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

 

 

Mediacom LLC

Mediacom Capital Corporation*

(Exact names of Registrants as specified in their charters)

 

 

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.

 

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

 

 

 

 

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MEDIACOM LLC AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2015

TABLE OF CONTENTS

 

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 Any statement contained in a prior periodic report shall be deemed to be modified or superseded for purposes of this Quarterly Report to the extent that a statement herein modifies or supersedes such statement.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 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.

 

 

 

 

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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:

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

 

 

 

 

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PART I

ITEM 1. FINANCIAL STATEMENTS

MEDIACOM LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

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

 

 

 

 

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MEDIACOM LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands)

(Unaudited)

 

 

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

 

 

 

 

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MEDIACOM LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

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

 

 

 

 

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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, 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 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 $3.0 million and $2.5 million for the three months ended September 30, 2015 and 2014, respectively, and $9.1 million and $8.3 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 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 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

 

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guidance.  We expect to reclassify approximately $12.0 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:

 

 

 

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 $6.0 million and a long-term liability in other non-current liabilities of $1.8 million. As of December 31, 2014, we recorded a current liability in accounts payable, accrued expenses and other current liabilities of $11.8 million. 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 $2.0 million and net gains on derivatives of $5.1 million for the three months ended September 30, 2015 and 2014, respectively, and net gains on derivatives of $3.9 million and $13.7 million for the nine months ended September 30, 2015 and 2014, respectively.

 

 

 

 

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4. PROPERTY, PLANT AND EQUIPMENT

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

 

 

 

5. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

 

 

 

 

6. DEBT

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

 

 

 

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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 $1.080 billion credit facility, comprising:

As of September 30, 2015, we had $121.8 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 $118.9 million of outstanding loans and $9.3 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 2.7%, 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 $400 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 4.3%.

Senior Notes

As of September 30, 2015, 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 September 30, 2015, we were in compliance with all covenants under the indenture.

Loss on Early Extinguishment of Debt

We recorded a loss on early extinguishment of debt of $23.0 million for the three and nine months ended September 30, 2014, which represented the $16.0 million redemption price paid above par and the write-off of $7.0 million of unamortized financing costs as a result of the repayment of certain senior notes.

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 $2.2 million and $2.6 million as of September 30, 2015 and December 31, 2014, respectively.  

 

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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 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 credit facility (which were calculated based upon market prices of such issuances in an active market when available) were as follows (dollars in thousands):

 

 

 

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 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

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 capital distributions to parent in cash of $10.8 million and no capital contributions were received from parent during the nine months ended September 30, 2015.  We made capital distributions to parent of $3.5 million and received $2.0 million of capital contributions from parent 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 4.5% 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 $3.3 million and $2.7 million for the three months ended September 30, 2015 and 2014, respectively, and $9.8 million and $9.1 million for the nine months ended September 30, 2015 and 2014, respectively.

We are a preferred equity investor in Mediacom Broadband LLC. 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.

 

 

 

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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 LLC 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 $1.2 million, which are recorded in other assets, net.

 

 

 

 

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

The following discussion should be read in conjunction with our unaudited consolidated financial statements as of, and for the three and nine months ended, September 30, 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 380,000 video customers, 474,000 high-speed data (“HSD”) customers and 191,000 phone customers, aggregating 1.05 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 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 14% 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.

 

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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.

 

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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:

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.

 

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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):

 

 

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

 

 

 

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Revenues

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

 

 

 

 

 

Revenues increased 4.7% and 3.6% for the three and nine months ended September 30, 2015, respectively, principally due to greater HSD revenues and, to a lesser extent, business services revenues, offset in part by declines in phone revenues.

Video

Video revenues increased 1.2% and 0.5% for the three and nine months ended September 30, 2015, respectively, 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 5,000 and 10,000 video customers during the three and nine months ended September 30, 2015, respectively, compared to decreases of 8,000 and 21,000 in the comparable prior year periods. As of September 30, 2015, we served 380,000 video customers, or 28.7% of our estimated homes passed, and 33.6% of our video customers took our DVR service.

