mcccl-10q_20160331.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 March 31, 2016

 

 

Commission File Numbers:

333-82124-01

 

 

 

333-82124-04

 

 

Mediacom LLC

Mediacom Capital Corporation*

(Exact names of Registrants as specified in their charters)

 

 

New York

New York

06-1433421

06-1513997

(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    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    ¨  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

x

 

Smaller reporting companies

¨

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

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

*

Mediacom Capital 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 LLC AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED MARCH 31, 2016

TABLE OF CONTENTS

 

 

Page

 

 

PART I

 

Item 1. Financial Statements

4

Consolidated Balance Sheets (unaudited) March 31, 2016 and December 31, 2015

4

Consolidated Statements of Operations (unaudited) Three Months Ended March 31, 2016 and 2015

5

Consolidated Statements of Cash Flows (unaudited) Three Months Ended March 31, 2016 and 2015

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

21

Item 4. Controls and Procedures

22

 

 

PART II

 

Item 1. Legal Proceedings

22

Item 1A. Risk Factors

22

Item 6. Exhibits

23

Signatures

24

This Quarterly Report on Form 10-Q is for the three months ended March 31, 2016. 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 LLC is a New York limited liability company and a wholly-owned subsidiary of Mediacom Communications Corporation, a Delaware corporation. Mediacom Capital Corporation is a New York corporation and a wholly-owned subsidiary of Mediacom LLC. Mediacom Capital Corporation was formed for the sole purpose of acting as co-issuer with Mediacom 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 LLC and its direct and indirect subsidiaries (including Mediacom Capital 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;

 

·

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;

 

·

significant 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 future debt maturities or provide future funding for general corporate purposes and 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, 2015 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 LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash

 

$

8,106

 

 

$

8,446

 

Accounts receivable, net of allowance for doubtful accounts of $1,939 and $2,267

 

 

40,126

 

 

 

42,576

 

Accounts receivable - affiliates

 

 

16,163

 

 

 

2,970

 

Prepaid expenses and other current assets

 

 

13,831

 

 

 

10,779

 

Total current assets

 

 

78,226

 

 

 

64,771

 

Preferred membership interest in affiliated company (Note 7)

 

 

150,000

 

 

 

150,000

 

Property, plant and equipment, net of accumulated depreciation of $1,688,156

   and $1,671,048

 

 

696,222

 

 

 

689,897

 

Franchise rights

 

 

614,731

 

 

 

614,731

 

Goodwill

 

 

23,911

 

 

 

23,911

 

Subscriber lists, net of accumulated amortization of $118,295 and $118,291

 

 

47

 

 

 

51

 

Other assets, net of accumulated amortization of $1,531 and $1,366

 

 

5,555

 

 

 

6,940

 

Total assets

 

$

1,568,692

 

 

$

1,550,301

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND MEMBER'S EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other current liabilities

 

$

113,159

 

 

$

126,410

 

Deferred revenue

 

 

30,558

 

 

 

29,383

 

Current portion of long-term debt

 

 

14,554

 

 

 

14,555

 

Total current liabilities

 

 

158,271

 

 

 

170,348

 

Long-term debt, net (less current portion)

 

 

1,145,012

 

 

 

1,144,660

 

Other non-current liabilities

 

 

5,662

 

 

 

2,577

 

Total liabilities

 

 

1,308,945

 

 

 

1,317,585

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MEMBER'S EQUITY

 

 

 

 

 

 

 

 

Capital contributions

 

 

461,122

 

 

 

461,101

 

Accumulated deficit

 

 

(201,375

)

 

 

(228,385

)

Total member's equity

 

 

259,747

 

 

 

232,716

 

Total liabilities and member's equity

 

$

1,568,692

 

 

$

1,550,301

 

 

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

 

 

 

 

4


 

MEDIACOM LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2016

 

 

2015

 

 

Revenues

 

$

189,569

 

 

$

180,044

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Service costs (exclusive of depreciation and amortization)

 

 

84,951

 

 

 

80,644

 

 

Selling, general and administrative expenses

 

 

30,340

 

 

 

28,844

 

 

Management fee expense

 

 

3,650

 

 

 

3,250

 

 

Depreciation and amortization

 

 

29,907

 

 

 

29,894

 

 

Operating income

 

 

40,721

 

 

 

37,412

 

 

Interest expense, net

 

 

(13,070

)

 

 

(15,978

)

 

(Loss) gain on derivatives, net

 

 

(4,697

)

 

 

2,578

 

 

Investment income from affiliate (Note 7)

 

 

4,500

 

 

 

4,500

 

