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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2017

Commission File Numbers: 333-72440

                                                      333-82124-02

 

 

Mediacom Broadband LLC

Mediacom Broadband Corporation*

(Exact names of Registrants as specified in their charters)

 

 

 

Delaware   06-1615412
Delaware   06-1630167

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Numbers)

1 Mediacom Way

Mediacom Park, NY 10918

(Address of principal executive offices)

(845) 443-2600

(Registrants’ telephone number)

 

 

Indicate by check mark whether the Registrants (1) have 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 Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.    ☐  Yes    ☒  No

Note: As voluntary filers, not subject to the filing requirements, the Registrants have filed all reports under Section 13 or 15(d) of the Exchange Act during the preceding 12 months.

Indicate by check mark whether the Registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrants were required to submit and post such files).    ☒  Yes    ☐  No

Indicate by check mark whether the Registrants are large accelerated filers, accelerated filers, non-accelerated filers or smaller reporting companies. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filers

 

  

Accelerated filers

 

Non-accelerated filers

 

☒  (Do not check if a smaller reporting company)

  

Smaller reporting companies

 

    

Emerging growth companies

 

If emerging growth companies, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

Indicate the number of shares outstanding of the Registrants’ common stock: Not Applicable

 

*

Mediacom Broadband Corporation meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.

 

 

 


Table of Contents

MEDIACOM BROADBAND LLC AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2017

TABLE OF CONTENTS

 

     Page  
PART I       

Item 1. Financial Statements

     4  

Consolidated Balance Sheets (unaudited) September  30, 2017 and December 31, 2016

     4  

Consolidated Statements of Operations (unaudited) Three and Nine Months Ended September 30, 2017 and 2016

     5  

Consolidated Statements of Cash Flows (unaudited) Nine Months Ended September 30, 2017 and 2016

     6  

Notes to Consolidated Financial Statements (unaudited)

     7  

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

     14  

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     24  

Item 4. Controls and Procedures

     24  
PART II       

Item 1. Legal Proceedings

     26  

Item 1A. Risk Factors

     26  

Item 5. Other Information

     26  

Item 6. Exhibits

     27  

Signatures

     28  

This Quarterly Report on Form 10-Q is for the three and nine months ended September 30, 2017. Any statement contained in a prior periodic report shall be deemed to be modified or superseded for purposes of this Quarterly Report to the extent that a statement herein modifies or supersedes such statement. The Securities and Exchange Commission allows us to “incorporate by reference” information that we file with them, which means that we can disclose important information by referring you directly to those documents. Information incorporated by reference is considered to be part of this Quarterly Report.

Mediacom Broadband LLC is a Delaware limited liability company and a wholly-owned subsidiary of Mediacom Communications Corporation, a Delaware corporation. Mediacom Broadband Corporation is a Delaware corporation and a wholly-owned subsidiary of Mediacom Broadband LLC. Mediacom Broadband Corporation was formed for the sole purpose of acting as co-issuer with Mediacom Broadband LLC of debt securities and does not conduct operations of its own.

References in this Quarterly Report to “we,” “us,” or “our” are to Mediacom Broadband LLC and its direct and indirect subsidiaries (including Mediacom Broadband Corporation), unless the context specifies or requires otherwise. References in this Quarterly Report to “Mediacom” or “MCC” are to Mediacom Communications Corporation.

 

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Table of Contents

Cautionary Statement Regarding Forward-Looking Statements

You should carefully review the information contained in this Quarterly Report and in other reports or documents that we file from time to time with the SEC.

In this Quarterly Report, we state our beliefs of future events and of our future financial performance. In some cases, you can identify those so-called “forward-looking statements” by words such as “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will,” or the negative of those and other comparable words. These forward-looking statements are not guarantees of future performance or results, and are subject to risks and uncertainties that could cause actual results to differ materially from historical results or those we anticipate as a result of various factors, many of which are beyond our control. Factors that may cause such differences to occur include, but are not limited to:

 

   

increased levels of competition from direct broadcast satellite operators, local phone companies, other cable providers, wireless communications companies, providers of over-the-top video, and other services that compete for our customers;

 

   

lower demand for our services from existing and potential residential and business customers due to increased competition, weakened economic conditions or other factors;

 

   

our ability to contain the continued increases in video programming costs, or to raise video rates to offset, in whole or in part, the effects of such costs, including retransmission consent fees;

 

   

an acceleration in bandwidth consumption by high-speed data customers at rates greater than current expectations, which could require unplanned network investments and meaningfully increase our capital expenditures;

 

   

our ability to continue to grow our business services customer base, and associated revenues, which has continued to make increasing contributions to our results of operations;

 

   

our ability to realize the anticipated benefits from the major initiatives under MCC’s plan for approximately $1 billion in total capital expenditures during the three years ending December 31, 2018, as further described in our Annual Report for the year ended December 31, 2016;

 

   

our ability to successfully adopt new technologies and introduce new products and services, or enhance existing ones, to meet customer demands and preferences;

 

   

our ability to secure hardware, software and operational support for the delivery of products and services to consumers;

 

   

disruptions or failures of our network and information systems, including those caused by “cyber-attacks,” natural disasters or other events outside our control;

 

   

our reliance on certain intellectual property rights, and not infringing on the intellectual property rights of others;

 

   

our ability to generate sufficient cash flows from operations to meet our debt service obligations;

 

   

our ability to refinance future debt maturities on favorable terms, if at all;

 

   

changes in assumptions underlying our critical accounting policies;

 

   

changes in legislative and regulatory matters that may cause us to incur additional costs and expenses; and

 

   

other risks and uncertainties discussed in our Annual Report for the year ended December 31, 2016 and other reports or documents that we file from time to time with the SEC.

Statements included in this Quarterly Report are based upon information known to us as of the date that this Quarterly Report is filed with the SEC, and we assume no obligation to update or alter our forward-looking statements made in this Quarterly Report, whether as a result of new information, future events or otherwise, except as required by applicable federal securities laws.

 

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Table of Contents

PART I

 

ITEM 1. 

FINANCIAL STATEMENTS

MEDIACOM BROADBAND LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

     September 30,
2017
     December 31,
2016
 
     (Unaudited)         

ASSETS

     

CURRENT ASSETS

     

Cash

   $ 10,663      $ 14,208  

Accounts receivable, net of allowance for doubtful accounts of $3,570 and $3,857

     69,204        67,724  

Prepaid expenses and other current assets

     20,497        14,562  
  

 

 

    

 

 

 

Total current assets

     100,364        96,494  

Property, plant and equipment, net of accumulated depreciation of $1,694,126 and $1,619,301

     844,943        816,389  

Franchise rights

     1,176,908        1,176,908  

Goodwill

     195,945        195,945  

Other assets, net of accumulated amortization of $4,586 and $4,101

     10,381        6,418  
  

 

 

    

 

 

 

Total assets

   $ 2,328,541      $ 2,292,154  
  

 

 

    

 

 

 

LIABILITIES, PREFERRED MEMBERS’ INTEREST AND MEMBER’S EQUITY

     

CURRENT LIABILITIES

     

Accounts payable, accrued expenses and other current liabilities

   $ 160,388      $ 154,818  

Accounts payable - affiliates

     22,887        14,852  

Deferred revenue

     41,403        39,856  

Current portion of long-term debt

     13,575        16,575  
  

 

 

    

 

 

 

Total current liabilities

     238,253        226,101  

Long-term debt, net (less current portion)

     1,448,535        1,597,075  

Other non-current liabilities

     1,443        1,486  
  

 

 

    

 

 

 

Total liabilities

     1,688,231        1,824,662  

Commitments and contingencies (Note 10)

     

PREFERRED MEMBERS’ INTEREST (Note 7)

     150,000        150,000  

MEMBER’S EQUITY

     

Capital contributions (distributions)

     17,001        (37,348

Retained earnings

     473,309        354,840  
  

 

 

    

 

 

 

Total member’s equity

     490,310        317,492  
  

 

 

    

 

 

 

Total liabilities, preferred members’ interest and member’s equity

   $ 2,328,541      $ 2,292,154  
  

 

 

    

 

 

 

The accompanying notes to the unaudited financial statements are an integral part of these statements.

 

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MEDIACOM BROADBAND LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands)

(Unaudited)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2017     2016     2017     2016  

Revenues

   $ 265,037     $ 258,699     $ 792,450     $ 770,285  

Costs and expenses:

        

Service costs (exclusive of depreciation and amortization)

     110,885       106,127       330,877       316,015  

Selling, general and administrative expenses

     50,256       50,600       146,394       145,701  

Management fee expense

     5,650       5,350       16,315       15,450  

Depreciation and amortization

     37,896       37,254       112,493       108,157  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     60,350       59,368       186,371       184,962  

Interest expense, net

     (17,121     (19,240     (52,919     (59,781

Gain (loss) on derivatives, net

     550       4,365       1,459       (4,313

Loss on early extinguishment of debt (Note 6)

     —         —         (1,966     (1,156

Other expense, net

     (262     (383     (976     (1,297
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 43,517     $ 44,110     $ 131,969     $ 118,415  

Dividend to preferred members (Note 7)

     (4,500     (4,500     (13,500     (13,500
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income applicable to member

   $ 39,017     $ 39,610     $ 118,469     $ 104,915  
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes to the unaudited financial statements are an integral part of these statements.