HSD

HSD revenues grew 11.4% and 9.5% 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 customer growth since the prior year periods. We gained 8,000 and 25,000 HSD customers during the three and nine months ended September 30, 2015, respectively, compared to increases of 4,000 and 12,000 in the comparable prior year periods. As of September 30, 2015, we served 474,000 HSD customers, or 35.9% of our estimated homes passed, and 34.3% of our HSD customers took our wireless home gateway service.

Phone

Phone revenues declined 5.8% and 6.1% for the three and nine months ended September 30, 2015, respectively, principally due to lower rates per residential phone customer, largely a result of greater levels of discounted pricing, offset in part by residential customer growth since the prior year periods. We gained 4,000 and 9,000 phone customers during the three and nine months ended September 30, 2015, respectively, compared to no changes in each of the comparable prior year periods. As of September 30, 2015, we served 191,000 phone customers, or 14.4% of our estimated homes passed.

Business Services

Business services revenues rose 11.5% and 10.6% for the three and nine months ended September 30, 2015, respectively, predominantly due to growth in small- to medium-sized commercial customers since the prior year periods.

 

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Advertising

Advertising revenues decreased 6.0% and 5.0% for the three and nine months ended September 30, 2015, respectively, mainly due to lower levels of local advertising and, to a lesser extent, political advertising, partially offset by greater digital advertising revenues.

Costs and Expenses

Service Costs

Service costs increased 4.0% and 4.8% for the three and nine months ended September 30, 2015, respectively, predominantly due to higher video programming expenses. Programming expenses grew 5.2% and 6.8% 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 44.4% and 44.7% for the three months ended September 30, 2015 and 2014, respectively, and 44.3% and 43.9% for the nine months ended September 30, 2015 and 2014, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 4.9% for the three months ended September 30, 2015, mainly due to higher taxes and fees and increased marketing costs. Taxes and fees rose 29.8%, predominantly due to increases in franchise fees and property taxes. Marketing costs increased 10.8%, primarily due to television and other advertising costs associated with a rebranding campaign. Selling, general and administrative expenses as a percentage of revenues were 16.8% for each for the three months ended September 30, 2015 and 2014.

Selling, general and administrative expenses declined 0.5% for the nine months ended September 30, 2015, largely due to lower bad debt expenses and employee costs, offset in part by higher marketing costs. Bad debt expense fell 14.5%, primarily due to a lower number of written off accounts. Employee costs decreased 3.2%, mainly as a result of lower staffing levels. Marketing expenses increased 5.9%, principally due to television and other advertising costs associated with a rebranding campaign. Selling, general and administrative expenses as a percentage of revenues were 16.4% and 17.0% for the nine months ended September 30, 2015 and 2014, respectively.

Management Fee Expense

Management fee expense rose 20.4% and 7.1% for each of the three and nine months ended September 30, 2015, respectively, reflecting higher fees charged by MCC. Management fee expense as a percentage of revenues was 1.7% and 1.5% for the three months ended September 30, 2015 and 2014, respectively, and 1.8% and 1.7% for the nine months ended September 30, 2015 and 2014, respectively.

Depreciation and Amortization

Depreciation and amortization was 3.0% and 3.6% higher for the three and nine months ended September 30, 2015, respectively, mainly due to greater depreciation of customer premise equipment and investments in HSD bandwidth expansion and business support, largely offset by older network assets becoming fully depreciated.

OIBDA

OIBDA grew 4.8% and 4.1% 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 increased 6.3% and 4.4% for the three and nine months ended September 30, 2015, respectively, as the growth in OIBDA was offset in part by higher depreciation and amortization.

Interest Expense, Net

Interest expense, net, fell 25.9% and 30.8% for the three and nine months ended September 30, 2015, respectively, mainly due to a lower average cost of debt and, to a lesser extent, lower average outstanding indebtedness.