 

Other expense, net

 

 

(444

)

 

 

(229

)

 

Net income

 

$

27,010

 

 

$

28,283

 

 

 

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

 

 

 

 

5


 

MEDIACOM LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

27,010

 

 

$

28,283

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

29,907

 

 

 

29,894

 

Loss (gain) on derivatives, net

 

 

4,697

 

 

 

(2,578

)

Amortization of deferred financing costs

 

 

734

 

 

 

722

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

2,450

 

 

 

7,351

 

Accounts receivable - affiliates

 

 

(13,193

)

 

 

(3,606

)

Prepaid expenses and other assets

 

 

(2,927

)

 

 

(4,572

)

Accounts payable, accrued expenses and other current liabilities

 

 

(12,108

)

 

 

(1,877

)

Accounts payable - affiliates

 

 

 

 

 

(1,463

)

Deferred revenue

 

 

1,175

 

 

 

736

 

Other non-current liabilities

 

 

(43

)

 

 

 

Net cash flows provided by operating activities

 

$

37,702

 

 

$

52,890

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

$

(36,218

)

 

$

(28,580

)

Change in accrued property, plant and equipment

 

 

(914

)

 

 

603

 

Proceeds from sale of assets

 

 

42

 

 

 

41

 

Acquisition of other intangible assets

 

 

 

 

 

(1,249

)

Net cash flows used in investing activities

 

$

(37,090

)

 

$

(29,185

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

New borrowings of bank debt

 

$

48,000

 

 

$

43,000

 

Repayment of bank debt

 

 

(48,250

)

 

 

(60,000

)

Capital distributions to parent  (Note 8)

 

 

 

 

 

(5,000

)

Other financing activities

 

 

(702

)

 

 

(545

)

Net cash flows used in financing activities

 

$

(952

)

 

$

(22,545

)

Net change in cash

 

 

(340

)

 

 

1,160

 

CASH, beginning of period

 

 

8,446

 

 

 

8,720

 

CASH, end of period

 

$

8,106

 

 

$

9,880

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

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

 

$

17,130

 

 

$

19,820

 

 

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

 

 

 

 

6


 

MEDIACOM LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION

Basis of Preparation of Unaudited Consolidated Financial Statements

Mediacom LLC (“Mediacom LLC” and collectively with its subsidiaries, “we,” “our” or “us”) is a New York 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 Broadband LLC, a Delaware limited liability company wholly-owned by MCC. As limited liability companies, we and Mediacom Broadband 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, 2015. 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, 2016.

Mediacom Capital Corporation (“Mediacom Capital”), a New York corporation wholly-owned by us, co-issued, jointly and severally with us, public debt securities. Mediacom Capital 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 $3.1 million and $3.0 million for the three months ended March 31, 2016 and 2015, respectively.

    Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

 

 

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, the 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 the 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 are currently evaluating the methods of adoption allowed by the new standard and the effect the standard is expected to have on our consolidated financial statements and related disclosures.  

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

 

7


 

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 guidance.  We adopted ASU 2015-03 and ASU 2015-15 as of January 1, 2016 and implemented retrospectively as of December 31, 2015.  We reclassified $10.4 million of deferred financing costs from other assets, net to long-term debt, net (less current portion) as of March 31, 2016 in accordance with such guidance.  We reclassified $11.0 million of deferred financing costs from other assets, net to long-term debt, net (less current portion) as of December 31, 2015 in accordance with such guidance.  See Note 6.

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 adopted this new guidance as of January 1, 2016 and determined that there was not a significant impact to our operations.

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 have not completed our evaluation of this new guidance.

 

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 March 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate exchange agreements

 

$

 

 

$

 

 

$

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate exchange agreements

 

$

 

 

$

6,098

 

 

$

 

 

$

6,098

 

 

 

 

Fair Value as of December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate exchange agreements

 

$

 

 

$

1,096

 

 

$

 

 

$

1,096

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate exchange agreements

 

$

 

 

$

2,497

 

 

$

 

 

$

2,497

 

 

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.

 

8


 

As of March 31, 2016, we recorded a current liability in accounts payable, accrued expenses and other current liabilities of $3.0 million, a long-term liability in other non-current liabilities of $3.1 million, and no current or long-term assets. As of December 31, 2015, we recorded a long term asset of $1.1 million, and a current liability in accounts payable, accrued expenses and other current liabilities of $2.5 million.  As of December 31, 2015, we recorded no current assets or long-term liabilities.

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 $4.7 million and a net gain on derivatives of $2.6 million for the three months ended March 31, 2016 and 2015, respectively.  

