mcccb-10q_20150930.htm

 

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, 2015

 

 

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.    o  Yes    x  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).    x  Yes     o  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

o

Accelerated filers

o

 

 

 

 

Non-accelerated filers

x

Smaller reporting companies

o

Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).    o  Yes    x  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.

 

 

 

 


 

MEDIACOM BROADBAND LLC AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2015

TABLE OF CONTENTS

 

 

Page

PART I

 

Item 1. Financial Statements

4

Consolidated Balance Sheets (unaudited) September 30, 2015 and December 31, 2014

4

Consolidated Statements of Operations (unaudited) Three and Nine Months Ended September 30, 2015 and 2014

5

Consolidated Statements of Cash Flows (unaudited) Nine Months Ended September 30, 2015 and 2014

6

Notes to Consolidated Financial Statements (unaudited)

7

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

13

Item 3. Quantitative and Qualitative Disclosures about Market Risk

22

Item 4. Controls and Procedures

22

 

 

PART II

 

Item 1. Legal Proceedings

23

Item 1A. Risk Factors

23

Item 6. Exhibits

24

Signatures

25

 

This Quarterly Report on Form 10-Q is for the three and nine months ended September 30, 2015. 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.

 

2


 

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 for residential and business customers from other providers, including but not limited to direct broadcast satellite operators, local phone companies, other cable providers, wireless communications companies, and providers that offer streaming and downloading of video content over the Internet;

·

lower demand for our residential and business services, which may result from increased competition, weakened economic conditions or other factors;

·

the continued increases in video programming costs, and our ability to raise video rates to offset, in whole or in part, the effects of such costs, including retransmission consent fees, without a significant adverse effect on our business;

·

significant unanticipated increases in the use of bandwidth-intensive Internet services;

·

our ability to further expand our business services, which has continued to make increasing contributions to our results of operations;

·

our ability to successfully adopt new technologies and introduce new products and services 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 material events outside our control;

·

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

·

our ability to refinance our debt prior to maturity or obtain future funding for general corporate purposes or potential strategic transactions, on favorable terms, if at all;

·

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

·

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 the Annual Report for the year ended December 31, 2014 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.

 

 

 

 

3


 

PART I

ITEM 1. FINANCIAL STATEMENTS

MEDIACOM BROADBAND LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash

 

$

9,704

 

 

$

9,452

 

Accounts receivable, net of allowance for doubtful accounts of $3,727 and $3,057

 

 

69,775

 

 

 

59,164

 

Prepaid expenses and other current assets

 

 

12,380

 

 

 

9,664

 

Total current assets

 

 

91,859

 

 

 

78,280

 

Property, plant and equipment, net of accumulated depreciation of $1,568,619 and $1,493,705

 

 

779,300

 

 

 

775,321

 

Franchise rights

 

 

1,176,908

 

 

 

1,176,908

 

Goodwill

 

 

195,945

 

 

 

195,945

 

Other assets, net of accumulated amortization of $26,697 and $20,737

 

 

30,280

 

 

 

32,959

 

Total assets

 

$

2,274,292

 

 

$

2,259,413

 

 

 

 

 

 

 

 

 

 

LIABILITIES, PREFERRED MEMBERS’ INTEREST AND MEMBER’S EQUITY

   (DEFICIT)

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other current liabilities

 

$

154,280

 

 

$

144,595

 

Accounts payable - affiliates

 

 

12,909

 

 

 

1,513

 

Deferred revenue

 

 

37,427

 

 

 

36,245

 

Current portion of long-term debt

 

 

13,500

 

 

 

13,500

 

Total current liabilities

 

 

218,116

 

 

 

195,853

 

Long-term debt, less current portion

 

 

1,848,000

 

 

 

1,943,500

 

Other non-current liabilities

 

 

3,336

 

 

 

743

 

Total liabilities

 

 

2,069,452

 

 

 

2,140,096

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PREFERRED MEMBERS’ INTEREST (Note 7)

 

 

150,000

 

 

 

150,000

 

 

 

.

 

 

 

 

 

MEMBER’S EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Capital distributions

 

 

(105,527

)

 

 

(105,644

)

Retained earnings

 

 

160,367

 

 

 

74,961

 

Total member’s equity (deficit)

 

 

54,840

 

 

 

(30,683

)

Total liabilities, preferred members’ interest and member’s equity (deficit)

 

$

2,274,292

 

 

$

2,259,413

 

 

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

 

 

 

 

4


 

MEDIACOM BROADBAND LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenues

 

$

245,414

 

 

$

237,611

 

 

$

731,499

 

 

$

706,953

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service costs (exclusive of depreciation and amortization)

 

 

101,208

 

 

 

97,592

 

 

 

302,738

 

 

 

285,979

 

Selling, general and administrative expenses

 

 

47,735

 

 

 

46,652

 

 

 

136,373

 

 

 

136,175

 

Management fee expense

 

 

4,750

 

 

 

4,300

 

 

 

14,250

 

 

 

12,900

 

Depreciation and amortization

 

 

36,000

 

 

 

38,738

 

 

 

108,126

 

 

 

117,429

 

Operating income

 

 

55,721

 

 

 

50,329

 

 

 

170,012

 

 

 

154,470

 

Interest expense, net

 

 

(23,639

)

 

 

(26,590

)

 

 

(71,374

)

 

 

(74,264

)

(Loss) gain on derivatives, net

 

 

(4,886

)

 

 

6,329

 

 

 

1,165

 

 

 

17,426

 

Loss on early extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

(300

)

Other expense, net

 

 

(361

)

 

 

(445

)

 

 

(897

)

 

 

(1,298

)

Net income

 

$

26,835

 

 

$

29,623

 

 

$

98,906

 

 

$

96,034

 

Dividend to preferred members (Note 7)

 

 

(4,500

)

 

 

(4,500

)

 

 

(13,500

)

 

 

(13,500

)

Net income applicable to member

 

$

22,335

 

 

$

25,123

 

 

$

85,406

 

 

$

82,534

 

 

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

 

 

 

 

5


 

MEDIACOM BROADBAND LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2015

 

 

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

98,906

 

 

$

96,034

 

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

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

108,126

 

 

 

117,429

 

Gain on derivatives, net

 

 

(1,165

)

 

 

(17,426

)

Amortization of deferred financing costs

 

 

5,219

 

 

 

4,415

 

Loss on early extinguishment of debt

 

 

 

 

 

300

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(10,611

)

 

 

(3,143

)

Accounts receivable - affiliates

 

 

 

 

 

996

 

Prepaid expenses and other assets

 

 

(4,349

)

 

 

(1,169

)

Accounts payable, accrued expenses and other current liabilities

 

 

13,132

 

 

 

15,096

 

Accounts payable - affiliates

 

 

11,396

 

 

 

 

Deferred revenue

 

 

1,182

 

 

 

213

 

Other non-current liabilities

 

 

2

 

 

 

(1

)

Net cash flows provided by operating activities

 

$

221,838

 

 

$

212,744

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

$

(111,386

)

 

$

(108,234

)

Change in accrued property, plant and equipment

 

 

519

 

 

 

342

 

Proceeds from sale of assets

 

 

139

 

 

 

 

Acquisition of other intangible assets

 

 

(1,559

)

 

 

 

Net cash flows used in investing activities

 

$

(112,287

)

 

$

(107,892

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM  FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

New borrowings of bank debt

 

$

163,625

 

 

$

670,500

 

Repayment of bank debt

 

 

(259,125

)

 

 

(941,375

)

Issuance of senior notes

 

 

 

 

 

200,000

 

Dividend payments on preferred members’ interest (Note 7)

 

 

(13,500

)

 

 

(13,500

)

Capital distributions to parent (Note 8)

 

 

 

 

 

(9,700

)

Financing costs

 

 

(89

)

 

 

(10,457

)

Other financing activities

 

 

(210

)

 

 

(461

)

Net cash flows used in financing activities

 

$

(109,299

)

 

$

(104,993

)

Net change in cash

 

 

252

 

 

 

(141

)

CASH, beginning of period

 

 

9,452

 

 

 

11,237

 

CASH, end of period

 

$

9,704

 

 

$

11,096

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

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

 

$

58,662

 

 

$

59,384

 

 

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

 

 

 

 

6


 

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 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 and financial position 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, 2014. 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, 2015.

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 with a corresponding operating expense. Franchise fees reported on a gross basis amounted to $5.4 million and $5.8 million for the three months ended September 30, 2015 and 2014, respectively and $17.2 million and $17.4 million for the nine months ended September 30, 2015 and 2014, respectively.

 

 

2. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 - Revenue from Contracts with Customers (“ASU 2014-09”). 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, FASB issued ASU 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 that reporting period. The FASB is permitting early adoption of the updated accounting guidance, but not before the original effective date of December 15, 2016. We have completed our evaluation of this new guidance and determined that there will not be a significant impact on our financial statements, financial disclosures and our method of adoption.  

In April 2015 (as amended in August 2015), the FASB issued ASU No. 2015-03 (and ASU 2015-15) - Interest—Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The purpose of this guidance is to simplify the presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new

 

7


 

guidance.  We expect to reclassify approximately $26.4 million from other assets, net to long-term debt as a result of this new guidance (based upon amounts as of September 30, 2015).    

In April 2015, the FASB issued ASU 2015-05 - Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) (“ASU 2015-05”).  The objective of ASU 2015-05 is to address the concerns of stakeholders that the lack of guidance about a customer’s accounting for fees in a cloud computing arrangement leads to unnecessary cost and complexity when evaluating the accounting for those fees, as well as some diversity in practice. The amendments in ASU 2015-05 will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance as to whether an arrangement includes the sale or license of software.   Examples of cloud computing arrangements include software as a service, platform as a service, infrastructure as a service, and other similar hosting arrangements. This guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015.  We have completed our evaluation of this new guidance and determined that there will not be a significant impact on our financial statements, financial disclosures and our method of 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:

 

·

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, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate exchange agreements

 

$

 

 

$

 

 

$

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate exchange agreements

 

$

 

 

$

9,884

 

 

$

 

 

$

9,884

 

 

 

 

Fair Value as of December 31, 2014

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate exchange agreements

 

$

 

 

$

 

 

$

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate exchange agreements

 

$

 

 

$

11,049

 

 

$

 

 

$

11,049

 

 

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, 2015, we recorded a current liability in accounts payable, accrued expenses and other current liabilities of $7.3 million and a long-term liability in other non-current liabilities of $2.6 million. As of December 31, 2014, we recorded a current liability in accounts payable, accrued expenses and other current liabilities of $11.0 million and no long-term liability.  As of both September 30, 2015 and December 31, 2014, there were no current or long-term assets.

As a result of the changes in the mark-to-market valuations on our interest rate swaps, we recorded a net loss on derivatives of $4.9 million and a net gain on derivatives of $6.3 million for the three months ended September 30, 2015 and 2014, respectively, and net gains on derivatives of $1.2 million and $17.4 million for the nine months ended September 30, 2015 and 2014, respectively.

 

 

 

8


 

4. PROPERTY, PLANT AND EQUIPMENT

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Cable systems, equipment and customer devices

 

$

2,223,441

 

 

$

2,143,668

 

Furniture, fixtures and office equipment

 

 

39,185

 

 

 

42,278

 

Vehicles

 

 

42,212

 

 

 

40,362

 

Buildings and leasehold improvements

 

 

35,173

 

 

 

34,720

 

Land and land improvements

 

 

7,908

 

 

 

7,998

 

Property, plant and equipment, gross

 

$

2,347,919

 

 

$

2,269,026

 

Accumulated depreciation

 

 

(1,568,619

)

 

 

(1,493,705

)

Property, plant and equipment, net

 

$

779,300

 

 

$

775,321

 

 

 

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,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Accounts payable - trade

 

$

34,246

 

 

$

33,474

 

Accrued programming costs

 

 

26,939

 

 

 

25,680

 

Accrued taxes and fees

 

 

16,365

 

 

 

15,072

 

Accrued interest

 

 

15,267

 

 

 

7,451

 

Accrued payroll and benefits

 

 

14,150

 

 

 

14,514

 

Advance customer payments

 

 

13,329

 

 

 

9,387

 

Accrued service costs

 

 

8,096

 

 

 

7,922

 

Liabilities under interest rate exchange agreements

 

 

7,293

 

 

 

11,049

 

Bank overdrafts (1)

 

 

4,815

 

 

 

5,025

 

Accrued property, plant and equipment

 

 

4,420

 

 

 

3,901

 

Accrued telecommunications costs

 

 

816

 

 

 

754

 

Other accrued expenses

 

 

8,544

 

 

 

10,366

 

Accounts payable, accrued expenses and other current

   liabilities

 

$

154,280

 

 

$

144,595

 

 

(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.

 

 

6. DEBT

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Bank credit facility

 

$

1,361,500

 

 

$

1,457,000

 

5½% senior notes due 2021

 

 

200,000

 

 

 

200,000

 

6⅜% senior notes due 2023

 

 

300,000

 

 

 

300,000

 

Total debt

 

$

1,861,500

 

 

$

1,957,000

 

Less: current portion

 

 

13,500

 

 

 

13,500

 

Total long-term debt, less current portion

 

$

1,848,000

 

 

$

1,943,500

 

 

 

9


 

2015 Financing Activity

On August 12, 2015, we entered into an incremental facility agreement that provided for an additional $25.0 million of revolving credit commitments under the bank credit facility (the “credit facility”).

Bank Credit Facility

As of September 30, 2015, we maintained a $1.605 billion credit facility comprising:

 

·

$281.0 million of revolving credit commitments, which expire on October 10, 2019;

 

·

$194.0 million of outstanding borrowings under Term Loan G, which mature on January 20, 2020;

 

·

$586.5 million of outstanding borrowings under Term Loan H, which mature on January 29, 2021;

 

·

$246.9 million of outstanding borrowings under Term Loan I, which mature on June 30, 2017; and

 

·

$296.3 million of outstanding borrowings under Term Loan J, which mature on June 30, 2021.

As of September 30, 2015, we had $232.7 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 $37.9 million of outstanding loans and $10.4 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, 2015, 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, 2015, our operating subsidiaries were in compliance with all covenants under the credit agreement.

Interest Rate Swaps

We have entered into several interest rate swaps 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, 2015 and 2014.

As of September 30, 2015, we had interest rate swaps that fixed the variable portion of $500 million of borrowings at a rate of 2.6%, all of which are scheduled to expire during December 2015. As of the same date, we also had forward starting interest rate swaps that will fix the variable portion of $600 million of borrowings at a rate of 1.5% for a three year period commencing December 2015.

As of September 30, 2015, the weighted average interest rate on outstanding borrowings under the credit facility, including the effect of our interest rate swaps, was 4.2%.

Senior Notes

As of September 30, 2015, we had $500 million of outstanding senior notes, comprising $200 million of 5½% senior notes due April 2021 and $300 million of 6⅜% 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, 2015, we were in compliance with all covenants under the indentures.

Other Assets

Other assets, net, substantially comprise financing costs and original issue discount (“OID”) incurred to raise debt, which are deferred and amortized through interest expense over the scheduled term of such debt issuances. OID, as recorded in other assets, net, was $7.4 million and $8.7 million as of September 30, 2015 and December 31, 2014, respectively.  

 

10


 

Debt Ratings

MCC’s corporate credit ratings are Ba3 by Moody’s and BB- by Standard and Poor’s (“S&P”), and our senior unsecured ratings are B2 by Moody’s and B by S&P, all with stable outlooks. 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 market prices of such issuances in an active market when available) were as follows (dollars in thousands):  

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

5½% senior notes due 2021

 

$

191,000

 

 

$

202,000

 

6⅜% senior notes due 2023

 

 

285,000

 

 

 

309,000

 

Total senior notes

 

$

476,000

 

 

$

511,000

 

Bank credit facility

 

$

1,348,999

 

 

$

1,426,126

 

 

 

7. PREFERRED MEMBERS’ INTEREST

In July 2001, we received a $150.0 million preferred membership investment from the operating subsidiaries of Mediacom LLC, which has a 12% annual dividend, payable quarterly in cash. We paid $4.5 million in cash dividends on the preferred membership interest during each of the three months ended September 30, 2015 and 2014, and $13.5 million during each of the nine months ended September 30, 2015 and 2014.

 

 

8. MEMBER’S EQUITY (DEFICIT)

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

Capital contributions from parent and capital distributions to parent are reported on a gross basis in the Consolidated Statements of Cash Flows.  There were no capital contributions from parent or capital distributions to parent during the nine months ended September 30, 2015. There were no capital contributions received from parent and we made capital distributions to parent in cash of $9.7 million during the nine months ended September 30, 2014.

 

 

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.

As compensation for the performance of its services, subject to certain restrictions, MCC is entitled to receive management fees in an amount not to exceed 4.0% of the annual gross operating revenues of our operating subsidiaries, and is also entitled to the reimbursement of all expenses necessarily incurred in its capacity as manager. MCC charged us management fees of $4.8 million and $4.3 million for the three months ended September 30, 2015 and 2014, respectively, and $14.3 million and $12.9 million for the nine months ended September 30, 2015 and 2014, 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 will not have a material adverse effect on our consolidated financial position, results of operations, cash flows or business.

 

 

 

11


 

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 cable franchise rights and goodwill are indefinite-lived assets and therefore not amortizable.

We last evaluated the factors surrounding our Mediacom Broadband reporting unit as of October 1, 2014 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.

Because we believe there has not been a meaningful change in the long-term fundamentals of our business during the first nine months of 2015, 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, 2015.

During the nine months ended September 30, 2015, we acquired various intellectual property rights for approximately $1.6 million, which are recorded in other assets, net.

 

 

 

 

12


 

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, 2015 and 2014, and with our annual report on Form 10-K for the year ended December 31, 2014.

Overview

We are a wholly-owned subsidiary of Mediacom Communications Corporation (“MCC”), the nation’s eighth largest cable company based on the number of video customers. As of September 30, 2015, we served approximately 482,000 video customers, 593,000 high-speed data (“HSD”) customers and 233,000 phone customers, aggregating 1.31 million primary service units (“PSUs”).

We offer video, HSD and phone services to residential and small- to medium-sized business customers over our hybrid fiber and coaxial cable network. We believe our customers prefer the cost savings of the bundled services we offer and the convenience of having a single provider contact for ordering, provisioning, billing and customer care. We also provide network and transport services to medium- and large sized businesses, governments, and educational institutions in our service areas, including cell tower backhaul for wireless providers, and sell advertising time to local, regional and national advertisers.

We believe the historically slower economic recovery from the recession, including the uneven gains in employment, consumer spending, household income, occupied housing, and new housing starts, has largely contributed to lower sales activity for all of our residential services in our markets, which has negatively impacted our residential customer and revenue growth. While we expect improvement as the economy strengthens, a continuation or broadening of such effects may adversely impact our results of operations, cash flows and financial position.

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, DBS competitors have deployed aggressive marketing campaigns, including deeply discounted promotional packages, more advanced customer premise equipment and exclusive sports programming, which we believe has contributed to residential video customer losses. We have placed a greater emphasis on higher quality customer relationships in our residential services, 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. In late 2013, we introduced a next generation set-top, with the TiVo guide, which we believe has contributed to, and will continue to contribute to, reduced video customer losses and gains in market share of new connects. If we are unsuccessful with this strategy or we are unable to offset lower revenue associated with declines in video customers through rate adjustments and greater penetration of our digital video recorder (“DVR”), we may experience future annual declines in video revenues.

Our residential HSD service primarily competes with digital subscriber line (“DSL”) services offered by local phone companies. In approximately 12% of our homes passed, these phone companies have upgraded portions of their network to a fiber-to-the-node (“FTTN”) delivery system, allowing them to offer bundles of video, HSD and phone similar to ours. As consumers’ bandwidth requirements continue to rapidly increase, we believe our ability to offer a HSD service with downstream speeds of up to 150 megabits per second gives us a competitive advantage compared to the lower speed DSL service offered by the local phone companies in most of our service areas. We expect to continue to grow HSD revenues through customer growth and more customers taking higher speed HSD tiers and our wireless home gateway service.

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 phone revenues may continue to decline if we are unable to offset unit pricing pressure with greater phone customer growth.

Our business services predominantly compete with local phone companies. We have experienced strong growth rates of business services revenues in the past several years, which we believe will continue through small-to medium-sized commercial HSD and phone customer growth. Our cell tower backhaul business, which has contributed to meaningful business services revenue growth in prior years, will likely experience modest revenue increases in 2015 as certain wireless carriers have delayed some of their network upgrades.

We compete for the sale of advertising against a wide variety of media outlets, including local broadcast stations, national broadcast and cable networks, radio, newspapers, magazines, outdoor displays, digital media and Internet sites. Competition has increased and will likely continue to increase as new formats for advertising seek business from the same advertisers. Due to the strong contributions of political advertising during a national election year in 2014, we have experienced and expect to continue to experience a decline in advertising revenues in 2015.

 

13


 

Historically, video programming has been and continues to be, our single largest expense, and we have experienced substantial increases in video 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, compared to the prior year, because of the demands of large media conglomerates or other owners of most of the popular cable networks and major local broadcast stations, and of large independent television broadcast groups, that own or control a significant number of local broadcast groups, and in some cases, own, control or otherwise represent multiple stations in the same market. In certain instances where we have been unable to reach an agreement with a programmer prior to the expiration of an existing contract, the programmer has required us to remove their content until we have entered into a new agreement, typically on unfavorable terms to us. Many 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, programmers have created additional networks and migrated popular content, particularly sports programming, to these new networks. As carriage of such networks is generally required to receive a programmer’s full suite of networks and stations, this 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 on Internet advertising. While such growth in programming expenses can be offset, in whole or in part, by rate adjustments, such adjustments may adversely affect video customer retention, and we expect our video gross margins will continue to decline if increases in programming costs outpace any growth in video revenues.

2015 Financing Activity

On August 12, 2015, we entered into an incremental facility agreement that provided for an additional $25.0 million of revolving credit commitments under our bank credit facility (the “credit facility”).

Revenues

Video

Video revenues primarily represent monthly subscription and equipment fees charged to residential customers, which vary according to the level of video service and number of set-tops taken, and revenue from the sale of video-on-demand content and pay-per-view events.

HSD

HSD revenues primarily represent monthly subscription and equipment fees charged to residential customers, which vary according to the level of HSD service 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 small- to medium-sized customers for commercial video, HSD and phone service, and to medium- to large-sized businesses, governments and educational institutions for enterprise class services, including revenues from cell tower backhaul.

Advertising

Advertising revenues primarily represent revenues 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.

 

14


 

Costs and Expenses

Service Costs

Service costs consist of the costs related to providing and maintaining services to our customers. In addition to video programming, significant service costs include: HSD service, including bandwidth and 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 fiber networks.

We believe programming costs, which are generally paid on a per video customer basis, 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.

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 us 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.

 

15


 

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 value and compare the 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.

Actual Results of Operations

Three and Nine Months Ended September 30, 2015 compared to Three and Nine Months Ended September 30, 2014

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

% Change

 

 

2015

 

 

2014

 

 

% Change

 

Revenues

 

$

245,414

 

 

$

237,611

 

 

 

3.3

%

 

$

731,499

 

 

$

706,953

 

 

 

3.5

%

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service costs

 

 

101,208

 

 

 

97,592

 

 

 

3.7

%

 

 

302,738

 

 

 

285,979

 

 

 

5.9

%

Selling, general and administrative expenses

 

 

47,735

 

 

 

46,652

 

 

 

2.3

%

 

 

136,373

 

 

 

136,175

 

 

 

0.1

%

Management fee expense

 

 

4,750

 

 

 

4,300

 

 

 

10.5

%

 

 

14,250

 

 

 

12,900

 

 

 

10.5

%

Depreciation and amortization

 

 

36,000

 

 

 

38,738

 

 

 

(7.1

%)

 

 

108,126

 

 

 

117,429

 

 

 

(7.9

%)

Operating income

 

 

55,721

 

 

 

50,329

 

 

 

10.7

%

 

 

170,012

 

 

 

154,470

 

 

 

10.1

%

Interest expense, net

 

 

(23,639

)

 

 

(26,590

)

 

 

(11.1

%)

 

 

(71,374

)

 

 

(74,264

)

 

 

(3.9

%)

(Loss) gain on derivatives, net

 

 

(4,886

)

 

 

6,329

 

 

NM

 

 

 

1,165

 

 

 

17,426

 

 

NM

 

Loss on early extinguishment of debt

 

 

 

 

 

 

 

NM

 

 

 

 

 

 

(300

)

 

NM

 

Other expense, net

 

 

(361

)

 

 

(445

)

 

NM

 

 

 

(897

)

 

 

(1,298

)

 

NM

 

Net income

 

$

26,835

 

 

$

29,623

 

 

 

(9.4

%)

 

$

98,906

 

 

$

96,034

 

 

 

3.0

%

OIBDA

 

$

91,721

 

 

$

89,067

 

 

 

3.0

%

 

$

278,138

 

 

$

271,899

 

 

 

2.3

%

 

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

% Change

 

 

2015

 

 

2014

 

 

% Change

 

OIBDA

 

$

91,721

 

 

$

89,067

 

 

 

3.0

%

 

$

278,138

 

 

$

271,899

 

 

 

2.3

%

Depreciation and amortization

 

 

(36,000

)

 

 

(38,738

)

 

 

(7.1

%)

 

 

(108,126

)

 

 

(117,429

)

 

 

(7.9

%)

Operating income

 

$

55,721

 

 

$

50,329

 

 

 

10.7

%

 

$

170,012

 

 

$

154,470

 

 

 

10.1

%

 

 

16


 

Revenues

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

% Change

 

 

2015

 

 

2014

 

 

% Change

 

Video

 

$

112,038

 

 

$

111,245

 

 

 

0.7

%

 

$

340,718

 

 

$

338,371

 

 

 

0.7

%

HSD

 

 

74,500

 

 

 

66,568

 

 

 

11.9

%

 

 

218,196

 

 

 

197,629

 

 

 

10.4

%

Phone

 

 

14,923

 

 

 

15,708

 

 

 

(5.0

%)

 

 

45,415

 

 

 

47,630

 

 

 

(4.7

%)

Business services

 

 

32,495

 

 

 

29,645

 

 

 

9.6

%

 

 

94,912

 

 

 

85,519

 

 

 

11.0

%

Advertising

 

 

11,458

 

 

 

14,445

 

 

 

(20.7

%)

 

 

32,258

 

 

 

37,804

 

 

 

(14.7

%)

Total revenues

 

$

245,414

 

 

$

237,611

 

 

 

3.3

%

 

$

731,499

 

 

$

706,953

 

 

 

3.5

%

Average total monthly revenue per PSU (1)

 

$

62.57

 

 

$

62.22

 

 

 

0.6

%

 

$

63.03

 

 

$

61.85

 

 

 

1.9

%

 

(1)

Represents average total monthly revenues for the period divided by average PSUs for such period.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

2015

 

 

2014

 

 

% Change

 

 

 

 

 

 

 

Video customers

 

 

482,000

 

 

 

504,000

 

 

 

(4.4

%)

 

 

 

 

 

 

HSD customers

 

 

593,000

 

 

 

554,000

 

 

 

7.0

%

 

 

 

 

 

 

Phone customers

 

 

233,000

 

 

 

213,000

 

 

 

9.4

%

 

 

 

 

 

 

Primary service units (PSUs)

 

 

1,308,000

 

 

 

1,271,000

 

 

 

2.9

%

 

 

 

 

 

 

 

Revenues increased 3.3% and 3.5% for the three and nine months ended September 30, 2015, respectively, primarily due to greater HSD revenues, and, to a lesser extent, business services revenues, offset in part by declines in advertising and, to a lesser extent, phone revenues.

Video

Video revenues increased 0.7% for each of the three and nine months ended September 30, 2015, mainly due to rate adjustments associated with the pass-through of higher programming costs for retransmission consent fees and regional sports networks, mostly offset by residential video customer losses since the prior year periods. We lost 12,000 and 18,000 video customers during the three and nine months ended September 30, 2015, respectively, compared to decreases of 11,000 and 24,000 in the comparable prior year periods. As of September 30, 2015, we served 482,000 video customers, or 32.2% of our estimated homes passed, and 33.5% of our video customers took our DVR service.

HSD

HSD revenues grew 11.9% and 10.4% for the three and nine months ended September 30, 2015, respectively, primarily due to higher rates per HSD customer, largely a result of more customers taking faster speed tiers and residential HSD customer growth since the prior year periods. We gained 8,000 and 29,000 HSD customers during the three and nine months ended September 30, 2015, respectively, compared to increases of 6,000 and 20,000 in the comparable prior year periods. As of September 30, 2015, we served 593,000 HSD customers, or 39.7% of our estimated homes passed, and 33.6% of our HSD customers took our wireless home gateway service.

Phone

Phone revenues declined 5.0% and 4.7% for the three and nine months ended September 30, 2015, respectively, principally due to lower revenues per residential phone customer, largely a result of greater levels of discounted pricing, offset in part by residential phone customer growth since the prior year periods. We gained 5,000 and 15,000 phone customers during the three and nine months ended September 30, 2015, respectively, compared to increases of 1,000 and 6,000 in the comparable prior year periods. As of September 30, 2015, we served 233,000 phone customers, or 15.6% of our estimated homes passed.

 

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Business Services

Business services revenues rose 9.6% and 11.0% for the three and nine months ended September 30, 2015, respectively, primarily due to growth in small- to medium-sized commercial customers since the prior year periods.

Advertising

Advertising revenues fell 20.7% and 14.7% for the three and nine months ended September 30, 2015, respectively, mainly due to lower levels of political advertising.

Costs and Expenses

Service Costs

Service costs increased 3.7% and 5.9% for the three and nine months ended September 30, 2015, respectively, predominantly due to higher video programming expenses. Programming expenses grew 6.3% and 8.6% for the three and nine months ended September 30, 2015, respectively, mainly due to higher fees associated with the renewal of programming contracts for certain sports and other popular cable networks and for local broadcast stations, and contractual increases under existing carriage agreements, offset in part by video customer losses since the prior year periods. Service costs as a percentage of revenues were 41.2% and 41.1% for the three months ended September 30, 2015 and 2014, respectively, and 41.4% and 40.5% for the nine months ended September 30, 2015 and 2014, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 2.3% and 0.1% for the three and nine months ended September 30, 2015, respectively, largely as a result of greater marketing costs, offset in part by lower taxes and fees and administrative expenses. Marketing costs grew 25.9% and 13.5% for the three and nine months ended September 30, 2015, respectively, principally due to television and other advertising costs associated with a rebranding campaign. Taxes and fees fell 11.5% and 7.4% for the three and nine months ended September 30, 2015, respectively, primarily due to lower property taxes and, to a much lesser extent, franchise fees. Administrative expenses fell 25.8% and 15.5% for the three and nine months ended September 30, 2015, respectively, mainly due to lower costs associated with customer service software costs and a decline in legal and other professional fees. Selling, general and administrative expenses as a percentage of revenues were 19.5% and 19.6% for the three months ended September 30, 2015 and 2014, respectively, and 18.6% and 19.3% for the nine months ended September 30, 2015 and 2014, respectively.

Management Fee Expense

Management fee expense was 10.5% higher for each of the three and nine months ended September 30, 2015, reflecting higher fees charged by MCC. Management fee expense as a percentage of revenues was 1.9% and 1.8% for each of the three and nine months ended September 30, 2015 and 2014, respectively.

Depreciation and Amortization

Depreciation and amortization was 7.1% and 7.9% lower for the three and nine months ended September 30, 2015, respectively, mainly due to older network assets becoming fully depreciated, offset in part by greater depreciation of customer premise equipment and investments in HSD bandwidth expansion and business support.

OIBDA

OIBDA grew 3.0% and 2.3% for the three and nine months ended September 30, 2015, respectively, as the increase in revenues was offset in part by higher programming costs.

Operating Income

Operating income rose 10.7% and 10.1% for the three and nine months ended September 30, 2015, respectively, as a result of lower depreciation and amortization and the growth in OIBDA.

 

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Interest Expense, Net

Interest expense, net, decreased 11.1% and 3.9% for the three and nine months ended September 30, 2015, respectively, mainly due to a lower average cost of debt, offset in part by greater average outstanding indebtedness.

(Loss) Gain on Derivatives, Net

As a result of the changes in the mark-to-market valuations on our interest rate swaps, we recorded a net loss on derivatives of $4.9 million and a net gain on derivatives of $6.3 million for the three months ended September 30, 2015 and 2014, respectively, and net gains on derivatives of $1.2 million and $17.4 million for the nine months ended September 30, 2015 and 2014, respectively. See Notes 3 and 6 in our Notes to Consolidated Financial Statements.