 

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MEDIACOM BROADBAND LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

     Nine Months Ended  
     September 30,  
     2017     2016  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 131,969     $ 118,415  

Adjustments to reconcile net income to net cash flows provided by operating activities:

    

Depreciation and amortization

     112,493       108,157  

(Gain) loss on derivatives, net

     (1,459     4,313  

Loss on early extinguishment of debt

     1,966       1,156  

Amortization of deferred financing costs

     2,837       4,325  

Changes in assets and liabilities:

    

Accounts receivable, net

     (1,480     2,436  

Prepaid expenses and other assets

     (10,760     (1,984

Accounts payable, accrued expenses and other current liabilities

     125       10,425  

Accounts payable - affiliates

     8,035       1,114  

Deferred revenue

     1,547       1,749  

Other non-current liabilities

     (43     (94
  

 

 

   

 

 

 

Net cash flows provided by operating activities

   $ 245,230     $ 250,012  
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Capital expenditures

   $ (141,254   $ (131,480

Change in accrued property, plant and equipment

     2,019       (503

Proceeds from sale of assets

     424       159  
  

 

 

   

 

 

 

Net cash flows used in investing activities

   $ (138,811   $ (131,824
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

New borrowings of bank debt

   $ 437,538     $ 328,431  

Repayment of bank debt

     (593,538     (503,181

Dividend payments on preferred members’ interest (Note 7)

     (13,500     (13,500

Capital contributions from parent (Note 8)

     60,000       75,000  

Capital distributions to parent (Note 8)

     (5,750     (6,175

Other financing activities

     5,286       759  
  

 

 

   

 

 

 

Net cash flows used in financing activities

   $ (109,964   $ (118,666
  

 

 

   

 

 

 

Net change in cash

     (3,545     (478

CASH, beginning of period

     14,208       10,442  
  

 

 

   

 

 

 

CASH, end of period

   $ 10,663     $ 9,964  
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    

Cash paid during the period for interest, net of amounts capitalized

   $ 45,804     $ 53,906  
  

 

 

   

 

 

 

The accompanying notes to the unaudited financial statements are an integral part of these statements.

 

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MEDIACOM BROADBAND LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION

Basis of Preparation of Unaudited Consolidated Financial Statements

Mediacom Broadband LLC (“Mediacom Broadband,” and collectively with its subsidiaries, “we,” “our” or “us”) is a Delaware limited liability company wholly-owned by Mediacom Communications Corporation (“MCC”). MCC is involved in the acquisition and operation of cable systems serving smaller cities and towns in the United States, and its cable systems are owned and operated through our operating subsidiaries and those of Mediacom LLC, a New York limited liability company wholly-owned by MCC. As limited liability companies, we and Mediacom LLC are not subject to income taxes and, as such, are included in the consolidated federal and state income tax returns of MCC, a C corporation.

Our principal operating subsidiaries conduct all of our consolidated operations and own substantially all of our consolidated assets. Our operating subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to make funds available to us. We rely on our parent, MCC, for various services such as corporate and administrative support. Our financial position, results of operations and cash flows could differ from those that would have resulted had we operated autonomously or as an entity independent of MCC. See Notes 8 and 9.

We have prepared these unaudited consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, such statements include all adjustments, consisting of normal recurring accruals and adjustments, necessary for a fair statement of our consolidated results of operations, financial position, and cash flows for the interim periods presented. The accounting policies followed during such interim periods reported are in conformity with generally accepted accounting principles in the United States of America and are consistent with those applied during annual periods. For a summary of our accounting policies and other information, refer to our Annual Report on Form 10-K for the year ended December 31, 2016. The results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 2017.

Mediacom Broadband Corporation (“Broadband Corporation”), a Delaware corporation wholly-owned by us, co-issued, jointly and severally with us, public debt securities. Broadband Corporation has no operations, revenues or cash flows and has no assets, liabilities or stockholders’ equity on its balance sheet, other than a one-hundred dollar receivable from an affiliate and the same dollar amount of common stock. Therefore, separate financial statements have not been presented for this entity.

Franchise fees imposed by local governmental authorities are collected on a monthly basis from our customers and are periodically remitted to the local governmental authorities. Because franchise fees are our obligation, we present them on a gross basis within revenues with a corresponding operating expense. Franchise fees reported on a gross basis amounted to $5.5 million and $5.8 million for the three months ended September 30, 2017 and 2016, respectively, and $16.6 million and $17.6 million for the nine months ended September 30, 2017 and 2016, respectively.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”) Revenue from Contracts with Customers. The guidance states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should also disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This guidance supersedes most industry-specific guidance, including Statement of Financial Accounting Standards No. 51 – Financial Reporting by Cable Television Companies. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers, which deferred by one year the effective date of ASU 2014-09 until reporting periods beginning after December 15, 2017, including interim periods within the reporting periods. The FASB is permitting early adoption of the updated accounting guidance, but not before the original effective date of December 15, 2016. Based on an assessment of certain revenue transactions performed to date, we expect that the new guidance will impact the timing of the recognition of installation revenue as well as installation costs and commission expenses. Under the new guidance, these amounts will be recognized as revenue and expenses, respectively, over a period of time instead of immediately, as is being done under current practice. Installation revenues as well as installation costs and commission expenses recorded in the year ended December 31, 2016 were each less than 2% of total revenues recorded in the same period. We are currently in the process of evaluating which method of transition will be utilized at adoption. We are strongly considering the modified retrospective method of transition. We continue to assess all of the potential impacts that the adoption of ASU 2014-09 will have on our consolidated financial statements, including the development of new accounting policies, procedures and internal controls associated with the adoption of the standard.

 

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In February 2016, the FASB issued ASU 2016-02—Leases (Topic 842) (“ASU 2016-02”). The objective of ASU 2016-02 is to address the concerns to increase the transparency around lease obligations. To address these concerns, previously unrecorded off-balance sheet obligations will now be brought more prominently to light by presenting lease liabilities on the face of the balance sheet. Accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements, financial statement users will be able to more accurately compare information from one company to another. This guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. We continue to assess all of the potential impacts that the adoption of ASU 2016-02 will have on our consolidated financial statements, including the determination of the assets within the scope of the guidance, the development of new accounting policies, procedures and internal controls associated with the adoption of the standard and the need for new accounting systems.

In August 2016, the FASB issued ASU 2016-15 Statement of Cash Flows – Clarification of Certain Cash Receipts and Cash Payments. (“ASU 2016-15”). Stakeholders indicated that there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other topics. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We do not expect ASU 2016-15 will have a material impact on our financial position, operations or cash flows upon adoption.

In January 2017, the FASB issued ASU 2017-04Intangibles – Goodwill and Other – (“ASU 2017-04”). In 2014, the FASB amended the guidance to allow private companies an alternative accounting treatment for subsequently measuring goodwill. They determined that those amendments were needed because of concern expressed by private companies and their stakeholders about the cost and complexity of the goodwill impairment test. ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We do not expect ASU 2017-04 will have a material impact on our financial position, operations or cash flows upon adoption.

3. FAIR VALUE

The tables below set forth our financial assets and liabilities measured at fair value on a recurring basis using a market-based approach. Our financial assets and liabilities, all of which represent interest rate exchange agreements (which we refer to as “interest rate swaps”) have been categorized according to the three-level fair value hierarchy established by Accounting Standards Codification (“ASC”) No. 820 — Fair Value Measurement, which prioritizes the inputs used in measuring fair value, as follows (dollars in thousands):

 

   

Level 1 — Quoted market prices in active markets for identical assets or liabilities.

 

   

Level 2 — Observable market based inputs or unobservable inputs that are corroborated by market data.

 

   

Level 3 — Unobservable inputs that are not corroborated by market data.

 

     Fair Value as of September 30, 2017  
     Level 1      Level 2      Level 3      Total  

Assets

           

Interest rate exchange agreements

   $ —        $ 785      $ —        $ 785  

Liabilities

           

Interest rate exchange agreements

   $ —        $ —        $ —        $ —    
     Fair Value as of December 31, 2016  
     Level 1      Level 2      Level 3      Total  

Assets

           

Interest rate exchange agreements

   $ —        $ 1,089      $ —        $ 1,089  

Liabilities

           

Interest rate exchange agreements

   $ —        $ 1,763      $ —        $ 1,763  

 

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The fair value of our interest rate swaps represents the estimated amount that we would receive or pay to terminate such agreements, taking into account projected interest rates, based on quoted London Interbank Offered Rate (“LIBOR”) futures and the remaining time to maturity. While our interest rate swaps are subject to contractual terms that provide for the net settlement of transactions with counterparties, we do not offset assets and liabilities under these agreements for financial statement presentation purposes, and assets and liabilities are reported on a gross basis.

As of September 30, 2017, we recorded a current asset of $0.5 million and a long-term asset of $0.3 million. As of December 31, 2016, we recorded a long-term asset of $1.1 million and a current liability in accounts payable, accrued expenses and other current liabilities of $1.8 million.

As a result of the changes in the mark-to-market valuations on our interest rate swaps, we recorded a net gain on derivatives of $0.6 million and $4.4 million for the three months ended September 30, 2017 and 2016, respectively, and a net gain on derivatives of $1.5 million and a net loss on derivatives of $4.3 million for the nine months ended September 30, 2017 and 2016, respectively.