 

 

4. PROPERTY, PLANT AND EQUIPMENT

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Cable systems, equipment and customer devices

 

$

2,283,187

 

 

$

2,257,473

 

Furniture, fixtures and office equipment

 

 

43,201

 

 

 

44,878

 

Vehicles

 

 

38,910

 

 

 

39,531

 

Buildings and leasehold improvements

 

 

17,530

 

 

 

17,513

 

Land and land improvements

 

 

1,550

 

 

 

1,550

 

Property, plant and equipment, gross

 

$

2,384,378

 

 

$

2,360,945

 

Accumulated depreciation

 

 

(1,688,156

)

 

 

(1,671,048

)

Property, plant and equipment, net

 

$

696,222

 

 

$

689,897

 

 

 

5. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Accounts payable - trade

 

$

22,620

 

 

$

32,722

 

Accrued programming costs

 

 

21,398

 

 

 

20,433

 

Accrued payroll and benefits

 

 

11,917

 

 

 

10,898

 

Accrued taxes and fees

 

 

11,474

 

 

 

13,138

 

Accrued property, plant and equipment

 

 

9,042

 

 

 

9,956

 

Advance customer payments

 

 

8,650

 

 

 

8,009

 

Accrued service costs

 

 

6,376

 

 

 

6,035

 

Bank overdrafts (1)

 

 

5,329

 

 

 

6,031

 

Accrued interest

 

 

4,493

 

 

 

9,051

 

Liabilities under interest rate exchange agreements

 

 

2,970

 

 

 

2,497

 

Accrued telecommunications costs

 

 

1,356

 

 

 

1,473

 

Other accrued expenses

 

 

7,534

 

 

 

6,167

 

Accounts payable, accrued expenses and other

   current liabilities

 

$

113,159

 

 

$

126,410

 

 

(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.

 

 

 

9


 

6. DEBT

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Bank credit facility

 

$

920,000

 

 

$

920,250

 

7¼% senior notes due 2022

 

 

250,000

 

 

 

250,000

 

Total debt

 

$

1,170,000

 

 

$

1,170,250

 

Less: current portion

 

 

14,554

 

 

 

14,555

 

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

 

$

1,155,446

 

 

$

1,155,695

 

Less: deferred financing costs, net

 

 

10,434

 

 

 

11,035

 

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

 

$

1,145,012

 

 

$

1,144,660

 

Bank Credit Facility

As of March 31, 2016, we maintained a $1.187 billion bank credit facility (the “credit facility”), comprising:

 

·

$362.5 million of revolving credit commitments, which expire on February 5, 2019;

 

·

$151.6 million of outstanding borrowings under Term Loan A, which mature on November 15, 2021;

 

·

$82.9 million of outstanding borrowings under Term Loan E, which mature on October 23, 2017;

 

·

$245.0 million of outstanding borrowings under Term Loan F, which mature on March 31, 2018; and

 

·

$344.8 million of outstanding borrowings under Term Loan G, which mature on June 30, 2021.

As of March 31, 2016, we had $258.5 million of unused revolving credit commitments, all of which were available to be borrowed and used for general corporate purposes, after giving effect to $95.8 million of outstanding loans and $8.2 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 March 31, 2016, 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 March 31, 2016, our operating subsidiaries were in compliance with all covenants under the credit agreement.

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 months ended, March 31, 2016 and 2015. As of March 31, 2016, we had interest rate swaps that fixed the variable portion of $400 million of borrowings at a rate of 1.5%, all of which are scheduled to expire during December 2018.

As of March 31, 2016, the weighted average interest rate on outstanding borrowings under the credit facility, including the effect of our interest rate swaps, was 3.5%.

Senior Notes

As of March 31, 2016, we had $250 million of outstanding senior notes, all of which comprised our 7¼% senior notes due February 2022 (the “7¼% Notes”). Our senior notes are unsecured obligations, and the indenture governing the 7¼% Notes (the “indenture”) limits the incurrence of additional indebtedness based upon a maximum debt to operating cash flow ratio (as defined in the indenture) of 8.5 to 1.0. For all periods through March 31, 2016, we were in compliance with all covenants under the indenture.

 

10


 

Deferred Financing Costs

We adopted ASU 2015-03 and ASU 2015-15 as of January 1, 2016 and implemented retrospectively as of December 31, 2015.  We reclassified $10.4 million of deferred financing costs from other assets, net to long-term debt, net (less current portion) as of March 31, 2016 in accordance with such guidance.  We reclassified $11.0 million of deferred financing costs from other assets, net to long-term debt, net (less current portion) as of December 31, 2015 in accordance with such guidance. See Note 2.      