 

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(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 $2.0 million and a net gain on derivatives of $5.1 million for the three months ended September 30, 2015 and 2014, respectively, and net gains on derivatives of $3.9 million and $13.7 million for the nine months ended September 30, 2015 and 2014, 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 September 30, 2015 and 2014, and $13.5 million for each of the nine months ended September 30, 2015 and 2014. 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.

Loss on Early Extinguishment of Debt

We recorded a loss on early extinguishment of debt of $23.0 million for the three and nine months ended September 30, 2014, which represented the $16.0 million redemption price paid above par and the write-off of $7.0 million of unamortized financing costs as a result of the repayment of certain senior notes.

Other Expense, Net

Other expense, net, was $0.3 million for the three months ended September 30, 2015, representing $0.2 million of revolving credit commitment fees and $0.1 million of other fees, and $0.8 million for the three months ended September 30, 2014, representing $0.4 million of commitment fees associated with a financing transaction, $0.1 million of revolving credit commitment fees and $0.3 million of other fees.

Other expense, net, was $0.7 million for the nine months ended September 30, 2015, representing $0.4 million of revolving credit commitment fees and $0.3 million of other fees, and $1.5 million for the nine months ended September 30, 2014, representing $0.5 million of revolving credit commitment fees, $0.4 million of commitment fees associated with a financing transaction and $0.6 million of other fees.

Net Income

As a result of the factors described above, we recognized net income of $25.2 million and $1.0 million for the three months ended September 30, 2015 and 2014, respectively, and $86.1 million and $46.1 million for the nine months ended September 30, 2015 and 2014, respectively.

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, as well as for scheduled and voluntary repayments of our indebtedness and periodic distributions to MCC. As of September 30, 2015, our near-term liquidity requirements included term loan principal repayments of $2.1 million during the remainder of 2015 and $8.5 million during 2016. As of the same date, our sources of liquidity included $8.1 million of cash and $121.8 million of unused and available commitments under our $250.0 million revolving credit facility, after giving effect to approximately $118.9 million of outstanding loans and $9.3 million of letters of credit issued to various parties as collateral.

We believe that cash generated by, or available to, us will be sufficient to meet our anticipated capital and liquidity needs for the foreseeable future. In the longer term, we may not generate sufficient net cash flows from operations to fund our maturing term loans and senior notes. If we are unable to obtain sufficient future financing on acceptable terms, or at all, we may need to take other actions to conserve or raise capital that we would not take otherwise. However, we have accessed the debt markets for significant amounts of capital in the past and expect to continue to be able to access these markets in the future as necessary.

Net Cash Flows Provided by Operating Activities

Net cash flows provided by operating activities were $165.9 million for the nine months ended September 30, 2015, primarily due to OIBDA of $207.2 million and, to a much lesser extent, investment income from affiliate of $13.5 million, offset in part by interest expense of $47.5 million and the $8.8 million net change in our operating assets and liabilities. The net change in our operating assets

 

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and liabilities was due to increases in accounts receivables from affiliates of $6.7 million and in prepaid expenses and other assets of $4.7 million, and decreases in accounts payable, accrued expenses and other current liabilities of $3.1 million and in accounts payable to affiliates of $1.5 million, offset in part by declines in accounts receivable, net, of $5.9 million and an increase in deferred revenue of approximately $1.3 million.

Net cash flows provided by operating activities were $122.1 million for the nine months ended September 30, 2014, primarily due to OIBDA of $199.1 million and, to a much lesser extent, investment income from affiliate of $13.5 million, offset in part by interest expense of $68.6 million and the $7.3 million net change in our operating assets and liabilities. The net change in our operating assets and liabilities was due to decreases in accounts payable, accrued expenses and other current liabilities of $10.2 million and in accounts payable to affiliates of $2.7 million, and an increase in prepaid expenses and other assets of $1.0 million, offset in part by a decline in accounts receivable, net, of $6.1 million and an increase in deferred revenue of $0.5 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 $98.9 million for the nine months ended September 30, 2015, comprising $100.2 million of capital expenditures, $1.3 million of acquisitions of other intangible assets, slightly offset by a net change in accrued property, plant and equipment of $2.5 million and $0.1 million of proceeds from a sale of assets.