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following (dollars in thousands):

 

     September 30,
2017
     December 31,
2016
 

Cable systems, equipment and customer devices

   $ 2,413,911      $ 2,314,715  

Vehicles

     45,920        42,334  

Buildings and leasehold improvements

     37,267        36,708  

Furniture, fixtures and office equipment

     34,186        34,092  

Land and land improvements

     7,785        7,841  
  

 

 

    

 

 

 

Property, plant and equipment, gross

   $ 2,539,069      $ 2,435,690  

Accumulated depreciation

     (1,694,126      (1,619,301
  

 

 

    

 

 

 

Property, plant and equipment, net

   $ 844,943      $ 816,389  
  

 

 

    

 

 

 

5. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accounts payable, accrued expenses and other current liabilities consisted of the following (dollars in thousands):

 

     September 30,
2017
     December 31,
2016
 

Accounts payable - trade

   $ 33,717      $ 42,094  

Accrued programming costs

     29,085        25,856  

Accrued taxes and fees

     17,071        17,212  

Accrued interest

     14,701        10,080  

Accrued payroll and benefits

     14,373        13,795  

Advance customer payments

     14,148        13,902  

Bank overdrafts (1)

     12,575        7,387  

Accrued property, plant and equipment

     6,969        4,950  

Accrued service costs

     6,586        6,810  

Accrued administrative costs

     5,751        5,381  

Accrued marketing costs

     3,418        3,193  

Accrued telecommunications costs

     784        878  

Liabilities under interest rate exchange agreements

     —          1,763  

Other accrued expenses

     1,210        1,517  
  

 

 

    

 

 

 

Accounts payable, accrued expenses and other current liabilities

   $ 160,388      $ 154,818  
  

 

 

    

 

 

 

 

(1)

Bank overdrafts represent outstanding checks in excess of funds on deposit at our disbursement accounts. We transfer funds from our depository accounts to our disbursement accounts upon daily notification of checks presented for payment. Changes in bank overdrafts are reported in “other financing activities” in our Consolidated Statements of Cash Flows.

 

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6. DEBT

Outstanding debt consisted of the following (dollars in thousands):

 

     September 30,
2017
     December 31,
2016
 

Bank credit facility

   $ 972,000      $ 1,128,000  

5 12% senior notes due 2021

     200,000        200,000  

6 38% senior notes due 2023

     300,000        300,000  
  

 

 

    

 

 

 

Total debt

   $ 1,472,000      $ 1,628,000  

Less: current portion

     13,575        16,575  
  

 

 

    

 

 

 

Total long-term debt, gross (less current portion)

   $ 1,458,425      $ 1,611,425  

Less: deferred financing costs, net

     9,890        14,350  
  

 

 

    

 

 

 

Total long-term debt, net (less current portion)

   $ 1,448,535      $ 1,597,075  
  

 

 

    

 

 

 

2017 Financing Activity

On June 30, 2017, we repaid the entire $291.8 million balance of Term Loan J under our bank credit facility (the “credit facility”). This repayment was funded by $231.8 million of borrowings under our revolving credit commitments and $60.0 million of capital contributions by our parent, MCC, which, in turn, received such contributions from Mediacom LLC on the same date. We recorded a loss on early extinguishment of debt of $2.0 million for the nine months ended September 30, 2017, which represented the write-off of unamortized financing costs as a result of the repayment of Term Loan J.

Subsequent to September 30, 2017, we entered into a new amended and restated credit agreement (the “new credit agreement”) under our bank credit facility. See Note 12.

Bank Credit Facility

As of September 30, 2017, we maintained a $1.081 billion credit facility, comprising:

 

   

$368.5 million of revolving credit commitments, which expire on October 10, 2019;

 

   

$138.2 million of outstanding borrowings under Term Loan A, which mature on January 15, 2021;

 

   

$574.5 million of outstanding borrowings under Term Loan H, which mature on January 29, 2021;

As of September 30, 2017, we had $99.6 million of unused revolving credit commitments, all of which were available to be borrowed and used for general corporate purposes, after giving effect to approximately $259.3 million of outstanding loans and $9.7 million of letters of credit issued thereunder to various parties as collateral.

The credit facility is collateralized by our ownership interests in our operating subsidiaries and is guaranteed by us on a limited recourse basis to the extent of such ownership interests. As of September 30, 2017, the credit agreement governing the credit facility (the “credit agreement”) required our operating subsidiaries to maintain a total leverage ratio (as defined in the credit agreement) of no more than 5.0 to 1.0 and an interest coverage ratio (as defined in the credit agreement) of no less than 2.0 to 1.0. For all periods through September 30, 2017, our operating subsidiaries were in compliance with all covenants under the credit agreement. As of the same date, the credit agreement allowed for the full or partial repayment of any outstanding debt under the credit facility at par value at any time prior to maturity.

Interest Rate Swaps

We have entered into several interest rate exchange agreements (which we refer to as “interest rate swaps”) with various banks to fix the variable rate on a portion of our borrowings under the credit facility to reduce the potential volatility in our interest expense that may result from changes in market interest rates. Our interest rate swaps have not been designated as hedges for accounting purposes, and have been accounted for on a mark-to-market basis as of, and for the three and nine months ended, September 30, 2017 and 2016. As of September 30, 2017, we had interest rate swaps that fixed the variable portion of $600 million of borrowings at a rate of 1.5%, all of which are scheduled to expire during December 2018.

 

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As of September 30, 2017, the weighted average interest rate on outstanding borrowings under the credit facility, including the effect of our interest rate swaps, was 3.6%.

Senior Notes

As of September 30, 2017, we had $500 million of outstanding senior notes, comprising $200 million of 5 12% senior notes due April 2021 and $300 million of 6  38% senior notes due April 2023. Our senior notes are unsecured obligations, and the indentures governing our senior notes (the “indentures”) limit the incurrence of additional indebtedness based upon a maximum debt to operating cash flow ratio (as defined in the indentures) of 8.5 to 1.0. For all periods through September 30, 2017, we were in compliance with all covenants under the indentures. As of the same date, the indentures allowed for the full or partial repayment of any of our senior notes at any time prior to maturity, subject to certain prices and conditions specified in the indentures.

Debt Ratings

MCC’s corporate credit ratings are currently Ba2 by Moody’s, with a positive outlook, and BB by Standard and Poor’s (“S&P”), with a stable outlook, and our senior unsecured ratings are currently B1 by Moody’s, with a positive outlook, and B+ by S&P, with a stable outlook. There are no covenants, events of default, borrowing conditions or other terms in the credit agreement or indentures that are based on changes in our credit rating assigned by any rating agency.

Fair Value

The fair values of our senior notes and outstanding debt under the credit facility (which were calculated based upon unobservable inputs that are corroborated by market data that we determine to be Level 2), were as follows (dollars in thousands):

 

     September 30,
2017
     December 31,
2016
 

5 12% senior notes due 2021

   $ 205,000      $ 205,500  

6 38% senior notes due 2023

     313,500        316,500  
  

 

 

    

 

 

 

Total senior notes

   $ 518,500      $ 522,000  
  

 

 

    

 

 

 

Bank credit facility

   $ 977,745      $ 1,135,633  
  

 

 

    

 

 

 

7. PREFERRED MEMBERS’ INTEREST

In July 2001, we received a $150.0 million preferred membership investment (“PMI”) from the operating subsidiaries of Mediacom LLC, which has a 12% annual dividend, payable quarterly in cash. We may voluntarily repay the PMI any time at par, and the operating subsidiaries of Mediacom LLC have the option to call for the redemption of the PMI upon the repayment of all of our outstanding senior notes. We paid $4.5 million in cash dividends on the PMI during each of the three months ended September 30, 2017 and 2016, and $13.5 million in cash dividends on the PMI during each of the nine months ended September 30, 2017 and 2016.

8. MEMBER’S EQUITY

As a wholly-owned subsidiary of MCC, our business affairs, including our financing decisions, are directed by MCC. See Note 9.

Capital distributions to parent and capital contributions from parent are reported on a gross basis in the Consolidated Statements of Cash Flows. We made capital distributions to parent in cash of $5.8 million and $6.2 million during the nine months ended September 30, 2017 and 2016, respectively. We received $60.0 million and $75.0 million in capital contributions from parent during the nine months ended September 30, 2017 and 2016, respectively.

9. RELATED PARTY TRANSACTIONS

MCC manages us pursuant to management agreements with our operating subsidiaries. Under such agreements, MCC has full and exclusive authority to manage our day-to-day operations and conduct our business. We remain responsible for all expenses and liabilities relating to the construction, development, operation, maintenance, repair and ownership of our systems.

 

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As compensation for the performance of its services, subject to certain restrictions, MCC is entitled under each management agreement to receive management fees in an amount not to exceed 4.0% of the annual gross operating revenues of our operating subsidiaries. MCC is also entitled to the reimbursement of all expenses necessarily incurred in its capacity as manager. MCC charged us management fees of $5.7 million and $5.4 million for the three months ended September 30, 2017 and 2016, respectively, and $16.3 million and $15.5 million for the nine months ended September 30, 2017 and 2016, respectively.

Mediacom LLC is a preferred equity investor in us. See Note 7.

10. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We are involved in various legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on our consolidated financial position, results of operations, cash flows or business.

11. GOODWILL AND OTHER INTANGIBLE ASSETS

In accordance with the FASB’s ASC No. 350 — Intangibles — Goodwill and Other (“ASC 350”), the amortization of goodwill and indefinite-lived intangible assets is prohibited and requires such assets to be tested annually for impairment, or more frequently if impairment indicators arise. We have determined that our goodwill and franchise rights are indefinite-lived assets and therefore not amortizable.

We last evaluated the factors surrounding our Mediacom Broadband reporting unit as of October 1, 2016 and did not believe that it was “more likely than not” that a goodwill impairment existed at that time. As such, we did not perform Step 2 of the goodwill impairment test. We last evaluated our other intangible assets as of October 1, 2016 and did not believe that it was “more likely than not” that an impairment existed at that time.

Because we believe there has not been a meaningful change in the long-term fundamentals of our business during the first nine months of 2017, we determined that there has been no triggering event under ASC 350 and, as such, no interim impairment test was required for our goodwill and other intangible assets as of September 30, 2017.

12. SUBSEQUENT EVENTS

On November 2, 2017, our operating subsidiaries (the “operating subsidiaries”) entered into a Fourth Amended and Restated Credit Agreement, dated as of November 2, 2017, with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent for the lenders, governing the credit facility (the “new credit agreement”). The new credit agreement provides for: (i) term loans in the principal amount of $250.0 million (“Term Loan A-1”) and $800.0 million (“Term Loan M” and, together with Term Loan A-1, the “new term loans”), and (ii) a $375.0 million revolving credit facility (the “new revolver”). On November 2, 2017, the full amount of the new term loans was borrowed by the operating subsidiaries, the new revolver became effective, and the previous $368.5 million revolving credit facility (the “old revolver”) was terminated.

The net proceeds of the new term loans were primarily used to: (i) repay the entire outstanding balances of $138.2 million and $574.5 million under Term Loan A and Term Loan H, respectively; (ii) repay the entire outstanding balance of $259.3 million under the old revolver and (iii) pay related financing fees and expenses.

Borrowings under the new revolver bear interest at a floating rate or rates equal to, at the discretion of the operating subsidiaries, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.75% to 2.75%, or the Prime Rate plus a margin ranging from 0.75% to 1.75%. Commitment fees on the unused portion of the new revolver are payable at a rate ranging from 0.25% to 0.50%. The applicable margin on outstanding borrowings, and commitment fees charged on the unused portion of the new revolver are determined by certain financial ratios pursuant to the new credit agreement. The new revolver expires on the earliest of: (i) November 2, 2022; (ii) 91 days prior to the final maturity of any term loan under the credit facility if $200.0 million or more remains outstanding under such term loan on that date; or (iii) six months prior to the scheduled maturity date of any affiliated subordinated indebtedness that is then outstanding.

Borrowings under Term Loan A-1 bear interest at a floating rate or rates equal to, at the discretion of the operating subsidiaries, LIBOR plus a margin ranging from 1.75% to 2.75%, or the Prime Rate plus a margin ranging from 0.75% to 1.75%. The applicable margin charged is determined by certain financial ratios pursuant to the new credit agreement. Term Loan A-1 matures on the earliest of (i) November 2, 2022; (ii) 91 days prior to the final maturity of any term loan under the credit facility if $200.0 million or more remains outstanding under such term loan on that date; or (iii) six months prior to the scheduled maturity date of any affiliated subordinated indebtedness that is then outstanding, and is subject to quarterly reductions of $3.1 million beginning on December 31, 2017.

 

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Borrowings under Term Loan M bear interest at a floating rate or rates equal to, at the discretion of the operating subsidiaries, LIBOR plus a margin of 2.00%, subject to a minimum LIBOR of 0.75%, or the Prime Rate plus a margin of 1.00%, subject to a minimum Prime Rate of 1.75%. Term Loan M matures on January 15, 2025, and is subject to quarterly reductions of $2.0 million beginning on December 31, 2017. If on or before May 2, 2018, Term Loan M is prepaid from the proceeds of a substantially concurrent borrowing of term loans with an interest rate less than the interest rate applicable to Term Loan M (calculated as provided in the new credit agreement), then the prepayment shall be accompanied by a fee equal to 1.00% of the aggregate principal amount of Term Loan M so prepaid.

The credit facility is collateralized by our ownership interests in our operating subsidiaries and is guaranteed by us on a limited recourse basis to the extent of such ownership interests. As of closing, the new credit agreement required the operating subsidiaries to maintain a total leverage ratio (as defined in the new credit agreement) of no more than 5.0 to 1.0 and an interest coverage ratio (as defined in the new credit agreement) of no less than 2.0 to 1.0. As of the same date, the new credit agreement allowed for the full or partial repayment of any outstanding debt under the credit facility at any time prior to maturity, subject to certain fees and conditions specified in the new credit agreement.

 

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

The following discussion should be read in conjunction with our unaudited consolidated financial statements as of, and for the three and nine months ended, September 30, 2017 and 2016, and with our Annual Report on Form 10-K for the year ended December 31, 2016.

Overview

Mediacom Communications Corporation

We are a wholly-owned subsidiary of Mediacom Communications Corporation (“MCC”), the nation’s fifth largest cable company based on the number of customers who purchase one or more video services, or video customers. MCC offers a wide array of information, communications and entertainment services to households and businesses, including video, high-speed data (“HSD”), phone, and home security and automation. Through Mediacom Business, MCC provides scalable broadband communications solutions to commercial and public sector customers of all sizes, and sells advertising and production services under the OnMedia brand.

MCC’s cable systems are owned and operated through our operating subsidiaries and those of Mediacom LLC, another wholly-owned subsidiary of MCC. As of September 30, 2017, MCC’s cable systems passed an estimated 2.9 million homes and served approximately 823,000 video customers, 1,194,000 HSD customers and 542,000 phone customers, aggregating 2.6 million primary service units (“PSUs”).

The following discussion of financial condition and results of operations relates only to Mediacom Broadband LLC and not to the consolidated financial condition and results of operations of MCC.

Mediacom Broadband LLC

We are a wholly-owned subsidiary of MCC. As of September 30, 2017, we served approximately 455,000 video customers, 659,000 HSD customers and 300,000 phone customers, aggregating 1.4 million PSUs. As of the same date, we served 754,000 residential and business customer relationships.

We offer video, HSD and phone services individually and in bundled packages to residential and small- to medium-sized business (“SMB”) customers over our hybrid fiber and coaxial cable (“HFC”) network, and provide fiber-based network and transport services to medium- and large-sized businesses, governments and educational institutions. We also sell advertising to local, regional and national advertisers on television and digital platforms, and offer home security and automation services to residential customers. Our services are typically offered on a subscription basis, with installation fees, monthly rates and related charges associated with the services, equipment and features customers choose. We offer discounted packages for new customers and those who take multiple services, and our Xtream packages include video with digital video recorder (“DVR”) service and set-tops with the TiVo guide, HSD with a wireless gateway, and phone service. We believe the simplified pricing and value proposition of our Xtream bundles has positively influenced the market’s perception of our products and services, and has driven higher levels of sales activity.

Over the past several years, revenues from residential services have increased mainly due to residential HSD customer growth. We expect to continue to grow revenues from residential services through HSD customer growth and increased revenue per customer relationship as more customers take faster HSD tiers and advanced video services, including our next-generation set-top and DVR service. Our business services revenues have grown at a faster rate than our residential revenues as we have rapidly expanded our SMB and, to a lesser extent, enterprise customer base. In an effort to sustain or accelerate our rate of growth in business services revenues, we have recently commenced “Project Open Road,” where we plan to extend our network to a meaningful number of new commercial locations that contain multiple businesses that represent potential customers.

Our residential video service principally competes with direct broadcast satellite (“DBS”) providers that offer video programming substantially similar to ours. Over the past several years, we have experienced meaningful video customer losses, as DBS competitors have deployed aggressive marketing campaigns, including deeply discounted promotional packages, more advanced customer premise equipment and exclusive sports programming. We have placed a greater emphasis on higher quality residential customer relationships, as we have generally eliminated or reduced tactical discounts for customers not likely to purchase two or more services or to stay with us for an extended period, which may further contribute to video customer declines. To appeal to such higher-quality residential consumers, we offer a next-generation Internet Protocol (“IP”) set-top that provides a cloud-based, graphically-rich TiVo guide with access and integrated search functionality to certain third-party Internet-based video applications (“video apps”), such as Netflix, Hulu, and YouTube, along with a multi-room DVR service and the ability to download certain content to personal devices. In the fourth quarter of 2017, we also plan to introduce a new, lower-cost, IP set-top that offers the TiVo guide and video apps, but without the required equipment for DVR service. We believe our video strategy has enabled us to reduce the rate of video customer losses and regain market share of new video connects. If we are unsuccessful with this strategy and cannot offset video customer losses through higher average unit pricing and greater penetration of our advanced video services, we may experience future declines in annual video revenues.