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 a stable outlook. There are no covenants, events of default, borrowing conditions or other terms in the credit agreement or indenture 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 bank credit facility are calculated based upon unobservable inputs that are corroborated by market data that we determine to be Level 2.   The fair value of our senior notes and outstanding debt under the credit facility were as follows (dollars in thousands):

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

7¼% senior notes due 2022

 

 

259,375

 

 

 

251,250

 

Total senior notes

 

$

259,375

 

 

$

251,250

 

Bank credit facility

 

$

917,628

 

 

$

912,944

 

 

 

7. PREFERRED MEMBERSHIP INTEREST IN AFFILIATED COMPANY

In July 2001, we made a $150.0 million preferred membership investment in the operating subsidiaries of Mediacom Broadband LLC, which has a 12% annual dividend, payable quarterly in cash. We received $4.5 million in cash dividends on the preferred membership interest during each of the three months ended March 31, 2016 and 2015.

 

 

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 contributions from parent and capital distributions to parent are reported on a gross basis in the Consolidated Statements of Cash Flows. We made no capital distributions to parent and no capital contributions were received from parent during the three months ended March 31, 2016.  We made capital distributions to parent of $5.0 million and received no capital contributions from parent during the three months ended March 31, 2015.  

 

 

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 4.5% 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 $3.7 million and $3.3 million for the three months ended March 31, 2016 and 2015, respectively.

We are a preferred equity investor in Mediacom Broadband LLC. See Note 7.

 

 

 

11


 

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. 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 LLC reporting unit as of October 1, 2015 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, 2015 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 three months of 2016, 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 March 31, 2016.

 

 

 

 

 

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 months ended, March 31, 2016 and 2015, and with our annual report on Form 10-K for the year ended December 31, 2015.

Overview

We are a wholly-owned subsidiary of Mediacom Communications Corporation (“MCC”), the nation’s eighth largest cable company based on the number of customers who purchase one or more video services, also known as video customers. As of March 31, 2016, we served approximately 374,000 video customers, 493,000 high-speed data (“HSD”) customers and 199,000 phone customers, aggregating 1.07 million primary service units (“PSUs”). As of the same date, we served 593,000 residential and business customer relationships.

We offer video, HSD and phone services to residential and small- to medium-sized business (“SMB”) 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, including cell tower backhaul for wireless telephone providers, and sell advertising time to local, regional and national advertisers.

Over the past several years, losses in our residential video customer base have been primarily responsible for slower growth in our residential revenues, while we have rapidly increased our business services revenues through customer growth. We expect to continue to grow revenues through customer additions in business services and residential services. Business services revenues are expected to grow through HSD and phone sales to SMBs and a greater number of cell tower backhaul sites and large enterprise customers. Revenues from residential services are expected to grow, largely a result of HSD customer growth and gains in revenue per customer relationship as more customers take faster HSD tiers and advanced video services, including our next-generation set-top and digital video recorder (“DVR”).

Our recent performance has been adversely affected by tepid economic growth in the post-recession period and significant video competition. We believe the historically muted economic recovery from the recession, including uneven gains in disposable income and household formation, has largely contributed to lower sales and connect activity for all of our residential services and negatively impacted our residential customer and revenue growth. While we expect improvement if and when the economy strengthens further, 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, 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 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, which may further contribute to video customer declines. Our next-generation, multi-room set-top gives customers the same stored content on multiple televisions in their home and a cloud-based, graphically-rich TiVo guide, with Netflix, YouTube, Pandora and other popular apps, advanced search functionality, in-home video streaming to personal devices and the ability to download certain content to their mobile devices for viewing outside of their home. We believe our video strategy may enable us to reduce 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.

Our residential HSD service competes primarily with digital subscriber line (“DSL”) services offered by local telephone companies. Based upon the speeds we offer, we believe our HSD service is generally superior to DSL offerings in our service areas. As consumers’ bandwidth requirements have dramatically increased in the past few years, a trend many industry experts expect to continue, we believe our ability to currently offer downstream speeds of up to 150Mbps across substantially all of our markets gives us a competitive advantage compared to the DSL service offered by the local telephone companies. We expect to continue to grow HSD revenues through residential unit growth and more customers taking faster speed tiers.

Our residential phone service mainly competes with substantially comparable phone services offered by local telephone 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 largely compete with local phone companies, or local exchange carriers (“LECs”). Our fast-growing cell tower backhaul business primarily competes with LECs. Developments and advancements in products and services by new, emerging companies may intensify competition. We have experienced strong growth rates of business services revenues in the past several years, which we believe will continue.