Net cash flows used in investing activities were $93.6 million for the nine months ended September 30, 2014, comprising $93.9 million of capital expenditures, slightly offset by a net change in accrued property, plant and equipment of $0.3 million.

Capital Expenditures

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

 

 

The increase in capital expenditures largely reflects greater investments associated with the expansion of our fiber network and deployment of advanced customer premise equipment, including our next-generation set-top, offset in part by lower spending on local HSD bandwidth management

Net Cash Flows Used in Financing Activities

Net cash flows used in financing activities were $67.6 million for the nine months ended September 30, 2015, principally comprising $56.5 million of net repayments under the credit facility and $10.8 million of capital distributions to our parent, MCC.

Net cash flows used by financing activities were $29.8 million for the nine months ended September 30, 2014, principally comprising the $350.0 million redemption of senior notes, $9.9 million of financing costs and $3.5 million of capital distributions to our parent, MCC, offset in part by $330.9 million of net borrowings under the credit facility, and $2.0 million of capital contributions from our parent, MCC.

Capital Structure

As of September 30, 2015, our total indebtedness was $1.199 billion, of which approximately 63% was at fixed interest rates or had interest rate swaps that fixed the corresponding variable portion of debt. During the nine months ended September 30, 2015, we paid cash interest of $49.9 million, net of capitalized interest.

 

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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”).

Bank Credit Facility

As of September 30, 2015, we maintained a $1.080 billion credit facility, comprising $829.6 million of term loans with maturities ranging from October 2017 to June 2021, and a $250.0 million revolving credit facility which is 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 September 30, 2015, our operating subsidiaries were in compliance with all covenants under the credit agreement including, as of the same date, a total leverage ratio of 3.1 to 1.0 and an interest coverage ratio of 4.7 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 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.

We have current interest rate swaps that fix the variable portion of $500 million of borrowings at a rate of 2.7%, all of which are scheduled to expire during December 2015. We also have forward starting interest rate swaps that will fix the variable portion of $400 million of borrowings at a rate of 1.5% for a three year period commencing in 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 4.3%.

Senior Notes

As of September 30, 2015, 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 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 September 30, 2015, we were in compliance with all covenants under the indenture including, as of the same date, a debt to operating cash flow ratio of 4.1 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 stable outlooks.

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, 2014.

 

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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, 2014.

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

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

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, 2014.

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 September 30, 2015.

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 September 30, 2015 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 September 30, 2015.

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 September 30, 2015 that has materially affected, or is reasonably likely to materially affect, Mediacom Capital’s internal control over financial reporting.

 

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PART II

ITEM 1. LEGAL PROCEEDINGS

See Note 10 in our Notes to Consolidated Financial Statements.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

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ITEM 6. EXHIBITS

 

 

 

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SIGNATURES

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

 

 

 

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SIGNATURES

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

 

 

 

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EXHIBIT INDEX

 

 

 

 

27

Exhibit 10.1

EXECUTION VERSION

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INCREMENTAL FACILITY AGREEMENT

INCREASE IN REVOLVING CREDIT COMMITMENTS

dated as of August 12, 2015

between

MEDIACOM ILLINOIS LLC

MEDIACOM INDIANA LLC

MEDIACOM IOWA LLC

MEDIACOM MINNESOTA LLC

MEDIACOM WISCONSIN LLC

ZYLSTRA COMMUNICATIONS CORP.