 

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Our residential HSD service competes primarily with digital subscriber line (“DSL”) services offered by local phone companies, and we have continued to grow our HSD customer base over the last several years. We believe our HSD service is generally superior to DSL offerings in our service areas as our minimum downstream speed of 60 megabits per second (“Mbps”) is faster than the highest speed offered by substantially all our DSL competition. As consumers’ bandwidth requirements have dramatically risen in recent years, we have dedicated increasing levels of capital expenditures to allow for faster speeds and greater levels of consumption. Through “Project Gigabit,” we have transitioned substantially all our homes passed to the DOCSIS 3.1 platform, which has allowed us to introduce packages offering speeds of up to 1 gigabit per second (“Gbps”) across substantially all of our markets in 2017. We expect to continue to grow HSD revenues as we further take market share and our HSD customers choose higher speed tiers.

Our residential phone service mainly competes with substantially comparable phone services offered by local phone companies and cellular phone services offered by national wireless providers. We believe we will continue to grow residential phone customers, but may experience modest declines in phone revenues due to unit pricing pressure.

Our business services primarily compete for SMB customers with local phone companies, many of which have had a historical advantage given long-term relationships with such customers, a nation-wide footprint that allows them to more effectively serve multiple locations, and existing networks built in certain commercial areas that we do not currently serve. Our cell tower backhaul and enterprise-level services also face competition from these local phone companies as well as other carriers, including metro and regional fiber-based carriers. In recent years, we have aggressively marketed our business services and expanded our network into additional commercial areas, which has allowed us to gain meaningful market share and led to strong growth rates of business services revenues in the past several years. We believe the introduction of “Project Open Road” will allow us to continue to gain market share and grow business services revenues.

We compete for advertising revenues principally against local broadcast stations, national cable and broadcast networks, radio, newspapers, magazines, outdoor display and Internet companies. Competition will likely elevate as new formats for advertising are introduced into our markets.

Historically, video programming has been our single largest expense, and we have experienced substantial increases in programming costs per video customer, particularly for sports and local broadcast programming, well in excess of the inflation rate or the change in the consumer price index. We believe these expenses will continue to grow at a high single- to low double-digit rate because of the demands of large media conglomerates or other owners of most of the popular cable networks and major market local broadcast stations, and of large independent television broadcast groups, who own or control a significant number of local broadcast stations across the country and, in some cases, own, control or otherwise represent multiple stations in the same market. Moreover, many of those powerful owners of programming require us to purchase their networks and stations in bundles and effectively dictate how we offer them to our customers, given the contractual economic penalties if we fail to comply. Consequently, we have little or no ability to individually or selectively negotiate for networks or stations, to forego purchasing networks or stations that generate low customer interest, to offer sports programming services, such as ESPN and regional sports networks, on one or more separate tiers, or to offer networks or stations on an a la carte basis to give our customers more choice and potentially lower their costs. In many instances, such programmers have created additional networks and migrated popular programming, particularly sports programming, to these new networks, which has contributed to the increases in our programming costs. Additionally, we believe certain programmers may also demand higher fees from us in an effort to partially offset declines in their advertising revenue as more advertisers allocate a greater portion of their spending to Internet advertising. While such growth in programming expenses can be offset, in whole or in part, by rate increases, we expect our video gross margins will continue to decline if increases in programming costs outpace any growth in video revenues.

2017 Financing Activity

On June 30, 2017, we repaid the entire $291.8 million balance of Term Loan J under our bank credit facility, which was scheduled to mature on June 30, 2021. Such repayment was funded by $231.8 million of borrowings under our revolving credit commitments and $60.0 million of capital contributions by our parent, MCC, which, in turn, received such contributions from Mediacom LLC on the same date.

On November 2, 2017, we entered into a new credit agreement (the “new credit agreement”) under our bank credit facility (the “credit facility”) that provided for $375.0 million of revolving credit commitments (the “new revolver”) expiring in November 2022, $250.0 million of term loans maturing in November 2022 (“Term Loan A-1”) and $800.0 million of term loans maturing in January 2025 (“Term Loan M” and, together with Term Loan A-1, the “new term loans”). On the same date, we borrowed the full amount of the new term loans, the new revolver became effective and we terminated our previously existing revolving credit facility. Proceeds of the new term loans were used to repay the entire outstanding balance of all previously existing term loans under the credit facility, repay the outstanding balance under our revolving credit facility, and pay related fees and expenses.

 

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See “Liquidity and Capital Resources — Capital Structure — 2017 Financing Activity” and Note 12 in our Notes to Consolidated Financial Statements.

Revenues

Video

Video revenues primarily represent monthly subscription fees charged to residential customers, which vary according to the level of service and the type and amount of equipment taken. Video revenues also include the sale of VOD content and pay-per-view events, installation, reconnection and wire maintenance fees, franchise and late payment fees, and other ancillary revenues.

HSD

HSD revenues primarily represent monthly subscription fees charged to residential customers, which vary according to the level of service and type of equipment taken.

Phone

Phone revenues primarily represent monthly subscription and equipment fees charged to residential customers for our phone service.

Business Services

Business services revenues primarily represent monthly fees charged to SMBs for video, HSD and phone services, which vary according to the level of service taken, and fees charged to large businesses, including revenues from cell tower backhaul and enterprise class services.

Advertising

Advertising revenues primarily represent revenues received from selling advertising time we receive under programming license agreements to local, regional and national advertisers for the placement of commercials on channels offered on our video services.

Costs and Expenses

Service Costs

Service costs consist of the costs related to providing and maintaining services to our customers. Significant service costs comprise: video programming; HSD service, including bandwidth connectivity; phone service, including leased circuits and long distance; our enterprise networks business, including leased access; technical personnel who maintain the cable network, perform customer installation activities and provide customer support; network operations center; utilities, including pole rental; and field operations, including outside contractors, vehicle fuel and maintenance and leased fiber for regional connectivity.

Video programming costs, which are generally paid on a per-video customer basis, have historically represented our single largest expense. In recent years, we have experienced substantial increases in the per-unit cost of programming, which we believe will continue to grow due to the increasing contractual rates and retransmission consent fees demanded by large programmers and independent broadcasters. Our HSD costs fluctuate depending on customers’ bandwidth consumption and customer growth. Phone service costs are mainly determined by network configuration, customers’ long distance usage and net termination payments to other carriers. Our other service costs generally rise as a result of customer growth and inflationary cost increases for personnel, outside vendors and other expenses. Personnel and related support costs may increase as the percentage of expenses that we capitalize declines due to lower levels of new service installations. We anticipate that service costs, with the exception of programming expenses, will remain fairly consistent as a percentage of our revenues.

Selling, General and Administrative Expenses

Significant selling, general and administrative expenses comprise: call center, customer service, marketing, business services, support and administrative personnel; franchise fees and other taxes; bad debt; billing; marketing; advertising; and general office administration. These expenses generally rise due to customer growth and inflationary cost increases for personnel, outside vendors and other expenses. We anticipate that selling, general and administrative expenses will remain fairly consistent as a percentage of our revenues.

 

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Service costs and selling, general and administrative expenses exclude depreciation and amortization, which we present separately.

Management Fee Expense

Management fee expense reflects compensation paid to MCC for the performance of services it provides our operating subsidiaries in accordance with management agreements between MCC and our operating subsidiaries.

Capital Expenditures

Capital expenditures are categorized in accordance with the National Cable and Telecommunications Association (“NCTA”) disclosure guidelines, which are intended to provide more consistency in the reporting of capital expenditures among peer companies in the cable industry. These disclosure guidelines are not required under GAAP, nor do they impact our accounting for capital expenditures under GAAP. Our capital expenditures comprise:

 

   

Customer premise equipment, which include equipment and labor costs incurred in the purchase and installation of equipment that resides at a residential or commercial customer’s premise;

 

   

Enterprise networks, which include costs associated with furnishing custom fiber solutions for medium- to large-sized business customers, including for cell tower backhaul;

 

   

Scalable infrastructure, which include costs incurred in the purchase and installation of equipment at our facilities associated with network-wide distribution of services;

 

   

Line extensions, which include costs associated with the extension of our network into new service areas;

 

   

Upgrade / rebuild, which include costs to modify or replace existing components of our network; and

 

   

Support capital, which include vehicles and all other capital purchases required to support our customers and general business operations.

Use of Non-GAAP Financial Measures

“OIBDA” is not a financial measure calculated in accordance with generally accepted accounting principles (“GAAP”) in the United States. We define OIBDA as operating income before depreciation and amortization. OIBDA has inherent limitations as discussed below.

OIBDA is one of the primary measures used by management to evaluate our performance and to forecast future results. We believe OIBDA is useful for investors because it enables them to assess our performance in a manner similar to the methods used by management, and provides a measure that can be used to analyze our value and evaluate our performance compared to other companies in the cable industry. A limitation of OIBDA, however, is that it excludes depreciation and amortization, which represents the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our business. Management uses a separate process to budget, measure and evaluate capital expenditures. In addition, OIBDA may not be comparable to similarly titled measures used by other companies, which may have different depreciation and amortization policies.

OIBDA should not be regarded as an alternative to operating income or net income as an indicator of operating performance, or to the statement of cash flows as a measure of liquidity, nor should it be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP. We believe that operating income is the most directly comparable GAAP financial measure to OIBDA.