 

13


 

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. Due to the strong contributions of political advertising during a national election year, we expect to experience an increase in advertising revenues in 2016.

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.

Revenues

Video

Video revenues primarily represent monthly subscription fees charged to residential customers, which vary according to the level of service, the type and amount of equipment taken, and revenue from the sale of VOD content and pay-per-view events. Video revenues also include 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

 

14


 

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.

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

 

15


 

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 Months Ended March 31, 2016 compared to Three Months Ended March 31, 2015

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

 

 

 

 

March 31,

 

 

 

 

2016

 

 

2015

 

 

% Change

 

 

Revenues

 

$

189,569

 

 

$

180,044

 

 

 

5.3

%

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service costs

 

 

84,951

 

 

 

80,644

 

 

 

5.3

%

 

Selling, general and administrative expenses

 

 

30,340

 

 

 

28,844

 

 

 

5.2

%

 

Management fee expense

 

 

3,650

 

 

 

3,250

 

 

 

12.3

%

 

Depreciation and amortization

 

 

29,907

 

 

 

29,894

 

 

 

0.0

%

 

Operating income

 

 

40,721

 

 

 

37,412

 

 

 

8.8

%

 

Interest expense, net

 

 

(13,070

)

 

 

(15,978

)

 

 

(18.2

%)

 

(Loss) gain on derivatives, net

 

 

(4,697

)

 

 

2,578

 

 

NM

 

 

Investment income from affiliate

 

 

4,500

 

 

 

4,500

 

 

NM

 

 

Other expense, net

 

 

(444

)

 

 

(229

)

 

NM

 

 

Net income

 

$

27,010

 

 

$

28,283

 

 

 

(4.5

%)

 

OIBDA

 

$

70,628

 

 

$

67,306

 

 

 

4.9

%

 

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

 

% Change

 

OIBDA

 

$

70,628

 

 

$

67,306

 

 

 

4.9

%

Depreciation and amortization

 

 

(29,907

)

 

 

(29,894

)

 

 

0.0

%

Operating income

 

$

40,721

 

 

$

37,412

 

 

 

8.8

%

 

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

 

 

 

 

March 31,

 

 

 

 

2016

 

 

2015

 

 

 

% Change

 

 

Video

 

$

86,691

 

 

$

86,291

 

 

 

 

0.5

%

 

HSD

 

 

65,057

 

 

 

57,443

 

 

 

 

13.3

%

 

Phone

 

 

12,846

 

 

 

13,541

 

 

 

 

(5.1

%)

 

Business services

 

 

21,705

 

 

 

19,583

 

 

 

 

10.8

%

 

Advertising

 

 

3,270

 

 

 

3,186

 

 

 

 

2.6

%

 

Total revenues

 

$

189,569

 

 

$

180,044

 

 

 

 

5.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

 

 

2016

 

 

2015

 

 

 

% Change

 

 

Video customers

 

 

374,000

 

 

 

389,000

 

 

 

 

(3.9

%)

 

HSD customers

 

 

493,000

 

 

 

460,000

 

 

 

 

7.2

%

 

Phone customers

 

 

199,000

 

 

 

186,000

 

 

 

 

7.0

%

 

Primary service units (PSUs)

 

 

1,066,000

 

 

 

1,035,000

 

 

 

 

3.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

 

593,000

 

 

 

578,000

 

 

 

 

2.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average total monthly revenue per customer relationship (1)

 

$

107.28

 

 

$

104.65

 

 

 

 

2.5

%

 

 

 

(1)

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

 

 

Revenues increased 5.3% for the three months ended March 31, 2016, principally due to greater HSD and, to a lesser extent, business services revenues, offset in part by a decline in phone revenues.

Video

Video revenues increased 0.5% for the three months ended March 31, 2016, largely a result of rate adjustments associated with the pass-through of higher programming costs for retransmission consent fees and, to a lesser extent, regional sports networks, mostly offset by residential video customer declines since the prior year period. We lost 1,000 video customers during the three months ended March 31, 2016, compared to a decrease of 1,000 video customers in the comparable prior year period. As of March 31, 2016, we served 374,000 video customers, or 28.2% of estimated homes passed, and 35.6% of our video customers took our DVR service, which represents a large component of revenues from advanced video services.

HSD

HSD revenues grew 13.3% for the three months ended March 31, 2016, primarily due to greater revenues per HSD customer, largely a result of more customers taking faster speed tiers, and residential HSD customer growth since the prior year period. We gained 13,000 HSD customers during the three months ended March 31, 2016, compared to an increase of 11,000 HSD customers in the comparable prior year period. As of March 31, 2016, we served 493,000 HSD customers, or 37.1% of estimated homes passed, and 37.0% of our HSD customers took our wireless home gateway service.