MEDIACOM ARIZONA LLC

MEDIACOM CALIFORNIA LLC

MEDIACOM DELAWARE LLC

MEDIACOM SOUTHEAST LLC,

as Borrowers

The LENDER Party Hereto
and

 

JPMORGAN CHASE BANK, N.A.,
as Administrative Agent

 

 

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INCREMENTAL FACILITY AGREEMENT

(INCREASE IN REVOLVING CREDIT COMMITMENTS)

INCREMENTAL FACILITY AGREEMENT (this “Incremental Facility Agreement”) dated as of August 12, 2015, among MEDIACOM ILLINOIS LLC, a limited liability company duly organized and validly existing under the laws of the State of Delaware (“Mediacom Illinois”); MEDIACOM INDIANA LLC, a limited liability company duly organized and validly existing under the laws of the State of Delaware (“Mediacom Indiana”); MEDIACOM IOWA LLC, a limited liability company duly organized and validly existing under the laws of the State of Delaware (“Mediacom Iowa”); MEDIACOM MINNESOTA LLC, a limited liability company duly organized and validly existing under the laws of the State of Delaware (“Mediacom Minnesota”); MEDIACOM WISCONSIN LLC, a limited liability company duly organized and validly existing under the laws of the State of Delaware (“Mediacom Wisconsin”); ZYLSTRA COMMUNICATIONS CORP., a corporation duly organized and validly existing under the laws of the State of Minnesota (“Zylstra”); MEDIACOM ARIZONA LLC, a limited liability company duly organized and validly existing under the laws of the State of Delaware (“Mediacom Arizona”); MEDIACOM CALIFORNIA LLC, a limited liability company duly organized and validly existing under the laws of the State of Delaware (“Mediacom California”); MEDIACOM DELAWARE LLC, a limited liability company duly organized and validly existing under the laws of the State of Delaware (“Mediacom Delaware”); and MEDIACOM SOUTHEAST LLC, a limited liability company duly organized and validly existing under the laws of the State of Delaware (“Mediacom Southeast” and, together with Mediacom Illinois, Mediacom Indiana, Mediacom Iowa, Mediacom Minnesota,  Mediacom Wisconsin, Mediacom Arizona, Mediacom California and Mediacom Delaware, the “Borrowers”); the NEW REVOLVING CREDIT LENDER party hereto and JPMORGAN CHASE BANK, N.A., as Administrative Agent for the Lenders (together with its successors in such capacity, the “Administrative Agent”).

The Borrowers, the Lenders party thereto, the Issuing Lender identified therein and the Administrative Agent are parties to the Amended and Restated Credit Agreement, dated as of February 5, 2014 as amended and supplemented by the Incremental Facility Agreement, dated as of August 15, 2014 (as further amended, modified and supplemented and in effect from time to time, the “Credit Agreement”).

Section 2.01(e) of the Credit Agreement contemplates that at any time and from time to time, the Borrowers may request that one or more persons (which may include the Lenders under and as defined in the Credit Agreement or additional financial institutions that will become Lenders) offer to enter into commitments to provide Incremental Facility Revolving Credit Commitments.  The Borrowers have requested that $25,000,000 aggregate principal amount of additional Revolving Credit Commitments constituting an increase in the existing Class of Revolving Credit Commitments be provided on the Increase Effective Date (as defined below).  The New Revolving Credit Lender (as defined below) willing to provide the Increased Revolving Credit Commitment (as defined below) on the terms and conditions set forth below and in accordance with the applicable provisions of the Credit Agreement, and accordingly, the parties hereto hereby agree as follows:

ARTICLE I

DEFINED TERMS

Terms defined in the Credit Agreement are used herein as defined therein.

