~~March 31~~June 30, 2009 were comprised of the following (dollars in thousands):

	Three months ended March 31,
	Three months ended June 30,
	2010			2009
Exit costs for excess facilities	$	—(178	)	$	27
Severance and retention		44—			~~293~~—
Total	$	44(178	)	$	~~295~~7

The following table presents the activity in the lease fair value and exit cost liability accounts for the three months ended March 31, 2010 (dollars in thousands):


	Six months ended June 30,
	2010			2009
Exit costs for excess facilities	$	(178	)	$	9
Severance and retention		44			293

Total	$	(134	)	$	302

				Exit Costs and
	Lease Fair			Restructuring
	Value			Charges			Total
Balance, December 31, 2008	$	2,691		$	5,713		$	8,404
Additional accrued costs		—			575			575
Amortization		(621	)		(1,351	)		(1,972	)
Adjustments / Payments		—			(1,187	)		(1,187	)
Balance, December 31, 2009		2,070			3,750			5,820
Additional accrued costs		—			44			44
Amortization		(141	)		(416	)		(557	)
Payments		—			(44	)		(44	)
Balance, March 31, 2010		1,929			3,334			5,263
Less: current portion		513			1,543			2,056
Long-term portion March 31, 2010	$	1,416		$	1,791		$	3,207

The following table presents the activity in the lease fair value and exit cost liability accounts for the six months ended June 30, 2010 (dollars in thousands):


				Exit Costs and
	Lease Fair			Restructuring
	Value			Charges			Total
Balance, December 31, 2008	$	2,691		$	5,713		$	8,404
Additional accrued costs		—			575			575
Amortization		(621	)		(1,351	)		(1,972	)
Adjustments / Payments		—			(1,187	)		(1,187	)

Balance, December 31, 2009		2,070			3,750			5,820
Additional accrued costs		—			44			44
Amortization		(279	)		(675	)		(954	)
Adjustment / Payments		—			(459	)		(459	)

Balance, June 30, 2010		1,791			2,660			4,451
Less: current portion		480			1,078			1,558

Long-term portion June 30, 2010	$	1,311		$	1,582		$	2,893

The current portion of these liabilities is included in accrued expenses and other liabilities on the condensed consolidated balance sheets and the long-term portion is included in other long-term liabilities.

5. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

In accordance with the authoritative guidance for fair value measurements and the fair value election for financial assets and financial liabilities, a fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy was established that draws a distinction between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measure. The Company’s assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

The Company’s financial assets and liabilities that are accounted for at fair value on a recurring basis are summarized below (dollars in thousands):

March 31, 2010

June 30, 2010

Level 1

Level 2

Level 3

Total

Assets:

Cash and cash equivalents

5137,~~904~~389

—

5137,~~904~~389

Short-term investments

3942,~~984~~992

—

3942,~~984~~992

Restricted investments

109,~~890~~556

—

109,~~890~~556

Total financial assets

~~102~~89,~~778~~937

—

~~102~~89,~~778~~937

Liabilities:

Interest rate swap agreements

—

4046,~~074~~310

—

4046,~~074~~310

Total financial liabilities

—

4046,~~074~~310

—

4046,~~074~~310


	December 31, 2009
	Level 1		Level 2		Level 3		Total

Assets:
Cash and cash equivalents	$	71,808	$	—	$	—	$	71,808
Short-term investments		15,135		—		—		15,135
Restricted investments		11,666		—		—		11,666

Total financial assets	$	98,609	$	—	$	—	$	98,609

Liabilities:
Interest rate swap agreements	$	—	$	37,018	$	—	$	37,018

Total financial liabilities	$	—	$	37,018	$	—	$	37,018

For the interest rate swap agreements, fair value is calculated using standard industry models based on significant observable market inputs such as swap rates, interest rates, and implied volatilities obtained from the counterparties to the swap agreements. The Company performs an independent evaluation to validate the reasonableness of the fair value obtained.

Pursuant to the authoritative guidance which requires fair value disclosures for financial instruments that are not currently reflected on the balance sheet at fair value, the Company’s term loan borrowings under the First-Lien Credit Agreement have a fair value of $~~695~~677.40 million as of ~~March~~June 3130, 2010, as determined based on the bid and ask quotes for the related debt.

The carrying values of accounts receivable, accounts payable and accrued liabilities are reasonable estimates of their fair values due to their short maturity.

6. PROPERTY, PLANT AND EQUIPMENT

The significant components of property, plant and equipment, as well as average estimated lives, are as follows at ~~March~~June 3130, 2010 and December 31, 2009 (dollars in thousands):

		March 31,				December 31,
				June 30,				December 31,
	Useful Life	~~2010~~		2010		~~2009~~		2009
Telecommunications plant	5-22.5 years	$	~~1,136,803~~	$	1,152,401	$	~~1,118,512~~	$	1,118,512
Indefeasible rights of use	5-1520 years		~~139,806~~		139,790		~~139,757~~		139,757
Computer equipment	3-5 years		~~70,224~~		71,685		~~68,024~~		68,024
Buildings, leasehold improvements and land	0-30 years		~~91,766~~		92,243		~~91,462~~		91,462
Furniture, fixtures and vehicles	3-10 years		~~30,530~~		32,107		~~28,270~~		28,270
Construction materials and other	3-10 years		~~51,061~~		59,280		~~48,651~~		48,651
Total property, plant and equipment			~~1,520,190~~		1,547,506		~~1,494,676~~		1,494,676
Less: accumulated depreciation			~~(873,901~~	)	(907,343	)	~~(839,998~~	)	(839,998	)
Property, plant and equipment, net		$	~~646,289~~	$	640,163	$	~~654,678~~	$	654,678

Depreciation is recorded using the straight-line method over the estimated useful lives of the various classes of depreciable assets. Leasehold improvements are amortized over the lesser of the life of the lease or its estimated useful life. Depreciation expense was $3637.1 million and $4673.92 million for the three and six months ended ~~March~~June 3130, 2010, respectively, and $49.4 million and $96.4 million for the three and six months ended June 30, 2009, respectively.

1112

7. INTANGIBLE ASSETS AND GOODWILL

Intangible assets and goodwill at ~~March~~June 3130, 2010 and December 31, 2009 are as follows (dollars in thousands):

		March 31, 2010					December 31, 2009
		June 30, 2010					December 31, 2009
		Gross					Gross
		Carrying		Accumulated			Carrying		Accumulated
	Useful Life	Amount		Amortization			Amount		Amortization
Amortized intangible assets:
Customer relationships	4-10 years	$	8889,~~072~~272	$	(7172,~~480~~125	)	$	88,072	$	(70,676	)
Trademarks/tradenames	5 years		13,573		(13,573	)		13,573		(13,573	)
Software	3 years		540		(~~490~~510	)		540		(471	)
Subtotal		$	~~102~~103,~~185~~385	$	(8586,~~543~~208	)	$	102,185	$	(84,720	)
Indefinite-lived intangible assets:
Franchise rights	Indefinite		54,842		—			54,842		—
Rights-of-way	Indefinite		33,~~857~~856		—			33,857		—
Total intangible assets		$	~~190~~192,~~884~~083	$	(8586,~~543~~208	)	$	190,884	$	(84,720	)
Goodwill	Indefinite	$	15,479	$	—		$	15,479	$	—

The increase in customer relationships relates to rights obtained by RCN to provide services to customers on an exclusive basis for a specific period of time. Amortization expense was $0.8 7 million and $1.65 million for the three and six months ended ~~March~~June 3130, 2010, respectively, and $1.5 million and ~~March~~$3.2 31million for the three and six months ended June 30, 2009, respectively.

8. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt at ~~March~~June 3130, 2010 and December 31, 2009 consisted of the following (dollars in thousands):

	March 31,		December 31,
	June 30,		December 31,
	2010		2009
First-lien term loan	$	~~700~~680,~~687~~355	$	702,489
Revolving line of credit		30,000		30,000
Capital leases		2,~~726~~686		2,766
Total		~~733~~713,~~413~~041		735,255
Due within one year (1)		257,~~760~~185		25,947
Total long-term debt	$	~~707~~705,~~653~~856	$	709,308


(1)		In addition to scheduled mandatory repayments under the First-Lien Credit Agreement, the Company is also required to repay 50% of Excess Cash Flow (as defined in the First-Lien Credit Agreement) if the Company’s Total Leverage Ratio for the period is greater than 3.00:1 at December 31, 2009. Pursuant to this Excess Cash Flow provision, the Company paid $18.6 million in April 2010, related to the year ended December 31, 2009.

The following is a description of the Company’s debt and the significant terms contained in the related agreements.

~~First-Lien Credit Agreement~~13

The Company’s credit agreement with Deutsche Bank, as Administrative Agent, and certain syndicated lenders (“First-Lien Credit Agreement”) provides for term loans to the Company in the aggregate principal amount of $720 million, and a $75 million revolving line of credit, all of which can be used as collateral for letters of credit. Approximately $37.3 million of the revolving line of credit is currently utilized for outstanding letters of credit relating to the Company’s surety bonds, real estate lease obligations, right-of-way obligations, and license and permit obligations. As of March 31, 2010, the Company had drawn an additional $30 million under the revolving line of credit and had $7.7 million of available borrowing capacity remaining. The obligations of the Company under the First-Lien Credit Agreement are guaranteed by all of its operating subsidiaries and are collateralized by substantially all of the Company’s assets.

~~The~~First-Lien ~~term~~Credit ~~loan bears interest at the Administrative Agent’s prime lending rate plus an~~Agreement applicable margin or at the Eurodollar rate plus an applicable margin, based on the type of borrowing elected by the Company. The effective rate on outstanding debt was 4.9% at March 31, 2010 and December 31, 2009, including the effect of the interest rate swaps discussed in Note 9.

The Company’s credit agreement with Deutsche Bank, as Administrative Agent, and certain syndicated lenders (“First-Lien Credit Agreement”) provides for term loans to the Company in the aggregate principal amount of $720 million, and a $75 million revolving line of credit, all of which can be used as collateral for letters of credit. Approximately $37.2 million of the revolving line of credit is currently utilized for outstanding letters of credit relating to the Company’s surety bonds, real estate lease obligations, right-of-way obligations, and license and permit obligations. As of June 30, 2010, the Company had drawn an additional $30 million under the revolving line of credit and had $7.7 million of available borrowing capacity remaining. The obligations of the Company under the First-Lien Credit Agreement are guaranteed by all of its operating subsidiaries and are collateralized by substantially all of the Company’s assets.

The term loan bears interest at the Administrative Agent’s prime lending rate plus an applicable margin or at the Eurodollar rate plus an applicable margin, based on the type of borrowing elected by the Company. The effective rate on outstanding debt at June 30, 2010 and December 31, 2009 was 4.9%, including the effect of the interest rate swaps discussed in Note 9.