 

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Actual Results of Operations

Three and Nine Months Ended September 30, 2017 Compared to Three and Nine Months Ended September 30, 2016

The table below sets forth our consolidated statements of operations and OIBDA (dollars in thousands and percentage changes that are not meaningful are marked NM):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2017     2016     % Change     2017     2016     % Change  

Revenues

   $ 265,037     $ 258,699       2.4   $ 792,450     $ 770,285       2.9

Costs and expenses:

            

Service costs

     110,885       106,127       4.5     330,877       316,015       4.7

Selling, general and administrative expenses

     50,256       50,600       (0.7 %)      146,394       145,701       0.5

Management fee expense

     5,650       5,350       5.6     16,315       15,450       5.6

Depreciation and amortization

     37,896       37,254       1.7     112,493       108,157       4.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     60,350       59,368       1.7     186,371       184,962       0.8

Interest expense, net

     (17,121     (19,240     (11.0 %)      (52,919     (59,781     (11.5 %) 

Gain (loss) gain on derviatives, net

     550       4,365       NM       1,459       (4,313     NM  

Loss on early extinguishment of debt

     —         —         NM       (1,966     (1,156     NM  

Other expense, net

     (262     (383     NM       (976     (1,297     NM  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 43,517     $ 44,110       (1.3 %)    $ 131,969     $ 118,415       11.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OIBDA

   $ 98,246     $ 96,622       1.7   $ 298,864     $ 293,119       2.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The table below represents a reconciliation of operating income to OIBDA (dollars in thousands):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2017      2016      % Change     2017      2016      % Change  

Operating income

   $ 60,350      $ 59,368        1.7   $ 186,371      $ 184,962        0.8

Depreciation and amortization

     37,896        37,254        1.7     112,493        108,157        4.0
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

OIBDA

   $ 98,246      $ 96,622        1.7   $ 298,864      $ 293,119        2.0
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Revenues

The tables below set forth our revenues and selected customer and average total monthly revenue statistics (dollars in thousands, except per unit data):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2017      2016      % Change     2017      2016      % Change  

Video

   $ 109,793      $ 112,188        (2.1 %)    $ 332,619      $ 339,038        (1.9 %) 

HSD

     92,012        83,482        10.2     272,790        245,826        11.0

Phone

     15,050        14,625        2.9     44,364        43,842        1.2

Business services

     38,476        35,639        8.0     113,124        104,623        8.1

Advertising

     9,706        12,765        (24.0 %)      29,553        36,956        (20.0 %) 
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total revenues

     265,037        258,699        2.4     792,450        770,285        2.9
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Average total monthly revenue per customer relationship (1)

   $ 117.17      $ 116.14        0.9   $ 116.78      $ 115.97        0.7

 

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     September 30,  
     2017      2016      % Change  

Video customers

     455,000        466,000        (2.4 %) 

HSD customers

     659,000        636,000        3.6

Phone customers

     300,000        257,000        16.7
  

 

 

    

 

 

    

 

 

 

Primary service units (PSUs)

     1,414,000        1,359,000        4.0

Customer relationships

     754,000        744,000        1.3

 

(1)

Represents average total monthly revenues for the period divided by average customer relationships for the period.

Revenues increased 2.4% and 2.9% for the three and nine months ended September 30, 2017, respectively, primarily due to greater HSD and, to a lesser extent, business services revenues, offset in part by a decline in video revenue and lower advertising revenues.

Video

Video revenues declined 2.1% and 1.9% for the three and nine months ended September 30, 2017, respectively, mainly due to a lower residential video customer base compared to the prior year periods, offset in part by more customers taking our advanced video services and rate adjustments, including the pass-through of higher programming costs for retransmission consent fees. We lost 4,000 and 8,000 video customers during the three and nine months ended September 30, 2017, respectively, compared to decreases of 6,000 and 14,000 video customers in the comparable prior year periods. As of September 30, 2017, we served 455,000 video customers, or 30.1% of estimated homes passed, and 43.1% of our residential video customers took our DVR service, which represents the most significant component of revenues from advanced video services.

HSD

HSD revenues rose 10.2% and 11.0% for the three and nine months ended September 30, 2017, respectively, largely due to rate adjustments and more customers paying higher rates for faster speed tiers, along with a greater residential HSD customer base compared to the prior year periods. We gained 4,000 and 16,000 HSD customers during the three and nine months ended September 30, 2017, respectively, compared to increases of 8,000 and 31,000 HSD customers in the comparable prior year periods. As of September 30, 2017, we served 659,000 HSD customers, or 43.6% of estimated homes passed, and 60.4% of our residential HSD customers took our wireless home gateway service, which represents a meaningful component of HSD equipment revenues.

Phone

Phone revenues increased 2.9% and 1.2% for the three and nine months ended September 30, 2017, respectively, primarily due to a greater residential phone customer base compared to the prior year periods, mostly as a result of more customers taking our triple-play packages, largely offset by greater levels of discounting within the bundled packaging of such services. We gained 12,000 and 36,000 phone customers during the three and nine months ended September 30, 2017, respectively, compared to increases of 7,000 and 18,000 phone customers in the comparable prior year periods. As of September 30, 2017, we served 300,000 phone customers, or 19.9% of estimated homes passed.

Business Services

Business services revenues grew 8.0% and 8.1% for the three and nine months ended September 30, 2017, respectively, mainly due to a greater SMB customer base compared to the prior year periods.

Advertising

Advertising revenues fell 24.0% and 20.0% for the three and nine months ended September 30, 2017, respectively, principally due to an unfavorable comparison to the prior year, which benefitted from advertising revenues associated with the national election in 2016.

 

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Costs and Expenses

Service Costs

Service costs grew 4.5% and 4.7% for the three and nine months ended September 30, 2017, respectively, principally due to higher video programming costs. Programming costs were 6.2% and 6.5% higher for the three and nine months ended September 30, 2017, respectively, mainly due to higher fees associated with the renewal of programming contracts and contractual increases under agreements with certain local broadcast stations and cable networks, offset in part by a lower video customer base compared to the prior year periods. Service costs as a percentage of revenues were 41.8% for each of the three and nine months ended September 30, 2017, and 41.0% for each of the three and nine months ended September 30, 2016.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased 0.7% for the three months ended September 30, 2017, primarily due to lower employee costs, offset in part by greater taxes and fees and office expenses. Employee costs decreased 6.5%, mainly due to lower customer service staffing levels. Taxes and fees increased 6.8%, principally due to higher property taxes. Office expenses grew 11.0%, largely due to higher utilities, equipment maintenance and software costs.

Selling, general and administrative expenses increased 0.5% for the nine months ended September 30, 2017, mainly as a result of greater marketing and office expenses, offset in part by lower employee costs. Marketing costs rose 7.3%, principally due to greater expenses related to the marketing of our business services and, to a lesser extent, our Xtream bundles. Office expenses grew 11.5%, largely due to higher utilities and software costs. Employee costs decreased 3.3%, chiefly due to lower customer service staffing levels.

Selling, general and administrative expenses as a percentage of revenues were 19.0% and 19.6% for the three months ended September 30, 2017 and 2016, respectively, and 18.5% and 18.9% for the nine months ended September 30, 2017 and 2016, respectively.

Management Fee Expense

Management fee expense grew 5.6% for each of the three and nine months ended September 30, 2017, reflecting higher fees charged by MCC. Management fee expense as a percentage of revenues was 2.1% for each of the three months ended September 30, 2017 and 2016, and 2.1% and 2.0% for the nine months ended September 30, 2017 and 2016, respectively.

Depreciation and Amortization

Depreciation and amortization was 1.7% and 4.0% higher for the three and nine months ended September 30, 2017, respectively, largely as a result of greater depreciation of investments in customer premise equipment, HSD bandwidth expansion and business support equipment and software.

Operating Income

Operating income increased 1.7% and 0.8% for the three and nine months ended September 30, 2017, respectively, primarily due to the increase in revenues, offset in part by higher service costs and, to a lesser extent, depreciation and amortization.

Interest Expense, Net

Interest expense, net, fell 11.0% and 11.5% for the three and nine months ended September 30, 2017, respectively, due to lower average outstanding indebtedness and, to a much lesser extent, lower average borrowing costs.

Gain (Loss) on Derivatives, Net

As a result of the changes in the mark-to-market valuations on our interest rate exchange agreements, we recorded net gains on derivatives of $0.6 million and $4.4 million for the three months ended September 30, 2017 and 2016, respectively, and a net gain on derivatives of $1.5 million and a net loss on derivatives of $4.3 million for the nine months ended September 30, 2017 and 2016, respectively. See Notes 3 and 6 in our Notes to Consolidated Financial Statements.

 

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Loss on Early Extinguishment of Debt

There was no loss on early extinguishment of debt for each of the three months ended September 30, 2017 and 2016. Loss on early extinguishment of debt totaled $2.0 million for the nine months ended September 30, 2017, which represented the write-off of unamortized financing costs as a result of the repayment of Term Loan J. Loss on early extinguishment of debt totaled $1.2 million for the nine months ended September 30, 2016, which represented the write-off of unamortized financing costs as a result of the repayment of certain previously existing term loans.

Other Expense, Net

Other expense, net, was $0.3 million for the three months ended September 30, 2017, representing $0.2 million of revolving credit commitment fees and $0.1 million of other fees, and $0.4 million for the three months ended September 30, 2016, representing $0.3 million of revolving credit commitment fees and $0.1 million of other fees.