Phone

Phone revenues declined 5.1% for the three months ended March 31, 2016, 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 period. We gained 5,000 phone customers during the three months ended March 31, 2016, compared to an increase of 4,000 phone customers in the comparable prior year period. As of March 31, 2016, we served 199,000 phone customers, or 15.0% of estimated homes passed.

Business Services

Business services revenues rose 10.8% for the three months ended March 31, 2016, mainly due to SMB customer growth since the prior year period.

Advertising

Advertising revenues increased 2.6% for the three months ended March 31, 2016, largely due to greater revenues from third party contracts.

 

17


 

Costs and Expenses

Service Costs

Service costs increased 5.3% for the three months ended March 31, 2016, primarily due to higher video programming expenses and, to a lesser extent, field operating costs. Programming expenses grew 5.1% for the three months ended March 31, 2016, mainly due to higher fees associated with the renewal of programming contracts and contractual increases under existing carriage agreements for certain local broadcast stations and popular cable networks, offset in part by video customer declines since the prior year period. Field operating costs were 10.9% higher, largely a result of greater levels of spending in network maintenance, fleet operations and, to a lesser extent, cable location services. Service costs as a percentage of revenues were 44.8% for each of the three months ended March 31, 2016 and 2015.

Selling, General and Administrative Expenses

Selling, general and administrative expenses grew 5.2% for the three months ended March 31, 2016, mainly due to greater marketing costs and, to a lesser extent, higher administrative expenses. Marketing costs increased 17.5%, primarily due to higher levels of direct mail marketing and expenses related to a rebranding campaign. Administrative expenses rose 76.6%, principally due to greater professional fees and customer service software costs. Selling, general and administrative expenses as a percentage of revenues were 16.0% for each of the three months ended March 31, 2016 and 2015.

Management Fee Expense

Management fee expense rose 12.3% for the three months ended March 31, 2016, reflecting higher fees charged by MCC. Management fee expense as a percentage of revenues was 1.9% and 1.8% for the three months ended March 31, 2016 and 2015, respectively.

Depreciation and Amortization

Depreciation and amortization was essentially unchanged for the three months ended March 31, 2016, as depreciation of investments in customer premise equipment, HSD bandwidth expansion and business support were substantially offset by older network assets becoming fully depreciated.

Operating Income

Operating income increased 8.8% for the three months ended March 31, 2016, mainly due to the increase in revenues, offset in part by higher service costs and, to a lesser extent, selling, general and administrative expenses.

Interest Expense, Net

Interest expense, net, fell 18.2% for the three months ended March 31, 2016, due to a lower average cost of debt and, to a lesser extent, lower average outstanding indebtedness.

(Loss) Gain on Derivatives, Net

As a result of the changes in the mark-to-market valuations on our interest rate exchange agreements, we recorded a net loss on derivatives of $4.7 million and a net gain on derivatives of $2.6 million for the three months ended March 31, 2016 and 2015, respectively. See Notes 3 and 6 in our Notes to Consolidated Financial Statements.

Investment Income from Affiliate

Investment income from affiliate was $4.5 million for each of the three months ended March 31, 2016 and 2015. These amounts represent the investment income on our $150.0 million preferred membership interest in Mediacom Broadband LLC. See Note 7 in our Notes to Consolidated Financial Statements.

Other Expense, Net

Other expense, net, was $0.4 million for the three months ended March 31, 2016, representing $0.3 million of revolving credit commitment fees and $0.1 million of other fees, and $0.2 million for the three months ended March 31, 2015, representing $0.1 million of revolving credit commitment fees and $0.1 million of other fees.

 

18


 

Net Income

As a result of the factors described above, we recognized net income of $27.0 million and $28.3 million for the three months ended March 31, 2016 and 2015, respectively.

OIBDA

OIBDA grew 4.9% for the three months ended March 31, 2016, as the increase in revenues was partly offset by service costs and, to a lesser extent, 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 March 31, 2016, our near-term liquidity requirements included term loan principal repayments of $14.5 million over the next twelve months. As of the same date, our sources of liquidity included $8.1 million of cash and $258.5 million of unused and available commitments under our $362.5 million revolving credit facility, after giving effect to approximately $95.8 million of outstanding loans and $8.2 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 access these markets in the future as necessary.

Net Cash Flows Provided by Operating Activities

Net cash flows provided by operating activities were $37.7 million for the three months ended March 31, 2016, primarily due to OIBDA of $70.6 million and, to a much lesser extent, investment income from affiliate of $4.5 million, offset in part by interest expense of $13.1 million and the $24.6 million net change in our operating assets and liabilities. The net change in our operating assets and liabilities was primarily due to increases in accounts receivable from affiliates of $13.2 million and in prepaid expenses and other assets of $2.9 million, and a decrease in accounts payable, accrued expenses and other current liabilities of $12.1 million, offset in part by a decline in accounts receivable, net, of $2.5 million and an increase in deferred revenue of approximately $1.2 million.

Net cash flows provided by operating activities were $52.9 million for the three months ended March 31, 2015, primarily due to OIBDA of $67.3 million and, to a much lesser extent, investment income from affiliate of $4.5 million, offset in part by interest expense of $16.0 million and the $3.4 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 $4.6 million and in accounts receivables from affiliates of $3.6 million, and decreases in accounts payable, accrued expenses and other current liabilities of $1.9 million and in accounts payable to affiliates of $1.5 million, offset by a decline in accounts receivable, net, of $7.4 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 $37.1 million for the three months ended March 31, 2016, substantially comprising $36.2 million of capital expenditures and a net change in accrued property, plant and equipment of $0.9 million.

Net cash flows used in investing activities were $29.2 million for the three months ended March 31, 2015, principally comprising $28.6 million of capital expenditures and $1.2 million of acquisitions of other intangible assets, slightly offset by a net change in accrued property, plant and equipment of $0.6 million.

 

19


 

Capital Expenditures

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

 

Change

 

Customer premise equipment

 

$

17,301

 

 

$

16,495

 

 

$

806

 

Enterprise networks

 

 

1,626

 

 

 

1,284

 

 

 

342

 

Scalable infrastructure

 

 

7,371

 

 

 

4,282

 

 

 

3,089

 

Line extensions

 

 

1,736

 

 

 

1,278

 

 

 

458

 

Upgrade / rebuild

 

 

5,626

 

 

 

3,484

 

 

 

2,142

 

Support capital

 

 

2,558

 

 

 

1,757

 

 

 

801

 

Total capital expenditures

 

$

36,218

 

 

$

28,580

 

 

$

7,638

 

 

The increase in capital expenditures largely reflects greater investments in next-generation HSD network equipment, the expansion of our fiber network and greater deployment of our wireless home gateways, offset in part by lower spending on our advanced video set-top.

Net Cash Flows Used in Financing Activities

Net cash flows used in financing activities were $1.0 million for the three months ended March 31, 2016, comprising $0.7 million of other financing activities and $0.3 million of net repayments under our bank credit facility.

Net cash flows used in financing activities were $22.5 million for the three months ended March 31, 2015, comprising $17.0 million of net repayments under our bank credit facility, $5.0 million of capital distributions to our parent, MCC, and $0.5 million of other financing activities.

Capital Structure

As of March 31, 2016, our total indebtedness was $1.170 billion, of which approximately 56% was at fixed interest rates or had interest rate swaps that fixed the corresponding variable portion of debt. During the three months ended March 31, 2016, we paid cash interest of $17.1 million, net of capitalized interest.

Bank Credit Facility

As of March 31, 2016, we maintained a $1.187 billion bank credit facility (the “credit facility”), comprising approximately $824.2 million of term loans with maturities ranging from October 2017 to November 2021, and $362.5 million of revolving credit commitments, which are scheduled to expire in February 2019.

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. The credit agreement governing the credit facility (the “credit agreement”) requires 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 March 31, 2016, our operating subsidiaries were in compliance with all covenants under the credit agreement including, as of the same date, a total leverage ratio of 2.9 to 1.0 and an interest coverage ratio of 5.5 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 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 of March 31, 2016, we had interest rate swaps that fixed the variable portion of $400 million of borrowings at a rate of 1.5%, all of which are scheduled to expire during December 2018.

As of March 31, 2016, the weighted average interest rate on outstanding borrowings under the credit facility, including the effect of our interest rate swaps, was 3.5%.

 

20


 

Senior Notes

As of March 31, 2016, we had $250 million of outstanding senior notes, all of which comprised our 7¼% senior notes due February 2022.

Our senior notes are unsecured obligations, and the indenture governing our senior notes (the “indenture”) limits the incurrence of additional indebtedness based upon a maximum debt to operating cash flow ratio (as defined in the indenture) of 8.5 to 1.0. For all periods through March 31, 2016, we were in compliance with all covenants under the indenture including, as of the same date, a debt to operating cash flow ratio of 3.9 to 1.0. We do not believe that we will have any difficulty complying with any of the covenants under the indenture in the near future.

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 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 indenture 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, 2015.

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, please refer to our annual report on Form 10-K for the year ended December 31, 2015.

Goodwill and Other Intangible Assets

In accordance with the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 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 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 three months of 2016, we determined that there has been no triggering event under ASC 350 and, as such, no interim impairment test was required as of March 31, 2016.

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 cable television services to more than cover any increases in programming. 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, 2015.

 

21


 

ITEM 4. CONTROLS AND PROCEDURES

Mediacom LLC

Under the supervision and with the participation of the management of Mediacom LLC, including Mediacom LLC’s Chief Executive Officer and Chief Financial Officer, Mediacom LLC evaluated the effectiveness of Mediacom 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 LLC’s Chief Executive Officer and Chief Financial Officer concluded that Mediacom LLC’s disclosure controls and procedures were effective as of March 31, 2016.

There has not been any change in Mediacom 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 March 31, 2016 that has materially affected, or is reasonably likely to materially affect, Mediacom LLC’s internal control over financial reporting.

Mediacom Capital Corporation

Under the supervision and with the participation of the management of Mediacom Capital Corporation (“Mediacom Capital”), including Mediacom Capital’s Chief Executive Officer and Chief Financial Officer, Mediacom Capital evaluated the effectiveness of Mediacom Capital’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 Capital’s Chief Executive Officer and Chief Financial Officer concluded that Mediacom Capital’s disclosure controls and procedures were effective as of March 31, 2016.

There has not been any change in Mediacom Capital’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 March 31, 2016 that has materially affected, or is reasonably likely to materially affect, Mediacom Capital’s internal control over financial reporting.

 

 

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, 2015.


 

22


 

ITEM 6. EXHIBITS

 

Exhibit

Number 

 

Exhibit Description 

 

 

 

 

 

 

31.1

 

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

 

 

 

31.2

 

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

 

 

 

32.1

 

Section 1350 Certifications of Mediacom LLC

 

 

 

32.2

 

Section 1350 Certifications of Mediacom Capital Corporation

 

 

 

101

 

The following is financial information from Mediacom LLC’s and Mediacom Capital Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at March 31, 2016 and December 31, 2015, (ii) Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015, (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015, (iv) Notes to Consolidated Financial Statements

 

 

 

 


 

23


 

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 LLC

 

 

 

 

May 6, 2016

 

By:

/s/ Mark E. Stephan 

 

 

 

Mark E. Stephan

 

 

 

Executive Vice President and Chief Financial Officer

 


 

24


 

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 CAPITAL CORPORATION

 

 

 

 

May 6, 2016

 

By:

/s/ Mark E. Stephan

 

 

 

Mark E. Stephan

 

 

 

Executive Vice President and Chief Financial Officer

 


 

25


 

EXHIBIT INDEX

 

Exhibit

Number

 

Exhibit Description 

 

 

 

 

 

 

31.1

 

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

 

 

 

31.2

 

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

 

 

 

32.1

 

Section 1350 Certifications of Mediacom LLC

 

 

 

32.2

 

Section 1350 Certifications of Mediacom Capital Corporation

 

 

 

101

 

The following is financial information from Mediacom LLC’s and Mediacom Capital Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at March 31, 2016 and December 31, 2015, (ii) Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015, (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015, (iv) Notes to Consolidated Financial Statements

 

 

 

 

 

 

26

mcccl-ex311_6.htm

Exhibit 31.1

CERTIFICATIONS

I, Rocco B. Commisso, certify that:

(1)

I have reviewed this report on Form 10-Q of Mediacom LLC;

(2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and l5d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

May 6, 2016

 

By:

/S/ ROCCO B. COMMISSO

 

 

 

Rocco B. Commisso

 

 

 

Chairman and Chief Executive Officer


CERTIFICATIONS

I, Mark E. Stephan, certify that:

(1)

I have reviewed this report on Form 10-Q of Mediacom LLC;

(2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and l5d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

May 6, 2016

 

By:

/S/ MARK E. STEPHAN

 

 

 

Mark E. Stephan

 

 

 

Executive Vice President and Chief Financial Officer

 

mcccl-ex312_10.htm

Exhibit 31.2

CERTIFICATIONS

I, Rocco B. Commisso, certify that:

(1)

I have reviewed this report on Form 10-Q of Mediacom Capital Corporation;

(2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and l5d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

May 6, 2016

 

By:

/S/ ROCCO B. COMMISSO

 

 

 

Rocco B. Commisso