ARTICLE II

REVOLVING CREDIT LOANS

Section 2.01. Commitments.  Barclays Bank PLC (the “New Revolving Credit Lender”) agrees to provide an additional Revolving Credit Commitment in the amount set forth opposite its name on Schedule I hereto (the “Increased Revolving Credit Commitment”).  The Increased Revolving Credit Commitment shall become effective on the Increase Effective Date.  The Increased Revolving Credit Commitment shall be a Revolving Credit Commitment under the Credit Agreement and shall have the terms specified therein and the New Revolving Credit

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Lender shall be a Revolving Credit Lender under the Credit Agreement.  The aggregate principal amount of Revolving Credit Commitments immediately after the Increase Effective Date is $250,000,000.

ARTICLE III

REPRESENTATIONS AND WARRANTIES; NO DEFAULTS

The Borrowers represent and warrant to the Administrative Agent and the Lenders that (i) each of the representations and warranties made by the Borrowers in Section 7 of the Credit Agreement, and by each Obligor in the other Loan Documents to which it is a party, is true and correct on and as of the date hereof with the same force and effect as if made on and as of the date hereof (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date) and as if each reference therein to the Credit Agreement or Loan Documents includes a reference to this Incremental Facility Agreement and (ii) no Default or Event of Default has occurred and is continuing.

ARTICLE IV

CONDITIONS

Section 4.01. The effectiveness of the Increased Revolving Credit Commitment of the New Revolving Credit Lender is subject to each of the following conditions having been satisfied (the date of satisfaction of such conditions, the “Increase Effective Date”):

(a) Counterparts of Incremental Facility Agreement.  The Administrative Agent shall have received duly executed and delivered counterparts of this Incremental Facility Agreement from (i) each Obligor, (ii) the New Revolving Credit Lender and (iii) the Issuing Lender.

(b) Opinion of Counsel to Obligors.  The Administrative Agent shall have received an opinion of Vedder Price P.C., counsel to the Obligors, dated such date or dates and covering such matters as the Administrative Agent or the New Revolving Credit Lender may reasonably request (and the Borrowers hereby instruct counsel to deliver such opinion to the New Revolving Credit Lender and the Administrative Agent).

(c) [Reserved].

(d) Officer’s Certificate.  The Administrative Agent shall have received a certificate of a Senior Officer, dated such date or dates as the Administrative Agent or any New Revolving Credit Lender may reasonably request, to the effect that (i) the representations and warranties made by the Borrowers in Article III hereof, and by each Obligor in the other Loan Documents to which it is a party, are true and correct on and as of the date hereof with the same force and effect as if made on and as of such date (or, if any such representation and warranty is expressly stated to have been made as of a specific date, as of such specific date), (ii) there have been no amendments to the organizational documents of any Obligor since February 5, 2014 and the New Revolving Credit Lender may rely on the secretary’s certificates delivered to the Administrative Agent on such date and (iii) no Default or Event of Default shall have occurred and be continuing.

(e) Fees and Expenses.  The Administrative Agent shall have received from the Borrowers for the account of the New Revolving Credit Lender, as fee compensation for the Increased Revolving Credit Commitment of the New Revolving Credit Lender, an upfront fee in an amount equal to 0.375% of the stated principal amount of the Increased Revolving Credit Commitment of the New Revolving Credit Lender.  

(f) Repayment of Revolving Credit Loans.  The Administrative Agent shall be satisfied with the arrangements to ensure that all outstanding Revolving Credit Loans immediately after the Increase Effective Date are held on a pro rata basis by the Revolving Credit Lenders after giving effect to the Increased Revolving Credit Commitment.

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ARTICLE V

MISCELLANEOUS

Section 5.01. Confirmation of Security Documents.  Each of the Borrowers hereby confirms and ratifies all of its obligations under the Loan Documents to which it is a party.  By its execution on the respective signature lines provided below, each of the Obligors hereby confirms and ratifies all of its obligations and the Liens granted by it under the Security Documents to which it is a party, represents and warrants that the representations and warranties set forth in such Security Documents are true and correct on the date hereof as if made on and as of such date and confirms that all references in such Security Documents to the “Credit Agreement” (or words of similar import) refer to the Credit Agreement as supplemented hereby without impairing any such obligations or Liens in any respect.