Other expense, net, was $1.0 million for the nine months ended September 30, 2017, representing $0.7 million of revolving credit commitment fees and $0.3 million of other fees, and $1.3 million for the nine months ended September 30, 2016, representing $1.2 million of revolving credit commitment fees and $0.1 million of other fees.

Net Income

As a result of the factors described above, we recognized net income of $43.5 million and $44.1 million for the three months ended September 30, 2017 and 2016, respectively, and $132.0 million and $118.4 million for the nine months ended September 30, 2017 and 2016, respectively.

OIBDA

OIBDA grew 1.7% and 2.0% for the three and nine months ended September 30, 2017, respectively, as the increase in revenues was offset by increases in service costs and, to a much lesser extent, management fee expenses and, for the nine months ended September 30, 2017, selling, general and administrative expenses.

Liquidity and Capital Resources

Our net cash flows provided by operating activities are primarily used to fund investments to enhance the capacity and reliability of our network and further expand our products and services, and make scheduled and voluntary repayments of our indebtedness and periodic distributions to MCC. As of September 30, 2017, our near-term liquidity requirements included term loan principal repayments of $13.6 million over the next twelve months. As of the same date, our sources of liquidity included $10.7 million of cash and $99.6 million of unused and available commitments under our $368.5 million revolving credit facility, after giving effect to approximately $259.3 million of outstanding loans and $9.7 million of letters of credit issued to various parties as collateral.

We believe that we will be able to continue to meet our current and long-term liquidity and capital requirements, including fixed charges, through existing cash, internally generated cash flows from operating activities, cash available to us under our revolving credit commitments and our ability to obtain future financing. If we are unable to obtain sufficient future financing on acceptable terms, or at all, we may need to take other actions to conserve or raise capital that we would not take otherwise. However, we have accessed the debt markets for significant amounts of capital in the past, and expect to continue to be able to access these markets in the future, as necessary.

As of September 30, 2017, after giving effect to the financing activity under our new credit agreement as if it had been completed on such date:

 

   

our near-term liquidity requirements would have included scheduled term loan principal reductions of $20.5 million during the next twelve months;

 

   

our sources of liquidity would have included $365.3 million of unused and available commitments under the new revolver; and

 

   

there would have been no outstanding loans under the new revolver and $9.7 million of letters of credit issued to various parties as collateral.

 

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Net Cash Flows Provided by Operating Activities

Net cash flows provided by operating activities were $245.2 million for the nine months ended September 30, 2017, primarily due to OIBDA of $298.9 million, offset in part by interest expense of $52.9 million and, to a much lesser extent, the $2.6 million net change in our operating assets and liabilities. The net change in our operating assets and liabilities was primarily due to increases in prepaid expenses and other assets of $10.8 million, and in accounts receivable, net, of $1.5 million, offset in part by increases in accounts payable to affiliates of $8.0 million and in deferred revenue of $1.5 million.

Net cash flows provided by operating activities were $250.0 million for the nine months ended September 30, 2016, primarily due to OIBDA of $293.1 million and, to a much lesser extent, the $13.6 million net change in our operating assets and liabilities, offset in part by interest expense of $59.8 million. The net change in our operating assets and liabilities was primarily due to increases in accounts payable, accrued expenses and other liabilities of $10.4 million, and in deferred revenue of $1.7 million, and in accounts payable to affiliates of $1.1 million and a decrease in accounts receivable, net, of $2.4 million, offset in part by an increase in prepaid expenses and other assets of $2.0 million.

Net Cash Flows Used in Investing Activities

Capital expenditures continue to be our primary use of capital resources and generally comprise substantially all of our net cash flows used in investing activities.

Net cash flows used in investing activities were $138.8 million for the nine months ended September 30, 2017, substantially comprising $141.3 million of capital expenditures, slightly offset by a net change in accrued property, plant and equipment of $2.0 million.

Net cash flows used in investing activities were $131.8 million for the nine months ended September 30, 2016, substantially comprising $131.5 million of capital expenditures.

Capital Expenditures

The table below sets forth our capital expenditures (dollars in thousands):

 

     Nine Months Ended
September 30,
 
     2017      2016      Change  

Customer premise equipment

   $ 63,042      $ 57,207      $ 5,835  

Enterprise networks

     7,976        8,165        (189

Scalable infrastructure

     27,363        25,824        1,539  

Line extensions

     11,616        10,767        849  

Upgrade / rebuild

     20,079        18,214        1,865  

Support capital

     11,178        11,303        (125
  

 

 

    

 

 

    

 

 

 

Total capital expenditures

   $ 141,254      $ 131,480      $ 9,774  
  

 

 

    

 

 

    

 

 

 

The increase in capital expenditures largely reflects greater spending in customer premise equipment, primarily for our next-generation advanced video set-tops, in scalable infrastructure, largely for HSD bandwidth expansion, and in upgrade and rebuild, mainly for the replacement of certain network assets.

Net Cash Flows Used in Financing Activities

Net cash flows used in financing activities were $110.0 million for the nine months ended September 30, 2017, primarily comprising $156.0 million of net repayments under our bank credit facility, $13.5 million of dividend payments on preferred members’ interest, $5.8 million of capital distributions to our parent, MCC, offset in part by $60.0 million of capital contributions from our parent, MCC, and $5.3 million of other financing activities.

Net cash flows used in financing activities were $118.7 million for the nine months ended September 30, 2016, substantially comprising approximately $174.8 million of net repayments under our bank credit facility, $13.5 million of dividend payments on preferred members’ interest and $6.2 million of capital distributions to our parent, MCC, offset in part by $75.0 million of capital contributions from our parent, MCC.

 

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Capital Structure

As of September 30, 2017, our total indebtedness was $1.472 billion, of which approximately 75% was at fixed interest rates or had interest rate swaps that fixed the corresponding variable portion of debt. During the nine months ended September 30, 2017, we paid cash interest of $45.8 million, net of capitalized interest.

2017 Financing Activity

On June 30, 2017, we repaid the entire $291.8 million balance of Term Loan J under our bank credit facility (the “credit facility”). This repayment was funded by $231.8 million of borrowings under our revolving credit commitments and $60.0 million of capital contributions by our parent, MCC, which, in turn, received such contributions from Mediacom LLC on the same date.

On November 2, 2017, we entered into a new credit agreement under our credit facility that provided for $375.0 million of revolving credit commitments the (“new revolver”) and $1,050.0 million of new term loans (the “new term loans”). On the same date, we borrowed the full amount of the new term loans, the new revolver became effective and we terminated our previously existing revolving credit facility. Proceeds of the new term loans were used to repay the entire outstanding balance of previously existing term loans under the credit facility, partially repay the outstanding balance under our prior revolving credit facility, and pay related fees and expenses.

Bank Credit Facility

As of September 30, 2017, we maintained a $1.081 billion credit facility, comprising $712.7 million of term loans maturing in January 2021 and $368.5 million of revolving credit commitments, which were scheduled to expire in October 2019. As of the same date, we had $99.6 million of unused lines under our revolving credit commitments, all of which were available to be borrowed and used for general corporate purposes, after taking into account $259.3 million of outstanding loans and $9.7 million of letters of credit issued to various parties as collateral.

As of September 30, 2017, after giving effect to the financing activity under our new credit agreement as if it had been completed on such date, we would have maintained a $1.425 billion credit facility, comprising $1,050.0 million of term loans with maturities ranging from November 2022 to January 2025, and $375.0 million of revolving credit commitments, which are scheduled to expire in November 2022. As of the same date, we would have had $365.3 million of unused lines under our revolving credit commitments, all of which would have been available to be borrowed and used for general corporate purposes, after taking into account $9.7 million of letters of credit issued to various parties as collateral.

The credit facility is collateralized by our ownership interests in our operating subsidiaries, and is guaranteed by us on a limited recourse basis to the extent of such ownership interests. As of September 30, 2017, the credit agreement governing the credit facility (the “credit agreement”) required our operating subsidiaries to maintain a total leverage ratio (as defined in the credit agreement) of no more than 5.0 to 1.0 and an interest coverage ratio (as defined in the credit agreement) of no less than 2.0 to 1.0. For all periods through September 30, 2017, our operating subsidiaries were in compliance with all covenants under the credit agreement including, as of the same date, a total leverage ratio of 2.4 to 1.0 and an interest coverage ratio of 4.5 to 1.0. We do not believe that our operating subsidiaries will have any difficulty complying with any of the covenants under the credit agreement or under the new credit agreement in the near future.

Interest Rate Swaps

We have entered into several interest rate exchange agreements (which we refer to as “interest rate swaps”) with various banks to fix the variable rate on a portion of our borrowings under the credit facility to reduce the potential volatility in our interest expense that may result from changes in market interest rates. As September 30, 2017, we had interest rate swaps that fixed the variable portion of $600 million of borrowings at a rate of 1.5%, all of which are scheduled to expire during December 2018.

As of September 30, 2017, the weighted average interest rate on outstanding borrowings under the credit facility, including the effect of our interest rate swaps, was 3.6%.

Senior Notes

As of September 30, 2017, we had $500 million of outstanding senior notes, comprising $200 million of 5 1/2% senior notes due April 2021 and $300 million of 6 3/8% senior notes due April 2023.

Our senior notes are unsecured obligations, and the indentures governing our senior notes (the “indentures”) limit the incurrence of additional indebtedness based upon a maximum debt to operating cash flow ratio (as defined in the indentures) of 8.5 to 1.0. For all periods through September 30, 2017, we were in compliance with all covenants under the indentures including, as of the same date, a debt to operating cash flow ratio of 3.7 to 1.0. We do not believe that we will have any difficulty complying with any of the covenants under the indentures in the near future.

 

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Debt Ratings

MCC’s corporate credit ratings are currently Ba2 by Moody’s, with a positive outlook, and BB by Standard and Poor’s (“S&P”), with a stable outlook, and our senior unsecured ratings are currently B1 by Moody’s, with a positive outlook, and B+ by S&P, with a stable outlook.

There can be no assurance that Moody’s or S&P will maintain their ratings on MCC and us. A negative change to these credit ratings could result in higher interest rates on future debt issuance than we currently experience, or adversely impact our ability to raise additional funds. There are no covenants, events of default, borrowing conditions or other terms in the credit agreement or indentures that are based on changes in our credit rating assigned by any rating agency.

Contractual Obligations and Commercial Commitments

There have been no material changes to our contractual obligations and commercial commitments as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

Critical Accounting Policies

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Periodically, we evaluate our estimates, including those related to doubtful accounts, long-lived assets, capitalized costs and accruals. We base our estimates on historical experience and on various other assumptions that we believe are reasonable. Actual results may differ from these estimates under different assumptions or conditions. We believe that the application of the critical accounting policies requires significant judgments and estimates on the part of management. For a summary of our critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2016.

Goodwill and Other Intangible Assets

In accordance with the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) ASC 350 Intangibles — Goodwill and Other (“ASC 350”), the amortization of goodwill and indefinite-lived intangible assets is prohibited and requires such assets to be tested annually for impairment, or more frequently if impairment indicators arise. We have determined that our franchise rights and goodwill are indefinite-lived assets and therefore not amortizable.

Because we believe there has not been a meaningful change in the long-term fundamentals of our business during the first nine months of 2017, we determined that there has been no triggering event under ASC 350 and, as such, no interim impairment test was required as of September 30, 2017.

Inflation and Changing Prices

Our costs and expenses are subject to inflation and price fluctuations. Such changes in costs and expenses can generally be passed through to customers. Programming costs have historically increased at rates in excess of inflation and are expected to continue to do so. We believe that under the Federal Communications Commission’s existing cable rate regulations we may increase rates for video service to more than cover any increases in programming costs. However, competitive conditions and other factors in the marketplace may limit our ability to increase our rates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes to the information required under this Item from what was disclosed in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2016.

ITEM 4. CONTROLS AND PROCEDURES

Mediacom Broadband LLC

Under the supervision and with the participation of the management of Mediacom Broadband LLC, including Mediacom Broadband LLC’s Chief Executive Officer and Chief Financial Officer, Mediacom Broadband LLC evaluated the effectiveness of Mediacom Broadband LLC’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, Mediacom Broadband LLC’s Chief Executive Officer and Chief Financial Officer concluded that Mediacom Broadband LLC’s disclosure controls and procedures were effective as of September 30, 2017.

 

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There has not been any change in Mediacom Broadband LLC’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, Mediacom Broadband LLC’s internal control over financial reporting.

Mediacom Broadband Corporation

Under the supervision and with the participation of the management of Mediacom Broadband Corporation (“Mediacom Broadband”), including Mediacom Broadband’s Chief Executive Officer and Chief Financial Officer, Mediacom Broadband evaluated the effectiveness of Mediacom Broadband’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, Mediacom Broadband’s Chief Executive Officer and Chief Financial Officer concluded that Mediacom Broadband’s disclosure controls and procedures were effective as of September 30, 2017.

There has not been any change in Mediacom Broadband’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, Mediacom Broadband’s internal control over financial reporting.

 

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PART II

ITEM 1. LEGAL PROCEEDINGS

See Note 10 in our Notes to Consolidated Financial Statements.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

ITEM 5. OTHER INFORMATION

On November 2, 2017, our operating subsidiaries (the “operating subsidiaries”) entered into a Fourth Amended and Restated Credit Agreement, dated as of November 2, 2017, with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent for the lenders, governing the credit facility (the “new credit agreement”). The new credit agreement provides for: (i) term loans in the principal amount of $250.0 million (“Term Loan A-1”) and $800.0 million (“Term Loan M” and, together with Term Loan A-1, the “new term loans”), and (ii) a $375.0 million revolving credit facility (the “new revolver”). On November 2, 2017, the full amount of the new term loans was borrowed by the operating subsidiaries, the new revolver became effective, and the previous $368.5 million revolving credit facility (the “old revolver”) was terminated.

The net proceeds of the new term loans were primarily used to: (i) repay the entire outstanding balances of $138.2 million and $574.5 million under Term Loan A and Term Loan H, respectively; (ii) repay the entire outstanding balance of $259.3 million under the old revolver and (iii) pay related financing fees and expenses.

Borrowings under the new revolver bear interest at a floating rate or rates equal to, at the discretion of the operating subsidiaries, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.75% to 2.75%, or the Prime Rate plus a margin ranging from 0.75% to 1.75%. Commitment fees on the unused portion of the new revolver are payable at a rate ranging from 0.25% to 0.50%. The applicable margin on outstanding borrowings, and commitment fees charged on the unused portion of the new revolver are determined by certain financial ratios pursuant to the new credit agreement. The new revolver expires on the earliest of: (i) November 2, 2022; (ii) 91 days prior to the final maturity of any term loan under the credit facility if $200.0 million or more remains outstanding under such term loan on that date; or (iii) six months prior to the scheduled maturity date of any affiliated subordinated indebtedness that is then outstanding.

Borrowings under Term Loan A-1 bear interest at a floating rate or rates equal to, at the discretion of the operating subsidiaries, LIBOR plus a margin ranging from 1.75% to 2.75%, or the Prime Rate plus a margin ranging from 0.75% to 1.75%. The applicable margin charged is determined by certain financial ratios pursuant to the new credit agreement. Term Loan A-1 matures on the earliest of (i) November 2, 2022; (ii) 91 days prior to the final maturity of any term loan under the credit facility if $200.0 million or more remains outstanding under such term loan on that date; or (iii) six months prior to the scheduled maturity date of any affiliated subordinated indebtedness that is then outstanding, and is subject to quarterly reductions of $3.1 million beginning on December 31, 2017.

Borrowings under Term Loan M bear interest at a floating rate or rates equal to, at the discretion of the operating subsidiaries, LIBOR plus a margin of 2.00%, subject to a minimum LIBOR of 0.75%, or the Prime Rate plus a margin of 1.00%, subject to a minimum Prime Rate of 1.75%. Term Loan M matures on January 15, 2025, and is subject to quarterly reductions of $2.0 million beginning on December 31, 2017. If on or before May 2, 2018, Term Loan M is prepaid from the proceeds of a substantially concurrent borrowing of term loans with an interest rate less than the interest rate applicable to Term Loan M (calculated as provided in the new credit agreement), then the prepayment shall be accompanied by a fee equal to 1.00% of the aggregate principal amount of Term Loan M so prepaid.

The credit facility is collateralized by our ownership interests in our operating subsidiaries and is guaranteed by us on a limited recourse basis to the extent of such ownership interests. As of closing, the new credit agreement required the operating subsidiaries to maintain a total leverage ratio (as defined in the new credit agreement) of no more than 5.0 to 1.0 and an interest coverage ratio (as defined in the new credit agreement) of no less than 2.0 to 1.0. As of the same date, the new credit agreement allowed for the full or partial repayment of any outstanding debt under the credit facility at any time prior to maturity, subject to certain fees and conditions specified in the new credit agreement.

 

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ITEM 6. EXHIBITS

 

Exhibit

Number

  

Exhibit Description

  31.1   

Rule 15d-14(a) Certifications of Mediacom Broadband LLC

  31.2   

Rule 15d-14(a) Certifications of Mediacom Broadband Corporation

  32.1   

Section 1350 Certifications of Mediacom Broadband LLC

  32.2   

Section 1350 Certifications of Mediacom Broadband Corporation

101   

The following is financial information from Mediacom Broadband LLC’s and Mediacom Broadband Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, (iv) Notes to Consolidated Financial Statements

 

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EXHIBIT INDEX

 

Exhibit

Number

  

Exhibit Description

  31.1   

Rule 15d-14(a) Certifications of Mediacom Broadband LLC

  31.2   

Rule 15d-14(a) Certifications of Mediacom Broadband Corporation

  32.1   

Section 1350 Certifications of Mediacom Broadband LLC

  32.2   

Section 1350 Certifications of Mediacom Broadband Corporation

101   

The following is financial information from Mediacom Broadband LLC’s and Mediacom Broadband Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, (iv) Notes to Consolidated Financial Statements

 


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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.

 

    MEDIACOM BROADBAND LLC

November 3, 2017

   

By:

 

/s/ Mark E. Stephan

      Mark E. Stephan
     

Executive Vice President and Chief Financial Officer


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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.

 

    MEDIACOM BROADBAND CORPORATION

November 3, 2017

   

By:

 

/s/ Mark E. Stephan

      Mark E. Stephan
     

Executive Vice President and Chief Financial Officer

 

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