The First-Lien Credit Agreement requires the Company to maintain a Secured Leverage Ratio not to exceed 4.00:1 through December 30, 2010. On December 31, 2010, the maximum permitted Secured Leverage Ratio declines to 3.50:1, then declines to 3.25:1 on December 31, 2011, and then declines to 3.00:1 on December 31, 2012 where it remains until maturity in May 2014. The First-Lien Credit Agreement also contains certain covenants that, among other things, limit the ability of the Company and its subsidiaries to incur indebtedness, create liens on their assets, make particular types of investments or other restricted payments, engage in transactions with affiliates, acquire assets, utilize proceeds from asset sales for purposes other than debt reduction (except for limited exceptions for reinvestment in the business), merge or consolidate or sell substantially all of the Company’s assets.

The Company is in compliance with all financial covenants under the First-Lien Credit Agreement as of the date of this filing.

9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

During May 2007, the Company entered into three interest rate swap agreements with an initial notional amount of $345 million to partially mitigate the variability of cash flows due to changes in the Eurodollar rate, specifically related to interest payments on its term loans under the First-Lien Credit Agreement. The interest rate swap agreements have a seven year term with an amortizing notional amount which adjusts down on the dates payments are due on the underlying term loans. Under the terms of the swap agreements, on specified dates, the Company makes payments calculated using a fixed rate of 5.319% and receives payments equal to 3-month LIBOR.

These interest rate swap agreements qualify for hedge accounting because the swap terms match the critical terms of the hedged debt. The Company has assessed, on a quarterly basis, that the ~~swap~~ swap agreements are completely effective based on criteria listed in the authoritative guidance pertaining to cash flow derivative instruments that are interest rate swaps. Accordingly, these agreements had no net effect on the Company’s results of operations for the ~~three~~six months ended June ~~March 31~~30, 2010 and ~~March~~June ~~31,~~ 30 2009. The Company uses derivative instruments as risk management tools and not for trading purposes. As of ~~March~~June 3130, 2010, the notional amount of these swap agreements was $~~334~~333.3 million.

At ~~March~~June 3130, 2010 and December 31, 2009, the fair value of the interest rate swap ~~agreements~~ agreements was a liability position of $4046.13 million and $37.0 million ~~liability positions~~, respectively. All of these interest rate swap agreements are designated as cash flow hedges under FASB ASC Topic 815 Derivatives and Hedging ~~(“ASC Topic 815”)~~. These liabilities are reported in other long-term liabilities on the Company’s condensed consolidated balance sheets. Expense associated with the derivatives, which is classified as ~~interest~~ interest expense on the Company’s condensed consolidated statements of income, was $4.2 million and $38.35 million for the three ~~months~~and six month ended ~~March~~ June 3130, 2010, respectively, and ~~March~~$3.3 31million and $6.8 million for the three and six months ended June 30, 2009, respectively.

1314

10. STOCKHOLDERS’ EQUITY AND STOCK PLANS

Income (Loss) Per Share

Basic earnings per share (“EPS”) is computed by dividing the income available to common stockholders by the weighted average number of shares of common stock outstanding during the period.

The computation of weighted average shares outstanding for the diluted EPS calculation includes the number of additional shares of common stock that would be outstanding if all potentially dilutive common stock equivalents would have been issued. For the three ~~months~~and ~~ended~~six months ~~March~~ended June 3130, 2009, the Company incurred losses and accordingly, all potential common stock ~~equivalents~~ equivalents would have been anti-dilutive so the average weighted common shares for the basic EPS computation is equal to the weighted average common shares used for the diluted EPS computation.

The following table shows the Company’s EPS (basic and diluted) for the three ~~months~~and six months ended ~~March~~June 3130, 2010 and June 30, 2009 (dollars in thousands, except shares and per share amounts):

	March 31,		March 31,
	Three months ended					Six months ended
	2010		2009
	June 30,					June 30,
Net income (loss) available to common shares	$	4,920	$	(9,632	)
	2010		2009			2010		2009
Weighted average shares outstanding — basic		35,234,944		36,288,419
Net income (loss) available to common shares	$	3,456	$	(9,401	)	$	8,376	$	(19,037	)
Effect of dilutive shares:
Weighted average shares outstanding-basic		35,408,402		35,728,226			35,322,152		35,682,610
Stock options		39,012		—
Effect of dilutive shares:
Restricted stock		797,278		—
Stock options		—		—			19,506		—
Weighted average shares outstanding — diluted		36,071,234		36,288,419
Restricted stock		602,346		—			699,333		—
Earnings (loss) per share — basic	$	0.14	$	(0.27	)
Weighted average shares outstanding-diluted		36,010,748		35,728,226			36,040,991		35,682,610
Earnings (loss) per share — diluted	$	0.14	$	(0.27	)
Earnings (loss) per share-basic	$	0.10	$	(0.26	)	$	0.24	$	(0.53	)
Earnings (loss) per share-diluted	$	0.10	$	(0.26	)	$	0.23	$	(0.53	)

The following table shows the securities outstanding at ~~March~~June 3130, 2010 and ~~March~~ June 3130, ~~2009~~ 2009 that could potentially dilute basic EPS in the future and the number of shares of common stock represented by, or underlying, such securities:

	March 31,		March 31,
	June 30,		June 30,
	2010		2009
Options		2,~~356~~308,~~509~~821		3,~~643~~466,~~487~~755
Warrants		8,018,276		8,018,276
Unvested restricted stock awards		—		70,731
Unvested restricted stock units		21,~~131~~503,~~197~~693		~~537~~377,~~881~~598
Total		1211,~~505~~830,~~982~~790		1211,~~270~~933,~~375~~360

Common Stock and Dividends

At ~~March~~June 3130, 2010 and December 31, 2009, 5,328,521 warrants to purchase 1.50478 shares of common stock (an aggregate of 8,018,276 shares) at a price per share of $16.72 were outstanding. These warrants expire on June 21, 2012.

Stock Repurchase Program

During 2007, the Company’s Board of Directors authorized the repurchase of up to $25 million of the Company’s common stock. To date, the Company has repurchased approximately 2.6 million shares. All of these shares were retired. As of ~~March~~June 3130, 2010, approximately $6.3 million remains authorized for repurchases under the stock repurchase program. No shares were repurchased under the share repurchase program during the ~~three~~six months ended ~~March~~June 3130, 2010. A total of ~~309~~754,~~400~~976 shares ~~were~~and 1,064,376 shares were repurchased for $13.2 9 million and $5.1 million under the share repurchase program during the three and six months ended ~~March~~June 3130, 2009, respectively.

14Total treasury shares were repurchased for $0.6 million and $3.9 million in the three and six months ended June 30, 2010, respectively, and $0.3 million and $0.6 million in the three and six months ended June 30, 2009, respectively, resulting from the vesting of restricted shares.

Stock-Based Compensation

RCN’s 2005 Stock Compensation Plan (the “Stock Plan”) currently allows for the issuance of up to 8,327,799 shares of the Company’s stock in the form of stock options, restricted stock and restricted stock units to directors, officers and employees. As of ~~March~~ June 3130, 2010, there were approximately 1.5 million shares remaining available for grant under the Stock Plan.

The Company recognizes compensation expense for stock-based compensation issued to or purchased by employees, net of estimated forfeitures, using a fair value method. When estimating forfeitures, the Company considers voluntary termination behavior as well as actual option forfeitures. Any adjustments to the forfeiture rate result in a cumulative adjustment to compensation cost in the period the estimate is revised. Compensation expense is recorded for performance-based stock options, restricted stock awards (“RSAs”), and restricted stock units (“RSUs”) based on the Company’s projected performance relative to the performance goals established by the Board of Directors.

Compensation expense recognized related to restricted stock awards, restricted stock units and stock option awards are summarized in the table below (dollars in thousands):

	Three months ended					Six months ended
	March 31,
	June 30,					June 30,
	2010			2009		2010		2009
Restricted stock awards	$	~~299~~(17	)	$	~~595~~453	$	282	$	1,048
Restricted stock units		2,~~344~~198			~~642~~809		4,543		1,451
Stock options		~~426~~414			~~1,157~~855		839		2,012
Total stock-based compensation expense	$	32,~~069~~595		$	2,~~394~~117	$	5,664	$	4,511

As of ~~March~~June 3130, 2010, total unamortized stock-based compensation expense related to stock options, ~~restricted stock,~~ and restricted stock units totaled $1613.57 million. The unamortized expense of $1613.57 million will be recognized through the third quarter of 2012. The Company expects to recognize approximately $74.24 million for the remainder of 2010, as well as, $6.6 million, and $2.7 million in compensation expense in the years ended December 31, 2011, and December 31, 2012, respectively, based on outstanding grants under the Stock Plan as of ~~March~~June 3130, 2010.

Stock Options

Stock options may be granted as either non-qualified stock options or incentive stock options.

On June 2, 2009, RCN obtained stockholder approval for a stock option exchange program (the “Program”) that permitted all of the then current employees of RCN, except for the chief executive officer, to exchange outstanding options issued under the Stock Plan for a lesser number of new options with lower exercise prices. Under the Program, the exchange ratios were designed to result in a fair value of the replacement options to be granted to be approximately equal to the fair value of the options that were surrendered. The Program started on July 16, 2009 and ended on August 12, 2009. Pursuant to the Program, RCN accepted for cancellation options to purchase 1,179,651 shares of the Company’s common stock in exchange for new options to purchase 383,975 shares of the Company’s common stock. The per share exercise price of the new options is $9.05, which was the closing price of RCN’s common stock as quoted on the NASDAQ Global Select Market on August 12, 2009.

The following table summarizes the Company’s option activity during the ~~three~~six months ended June ~~March 31~~30, 2010 and ~~March~~June 3130, 2009:

				2010						2009
						Weighted
				Weighted		average		Aggregate					Weighted
				Average		remaining		intrinsic					Average
	Number			Exercise		contractual life		value		Number of			Exercise
	Number of			Exercise		contractual life		value		Number of			Exercise
	of Shares			Price		(in years)		(in millions)		Shares			Price
	Shares			Price		(in years)		(in millions)		Shares			Price
Awards Outstanding at January 1		2,560,774		$	12.35						4,057,561		$	13.94
Granted		—			—						—			—
Exercised		(3671,~~008~~966	)		1211.1795						—			—
Forfeitures		(~~168~~179,~~257~~987	)		13.2832						(~~414~~590,~~074~~806	)		1716.3997
Awards Outstanding at March 31		2,356,509		$	12.29		3.86	$	6.8		3,643,487		$	13.54
Awards Outstanding at June 30		2,308,821		$	12.29		3.61	$	6.1		3,466,755		$	13.42
Awards Exercisable at March 31		1,514,515		$	13.35		2.91	$	2.9		2,422,182		$	14.32
Awards Exercisable at June 30		1,685,423		$	13.15		2.89	$	3.1		2,608,390		$	13.91

15The intrinsic value in the awards outstanding totaled $6.1 million at June 30, 2010. There were 35,958 and 71,966 options exercised during the three and six months ended June 30, 2010, respectively. The intrinsic value of the awards exercisable at June 30, 2010 was $3.1 million. Cash received from stock options exercised during the three and six months ended June 30, 2010 was $0.4 million and $0.9 million, respectively.

The following table summarizes additional information regarding outstanding and exercisable options at June 30, 2010:


		Options Outstanding						Options Exercisable
				Average		Weighted				Weighted
Exercise price		Number		remaining		Average				Average
of		outstanding		contractual		Exercise Price		As of		Exercise Price
options		at 6/30/2010		life (years)		per Option		6/30/2010		per Option

$	9.05		371,294		6.12	$	9.05		—	$	9.05
$	11.22		725,861		4.70	$	11.22		477,943	$	11.22
$	12.36		198,762		1.90	$	12.36		198,762	$	12.36
$	13.79		772,681		1.90	$	13.79		772,681	$	13.79
$	14.29		69,998		2.41	$	14.29		69,998	$	14.29
$	14.39		91,289		4.17	$	14.39		87,103	$	14.39
$	17.42		53,692		2.93	$	17.42		53,692	$	17.42
$	19.78		25,244		3.43	$	19.78		25,244	$	19.78

$	9.05 - $19.78		2,308,821		3.61	$	12.29		1,685,423	$	13.15

~~The~~Unamortized ~~intrinsic~~stock-based ~~value~~compensation inexpense ~~the~~for ~~awards~~stock ~~outstanding~~option ~~totaled $6.8 million at March 31, 2010. There were 36,008 options exercised during the three months ended March 31, 2010. The intrinsic value of the~~ awards ~~exercisable~~ at ~~March~~June 3130, 2010 ~~was $2.9 million. Cash received from stock options~~ ~~exercised~~totaled ~~during the three months ended March 31, 2010 was~~ $01.47 million. ~~There~~and ~~were~~will nobe ~~options exercised~~amortized ~~during~~through the ~~three~~third ~~months~~quarter ~~ended~~of ~~March 31, 2009~~2012. ~~There was no intrinsic value in the~~ ~~awards outstanding and the awards exercisable at March 31, 2009.~~

The following table summarizes additional information regarding outstanding and exercisable options at March 31, 2010:

		Options Outstanding						Options Exercisable
				Average		Weighted				Weighted
Exercise price		Number		remaining		Average				Average
of		outstanding		contractual		Exercise Price		As of		Exercise Price
options		at 3/31/2010		life (years)		per Option		3/31/2010		per Option
$	9.05		372,977		6.37	$	9.05		—	$	9.05
$	11.22		750,413		4.95	$	11.22		312,441	$	11.22
$	12.36		213,321		2.15	$	12.36		213,321	$	12.36
$	13.79		772,681		2.15	$	13.79		772,681	$	13.79
$	14.29		69,998		2.66	$	14.29		69,998	$	14.29
$	14.39		93,316		4.42	$	14.39		62,271	$	14.39
$	17.42		58,027		3.18	$	17.42		58,027	$	17.42
$	19.78		25,776		3.68	$	19.78		25,776	$	19.78
$	9.05 – $19.78		2,356,509		3.86	$	12.29		1,514,515	$	13.35

Unamortized stock-based compensation expense for stock option awards at March 31, 2010 totaled $2.1 million and will be amortized through the third quarter of 2012.

Restricted Stock Awards

RSAs generally entitle employees or non-employee directors to receive at the end of each vesting period one share of common stock for each RSA granted, conditioned on continued employment or service as a director throughout each annual vesting period. The fair value of each RSA granted is equal to the market price of the Company’s stock at the date of grant.

The following table summarizes the Company’s RSA activity during the ~~three~~six months ended ~~March 31~~June 30, 2010 and ~~March 31~~June 30, 2009:

	2010					2009
				Weighted					Weighted
				average					average
	Number			fair value		Number			fair value
	of Shares			per share		of Shares			per share
Nonvested, December 31		51,672		$	27.35		162,128		$	27.57
Granted		—			—		—			—
Vested		(51,052	)		27.35		(85,418	)		27.10
Forfeited		(620	)		27.35		(5,979	)		27.99
Nonvested, March 31		—		$	—		70,731		$	28.09
Nonvested, June 30		—		$	—		70,731		$	28.09

There is no unamortized stock-based compensation expense at ~~March~~ June 3130, 2010 for RSA grants.

Restricted Stock Units

Beginning in 2008, the Company issued stock-based compensation to employees in the form of RSUs, which are grants of a contractual right to receive future value delivered in the form of RCN common stock. These awards generally entitle employees or non-employee directors to receive at the end of each vesting period one share of common stock for each RSU granted, conditioned on continued employment or service as a director throughout each annual vesting period.

The following table summarizes the Company’s RSU activity during the ~~three~~six months ended ~~March 31~~June 30, 2010 and ~~March~~ 31June 30, 2009:

	2010					2009
				Weighted					Weighted
				average					average
	Number			fair value		Number			fair value
	of Shares			per share		of Shares			per share
Nonvested, January 1		2,274,391		$	9.50		653,923		$	11.13
Granted		—			—		8797,~~534~~953			4.1314
Vested		(97720,~~192~~858	)		109.2967		(~~153~~321,~~948~~486	)		119.2225
Forfeited		(4649,~~002~~840	)		9.4946		(4952,~~628~~792	)		98.7485
Nonvested, March 31		2,131,197		$	9.46		537,881		$	10.09
Nonvested, June 30		1,503,693		$	9.42		377,598		$	11.23

Unamortized stock-based compensation expense for RSU grants at ~~March~~June 3130, 2010 totaled $1412.41 million and will be amortized through the third quarter of 2012.

11. INCOME TAXES

For the three months ~~ended~~and ~~March 31,~~six ~~2010~~months ~~and~~ended ~~March~~June 3130, ~~2009~~2010, the Company’s provision for ~~income~~ income taxes was $0.31 million and $0,.4 million respectively., ~~The~~all ~~Company’s~~of ~~provision~~which ~~for~~is ~~income~~attributable ~~taxes for~~to the ~~three months ended March 31, 2010 is a result of~~ new consolidated filing requirements and limitations on utilization of net operating loss carryovers in certain states where the Company operates. For the three and six months ended June 30, 2009, the Company’s provision for income taxes was $0.8 million, all of which was attributable to the change in the deferred tax liability provided for the Company’s indefinite-lived intangibles due to revised effective rates. At ~~March~~June 3130, 2010 and December 31, 2009, the Company’s net deferred tax liability was $36.9 million. The net deferred tax liability is included in other long-term liabilities on the condensed consolidated balance sheets.

The Company’s domestic 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, foreign taxes, 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.

With few exceptions, periods ending after December 31, 2005 are subject to U.S., state and local income tax examinations by tax authorities.

12. COMMITMENTS AND CONTINGENCIES

Rent Expense

Total rental expense (net of sublease income of $0.3 million and $0.4 million for the three months ended ~~March~~June 3130, 2010 and ~~March~~ 31June 30, 2009, respectively) primarily for facilities, was $4.2 3 million and $4.32 million for the three months ended ~~March~~June 3130, 2010 and June 30, 2009, ~~March~~respectively. 31Total rental expense (net of sublease income of $0.6 million and $0.8 million for the six months ended June 30, 2010 and June 30, 2009, respectively) primarily for facilities, was $8.5 million in both the six months ended June 30, 2010 and June 30, 2009.

Letters of Credit

The Company had outstanding letters of credit in an aggregate face amount of $37.32 million as of ~~March~~June 3130, 2010. These letters of credit utilize approximately 50% of the Company’s $75 million revolving line of credit as collateral.

Guarantees

The Company is a guarantor on three leases for buildings that were used in the former San Francisco, California operations totaling $109.36 million at ~~March~~June 3130, 2010.

Self Insurance

The Company is self-insured on its largest employee medical plan, which covers approximately 5655% of its employees, and for its casualty insurance coverage (subject to certain limitations). The liabilities are established on an actuarial basis, with the advice of consulting actuaries, and totaled $4.5 .1 million and $4.9 million at ~~March~~June 3130, 2010 and December 31, 2009, respectively. The liability is included in accrued expenses and other liabilities on the condensed consolidated balance sheets.

1719

Legal Proceedings

As previously disclosed in our Definitive Proxy Statement, on March 8, 2010 and March 11, 2010, class action complaints were filed in the Court of Chancery in the State of Delaware (the “Delaware Action”) and the United States District Court for the Eastern District of Virginia (the “Virginia Action”), respectively, on behalf of putative classes of RCN stockholders and naming RCN, all of the members of our Board of Directors, Cable Buyer, Metro Parent, Merger Sub and, in the case of the Delaware complaint, ABRY, as ~~defendants.~~ ~~On April 1~~defendants, ~~2010,~~alleging ~~the~~among ~~Delaware~~other ~~plaintiff~~things ~~filed~~breach ~~an amended class action complaint in the Delaware Court~~ of ~~Chancery under the caption Murphy v. Levine, et al., Civil Action No. 5320-VCS~~ ~~(the~~fiduciary ~~“Delaware~~duty ~~Action”), and on April 12, 2010, the Virginia plaintiff filed an amended class action complaint~~ in ~~the U.S. District Court for the Eastern District of Virginia under the caption Cohen v. Hillman, et al., Case No. 1:10cv237 (LMB/TCB) (the “Virginia Action”). The plaintiffs allege that, in~~ connection with ~~their approval of~~ the ~~Merger~~pending ~~Agreement~~sale ~~and the preparation~~ of ~~the preliminary proxy statement on Schedule 14A filed by~~ RCN ~~with~~to ~~the~~affiliates ~~SEC on March 29, 2010, the members~~ of ~~our~~ABRY ~~Board breached their fiduciary duties~~ and, ~~in the case of the Virginia Action,~~seeking ~~violated~~injunctive ~~certain~~relief ~~federal securities laws. The plaintiffs further allege that Cable Buyer, Metro Parent, Merger Sub~~ and, inmonetary ~~the~~damages ~~case of the Delaware Action, ABRY, aided and abetted the members of our Board~~ in ~~the~~connection ~~alleged breaches of their fiduciary duties~~therewith.

~~The~~On ~~plaintiffs~~April 23, ~~seek~~2010, aRCN, ~~determination that~~ the ~~respective~~members ~~lawsuits~~of ~~are~~our ~~proper~~Board, ~~class~~Cable ~~actions~~Buyer, ~~and that~~Metro ~~the~~Parent, ~~plaintiffs~~Merger ~~are~~Sub ~~proper~~and ABRY ~~class~~entered ~~representatives;~~into ~~orders~~a ~~preliminarily~~memorandum ~~and~~of ~~permanently enjoining~~understanding (the ~~consummation~~“MOU”) ofwith the ~~transactions~~plaintiff ~~contemplated~~in by the ~~Merger Agreement; orders~~Delaware ~~rescinding~~Action orreflecting ~~invalidating~~an ~~such~~agreement ~~transactions~~in orprinciple ~~awarding~~to ~~rescissory~~settle ~~damages~~the ifDelaware ~~consummated;~~Action ~~orders directing~~based upon the ~~members~~inclusion in of our ~~Board~~Definitive toProxy ~~exercise~~Statement ~~their~~of ~~duties~~certain toadditional ~~obtain~~disclosures athat ~~transaction~~had ~~that~~been isrequested inby the ~~best~~plaintiff ~~interests~~in ofthe Delaware Action. RCN, ~~stockholders~~the ~~and~~members toof ~~make~~our ~~disclosure~~Board, ofCable ~~all~~Buyer, ~~material~~Metro ~~information~~Parent, toMerger ~~stockholders;~~Sub ~~orders~~and ~~imposing~~ABRY aeach ~~constructive~~have ~~trust~~denied, inand ~~favor~~continue ofto ~~the~~deny, ~~plaintiff~~that they have committed or aided and abetted in the ~~putative classes~~commission of ~~RCN~~any ~~stockholders,~~violation ~~upon~~of ~~any~~law ~~benefits~~or ~~improperly~~engaged ~~received~~in byany ~~members~~ of ~~our~~the ~~Board~~wrongful ~~and ABRY,~~acts ~~Cable~~alleged ~~Buyer,~~in ~~Metro~~the Delaware ~~Parent~~Action, and ~~Merger~~maintain ~~Sub~~that asthey ahave ~~result~~diligently ofand ~~their~~scrupulously ~~allegedly~~complied ~~wrongful~~with ~~conduct; an~~their ~~accounting~~fiduciary, ~~for~~disclosure ~~all~~and ~~damages~~other ~~that~~legal ~~the~~duties. ~~putative~~RCN, ~~classes~~the members of ~~RCN~~our ~~stockholders~~Board, ~~may~~Cable ~~sustain~~Buyer, asMetro Parent, aMerger ~~result~~Sub ~~of such~~and ~~allegedly~~ABRY ~~wrongful~~believe ~~conduct;~~that anthe ~~accounting~~Delaware ~~for~~Action ~~all~~is ~~the~~without ~~profits~~merit, and ~~special~~they ~~benefits obtained as~~have aentered ~~result~~into ofthe ~~such~~MOU ~~allegedly~~solely ~~wrongful~~to ~~conduct;~~avoid anthe ~~award~~risk of delaying the ~~costs~~transactions ofcontemplated ~~the~~by ~~lawsuit, including~~the ~~reasonable~~Merger ~~attorneys’~~Agreement and ~~experts’~~to ~~fees~~minimize ~~and~~the ~~other~~expense ~~costs;~~of inlitigation. ~~the~~The ~~case~~MOU ofis ~~the~~subject ~~Virginia~~to ~~Action~~customary conditions, ~~an order~~including ~~that~~completion ~~the~~of ~~proxy~~appropriate ~~statement~~settlement isdocumentation, ~~materially~~completion ~~misleading~~of confirmatory ~~and~~discovery ~~contains~~to ~~material~~confirm ~~omissions~~the ~~in violation~~fairness of ~~certain~~the ~~federal~~settlement ~~securities laws;~~ and ~~such~~approval ~~other~~by ~~relief as~~ the ~~applicable~~Delaware ~~courts may~~Court ~~find~~of ~~just and proper~~Chancery.

OnIf ~~April 23, 2010, RCN,~~ the ~~members~~settlement ofcontemplated ~~our~~by ~~Board, Cable Buyer, Metro Parent, Merger Sub and ABRY entered into a memorandum of understanding (~~the “MOU”) ~~with~~is ~~the~~consummated, ~~plaintiff in~~ the Delaware ~~Action~~ ~~reflecting an agreement in principle to settle the Delaware~~ Action ~~based~~will ~~upon the inclusion~~be indismissed ~~our~~with ~~Definitive~~prejudice ~~Proxy~~and ~~Statement~~the ofdefendants ~~certain~~and ~~additional~~other ~~disclosures~~released ~~that~~persons ~~had~~will ~~been~~receive ~~requested~~from byor ~~the~~on ~~plaintiff~~behalf inof ~~the~~all ~~Delaware~~persons ~~Action.~~and Inentities ~~contemplation~~who ofheld ~~a potential settlement,~~ RCN ~~included~~common ~~these additional~~stock ~~disclosures~~at inany ~~its~~time ~~Definitive~~from ~~Proxy Statement filed with the SEC, and mailed to RCN stockholders of record, on April~~March 215, 2010. ~~RCN,~~ through the ~~members~~date of ~~our~~consummation ~~Board,~~of ~~Cable~~the ~~Buyer,~~transactions ~~Metro Parent,~~contemplated ~~Merger~~by ~~Sub~~the ~~and~~Merger ~~ABRY~~Agreement ~~each~~a ~~have~~release ~~denied,~~of ~~and~~all claims ~~continue~~relating to ~~deny,~~the ~~that~~Merger ~~they~~Agreement ~~have committed or aided~~ and ~~abetted in~~ the ~~commission~~transactions ofcontemplated ~~any~~thereby ~~violation~~and ofthe disclosure ~~law~~made ~~or engaged~~ in ~~any~~connection oftherewith (including the ~~wrongful~~claims ~~acts alleged~~asserted in the ~~Delaware~~Virginia Action~~, and maintain that they have diligently and scrupulously complied~~ ~~with~~described ~~their fiduciary, disclosure and other legal duties~~above). ~~RCN,~~Neither the ~~members~~MOU ofnor ~~our~~the ~~Board,~~proposed ~~Cable~~settlement ~~Buyer,~~would ~~Metro~~affect ~~Parent,~~the ~~Merger~~amount ~~Sub~~of the ~~and~~merger ~~ABRY~~consideration ~~believe~~ that ~~the~~RCN ~~Delaware~~stockholders ~~Action~~would isbe ~~without~~entitled ~~merit, and they have entered into the MOU solely~~ to ~~avoid~~receive ~~the~~if ~~risk of delaying~~ the transactions contemplated by the Merger Agreement ~~and~~are ~~to minimize the expense of litigation~~consummated. ~~The~~Notwithstanding ~~MOU~~the ~~is subject to customary conditions~~foregoing, ~~including completion~~there ofcan ~~appropriate settlement documentation, completion of confirmatory discovery to confirm~~be ~~the~~no ~~fairness~~assurance ofthat the settlement ~~and~~contemplated ~~approval~~ by the ~~Delaware~~MOU ~~Court~~will ofbe ~~Chancery~~completed.

If the settlement contemplated by the MOU is consummated, the Delaware Action will be dismissed with prejudice and the defendants and other released persons will receive from or on behalf of all persons and entities who held RCN common stock at any time from March 5, 2010 through the date of consummation of the transactions contemplated by the Merger Agreement a release of all claims relating to the Merger Agreement and the transactions contemplated thereby and the disclosure made in connection therewith (including the claims asserted in the Virginia Action described above). Members of the purported plaintiff class will be sent notice of the proposed settlement, and a hearing before the Delaware Court of Chancery will be scheduled regarding, among other things, approval of the proposed settlement and any application by plaintiffs’ counsel for an award of attorneys’ fees and expenses. Neither the MOU nor the proposed settlement would affect the amount of the merger consideration that RCN stockholders would be entitled to receive if the transactions contemplated by the Merger Agreement are consummated. Notwithstanding the foregoing, there can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the Delaware Court of Chancery will approve a settlement even if the parties enter into such a stipulation.

On April 30, 2010, the United States District Court for the Eastern District of Virginia granted our motion to stay the Virginia Action and denied the Virginia plaintiff’s motions for a preliminary injunction and expedited proceedings. We intend to continue to defend the Virginia Action vigorously.

The Company is party to various other legal proceedings that arise in the normal course of business. In the opinion of management, none of these proceedings, individually or in the aggregate, are likely to have a material adverse effect on the consolidated financial position or consolidated results of operations or cash flows of the Company.

1820

13. FINANCIAL DATA BY BUSINESS SEGMENT

The Company’s reportable segments consist of (i) the Residential/SMB business units, and (ii) the RCN Metro business unit. In evaluating the profitability of these segments, the components of net income (loss) below operating income (loss) before depreciation and amortization, stock-based compensation and any exit costs or restructuring charges are not separately evaluated by the Company’s management. Assets are not allocated to segments for management reporting. Financial data by business segment is as follows (dollars in thousands):

	For the three months ended March 31,
	For the three months ended June 30,						For the six months ended June 30,
	2010			2009			2010			2009
Net Operating Revenues: (1)
Residential/SMB (1)	$	~~140~~145,~~889~~045		$	~~143~~145,~~711~~149		$	285,934		$	288,860
RCN Metro (1)		49,~~214~~579			4547,~~517~~183			98,793			92,699
Total	$	~~190~~194,~~103~~624		$	~~189~~192,~~228~~332		$	384,727		$	381,559
Operating Expenses: (2)
Residential/SMB (2)	$	~~134~~138,~~812~~123		$	~~147~~149,~~746~~149		$	272,935		$	297,111
RCN Metro (2)		4243,~~317~~288			40,~~398~~649			85,605			81,038
Total	$	~~177~~181,~~129~~411		$	~~188~~189,~~144~~798		$	358,540		$	378,149
Operating Income before Depreciation and Amortization, Stock-Based Compensation, and Exit Costs and Restructuring Charges:
Residential/SMB	$	3637,~~316~~412		$	3739,~~801~~946		$	73,729		$	77,746
RCN Metro		1615,~~667~~982			1415,~~480~~569			32,648			30,047
Total	$	5253,~~983~~394		$	5255,~~281~~515		$	106,377		$	107,793
Stock-Based Compensation:
Residential/SMB	$	21,~~255~~942		$	1,~~809~~597		$	4,198		$	3,405
RCN Metro		~~814~~653			~~585~~520			1,466			1,106
Total	$	32,~~069~~595		$	2,~~394~~117		$	5,664		$	4,511
Depreciation and Amortization:
Residential/SMB	$	2728,~~940~~726		$	3942,~~632~~343		$	56,666		$	82,191
RCN Metro		89,~~956~~038			8,~~876~~514			17,994			17,379
Total	$	3637,~~896~~764		$	4850,~~508~~857		$	74,660		$	99,570
Exit Costs and Restructuring Charges:
Exit Costs and Restructuring Charges, Net:
Residential/SMB	$	44(178	)	$	~~395~~6		$	(134	)	$	401
RCN Metro		—			~~(100~~1	)		—			(99	)
Total	$	44(178	)	$	~~295~~7		$	(134	)	$	302
Operating Income (Loss):
Residential/SMB	$	6,~~077~~922		$	(4,~~035~~000	)	$	12,999		$	(8,251	)
RCN Metro		6,~~897~~291			56,~~119~~534			13,188			11,661
Total	$	1213,~~974~~213		$	12,~~084~~534		$	26,187		$	3,410
Additions to Property, Plant and Equipment:
Residential/SMB	$	2221,~~550~~005		$	1417,~~754~~096		$	43,555		$	31,850
RCN Metro		129,~~486~~014			79,~~749~~844			21,500			17,593
Total	$	3530,~~036~~019		$	2226,~~503~~940		$	65,055		$	49,443


(1)		All revenues reported for the individual segments are from external customers.

(2)		Operating expenses include stock-based compensation expense.

1921


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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto for the three and six months ended ~~March~~June 3130, 2010 contained in this Quarterly Report on Form 10-Q (the “Report”), and with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009 (the “Annual Report”) filed ~~with~~ with the Securities and Exchange Commission (“SEC” or the “Commission”) on March 9, 2010.

Overview

RCN is a competitive broadband services provider, delivering all-digital and high-definition video, high-speed internet and premium voice services primarily to Residential and Small and Medium Business (“SMB”) customers under the brand names of RCN and RCN Business Services, respectively. In addition, through our RCN Metro Optical Networks business unit (“RCN Metro”), we deliver fiber-based high-capacity data transport services to large commercial customers, primarily large enterprises and carriers, targeting the metropolitan central business districts in our geographic markets. We construct, operate, and manage our own networks, and our primary service areas include: Washington, D.C., Philadelphia, Lehigh Valley (PA), New York City, Boston and Chicago.

Our RCN and RCN Business Services network passes approximately 1.4 million marketable homes and businesses, and we currently have licenses to provide video services to over 5 million licensed homes and businesses in our footprint. We serve approximately ~~426~~422,000 residential and SMB customers.

RCN Metro also has numerous points of presence (“POPs”) in other key cities from Richmond, Virginia to Portland, Maine. RCN Metro currently enters approximately 1,500 locations through our own diverse fiber facilities, providing connectivity to private networks, as well as telecommunications carrier meet points, and local exchange central offices owned and operated by other carriers. Our RCN Metro fiber routes now exceed 10,000 route miles, with ~~hundreds~~many of additional commercial buildings on or near our network. We also have over ~~335~~350,000 fiber strand miles, which highlights the fact that many of our metro and intercity rings are fiber-rich.

The Company has two principal business segments (i) Residential/SMB and (ii) RCN Metro. There is substantial managerial, network, operational support and product overlap between the Residential and SMB businesses and, as a result, we report these two businesses as one segment. For financial and other information about our segments, refer to Item 1, Note 13 to our condensed consolidated financial statements included in this Report and the discussion below. All of the Company’s operations are in the United States. Our Residential/SMB segment generates approximately 74% of our consolidated revenues and the RCN Metro segment generates approximately 26%.

The condensed consolidated financial statements include the accounts of RCN and its consolidated subsidiaries. All intercompany transactions and balances among consolidated entities have been eliminated.

Merger Agreement

As previously reported by RCN in the Form 8-K filed on March 5, 2010 with the SEC, RCN entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Yankee Cable Acquisition, LLC (“Cable Buyer”), Yankee Metro Parent, Inc. (“Metro Parent”) and Yankee Metro Merger Sub, Inc. (“Merger Sub”) on March 5, 2010, pursuant to which those entities agreed to acquire RCN for total consideration of approximately $1.2 billion, including the assumption of debt. Cable Buyer, Metro Parent and Merger Sub are controlled by a private equity fund associated with ABRY Partners, LLC. The transaction iswas approved at a special meeting of stockholders held on May 19, 2010 and is expected to be completed in the second half of 2010, subject to receipt of ~~stockholder~~ ~~approval,~~ regulatory approvals, ~~including the receipt of required consents and approvals of the Federal Communications Commission,~~ as well as satisfaction of other customary closing conditions. The transaction is not subject to any financing condition. ~~The foregoing~~ description of the Merger Agreement is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is attached as Exhibit 2.1 hereto, and is incorporated into this report by reference.

~~RCN has scheduled a special meeting of stockholders for May 19, 2010 at 10:00 a.m. (Eastern~~22 Standard Time) at which RCN stockholders will be asked to consider and vote on a proposal to adopt the Merger Agreement and to approve the transactions contemplated thereby. On April 21, 2010, RCN filed with the SEC, and mailed to its stockholders of record, a definitive proxy statement on Schedule 14A (the “Definitive Proxy Statement”) relating to the solicitation of proxies by the RCN Board of Directors in favor of a proposal to adopt the Merger Agreement and to approve the transactions contemplated thereby at the special meeting.

RCN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
(Unaudited)

	For the three months ended
	For the three months ended June 30,						For the six months ended June 30,
	March 31,
	2010			2009			2010			2009
	2010			2009
Revenues	$	194,624		$	192,332		$	384,727		$	381,559
Revenues	$	190,103		$	189,228
Costs and expenses:
Costs and expenses:
Direct expenses		71,275			69,291			143,481			139,573
Direct expenses		72,206			70,281
Selling, general and administrative (including stock-based compensation of $2,595, $2,117, $5,664, and $4,511)		72,550			69,643			140,533			138,704
Selling, general and administrative (including stock-based compensation of $3,069 and $2,394)		67,983			69,060
Exit costs and restructuring charges, net		(178	)		7			(134	)		302
Exit costs and restructuring charges		44			295
Depreciation and amortization		37,764			50,857			74,660			99,570
Depreciation and amortization		36,896			48,508
Operating income		13,213			2,534			26,187			3,410
Operating income		12,974			1,084
Investment income		26			53			13			315
Investment (expense) income		(13	)		262
Interest expense		(9,701	)		(10,983	)		(19,429	)		(21,962	)
Interest expense		(9,728	)		(10,978	)
Other (expense) income, net		(12	)		(241	)		1,972			(36	)
Other income, net		1,984			—
Income (loss) before income taxes		3,526			(8,637	)		8,743			(18,273	)
		5,217			(9,632	)
Income tax expense		70			764			367			764
Income tax expense		297			—
Net income (loss)	$	3,456		$	(9,401	)	$	8,376		$	(19,037	)
Net income (loss)	$	4,920		$	(9,632	)

Consolidated Operating Results

Consolidated Revenues

Consolidated revenue increased $02.93 million, or 1.2%, and $3.2 million, or 0.58%, for the three and six months ended ~~March~~June 3130, 2010, respectively, compared to the ~~three~~same ~~months~~periods ~~ended~~in ~~March 31,~~ 2009, primarily due to higher transport and internet protocol (“IP”) revenue in the RCN Metro segment partially offset by ~~decreases~~a decrease in voice ~~and data~~ revenue in the Residential/SMB segment.

Consolidated Direct Expenses

Consolidated direct expenses increased $12.0 million, or 2.9%, and $3.9 million, or 2.78%, respectively, for the three and six months ended ~~March 31~~June 30, 2010 compared to the ~~three~~same ~~months~~periods ~~ended March 31~~in 2009, ~~2009~~ due primarily to added costs associated with the increase in revenue in the RCN Metro segment, as well as an increase in the average programming cost per subscriber in the Residential/SMB segment.

Consolidated Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses (“SG&A”) ~~decreased~~increased $12.19 million, or 4.2%, and $1.68 million, or 1.4%, for the three and six months ended ~~March~~June 3130, 2010, respectively, compared to the ~~three~~same ~~months~~periods ~~ended~~in ~~March 31,~~ 2009. SG&A costs for the three and six months ended ~~March~~June 3130, 2010 include $13.0 million and $4.3 million, respectively, in transaction costs incurred in connection with the Merger Agreement. Excluding stock-based compensation and these transaction costs, SG&A expense decreased $30.15 million, or 41.0%, and $3.6 million, or 2.7%, ~~primarily~~for ~~reflecting~~the ~~reductions~~three inand six months ~~bad~~ended ~~debt~~June 30, ~~customer~~2010, ~~care~~respectively, ~~field~~primarily ~~operations,~~reflecting ~~and~~reductions ~~sales~~in ~~commissions~~bad debt costs in ~~the~~both the Residential/SMB and RCN Metro segments, as well as reductions in corporate overhead, partially ~~segment~~offset by certain other costs. In addition, SG&A costs decreased by $0.5 million for the three and six months ended ~~March 31~~June 30, 2010, as compared to the same period in 2009, due to the suspension of the Company’s matching contribution to its 401(k) plan in the beginning of ~~the second quarter of~~ March 2009.

2123

Segment Operating Results

To measure the performance of our operating segments, we use operating income before depreciation and amortization, stock-based compensation, exit costs and restructuring charges. This measure eliminates the significant level of non-cash depreciation and amortization expense that results from the capital-intensive nature of our businesses and from intangible assets recognized in business combinations, as well as non-cash stock-based compensation and other special items such as exit costs and other restructuring charges. We use this measure to evaluate our consolidated operating performance and the performance of our operating segments, and to allocate resources and capital. It is also a significant performance measure in our annual incentive compensation programs. We believe that this measure is useful to investors because it is one of the bases for comparing our operating performance with that of other companies in our industries, although our measure may not be directly comparable to similar measures used by other companies. Because we use this metric to measure our segment profit or loss, we reconcile it to operating income, the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States (“GAAP”) in the business segment footnote to our condensed consolidated financial statements (see Note 13). You should not consider this measure a substitute for operating income (loss), net income (loss), net cash provided by operating activities, or other measures of performance or liquidity we have reported in accordance with GAAP.

Residential / SMB Segment Operating Results
(dollars in thousands)

	Residential/Small Business
	For the three months ended March 31,
	For the three months ended June 30,
							Fav(unfav)			Fav(unfav)
	2010			2009			Variance			Var %
Revenue:
Video	$	7780,~~967~~293		$	7678,~~688~~476		$	1,~~279~~817			12.73	%
Data		3436,~~502~~724			3635,~~074~~807			~~(1,572~~917	)		(42.46	%)
Voice		2524,~~262~~729			27,~~284~~404			(2,~~022~~675	)		(79.48	%)
Recip Comp/Other		3,~~158~~299			3,~~665~~462			(~~507~~163	)		(134.87	%)
Total Revenue		~~140~~145,~~889~~045			~~143~~145,~~711~~149			(~~2,822~~104	)		(2.0.1	%)
Direct expenses		5452,~~021~~874			5352,~~499~~147			(~~522~~727	)		(1.04	%)
Selling, general and administrative (excluding stock-based compensation)		5054,~~552~~759			5253,~~411~~056			(1,~~859~~703	)		(3.52	%)
Operating income before depreciation and amortization, stock-based compensation, exit costs and restructuring charges	$	36,316		$	37,801		$	(1,485	)		(3.9	%)
Operating income before depreciation and amortization, stock-based compensation, exit costs and restructuring charges, net	$	37,412		$	39,946		$	(2,534	)		(6.3	%)
Reconciliation to Operating Income (Loss)
Operating income before depreciation and amortization, stock-based compensation, exit costs and restructuring charges	$	36,316		$	37,801
Operating income before depreciation and amortization, stock-based compensation, exit costs and restructuring charges, net	$	37,412		$	39,946
Less: Stock-based compensation		21,~~255~~942			1,~~809~~597
Less: Depreciation and amortization		2728,~~940~~726			3942,~~632~~343
Less: Exit costs and restructuring charges		44			395
Less: Exit costs and restructuring charges, net		(178	)		6
Operating income (loss)	$	6,~~077~~922		$	(4,~~035~~000	)

2224


	Residential/Small Business
	For the six months ended June 30,
							Fav(unfav)			Fav(unfav)
	2010			2009			Variance			Var %
Revenue:
Video	$	158,259		$	155,164		$	3,095			2.0	%
Data		71,227			71,881			(654	)		(0.9	%)
Voice		49,990			54,688			(4,698	)		(8.6	%)
Recip Comp/Other		6,458			7,127			(669	)		(9.4	%)

Total Revenue		285,934			288,860			(2,926	)		(1.0	%)

Direct expenses		106,895			105,647			(1,248	)		(1.2	%)
Selling, general and administrative (excluding stock-based compensation)		105,310			105,467			157			0.1	%


Operating income before depreciation and amortization, stock-based compensation, exit costs and restructuring charges, net	$	73,729		$	77,746		$	(4,017	)		(5.2	%)


Reconciliation to Operating Income (Loss)

Operating income before depreciation and amortization, stock-based compensation, exit costs and restructuring charges, net	$	73,729		$	77,746
Less: Stock-based compensation		4,198			3,405
Less: Depreciation and amortization		56,666			82,191
Less: Exit costs and restructuring charges, net		(134	)		401

Operating income (loss)	$	12,999		$	(8,251	)

Residential / SMB Revenues

Residential/SMB revenue decreased $20.81 million, or (0.1%), and $2.9 million, or (1.0%), respectively, for the three and six months ended ~~March~~June 3130, 2010 compared to the three ~~months~~and six months ended ~~March~~June 3130, 2009. The decrease is primarily due to a reduction in ~~the~~total ~~average~~Revenue ~~revenue~~Generating Units ~~per customer~~ (“~~ARPC~~RGUs”), ~~and~~partially ~~also~~driven ~~due~~by to a reduction in ~~the average number of~~ customers~~. ARPC decreased slightly from $110 for the three months ended March 31~~, ~~2009 to~~offset ~~$109~~by ~~for~~an ~~the~~increase ~~three months ended March 31, 2010, as growth~~ in Average ~~average~~Revenue ~~revenue~~ per ~~video~~Customer ~~Revenue Generating Unit~~ (“~~RGU~~ARPC”). ~~and increased~~Customers ~~high-speed~~decreased ~~data penetration was offset~~ by ~~declines~~approximately in8,000 ~~voice~~or ~~penetration~~1.9% ~~and~~from ~~average~~June 30, ~~revenue~~2009 ~~per~~to ~~data~~June 30, ~~RGU.~~2010, ~~The increase in average revenue per video RGU was~~ driven ~~mainly~~ by ~~our annual video rate increase, which partially mitigates~~ the ~~impact~~implementation of ~~annual~~a ~~increases~~more instringent ~~programming~~credit ~~costs, as~~policy ~~well~~designed asto mitigate ~~increased~~risk ~~penetration~~from ofpoor ~~our~~credit ~~digital~~customer ~~set-top,~~segments HD and ~~DVR~~increased ~~boxes~~churn ~~and~~in ~~higher~~certain ~~revenue~~markets, ~~from~~primarily ~~premium~~related ~~services. Customers decreased by approximately 3,000, or 0.7%, from March 31, 2009~~ to ~~March 31,~~move-out ~~2010~~activity. Total RGUs decreased by approximately 1825,000, or 2.07%, from ~~March~~June 3130, 2009 to ~~March~~June 3130, 2010, driven primarily by customer losses and voice penetration ~~losses~~declines, consistent with trends for highly penetrated landline voice providers, partially offset by growth in data RGUs. Video RGUs decreased ~~slightly~~ by approximately 3% from ~~March~~June 3130, 2009 to ~~March~~June 3130, 2010. ~~The~~ARPC increased ~~decrease~~due to growth in average revenue per ~~data~~video RGU ~~was~~and ~~primarily~~increased high-speed data ~~due~~penetration, topartially aoffset ~~shift~~by ~~towards~~decreasing ~~lower-speed~~voice ~~data~~penetration ~~plans,~~and a ~~trend~~slight decline in average revenue per voice RGU. The increase in average revenue per video RGU was driven mainly by our annual video rate increase, which ~~has~~partially mitigates the impact of annual increases in programming costs, as well as increased ~~over~~penetration ~~the~~of ~~past~~our ~~few~~digital ~~years~~set-top, HD and DVR boxes and higher revenue from premium services.

	March 31,		March 31,
Residential / SMB Metrics	2010		2009
Video RGUs 1		361,000		366,000
Data RGUs 1		315,000		306,000
Voice RGUs 1		220,000		242,000
Total RGUs 1		896,000		914,000
Customers 2		426,000		429,000
ARPC 3	$	109	$	110

(1)		RGUs are all video, high-speed data, and voice connections provided to residential households and SMB customers. Dial-up Internet and long distance voice services are not included. Additional telephone lines are each counted as an RGU, but additional room outlets for video service are not counted. For bulk arrangements in residential multiple dwelling units (“MDUs”), including dormitories, the number of RGUs is based on the number of video, high-speed data and voice connections provided and paid for in that MDU. Commercial structures such as hotels and offices are counted as one RGU regardless of how many units are in the structure. Delinquent accounts are generally disconnected and no longer counted as RGUs after a set period of time in accordance with our credit and disconnection policies. RGUs may include customers receiving some services for free or at a reduced rate in connection with promotional offers or bulk arrangements. RGUs provided free of charge under courtesy account arrangements are not counted, but additional services paid for are counted.
(2)		A “Customer” is a residential household or SMB that has at least one paid video, high-speed data or local voice connection. Customers with only Dial-up Internet or long distance voice service are not included. For bulk arrangements in residential MDUs, including dormitories, each unit for which service is provided and separately paid for is counted as a Customer. Commercial structures such as hotels and offices are counted as one Customer regardless of how many units are in the structure. Delinquent accounts are generally disconnected and no longer counted as Customers after a set period of time in accordance with our credit and disconnection policies.
(3)		ARPC is total revenue for a given monthly period (excluding Dial-up Internet, reciprocal compensation and commercial revenue) divided by the average number of Customers for the period. This definition of ARPC may not be similar to ARPC measures of other companies.


Residential / SMB Metrics	June 30, 2010		June 30, 2009

Video RGUs ¹		356,000		368,000
Data RGUs ¹		316,000		307,000
Voice RGUs ¹		214,000		236,000

Total RGUs ¹		886,000		911,000

Customers ²		422,000		430,000
ARPC ³	$	113	$	111


(1)		RGUs are all video, high-speed data, and voice connections provided to residential households and SMB customers. Dial-up Internet and long distance voice services are not included. Additional telephone lines are each counted as an RGU, but additional room outlets for video service are not counted. For bulk arrangements in residential multiple dwelling units (“MDUs”), including dormitories, the number of RGUs is based on the number of video, high-speed data and voice connections provided and paid for in that MDU. Commercial structures such as hotels and offices are counted as one RGU regardless of how many units are in the structure. Delinquent accounts are generally disconnected and no longer counted as RGUs after a set period of time in accordance with our credit and disconnection policies. RGUs may include customers receiving some services for free or at a reduced rate in connection with promotional offers or bulk arrangements. RGUs provided free of charge under courtesy account arrangements are not counted, but additional services paid for are counted.

(2)		A “Customer” is a residential household or SMB that has at least one paid video, high-speed data or local voice connection. Customers with only Dial-up Internet or long distance voice service are not included. For bulk arrangements in residential MDUs, including dormitories, each unit for which service is provided and separately paid for is counted as a Customer. Commercial structures such as hotels and offices are counted as one Customer regardless of how many units are in the structure. Delinquent accounts are generally disconnected and no longer counted as Customers after a set period of time in accordance with our credit and disconnection policies.

(3)		ARPC is total revenue for the three months ended June 30, 2010 (excluding Dial-up Internet, reciprocal compensation and commercial revenue) divided by the average number of Customers for the period. This definition of ARPC may not be similar to ARPC measures of other companies.

Residential / SMB Direct Expenses

Direct expenses increased $0.57 million, or 1.04%, and $1.2 million, or 1.2%, for the three and six months ended ~~March~~June 3130, 2010 , respectively, as compared to the ~~three~~same ~~months~~periods ~~ended~~in ~~March 31,~~ 2009. Video direct costs increased $01.9 million, or 4.2%, and $2.6 million, or 1 2.48%, for the three and six months ended June 30, 2010, respectively, as compared to the same periods in 2009, due to increases in the average programming cost per subscriber partially offset by a decrease in average video RGUs. ~~Data~~Voice and data network costs for the three and six months ending June 30, 2010, excluding the impact of settlements with providers of our voice and data network services, decreased by $01.3 million, or 18.0%, and $1.7 million, or 11.28%, respectively, primarily due to ~~cost~~a reduction in voice RGUs and benefits achieved as a result of an ongoing network optimization initiative~~. Voice~~, ~~direct~~partially ~~costs~~offset ~~increased~~ by ~~$0.2 million,~~an orincrease ~~2.2%,~~in ~~due~~data toRGUs. aTotal ~~settlement~~settlements ~~with~~for athe ~~provider~~six ofmonths ~~voice~~ended June 30, ~~services~~2010 ~~totaling~~were $0.34 million inand for the three and six months ended ~~March~~June 3130, 2009. ~~Excluding~~were ~~the~~$0.5 million ~~settlement,~~and ~~voice direct costs decreased~~ $0.28 million, ~~due~~respectively. toThere awere ~~reduction~~no settlements in ~~voice~~the ~~RGUs~~three months ended March 31, 2010.

Residential / SMB Selling, General and Administrative Expenses

SG&A, including stock-based compensation expense, ~~decreased~~increased by $12.40 million, or 23.7%, and $0.6 million, or 0.6%, for the three and six months ended ~~March~~June 3130, 2010, respectively, as compared to the same ~~period~~periods in 2009. SG&A in the Residential/SMB segment includes approximately $12.02 million and $3.2 million of transaction costs related to the Merger Agreement. during the three and six months ended June 30, 2010, respectively. Excluding stock-based compensation expense and transaction costs, SG&A decreased $20.75 million, or 5 0.39%, ~~reflecting~~and ~~decreases~~$3.4 million, inor ~~bad debt~~3.2%, ~~customer service~~respectively, for ~~field~~the ~~operations~~three and ~~sales~~six ~~commissions costs~~months ended June 30, 2010, as ~~well~~compared asto the ~~suspension~~same ofperiods ~~the~~in ~~401(k)~~2009, reflecting ~~match~~decreases asin ~~discussed~~bad ~~above.~~debt, ~~Partially~~sales ~~offsetting~~commissions, ~~these decreased~~billing and corporate overhead costs, partially ~~was~~offset anby ~~increase~~increases in marketing, property taxes, ~~collections~~facilities and other general and ~~administrative~~ administrative costs.

2326

RCN Metro Optical Networks Operating Results
(dollars in thousands)

	RCN Metro
	For the three months ended March 31,
	For the three months ended June 30,
						Fav(unfav)			Fav(unfav)
	2010		2009			Variance			Var %
Revenue:
Transport Services	$	37,~~625~~805	$	3436,~~909~~049		$	21,~~716~~756			74.89	%
Data and Internet Services		1,~~781~~883		~~930~~1,143			~~851~~740			9164.57	%
Co-location		3,~~043~~101		2,~~914~~905			~~129~~196			46.47	%
Leased Services		54,~~026~~997		5,~~007~~171			19(174	)		0(3.4	%)
Installation and other		1,~~739~~793		1,~~757~~915			(18122	)		(16.04	%)
Total Revenue		49,~~214~~579		4547,~~517~~183			32,~~697~~396			85.1	%
Direct expenses		18,~~185~~401		1617,~~782~~144			(1,~~403~~257	)		(87.43	%)
Selling, general and administrative (excluding stock-based compensation)		1415,~~362~~196		14,~~255~~470			(~~107~~726	)		(05.80	%)
Operating income before depreciation and amortization, stock-based compensation, exit costs and restructuring charges	$	16,667	$	14,480		$	2,187			15.1	%
Operating income before depreciation and amortization, stock-based compensation, exit costs and restructuring charges, net	$	15,982	$	15,569		$	413			2.7	%
Reconciliation to Operating Income
Operating income before depreciation and amortization, stock-based compensation, exit costs and restructuring charges	$	16,667	$	14,480
Operating income before depreciation and amortization, stock-based compensation, exit costs and restructuring charges, net	$	15,982	$	15,569
Less: Stock-based compensation		~~814~~653		~~585~~520
Less: Depreciation and amortization		89,~~956~~038		8,~~876~~514
Less: Exit costs and restructuring charges, net		—		~~(100~~1	)
Operating income	$	6,~~897~~291	$	56,~~119~~534


	RCN Metro
	For the six months ended June 30,
						Fav(unfav)			Fav(unfav)
	2010		2009			Variance			Var %
Revenue:
Transport Services	$	75,430	$	70,958		$	4,472			6.3	%
Data and Internet Services		3,664		2,073			1,591			76.7	%
Co-location		6,144		5,819			325			5.6	%
Leased Services		10,023		10,177			(154	)		(1.5	%)
Installation and other		3,532		3,672			(140	)		(3.8	%)

Total Revenue		98,793		92,699			6,094			6.6	%

Direct expenses		36,586		33,926			(2,660	)		(7.8	%)
Selling, general and administrative (excluding stock-based compensation)		29,559		28,726			(833	)		(2.9	%)


Operating income before depreciation and amortization, stock-based compensation, exit costs and restructuring charges, net	$	32,648	$	30,047		$	2,601			8.7	%


Reconciliation to Operating Income

Operating income before depreciation and amortization, stock-based compensation, exit costs and restructuring charges, net	$	32,648	$	30,047
Less: Stock-based compensation		1,466		1,106
Less: Depreciation and amortization		17,994		17,379
Less: Exit costs and restructuring charges, net		—		(99	)

Operating income	$	13,188	$	11,661

RCN Metro Revenues

Revenue increased $32.74 million, or 85.1%, and $6.1 million, or 6.6%, for the three and six months ended ~~March~~June 3130, 2010, respectively, as compared to the ~~three~~same ~~months~~periods ~~ended~~in ~~March 31,~~ 2009, primarily due to growth in transport and ~~internet protocol (“~~IP”) services to our carrier and enterprise customers. RCN Metro had approximately 800 customers as of ~~March~~June 3130, 2010. The top 20% of these customers have monthly revenue in excess of $10,000 per customer, generating approximately 90% of RCN Metro’s total revenue, and the top 34% of these customers have monthly revenue in excess of $100,000 per customer, representing multiple locations and services purchased per customer, and generating approximately 60% of RCN Metro’s total revenue. From a customer segment perspective, RCN Metro generates approximately 30% of its revenue each from telecommunications carriers, national wireless providers and financial services enterprise customers, and the remainder from other enterprise customers.

RCN Metro Direct Expenses

Direct expenses increased $1.43 million, or 87.43%, and $2.7 million, or 7.9%, for the three and six months ended ~~March~~June 3130, 2010, respectively, as compared to the ~~three~~same ~~months~~periods ~~ended~~in ~~March 31,~~ 2009, largely due to added costs associated with the increase in revenue, including co-location costs, leased circuits, building access fees, and rights of way costs.

RCN Metro Selling, General and Administrative Expenses

SG&A, including stock-based compensation expense, increased $0.39 million, or 25.37%, and $1.1 million, or 4.0%, for the three and six months ended ~~March~~June 3130, 2010, respectively, as compared to the ~~three~~same ~~months~~periods ~~ended~~in ~~March 31,~~ 2009. SG&A in the Metro segment includes $0.38 million ofand $1.1 million of transaction costs related to the Merger Agreement. for the three and six months ended June 30, 2010, respectively. Excluding stock-based compensation expense and transaction costs, SG&A remained flat and decreased $0.23 million, or 1 0.49%, ~~primarily~~for ~~due~~the tothree ~~decreases in bad debt~~ and ~~sales~~six ~~costs~~months ~~partially~~ended ~~offset~~June 30, ~~by increases in~~2010, ~~employee and network related costs~~respectively.

Consolidated Depreciation and Amortization

Depreciation expense decreased $1012.83 million, or 2324.09%, to $3637.1 million for the three months ended ~~March~~June 3130, 2010 ~~compared~~and decreased $23.2 million, or 24.1%, to $73.2 million for the ~~three~~six months ~~ended~~ ~~March~~ended June 3130, as compared to the same periods in 2009 primarily due to fresh start assets which became fully depreciated in the fourth quarter of 2009.

24Amortization expense decreased $0.8 million, or 53.3%, to $0.7 million for the three months ended June 30, 2010 and decreased $1.7 million, or 53.1%, to $1.5 million for the six months ended June 30, 2010 as compared to the same periods in 2009, primarily due to trademarks which became fully amortized in the later part of 2009.

~~Table~~Consolidated ofExit ~~Contents~~Costs and Restructuring Charges, Net

~~Amortization~~During ~~expense decreased $0.8 million, or 49.6%, to $0.8 million for~~ the three ~~months ended~~and ~~March 31,~~six ~~2010 compared to the three~~ months ended ~~March~~June 3130, ~~2009~~2010, ~~primarily~~exit ~~due~~costs toand ~~trademarks~~restructuring charges ~~which~~primarily ~~became~~consisted ~~fully~~of ~~amortized~~a ingain ~~the~~from ~~later~~an ~~part~~early termination of ~~2009~~a lease in Pennsylvania.

~~Consolidated~~During ~~Exit~~the ~~Costs~~six months ended June 30, 2009 exit costs and ~~Restructuring~~restructuring ~~Charges~~charges primarily consisted of employee termination benefits.

During the three months ended March 31, 2010 and March 31, 2009, exit costs and restructuring charges primarily consisted of severance and other employee termination benefits associated with plans to reduce operating expenses.

Consolidated Other Income (Expense) Items

Investment ~~(Expense)~~ Income

Investment ~~expense~~income for the three and six months ended ~~March~~June 3130, 2010 ~~consists of a loss on the sale of a marketable security partially offset by investment income from the Company’s short-term investments, which~~ decreased compared to the same ~~period~~periods in 2009, ~~due~~driven toprimarily by lower yields from the Company’s short-term investments due to short-term market rates, asand ~~well as overall~~ lower weighted average investment balances. ~~Substantially all of the decrease in investment (expense) income is~~ ~~due to the decrease in investment income.~~

Interest Expense

Interest expense decreased by $1.3 million, or 11.47%, to $9.7 million ~~for~~and ~~the~~decreased ~~three months~~$2.5 ~~ended March 31~~million, ~~2010~~or ~~compared~~11.5%, to $1119.04 million for the three and six months ended ~~March~~June 3130, 2010 compared to the same periods in 2009. The decrease was due primarily to a reduction in our weighted average interest rate, as well as a decrease in our weighted average debt balance.

Outstanding debt at ~~March~~June 3130, 2010 was $~~733~~713.40 million compared to $~~740~~738.89 million at ~~March~~June 3130, 2009. The weighted average interest rate, including the effect of interest rate swaps, for the ~~three~~six months ended ~~March~~June 3130, 2010 and ~~March~~June 3130, 2009 was 4.9% and 5.54%, respectively.

Other Income, Net

For the ~~three~~six months ended ~~March~~June 3130, 2010, other income consisted primarily of our receipt of $2.1 million pursuant to a settlement agreement with a beneficial owner of our common stock requiring the disgorgement of short swing profits pursuant to Section 16(b) of the Securities Exchange Act of 1934.

Liquidity and Capital Resources
(dollars in thousands)

	March 31, 2010		December 31, 2009
	June 30, 2010		December 31, 2009
Cash, cash equivalents and short-term investments	$	9180,~~888~~381	$	86,943
Debt (including current maturities and capital lease obligations)		~~733~~713,~~413~~041		735,255

Subject to the risks outlined in our “Cautionary Statements Regarding Forward-Looking Statements,” we expect to fund our ongoing investing and mandatory financing activities, excluding the final maturity of our First- Lien Credit Agreement in 2014, with cash on hand and cash flows from operating activities. If our operating performance differs significantly from our forecasts, we may be required to reduce our operating expenses and curtail capital spending, and we may not remain in compliance with our debt covenants.

Operating Activities

Net cash provided by operating activities was $4182.03 million for the ~~three~~six months ended ~~March 31~~June 30, 2010, which reflects an increase of $1116.20 million compared to cash provided by operating ~~activities~~ activities for the ~~three~~six months ended ~~March~~June 3130, 2009. The increase was primarily due to improved customer payments, a one-time settlement as ~~further~~ discussed above in Other Income, ~~lower~~net, ~~interest payments~~ and ~~enhanced~~lower ~~operating margins~~interest payments.

During the ~~three~~six months ended ~~March~~June 3130, 2010 and ~~March 31~~June 30, 2009, we made cash payments for ~~interest~~ interest totaling $918.24 million and $1020.58 million, respectively. The decrease in interest payments ~~was~~ was primarily the result of a decrease in the weighted average interest rate ~~on our debt balance from 5~~.~~5% to 4.9% for the three months ended March 31, 2009 and March~~ ~~31, 2010, respectively.~~

Investing Activities

Net cash used in investing activities was $5891.40 million during the ~~three~~six months ended ~~March 31~~June 30, 2010, primarily ~~reflecting~~consisting of $3565.01 million in additions to property, plant, and equipment, $1.2 million investment in intangibles and a $2427.98 million increase in short-term investments partially offset by a $02.81 million decrease in restricted investments and $01.70 million in proceeds from the sale of assets. Net cash used in investing activities was $1845.43 million during the ~~three~~six months ended ~~March~~June 3130, 2009, primarily ~~reflecting~~ consisting of $2249.54 million in additions to property, plant, and equipment, partially offset by a $3.7 million decrease in restricted investments and $0.56 million in proceeds from the sale of assets. Capital expenditures for 2010 are expected to be consistent with 2009 levels, excluding business or customer acquisitions., ~~These~~and ~~capital expenditures~~ are expected to be funded by cash flow from continuing operations as well as cash on hand.

Financing Activities

Net cash used in financing activities was $225.57 million for the ~~three~~six months ended ~~March~~June 3130, 2010, primarily consisting of the repayment of long-term debt of $122.82 million, the purchase of ~~treasury~~ treasury stock totaling $03.69 million (resulting from the vesting of restricted shares), and dividend payments of $0.5 million, partially offset by $0.49 million for the proceeds from the exercise of stock options. Net cash used in financing activities was $410.0 million for the ~~three~~ six months ended ~~March 31~~June, 2009, primarily consisting of the repayment of long-term debt of $13.87 million, dividend payments totaling $0.6 million, and the purchase of common stock totaling $1.5.7 million (consisting of $15.21 million in common share repurchases and $0.36 million of treasury shares resulting from the vesting of restricted shares).

In the event our Total Leverage Ratio is greater than 3:00:1 at December 31, 2010, we will be required to repay 50% of Excess Cash Flow (as defined in the First-Lien Credit Agreement) in April 2011. Pursuant to this Excess Cash Flow provision, we paid $18.6 million in April 2010, related to the year ended December 31, 2009.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Description of Outstanding Debt

As of ~~March~~June 3130, 2010, our total debt was $~~733~~713.40 million, including $2.7 million of capital lease obligations. The following is a description of our debt and the significant terms contained in the related agreements.

First-Lien Credit Agreement

The Company’s credit agreement with Deutsche Bank, as Administrative Agent, and certain syndicated lenders (“First-Lien Credit Agreement”) provides for term loans to the Company in the aggregate principal amount of $720 million, and a $75 million revolving line of credit, all of which can be used as collateral for letters of credit. Approximately $37.32 million of the revolving line of credit is currently utilized for outstanding letters of credit relating to the Company’s surety bonds, real estate lease obligations, right-of-way obligations, and license and permit obligations. As of ~~March~~June 3130, 2010, the Company had drawn an additional $30 million under the revolving line of credit and had $7.7 million of available borrowing capacity remaining. The obligations of the Company under the First-Lien Credit Agreement are guaranteed by all of its operating subsidiaries and are collateralized by substantially all of the Company’s assets.

The term loan bears interest at the Administrative Agent’s prime lending rate plus an applicable margin or at the Eurodollar rate plus an applicable margin, based on the type of borrowing elected by the Company. The effective rate on outstanding debt at ~~March~~June 3130, 2010 and June ~~December 31~~30, 2009 was 4.9%, including the effect of the interest rate swaps discussed in Note 9.

The Company is in compliance with all financial covenants under the First-Lien Credit Agreement as of the date of this filing.

Recently Issued Accounting Pronouncements

See Note 1, “Organization and Basis of Presentation,” to the accompanying condensed consolidated financial statements for a full description of recently issued accounting pronouncements including the date of adoption and effects on results of operations and financial condition.

Critical Accounting Judgments and Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management periodically assesses the accuracy of these estimates and assumptions. Actual results could differ from those estimates.

Inflation

Historically, the Company’s results of operations and financial condition have not been significantly affected by inflation. Subject to normal competitive conditions, the Company generally has been able to pass along rising costs through increased selling prices. We do not believe that our business is impacted by inflation to a significantly different extent than the general economy in the United States.


Item 3.		Quantitative and Qualitative Disclosures About Market Risk

There has been no material change to the information required under this item from what was disclosed in our Annual Report.


Item 4.		Controls and Procedures

Conclusions Regarding Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Report (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to RCN, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to RCN’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rules 13a-15(d) and 15d-15(d) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION


Item 1.		Legal Proceedings

Except as described below in this Item 1, there have been no material changes in our “Legal Proceedings” as discussed in Item 3 of our Annual Report.

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OnIf ~~April 23, 2010, RCN,~~ the ~~members~~settlement ofcontemplated ~~our~~by ~~Board, Cable Buyer, Metro Parent, Merger Sub and ABRY entered into a memorandum of understanding (~~the “MOU”) ~~with~~is ~~the~~consummated, ~~plaintiff in~~ the Delaware ~~Action~~ ~~reflecting an agreement in principle to settle the Delaware~~ Action ~~based~~will ~~upon the inclusion~~be indismissed ~~our~~with ~~Definitive~~prejudice ~~Proxy~~and ~~Statement~~the ofdefendants ~~certain~~and ~~additional~~other ~~disclosures~~released ~~that~~persons ~~had~~will ~~been~~receive ~~requested~~from byor ~~the~~on ~~plaintiff~~behalf inof ~~the~~all ~~Delaware~~persons ~~Action.~~and Inentities ~~contemplation~~who ofheld ~~a potential settlement,~~ RCN ~~included~~common ~~these additional~~stock ~~disclosures~~at inany ~~its~~time ~~Definitive~~from ~~Proxy Statement filed with the SEC, and mailed to RCN stockholders of record, on April~~March 215, 2010. ~~RCN,~~ through the ~~members~~date of ~~our~~consummation ~~Board,~~of ~~Cable~~the ~~Buyer,~~transactions ~~Metro Parent,~~contemplated ~~Merger~~by ~~Sub~~the ~~and~~Merger ~~ABRY~~Agreement ~~each~~a ~~have~~release ~~denied,~~of ~~and~~all claims ~~continue~~relating to ~~deny,~~the ~~that~~Merger ~~they~~Agreement ~~have committed or aided~~ and ~~abetted in~~ the ~~commission~~transactions ofcontemplated ~~any~~thereby ~~violation~~and ofthe disclosure ~~law~~made ~~or engaged~~ in ~~any~~connection oftherewith (including the ~~wrongful~~claims ~~acts alleged~~asserted in the ~~Delaware~~Virginia Action~~, and maintain that they have diligently and scrupulously complied~~ ~~with~~described ~~their fiduciary, disclosure and other legal duties~~above). ~~RCN,~~Neither the ~~members~~MOU ofnor ~~our~~the ~~Board,~~proposed ~~Cable Buyer,~~settlement ~~Metro~~would ~~Parent,~~affect ~~Merger Sub and ABRY believe that~~ the ~~Delaware~~amount ~~Action~~of ~~is without merit, and~~the ~~they~~merger consideration ~~have~~that ~~entered~~RCN ~~into~~stockholders ~~the~~would ~~MOU~~be ~~solely~~entitled to ~~avoid~~receive ~~the~~if ~~risk of delaying~~ the transactions ~~contemplated~~ contemplated by the Merger Agreement ~~and~~are toconsummated. ~~minimize~~Notwithstanding the ~~expense of litigation. The MOU is subject to customary conditions~~foregoing, ~~including~~there ~~completion~~can ~~of appropriate settlement documentation, completion of~~be ~~confirmatory~~no ~~discovery~~assurance tothat ~~confirm~~ the ~~fairness of the~~ settlement ~~and~~contemplated ~~approval~~ by the ~~Delaware~~MOU ~~Court of~~will ~~Chancery~~be completed.


Item 1A.		Risk Factors

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” of our Form 10-K for the year ended December 31, 2009. The risks described in our Form 10-K are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on us. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.


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

Purchases of Equity Securities

During 2007, the Company’s Board of Directors authorized the repurchase of up to $25 million of the Company’s common stock. To date, the Company has repurchased approximately 2.6 million shares. All of these shares were retired. As of ~~March~~June 3130, 2010, approximately $6.3 million remains authorized for repurchases under the stock repurchase program. No shares were repurchased during the ~~three~~six months ended ~~March~~June 3130, 2010. A total of 754,976 shares and 1,064,376 shares were repurchased for $3.9 million and $5.1 million during the three and six months ended June 30, 2009, respectively.


Item 6.		Exhibits

	2.1			Agreement and Plan of Merger, dated as of March 5, 2010, by and among RCN Corporation, Yankee Cable Acquisition, LLC, Yankee Metro Parent, Inc. and Yankee Metro Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 of RCN’s Current Report on Form 8-K filed on March 5, 2010).
	10.1			Amendment dated July 22, 2010 to Employment Agreement by and between the Company and Jose A. Cecin, Jr.
	10.2			Amendment dated July 23, 2010 to Employment Agreement by and between the Company and Michael T. Sicoli.
	10.3			Amendment dated July 22, 2010 to the Amended and Restated Change of Control Severance Plan of the Company.
	31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1			Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
	32.2			Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*


*		This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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SIGNATURES

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

RCN Corporation /s/ Michael T. Sicoli Michael T. Sicoli Executive Vice President and Chief Financial Officer Date: ~~May~~August 69, 2010 /s/ Leslie J. Sears Leslie J. Sears Senior Vice President and Controller Date: ~~May~~August 69, 2010

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EXHIBIT INDEX

Exhibit
Number		Description
	10.1	Amendment dated July 22, 2010 to Employment Agreement by and between the Company and Jose A. Cecin, Jr.
	10.2	Amendment dated July 23, 2010 to Employment Agreement by and between the Company and Michael T. Sicoli.
	10.3	Amendment dated July 22, 2010 to the Amended and Restated Change of Control Severance Plan of the Company.
	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
	32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*


*		This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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