Section 5.02. Expenses.  The Obligors jointly and severally agree to pay, or reimburse the Administrative Agent for, all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of special New York counsel to the Administrative Agent, in connection with the preparation of this Incremental Facility Agreement.

Section 5.03. Counterparts; Integration; Effectiveness.  This Incremental Facility Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Incremental Facility Agreement shall become effective when it has been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.  Delivery of an executed counterpart of a signature page of this Incremental Facility Agreement by fax or email (with a “pdf” copy thereof attached) shall be effective as delivery of an original executed counterpart hereof.

Section 5.04. Governing Law.  This Incremental Facility Agreement is governed by, and construed to be in accordance with, the law of the State of New York.

Section 5.05. Headings.  Article and Section headings used herein are for convenience of reference only, are not part of this Incremental Facility Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Incremental Facility Agreement.

Section 5.06. Notices.  All notices, requests and other communications provided for herein and under the Security Documents (including, without limitation, any modifications of, or waivers, requests or consents under this Incremental Facility Agreement) shall be given or made in writing (including, without limitation, by telecopy) delivered to the intended recipient in accordance with the Credit Agreement.

 

 

 

 

[Signature Pages Follow]

 

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written.

 

 

 

 

[Incremental Facility Agreement Signature Page]

 

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By its signature below, the undersigned hereby consents to the foregoing Incremental Facility Agreement and confirms that any Revolving Credit Loans and Letter of Credit Liabilities pursuant to the Increased Revolving Credit Commitment shall constitute “Guaranteed Obligations” under the Guarantee and Pledge Agreement under and as defined in said Credit Agreement for all purposes of said Guarantee and Pledge Agreement and shall be entitled to the benefits of the guarantee and security provided under the Guarantee and Pledge Agreement.

 

 

[Incremental Facility Agreement Signature Page]

 

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[Incremental Facility Agreement Signature Page]

 

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[Incremental Facility Agreement Signature Page]

 

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[Incremental Facility Agreement Signature Page]

 

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By its signature below, the undersigned hereby consents to the foregoing Incremental Facility Agreement and confirms that any Revolving Credit Loans and Letter of Credit Liabilities pursuant to the Increased Revolving Credit Commitment shall constitute “Guaranteed Obligations” under the respective Subsidiary Guarantee Agreements under and as defined in said Credit Agreement for all purposes of said Subsidiary Guarantee Agreements and shall be entitled to the benefits of the guarantee and security provided under the Subsidiary Guarantee Agreements.

 

 

 

[Incremental Facility Agreement Signature Page]

 

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By its signature below, the undersigned hereby confirms that all of its obligations under the Management Fee Subordination Agreement and Section 5.04 of the Guarantee and Pledge Agreement shall continue unchanged and in full force and effect for the benefit of the Administrative Agent, the Lenders party to the Credit Agreement, and the New Revolving Credit Lender.

 

 

 

 

[Incremental Facility Agreement Signature Page]

 

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[Incremental Facility Agreement Signature Page]

 

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[Incremental Facility Agreement Signature Page]

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Schedule I

Increased Revolving Credit Commitment

 

 

Schedule I to Incremental Facility Agreement

Exhibit 31.1

CERTIFICATIONS

I, Rocco B. Commisso, certify that:

 

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CERTIFICATIONS

I, Mark E. Stephan, certify that:

 

 

Exhibit 31.2

CERTIFICATIONS

I, Rocco B. Commisso, certify that:

 

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CERTIFICATIONS

I, Mark E. Stephan, certify that:

 

 

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Mediacom LLC (the “Company”) on Form 10-Q for the period ended September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Rocco B. Commisso, Chairman and Chief Executive Officer and Mark E. Stephan, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Mediacom Capital Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Rocco B. Commisso, Chairman and Chief Executive Officer and Mark E. Stephan, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: