e10vk
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31,
2009
Commission File Number: 0-29227
Mediacom Communications
Corporation
(Exact name of Registrant as
specified in its charter)
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Delaware
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06-1566067
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(State of
incorporation)
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(I.R.S. Employer
Identification Number)
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100
Crystal Run Road
Middletown, New York 10941
(Address of principal executive
offices)
(845) 695-2600
(Registrants telephone
number)
Securities registered pursuant to Section 12(b) of the
Exchange Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Class A Common Stock, $0.01 par value per share
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The NASDAQ Stock Market LLC
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Securities
registered pursuant to Section 12(g) of the Exchange
Act:
None
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act Yes o No þ
Indicate by check mark if the Registrant is not required to file
pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the Registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of June 30, 2009, the aggregate market value of
Class A common stock held by non-affiliates of the
Registrant was approximately $201.3 million.
As of February 28, 2010, there were outstanding
40,793,928 shares of Class A common stock and
27,001,944 shares of Class B common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for the 2010
Annual Meeting of Stockholders are incorporated by reference
into Items 10, 11, 12, 13 and 14 of Part III of this
Form 10-K.
MEDIACOM
COMMUNICATIONS CORPORATION
2009
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
This Annual Report on
Form 10-K
is for the year ended December 31, 2009. Any statement
contained in a prior periodic report shall be deemed to be
modified or superseded for purposes of this Annual Report to the
extent that a statement herein modifies or supersedes such
statement. The Securities and Exchange Commission
(SEC) 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 Annual Report.
Throughout this Annual Report, we refer to Mediacom
Communications Corporation as Mediacom; and Mediacom
and its consolidated subsidiaries as we,
us and our.
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Cautionary
Statement Regarding Forward-Looking Statements
You should carefully review the information contained in this
Annual Report and in other reports or documents that we file
from time to time with the SEC.
In this Annual 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:
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increased levels of competition from existing and new
competitors;
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lower demand for our video, high-speed data and phone services;
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our ability to successfully introduce new products and services
to meet customer demands and preferences;
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changes in laws, regulatory requirements or technology that may
cause us to incur additional costs and expenses;
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greater than anticipated increases in programming costs and
delivery expenses related to our products and services;
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changes in assumptions underlying our critical accounting
policies;
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the ability to secure hardware, software and operational support
for the delivery of products and services to our customers;
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disruptions or failures of network and information systems upon
which our business relies;
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our reliance on certain intellectual properties;
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our ability to generate sufficient cash flow to meet our debt
service obligations;
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fluctuations in short term interest rates which may cause our
interest expense to vary from quarter to quarter;
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volatility in the capital and credit markets, which may impact
our ability to refinance future debt maturities or provide
funding for potential strategic transactions, on similar terms
as we currently experience; and
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other risks and uncertainties discussed in this Annual Report
for the year ended December 31, 2009 and other reports or
documents that we file from time to time with the SEC.
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Statements included in this Annual Report are based upon
information known to us as of the date that this Annual Report
is filed with the SEC, and we assume no obligation to update or
alter our forward-looking statements made in this Annual 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
Introduction
We are the nations seventh largest cable company based on
the number of customers who purchase one or more video services,
also known as basic subscribers. We are among the leading cable
operators focused on serving the smaller cities in the United
States, such as Des Moines, Iowa and Springfield, Missouri, with
a significant customer concentration in the Midwestern and
Southeastern regions. As of December 31, 2009, we served
approximately 1.24 million basic subscribers, 678,000
digital video customers, 778,000 high-speed data
(HSD) customers and 287,000 phone customers,
aggregating 2.98 million revenue generating units
(RGUs). As of the same date, we offered our bundle
of video, HSD and phone services to approximately 95% of our
estimated 2.80 million homes passed in 22 states. We
also provide communications services to commercial and large
enterprise customers, and sell advertising time we receive under
our programming license agreements to local, regional and
national advertisers.
We are a publicly owned company, and our Class A common
stock is listed on The Nasdaq Global Select Market under the
symbol MCCC. We were founded in July 1995 by Rocco
B. Commisso, our Chairman and Chief Executive Officer, who
beneficially owns shares of our Class A and B common stock
representing the majority of the aggregate voting power of our
common stock.
2009
Developments
Share
Exchange Agreement
On September 7, 2008, we entered into a Share Exchange
Agreement (the Exchange Agreement) with Shivers
Investments, LLC (Shivers) and Shivers
Trading & Operating Company (STOC). Both
STOC and Shivers are affiliates of Morris Communications
Company, LLC (Morris Communications). STOC, Shivers
and Morris Communications are controlled by William S. Morris
III, who together with another Morris Communications
representative, Craig S. Mitchell, then held two seats on our
Board of Directors.
On February 13, 2009, we completed the Exchange Agreement
pursuant to which we exchanged 100% of the shares of stock of a
wholly-owned subsidiary, which held approximately
$110 million of cash and non-strategic cable systems
serving approximately 25,000 basic subscribers (the
Exchange Systems) for 28,309,674 shares of
Mediacom Class A common stock held by Shivers. Together
with the basic subscribers, the Exchange Systems served 10,000
digital customers, 13,000 HSD customers and 3,000 phone
customers, aggregating 51,000 RGUs. Effective upon closing of
the transaction, Messrs. Morris and Mitchell resigned from
our Board of Directors.
New
Financings
On August 25, 2009, we entered into an incremental facility
agreement that provides for a new term loan (the new term
loan) under our existing credit facilities in the
principal amount of $300.0 million. On the same date, we
issued
91/8% Senior
Notes due August 2019 (the
91/8% Notes)
in the aggregate principal amount of $350.0 million. Net
proceeds from the issuance of the
91/8% Notes
and borrowings under the new term loan were an aggregate of
$626.1 million, after giving effect to original issue
discount and financing costs. The net proceeds were used to fund
tender offers and redemptions of our existing
77/8% Senior
Notes due 2011 and
91/2% Senior
Notes due 2013. See Note 7 in our Notes to Consolidated
Financial Statements.
Available
Information and Website
Our phone number is
(845) 695-2600
and our principal executive offices are located at 100 Crystal
Run Road, Middletown, New York 10941; our website is located at
www.mediacomcc.com. Our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and any amendments to such reports filed with or furnished to
the SEC under sections 13(a) or 15(d) of the Securities
Exchange act of 1934 are made available free of charge on our
website (follow the About Us link to the Investor
Relations tab to SEC Filings) as soon as reasonably
practicable after such reports are electronically filed with or
furnished to the SEC. We have also made
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our Code of Ethics available in the Governance
portion of the Investor Relations tab of our website. The
information on our website is not part of this Annual Report.
Description
of Our Cable Systems
Overview
The following table provides an overview of selected subscriber
and customer data for our cable systems for the years ended
December 31:
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2009
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2008(12)
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2007
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2006
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2005
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Operating Data:
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Core Video
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Estimated homes
passed(1)
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2,800,000
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2,854,000
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2,836,000
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2,829,000
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2,807,000
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Basic
subscribers(2)
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1,238,000
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1,318,000
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1,324,000
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1,380,000
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1,423,000
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Basic
penetration(3)
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44.2
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%
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46.2
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%
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46.7
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%
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48.8
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%
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50.7
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%
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Digital Cable
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Digital
customers(4)
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678,000
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643,000
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557,000
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528,000
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494,000
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Digital
penetration(5)
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54.8
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%
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48.8
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%
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42.1
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%
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38.3
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%
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34.7
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%
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High Speed Data
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HSD
customers(6)
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778,000
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737,000
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658,000
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578,000
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478,000
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HSD
penetration(7)
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27.8
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%
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25.8
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%
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23.2
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%
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20.4
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%
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17.0
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%
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Phone
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Estimated marketable phone
homes(8)
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2,645,000
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2,604,000
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2,550,000
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2,300,000
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1,450,000
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Phone
customers(9)
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287,000
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248,000
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185,000
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105,000
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22,000
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Phone
penetration(10)
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10.9
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%
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9.5
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%
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7.3
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%
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4.6
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%
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1.5
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%
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Revenue Generating Units
(11)
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2,981,000
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2,946,000
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2,724,000
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2,591,000
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2,417,000
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(1) |
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Represents the estimated number of single residence homes,
apartments and condominium units passed by our cable
distribution network. Estimated homes passed are based on the
best information currently available. |
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(2) |
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Represents a dwelling with one or more television sets that
receives a package of
over-the-air
broadcast stations, local access channels or certain
satellite-delivered cable services. Accounts that are billed on
a bulk basis, which typically receive discounted rates, are
converted into full-price equivalent basic subscribers by
dividing total bulk billed basic revenues of a particular system
by average cable rate charged to basic subscribers in that
system. This conversion method is generally consistent with the
methodology used in determining payments made to programmers.
Basic subscribers include connections to schools, libraries,
local government offices and employee households that may not be
charged for limited and expanded cable services, but may be
charged for digital cable, HSD, phone or other services. Our
methodology of calculating the number of basic subscribers may
not be identical to those used by other companies offering
similar services. |
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(3) |
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Represents basic subscribers as a percentage of estimated homes
passed. |
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(4) |
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Represents customers receiving digital video services. |
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(5) |
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Represents digital customers as a percentage of our basic
subscribers. |
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(6) |
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Represents residential HSD customers and small to medium-sized
commercial cable modem accounts billed at higher rates than
residential customers. Small to medium-sized commercial accounts
are converted to equivalent residential HSD customers by
dividing their associated revenues by the applicable residential
rate. Customers who take our scalable, fiber-based enterprise
network products and services are not counted as HSD customers.
Our methodology of calculating HSD customers may not be
identical to those used by other companies offering similar
services. |
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(7) |
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Represents the number of total HSD customers as a percentage of
estimated homes passed by our cable distribution network. |
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(8) |
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Represents the estimated number of homes to which we offer phone
service, and is based upon the best information currently
available. |
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(9) |
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Represents customers receiving phone service. Small to
medium-sized commercial accounts are converted to equivalent
residential phone customers by dividing their associated
revenues by the applicable residential rate. Our methodology of
calculating phone customers may not be identical to those used
by other companies offering similar services. |
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(10) |
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Represents the number of total phone customers as a percentage
of our estimated marketable phone homes. |
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(11) |
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Represents the sum of basic subscribers and digital, HSD and
phone customers. |
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(12) |
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Does not reflect the completion of the Exchange Agreement on
February 13, 2009. See Note 11 to our consolidated
financial statements for more information. |
Our
Service Areas
Approximately 69% of our basic subscribers are in the top 100
television markets in the United States, commonly referred to as
Nielsen Media Research designated market areas
(DMAs), with more than 55% in DMAs that rank between
the 60th and 100th largest. We are the largest and second
largest cable company in Iowa and Illinois, respectively. Our
service areas include: the cities of Des Moines and Cedar
Rapids, IA; the Quad Cities in Illinois and Iowa, comprising the
cities of Bettendorf, Davenport, East Moline, Moline and Rock
Island; the cities of Springfield, Columbia and Jefferson City,
MO; suburban and outlying communities of Minneapolis, MN; the
gulf coast region surrounding Pensacola, FL and Mobile, AL; and
the cities of Albany, Columbus and Valdosta, GA. Each of these
clusters is further extended through use of regional fiber
networks to connect additional cities and towns.
Products
and Services
We offer a variety of services over our cable systems, including
video, HSD and phone services, marketed individually and in
bundled packages. Our revenues are principally provided by fees
paid by residential customers, which vary depending on the level
of service taken. We also derive revenue from the sales of
pay-per-view
movies and events,
video-on-demand
(VOD) services, the sale of advertising time on
certain of our programming, installation and equipment charges,
as well as advanced data and phone services provided to the
commercial market.
Our customers are billed on a monthly basis and generally may
discontinue services at any time. We are focused on marketing
packages of multiple products and services, or
bundles, for a single price, including a bundle of
our primary services of video, HSD and phone, which we refer to
as our triple-play. Customers who take our
triple-play bundles enjoy discounted pricing and the convenience
of a single monthly bill; those who take our ViP Pak
also enjoy digital television, faster HSD speeds and other
benefits. As of December 31, 2009, 52% of our customers
subscribed to two or more of our primary services, including 18%
of our customers who take all three of our primary services.
Investments in our interactive fiber networks have created the
single platform distribution system we use today and allow us to
offer advanced video products and services, faster HSD speeds
and a feature-rich phone service. Our technology initiatives
will continue to focus on boosting the capacity, capability and
reliability of our networks, allowing us to increase the variety
and quality of the products and services we offer.
A majority of our revenues come from video services; however,
the percent of revenue derived from video has been declining for
the past several years. As a percentage of total revenues, video
revenues have decreased from 80% in 2004 to 64% in 2009,
primarily due to increased contributions from our HSD and phone
services, a trend we expect to continue.
Video
We design our channel
line-ups for
each system according to demographics, programming preferences,
channel capacity, competition, price sensitivity and local
regulation. We charge customers monthly subscription rates,
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which vary according to the level of service and equipment
taken. Our video services range from broadcast basic service to
digital and other advanced video products and services, as
discussed below.
Broadcast Basic Service. Our broadcast basic
service includes, for a monthly fee, 12 to 20 channels,
including local
over-the-air
broadcast network and independent stations, limited
satellite-delivered programming, as well as local public,
government, home-shopping and leased access channels.
Family Basic Service. We offer an expanded
basic package of services, marketed as Family Cable,
which includes, for an additional monthly fee, 40 to 55
additional satellite-delivered channels such as CNN, Discovery,
ESPN, Lifetime, MTV, TNT and the USA Network.
As of December 31, 2009, we had 1.24 million basic
subscribers, representing a 44.2% penetration of our estimated
homes passed.
Digital Service. Our digital video service
offers customers up to 230 channels, depending on the level of
service selected, with better picture and sound quality than
traditional analog video service. Digital video customers
receive the full assortment of basic programming, digital music
channels and other additional programming, as well as an
interactive on-screen program guide and full access to our VOD
library. For additional charges, our subscribers may purchase
premium video services such as Cinemax, HBO, Showtime and Starz!
individually, or in tiers. A digital converter or cable card is
required to receive our digital and other advanced video
services. Customers pay a monthly fee for digital service, which
varies according to the level of service taken and the number of
digital converters in the home. As of December 31, 2009, we
had 678,000 digital customers, representing a 54.8% penetration
of our basic subscribers.
Video-On-Demand. Mediacom
On-Demand, our VOD service, provides on-demand access to almost
4,700 movies, special events and general interest titles, and is
available to 89% of our digital customers. The majority of our
VOD content is available to our digital video customers at no
additional charge, with additional content including first-run
movies and special event programs such as live concerts and
sporting events available on a
pay-per-view
basis. This service includes full two-way functionality,
including the ability to start the programs at their
convenience, as well as pause, rewind and fast forward.
High-Definition Television. We offer our video
customers HDTV services, with high-resolution
picture quality, digital sound quality and a wide-screen,
theater-like display when using an HDTV set. Up to 46
high-definition (HD) channels, including most major
broadcast networks, leading national cable networks, premium
channels and regional sports networks, are offered to our
digital customers at no additional charge, with a planned
expansion up to 70 channels in 2010. The HD programming we offer
represents about 80% of the most widely-watched programming,
based upon data provided by The Neilsen Company.
Digital Video Recorders. Our DVR
service allows digital customers to record and store programming
to watch at their convenience, as well as the ability to pause
and rewind live television. DVR services require the
use of an advanced digital converter for which we charge a
monthly fee. In 2010, we plan on introducing a
multi-room DVR product that will enable customers who take
our DVR service to watch the same stored programming on each
set-top box in their home.
As of December 31, 2009, 38.8% of our digital customers
received DVR
and/or HDTV
services.
Mediacom
Online
Three levels of high-speed Internet access, ranging from
3 Mbps to 20 Mbps, are available to customers across
substantially all of our service territory. Our most popular
service delivers speeds of up to 12 Mbps downstream and
1 Mbps upstream. Customers who take our ViP Pak receive an
upgrade to 15 Mbps downstream speeds at no additional cost.
Based on the range of products offered, all of which are
available in discounted bundles, we believe our HSD service
provides a superior value to that offered by our competitors in
our markets.
Our latest product offering is Mediacom Online Ultra, which is
our very high-speed, or wideband, Internet service.
Launched in late 2009, this service utilizes DOCSIS 3.0
technology that was developed to accommodate much higher
transmission speeds through the use of channel bonding, allowing
us to offer downstream and upstream speeds of up to
105 Mbps and 10 Mbps, respectively. As of
December 31, 2009, Mediacom Online Ultra
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was available to approximately 25% of our service territory, or
700,000 homes, and we plan to expand to about half of our
service territory, or 1.4 million homes.
As of December 31, 2009, we had 778,000 HSD customers,
representing a 27.8% penetration of estimated homes passed.
Mediacom
Phone
Mediacom Phone is our phone service that offers unlimited local,
regional and long-distance calling within the United States,
Puerto Rico, the U.S. Virgin Islands and Canada, for which
customers are charged a monthly fee. Mediacom Phone includes
popular calling features such as Caller ID with name and number,
call waiting, three-way calling and enhanced Emergency 911
dialing. Directory assistance and voice mail services are
available for an additional charge, and international calling is
available at competitive rates.
As of December 31, 2009, we marketed phone service to about
95% of our 2.80 million estimated homes passed. As of the
same date, we served 287,000 phone customers, representing a
10.9% penetration of estimated marketable phone homes passed.
Substantially all of our phone customers take multiple services
from us; over 85% take the triple-play and approximately 14%
take either video or HSD service in addition to phone.
Mediacom
Business Services
We provide video, HSD, and phone, as well as network and
transport services, to commercial and large enterprise
customers. During 2009, we began selling multi-line business
phone service to small- and medium-sized businesses in most of
our service areas. We now offer a bundle of video, HSD and phone
services to the business community, enabling us to compete more
effectively against our competitors, mainly the local phone
companies. We also offer large enterprise customers, who require
high-bandwidth connections, solutions such as the
point-to-point
circuits required by wireless communications providers and other
carrier and wholesale customers.
Advertising
We generate revenues from selling advertising time we receive
under our programming license agreements to local, regional and
national advertisers. Our advertising sales infrastructure
includes in-house production facilities, production and
administrative employees and a locally-based sales workforce. In
many of our markets, we have entered into agreements commonly
referred to as interconnects with other cable operators to
jointly sell local advertising, simplifying our clients
purchase of local advertising and expanding their geographic
reach
During the past several years, many existing and potential
customers have sought alternatives to traditional advertising
platforms such as television, newspaper and billboard
advertising. In addition, the recent economic downturn has
caused other key buyers of local and regional advertising,
notably automotive dealers, to sharply reduce their advertising
spending. Primarily due to these factors, we have experienced
declines in advertising revenues in the last two years.
Marketing
and Sales
Our primary marketing focus is on our ViP Pak bundle of digital
video, HSD and phone, which we offer to our customers at
discounted pricing, with the convenience of a single bill.
Customers who take our ViP Pak also enjoy free VOD movies,
faster HSD speeds and retailer discounts, to further enhance the
value and increase our brand recognition. We employ a wide range
of sales channels to reach current and potential customers,
including direct marketing such as mail and outbound
telemarketing,
door-to-door
and field technician sales. We also steer people to our inbound
call centers or website through television advertising on our
own cable systems and local broadcast television stations and
through other mass media outlets such as radio, newspaper and
outdoor advertising.
Customer
Care
Providing a superior customer experience will improve customer
retention and increase the opportunities for sale of our
advanced services. Our efforts to enhance our customers
satisfaction include giving them multiple means to
8
access information about their services, focusing on first time
resolution of all service calls, and continually improving the
performance of our networks.
Contact
Centers
Our customer care group has multiple contact centers, which are
staffed with dedicated customer service and technical support
representatives that respond to customer inquiries on all of our
products and services. Qualified representatives are available
24 hours a day, seven days a week to assist our customers.
Our virtual contact center technology ensures that the customer
care group functions as a single, unified call center and allows
us to effectively manage and leverage resources and reduce
answer times through call-routing in a seamless manner. A
web-based service platform is available to our customers
allowing them to order products via the Internet, manage their
payments, receive general technical support and utilize
self-help tools to troubleshoot technical difficulties.
Field
Operations
Our field technicians utilize a workflow management system which
facilitates on-time arrival for customer appointments and first
call resolution to avoid repeat service trips and customer
dissatisfaction. Field activity is scheduled, routed and
accounted for seamlessly, including automated appointment
confirmations, along with real time remote technician
dispatching. All technicians are equipped with web-based,
hand-held monitoring tools to determine the real-time quality of
service at each customers home. This functionality allows
us to effectively install new services and efficiently resolve
customer reported issues.
Technology
Our cable systems use a hybrid fiber-optic coaxial
(HFC) design that has proven to be highly flexible
in meeting the increasing requirements of our business. The HFC
designed network is engineered to accommodate bandwidth
management initiatives that provide increased capacity and
performance for our advanced video and broadband products and
services without the need for costly upgrades. We deliver our
signals via laser-fed fiber optical cable from control centers
known as headends and hubs to individual nodes. Coaxial cable is
then connected from each node to the individual homes we serve.
Our network design generally provides for six strands of fiber
optic cable extended to each node, with two strands active and
four strands dark or inactive for future use.
As of December 31, 2009, substantially all our cable
distribution network had bandwidth capacity of at least 750
megahertz. However, demand for new services, including
additional HDTV channels and DOCSIS 3.0-enabled wideband
Internet, requires us to become more efficient with our
bandwidth capacity. As part of our transition towards a digital
only platform, we have been moving video channels from analog to
digital transmission, allowing us to deliver the same
programming using less bandwidth, and giving us the ability to
offer our customers more HDTV channels, faster HSD speeds and
other advanced products and services using the reclaimed
bandwidth. To take full advantage of the efficiencies associated
with digital transmission, we expect our networks will
ultimately move to a digital only format, thereby eliminating
all analog transmissions.
We have constructed fiber networks which interconnect 90% of our
service territory, on which we have overlaid a video transport
system, allowing these areas to function as virtual systems. Our
fiber networks and video transport system give us greater reach
from a central location, making it more cost efficient and
timely to introduce new and advanced services to customers,
helping us reduce equipment and personnel costs, connectivity
charges and other expenditures.
Community
Relations
We are dedicated to fostering strong relations with the
communities we serve, and believe that our local involvement
strengthens the awareness of our brand. We support local
charities and community causes with events and campaigns to
raise funds and supplies for persons in need, and in-kind
donations that include production services and free airtime on
cable networks. We participate in industry initiatives such as
the Cable in the Classroom program, under which we
provide more than 3,000 schools with free video service and more
than 275 schools with free HSD service. We also provide free
cable service to about 4,000 government buildings, libraries and
not-for-profit
hospitals, along with free HSD service to over 325 such sites.
9
We develop and provide exclusive local programming for our
communities, a service that cannot be offered by DBS providers.
Several of our cable systems have production facilities with the
ability to create local programming, which includes local school
sports events, fund-raising telethons by local chapters of
national charitable organizations, local concerts and other
entertainment. We believe our local programming helps build
brand awareness and customer loyalty in the communities we serve.
Franchises
Cable systems are generally operated under non-exclusive
franchises granted by local or state governmental authorities.
Historically, these franchises have imposed numerous conditions,
such as: time limitations on commencement and completion of
construction; conditions of service, including population
density specifications for service; the bandwidth capacity of
the system; the broad categories of programming required; the
provision of free service to schools and other public
institutions and the provision and funding of public,
educational and governmental access channels (PEG access
channels); a provision for franchise fees; and the
maintenance or posting of insurance or indemnity bonds by the
cable operator. Many of the provisions of local franchises are
subject to federal regulation under the Communications Act of
1934, as amended (the Cable Act).
Many of the states in which we operate have enacted
comprehensive state-issued franchising statutes that cede
control over franchises away from local communities and towards
state agencies, such as the various public service commissions
that regulate other utilities. As of December 31, 2009,
about 46% of our customer base was under a state-issued
franchise. Some of these states permit us to exchange local
franchises for state issued franchises before the expiration
date of the local franchise. These state statutes make the terms
and conditions of our franchises more uniform, and in some
cases, eliminate locally imposed requirements such as PEG access
channels.
As of December 31, 2009, we served 1,352 communities under
a cable franchise. These franchises provide for the payment of
fees to the issuing authority. In most of our cable systems,
such franchise fees are passed through directly to the
customers. The Cable Act prohibits franchising authorities from
imposing franchise fees in excess of 5% of gross revenues from
specified cable services, and permits the cable operator to seek
renegotiation and modification of franchise requirements if
warranted by changed circumstances.
We have never had a franchise revoked or failed to have a
franchise renewed. Furthermore, no franchise community has
refused to consent to a franchise transfer to us. The Cable Act
provides, among other things, for an orderly franchise renewal
process in which franchise renewal will not be unreasonably
withheld or, if renewal is denied and the franchising authority
acquires ownership of the cable system or effects a transfer of
the cable system to another person, the cable operator generally
is entitled to the fair market value for the cable
system covered by such franchise. The Cable Act also established
comprehensive renewal procedures, which require that an
incumbent franchisees renewal application be assessed on
its own merits and not as part of a comparative process with
competing applications. We believe that we have satisfactory
relationships with our franchising communities.
Sources
of Supply
Programming
We have various fixed-term contracts to obtain programming for
our cable systems from suppliers whose compensation is typically
based on a fixed monthly fee per customer. Although most of our
contracts are secured directly with the programmer, we also
negotiate programming contract renewals through a programming
cooperative of which we are a member. In general, we attempt to
secure longer-term programming contracts, which may include
marketing support and other incentives from programming
suppliers.
We also have various retransmission consent arrangements with
local broadcast station owners, allowing for carriage of their
broadcast television signals on our cable systems. Federal
Communications Commission (FCC) rules mandate that
local broadcast station owners elect either must
carry or retransmission consent every three years.
Historically, retransmission consent has been contingent upon
our carriage of satellite delivered cable programming offered by
companies affiliated with the stations owners, or other
forms of non-cash compensation. In the most recently completed
cycle, cash payments and, to a lesser extent, our purchase of
advertising time from local broadcast station owners were
required to secure their consent.
10
Our programming expenses comprise our largest single expense
item, and in recent years, we have experienced a substantial
increase in the cost of our programming, particularly sports and
local broadcast programming, well in excess of the inflation
rate or the change in the consumer price index. We believe that
these expenses will continue to grow, principally due to
contractual unit rate increases and the increasing demands of
sports programmers and television broadcast station owners for
retransmission consent fees. While such growth in programming
expenses can be partially offset by rate increases to video
customers, it is expected that our gross video margins will
continue to decline as increases in programming costs outpace
growth in video revenues.
Set-Top
Boxes, Program Guides and Network Equipment
We purchase set-top boxes from a limited number of suppliers,
including Motorola Inc. and Pace plc. We also purchase routers,
switches and other network equipment from a variety of
providers. If we were unable to obtain such equipment from these
suppliers, our ability to serve our customers in a consistent
manner could be affected, and we may not be able to provide
similar equipment in a timely manner.
HSD
and Phone Connectivity
We deliver HSD and phone services through fiber networks that
are either owned by us or leased from third parties and through
backbone networks that are operated by third parties. We pay
fees for leased circuits based on the amount of capacity and for
Internet connectivity based on the amount of HSD and phone
traffic received from and sent over the providers network.
Digital
Phone
Under a multi-year agreement between us and Sprint Corporation,
Sprint assists us in providing phone service by routing voice
traffic to and from destinations outside of our network via the
public switched telephone network, delivering E911 service and
assisting in local number portability and long-distance traffic
carriage. We have initiated a project to transition these
services in-house, beginning in 2010.
Competition
We face intense and increasing competition from various
communications and entertainment providers, primarily DBS and
certain local telephone companies, many of whom have greater
resources than we do. We are subject to significant developments
in the marketplace, including rapid advances in technology and
changes in the regulatory and legislative environment. In the
past several years, many of our competitors have expanded their
service areas, added services and features comparable to ours,
as well as those which we do not offer, such as wireless voice
and data services. More recently, our DBS competitors have
launched aggressive marketing campaigns, including deeply
discounted promotional packages, which have resulted in video
customer losses in our markets. We are unable to predict the
effects, if any, of such future changes or developments on our
business.
Direct
Broadcast Satellite Providers
DBS providers, principally DirecTV, Inc. and DISH Network Corp.,
are the cable industrys most significant video
competitors, serving more than 32 million customers
nationwide, according to publicly available information. Our
ability to compete with DBS service depends, in part, on the
programming available to them and us for distribution. DirecTV
and DISH now offer approximately 265 and 290 video channels of
programming, respectively, much of it substantially similar to
our video offerings. DirecTV also has exclusive arrangements to
provide certain programming which is unavailable to us,
including special professional football packages. DirecTV and
DISH offer up to 130 and 140 channels of national HD
programming, respectively, including local HD signals in most of
our markets.
DBS service has limited two-way interactivity, which restricts
their providers ability to offer interactive video, HSD
and phone services. In contrast, our networks full two-way
interactivity enables us to deliver true VOD, as well as HSD and
phone services over a single platform. In lieu of offering such
advanced services, DBS providers have in many cases entered into
marketing agreements under which local telephone companies offer
DBS service bundled with their phone and HSD services. These
synthetic bundles are generally billed as a single package, and
from a consumer standpoint appear similar to our bundled
products and services.
11
Local
Telephone Companies
Our HSD and phone services compete primarily with local
telephone companies such as Qwest Inc. and AT&T Inc. Such
companies compete with our HSD product by offering digital
subscriber line (DSL) services and with our phone
product by offering a substantially similar product to that
which we offer. In our markets, widely-available DSL service is
typically limited to downstream speeds ranging from 1.5Mbps to
3Mbps, compared to our downstream speeds ranging from 3Mbps to
105Mbps. We believe the performance, cost savings and
convenience of our bundled packages compare favorably with the
local telephone companies products and services. However,
local phone companies may currently be in a better position to
offer data services to businesses, as their networks tend to be
more complete in commercial areas.
Verizon Communications Inc. and AT&T have built and are
continuing to build fiber networks with
fiber-to-the-node
or
fiber-to-the-home
architecture to replicate the cable industrys triple-play
bundle. Their upgraded networks can now provide video, HSD and
phone services that are comparable, and in some cases, superior
to ours, with entry prices similar to those we offer. Based on
internal estimates, these competitors have the capability of
offering service in approximately 6% of our service territory as
of December 31, 2009, but were actively marketing to about
2%. Due to the lower homes density of our service areas compared
to the higher home density of larger metropolitan markets, and
the per home passed capital investment associated with
constructing fiber networks, we believe that further build-outs
into most our markets will be a lower priority for the telephone
companies.
Wireless
Communication Companies
In addition to competition from traditional phone services, we
face increasing competition from wireless phone providers, such
as AT&T, Verizon and Sprint. In the last several years, a
trend known as wireless substitution has developed
where certain phone customers have decided they only need one
phone provider, and the provider selected has been a wireless
phone product. We expect this trend to continue in the future
and, given the current economic downturn, may accelerate as
consumers become more cost conscious.
Many wireless phone providers offer a mobile data service for
cellular use. This service may be a substitute for a wireline
service in some consumers households. With the increasing
penetration of smartphones, the use of mobile data
services for certain applications is expanding, a trend we
believe will continue in the near future. Wireless providers are
currently unable to offer a data service that compares with our
HSD service in terms of speed, and their service is not
available in all areas. However, as technology employed by such
wireless companies further evolves, this may change in the
future.
Traditional
Overbuilds
Cable systems are operated under non-exclusive franchises
granted by local authorities; more than one cable system may
legally be built in the same area by another cable operator, a
local utility or other provider. Some of these competitors, such
as municipally-owned entities, may be granted franchises on more
favorable terms or conditions, or enjoy other advantages such as
exemptions from taxes or regulatory requirements, to which we
are subject. Certain municipalities in our service areas have
constructed their own cable systems in a manner similar to
city-provided utility services. We believe that various entities
are currently offering cable service, through wireline
distribution networks, to 13% of our estimated homes passed.
Most of these entities were operating prior to our ownership of
the affected cable systems, and we believe there has been no
expansion of such entities into our markets in the past several
years.
Other
Competition
Video
The use of streaming video over the Internet by consumers and
businesses has increased dramatically in the last several years,
as broadband services have become more widely available. As a
result of increased downstream speeds offered by HSD providers
and advances in streaming video technology, consumers are
watching a greater amount of video content through an online
source. Recent advances have also allowed consumers to stream
Internet video directly to their television through various
electronic devices such as video game consoles and Blu-ray
12
players, resulting in a more traditional video viewing
experience. In many cases, program suppliers have begun
bypassing traditional video providers and distributing certain
content directly to consumers through the Internet, some of
which is available free of charge. As much of this content is
the same, or substantially similar to that which we offer, we
believe this could lead to meaningful competition if this trend
is to continue in the future. Although we expect to remain the
primary provider of HSD service to such consumers, enabling
their ability to stream Internet video, we are unable to predict
the effects, if any, of such developments on our video revenues.
HSD
The American Recovery Act of 2009 provides specific funding for
broadband development as part of the economic stimulus package.
Some of our existing and potential competitors have, and will
apply for funds under this program which, if successful, may
allow them to build or expand facilities faster and deploy
existing and new services sooner, and to more areas, than they
otherwise would.
Phone
Mediacom Phone also competes with national providers of
IP-based
phone services, such as Vonage, Skype and magicJack, as well as
companies that sell phone cards at a cost per minute for both
national and international service. Such providers of
IP-based
phone services do not have a traditional facilities-based
network, but provide their services through a consumers
high-speed Internet connection.
Advertising
We compete for the sale of advertising against a wide variety of
media, including local broadcast stations, national broadcast
networks, national and regional programming networks, local
radio broadcast stations, local and regional newspapers,
magazines and Internet sites. As companies continue to shift the
allocation of their advertising spending towards Internet based
advertising, we may face greater than expected pricing pressure
on our advertising business.
Employees
As of December 31, 2009, we employed 4,410 full-time
and 110 part-time employees. None of our employees are
organized under, or covered by, a collective bargaining
agreement. We consider our relations with our employees to be
satisfactory.
13
Legislation
and Regulation
General
Federal, state and local laws regulate the development and
operation of cable systems and, to varying degrees, the services
we offer. Significant legal requirements imposed on us because
of our status as a cable operator, or by the virtue of the
services we offer, are described below.
Cable
System Operations and Cable Services
Federal
Regulation
The Cable Act establishes the principal federal regulatory
framework for our operation of cable systems and for the
provision of our video services. The Cable Act allocates primary
responsibility for enforcing the federal policies among the FCC
and state and local governmental authorities.
Content
Regulations
Must
Carry and Retransmission Consent
The FCCs regulations require local commercial television
broadcast stations to elect once every three years whether to
require a cable system to carry the primary signal of their
stations, subject to certain exceptions, commonly called
must-carry or to negotiate the terms by which the cable system
may carry the station on its cable systems, commonly called
retransmission consent. The most recent elections took effect
January 1, 2009.
The Cable Act and the FCCs regulations require a cable
operator to devote up to one-third of its activated channel
capacity for the carriage of local commercial television
stations. The Cable Act and the FCCs rules also give
certain local non-commercial educational television stations
carriage rights, but not the option to negotiate retransmission
consent. Additionally, cable systems must obtain retransmission
consent for carriage of all distant commercial television
stations, except for certain commercial satellite-delivered
independent superstations such as WGN, commercial radio
stations, and certain low-power television stations.
Through March 28, 2010, Congress barred broadcasters from
entering into exclusive retransmission consent agreements.
Legislation is pending to extend this ban on exclusive
retransmission consent agreements through December 31, 2014
or later. Congress also requires all parties to negotiate
retransmission consent agreements in good faith. Should Congress
fail to extend the ban on exclusive retransmission consent
agreements, there could be an adverse effect on our business.
Must-carry obligations may decrease the attractiveness of the
cable operators overall programming offerings by including
less popular programming on the channel
line-up,
while cable operators may need to provide some form of
consideration to broadcasters to obtain retransmission consent
to carry more popular programming. We carry both must-carry
broadcast stations and broadcast stations that have granted
retransmission consent. A significant number of local broadcast
stations carried by our cable systems have elected to negotiate
for retransmission consent, and we have entered into
retransmission consent agreements with all of them although not
all have terms extending until the end of the current
retransmission consent election cycle, December 31, 2011.
In January 2010, Cablevision Systems Corporation filed a
petition for writ of certiorari with the United States Supreme
Court, seeking review of a decision of the United States Court
of Appeals for the Second Circuit upholding an FCC order
enforcing a commercial television stations must-carry
rights. Cablevision seeks not only reversal of the Court of
Appeals decision applying the must-carry requirements to the
facts at issue, but also to invalidate the must-carry
requirements entirely as impermissible because it restricts
Cablevisions freedom of speech rights under the First
Amendment and it confiscates Cablevisions property rights
under the Fifth Amendment of the United States Constitution. We
cannot predict whether the Supreme Court will issue the writ and
if it does, what the outcome would be or how it may affect our
business.
14
Availability
of Digital Broadcast Signals
After June 12, 2009, television broadcasters were required
to cease analog transmission and transmit their signals in
digital format only. This change is commonly referred to as the
DTV transition.
The FCC has mandated that it is the responsibility of cable
operators to ensure that cable subscribers with analog
television sets can continue to view that broadcast
stations signal, thus creating a dual carriage
requirement for must-carry signals post-DTV transition. Cable
operators that are not all-digital will be required
for at least a three year period to provide must-carry signals
to their subscribers in the primary digital format in which the
operator receives the signal (i.e. high definition or standard
definition), and downconvert the signal from digital to analog
so that it is viewable to subscribers with analog television
sets. Cable systems that are all digital are not
required to downconvert must-carry signals into analog and may
provide the must-carry signals only in a digital format. The FCC
has ordered that the cable operator bear the cost of any
downconversion. The dual carriage requirement has
the potential of having a negative impact on us because it
reduces available channel capacity and thereby could require us
to either discontinue other channels of programming or restrict
our ability to carry new channels of programming or other
services that may be more desirable to our customers.
For several years, the FCC has had under review a complaint with
respect to another cable operator to determine whether certain
charges routinely assessed by many cable operators, including
us, to obtain access to digital services, violate this
anti-buy-through provision. Any decision that
requires us to restructure or eliminate such charges would have
an adverse effect on our business.
Program
Tiering
Federal law requires that certain types of programming, such as
the carriage of local broadcast channels and any public,
governmental or educational access (PEG) channels to
be part of the lowest level of video programming
service the basic tier. Our basic tiers are
generally comprised of programming in analog format although
some programming may be offered in digital format. Migration of
PEG channels from analog to digital format frees up bandwidth
over which we can provide a greater variety of other programming
or service options. During 2008, such migration met opposition
from some municipalities, members of Congress and FCC officials.
Several communities and one special interest group have
petitioned the FCC to restrict the ability of cable operators to
migrate public, governmental channels from analog to digital
tiers. The FCC opened a public comment period on these petitions
that ended on April 1, 2009, but has not issued any orders
resulting from the petitions. We cannot predict the outcome of
this proceeding. Any legislative or regulatory action to
restrict our ability to migrate PEG channels could adversely
affect our ability to provide additional programming desired by
viewers.
Congress may also consider legislation regarding programming
packaging, bundling or a la carte delivery of
programming. Any such requirements could fundamentally change
the way in which we package and price our services. We cannot
predict the outcome of any current or future FCC proceedings or
legislation in this area, or the impact of such proceedings on
our business at this time.
Tier Buy
Through
The Cable Act and the FCCs regulations require our cable
systems, other than those systems which are subject to effective
competition, permit subscribers to purchase video programming we
offer on a per channel or a per program basis without the
necessity of subscribing to any tier of service other than the
basic service tier.
Use of
Our Cable Systems by the Government and Unrelated Third
Parties
The Cable Act allows local franchising authorities and unrelated
third parties to obtain access to a portion of our cable
systems channel capacity for their own use. For example,
the Cable Act permits franchising authorities to require cable
operators to set aside channels for public, educational and
governmental access programming and requires a cable system with
36 or more activated channels to designate a significant portion
of that activated channel capacity for commercial leased access
by third parties to provide programming that may compete with
services offered by the cable operator.
15
The FCC regulates various aspects of third-party commercial use
of channel capacity on our cable systems, including: the maximum
reasonable rate a cable operator may charge for third-party
commercial use of the designated channel capacity; the terms and
conditions for commercial use of such channels; and the
procedures for the expedited resolution of disputes concerning
rates or commercial use of the designated channel capacity.
In 2008, the FCC released a Report and Order which could allow
certain leased access users lower cost access to channel
capacity on cable systems. The new regulations limit fees to 10
cents per subscriber per month for tiered channels and in some
cases, potentially no charge. The regulations also impose a
variety of leased access customer service, information and
reporting standards. A federal appeals court stayed
implementation of the new rules and the United States Office of
Management and Budget denied approval of the new rules citing
the FCCs failure to meet substantive requirements of The
Paperwork Reduction Act of 1995. In July 2008, the federal
appeals court agreed at the request of the FCC to hold the case
in abeyance until the FCC resolved its issues with the Office of
Management and Budget. If implemented as promulgated, these
changes will likely increase our costs and could cause
additional leased access activity on our cable systems and
thereby require us to either discontinue other channels of
programming or restrict our ability to carry new channels of
programming or other services that may be more desirable to our
customers. We cannot, however, predict whether the FCC will
ultimately enact these rules as promulgated, whether it will
seek to implement revised rules, or whether it will attempt to
implement any new commercial leased access rules.
Ownership
Limitations
The FCC previously adopted nationwide limits on the number of
subscribers under the control of a cable operator and on the
number of channels that can be occupied on a cable system by
video programming in which the cable operator has an interest.
The U.S. Court of Appeals for the District of Columbia
Circuit reversed the FCCs decisions implementing these
statutory provisions and remanded the case to the FCC for
further proceedings. In 2007, the FCC reinstituted a restriction
setting the maximum number of subscribers that a cable operator
may serve at 30 percent nationwide. The FCC also has
commenced a rulemaking to review vertical ownership limits and
cable and broadcasting attribution rules. In August 2009, the
United States Court of Appeals for the Third Circuit struck down
the 30 percent horizontal cable ownership cap. The
FCCs Chairman has stated his intent for the FCC to take
further action on the horizontal cap. We cannot predict what
action the FCC will take or how it may impact our business.
Cable
Equipment
The Cable Act and FCC regulations seek to promote competition in
the delivery of cable equipment by giving consumers the right to
purchase set-top converters from third parties as long as the
equipment does not harm the network, does not interfere with
services purchased by other customers and is not used to receive
unauthorized services. Over a multi-year phase-in period, the
rules also required multichannel video programming distributors,
other than direct broadcast satellite operators, to separate
security from non-security functions in set-top converters to
allow third-party vendors to provide set-tops with basic
converter functions. To promote compatibility of cable systems
and consumer electronics equipment, the FCC adopted rules
implementing plug and play specifications for
one-way digital televisions. The rules require cable operators
to provide CableCard security modules and support
for digital televisions equipped with built-in set-top
functionality. In 2008, Sony Electronics and members of the
cable industry submitted to the FCC a Memorandum of
Understanding (MOU) in connection with the
development of
tru2waytm
a national two-way plug and play platform; other
members of the consumer electronics industry have since joined
the MOU.
Since July 2007, cable operators have been prohibited from
issuing to their customers new set-top terminals that integrate
security and basic navigation functions. The FCC has set forth a
number of limited circumstances under which it will grant
waivers of this requirement. We obtained a conditional waiver
from the FCC that allowed us to deploy low-cost, integrated
set-top boxes in certain cable systems serving less than five
percent of our subscriber base and we have met the condition to
upgrade to all-digital operations in those systems by
February 17, 2009. In all other systems, we remain in full
compliance with the rules banning integration of security and
basic navigation functions in set-top terminals.
16
The FCC relaxed the ban on integrated security in set-top-boxes
in June 2009, when the FCC issued an industry-wide waiver
permitting cable operator use of a particular one-way set top
box that met its definition of a low-cost, limited
capability device. The particular box did not support
interactive program guides,
video-on-demand,
or
pay-per-view
or include high definition or dual digital tuners or video
recording functionality. The FCC established an expedited
process to encourage other equipment manufacturers to obtain
industry-wide waivers. In a separate action, specific to another
cable operator, the FCC determined that HD output would no
longer be considered an advanced capability. Such waivers by the
FCC can help to lower the cost and facilitate conversion of
cable systems to digital format.
On August 29, 2009, as required by the Child Safe Viewing
Act of 2007, the FCC issued a report to Congress regarding the
existence and availability of advanced technologies to allow
blocking of parental selected content that are compatible with
various communications devices or platforms. Congress intends to
use that information to spur development of the next generation
of parental control technology. Additional requirements to
permit selective parental blocking could impose additional costs
on us. Additionally, the FCC commenced another proceeding to
gather information about empowering parents and protecting
children in an evolving media landscape. The comment period ends
March 26, 2010. We cannot predict what, if any FCC action
will result from the information gathered.
In a November 2009 proceeding, the FCC sought specific comment
on how it can encourage innovation in the market for navigation
devices to support convergence of video, television and
IP-based
technology. If the FCC were to mandate the use of specific
technology for set-top boxes, it could hinder innovation and
could impose further costs and restrictions on us.
Pole
Attachment Regulation
The Cable Act requires certain public utilities, including all
local telephone companies and electric utilities, except those
owned by municipalities and co-operatives, to provide cable
operators and telecommunications carriers with nondiscriminatory
access to poles, ducts, conduit and
rights-of-way
at just and reasonable rates. This right to access is beneficial
to us. Federal law also requires the FCC to regulate the rates,
terms and conditions imposed by such public utilities for cable
systems use of utility pole and conduit space unless state
authorities have demonstrated to the FCC that they adequately
regulate pole attachment rates, as is the case in certain states
in which we operate. In the absence of state regulation, the FCC
will regulate pole attachment rates, terms and conditions only
in response to a formal complaint. The FCC adopted a new rate
formula that became effective in 2001, which governs the maximum
rate certain utilities may charge for attachments to their poles
and conduit by companies providing telecommunications services,
including cable operators.
This telecommunications services formula that produces higher
maximum permitted attachment rates applies only to cable systems
that elect to offer telecommunications services. The FCC ruled
that the provision of Internet services would not, in and of
itself, trigger use of this new formula. The Supreme Court
affirmed this decision and held that the FCCs authority to
regulate rates for attachments to utility poles extended to
attachments by cable operators and telecommunications carriers
that are used to provide Internet service or for wireless
telecommunications service. The Supreme Courts decision
upholding the FCCs classification of cable modem service
as an information service should strengthen our ability to
resist rate increases based solely on the delivery of cable
modem services over our cable systems. As we continue our
deployment of phone and certain other advanced services,
utilities may continue to seek to invoke the higher rates.
As a result of the Supreme Court case upholding the FCCs
classification of cable modem service as an information service,
the 11th Circuit has considered whether there are
circumstances in which a utility can ask for and receive rates
from cable operators over and above the rates set by FCC
regulation. In the 11th Circuits decision upholding
the FCC rate formula as providing pole owners with just
compensation, the 11th Circuit also determined that there
were a limited set of circumstances in which a utility could ask
for and receive rates from cable operators over and above the
rates set by the formula, including if an individual pole was
full and where it could show lost opportunities to
rent space presently occupied by another attacher at rates
higher than provided under the rate formula. After this
determination, Gulf Power Company pursued just such a claim
based on these limited circumstances before the FCC. The
Administrative Law Judge appointed by the FCC to determine
whether the
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circumstances were indeed met ultimately determined that Gulf
Power could not demonstrate that the poles at issue were
full. Gulf Power has appealed this decision to the
full Commission and the appeal is pending. Failing to receive a
favorable ruling there, Gulf Power could pursue its claims in
the federal court.
In 2007, the FCC released a Notice of Proposed Rulemaking
(NPRM) addressing pole attachment rental rates,
certain terms and conditions of pole access and other issues.
The NPRM calls for a review of long-standing FCC rules and
regulations, including the long-standing cable rate
formula and considers effectively eliminating cables lower
pole attachment fees by imposing a higher unified rate for
entities providing broadband Internet service. While we cannot
predict the effect that the outcome of the NPRM will ultimately
have on our business, changes to our pole attachment rate
structure could significantly increase our annual pole
attachment costs.
In August 2009, certain utilities filed a petition for
declaratory ruling with the FCC seeking to have cable operators
providing interconnected voice over Internet protocol pay higher
telecommunications service pole attachment rates. The FCC
solicited public comment on the request. The FCC has taken no
further action and we cannot predict what action the FCC may
take. Reclassification of our pole attachments rates from those
afforded cable operators to those charged telecommunications
service providers could substantially raise our pole attachment
costs.
Multiple
Dwelling Unit Building Wiring
The FCC has adopted cable inside wiring rules to provide a more
specific procedure for the disposition of residential home
wiring and internal building wiring that belongs to an incumbent
cable operator that is forced by the building owner to terminate
its cable services in a building with multiple dwelling units.
In 2007, the FCC issued rules voiding existing and prohibiting
future exclusive service contracts for services to multiple
dwelling unit or other residential developments. In 2008, the
FCC enacted a ban on the contractual provisions that provide for
the exclusive provision of telecommunications services to
residential apartment buildings and other multiple tenant
environments. In May 2009, the United States Court of Appeals
for the District of Columbia upheld the FCCs 2007 order.
The loss of exclusive service rights in existing contracts
coupled with our inability to secure such express rights in the
future may adversely affect our business to subscribers residing
in multiple dwelling unit buildings and certain other
residential developments. The FCC is reportedly currently
considering issuing an order that would permit private cable
operators to enter into exclusive service agreements, an action
that could foreclose our access to subscribers and potential
subscribers in those multiple dwelling unit buildings that
choose to enter into such agreements.
Copyright
Our cable systems typically include in their channel
line-ups
local and distant television and radio broadcast signals, which
are protected by the copyright laws. We generally do not obtain
a license to use this programming directly from the owners of
the copyrights associated with this programming, but instead
comply with an alternative federal compulsory copyright
licensing process. In exchange for filing certain reports and
contributing a percentage of our revenues to a federal copyright
royalty pool, we obtain blanket permission to retransmit the
copyrighted material carried on these broadcast signals. The
nature and amount of future copyright payments for broadcast
signal carriage cannot be predicted at this time.
In 1999, Congress modified the satellite compulsory license in a
manner that permits DBS providers to become more competitive
with cable operators. Congress adopted legislation in 2004
extending this compulsory satellite license authority for an
additional five years and legislation currently under
consideration by Congress would extend that authority through
2014. In its 2008 Report to Congress, the Copyright Office
recommended abandonment of the current cable and satellite
compulsory licenses. Congress is currently considering
legislation that would require the Copyright Office, in
consultation with the FCC, to issue a report to Congress
containing proposed mechanisms, methods, and recommendations on
how to implement a phase-out of both the cable and satellite
compulsory licenses. The legislation also would require the
Comptroller General to conduct a study and issue a report to
Congress that considers the impact such a phase-out and related
changes to carriage requirements would have on consumer prices
and access to programming. We cannot predict whether Congress
will eliminate the cable compulsory license.
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Congress also has legislation under consideration that would
among other things, establish reporting and payment obligations
with respect to the carriage of multiple streams of programming
from a single broadcast station and clarify that cable operators
need not report distant signals carried anywhere in the cable
system as if they were carried everywhere in the system
(commonly referred to as phantom signals). The
legislation would also provide copyright owners with the ability
to independently audit cable operators statement of
accounts filed in 2010 and later. We cannot predict whether
Congress will pass this legislation or what impact it may have,
if any, on our business.
The Copyright Office has commenced inquiries soliciting comment
on petitions it received seeking clarification and revisions of
certain cable compulsory copyright license reporting
requirements. To date, the Copyright Office has not taken any
public action on these petitions. Issues raised in the petitions
that have not been resolved by subsequent legislation include,
among other things, clarification regarding: inclusion in gross
revenues of digital converter fees, additional set fees for
digital service and revenue from required buy
throughs to obtain digital service; and certain reporting
practices, including the definition of community.
Moreover, the Copyright Office has not yet acted on a filed
petition and may solicit comment on the definition of a
network station for purposes of the compulsory
license.
We cannot predict the outcome of any legislative or agency
activity; however, it is possible that certain changes in the
rules or copyright compulsory license fee computations or
compliance procedures could have an adverse affect on our
business by increasing our copyright compulsory license fee
costs or by causing us to reduce or discontinue carriage of
certain broadcast signals that we currently carry on a
discretionary basis. Further, we are unable to predict the
outcome of any legislative or agency activity related to the
right of direct broadcast satellite providers to deliver local
or distant broadcast signals.
Privacy
and Data Security
The Cable Act imposes a number of restrictions on the manner in
which cable operators can collect, disclose and retain data
about individual system customers and requires cable operators
to take such actions as necessary to prevent unauthorized access
to such information. The statute also requires that the system
operator periodically provide all customers with written
information about its policies including the types of
information collected; the use of such information; the nature,
frequency and purpose of any disclosures; the period of
retention; the times and places where a customer may have access
to such information; the limitations placed on the cable
operator by the Cable Act; and a customers enforcement
rights. In the event that a cable operator is found to have
violated the customer privacy provisions of the Cable Act, it
could be required to pay damages, attorneys fees and other
costs. Certain of these Cable Act requirements have been
modified by certain more recent federal laws. Other federal laws
currently impact the circumstances and the manner in which we
disclose certain customer information and future federal
legislation may further impact our obligations. In addition,
many states in which we operate have also enacted customer
privacy statutes, including obligations to notify customers
where certain customer information is accessed or believed to
have been accessed without authorization. These state provisions
are in some cases more restrictive than those in federal law. In
February 2009, a federal appellate court upheld an FCC
regulation that requires phone customers to provide
opt-in approval before certain subscriber
information can be shared with a business partner for marketing
purposes. Moreover, we are subject to a variety of federal
requirements governing certain privacy practices and programs.
During 2008, several members of Congress commenced an inquiry
into the use by certain cable operators of a third-party system
that tracked activities of subscribers to facilitate the
delivery of advertising more precisely targeted to each
household, a practice known as behavioral advertising. In
February 2009, the Federal Trade Commission issued revised
self-regulatory principles for online behavioral advertising.
Certain members of Congress have reportedly drafted a new
federal privacy bill that could impose new restrictions or
requirements on the collection, use and retention of information
associated with behavioral advertising that may be introduced in
the House Subcommittee on Communications, Technology and the
Internet. Such legislation could change the established privacy
regime from one of disclosure of practices to one requiring
advance and express subscriber opt-in to certain information
collection practices relative to collections during Internet or
other sessions. We cannot predict if there will be additional
regulatory action or whether Congress will enact legislation,
whether legislation would impact our existing privacy-related
obligations under the Cable Act or any impact on any of the
services that we provide.
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Future federal
and/or state
laws may also cover such issues as privacy, access to some types
of content by minors, pricing, encryption standards, consumer
protection, electronic commerce, taxation of
e-commerce,
copyright infringement and other intellectual property matters.
The adoption of such laws or regulations in the future may
decrease the growth of such services and the Internet, which
could in turn decrease the demand for our HSD service, increase
our costs of providing such service, impair the ability to
access potential future advertising revenue streams or have
other adverse effects on our business, financial condition and
results of operations.
State
and Local Regulation
Franchise
Matters
Our cable systems use local streets and
rights-of-way.
Consequently, we must comply with state and local regulation,
which is typically imposed through the franchising process. We
have non-exclusive franchises granted by municipal, state or
other local government entity for virtually every community in
which we operate that authorize us to construct, operate and
maintain our cable systems. Our franchises generally are granted
for fixed terms and in many cases are terminable if we fail to
comply with material provisions. The terms and conditions of our
franchises vary materially from jurisdiction to jurisdiction.
Each franchise granted by a municipal or local governmental
entity generally contains provisions governing:
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franchise fees;
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franchise term;
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system construction and maintenance obligations;
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system channel capacity;
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design and technical performance;
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customer service standards;
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sale or transfer of the franchise; and
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territory of the franchise.
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Although franchising matters have traditionally been regulated
at the local level through a franchise agreement
and/or a
local ordinance, many states now allow or require cable service
providers to bypass the local process and obtain franchise
agreements or equivalent authorizations directly from state
government. Many of the states in which we operate, including
California, Florida, Georgia, Illinois, Indiana, Iowa, Kansas,
Michigan, Missouri, North Carolina and Wisconsin make
state-issued franchises available. These franchises typically
contain less restrictive provisions than those issued by
municipal or other local government entities. State-issued
franchises in many states generally allow local telephone
companies or others to deliver services in competition with our
cable service without obtaining equivalent local franchises. In
states where available, we are generally able to obtain
state-issued franchises upon expiration of our existing
franchises. Our business may be adversely affected to the extent
that our competitors are able to operate under franchises that
are more favorable than our existing local franchises. While
most franchising matters are dealt with at the state
and/or local
level, the Cable Act provides oversight and guidelines to govern
our relationship with local franchising authorities whether they
are at the state, county or municipal level.
HSD
Service
Federal
Regulation
In 2002, the FCC announced that it was classifying Internet
access service provided through cable modems as an interstate
information service and determined that gross revenues from such
services should not be included in the revenue base from which
franchise fees are calculated. Although the United States
Supreme Court has held that cable modem service was properly
classified by the FCC as an information service,
freeing it from regulation as a telecommunications
service, it recognized that the FCC has jurisdiction to
impose regulatory obligations on facilities-based Internet
service providers. The FCC has an ongoing rulemaking process to
determine whether to
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impose regulatory obligations on such providers, including us.
Because of the FCCs decision, we are no longer collecting
and remitting franchise fees on our high-speed Internet service
revenues. We are unable to predict the ultimate resolution of
these matters but do not expect that any additional franchise
fees we may be required to pay will be material to our business
and operations.
Network
Neutrality
In 2005, the FCC issued a non-binding policy statement providing
four principles to guide its policymaking regarding Internet
services. According to the policy statement, consumers are
entitled to: access the lawful Internet content of their choice;
run applications and services of their choice, subject to the
needs of law enforcement; connect their choice of legal devices
that do not harm the network; and enjoy competition among
network providers, application and service providers, and
content providers. These principles are generally referred to as
network neutrality. In 2008, the FCC took action
against another cable provider after determining that the
network management practices of that provider violated the
FCCs Internet Policy Statement by, among other things,
allegedly managing user bandwidth consumption by identifying and
restricting the applications being run, and the actual bandwidth
consumed. This decision may establish de facto standards that
limit the network management practices that cable operators use
to manage bandwidth consumption on their networks. That cable
operator sought review of the decision by the United States
Court of Appeals for the District of Columbia which heard oral
arguments in January 2010. We cannot predict the outcome of any
pending proceedings or any impact these developments may have on
the FCCs net neutrality requirements as they apply to
other Internet access providers.
In October 2009, the FCC commenced a rulemaking to impose
so-called network neutrality rules on HSD service providers.
According to the rulemaking, these rules would require HSD
service providers to: permit users access to and send lawful
content of the users choice; permit users to run lawful
applications and services of the users choice; permit use
of lawful devices that do not harm the network; and not deprive
users of competition among providers of networks, applications,
services and content. Additionally, the FCC would require the
provision of access in a nondiscriminatory manner, permit
providers the right to employ reasonable network management
practices and a impose a duty to disclose the information
reasonably necessary for uses and content, application and
service providers to enjoy the protections that the new rules
would establish. We cannot predict the outcome of this
proceeding or how any new rules would impact our business.
Recovery
Act Stimulus Program
The American Recovery and Reinvestment Act of 2009
(Recovery Act) provided $7.2 billion in the
form of grants and loans to program applicants to, among other
things, build broadband infrastructure. Congress required that
existing Rural Utility Service borrowers, primarily telephone
companies, be provided with a preference for some of the
funding. All funds must be awarded by September 30, 2010
although actual distribution of funds may take longer. Little if
any of the money awarded to date has been disbursed to
applicants.
National
Broadband Plan
The Recovery Act requires the FCC to issue a national
broadband plan (Plan) to Congress in March
2010. The Plan must seek to ensure that all people of the United
States have access to broadband capability and establish
benchmarks for meeting that goal. The Recovery Act requires that
when developing the Plan, the FCC must: analyze the most
effective and efficient mechanisms for ensuring broadband access
by all people of the United States; include a detailed strategy
for achieving affordability of broadband service and maximum
utilization of the infrastructure and service by the public;
include an evaluation of the status of deployment of broadband
service; and include a plan for use of broadband infrastructure
and services in advancing a broad array of public interest
goals, including consumer welfare, civic participation, public
safety and homeland security, community development, health care
delivery, energy independence and efficiency, education, worker
training, private sector investment, entrepreneurial activity,
job creation and economic growth, and other national purposes.
We cannot predict what, if any requirements will be placed on
our provision of broadband services or our operation of
broadband facilities or what impact the Plan will ultimately
have on our business or what advantages may be given to services
that may compete with ours.
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Digital
Millennium Copyright Act
We regularly receive notices of claimed infringements by our HSD
service users. The owners of copyrights and trademarks have been
increasingly active in seeking to prevent use of the Internet to
violate their rights. In many cases, their claims of
infringement are based on the acts of customers of an Internet
service provider for example, a customers use
of an Internet service or the resources it provides to post,
download or disseminate copyrighted music, movies, software or
other content without the consent of the copyright owner or to
seek to profit from the use of the goodwill associated with
another persons trademark. In some cases, copyright and
trademark owners have sought to recover damages from the
Internet service provider, as well as or instead of the
customer. The law relating to the potential liability of
Internet service providers in these circumstances is unsettled.
In 1996, Congress adopted the Digital Millennium Copyright Act,
which is intended to grant ISPs protection against certain
claims of copyright infringement resulting from the actions of
customers, provided that the ISP complies with certain
requirements. So far, Congress has not adopted similar
protections for trademark infringement claims.
Privacy
Federal law may limit the personal information that we collect,
use, disclose and retain about persons who use our services.
Please refer to the Privacy and Data Security discussion
contained in the Cable System Operations and Cable Services
section, above for discussion of these considerations.
International
Law
Our HSD service enables individuals to access the Internet and
to exchange information, generate content, conduct business and
engage in various online activities on an international basis.
The law relating to the liability of providers of these online
services for activities of their users is currently unsettled
both within the United States and abroad. Potentially, third
parties could seek to hold us liable for the actions and
omissions of our HSD customers, such as defamation, negligence,
copyright or trademark infringement, fraud or other theories
based on the nature and content of information that our
customers use our service to post, download or distribute. We
also could be subject to similar claims based on the content of
other websites to which we provide links or third-party
products, services or content that we may offer through our
Internet service. Due to the global nature of the Web, it is
possible that the governments of other states and foreign
countries might attempt to regulate its transmissions or
prosecute us for violations of their laws.
State
and Local Regulation
Our HSD services provided over our cable systems are not
generally subject to regulation by state or local jurisdictions.
Voice-over-Internet
Protocol Telephony Service
Federal
Law
The 1996 amendments to the Cable Act created a more favorable
regulatory environment for cable operators to enter the phone
business. Most major cable operators now offer
voice-over-Internet
protocol (VoIP) telephony as a competitive alternative to
traditional circuit-switched telephone service. Despite efforts
by various states, including states where we operate, considered
or attempted differing regulatory treatment, ranging from
minimal or no regulation to full-blown common carrier status. As
part of the proceeding to determine any appropriate regulatory
obligations for VoIP telephony, the FCC decided that alternative
voice technologies, like certain types of VoIP telephony, should
be regulated only at the federal level, rather than by
individual states. Many implementation details remain
unresolved, and there are substantial regulatory changes being
considered that could either benefit or harm VoIP telephony as a
business operation.
In January 2009, the FCC issued a letter to another cable
provider of VoIP service that could signal a shift in the
regulatory classification of VoIP service. In that letter, the
FCC questioned whether the segregation of VoIP for bandwidth
management purposes would make it a facilities based provider of
telecommunications services and thus
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subject to common carrier regulation. The FCC may address this
issue as part of network neutrality proceeding. We cannot
predict how or if these issues will be resolved.
Federal
regulatory obligations
Throughout the past several years, the FCC has begun to apply
its regulations applicable to traditional landline telephone
providers to VoIP services. In 2006, the FCC announced that it
would require VoIP providers to contribute to the Universal
Service Fund based on their interstate service revenues.
Beginning in 2007, facilities-based broadband Internet access
and interconnected VoIP service providers were required to
comply with Communications Assistance for Law Enforcement Act
requirements. Beginning in 2007, the FCC has required
interconnected VoIP providers, such as us, to pay regulatory
fees based on revenues reported on the FCC Form 499A at the
same rate as interstate telecommunications service providers.
The FCC also has extended other regulations and reporting
requirements to VoIP providers, including
E-911,
Customer Proprietary Network Information (CPNI),
local number portability, disability access, and Form 477
(subscriber information) reporting obligations. The FCC has
issued a Further Notice of Proposed Rulemaking with respect to
possible changes in the intercarrier compensation model in a way
that could financially disadvantage us and benefit some of our
competitors. It is unknown what conclusions or actions the FCC
may take or the effects on our business.
Privacy
In addition to any privacy laws that may apply to our provision
of VoIP services (see general discussion in Privacy and Data
Security in the Cable System Operations and Cable
Services discussion, above), we must comply with additional
privacy provisions contained in the FCCs CPNI regulations
related to certain telephone customer records. In addition to
employee training programs and other operating and disciplinary
procedures, the CPNI rules require establishment of customer
authentication and password protections, limit the means that we
may use for such authentication, and provide customer approval
prior to certain types of uses or disclosures of CPNI.
State
and Local Regulation
Although our entities that provide VoIP telephony services are
certificated as competitive local exchange carriers in most of
the states in which they operate, they generally provide few if
any services in that capacity. Rather, we provide VoIP services
that are not generally subject to regulation by state or local
jurisdictions. The FCC has preempted some state commission
regulation of VoIP services, but has stated that its preemption
does not extend to state consumer protection requirements. Some
states continue to attempt to impose obligations on VoIP service
providers, including state universal service fund payment
obligations.
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Risks
Related to our Operations
Our
products and services face increasing competition that could
adversely affect our business, financial condition and results
of operations.
We operate in a highly competitive industry. In some instances,
we face competitors with fewer regulatory burdens, easier access
to financing, greater resources and operating capabilities, more
brand name recognition and long-standing relationships with
regulatory authorities and customers. Our principal competitors
are DBS providers and local telephone companies. As a result of
such competition, our revenue growth rates may slow or decline
if our customer base erodes or our revenue per unit suffers, and
we may also see increases in the cost of gaining and retaining
customers.
DBS providers, principally DirecTV and DISH, are our most
significant video competitors. We have lost a significant number
of video subscribers to DBS providers in the past, and will
continue to face challenges from them. Recently, the primary DBS
providers have been very aggressive in their pricing policies.
If these pricing, and other aggressive promotional tactics
continue, we may continue to face significant losses of video
customers. See Business
Competition Direct Broadcast Satellite
Providers
Certain local telephone companies, including AT&T and
Verizon, continue to deploy fiber more extensively in their
networks, allowing them to offer video, HSD and phone services
to consumers in bundled packages similar to those which we
currently provide. In some cases, DBS providers have marketing
agreements under which local telephone companies sell DBS
service bundled with their phone and HSD services. We also face
competition from municipal entities that provide video, HSD and
phone services. Many of the companies that provide content have
increased their offerings of video streamed over the Internet,
often accessed free of charge. If this trend continues, it could
negatively impact demand for our video services. See
Business Competition Local
Telephone Companies
Our HSD service faces competition from: local telephone
companies utilizing their upgraded fiber networks
and/or DSL
lines; Wi-Fi, Wi-Max and wireless Internet services provided by
wireless service providers; broadband over power line providers;
and providers of traditional
dial-up
Internet access. Existing and potential competitors have applied
for funds under the American Recovery Act of 2009 economic
stimulus programs, and will likely be eligible to apply for more
going forward. If successful, these additional funds may allow
them to build or expand facilities faster, and deploy existing
and new services sooner, and to more areas, than they otherwise
would.
Our phone service faces competition for voice customers from
local telephone companies, wireless telephone service providers,
VoIP services and others. Competition in phone service has
intensified as more consumers are replacing their wireline
service with wireless service.
Weak
economic conditions may adversely impact our business, financial
condition and results of operations.
Weak economic conditions persist, particularly unemployment and
slack consumer demand. Most of our revenues are provided by
residential customers who may downgrade their services, or
discontinue some, or all of their services, if these economic
conditions continue or further weaken.
We may
be unable to keep pace with rapid technological change that
could adversely affect our business and our results of
operations.
We operate in a rapidly changing environment and our success
depends, in part, on our ability to enhance existing or adopt
new technologies to maintain or improve our competitive
positioning. It may be difficult to keep pace with future
technological developments, and if we fail to choose
technologies that provide products and services that are
preferred by our customers which are cost efficient to us, we
may experience customer losses and our results of operations may
be adversely affected.
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The
continuing increases in programming costs may have an adverse
affect on our results of operations.
Programming costs have historically been our largest single
expense category and have risen dramatically over the last
several years. The largest increases have come from sports
programming and, more recently, from broadcast stations in the
form of retransmission consent fees. We expect programming costs
to continue to grow in the coming years, largely as a result of
both increased unit costs charged by the satellite delivered
networks we carry, in addition to increasing financial demands
by local broadcast stations to obtain their retransmission
consent. If we refuse to meet the demands of these broadcast
station owners, or are unable to negotiate reasonable contracts
with non-broadcast networks, we may not be able to transmit
these stations, which may result in the loss of existing or
potential additional subscribers.
Our video service profit margins have declined over the last
several years, as the cost to secure cable programming and
broadcast station retransmission consent outpaces video revenue
growth. If we are unable to increase subscriber rates or offer
additional services to fully offset such programming costs, our
video service margins will continue to deteriorate.
We may
be unable to secure necessary hardware, software,
telecommunications and operational support that may impair our
ability to provision and service our customers and adversely
affect our business.
Third-party firms provide some of the components used in
delivering our products and services, including digital set-top
converter boxes, DVRs and VOD equipment; routers and other
switching equipment, provisioning and other software; network
connections for our phone services; fiber optic cable and
construction services for expansion and upgrades of our networks
and cable systems; and our customer billing platform. Some of
these companies may hold leverage over us, considering that they
are the sole supplier of certain products and services, or there
may be a long lead time
and/or
significant expense required to transition to another provider.
As a result, our operations depend on a successful relationship
with these companies. Any delays or disruptions in the
relationship as a result of contractual disagreements,
operational or financial failures on the part of the suppliers,
or other adverse events, could negatively affect our ability to
effectively provision and service our customers. Demand for some
of these items has increased with the general growth in demand
for Internet and telecommunications services. We typically do
not carry significant inventories, and therefore any delays in
our ability to obtain equipment could impact our operations.
Moreover, if there are no suppliers that are able to provide
set-top converter boxes that comply with evolving Internet and
telecommunications standards, or that are compatible with other
equipment and software that we use, this could negatively affect
our ability to effectively provision and service our customers.
We also have outsourcing arrangements with certain telephony
providers in connection with our provision of HSD and telephony
services to our customers. We are in the process of
transitioning our telephony services to an in-house platform,
and unexpected delays or disruptions in the transition process
may adversely affect our customers and our business.
We
depend on network and information systems and other
technologies. A disruption or failure in such systems and
technologies, or in our ability to transition from one system to
another, could have a material adverse affect on our business,
financial condition and results of operations.
Because of the importance of network and information systems and
other technologies to our business, any events affecting these
systems and technologies could have a devastating impact on our
business. These events could include: computer hacking, computer
viruses, worms or other disruptive software, process breakdowns,
denial of service attacks and other malicious activities or any
combination of the foregoing; and natural disasters, power
outages and man-made disasters. Such occurrences may cause
service disruptions, loss of customers and revenues and negative
publicity, which may result in significant expenditures to
repair or replace the damaged infrastructure, or protect from
similar occurrences in the future. We may also be negatively
affected by the illegal acquisition and dissemination of data
and information, including customer, personnel, and vendor data,
and this may require us to expend significant capital and other
resources to remedy any such security breach.
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Our
business depends on certain intellectual property rights and on
not infringing on the intellectual property rights of
others.
We rely on our copyrights, trademarks and trade secrets, as well
as licenses and other agreements with our vendors and other
parties, to use our technologies, conduct our operations and
sell our products and services. Third-party firms have in the
past, and may in the future, assert claims or initiate
litigation related to exclusive patent, copyright, trademark,
and other intellectual property rights to technologies and
related standards that are relevant to us. These assertions have
increased over time as a result of our growth and the general
increase in the pace of patent claims assertions, particularly
in the United States. Because of the existence of a large number
of patents in the networking field, the secrecy of some pending
patents and the rapid rate of issuance of new patents, it is not
economically practical or even possible to determine in advance
whether a product or any of its components infringes or will
infringe on the patent rights of others. Asserted claims
and/or
initiated litigation can include claims against us or our
manufacturers, suppliers, or customers, alleging infringement of
their proprietary rights with respect to our existing or future
products
and/or
services or components of those products
and/or
services. Regardless of the merit of these claims, they can be
time-consuming; result in costly litigation and diversion of
technical and management personnel; and require us to develop a
non-infringing technology or enter into license agreements.
There can be no assurance that licenses will be available on
acceptable terms and conditions, if at all, or that our
indemnification by our suppliers will be adequate to cover our
costs if a claim were brought directly against us or our
customers. Furthermore, because of the potential for high court
awards that are not necessarily predictable, it is not unusual
to find even arguably unmeritorious claims settled for
significant amounts. If any infringement or other intellectual
property claim made against us by any third-party is successful,
if we are required to indemnify a customer with respect to a
claim against the customer, or if we fail to develop
non-infringing technology or license the proprietary rights on
commercially reasonable terms and conditions, our business,
results of operations, and financial condition could be
adversely affected.
Some
of our cable systems operate in the Gulf Coast region, which
historically has experienced severe hurricanes and tropical
storms.
Cable systems serving approximately 11% of our subscribers are
located on or near the Gulf Coast in Alabama, Florida and
Mississippi. In 2004 and 2005, three hurricanes impacted these
cable systems to varying degrees causing property damage,
service interruption and loss of customers. If the Gulf Coast
region were to experience severe hurricanes in the future, this
could adversely impact our results of operations in affected
areas, causing us to experience higher than normal levels of
expense and capital expenditures, as well as the potential loss
of customers and revenues.
The
loss of key personnel could have a material adverse effect on
our business.
Our success is substantially dependent upon the retention of,
and the continued performance by, our key personnel, including
Rocco B. Commisso, our Chairman and Chief Executive Officer. Our
debt arrangements provide that a default may result if
Mr. Commisso ceases to be our Chairman and Chief Executive
Officer, or if he and his designees do not constitute a majority
of the Executive Committee of each of Mediacom LLC and Mediacom
Broadband LLC, our principal subsidiaries. We have not entered
into a long-term employment agreement with Mr. Commisso,
and we do not currently maintain key man life insurance on
Mr. Commisso or other key personnel. If any of our key
personnel ceases to participate in our business and operations,
it could have an adverse effect on our business, financial
condition and results of operations.
Risks
Related to our Financial Condition
We are
exposed to risks caused by disruptions in the capital and credit
markets, which could have an adverse affect on our business,
financial condition and results of operations.
We rely on the capital markets for senior note offerings, and
the credit markets for bank credit arrangements, to meet our
financial commitments and liquidity needs. The U.S. economy
has fallen into a deep recession, with major downturns in
financial markets and the collapse or significant weakening of
many banks and other financial institutions. The capital and
credit markets tightened, making it more difficult for us and
many companies to obtain
26
financing at all or on terms comparable to those available over
the past several years. Future disruptions in such markets could
cause our counterparty banks to be unable to fulfill their
commitments to us, potentially reducing amounts available to us
under our revolving credit commitments, or subjecting us to
greater credit risk with respect to our interest rate exchange
agreements. At this time, we are not aware of any of our
counterparty banks being in a position where they would be
unable to fulfill their obligations to us. However, we are
unable to predict future movements in the capital and credit
markets or the underlying effects on our results of operations.
We
have substantial debt, we are highly leveraged and we have
significant interest payments and debt repayments, which could
limit our operational flexibility and have an adverse affect on
our financial condition and results of operations.
As of December 31, 2009, our total debt was approximately
$3.365 billion. Because of our substantial indebtedness, we
are highly leveraged and will continue to be so. Our overall
leverage could:
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limit our ability to obtain additional financing in the future
for working capital, capital expenditures or acquisitions;
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limit our ability to refinance our indebtedness on terms
acceptable to us or at all;
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limit our ability to adapt to changing market conditions;
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restrict us from making strategic acquisitions or cause us to
make divestitures;
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require us to dedicate a significant portion of our cash flow
from operations to paying the principal of and interest on our
indebtedness;
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limit our flexibility in planning for, or reacting to, changes
in our business and the communications industry generally;
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place us at a competitive disadvantage compared with competitors
that have a less significant debt burden; and
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make us more vulnerable to economic downturns and limit our
ability to withstand competitive pressures.
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Our debt service obligations require us to use a large portion
of our revenues and cash flows to pay principal and interest,
reducing our ability to finance our operations, capital
expenditures and other activities. For 2009, our cash interest
expense was $216.4 million and our term loan principal
payments were $125.3 million. A portion of our debt,
including outstanding debt under our revolving credit facilities
and term loans, have a variable rate of interest determined by
the Eurodollar rate plus a margin, which may vary depending on
the ratio of senior indebtedness (as defined) under the credit
facility to system cash flow (as defined). If we incurred
additional debt under our revolving credit facilities, the
Eurodollar rate were to rise
and/or our
system cash flow decreased, we would be required to pay
additional interest expense, which would have an adverse affect
on our results of operations.
Our business is very capital intensive, and requires significant
annual outlays primarily for new digital video cable boxes and
modems, and cable network and related infrastructure. In 2009,
our capital expenditures were approximately $237 million.
We expect these capital expenditures to continue to be
significant over the next several years, as we continue to
market our products and services to our customers.
We believe that cash generated by us or available to us will
meet our anticipated capital and liquidity needs for the
foreseeable future. However, in the longer term, specifically
2015 and beyond, we may not have enough cash available to
satisfy our maturing term loans and senior notes. Accordingly,
we may have to refinance existing obligations to extend
maturities, or raise additional capital through debt or equity
issuances or both. There can be no assurance that we will be
able to refinance our existing obligations or raise any required
additional capital or to do so on favorable terms. If we do not
successfully accomplish these tasks, then we may have to cancel
or scale back future capital spending programs, or sell assets.
Failure to make capital investments in our business could
materially and adversely affect our ability to compete
effectively.
27
We are
a holding company, and if the operating subsidiaries of our
principal subsidiaries are unable to make funds available to our
principal subsidiaries, they may not be able to fund their
indebtedness and other obligations.
We are a holding company, and do not have any operations or hold
any assets other than our investments in, and our advances to,
our wholly-owned subsidiaries, Mediacom Broadband LLC and
Mediacom LLC. The various operating subsidiaries of Mediacom
Broadband LLC and Mediacom LLC (the Operating
Subsidiaries) conduct all of our consolidated operations
and own substantially all of our consolidated assets. The
Operating Subsidiaries are separate and distinct legal entities
and have no obligation, contingent or otherwise, to make funds
available to Mediacom Broadband LLC or Mediacom LLC.
The only source of cash that Mediacom Broadband LLC and Mediacom
LLC have to fund their senior notes (including, without
limitation, the payment of interest on, and the repayment of
principal) is the cash that their respective Operating
Subsidiaries generate from operations and from borrowing under
their subsidiaries credit facilities. The ability of the
Operating Subsidiaries to make funds available to Mediacom
Broadband LLC and Mediacom LLC in the form of dividends, loans,
advances or other payments, will depend upon the operating
results of such subsidiaries, applicable laws and contractual
restrictions, including the covenants set forth in the credit
agreements governing such subsidiaries credit facilities.
If the Operating Subsidiaries were unable to make funds
available to Mediacom Broadband LLC and Mediacom LLC, then
Mediacom Broadband LLC and Mediacom LLC may not be able to make
payments of principal or interest due under their senior notes.
If such an event occurred, we may be required to adopt one or
more alternatives, such as refinancing the senior notes of
Mediacom Broadband LLC and Mediacom LLC or the outstanding debt
of the Operating Subsidiaries at or before maturity, or raise
additional capital through debt or equity issuance or both. If
we were not able to successfully accomplish those tasks, then we
may have to cancel or scale back future capital spending
programs, or sell assets. There can be no assurance that any of
the foregoing actions would be successful. Any inability to meet
our debt service obligations or refinance our indebtedness would
materially adversely affect our business, financial condition,
results of operations and liquidity.
A
default under our credit facilities or indentures could result
in an acceleration of our indebtedness and other material
adverse effects.
The credit agreements governing our Operating Subsidiaries
credit facilities contain various covenants that, among other
things, impose certain limitations on mergers and acquisitions,
consolidations and sales of certain assets, liens, the
incurrence of additional indebtedness, certain restricted
payments and certain transactions with affiliates. The principal
financial covenant of our credit facilities requires compliance
with a ratio of total senior indebtedness (as defined) to
annualized system cash flow (as defined) of no more than 6.0 to
1.0. See Note 7 in our Notes to Consolidated Financial
Statements.
The indentures governing our senior notes also contain various
covenants, though they are generally less restrictive than those
found in our bank credit facilities. Such covenants restrict our
ability, among other things, make certain distributions,
investments and other restricted payments, sell certain assets,
to make restricted payments, create certain liens, merge,
consolidate or sell substantially all of our assets and enter
into certain transactions with affiliates. The principal
financial covenant of these senior notes has a limitation on the
incurrence of additional indebtedness based upon a maximum ratio
of total indebtedness to cash flow (as defined) of 8.5 to 1.0.
See Note 7 in our Notes to Consolidated Financial
Statements.
The breach of any of these covenants could cause a default,
which may result in the indebtedness becoming immediately due
and payable. If this were to occur, we would be unable to
adequately finance our operations. In addition, a default could
result in a default or acceleration of our other indebtedness
subject to cross-default provisions. If this occurs, we may not
be able to pay our debts or borrow sufficient funds to refinance
them. Even if new financing is available, it may not be on terms
that are acceptable to us. The membership interests of our
Operating Subsidiaries are pledged as collateral under our
respective subsidiary credit facilities. A default under one of
our subsidiary credit facilities could result in a foreclosure
by the lenders on the membership interests pledged under that
facility. Because we are dependent upon our Operating
Subsidiaries for all of our cash flows, a
28
foreclosure would have a material adverse effect on our
business, financial condition, results of operations, and
liquidity.
In the event of a liquidation or reorganization of any of our
subsidiaries, the creditors of any of such subsidiaries,
including trade creditors, would be entitled to a claim on the
assets of such subsidiaries prior to any claims of the
stockholders of any such subsidiaries, and those creditors are
likely to be paid in full before any distribution is made to
such stockholders. To the extent that we, or any of our direct
or indirect subsidiaries, are a creditor of another of our
subsidiaries, the claims of such creditor could be subordinated
to any security interest in the assets of such subsidiary
and/or any
indebtedness of such subsidiary senior to that held by such
creditor.
A
lowering of the ratings assigned to our debt securities by
ratings agencies may increase our future borrowing costs and
reduce our access to capital.
Our future access to the debt markets and the terms and
conditions we receive are influenced by our debt ratings. Our
corporate credit ratings are B1, with a stable outlook, by
Moodys, and B+, with a stable outlook, by Standard and
Poors. There can be no assurance that our debt ratings
will not be lowered in the future by a rating agency. Any future
downgrade to our 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.
We
have a history of net losses and we may continue to generate net
losses in the future.
Although we reported net income for the year ended
December 31, 2009, we have a history of net losses,
including net losses during the years ended December 31,
2008, and 2007, and we may report net losses in the future. In
general, our net losses have principally resulted from
depreciation and amortization expenses associated with our
acquisitions, and capital expenditures related to expanding and
upgrading of our cable systems, interest expense and other
financing charges related to our indebtedness, and net losses on
derivatives. If we were to report net losses in the future,
these losses may limit our ability to attract needed financing,
and to do so on favorable terms, as such losses may prevent some
investors from investing in our securities.
Changes
to our valuation account for deferred tax assets can cause our
net income or net loss to fluctuate significantly.
As of December 31, 2009, we had pre-tax net operating loss
carryforwards for federal purposes of approximately
$2.4 billion and, if not utilized, they will expire in the
years 2020 through 2029. Mostly due to these net operating loss
carryforwards, as of December 31, 2009, we had total
deferred tax assets of $245.3 million.
We periodically assess the likelihood of realization of our
deferred tax assets, considering all available evidence, both
positive and negative, including our most recent performance,
the scheduled reversal of deferred tax liabilities, our forecast
of taxable income in future periods and the availability of
prudent tax planning strategies. As a result of these
assessments in prior years, we established valuation allowances
on a portion of our deferred tax assets due to the uncertainty
surrounding the realization of these assets. During the fourth
quarter of 2009, there was a sufficient change in our ability to
recover our deferred tax assets. We reversed a substantial
portion of our valuation allowances on our deferred tax assets,
based upon our assessment surrounding the likelihood of deferred
tax asset realization.
Our income tax expense in future periods will be reduced or
increased based upon the amount of our taxable income and our
ability to shelter taxable income through the use of these
deferred tax assets. These changes could have a significant
impact on our future earnings.
Our
ability to use net operating loss carry forwards
(NOLs) to reduce future taxable income and thus
reduce our federal income tax liability may be limited if there
is a change in our ownership or if our taxable income does not
reach sufficient levels.
As of December 31, 2009, we have approximately
$2.4 billion of U.S. federal NOLs available to reduce
taxable income in future years that expire between 2020 and
2029. Section 382 of the Internal Revenue Code
(Section 382) imposes substantial limitations
on a corporations ability to utilize NOLs if it
experiences an
29
ownership change. The determination of whether an
ownership change occurs is complex and, to some extent,
dependent on information that is not publicly available. In
general terms, an ownership change may result from transactions
increasing the ownership of certain stockholders in the stock of
a corporation by more than 50 percentage points over a
three-year period. In the event of an ownership change,
utilization of our pre-ownership change NOLs would be subject to
an annual limitation under Section 382. Any unused NOLs in
excess of the annual limitation may be carried over to later
years. In addition, our ability to use our NOLs will be
dependent on our ability to generate taxable income.
Depending on the possible resulting limitations imposed by
Section 382 or the timing of our ability to generate
sufficient taxable income, a significant portion of our federal
NOLs could expire before we would be able to use them. Our
inability to utilize our federal NOLs may potentially accelerate
cash tax payments by us and thus adversely affect our results of
operations and financial condition.
Impairment
of our goodwill and other intangible assets could cause
significant losses.
As of December 31, 2009, we had approximately
$2.0 billion of unamortized intangible assets, including
goodwill of $220.0 million and franchise rights of
$1.8 billion on our consolidated balance sheets. These
intangible assets represented approximately 51% of our total
assets.
Accounting Standards Codification No. 350
Intangibles Goodwill and Other (ASC 350)
requires that goodwill and other intangible assets deemed to
have indefinite useful lives, such as cable franchise rights,
cease to be amortized. ASC 350 also requires that goodwill and
certain intangible assets be tested at least annually for
impairment. If we find that the carrying value of goodwill or
cable franchise rights exceeds its fair value, we will reduce
the carrying value of the goodwill or intangible asset to the
fair value, and will recognize an impairment loss in our results
of operations.
We follow the provisions of ASC 350 to test our goodwill and
franchise rights for impairment. We assess the fair values of
each cable system cluster using a discounted cash flow
(DCF) methodology, under which the fair value of
cable franchise rights are determined in a direct manner. Our
DCF analysis uses significant (Level 3) unobservable
inputs, which is described under Managements
Discussion and Analysis of Financial Condition and Results of
Operations Valuation and Impairment Testing of
Indefinite-Lived Intangibles. This assessment involves
significant judgment, including certain assumptions and
estimates that determine future cash flow expectations and other
future benefits, which are consistent with the expectations of
buyers and sellers of cable systems in determining fair value.
These assumptions and estimates include discount rates,
estimated growth rates, terminal growth rates, comparable
company data, revenues per customer, market penetration as a
percentage of homes passed and operating margin. We also
consider market transactions, market valuations, research
analyst estimates and other valuations using multiples of
operating income before depreciation and amortization to confirm
the reasonableness of fair values determined by the DCF
methodology.
Since a number of factors may influence determinations of fair
value of intangible assets, we are unable to predict whether
impairments of goodwill or other indefinite-lived intangibles
will occur in the future. However, significant impairment in
value resulting in impairment charges may result if the
estimates and assumptions used in the fair value determination
change in the future. Such impairment could be significant and
could have an adverse effect on our business, financial
condition and results of operations. Any such impairment would
result in our recognizing a corresponding write-off, which could
cause us to report a significant noncash operating loss. Our
annual impairment analysis was performed as of October 1,
2009 and resulted in no impairment. We may be required to
conduct an impairment analysis prior to our anniversary date to
the extent certain economic or business factors are present.
Risks
Related to Legislative and Regulatory Matters
Changes
in government regulation could adversely impact our
business.
The cable industry is subject to extensive legislation and
regulation at the federal and local levels and, in some
instances, at the state level. Additionally, our HSD and phone
services are also subject to regulation, and additional
regulation is under consideration. Many aspects of such
regulation are currently the subject of judicial and
administrative proceedings and legislative and administrative
proposals, and lobbying efforts by us and our
30
competitors. We expect that court actions and regulatory
proceedings will continue to refine our rights and obligations
under applicable federal, state and local laws. The results of
current or future judicial and administrative proceedings and
legislative activities cannot be predicted. Modifications to
existing requirements or imposition of new requirements or
limitations could have an adverse impact on our business
including those described below. See Business
Legislation and Regulation.
Denials
of franchise renewals or continued absence of franchise parity
can adversely impact our business.
Where state-issued franchises are not available, local
franchising authorities may demand concessions, or other
commitments, as a condition to renewal, and these concessions or
other commitments could be costly. Although the Cable Act
affords certain protections, there is no assurance that we will
not be compelled to meet their demands in order to obtain
renewals.
Our cable systems are operated under non-exclusive franchises.
As of December 31, 2009, approximately 13% of the estimated
homes passed by our cable systems were also served by other
cable operators. Because of the FCCs actions to speed
issuance of local competitive franchises and because many states
in which we operate cable systems have adopted and other states
may adopt legislation to allow others, including local telephone
companies, to deliver services in competition with our cable
service without obtaining equivalent local franchises, we may
face not only increasing competition but we may be at a
competitive disadvantage due to lack of regulatory parity. Any
of these factors could adversely affect our business. See
Business Legislation and
Regulation Cable System Operations and Cable
Services State and Local Regulation
Franchise Matters.
Changes
in carriage requirements could impose additional cost burdens on
us.
Any change that increases the amount of content that we must
carry on our cable systems can adversely impact our business by
increasing our cost and limiting our ability to carry other
programming more valued by our subscribers or limit our ability
to provide other services. For example, if we are required to
carry more than the primary stream of digital broadcast signals
or if the FCC regulations are put into effect that require us to
provide either very low cost or no cost commercial leased
access, our business would be adversely affected. See
Business Legislation and
Regulation Cable System Operations and Cable
Services Federal Regulation Content
Regulations.
Pending
FCC and court proceedings could adversely affect our HSD
service.
The regulatory status of providing HSD service by cable
companies remains uncertain. If the FCC imposes additional
regulatory burdens or further restricts the methods we may
employ to manage the operation of our network through new
network neutrality obligations or otherwise, our
costs would increase, we may be required to make additional
capital expenditures and our business would be adversely
affected. See Business Legislation and
Regulation HSD Service Federal
Regulation.
Our
phone service may become subject to additional
regulation.
The regulatory treatment of phone services that we and other
providers offer remains uncertain. The FCC, Congress, the courts
and the states continue to look at issues surrounding the
provision of VoIP, including whether this service is properly
classified as either a telecommunications service or an
information service. Any changes to existing law as it applies
to VoIP or any determination that results in greater or
different regulatory obligations than competing services would
result in increased costs, reduce anticipated revenues and
impede our ability to effectively compete or otherwise adversely
affect our ability to successfully roll-out and conduct our
telephony business. See Business Legislation
and Regulation
Voice-over-Internet-Protocol
Telephony Service Federal Law.
Changes
in pole attachment regulations or actions by pole owners could
significantly increased our pole attachment costs.
Our cable facilities are often attached to, or use, public
utility poles, ducts or conduits. Significant change to the
FCCs long-standing pole attachment cable rate
formula, increases in pole attachment costs as a result of our
provision of Internet, VoIP or other services could increase our
pole attachment costs. Our business, financial
31
condition and results of operations could suffer a material
adverse impact from any significant increased costs, and such
increased pole attachment costs could discourage system upgrades
and the introduction of new products and services. See
Business Legislation and
Regulation Cable System Operations and Cable
Services Federal Regulation Pole
Attachment Regulation.
Changes
in compulsory copyright regulations could significantly increase
our license fees.
If Congress enacts the proposed revisions to the Copyright Act,
it could impose oversight and conditions that could adversely
affect our business. Additionally, the Copyright Offices
implementation of any such legislative changes could impose
requirements on us or permit overly intrusive access to
financial and operational records. Any future decision by
Congress to eliminate the cable compulsory license, which would
require us to obtain copyright licensing of all broadcast
material at the source, would impose significant administrative
burdens and additional costs that could adversely affect our
business. See Business Legislation and
Regulation Cable System Operations and Cable
Services Federal Regulation
Copyright.
Risks
Related to our Chairman and Chief Executive Officers
Controlling Position
Our
Chairman and Chief Executive Officer has the ability to control
all major corporate decisions, and a sale of his stock could
result in a change of control that would have unpredictable
effects.
Rocco B. Commisso, our Chairman and Chief Executive Officer,
beneficially owned shares of our common stock representing
approximately 87.2% of the aggregate voting power as of
December 31, 2009. As a result, Mr. Commisso generally
has the ability to control the outcome of all matters requiring
stockholder approval, including the election of our entire board
of directors, the approval of any merger or consolidation and
the sale of all or substantially all of our assets. In addition,
Mr. Commissos voting power may have the effect of
discouraging offers to acquire us because any such acquisition
would require his consent.
Pursuant to a Significant Stockholder Agreement, dated
September 7, 2008, Mr. Commisso has agreed not to
consummate prior to September 7, 2010 an extraordinary
transaction involving us without the recommendation of a
majority of either (i) the disinterested directors that are
members of our board of directors or (ii) the members of a
special committee of our board consisting of disinterested
directors.
We cannot assure you that Mr. Commisso will maintain all or
any portion of his ownership, or that he would continue as an
officer or director if he sold a significant part of his stock.
The disposition by Mr. Commisso of a sufficient number of
shares could result in a change in control of our company, and
no assurance can be given that a change of control would not
adversely affect our business, financial condition or results of
operations. A change in control could also result in a default
under our debt arrangements, could require us to offer to
repurchase our senior notes at 101% of their principal amount,
could trigger a variety of federal, state and local regulatory
consent requirements and potentially limit our utilization of
net operating losses for income tax purposes.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
Our principal physical assets consist of fiber optic networks,
including signal receiving, encoding and decoding devices,
headend facilities and distribution systems and equipment at, or
near, customers homes. The signal receiving apparatus
typically includes a tower, antenna, ancillary electronic
equipment and earth stations for reception of satellite signals.
Headend facilities are located near the receiving devices. Our
distribution system consists primarily of coaxial and fiber
optic cables and related electronic equipment. Customer premise
equipment consists of set-top devices, cable modems and related
equipment. Our distribution systems and related equipment
generally are attached to utility poles under pole rental
agreements with local public utilities, although in some areas
the distribution cable is buried in underground ducts or
trenches. The physical components of the cable systems require
maintenance and periodic upgrading to improve performance and
capacity. In addition, we maintain a network operations center
with equipment necessary to monitor and manage the status of our
network.
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We own and lease the real property housing our regional call
centers, business offices and warehouses throughout our
operating regions. Our headend facilities, signal reception
sites and microwave facilities are located on owned and leased
parcels of land, and we generally own the towers on which
certain of our equipment is located. We own most of our service
vehicles. We believe that our properties, both owned and leased,
are in good condition and are suitable and adequate for our
operations.
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ITEM 3.
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LEGAL
PROCEEDINGS
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Mediacom LLC, one of our wholly owned subsidiaries, is named as
a defendant in a putative class action, captioned Gary Ogg
and Janice Ogg v. Mediacom LLC, pending in the Circuit
Court of Clay County, Missouri, originally filed in April 2001.
The lawsuit alleges that Mediacom LLC, in areas where there was
no cable franchise failed to obtain permission from landowners
to place our fiber interconnection cable notwithstanding the
possession of agreements or permission from other third parties.
While the parties continue to contest liability, there also
remains a dispute as to the proper measure of damages. Based on
a report by their experts, the plaintiffs claim compensatory
damages of approximately $14.5 million. Legal fees,
prejudgment interest, potential punitive damages and other costs
could increase that estimate to approximately
$26.0 million. Before trial, the plaintiffs proposed an
alternative damage theory of $42.0 million in compensatory
damages. Notwithstanding the verdict in the trial described
below, we remain unable to reasonably determine the amount of
our final liability in this lawsuit. Prior to trial our experts
estimated our liability to be within the range of approximately
$0.1 million to $2.3 million. This estimate did not
include any estimate of damages for prejudgment interest,
attorneys fees or punitive damages.
On March 9, 2009, a jury trial commenced solely for the
claim of Gary and Janice Ogg, the designated class
representatives. On March 18, 2009, the jury rendered a
verdict in favor of Gary and Janice Ogg setting compensatory
damages of $8,863 and punitive damages of $35,000. The Court did
not enter a final judgment on this verdict and therefore the
amount of the verdict cannot at this time be judicially
collected. Although we believe that the particular circumstances
of each class member may result in a different measure of
damages for each member, if the same measure of compensatory
damages was used for each member, the aggregate compensatory
damages would be approximately $16.2 million plus the
possibility of an award of attorneys fees, prejudgment
interest, and punitive damages. Mediacom LLC is vigorously
defending against the claims made by the other members of the
class, including filing and responding to post trial motions and
preparing for subsequent trials, and an appeal, if necessary.
We believe that the amount of actual liability would not have a
significant effect on our consolidated financial position,
results of operations, cash flows or business. There can be no
assurance, however, that the actual liability ultimately
determined for all members of the class would not exceed our
estimated range or any amount derived from the verdict rendered
on March 18, 2009. Mediacom LLC has tendered the lawsuit to
our insurance carrier for defense and indemnification. The
carrier has agreed to defend Mediacom LLC under a reservation of
rights, and a declaratory judgment action is pending regarding
the carriers defense and coverage responsibilities.
In addition, we became aware on March 5, 2010 of the filing
of a purported class action in the United States District Court
for the Southern District of New York entitled Jim
Knight v. Mediacom Communications Corp., in which we
are named as the defendant. The complaint asserts that the
potential class is comprised of all persons who purchased
premium cable services from us and rented a cable box
distributed by us. The plaintiff alleges that we improperly
tie the rental of cable boxes to the provision of
premium cable services in violation of Section 1 of the
Sherman Antitrust Act. The plaintiff also alleges a claim for
unjust enrichment and seeks injunctive relief and unspecified
damages. We believe we have substantial defenses to the claims
asserted in the complaint, which has not yet been served on us,
and we intend to defend the action vigorously.
We are also involved in various other legal actions arising in
the ordinary course of business. In the opinion of management,
the ultimate disposition of these other matters will not have a
material adverse effect on our consolidated financial position,
results of operations, cash flows or business.
33
|
|
ITEM 4A.
|
EXECUTIVE
OFFICERS OF THE REGISTRANT
|
Our current Executive Officers are as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Title
|
|
Rocco B. Commisso
|
|
|
60
|
|
|
Chairman and Chief Executive Officer
|
Mark E. Stephan
|
|
|
53
|
|
|
Executive Vice President and Chief Financial Officer
|
John G. Pascarelli
|
|
|
48
|
|
|
Executive Vice President, Operations
|
Italia Commisso Weinand
|
|
|
56
|
|
|
Senior Vice President, Programming & Human Resources
|
Joseph E. Young
|
|
|
61
|
|
|
Senior Vice President, General Counsel & Secretary
|
Charles J. Bartolotta
|
|
|
54
|
|
|
Senior Vice President, Enterprise Solutions & Field Service
Operations
|
Calvin G. Craib
|
|
|
55
|
|
|
Senior Vice President, Corporate Finance
|
Brian M. Walsh
|
|
|
44
|
|
|
Senior Vice President & Corporate Controller
|
Rocco B. Commisso has 31 years of experience with
the cable industry and has served as our Chairman and Chief
Executive Officer since founding our predecessor company in July
1995. From 1986 to 1995, he served as Executive Vice President,
Chief Financial Officer and a director of Cablevision Industries
Corporation. Prior to that time, Mr. Commisso served as
Senior Vice President of Royal Bank of Canadas affiliate
in the United States from 1981, where he founded and directed a
specialized lending group to media and communications companies.
Mr. Commisso began his association with the cable industry
in 1978 at The Chase Manhattan Bank, where he managed the
banks lending activities to communications firms including
the cable industry. He serves on the board of directors and
executive committees of the National Cable Television
Association and Cable Television Laboratories, Inc., and on the
board of directors of C-SPAN and the National Italian American
Foundation. Mr. Commisso holds a Bachelor of Science in
Industrial Engineering and a Master of Business Administration
from Columbia University.
Mark E. Stephan has 23 years of experience with the
cable industry and has served as our Executive Vice President
and Chief Financial Officer since July 2005. Prior to that he
was Executive Vice President, Chief Financial Officer and
Treasurer since November 2003 and our Senior Vice President,
Chief Financial Officer and Treasurer since the commencement of
our operations in March 1996. Before joining us,
Mr. Stephan served as Vice President, Finance for
Cablevision Industries from July 1993. Prior to that time,
Mr. Stephan served as Manager of the telecommunications and
media lending group of Royal Bank of Canada.
John G. Pascarelli has 29 years of experience with
the cable industry and has served as our Executive Vice
President, Operations since November 2003. Prior to that he was
our Senior Vice President, Marketing and Consumer Services from
June 2000 and our Vice President of Marketing from March 1998.
Before joining us in March 1998, Mr. Pascarelli served as
Vice President, Marketing for Helicon Communications Corporation
from January 1996 to February 1998 and as Corporate Director of
Marketing for Cablevision Industries from 1988 to 1995. Prior to
that time, Mr. Pascarelli served in various marketing and
system management capacities for Continental Cablevision, Inc.,
Cablevision Systems and Storer Communications.
Italia Commisso Weinand has 33 years of experience
with the cable industry. Before joining us in April 1996,
Ms. Weinand served as Regional Manager for Comcast
Corporation from July 1985. Prior to that time, Ms. Weinand
held various management positions with Tele-Communications,
Inc., Times Mirror Cable and Time Warner, Inc. Ms. Weinand
is the sister of Mr. Commisso.
Joseph E. Young has 25 years of experience with the
cable industry. Before joining us in November 2001 as Senior
Vice President, General Counsel, Mr. Young served as
Executive Vice President, Legal and Business Affairs, for
LinkShare Corporation, an Internet-based provider of marketing
services, from September 1999 to October 2001. Prior to that
time, he practiced corporate law with Baker & Botts,
LLP from January 1995 to September 1999. Previously,
Mr. Young was a partner with the Law Offices of Jerome H.
Kern and a partner with Shea & Gould.
34
Charles J. Bartolotta has 27 years of experience
with the cable industry. Before joining us in October 2000,
Mr. Bartolotta served as Division President for
AT&T Broadband, LLC from July 1998, where he was
responsible for managing an operating division serving nearly
three million customers. Prior to that time, he served as
Regional Vice President of Tele-Communications, Inc. from
January 1997 and as Vice President and General Manager for TKR
Cable Company from 1989. Prior to that time, Mr. Bartolotta
held various management positions with Cablevision Systems
Corporation.
Calvin G. Craib has 28 years of experience with the
cable industry, and has served as our Senior Vice President,
Business Development since August 2001. He also assumed
responsibility of Corporate Finance in June 2008. Prior to that
time, Mr. Craib was our Vice President, Business
Development since April 1999. Before joining us in April 1999,
he served as Vice President, Finance and Administration for
Interactive Marketing Group from June 1997 to December 1998 and
as Senior Vice President, Operations, and Chief Financial
Officer for Douglas Communications from January 1990 to May
1997. Prior to that time, Mr. Craib served in various
financial management capacities at Warner Amex Cable and Tribune
Cable.
Brian M. Walsh has 22 years of experience with the
cable industry and has served as our Senior Vice President and
Corporate Controller since February 2005. Prior to that time, he
was our Senior Vice President, Financial Operations from
November 2003, our Vice President, Finance and Assistant to the
Chairman from November 2001, our Vice President and Corporate
Controller from February 1998 and our Director of Accounting
from November 1996. Before joining us in April 1996,
Mr. Walsh held various management positions with
Cablevision Industries from 1988 to 1995.
35
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our Class A common stock is traded on The Nasdaq Global
Select Market under the symbol MCCC. The following
table sets forth, for the periods indicated, the high and low
closing sales prices for our Class A common stock as
reported by The Nasdaq Global Select Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
First Quarter
|
|
$
|
3.01
|
|
|
$
|
5.98
|
|
|
$
|
3.97
|
|
|
$
|
5.27
|
|
Second Quarter
|
|
$
|
4.01
|
|
|
$
|
6.51
|
|
|
$
|
4.15
|
|
|
$
|
6.52
|
|
Third Quarter
|
|
$
|
4.23
|
|
|
$
|
5.89
|
|
|
$
|
4.91
|
|
|
$
|
8.40
|
|
Fourth Quarter
|
|
$
|
3.95
|
|
|
$
|
5.65
|
|
|
$
|
2.00
|
|
|
$
|
5.81
|
|
As of February 28, 2010, there were approximately 2,517
holders of record of our Class A common stock and 2 holders
of record of our Class B common stock. The number of
Class A stockholders does not include beneficial owners
holding shares through nominee names.
We have never declared or paid any dividends on our common
stock, and do not expect to declare dividends in the near
future. Our future dividend policy will be determined by our
board of directors and will depend on various factors, including
our results of operations, financial condition, capital
requirements and investment opportunities.
During the quarter ended December 31, 2009, we had no
repurchases of our Class A common stock. As of
December 31, 2009, approximately $47.6 million
remained available under our stock repurchase program.
36
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
In the table below, we provide selected historical consolidated
statement of operations data and cash flow data for the years
ended December 31, 2005 through 2009 and balance sheet data
as of December 31, 2005 through 2009, which are derived
from our audited consolidated financial statements (except other
data and operating data).
See Managements Discussion and Analysis of Financial
Condition and Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008(11)
|
|
|
2007
|
|
|
2006(12)
|
|
|
2005
|
|
|
|
(Amounts in thousands, except per share data and operating
data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,460,359
|
|
|
$
|
1,401,894
|
|
|
$
|
1,293,375
|
|
|
|
1,210,400
|
|
|
$
|
1,098,822
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs
|
|
|
618,696
|
|
|
|
585,362
|
|
|
|
544,072
|
|
|
|
492,729
|
|
|
|
438,768
|
|
Selling, general and administrative expenses
|
|
|
274,452
|
|
|
|
278,942
|
|
|
|
264,006
|
|
|
|
252,688
|
|
|
|
232,514
|
|
Corporate expenses
|
|
|
32,820
|
|
|
|
30,824
|
|
|
|
27,637
|
|
|
|
25,445
|
|
|
|
22,287
|
|
Depreciation and amortization
|
|
|
234,630
|
|
|
|
227,910
|
|
|
|
235,331
|
|
|
|
215,918
|
|
|
|
220,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
299,761
|
|
|
|
278,856
|
|
|
|
222,329
|
|
|
|
223,620
|
|
|
|
184,686
|
|
Interest expense, net
|
|
|
(201,995
|
)
|
|
|
(213,333
|
)
|
|
|
(239,015
|
)
|
|
|
(227,206
|
)
|
|
|
(208,264
|
)
|
Loss on early extinguishment of debt
|
|
|
(5,790
|
)
|
|
|
|
|
|
|
|
|
|
|
(35,831
|
)
|
|
|
(4,742
|
)
|
Gain (loss) on derivatives, net
|
|
|
29,838
|
|
|
|
(54,363
|
)
|
|
|
(22,902
|
)
|
|
|
(15,798
|
)
|
|
|
12,555
|
|
Gain (loss) on sale of cable systems, net
|
|
|
13,781
|
|
|
|
(21,308
|
)
|
|
|
11,079
|
|
|
|
|
|
|
|
2,628
|
|
Other expense, net
|
|
|
(9,229
|
)
|
|
|
(9,133
|
)
|
|
|
(9,054
|
)
|
|
|
(9,973
|
)
|
|
|
(11,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
126,366
|
|
|
|
(19,281
|
)
|
|
|
(37,563
|
)
|
|
|
(65,188
|
)
|
|
|
(24,966
|
)
|
Benefit from (Provision for) income taxes
|
|
|
617,701
|
|
|
|
(58,213
|
)
|
|
|
(57,566
|
)
|
|
|
(59,734
|
)
|
|
|
(197,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
744,067
|
|
|
$
|
(77,494
|
)
|
|
$
|
(95,129
|
)
|
|
$
|
(124,922
|
)
|
|
$
|
(222,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
10.51
|
|
|
$
|
(0.81
|
)
|
|
$
|
(0.88
|
)
|
|
$
|
(1.13
|
)
|
|
$
|
(1.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
10.06
|
|
|
$
|
(0.81
|
)
|
|
$
|
(0.88
|
)
|
|
$
|
(1.13
|
)
|
|
$
|
(1.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
70,777
|
|
|
|
95,548
|
|
|
|
107,828
|
|
|
|
110,971
|
|
|
|
117,194
|
|
Diluted weighted average shares outstanding
|
|
|
73,977
|
|
|
|
95,548
|
|
|
|
107,828
|
|
|
|
110,971
|
|
|
|
117,194
|
|
Balance Sheet Data (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,977,729
|
|
|
$
|
3,718,989
|
|
|
$
|
3,615,210
|
|
|
$
|
3,652,350
|
|
|
$
|
3,649,498
|
|
Total debt
|
|
$
|
3,365,000
|
|
|
$
|
3,316,000
|
|
|
$
|
3,215,033
|
|
|
$
|
3,144,599
|
|
|
$
|
3,059,651
|
|
Total stockholders equity (deficit)
|
|
$
|
265,028
|
|
|
$
|
(346,644
|
)
|
|
$
|
(253,089
|
)
|
|
$
|
(94,814
|
)
|
|
$
|
59,107
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008(11)
|
|
|
2007
|
|
|
2006(12)
|
|
|
2005
|
|
|
|
(Amounts in thousands, except per share data and operating
data)
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
335,298
|
|
|
$
|
268,715
|
|
|
$
|
188,792
|
|
|
$
|
176,905
|
|
|
$
|
179,095
|
|
Investing activities
|
|
$
|
(236,695
|
)
|
|
$
|
(289,825
|
)
|
|
$
|
(202,335
|
)
|
|
$
|
(210,235
|
)
|
|
$
|
(223,600
|
)
|
Financing activities
|
|
$
|
(84,798
|
)
|
|
$
|
68,833
|
|
|
$
|
(3,454
|
)
|
|
$
|
52,434
|
|
|
$
|
37,911
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
OIBDA(2)
|
|
$
|
541,681
|
|
|
$
|
511,951
|
|
|
$
|
462,979
|
|
|
$
|
444,255
|
|
|
$
|
406,610
|
|
Adjusted OIBDA
margin(3)
|
|
|
37.1
|
%
|
|
|
36.5
|
%
|
|
|
35.8
|
%
|
|
|
36.7
|
%
|
|
|
37.0
|
%
|
Ratio of earnings to fixed
charges(4)
|
|
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data: (end of period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated homes
passed(5)
|
|
|
2,800,000
|
|
|
|
2,854,000
|
|
|
|
2,836,000
|
|
|
|
2,829,000
|
|
|
|
2,807,000
|
|
Basic
subscribers(6)
|
|
|
1,238,000
|
|
|
|
1,318,000
|
|
|
|
1,324,000
|
|
|
|
1,380,000
|
|
|
|
1,423,000
|
|
Digital
customers(7)
|
|
|
678,000
|
|
|
|
643,000
|
|
|
|
557,000
|
|
|
|
528,000
|
|
|
|
494,000
|
|
HSD
customers(8)
|
|
|
778,000
|
|
|
|
737,000
|
|
|
|
658,000
|
|
|
|
578,000
|
|
|
|
478,000
|
|
Phone
customers(9)
|
|
|
287,000
|
|
|
|
248,000
|
|
|
|
185,000
|
|
|
|
105,000
|
|
|
|
22,000
|
|
RGUs(10)
|
|
|
2,981,000
|
|
|
|
2,946,000
|
|
|
|
2,724,000
|
|
|
|
2,591,000
|
|
|
|
2,417,000
|
|
|
|
|
(1) |
|
Basic and diluted (loss) earnings per share is calculated based
on the basic and diluted weighted average shares outstanding,
respectively. |
|
(2) |
|
Adjusted OIBDA is not a financial measure calculated
in accordance with generally accepted accounting principles
(GAAP) in the United States. We define Adjusted OIBDA as
operating income before depreciation and amortization and
non-cash, share-based compensation charges. |
|
|
|
Adjusted OIBDA is one of the primary measures used by management
to evaluate our performance and to forecast future results. It
is also a significant performance measure in our annual
incentive compensation programs. We believe Adjusted OIBDA is
useful for investors because it enables them to access 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, which may
have different depreciation and amortization policies, as well
as different non-cash, share-based compensation programs.
Adjusted OIBDA and similar measures are used in calculating
compliance with the covenants of our debt arrangements. A
limitation of Adjusted 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 utilizes a
separate process to budget, measure and evaluate capital
expenditures. In addition, Adjusted OIBDA has the limitation of
not reflecting the effect of our non-cash, share-based
compensation charges. |
|
|
|
Adjusted OIBDA should not be regarded as an alternative to
either operating income or net income (loss) as an indicator of
operating performance nor should it be considered in isolation
or a substitute for financial measures prepared in accordance
with GAAP. We believe that operating income is the most directly
comparable GAAP financial measure to Adjusted OIBDA. |
38
|
|
|
|
|
The following represents a reconciliation of Adjusted OIBDA to
operating income, which is the most directly comparable GAAP
measure (dollars in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Adjusted OIBDA
|
|
$
|
541,681
|
|
|
$
|
511,951
|
|
|
$
|
462,979
|
|
|
$
|
444,255
|
|
|
$
|
406,610
|
|
Non-cash, share-based compensation and other share-based
awards(a)
|
|
|
(7,290
|
)
|
|
|
(5,185
|
)
|
|
|
(5,319
|
)
|
|
|
(4,717
|
)
|
|
|
(1,357
|
)
|
Depreciation and amortization
|
|
|
(234,630
|
)
|
|
|
(227,910
|
)
|
|
|
(235,331
|
)
|
|
|
(215,918
|
)
|
|
|
(220,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
299,761
|
|
|
$
|
278,856
|
|
|
$
|
222,329
|
|
|
$
|
223,620
|
|
|
$
|
184,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included approximately $20, $17, $20, $239, and $24 for the
years ended December 31, 2009, 2008, 2007, 2006 and 2005,
respectively, related to the issuance of other share-based
awards.
|
|
|
|
(3) |
|
Represents Adjusted OIBDA as a percentage of revenues. See
note 2 above. |
|
(4) |
|
The ratio of earnings to fixed charges was 1.58 for the year
ended December 31, 2009. Earnings were insufficient to
cover fixed charges by $20.7 million, $38.3 million,
$66.1 million and $26.4 million for the years ended
December 31, 2008, 2007, 2006 and 2005 respectively. Refer
to Exhibit 12.1 to this Annual Report for additional
information. |
|
(5) |
|
Represents the estimated number of single residence homes,
apartments and condominium units passed by our cable
distribution network. Estimated homes passed are based on the
best information currently available. |
|
(6) |
|
Represents a dwelling with one or more television sets that
receives a package of
over-the-air
broadcast stations, local access channels or certain
satellite-delivered cable services. Accounts that are billed on
a bulk basis, which typically receive discounted rates, are
converted into full-price equivalent basic subscribers by
dividing total bulk billed basic revenues of a particular system
by the average cable rate charged to basic subscribers in that
system. This conversion method is generally consistent with the
methodology used in determining payments to programmers. Basic
subscribers include connections to schools, libraries, local
government offices and employee households that may not be
charged for limited and expanded cable services, but may be
charged for digital cable, HSD, phone or other services. Our
methodology of calculating the number of basic subscribers may
not be identical to those used by other companies offering
similar services. |
|
(7) |
|
Represents customers receiving digital video services. |
|
(8) |
|
Represents residential HSD customers and small to medium-sized
commercial cable modem accounts billed at higher rates than
residential customers. Small to medium-sized commercial accounts
are converted to equivalent residential HSD customers by
dividing their associated revenues by the applicable residential
rate. Customers who take our scalable, fiber-based enterprise
network products and services are not counted as HSD customers.
Our methodology of calculating HSD customers may not be
identical to those used by other companies offering similar
services. |
|
(9) |
|
Represents customers receiving phone service. Small to
medium-sized commercial accounts are converted to equivalent
residential phone customers by dividing their associated
revenues by the applicable residential rate. Our methodology of
calculating phone customers may not be identical to those used
by other companies offering similar services. |
|
(10) |
|
Represents the sum of basic subscribers and digital, HSD and
phone customers. |
|
(11) |
|
Does not reflect the completion of the Exchange Agreement on
February 13, 2009. See Note 11 to our consolidated
financial statements for more information. |
|
(12) |
|
Effective January 1, 2006, we adopted ASC 718
Compensation Stock Compensation (ASC
718) (formerly SFAS No. 123(R)
Share-Based
Payment). See Note 8 to our consolidated financial
statements. |
39
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Reference is made to the Risk Factors in
Item 1A for a discussion of important factors that could
cause actual results to differ from expectations and any of our
forward-looking statements contained herein. The following
discussion should be read in conjunction with our audited
consolidated financial statements as of and for the years ended
December 31, 2009, 2008 and 2007.
Overview
We are the nations seventh largest cable company based on
the number of customers who purchase one or more video services,
also known as basic subscribers. We are among the leading cable
operators focused on serving the smaller cities in the United
States, such as Des Moines, Iowa and Springfield, Missouri, with
a significant customer concentration in the Midwestern and
Southeastern regions. We are the largest and second largest
cable company in Iowa and Illinois, respectively. Approximately
69% of our basic subscribers are in the top 100 television
markets in the United States, commonly referred to as Nielsen
Media Research designated market areas (DMAs), with
more than 55% in DMAs that rank between the 60th and 100th
largest.
Through our interactive broadband network, we provide our
customers with a wide variety of advanced products and services,
including video services, such as
video-on-demand,
high-definition television (HDTV) and digital video
recorders (DVRs), high-speed data (HSD)
and phone service. We offer the triple-play bundle of video, HSD
and phone over a single communications platform, a significant
advantage over most competitors in our service areas. As of
December 31, 2009, we offered our bundle of video, HSD and
phone services to approximately 95% of our estimated
2.80 million homes passed in 22 states. As of the same
date, we served approximately 1.24 million basic
subscribers, 678,000 digital video customers, 778,000 HSD
customers and 287,000 phone customers, aggregating
2.98 million revenue generating units (RGUs).
2009
Developments
Share
Exchange Agreement
On September 7, 2008, we entered into a Share Exchange
Agreement (the Exchange Agreement) with Shivers
Investments, LLC (Shivers) and Shivers
Trading & Operating Company (STOC). Both
STOC and Shivers are affiliates of Morris Communications
Company, LLC (Morris Communications). STOC, Shivers
and Morris Communications are controlled by William S. Morris
III, who together with another Morris Communications
representative, Craig S. Mitchell, then held two seats on our
Board of Directors.
On February 13, 2009, we completed the Exchange Agreement
pursuant to which we exchanged 100% of the shares of stock of a
wholly-owned subsidiary, which held approximately
$110 million of cash and non-strategic cable systems
serving approximately 25,000 basic subscribers (the
Exchange Systems) for 28,309,674 shares of
Mediacom Class A common stock held by Shivers. Together
with the basic subscribers, the Exchange Systems served 10,000
digital customers, 13,000 HSD customers and 3,000 phone
customers, or an aggregate 51,000 RGUs. Effective upon closing
of the transaction, Messrs. Morris and Mitchell resigned
from our Board of Directors.
During the year ended December 31, 2008, the Exchange
Systems recognized $22.5 million of total revenues,
$11.4 million of service costs, $4.2 million of
selling, general and administrative expenses and
$4.6 million of depreciation and amortization, or
$2.2 million of operating income. All 2009 comparisons to
prior year results are on an actual basis, and instances where
the inclusion of the Exchange Systems in the results of
operations in the prior year had an offsetting impact are noted
as the impact of the Exchange Agreement.
Year-over-year
comparisons of customer growth, revenues and expenses for the
year ended December 31, 2009 are generally understated in
the case of increases and overstated in the case of decreases,
then would have occurred if the Exchange Agreement did not take
place.
New
Financings
On August 25, 2009, we entered into an incremental facility
agreement that provides for a new term loan (the new term
loan) under our existing credit facilities in the
principal amount of $300.0 million. On the same date, we
40
issued
91/8% Senior
Notes due August 2019 (the
91/8% Notes)
in the aggregate principal amount of $350.0 million. Net
proceeds from the issuance of the
91/8% Notes
and borrowings under the new term loan were an aggregate of
$626.1 million, after giving effect to original issue
discount and financing costs. The net proceeds were used to fund
tender offers and redemptions of our existing
77/8% Senior
Notes due 2011 and
91/2% Senior
Notes due 2013. See Note 7 in our Notes to Consolidated
Financial Statements.
Revenues,
Costs and Expenses
Video revenues primarily represent monthly subscription fees
charged to customers for our core cable products and services
(including basic and digital cable programming services, wire
maintenance, equipment rental and services to commercial
establishments),
pay-per-view
charges, installation, reconnection and late payment fees,
franchise fees and other ancillary revenues. HSD revenues
primarily represent monthly fees charged to customers, including
small to medium sized commercial establishments, for our HSD
products and services and equipment rental fees, as well as fees
charged to large-sized businesses for our scalable, fiber- based
enterprise network products and services. Phone revenues
primarily represent monthly fees charged to customers, including
small to medium sized commercial establishments, for our phone
service. Advertising revenues represent the sale of advertising
placed on our video services.
Although we may continue to lose video customers as a result of
greater competition and weak economic conditions, we believe we
will grow video revenues for the foreseeable future through
increased gains in penetration of our advanced video services as
well as rate increases. We expect further growth in HSD and
phone revenues, as we believe we will continue to expand our
penetration of our HSD and phone services. However, future
growth in HSD and phone customers may be adversely affected by
intensifying competition, weakened economic conditions and,
specific to phone, wireless substitution. Advertising revenues
may stabilize in 2010, given the potential for an economic
recovery and the upcoming national election.
Service costs consist primarily of video programming costs and
other direct costs related to providing and maintaining services
to our customers. Significant service costs include: programming
expenses; wages and salaries of technical personnel who maintain
our cable network, perform customer installation activities and
provide customer support; HSD costs, including costs of
bandwidth connectivity and customer provisioning; phone service
costs, including delivery and other expenses; and field
operating costs, including outside contractors, vehicle,
utilities and pole rental expenses. These costs generally rise
because of customer growth, contractual increases in video
programming rates and inflationary cost increases for personnel,
outside vendors and other expenses. Costs relating to personnel
and their support may increase as the percentage of our expenses
that we can capitalize declines due to lower levels of new
service installations. Cable network related costs also
fluctuate with the level of investment we make, including the
use of our own personnel, in the cable network. We anticipate
that our service costs will continue to grow, but should remain
fairly consistent as a percentage of our revenues, with the
exception of programming costs, which we discuss below.
Video programming expenses, which are generally paid on a per
subscriber basis, have historically been our largest single
expense item. In recent years, we have experienced a substantial
increase in the cost of our programming, particularly sports and
local broadcast programming, well in excess of the inflation
rate or the change in the consumer price index. We believe that
these expenses will continue to grow, principally due to
contractual unit rate increases and the increasing demands of
sports programmers and television broadcast station owners for
retransmission consent fees. While such growth in programming
expenses can be partially offset by rate increases, it is
expected that our video gross margins will decline as increases
in programming costs outpace growth in video revenues.
Significant selling, general and administrative expenses
include: wages and salaries for our call centers, customer
service and support and administrative personnel; franchise fees
and taxes; marketing; bad debt; billing; advertising; and office
costs related to telecommunications and office administration.
These costs typically rise because of customer growth and
inflationary cost increases for employees and other expenses,
but we expect such costs should remain fairly consistent as a
percentage of revenues.
Corporate expenses reflect compensation of corporate employees
and other corporate overhead.
41
Adjusted
OIBDA
We define Adjusted OIBDA as operating income before depreciation
and amortization and non-cash, share-based compensation charges.
Adjusted OIBDA is one of the primary measures used by management
to evaluate our performance and to forecast future results but
is not a financial measure calculated in accordance with
generally accepted accounting principles (GAAP) in the United
States. It is also a significant performance measure in our
annual incentive compensation programs. We believe Adjusted
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, which may
have different depreciation and amortization policies, as well
as different non-cash, share-based compensation programs.
Adjusted OIBDA and similar measures are used in calculating
compliance with the covenants of our debt arrangements. A
limitation of Adjusted 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 utilizes a
separate process to budget, measure and evaluate capital
expenditures. In addition, Adjusted OIBDA has the limitation of
not reflecting the effect of the non-cash, share-based
compensation charges.
Adjusted OIBDA should not be regarded as an alternative to
either operating income or net income (loss) as an indicator of
operating performance 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 Adjusted OIBDA.
Actual
Results of Operations
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
The following table sets forth the unaudited consolidated
statements of operations for the years ended December 31,
2009 and 2008 (dollars in thousands and percentage changes that
are not meaningful are marked NM):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
Revenues
|
|
$
|
1,460,359
|
|
|
$
|
1,401,894
|
|
|
$
|
58,465
|
|
|
|
4.2
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs (exclusive of depreciation and amortization)
|
|
|
618,696
|
|
|
|
585,362
|
|
|
|
33,334
|
|
|
|
5.7
|
%
|
Selling, general and administrative expenses
|
|
|
274,452
|
|
|
|
278,942
|
|
|
|
(4,490
|
)
|
|
|
(1.6
|
)%
|
Corporate expenses
|
|
|
32,820
|
|
|
|
30,824
|
|
|
|
1,996
|
|
|
|
6.5
|
%
|
Depreciation and amortization
|
|
|
234,630
|
|
|
|
227,910
|
|
|
|
6,720
|
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
299,761
|
|
|
|
278,856
|
|
|
|
20,905
|
|
|
|
7.5
|
%
|
Interest expense, net
|
|
|
(201,995
|
)
|
|
|
(213,333
|
)
|
|
|
11,338
|
|
|
|
(5.3
|
)%
|
Loss on early extinguishment of debt
|
|
|
(5,790
|
)
|
|
|
|
|
|
|
(5,790
|
)
|
|
|
NM
|
|
Gain (loss) on derivatives, net
|
|
|
29,838
|
|
|
|
(54,363
|
)
|
|
|
84,201
|
|
|
|
NM
|
|
Gain (loss) on sale of cable systems, net
|
|
|
13,781
|
|
|
|
(21,308
|
)
|
|
|
35,089
|
|
|
|
NM
|
|
Other expense, net
|
|
|
(9,229
|
)
|
|
|
(9,133
|
)
|
|
|
(96
|
)
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
126,366
|
|
|
|
(19,281
|
)
|
|
|
145,647
|
|
|
|
NM
|
|
Benefit from (Provision for) income taxes
|
|
|
617,701
|
|
|
|
(58,213
|
)
|
|
|
675,914
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
744,067
|
|
|
$
|
(77,494
|
)
|
|
$
|
821,561
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted OIBDA
|
|
$
|
541,681
|
|
|
$
|
511,951
|
|
|
$
|
29,730
|
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
The following represents a reconciliation of Adjusted OIBDA to
operating income, which is the most directly comparable GAAP
measure (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
Adjusted OIBDA
|
|
$
|
541,681
|
|
|
$
|
511,951
|
|
|
$
|
29,730
|
|
|
|
5.8
|
%
|
Non-cash, share-based compensation and other share-based
awards(1)
|
|
|
(7,290
|
)
|
|
|
(5,185
|
)
|
|
|
(2,105
|
)
|
|
|
40.6
|
%
|
Depreciation and amortization
|
|
|
(234,630
|
)
|
|
|
(227,910
|
)
|
|
|
(6,720
|
)
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
299,761
|
|
|
$
|
278,856
|
|
|
$
|
20,905
|
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included approximately $20 and $17 for the years ended
December 31, 2009 and 2008, respectively, related to the
issuance of other share-based awards. |
Revenues
The following table sets forth revenue and selected subscriber,
customer and average monthly revenue statistics for the years
ended December 31, 2009 and 2008 (dollars in thousands,
except per subscriber data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
Video
|
|
$
|
932,518
|
|
|
$
|
921,098
|
|
|
$
|
11,420
|
|
|
|
1.2
|
%
|
HSD
|
|
|
357,415
|
|
|
|
324,764
|
|
|
|
32,651
|
|
|
|
10.1
|
%
|
Phone
|
|
|
112,754
|
|
|
|
89,970
|
|
|
|
22,784
|
|
|
|
25.3
|
%
|
Advertising
|
|
|
57,672
|
|
|
|
66,062
|
|
|
|
(8,390
|
)
|
|
|
(12.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,460,359
|
|
|
$
|
1,401,894
|
|
|
$
|
58,465
|
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase /
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
% Change
|
|
|
Basic subscribers
|
|
|
1,238,000
|
|
|
|
1,318,000
|
|
|
|
(80,000
|
)
|
|
|
(6.1
|
)%
|
Digital customers
|
|
|
678,000
|
|
|
|
643,000
|
|
|
|
35,000
|
|
|
|
5.4
|
%
|
HSD customers
|
|
|
778,000
|
|
|
|
737,000
|
|
|
|
41,000
|
|
|
|
5.6
|
%
|
Phone customers
|
|
|
287,000
|
|
|
|
248,000
|
|
|
|
39,000
|
|
|
|
15.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RGUs(1)
|
|
|
2,981,000
|
|
|
|
2,946,000
|
|
|
|
35,000
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total monthly revenue per basic
subscriber(2)
|
|
$
|
95.22
|
|
|
$
|
88.44
|
|
|
$
|
6.78
|
|
|
|
7.7
|
%
|
|
|
|
(1) |
|
RGUs represent the total of basic subscribers and digital, HSD
and phone customers. |
|
(2) |
|
Represents total average monthly revenues for the year divided
by our average basic subscribers during such period. |
Revenues rose 4.2%, primarily due to growth in our HSD, digital
and phone customers, offset in part by the impact of the
Exchange Agreement and, to a lesser extent, lower advertising
revenues. Average total monthly revenue per basic subscriber
increased 7.7%, primarily as a result of higher penetration
levels of our advanced video, HSD and phone services, offset by
a lower number of basic subscribers.
Video revenues grew 1.2%, largely as a result of continued
growth in digital customers and customers taking our DVR and
HDTV services, as well as rate increases, offset by the impact
of the Exchange Agreement. During the year ended
December 31, 2009, we lost 55,000 basic subscribers and
gained 45,000 digital customers, excluding the impact of the
Exchange Agreement, as compared to a loss of 6,000 basic
subscribers and a gain of 85,000 digital customers in the prior
year. Our basic subscriber losses mainly represented video-only
customers, which were largely caused by aggressive video price
discounts by direct broadcast satellite providers. As of
December 31, 2009,
43
we served 1,238,000 basic subscribers, representing a
penetration of 44.2% of our estimated homes passed, and 678,000
digital customers, representing a penetration of 54.8% of our
basic subscribers. As of December 31, 2009, 38.8% of
digital customers received DVR
and/or HDTV
services, as compared to 33.2% as of the same date in the prior
year.
HSD revenues rose 10.1%, primarily due to a 5.6% increase in HSD
customers and higher unit pricing, offset in part by the impact
of the Exchange Agreement. During the year ended
December 31, 2009, we gained 54,000 HSD customers,
excluding the impact of the Exchange Agreement, as compared to a
gain of 78,000 in the prior year. As of December 31, 2009,
we served 778,000 HSD customers, representing a penetration of
27.8% of our estimated homes passed.
Phone revenues grew 25.3%, mainly due to a 15.7% increase in
phone customers and, to a lesser extent, higher unit pricing.
During the year ended December 31, 2009, we gained 42,000
phone customers, excluding the impact of the Exchange Agreement,
as compared to a gain of 62,000 in the prior year. As of
December 31, 2009, we served 287,000 phone customers,
representing a penetration of 10.9% of our estimated marketable
phone homes.
Advertising revenues fell 12.7%, primarily due to an unfavorable
comparison to the prior year in which we benefited from
political advertising during the national election, as well as
sharp decreases in local and, to a lesser extent, national
automotive advertising.
Costs
and Expenses
Service costs rose 5.7%, principally due to higher programming
expenses and, to a much lesser extent, employee expenses and
phone service costs, offset in part by the impact of the
Exchange Agreement and, to a much lesser extent, lower field
operating costs. Programming expenses increased 7.4%, largely as
a result of higher contractual rates charged by our programming
vendors and, to a lesser extent, greater retransmission consent
fees and new sports programming, offset in part by a lower
number of basic subscribers, including the impact of the
Exchange Agreement. Employee expenses grew 7.5%, primarily due
to reduced customer installation activity resulting in lower
labor capitalization, offset in part by the impact of the
Exchange Agreement. Phone service costs were 9.0% higher, mostly
due to the increase in phone customers. Field operating costs
declined 4.1%, principally due to a decrease in vehicle fuel
costs and, to a lesser extent, the impact of the Exchange
Agreement and lower outside contractor usage, offset in part by
lower capitalization of overhead costs relating to reduced
customer installation activity. Service costs as a percentage of
revenues were 42.4% and 41.8% for the years ended
December 31, 2009 and 2008, respectively.
Selling, general and administrative expenses decreased 1.6%,
primarily due to the impact of the Exchange Agreement and, to a
lesser extent, reduced customer service employee costs and lower
office and advertising expenses, offset in part by higher bad
debt expenses. Customer service employee costs fell 5.1%,
largely due to greater productivity in our call centers. Office
expenses dropped 7.6%, principally due to lower
telecommunications costs as a result of more efficient call
routing and internal network use and, to a lesser extent the
impact of the Exchange Agreement. Advertising expenses fell
6.3%, largely as a result of lower employee costs directly
related to sales activity. Bad debt expense rose 6.4%,
principally due to higher average balances of uncollectable
accounts, offset in part by an adjustment made to our accrual
allowance for uncollectable accounts. Selling, general and
administrative expenses as a percentage of revenues were 18.8%
and 19.9% for the year ended December 31, 2009 and 2008,
respectively.
Corporate expenses rose 6.5%, principally due to increased
employee compensation, including non-cash stock charges and, to
a lesser extent, higher staffing levels. Corporate expenses as a
percentage of revenues were 2.2% for each of the years ended
December 31, 2009 and 2008.
Depreciation and amortization increased 2.9%, largely as a
result of greater deployment of shorter-lived customer premise
equipment and, to a lesser extent, write-offs related to ice
storms in certain of our service areas, offset in part by an
increase in the useful lives of certain fixed assets and the
impact of the Exchange Agreement.
44
Adjusted
OIBDA
Adjusted OIBDA increased 5.8%, mainly due to growth in HSD,
phone and, to a lesser extent, video revenues, offset in part by
higher service costs and, to a lesser extent, the impact of the
Exchange Agreement.
Operating
Income
Operating income grew 7.5%, principally due to the increase in
Adjusted OIBDA, offset in part by the increase in depreciation
and amortization.
Interest
Expense, Net
Interest expense, net, decreased 5.3%, primarily due to lower
market interest rates on variable rate debt, offset in part by
higher average indebtedness.
Gain
(Loss) on Derivatives, Net
As a result of changes to the
mark-to-market
valuation of our interest rate exchange agreements, we recorded
a net gain on derivatives of $29.8 million and a net loss
on derivatives of $54.4 million, based in part upon
information provided by our counterparties, for the years ended
December 31, 2009 and 2008, respectively.
Gain
(Loss) on Sale of Cable Systems, Net
For the year ended December 31, 2009, in connection with
the Exchange Agreement, we recognized a gain on sale of cable
systems, net, of approximately $13.8 million, which
reflected approximately $1.7 million in legal and
consulting fees, as well as other customary closing adjustments.
During the year ended December 31, 2008, we recognized a
loss on sale of cable systems, net, of approximately
$21.3 million, principally due to a $17.7 million
non-cash write-down in connection with the Exchange Agreement.
Loss
on Early Extinguishment of Debt
Loss on early extinguishment of debt totaled $5.8 million
for the year ended December 31, 2009. This amount included
fees and premium paid relating to the tender offers of the
77/8% Notes
and
91/2% Notes,
as well as the write-off of deferred financing costs associated
with such notes.
Other
Expense, Net
Other expense, net, was $9.2 million and $9.1 million
for the year ended December 31, 2009 and 2008,
respectively. During the year ended December 31, 2009,
other expense, net, consisted of $4.3 million of commitment
fees, which included $0.4 million of commitment fees
related to the delayed funding of the new term loan,
$3.8 million of deferred financing costs and
$1.1 million of other fees. During the year ended
December 31, 2008, other expense, net, consisted of
$4.6 million of commitment fees, $4.1 million of
deferred financing costs and $0.4 million of other fees.
Benefit
From (Provision for) Income Taxes
The benefit from income taxes was approximately
$617.7 million for the year ended December 31, 2009,
as compared to a provision for income taxes of
$58.2 million for the year ended December 31, 2008. As
of December 31, 2009, we adjusted our valuation allowances
due to our assessment that there is a sufficient change in our
ability to recover our deferred tax assets. Our income tax
expense for the year ended December 31, 2009, was reduced
due to this reduction in our valuation allowances. See
Note 9 in our Notes to Consolidated Financial
Statements.
45
Net
Income (Loss)
As a result of the factors described above, principally the
benefit from income taxes, we recognized net income of
$744.1 million for the year ended December 31, 2009,
as compared to a net loss of $77.5 million for the year
ended December 31, 2008.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
The following table sets forth the unaudited consolidated
statements of operations for the years ended December 31,
2008 and 2007 (dollars in thousands and percentage changes that
are not meaningful are marked NM):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
|
Revenues
|
|
$
|
1,401,894
|
|
|
$
|
1,293,375
|
|
|
$
|
108,519
|
|
|
|
8.4
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs (exclusive of depreciation and amortization)
|
|
|
585,362
|
|
|
|
544,072
|
|
|
|
41,290
|
|
|
|
7.6
|
%
|
Selling, general and administrative expenses
|
|
|
278,942
|
|
|
|
264,006
|
|
|
|
14,936
|
|
|
|
5.7
|
%
|
Corporate expenses
|
|
|
30,824
|
|
|
|
27,637
|
|
|
|
3,187
|
|
|
|
11.5
|
%
|
Depreciation and amortization
|
|
|
227,910
|
|
|
|
235,331
|
|
|
|
(7,421
|
)
|
|
|
(3.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
278,856
|
|
|
|
222,329
|
|
|
|
56,527
|
|
|
|
25.4
|
%
|
Interest expense, net
|
|
|
(213,333
|
)
|
|
|
(239,015
|
)
|
|
|
25,682
|
|
|
|
(10.7
|
)%
|
Loss on derivatives, net
|
|
|
(54,363
|
)
|
|
|
(22,902
|
)
|
|
|
(31,461
|
)
|
|
|
NM
|
|
(Loss) gain on sale of cable systems, net
|
|
|
(21,308
|
)
|
|
|
11,079
|
|
|
|
(32,387
|
)
|
|
|
NM
|
|
Other expense, net
|
|
|
(9,133
|
)
|
|
|
(9,054
|
)
|
|
|
(79
|
)
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(19,281
|
)
|
|
|
(37,563
|
)
|
|
|
18,282
|
|
|
|
(48.7
|
)%
|
Provision for income taxes
|
|
|
(58,213
|
)
|
|
|
(57,566
|
)
|
|
|
(647
|
)
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(77,494
|
)
|
|
$
|
(95,129
|
)
|
|
$
|
17,635
|
|
|
|
(18.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted OIBDA
|
|
$
|
511,951
|
|
|
$
|
462,979
|
|
|
$
|
48,972
|
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following represents a reconciliation of Adjusted OIBDA to
operating income (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
|
Adjusted OIBDA
|
|
$
|
511,951
|
|
|
$
|
462,979
|
|
|
$
|
48,972
|
|
|
|
10.6
|
%
|
Non-cash, share-based compensation and other share-based
awards(1)
|
|
|
(5,185
|
)
|
|
|
(5,319
|
)
|
|
|
134
|
|
|
|
(2.5
|
)%
|
Depreciation and amortization
|
|
|
(227,910
|
)
|
|
|
(235,331
|
)
|
|
|
7,421
|
|
|
|
(3.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
278,856
|
|
|
$
|
222,329
|
|
|
$
|
56,527
|
|
|
|
25.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included approximately $17 and $20 for the years ended
December 31, 2008 and 2007, respectively, related to the
issuance of other share-based awards. |
46
Revenues
The following table sets forth revenue and selected subscriber,
customer and average monthly revenue statistics for the years
ended December 31, 2008 and 2007 (dollars in thousands,
except per subscriber data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
|
Video
|
|
$
|
921,098
|
|
|
$
|
891,594
|
|
|
$
|
29,504
|
|
|
|
3.3
|
%
|
HSD
|
|
|
324,764
|
|
|
|
278,853
|
|
|
|
45,911
|
|
|
|
16.5
|
%
|
Phone
|
|
|
89,970
|
|
|
|
55,892
|
|
|
|
34,078
|
|
|
|
61.0
|
%
|
Advertising
|
|
|
66,062
|
|
|
|
67,036
|
|
|
|
(974
|
)
|
|
|
(1.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,401,894
|
|
|
$
|
1,293,375
|
|
|
$
|
108,519
|
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase /
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
% Change
|
|
|
Basic subscribers
|
|
|
1,318,000
|
|
|
|
1,324,000
|
|
|
|
(6,000
|
)
|
|
|
(0.5
|
)%
|
Digital customers
|
|
|
643,000
|
|
|
|
557,000
|
|
|
|
86,000
|
|
|
|
15.4
|
%
|
HSD customers
|
|
|
737,000
|
|
|
|
658,000
|
|
|
|
79,000
|
|
|
|
12.0
|
%
|
Phone customers
|
|
|
248,000
|
|
|
|
185,000
|
|
|
|
63,000
|
|
|
|
34.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RGUs
|
|
|
2,946,000
|
|
|
|
2,724,000
|
|
|
|
222,000
|
|
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total monthly revenue per basic subscriber
|
|
$
|
88.44
|
|
|
$
|
79.72
|
|
|
$
|
8.72
|
|
|
|
10.9
|
%
|
Revenues rose 8.4%, largely attributable to the growth in our
HSD and phone customers, as well as basic video price increases.
RGUs grew 8.1% and average total monthly revenue per basic
subscriber was 10.9% higher than the prior year.
Video revenues increased 3.3%, primarily due to rate increases
and growth in digital customers and customers taking our DVR and
HDTV services, offset in part by a lower number of basic
subscribers. During the year ended December 31, 2008, we
lost 6,000 basic subscribers, as compared to a reduction of
56,000 basic subscribers in the prior year, which included a
significant number of basic subscribers lost in connection with
the retransmission consent dispute with an owner of a major
television broadcast group and the sale during the period of
cable systems serving on a net basis 6,300 basic subscribers.
Digital customers grew by 86,000, as compared to an increase of
29,000 in the prior year. As of December 31, 2008, we
served 1,318,000 basic subscribers, representing a penetration
of 46.2% of our estimated homes passed, and 643,000 digital
customers, representing a 48.8% penetration of our basic
subscribers. As of December 31, 2008, 33.2% of digital
customers received DVR
and/or HDTV
services, as compared to 29.1% as of the same date in the prior
year.
HSD revenues rose 16.5%, principally due to a 12.0% increase in
HSD customers and, to a lesser extent, growth in our enterprise
network products and services. HSD customers grew by 79,000, as
compared to a gain of 80,000 in the prior year. As of
December 31, 2008, we served 737,000 HSD customers,
representing a penetration of 25.8% of our estimated homes
passed.
Phone revenues grew 61.0%, primarily due to a 34.1% increase in
phone customers and, to a lesser extent, a reduction in
discounted pricing. Phone customers grew by 63,000, as compared
to a gain of 80,000 in the prior year. As of December 31,
2008, we served 248,000 phone customers, representing a
penetration of 9.5% of our estimated marketable phone homes.
Advertising revenues decreased 1.5%, largely as a result of a
sharp decrease in automotive advertising and, to a lesser
extent, an unfavorable comparison to the prior year, in which we
benefitted from political advertising in certain of our service
areas.
47
Costs
and Expenses
Service costs rose 7.6%, primarily due to higher programming,
phone service and field operating expenses, offset in part by
lower HSD service costs. Programming expenses grew 7.6%,
principally as a result of higher contractual rates charged by
our programming vendors and, to a lesser extent, greater
retransmission consent fees. Phone service costs rose 46.6%,
mainly due to the growth in phone customers. Field operating
expenses grew 13.4%, primarily due to greater vehicle fuel and
repair expenses and lower capitalization of overhead costs,
offset in part by non-recurring expenses in the prior year
relating to the retransmission consent dispute noted above and
lower insurance costs. HSD expenses decreased 23.3% due to a
reduction in product delivery costs, offset in part by the
growth in HSD customers. Service costs as a percentage of
revenues were 41.8% and 42.1% for the years ended
December 31, 2008 and 2007, respectively.
Selling, general and administrative expenses rose 5.7%,
principally due to higher marketing and customer service
employee expenses, offset in part by lower billing costs.
Marketing expenses grew 12.8%, largely as a result of higher
staffing levels, more frequent direct mailing campaigns, greater
expenses tied to sales activity and a greater use of third-party
sales support, offset in part by a reduction in other
advertising. Customer service employee expenses rose 14.9%,
principally due to higher staffing levels at our call centers.
Billing costs fell 5.0%, primarily due to more favorable rates
charged by our billing service provider. Selling, general and
administrative expenses as a percentage of revenues were 19.9%
and 20.4% for the years ended December 31, 2008 and 2007,
respectively.
Corporate expenses rose 11.5%, principally due to higher
staffing levels. Corporate expenses as a percentage of revenues
were 2.2% and 2.1% for the years ended December 31, 2008
and 2007, respectively.
Depreciation and amortization decreased 3.2%, largely as a
result of an increase in the useful lives of certain fixed
assets, offset in part by increased deployment of shorter-lived
customer premise equipment.
Adjusted
OIBDA
Adjusted OIBDA rose 10.6%, due to growth in HSD, phone and video
revenues, offset in part by higher service costs and, to a
lesser extent, selling, general and administrative expenses.
Operating
Income
Operating income grew 25.4%, primarily due to the increase in
Adjusted OIBDA.
Interest
Expense, Net
Interest expense, net, decreased 10.7%, primarily due to lower
market interest rates on variable rate debt, offset in part by
higher average indebtedness.
Loss
on Derivatives, Net
As a result of changes to the
mark-to-market
valuation of our interest rate exchange agreements, we recorded
losses on derivatives amounting to $54.4 million and
$22.9 million, based upon information provided by our
counterparties, for the years ended December 31, 2008 and
2007, respectively.
(Loss)
Gain on Sale of Cable Systems, Net
During the year ended December 31, 2008, there was a
$21.3 million loss on cable systems, principally due to a
$17.7 million non-cash write-down in connection with the
sale of certain cable systems in Western North Carolina and
$4.0 million of related transaction costs paid, offset in
part by miscellaneous net gains of $0.4 million. During the
year ended December 31, 2007, we sold a cable system for
$32.4 million and recorded a net gain on sale of
$11.1 million.
Other
Expense, Net
Other expense, net was $9.1 million for each of the years
ended December 31, 2008 and 2007. During the year ended
December 31, 2008, other expense, net, included
$4.6 million of revolving credit facility commitment fees
48
and $4.1 million of deferred financing costs. During the
year ended December 31, 2007, other expense, net, included
$4.2 million of revolving credit facility commitment fees
and $4.0 million of deferred financing costs.
Provision
for Income Taxes
The provision for income taxes was approximately
$58.2 million for the year ended December 31, 2008, as
compared to a provision for income taxes of $57.6 million
for the year ended December 31, 2007. During the year ended
December 31, 2008, based on our assessment of the facts and
circumstances, we determined that an additional portion of our
deferred tax assets from net operating loss carryforwards will
not be realized under the more-likely-than-not standard required
by ASC 740 Income Taxes (ASC 740)
(formerly SFAS No. 109, Accounting for Income
Taxes). As a result, we increased our valuation
allowances and recognized a $58.2 million corresponding
non-cash charge to income tax expense for the year ended
December 31, 2008. See Note 9 in our Notes to
Consolidated Financial Statements.
Net
Loss
As a result of the factors described above, we incurred a net
loss for the year ended December 31, 2008 of
$77.5 million, as compared to a net loss of
$95.1 million for the year ended December 31, 2007.
Liquidity
and Capital Resources
Overview
Our net cash flows provided by operating and financing
activities are used primarily to fund network investments to
accommodate customer growth and the further deployment of our
advanced products and services, as well as scheduled repayments
of our external financing, repurchases of our Class A
common stock and other investments. We expect that cash
generated by us or available to us will meet our anticipated
capital and liquidity needs for the foreseeable future,
including scheduled term loan debt maturities of
$95.0 million and $73.0 million during 2010 and 2011,
respectively. As of December 31, 2009, our sources of cash
included $80.9 million of cash and cash equivalents on hand
and unused and available commitments of $545.0 million
under our $849.8 million revolving credit facilities.
In the longer term, specifically 2015 and beyond, we may not
have enough cash available to satisfy our maturing term loans
and senior notes. If we are unable to obtain sufficient future
financing or, if we not able to do so on similar terms as we
currently experience, 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.
Recent
Developments in the Credit Markets
We have assessed, and will continue to assess, the impact, if
any, of the recent distress and volatility in the capital and
credit markets on our financial position. Further disruptions in
such markets could cause our counterparty banks to be unable to
fulfill their commitments to us, potentially reducing amounts
available to us under our revolving credit commitments or
subjecting us to greater credit risk with respect to our
interest rate exchange agreements. At this time, we are not
aware of any of our counterparty banks being in a position where
they would be unable to fulfill their obligations to us.
Although we may be exposed to future consequences in the event
of such counterparties non-performance, we do not expect
any such outcomes to be material.
Net
Cash Flows Provided by Operating Activities
Net cash flows provided by operating activities were
$335.3 million for the year ended December 31, 2009,
primarily due to Adjusted OIBDA of $541.7 million, offset
in part by interest expense of $202.0 million. The net
change in our operating assets and liabilities was essentially
flat, largely as a result of an increase in accounts receivable,
net, of $5.7 million and, to a lesser extent, a decrease in
other non-current liabilities of $1.5 million, offset by an
increase in deferred revenue of $2.7 million, a decrease in
prepaid expenses and other assets of $2.2 million and an
increase in accounts payable, accrued expenses and other current
liabilities of $2.1 million.
49
Net cash flows provided by operating activities were
$268.7 million for the year ended December 31, 2008,
primarily due to Adjusted OIBDA of $512.0 million, offset
in part by interest expense of $213.3 million and, to a
lesser extent, the $22.4 million net change in our
operating assets and liabilities. The net change in our
operating assets and liabilities was principally due to a
decrease in accounts payable, accrued expenses and other current
liabilities of $22.0 million and, to a much lesser extent,
a decrease in other non-current liabilities of $3.2 million
and an increase in accounts receivable, net, of
$0.8 million, offset in part by an increase in deferred
revenue of $3.3 million.
Net
Cash Flows Used in Investing Activities
Capital expenditures continue to be our primary use of capital
resources and the entirety of our net cash flows used in
investing activities. Net cash flows used in investing
activities were $236.7 million for the year ended
December 31, 2009, as compared to $289.8 million for
the prior year. The $53.1 million decrease in capital
expenditures was primarily due to higher spending in the prior
year on customer premise equipment, rebuild and upgrade activity
and service area expansion. This decrease was partly offset by
greater capital spending in 2009 for non-recurring investments
in our HSD and phone delivery systems.
Net
Cash Flows Used in (Provided by) Financing
Activities
Net cash flows used in financing activities were
$84.8 million for the year ended December 31, 2009,
principally due to the cash portion of the repurchase of our
Class A common stock under the Exchange Agreement totaling
$110.0 million and $23.9 million of financing costs,
largely funded by net borrowings of $324.0 million. See
New Financings below and Note 7 and 11
to our Consolidated Financial Statements.
Net cash flows provided by financing activities were
$68.8 million for the year ended December 31, 2008,
principally due to net borrowings of $101.0 million, offset
in part by repurchases of our Class A common stock totaling
$22.4 million and financing costs of $10.9 million.
Capital
Structure
As of December 31, 2009, our outstanding total indebtedness
was $3.365 billion, of which approximately 70% was at fixed
interest rates or subject to interest rate protection. During
the year ended December 31, 2009, we paid cash interest of
$216.4 million, net of capitalized interest.
We have $3.080 billion of bank credit facilities (the
credit facilities), of which $2.515 billion was
outstanding as of December 31, 2009. The credit agreements
governing the credit facilities contain various covenants that,
among other things, impose certain limitations on mergers and
acquisitions, consolidations and sales of certain assets, liens,
the incurrence of additional indebtedness, certain restricted
payments and certain transactions with affiliates. The principal
financial covenant of our credit facilities requires compliance
with a ratio of total senior indebtedness (as defined) to
annualized system cash flow (as defined) of no more than 6.0 to
1.0. See Note 7 in our Notes to Consolidated Financial
Statements.
As of December 31, 2009, we had revolving credit
commitments of $849.8 million under the credit facilities,
of which $545.0 million was unused and available to be
borrowed and used for general corporate purposes based on the
terms and conditions of our debt arrangements. As of
December 31, 2009, $20.3 million of letters of credit
were issued under our credit facilities to various parties as
collateral for our performance relating to insurance and
franchise requirements, thus restricting the unused portion of
our revolving credit commitments by such amount. Our unused
revolving commitments expire in the amounts of
$19.5 million, $314.8 million and $210.7 million
on March 31, 2010, September 30, 2011 and
December 31, 2012, respectively.
We use interest rate exchange agreements, or interest rate
swaps, in order to fix the rate of the applicable Eurodollar
portion of debt under our credit facilities to reduce the
potential volatility in our interest expense that would
otherwise result from changes in market interest rates. As of
December 31, 2009, we had current interest rate swaps with
various banks pursuant to which the interest rate on
$1.5 billion of floating rate debt was fixed at a weighted
average rate of 3.5%. We also had $0.7 billion forward starting
interest rate swaps with a weighted average fixed
50
rate of approximately 3.2%, of which $0.5 billion and $0.2
billion commence during the years ended December 31, 2010
and 2012, respectively. Including the effects of such interest
rate swaps, the average interest rates on outstanding debt under
our bank credit facilities as of December 31, 2009 and 2008
were 4.9% and 4.3%, respectively.
As of December 31, 2009, we had $850.0 million of
senior notes outstanding. The indentures governing our senior
notes also contain various covenants, though they are generally
less restrictive than those found in our bank credit facilities.
Such covenants restrict our ability, among other things, make
certain distributions, investments and other restricted
payments, sell certain assets, to make restricted payments,
create certain liens, merge, consolidate or sell substantially
all of our assets and enter into certain transactions with
affiliates. The principal financial covenant of these senior
notes has a limitation on the incurrence of additional
indebtedness based upon a maximum ratio of total indebtedness to
cash flow (as defined) of 8.5 to 1.0. See Note 7 in our
Notes to Consolidated Financial Statements.
New
Financings
On August 25, 2009, we entered into an incremental facility
agreement that provides for a new term loan under the credit
facilities in the principal amount of $300.0 million. The
new term loan matures on March 31, 2017 and, beginning on
December 31, 2009, is subject to quarterly reductions of
0.25%, with a final payment at maturity representing 92.75% of
the original principal amount. On September 24, 2009, the
full amount of the $300.0 million new term loan was
borrowed by us. Net proceeds from the new term loan were
$291.2 million, after giving effect to the original issue
discount of $4.5 million and financing costs of
$4.3 million. The proceeds were used to fund the redemption
of our senior notes described below, with the balance used to
pay down, in part, outstanding debt under the revolving credit
portion of the credit facilities, without any reduction in the
revolving credit commitments. The obligations of the operating
subsidiaries under the new term loan are governed by the terms
of the credit facilities. See Note 7 in our Notes to
Consolidated Financial Statements.
On August 25, 2009, we issued $350.0 million aggregate
principal amount of
91/8% senior
notes due August 2019. Net proceeds from the issuance of the
91/8% Notes
were $334.9 million, after giving effect to the original
issue discount of $8.3 million and financing costs of
$6.8 million, and were used to fund a portion of the cash
tender offers described below. On August 11, 2009, we
commenced cash tender offers (the Tender Offers) for
our outstanding
91/2% Notes
and
77/8% Notes.
Pursuant to the Tender Offers, on August 25, 2009 and
September 9, 2009, we repurchased an aggregate of
$390.2 million principal amount of
91/2% Notes
and an aggregate of $71.1 million principal amount of
77/8% Notes.
The accrued interest paid on the repurchased
91/2% Notes
and
77/8% Notes
was $4.1 million and $0.2 million, respectively. The
Tender Offers were funded with proceeds from the issuance of the
91/8% Notes
and borrowings under the credit facilities. On August 25,
2009, we announced the redemption of any Notes remaining
outstanding following the expiration of the Tender Offers. On
September 24, 2009, we redeemed the balance of the
principal amounts of such Notes. The accrued interest paid on
the redeemed
91/2% Notes
and
77/8% Notes
was $2.0 million and $0.5 million, respectively. The
redemption was funded with proceeds from the new term loan
mentioned above. See Note 7 in our Notes to Consolidated
Financial Statements.
Covenant
Compliance and Debt Ratings
For all periods through December 31, 2009, we were in
compliance with all of the covenants under our credit facilities
and senior note arrangements. There are no covenants, events of
default, borrowing conditions or other terms in our credit
facilities or senior note arrangements that are based on changes
in our credit rating assigned by any rating agency. We do not
believe that we will have any difficulty complying with any of
the applicable covenants in the foreseeable future.
Our future access to the debt markets and the terms and
conditions we receive are influenced by our debt ratings. Our
corporate credit ratings are B1, with a stable outlook, by
Moodys, and B+, with a stable outlook, by Standard and
Poors. Any future downgrade to our 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.
51
Contractual
Obligations and Commercial Commitments
The following table summarizes our contractual obligations and
commercial commitments, and the effects they are expected to
have on our liquidity and cash flow, for the five years
subsequent to December 31, 2009 and thereafter (dollars in
thousands)*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Interest
|
|
|
Purchase
|
|
|
|
|
|
|
Debt
|
|
|
Leases
|
|
|
Expense(1)
|
|
|
Obligations(2)
|
|
|
Total
|
|
|
2010
|
|
$
|
95,000
|
|
|
$
|
5,701
|
|
|
$
|
186,748
|
|
|
$
|
36,908
|
|
|
$
|
324,357
|
|
2011-2012
|
|
|
432,500
|
|
|
|
8,087
|
|
|
|
349,924
|
|
|
|
11,750
|
|
|
|
802,261
|
|
2013-2014
|
|
|
42,000
|
|
|
|
3,412
|
|
|
|
269,116
|
|
|
|
|
|
|
|
314,528
|
|
Thereafter
|
|
|
2,795,500
|
|
|
|
6,490
|
|
|
|
193,254
|
|
|
|
|
|
|
|
2,995,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash obligations
|
|
$
|
3,365,000
|
|
|
$
|
23,690
|
|
|
$
|
999,042
|
|
|
$
|
48,658
|
|
|
$
|
4,436,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Refer to Note 7 to our consolidated financial statements
for a discussion of our long-term debt, and to Note 13 for
a discussion of our operating leases and other commitments and
contingencies. |
|
(1) |
|
Interest payments on floating rate debt and interest rate swaps
are estimated using amounts outstanding as of December 31,
2009 and the average interest rates applicable under such debt
obligations. Interest expense amounts are net of amounts
capitalized. |
|
(2) |
|
We have contracts with programmers who provide video programming
services to our subscribers. Our contracts typically provide
that we have an obligation to purchase video programming for our
subscribers as long as we deliver cable services to such
subscribers. We have no obligation to purchase these services if
we are not providing cable services, except when we do not have
the right to cancel the underlying contract or for contracts
with a guaranteed minimum commitment. We have included such
amounts in our Purchase Obligations above, as follows:
$15.6 million for 2010, and $11.1 million for
2011-2012
and $0 for
2013-2014
and thereafter. |
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 discussed below requires significant
judgments and estimates on the part of management. For a summary
of our accounting policies, see Note 3 of our consolidated
financial statements.
Property,
Plant and Equipment
We capitalize the costs of new construction and replacement of
our cable transmission and distribution facilities and new
service installation in accordance with ASC
No. 922 Entertainment Cable
Television (formerly SFAS No. 51,
Financial Reporting by Cable Television
Companies). Costs associated with subsequent
installations of additional services not previously installed at
a customers dwelling are capitalized to the extent such
costs are incremental and directly attributable to the
installation of such additional services. Capitalized costs
included all direct labor and materials as well as certain
indirect costs. Capitalized costs are recorded as additions to
property, plant and equipment and depreciated over the average
life of the related assets. We use standard costing models,
developed from actual historical costs and relevant operational
data, to determine our capitalized amounts. These models include
labor rates, overhead rates and standard time inputs to perform
various installation and construction activities. The
development of these standards involves significant judgment by
management, especially in the development of standards for our
newer, advanced products and services in which historical data
is limited. Changes to the estimates or assumptions used in
establishing these standards could be material. We perform
periodic evaluations of the estimates used to determine the
amount of costs that are capitalized. Any
52
changes to these estimates, which may be significant, are
applied in the period in which the evaluations were completed.
Valuation
and Impairment Testing of Indefinite-lived
Intangibles
As of December 31, 2009, we had approximately
$2.0 billion of unamortized intangible assets, including
goodwill of $220.0 million and franchise rights of
$1.8 billion on our consolidated balance sheets. These
intangible assets represented approximately 51% of our total
assets.
Our cable systems operate under non-exclusive cable franchises,
or franchise rights, granted by state and local governmental
authorities for varying lengths of time. We acquired these cable
franchises through acquisitions of cable systems and were
accounted for using the purchase method of accounting. As of
December 31, 2009, we held 1,352 franchises in areas
located throughout the United States. The value of a franchise
is derived from the economic benefits we receive from the right
to solicit new subscribers and to market new products and
services, such as advanced digital television, HSD and phone, in
a specific market territory. We concluded that our franchise
rights have an indefinite useful life since, among other things,
there are no legal, regulatory, contractual, competitive,
economic or other factors limiting the period over which these
franchise rights contribute to our revenues and cash flows.
Goodwill is the excess of the acquisition cost of an acquired
entity over the fair value of the identifiable net assets
acquired. In accordance with ASC No. 350
Intangibles Goodwill and Other (ASC
350) (formerly SFAS No. 142, Goodwill
and Other Intangible Assets), we do not amortize
franchise rights and goodwill. Instead, such assets are tested
annually for impairment or more frequently if impairment
indicators arise.
We follow the provisions of ASC 350 to test our goodwill and
franchise rights for impairment. We assess the fair values of
each cable system cluster using discounted cash flow
(DCF) methodology, under which the fair value of
cable franchise rights are determined in a direct manner. Our
DCF analysis uses significant (Level 3) unobservable
inputs. This assessment involves significant judgment, including
certain assumptions and estimates that determine future cash
flow expectations and other future benefits, which are
consistent with the expectations of buyers and sellers of cable
systems in determining fair value. These assumptions and
estimates included discount rates, estimated growth rates,
terminal growth rates, comparable company data, revenues per
customer, market penetration as a percentage of homes passed and
operating margin. We also consider market transactions, market
valuations, research analyst estimates and other valuations
using multiples of operating income before depreciation and
amortization to confirm the reasonableness of fair values
determined by the DCF methodology. Significant impairment in
value resulting in impairment charges may result if the
estimates and assumptions used in the fair value determination
change in the future. Such impairments, if recognized, could
potentially be material.
Based on the guidance outlined in ASC 350 (formerly EITF
No. 02-7,
Unit of Accounting for Testing Impairment of
Indefinite-Lived Intangible Assets,) we determined
that the unit of accounting, or reporting unit, for testing
goodwill and franchise rights for impairment resides at a cable
system cluster level. Such level reflects the financial
reporting level managed and reviewed by the corporate office
(i.e., chief operating decision maker) as well as how we
allocated capital resources and utilize the assets. Lastly, the
reporting unit level reflects the level at which the purchase
method of accounting for our acquisitions was originally
recorded. We have two reporting units for the purpose of
applying ASC 350, Mediacom Broadband and Mediacom LLC.
In accordance with ASC 350, we are required to determine
goodwill impairment using a two-step process. The first step
compares the fair value of a reporting unit with our carrying
amount, including goodwill. If the fair value of the reporting
unit exceeds our carrying amount, goodwill of the reporting unit
is considered not impaired and the second step is unnecessary.
If the carrying amount of a reporting unit exceeds our fair
value, the second step is performed to measure the amount of
impairment loss, if any. The second step compares the implied
fair value of the reporting units goodwill, calculated
using the residual method, with the carrying amount of that
goodwill. If the carrying amount of the goodwill exceeds the
implied fair value, the excess is recognized as an impairment
loss.
The impairment test for our franchise rights and other
intangible assets not subject to amortization consists of a
comparison of the fair value of the intangible asset with its
carrying value. If the carrying value of the intangible asset
exceeds its fair value, the excess is recognized as an
impairment loss.
53
Since our adoption of ASC 350 in 2002, we have not recorded any
impairments as a result of our impairment testing. We completed
our most recent impairment test as of October 1, 2009,
which reflected no impairment of our franchise rights, goodwill
or other intangible assets.
Because there has not been a change in the fundamentals of our
business, we do not believe that our stock price is the sole
indicator of the underlying value of the assets in our reporting
units. We have therefore determined that the short-term
volatility in our stock price does not qualify as a triggering
event under ASC 350, and as such, no interim impairment test is
required as of December 31, 2009.
We could record impairments in the future if there are changes
in the long-term fundamentals of our business, in general market
conditions or in the regulatory landscape that could prevent us
from recovering the carrying value of our long-lived intangible
assets. In the near term, the economic conditions currently
affecting the U.S. economy and how that may impact the
fundamentals of our business, together with the recent
volatility in our stock price, may have a negative impact on the
fair values of the assets in our reporting units.
For illustrative purposes, if there were a hypothetical decline
of 10% and 20% in the fair values determined for cable franchise
rights at our Mediacom Broadband reporting unit, an impairment
loss of $42.9 million and $168.9 million,
respectively, would result as of our impairment testing date of
October 1, 2009. In addition, a hypothetical decline of up
to 20% in the fair values determined for goodwill and other
finite-lived intangible assets at the same reporting unit, would
not result in any impairment loss as of October 1, 2009. A
hypothetical decline of up to 20% in the fair values determined
for goodwill, cable franchise rights and other finite-lived
intangible assets at our Mediacom LLC reporting unit would not
result in any impairment loss as of October 1, 2009.
Income
Taxes
We account for income taxes using the liability method as
stipulated by ASC 740. This method generally provides that
deferred tax assets and liabilities be recognized for temporary
differences between the financial reporting basis and the tax
basis of our assets and liabilities and anticipated benefit of
utilizing net operating loss carryforwards.
In evaluating our ability to recover our deferred tax assets and
net operating loss carryforwards, we assess all available
positive and negative evidence including our most recent
performance, the scheduled reversal of deferred tax liabilities,
our forecast of taxable income in future periods and available
prudent tax planning strategies. In forecasting future taxable
income, we use assumptions that require significant judgment and
are consistent with the estimates we use to manage our business.
At December 31, 2009, the valuation allowances totaled
$8.2 million, which reflected the reversal of a substantial
portion of our valuation balances from prior periods which
occurred during the fourth quarter of 2009. We adjusted our
valuation allowances because we determined that there was a
sufficient change in our ability to recover our deferred tax
assets and that it is more likely than not that a substantial
portion of our deferred tax assets will be realized in the
future. We will continue to monitor the need for the deferred
tax asset valuation allowances in accordance with ASC 740. Our
income tax expense in future periods will be reduced or
increased to the extent of offsetting decreases or increases,
respectively, in our valuation allowances. These changes could
have a significant impact on our future earnings.
Share-based
Compensation
We estimate the fair value of stock options granted using the
Black-Scholes option-pricing model. This fair value is then
amortized on a straight-line basis over the requisite service
periods of the awards, which is generally the vesting period.
This option-pricing model requires the input of highly
subjective assumptions, including the options expected
life and the price volatility of the underlying stock. The
estimation of stock awards that will ultimately vest requires
judgment, and to the extent actual results or updated estimates
differ from our current estimates, such amounts will be recorded
as a cumulative adjustment in the periods the estimates are
revised. Actual results, and future changes in estimates, may
differ substantially from our current estimates.
54
Recent
Accounting Pronouncements
FASB
Accounting Standards Codification
In June 2009, the Financial Accounting Standards Board
(FASB) issued FASB Statement No. 168, The
FASB Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principles a replacement of FASB Statement
No. 162. Statement 168 establishes the FASB Accounting
Standards
Codificationtm
(Codification or ASC) as the single
source of authoritative U.S. generally accepted accounting
principles (GAAP) recognized by the FASB to be
applied by nongovernmental entities for interim or annual
periods ending after September 30, 2009. Rules and
interpretive releases of the Securities and Exchange Commission
(SEC) under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. The
Codification supersedes all existing non-SEC accounting and
reporting standards. All other non-grandfathered, non-SEC
accounting literature not included in the Codification will be
considered non-authoritative.
Following the Codification, FASB will not issue new standards in
the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, FASB will issue Accounting
Standards Updates, which will serve to update the Codification,
provide background information about the guidance and provide
the basis for conclusions on the changes to the Codification.
GAAP is not intended to be changed as a result of FASBs
Codification project. However, it will change the way in which
accounting guidance is organized and presented. As a result, we
will change the way we reference GAAP in our financial
statements. We have begun the process of implementing the
Codification by providing references to the Codification topics
alongside references to the previously existing accounting
standards.
Other
Pronouncements
In September 2006, FASB issued ASC 820 Fair Value
Measurements and Disclosures (ASC 820) (formerly
SFAS No. 157, Fair Value Measurements).
ASC 820 establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and
expands on required disclosures about fair value measurement. On
January 1, 2009, we completed our adoption of the relevant
guidance in ASC 820 which did not have a material effect on our
consolidated financial statements.
In April 2009, the FASB issued ASC
820-10-65-4
Fair Value Measurements and Disclosures (ASC
820) (formerly FSP
No. FAS 157-4,
Determining Fair Value When the Volume and Level of
Activity for the Asset or the Liability Have Significantly
Decreased and Identifying Transactions That Are Not
Orderly). ASC
820-10-65-4
provides additional guidance on (i) estimating fair value
when the volume and level of activity for an asset or liability
have significantly decreased in relation to normal market
activity for the asset or liability, and (ii) circumstances
that may indicate that a transaction is not orderly. ASC
820-10-65-4
also requires additional disclosures about fair value
measurements in interim and annual reporting periods. ASC
820-10-65-4
is effective for interim and annual reporting periods ending
after June 15, 2009, and shall be applied prospectively. We
have completed our evaluation of ASC
820-10-65-4
and determined that the adoption did not have a material effect
on our consolidated financial condition or results of
operations. The following sets forth our financial assets and
liabilities measured at fair value on a recurring basis at
December 31, 2009. These assets and liabilities have been
categorized according to the three-level fair value hierarchy
established by ASC 820, which prioritizes the inputs used in
measuring fair value.
|
|
|
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.
|
55
As of December 31, 2009, our interest rate exchange
agreement liabilities, net, were valued at $50.4 million
using Level 2 inputs, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of December 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(dollars in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate exchange agreements
|
|
$
|
|
|
|
$
|
4,791
|
|
|
$
|
|
|
|
$
|
4,791
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate exchange agreements
|
|
$
|
|
|
|
$
|
55,155
|
|
|
$
|
|
|
|
$
|
55,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate exchange agreements liabilities, net
|
|
$
|
|
|
|
$
|
50,364
|
|
|
$
|
|
|
|
$
|
50,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, our interest rate exchange
agreement liabilities, net, were valued at $80.2 million
using Level 2 inputs, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of December 31, 2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(dollars in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate exchange agreements
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate exchange agreements
|
|
$
|
|
|
|
$
|
80,202
|
|
|
$
|
|
|
|
$
|
80,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate exchange agreements liabilities, net
|
|
$
|
|
|
|
$
|
80,202
|
|
|
$
|
|
|
|
$
|
80,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In February 2007, the FASB issued ASC 820 Fair
Value Measurements and Disclosures (ASC 820)
(formerly SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities
Including an amendment of FASB Statement No. 115).
ASC 820 permits entities to choose to measure many financial
instruments and certain other items at fair value. We adopted
the relevant guidance in ASC 820 as of January 1, 2008. We
did not elect the fair value option of ASC 820.
In December 2007, the FASB issued ASC 805
Business Combinations (ASC 805) (formerly
SFAS No. 141(R), Business Combinations)
which continues to require the treatment that all business
combinations be accounted for by applying the acquisition
method. Under the acquisition method, the acquirer recognizes
and measures the identifiable assets acquired, the liabilities
assumed, and any contingent consideration and contractual
contingencies, as a whole, at their fair value as of the
acquisition date. Under ASC 805, all transaction costs are
expensed as incurred. The guidance in ASC 805 will be applied
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning after December 15, 2008. We adopted ASC
805 on January 1, 2009 and determined that the adoption did
not have a material effect on our consolidated financial
condition or results of operations.
In March 2008, the FASB issued ASC 815
Derivatives and Hedging (ASC 815) (formerly
SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities an amendment of
FASB Statement No. 133). ASC 815 requires
enhanced disclosures about an entitys derivative and
hedging activities and thereby improves the transparency of
financial reporting. ASC 815 is effective for financial
statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early application encouraged.
We have completed our evaluation of ASC 815 and determined that
the adoption did not have a material effect on our consolidated
financial condition or results of operations.
In May 2009, the FASB issued ASC 855 Subsequent
Events (ASC 855) (formerly
SFAS No. 165, Subsequent Events).
ASC 855 establishes general standards for the accounting and
disclosure of events that occurred after the balance sheet date
but before the financial statements are issued. ASC 855 is
effective for interim or annual periods ending after
June 15, 2009. We have completed our evaluation of ASC 855
as of September 30, 2009 and determined that the adoption
did not have a material effect on our consolidated financial
condition or results of operations. See Note 13 for the
disclosures required by ASC 855.
56
In April 2009, the FASB staff issued ASC
825-10-65
Financial Instruments (ASC
825-10-65)
(formerly FSP
No. FAS 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments). ASC
825-10-65
requires disclosures about fair value of financial instruments
in all interim financial statements as well as in annual
financial statements. ASC
825-10-65 is
effective for interim reporting periods ending after
June 15, 2009. We have completed our evaluation of ASC
825-10-65
and determined that the adoption did not have a material effect
on our consolidated financial condition or results of
operations. See Note 6 for more information.
Inflation
and Changing Prices
Our systems costs and expenses are subject to inflation
and price fluctuations. Such changes in costs and expenses can
generally be passed through to subscribers. Programming costs
have historically increased at rates in excess of inflation and
are expected to continue to do so. We believe that under the
FCCs existing cable rate regulations we may increase rates
for cable 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.
57
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
In the normal course of business, we use interest rate exchange
agreements with counterparty banks to fix the interest rate on a
portion of our variable interest rate debt. As of
December 31, 2009, we had $1.5 billion of current
interest rate swaps with various banks with a weighted average
fixed rate of approximately 3.5%. We also had $0.7 billion
of forward starting interest rate swaps with a weighted average
fixed rate of approximately 3.2%, of which $0.5 billion and
$0.2 billion commence during the years ended
December 31, 2010 and 2012, respectively. The fixed rates
of the interest rate swaps are offset against the applicable
Eurodollar rate to determine the related interest expense. Under
the terms of the interest rate swaps, we are exposed to credit
risk in the event of nonperformance by the other parties;
however, we do not anticipate the nonperformance of any of our
counterparties. At December 31, 2009, based on the
mark-to-market
valuation, we would have paid approximately $50.4 million,
including accrued interest, if we terminated these interest rate
swaps. Our current interest rate swaps are scheduled to expire
in the amounts of $300.0 million, $500.0 million and
$700.0 million during the years ended December 31,
2010, 2011 and 2012 respectively. See Notes 3 and 7 to our
consolidated financial statements.
Our interest rate swaps and financial contracts do not contain
credit rating triggers that could affect our liquidity.
The table below provides the expected maturity and estimated
fair value of our debt as of December 31, 2009 (all dollars
in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Credit
|
|
|
|
|
|
|
Senior Notes
|
|
|
Facilities
|
|
|
Total
|
|
|
Expected Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2010 to December 31, 2010
|
|
$
|
|
|
|
$
|
95,000
|
|
|
$
|
95,000
|
|
January 1, 2011 to December 31, 2011
|
|
|
|
|
|
|
147,250
|
|
|
|
147,250
|
|
January 1, 2012 to December 31, 2012
|
|
|
|
|
|
|
285,250
|
|
|
|
285,250
|
|
January 1, 2013 to December 31, 2013
|
|
|
|
|
|
|
21,000
|
|
|
|
21,000
|
|
January 1, 2014 to December 31, 2014
|
|
|
|
|
|
|
21,000
|
|
|
|
21,000
|
|
Thereafter
|
|
|
850,000
|
|
|
|
1,945,500
|
|
|
|
2,795,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
850,000
|
|
|
$
|
2,515,000
|
|
|
$
|
3,365,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
$
|
861,063
|
|
|
$
|
2,427,758
|
|
|
$
|
3,288,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Interest Rate
|
|
|
8.8
|
%
|
|
|
4.9
|
%
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Contents
|
|
|
|
|
|
|
Page
|
|
|
|
|
60
|
|
|
|
|
61
|
|
|
|
|
62
|
|
|
|
|
63
|
|
|
|
|
64
|
|
|
|
|
65
|
|
|
|
|
92
|
|
59
Report of
Independent Registered Public Accounting Firm
To the Shareholders of Mediacom Communications Corporation:
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Mediacom Communications Corporation
and its subsidiaries (the Company) at
December 31, 2009 and December 31, 2008, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2009 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting, appearing under Item 9A. Our responsibility is
to express opinions on these financial statements, on the
financial statement schedule, and on the Companys internal
control over financial reporting based on our integrated audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed 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. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
New York, New York
March 5, 2010
60
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Amounts in thousands)
|
|
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
80,916
|
|
|
$
|
67,111
|
|
Accounts receivable, net of allowance for doubtful accounts of
$2,180 and $2,774 respectively
|
|
|
86,337
|
|
|
|
81,086
|
|
Prepaid expenses and other current assets
|
|
|
17,030
|
|
|
|
17,615
|
|
Deferred tax assets current
|
|
|
22,616
|
|
|
|
8,260
|
|
Assets held for sale
|
|
|
|
|
|
|
1,693
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
206,899
|
|
|
|
175,765
|
|
Property, plant and equipment, net of accumulated depreciation
of $1,965,091 and $1,765,319, respectively
|
|
|
1,478,489
|
|
|
|
1,476,287
|
|
Franchise rights
|
|
|
1,793,715
|
|
|
|
1,793,579
|
|
Goodwill
|
|
|
219,991
|
|
|
|
220,646
|
|
Subscriber lists and other intangible assets, net of accumulated
amortization of $152,552 and $155,721 respectively
|
|
|
5,472
|
|
|
|
7,994
|
|
Assets held for sale
|
|
|
|
|
|
|
10,933
|
|
Other assets, net of accumulated amortization of $13,961 and
$21,922, respectively
|
|
|
50,468
|
|
|
|
33,785
|
|
Deferred income taxes non-current
|
|
|
222,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,977,729
|
|
|
$
|
3,718,989
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
$
|
268,575
|
|
|
$
|
268,574
|
|
Deferred revenue
|
|
|
56,996
|
|
|
|
54,316
|
|
Current portion of long-term debt
|
|
|
95,000
|
|
|
|
124,500
|
|
Liabilities held for sale
|
|
|
|
|
|
|
2,020
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
420,571
|
|
|
|
449,410
|
|
Long-term debt, less current portion
|
|
|
3,270,000
|
|
|
|
3,191,500
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
380,650
|
|
Other non-current liabilities
|
|
|
22,130
|
|
|
|
44,073
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,712,701
|
|
|
|
4,065,633
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Class A common stock, $.01 par value;
300,000,000 shares authorized; 96,554,912 shares
issued and 40,621,955 shares outstanding as of
December 31, 2009 and 94,984,989 shares issued and
67,784,366 shares outstanding as of December 31, 2008
|
|
|
406
|
|
|
|
950
|
|
Class B common stock, $.01 par value;
100,000,000 shares authorized; 27,001,944 shares
issued and outstanding as of December 31, 2009 and
December 31, 2008, resprectively
|
|
|
270
|
|
|
|
270
|
|
Additional paid-in capital
|
|
|
1,013,517
|
|
|
|
1,004,334
|
|
Accumulated deficit
|
|
|
(454,670
|
)
|
|
|
(1,198,734
|
)
|
Treasury stock, at cost, 55,932,957 and 27,200,623 shares
of Class A common stock, as of December 31, 2009 and
December 31, 2008, respectively
|
|
|
(294,495
|
)
|
|
|
(153,464
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
265,028
|
|
|
|
(346,644
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
3,977,729
|
|
|
$
|
3,718,989
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
Revenues
|
|
$
|
1,460,359
|
|
|
$
|
1,401,894
|
|
|
$
|
1,293,375
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs (exclusive of depreciation and amortization)
|
|
|
618,696
|
|
|
|
585,362
|
|
|
|
544,072
|
|
Selling, general and administrative expenses
|
|
|
274,452
|
|
|
|
278,942
|
|
|
|
264,006
|
|
Corporate expenses
|
|
|
32,820
|
|
|
|
30,824
|
|
|
|
27,637
|
|
Depreciation and amortization
|
|
|
234,630
|
|
|
|
227,910
|
|
|
|
235,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
299,761
|
|
|
|
278,856
|
|
|
|
222,329
|
|
Interest expense, net
|
|
|
(201,995
|
)
|
|
|
(213,333
|
)
|
|
|
(239,015
|
)
|
Loss on early extinguishment of debt
|
|
|
(5,790
|
)
|
|
|
|
|
|
|
|
|
Gain (loss) on derivatives, net
|
|
|
29,838
|
|
|
|
(54,363
|
)
|
|
|
(22,902
|
)
|
Gain (loss) on sale of cable systems, net
|
|
|
13,781
|
|
|
|
(21,308
|
)
|
|
|
11,079
|
|
Other expense, net
|
|
|
(9,229
|
)
|
|
|
(9,133
|
)
|
|
|
(9,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
126,366
|
|
|
|
(19,281
|
)
|
|
|
(37,563
|
)
|
Benefit from (Provision for) income taxes
|
|
|
617,701
|
|
|
|
(58,213
|
)
|
|
|
(57,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
744,067
|
|
|
$
|
(77,494
|
)
|
|
$
|
(95,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
70,777
|
|
|
|
95,548
|
|
|
|
107,828
|
|
Basic earnings (loss) per share
|
|
$
|
10.51
|
|
|
$
|
(0.81
|
)
|
|
$
|
(0.88
|
)
|
Diluted weighted average shares outstanding
|
|
|
73,977
|
|
|
|
95,548
|
|
|
|
107,828
|
|
Diluted earnings (loss) per share
|
|
$
|
10.06
|
|
|
$
|
(0.81
|
)
|
|
$
|
(0.88
|
)
|
The accompanying notes are an integral part of these statements.
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Total
|
|
|
|
(All dollar amounts in thousands)
|
|
|
Balance, December 31, 2006
|
|
$
|
938
|
|
|
$
|
271
|
|
|
$
|
991,113
|
|
|
$
|
(1,026,113
|
)
|
|
$
|
(61,023
|
)
|
|
$
|
(94,814
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95,129
|
)
|
|
|
|
|
|
|
(95,129
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
5,299
|
|
|
|
|
|
|
|
|
|
|
|
5,299
|
|
Issuance of common stock in employee stock purchase plan
|
|
|
2
|
|
|
|
|
|
|
|
962
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
961
|
|
Issuance of restricted stock units, net of forfeitures
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(402
|
)
|
|
|
(402
|
)
|
Exercise of stock options, net
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Treasury stock, at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69,036
|
)
|
|
|
(69,036
|
)
|
Transfer of stock
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
943
|
|
|
$
|
270
|
|
|
$
|
997,404
|
|
|
$
|
(1,121,242
|
)
|
|
$
|
(130,464
|
)
|
|
$
|
(253,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,494
|
)
|
|
|
|
|
|
|
(77,494
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
5,168
|
|
|
|
|
|
|
|
|
|
|
|
5,168
|
|
Issuance of common stock in employee stock purchase plan
|
|
|
2
|
|
|
|
|
|
|
|
1,012
|
|
|
|
|
|
|
|
|
|
|
|
1,014
|
|
Issuance of restricted stock units, net of forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(609
|
)
|
|
|
(609
|
)
|
Exercise of stock options, net
|
|
|
|
|
|
|
|
|
|
|
755
|
|
|
|
|
|
|
|
|
|
|
|
755
|
|
Treasury stock, at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,389
|
)
|
|
|
(22,389
|
)
|
Transfer of stock
|
|
|
5
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
950
|
|
|
$
|
270
|
|
|
$
|
1,004,334
|
|
|
$
|
(1,198,734
|
)
|
|
$
|
(153,464
|
)
|
|
$
|
(346,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
744,067
|
|
|
|
|
|
|
|
744,067
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
7,270
|
|
|
|
|
|
|
|
|
|
|
|
7,270
|
|
Issuance of common stock in employee stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
1,137
|
|
|
|
|
|
|
|
|
|
|
|
1,137
|
|
Issuance of restricted stock units, net of forfeitures
|
|
|
15
|
|
|
|
|
|
|
|
217
|
|
|
|
|
|
|
|
(1,747
|
)
|
|
|
(1,515
|
)
|
Treasury stock, at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(139,284
|
)
|
|
|
(139,284
|
)
|
Transfer of stock
|
|
|
(559
|
)
|
|
|
|
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
406
|
|
|
$
|
270
|
|
|
$
|
1,013,517
|
|
|
$
|
(454,670
|
)
|
|
$
|
(294,495
|
)
|
|
$
|
265,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
744,067
|
|
|
$
|
(77,494
|
)
|
|
$
|
(95,129
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
234,630
|
|
|
|
227,910
|
|
|
|
235,331
|
|
(Gain) loss on derivatives, net
|
|
|
(29,838
|
)
|
|
|
54,363
|
|
|
|
22,902
|
|
Write-down assets held for sale
|
|
|
|
|
|
|
17,680
|
|
|
|
|
|
(Gain) loss on sale of cable systems, net
|
|
|
(12,147
|
)
|
|
|
170
|
|
|
|
(11,079
|
)
|
Loss on early extinguishment of debt
|
|
|
3,707
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
5,520
|
|
|
|
5,070
|
|
|
|
4,884
|
|
Share-based compensation
|
|
|
7,270
|
|
|
|
5,168
|
|
|
|
5,299
|
|
Deferred income taxes
|
|
|
(617,701
|
)
|
|
|
58,213
|
|
|
|
57,345
|
|
Changes in assets and liabilities, net of effects from
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(5,745
|
)
|
|
|
(778
|
)
|
|
|
(6,342
|
)
|
Prepaid expenses and other assets
|
|
|
2,248
|
|
|
|
338
|
|
|
|
(5,360
|
)
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
2,119
|
|
|
|
(21,983
|
)
|
|
|
(21,767
|
)
|
Deferred revenue
|
|
|
2,680
|
|
|
|
3,301
|
|
|
|
4,722
|
|
Other non-current liabilities
|
|
|
(1,512
|
)
|
|
|
(3,243
|
)
|
|
|
(2,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
335,298
|
|
|
$
|
268,715
|
|
|
$
|
188,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
(236,695
|
)
|
|
$
|
(289,825
|
)
|
|
$
|
(227,409
|
)
|
Acquisition of cable system
|
|
|
|
|
|
|
|
|
|
|
(7,274
|
)
|
Proceeds from sales of cable systems
|
|
|
|
|
|
|
|
|
|
|
32,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities
|
|
$
|
(236,695
|
)
|
|
$
|
(289,825
|
)
|
|
$
|
(202,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
New borrowings of bank debt
|
|
$
|
1,593,125
|
|
|
$
|
1,035,000
|
|
|
$
|
412,525
|
|
Repayment of bank debt
|
|
|
(1,269,125
|
)
|
|
|
(934,033
|
)
|
|
|
(342,091
|
)
|
Issuance of senior notes
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
Redemption of senior notes
|
|
|
(625,000
|
)
|
|
|
|
|
|
|
|
|
Net settlement of restricted stock units
|
|
|
(1,518
|
)
|
|
|
|
|
|
|
|
|
Repurchases of Class A common stock
|
|
|
(110,000
|
)
|
|
|
(22,389
|
)
|
|
|
(69,036
|
)
|
Proceeds from issuance of common stock in employee stock
purchase plan
|
|
|
1,137
|
|
|
|
1,012
|
|
|
|
962
|
|
Financing costs
|
|
|
(23,896
|
)
|
|
|
(10,887
|
)
|
|
|
|
|
Other financing activities book overdrafts
|
|
|
479
|
|
|
|
130
|
|
|
|
(5,814
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows (used in) provided by financing activities
|
|
$
|
(84,798
|
)
|
|
$
|
68,833
|
|
|
$
|
(3,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
13,805
|
|
|
|
47,723
|
|
|
|
(16,997
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
67,111
|
|
|
|
19,388
|
|
|
|
36,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
80,916
|
|
|
$
|
67,111
|
|
|
$
|
19,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest, net of amounts
capitalized
|
|
$
|
216,387
|
|
|
$
|
209,164
|
|
|
$
|
245,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS FINANCING:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of Class A common stock exchanged for assets
held for sale (Note 11)
|
|
$
|
29,284
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
64
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Mediacom Communications Corporation (MCC) was
organized in November 1999, and is involved in the development
of cable systems serving the smaller cities in the United
States. Through these cable systems, we provide entertainment,
information and telecommunications services to our customers. As
of December 31, 2009, we were operating cable systems in
22 states, principally Alabama, Arizona, California,
Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky,
Minnesota, Missouri, North Carolina and Wisconsin.
|
|
2.
|
LIQUIDITY
AND CAPITAL RESOURCES
|
As of December 31, 2009, we had unused revolving credit
commitments of $545.0 million, all of which could be
borrowed and used for general corporate purposes based on the
terms and conditions of our debt arrangements.
|
|
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Preparation of Consolidated Financial
Statements
The consolidated financial statements include the accounts of
MCC and our subsidiaries. All significant intercompany
transactions and balances have been eliminated. The preparation
of the consolidated financial statements in conformity with
generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. The accounting
estimates that require managements most difficult and
subjective judgments include: assessment and valuation of
intangibles, accounts receivable allowance, useful lives of
property, plant and equipment, share-based compensation, and the
recognition and measurement of income tax assets and
liabilities. Actual results could differ from those and other
estimates.
During the fourth quarter of 2009, we determined that the net
loss for the year ended December 31, 2005 was understated
by $6.2 million due to errors in the accounting for tax
depreciation related to indefinite-lived assets and the
recognition of a related valuation allowance. We concluded that
this change was not material to our interim and annual financial
statements for 2009 or to the financial statements for any prior
period based on our consideration of quantitative and
qualitative factors. The recording of this adjustment in the
fourth quarter of 2009 increased the amount of the tax valuation
allowance release that would have occurred had the correction
been recorded in the 2005 period of origination. See Note 9.
Revenue
Recognition
Revenues from video, HSD and phone services are recognized when
the services are provided to our customers. Credit risk is
managed by disconnecting services to customers who are deemed to
be delinquent. Installation revenues are recognized as customer
connections are completed because installation revenues are less
than direct installation costs. Advertising sales are recognized
in the period that the advertisements are exhibited. Under the
terms of our franchise agreements, we are required to pay local
franchising authorities up to 5% of our gross revenues derived
from providing cable services. We normally pass these fees
through to our customers. Franchise fees are reported in their
respective revenue categories and included in selling, general
and administrative expenses.
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 approximately
$38.0 million, $36.8 million and $36.6 million
for the years ended December 31, 2009, 2008 and 2007,
respectively.
65
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
and Cash Equivalents
We consider all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Allowance
for Doubtful Accounts
The allowance for doubtful accounts represents our best estimate
of probable losses in the accounts receivable balance. The
allowance is based on the number of days outstanding, customer
balances, historical experience and other currently available
information. During the year ended December 31, 2008, we
revised our estimate of probable losses in the accounts
receivable of our video, HSD and phone business to better
reflect historical collection experience. The change in estimate
resulted in a loss of $0.6 million in our consolidated
statement of operations for the year ended December 31,
2008.
Concentration
of Credit Risk
Our accounts receivable are comprised of amounts due from
subscribers in varying regions throughout the United States.
Concentration of credit risk with respect to these receivables
is limited due to the large number of customers comprising our
customer base and their geographic dispersion. We invest our
cash with high quality financial institutions.
Property,
Plant and Equipment
Property, plant and equipment are recorded at cost. Additions to
property, plant and equipment generally include material, labor
and indirect costs. Depreciation is calculated on a
straight-line basis over the following useful lives:
|
|
|
Buildings
|
|
40 Years
|
Leasehold improvements
|
|
Life of respective lease
|
Cable systems and equipment and subscriber devices
|
|
5 to 20 years
|
Vehicles
|
|
3 to 5 years
|
Furniture, fixtures and office equipment
|
|
5 years
|
We capitalize improvements that extend asset lives and expense
repairs and maintenance as incurred. At the time of retirements,
write-offs, sales or other dispositions of property, the
original cost and related accumulated depreciation are removed
from the respective accounts and the gains or losses are
included in depreciation and amortization expense in the
consolidated statement of operations.
We capitalize the costs associated with the construction of
cable transmission and distribution facilities, new customer
installations and indirect costs associated with our telephony
product. Costs include direct labor and material, as well as
certain indirect costs including interest. We perform periodic
evaluations of certain estimates used to determine the amount
and extent that such costs that are capitalized. Any changes to
these estimates, which may be significant, are applied in the
period in which the evaluations were completed. The costs of
disconnecting service at a customers dwelling or
reconnecting to a previously installed dwelling are charged as
expense in the period incurred. Costs associated with subsequent
installations of additional services not previously installed at
a customers dwelling are capitalized to the extent such
costs are incremental and directly attributable to the
installation of such additional services. See Note 5.
Capitalized
Software Costs
We account for internal-use software development and related
costs in accordance with AICPA Statement of Position
No. 98-1,
Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use. Software development and
other related costs consist of external and internal costs
incurred in the application development stage to purchase and
implement the software that will be used in our telephony
business. Costs incurred in the development of application and
infrastructure of the software is capitalized and will be
amortized
66
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
over our respective estimated useful life of 5 years.
During the years ended December 31, 2009 and 2008, we
capitalized approximately $1.4 million and
$2.5 million, respectively, of software development costs.
Capitalized software had a net book value of $19.8 million
and $18.7 million as of December 31, 2009 and 2008,
respectively.
Marketing
and Promotional Costs
Marketing and promotional costs are expensed as incurred and
were $30.1 million, $29.3 million and
$30.1 million for the years ended December 31, 2009,
2008 and 2007, respectively.
Intangible
Assets
Our cable systems operate under non-exclusive cable franchises,
or franchise rights, granted by state and local governmental
authorities for varying lengths of time. We acquired these cable
franchises through acquisitions of cable systems and were
accounted for using the purchase method of accounting. As of
December 31, 2009, we held 1,352 franchises in areas
located throughout the United States. The value of a franchise
is derived from the economic benefits we receive from the right
to solicit new subscribers and to market new products and
services, such as digital and other advanced video, HSD and
phone services, in a specific market territory. We concluded
that our franchise rights have an indefinite useful life since,
among other things, there are no legal, regulatory, contractual,
competitive, economic or other factors limiting the period over
which these franchise rights contribute to our revenues and cash
flows. Goodwill is the excess of the acquisition cost of an
acquired entity over the fair value of the identifiable net
assets acquired. In accordance with ASC No. 350
Intangibles Goodwill and Other (ASC
350) (formerly SFAS No. 142, Goodwill
and Other Intangible Assets), we do not amortize
franchise rights and goodwill. Instead, such assets are tested
annually for impairment or more frequently if impairment
indicators arise.
We follow the provisions of ASC 350 to test our goodwill and
franchise rights for impairment. We assess the fair values of
each cable system cluster using discounted cash flow
(DCF) methodology, under which the fair value of
cable franchise rights are determined in a direct manner. Our
DCF analysis uses significant (Level 3) unobservable
inputs. This assessment involves significant judgment, including
certain assumptions and estimates that determine future cash
flow expectations and other future benefits, which are
consistent with the expectations of buyers and sellers of cable
systems in determining fair value. These assumptions and
estimates include discount rates, estimated growth rates,
terminal growth rates, comparable company data, revenues per
customer, market penetration as a percentage of homes passed and
operating margin. We also consider market transactions, market
valuations, research analyst estimates and other valuations
using multiples of operating income before depreciation and
amortization to confirm the reasonableness of fair values
determined by the DCF methodology. Significant impairment in
value resulting in impairment charges may result if the
estimates and assumptions used in the fair value determination
change in the future. Such impairments, if recognized, could
potentially be material.
Based on the guidance outlined in ASC 350 (formerly EITF
No. 02-7,
Unit of Accounting for Testing Impairment of
Indefinite-Lived Intangible Assets,) we determined
that the unit of accounting, or reporting unit, for testing
goodwill and franchise rights for impairment resides at a cable
system cluster level. Such level reflects the financial
reporting level managed and reviewed by the corporate office
(i.e., chief operating decision maker) as well as how we
allocated capital resources and utilize the assets. Lastly, the
reporting unit level reflects the level at which the purchase
method of accounting for our acquisitions was originally
recorded. We have two reporting units for the purpose of
applying ASC 350, Mediacom Broadband LLC and Mediacom LLC.
In accordance with ASC 350, we are required to determine
goodwill impairment using a two-step process. The first step
compares the fair value of a reporting unit with our carrying
amount, including goodwill. If the fair value of the reporting
unit exceeds our carrying amount, goodwill of the reporting unit
is considered not impaired and the second step is unnecessary.
If the carrying amount of a reporting unit exceeds our fair
value, the second step is performed to measure the amount of
impairment loss, if any. The second step compares the implied
fair value of the reporting
67
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
units goodwill, calculated using the residual method, with
the carrying amount of that goodwill. If the carrying amount of
the goodwill exceeds the implied fair value, the excess is
recognized as an impairment loss.
The impairment test for our franchise rights and other
intangible assets not subject to amortization consists of a
comparison of the fair value of the intangible asset with its
carrying value. If the carrying value of the intangible asset
exceeds its fair value, the excess is recognized as an
impairment loss.
Since our adoption of ASC 350 in 2002, we have not recorded any
impairments as a result of our impairment testing. We completed
our most recent impairment test as of October 1, 2009,
which reflected no impairment of our franchise rights, goodwill
or other intangible assets.
Because there has not been a change in the fundamentals of our
business, we do not believe that our stock price is the sole
indicator of the underlying value of the assets in our reporting
units. We have therefore determined that the short-term
volatility in our stock price does not qualify as a triggering
event under ASC 350, and as such, no interim impairment test is
required as of December 31, 2009.
We could record impairments in the future if there are changes
in the long-term fundamentals of our business, in general market
conditions or in the regulatory landscape that could prevent us
from recovering the carrying value of our long-lived intangible
assets. In the near term, the economic conditions currently
affecting the U.S. economy and how that may impact the
fundamentals of our business, together with the recent
volatility in our stock price, may have a negative impact on the
fair values of the assets in our reporting units.
The following table details changes in the carrying value of
goodwill for the year ended December 31, 2009 (dollars in
thousands):
|
|
|
|
Balance December 31, 2008
|
|
$
|
220,646
|
Acquisitions
|
|
|
|
Dispositions
|
|
|
(655)
|
|
|
|
|
Balance December 31, 2009
|
|
$
|
219,991
|
|
|
|
|
As of December 31, 2009, the carrying value of goodwill at
our reporting units were as follows: $24.0 million at
Mediacom LLC and $196.0 million at Mediacom Broadband LLC.
Other finite-lived intangible assets, which consist primarily of
subscriber lists and covenants not to compete, continue to be
amortized over their useful lives of 5 to 10 years and
5 years, respectively. Amortization expense for the years
ended December 31, 2009, 2008 and 2007 was approximately
$2.5 million, $2.6 million and $2.5 million,
respectively. Our estimated aggregate amortization expense for
2010, 2011 and thereafter are $2.5 million,
$2.5 million, and $0.5 million, respectively.
Other
Assets
Other assets, net, primarily include financing costs and
original issue discount incurred to raise debt. Financing costs
are deferred and amortized as other expense and original issue
discounts are deferred and amortized as interest expense over
the expected term of such financings.
Segment
Reporting
ASC 280 Segment Reporting (ASC
280) (formerly SFAS No. 131, Disclosure
about Segments of an Enterprise and Related
Information), requires the disclosure of factors used
to identify an enterprises reportable segments. Our
operations are organized and managed on the basis of cable
system clusters that represent operating segments within our
service area. Each operating segment derives our revenues from
the delivery of similar products and services to a customer base
that is also similar. Each operating segment deploys similar
technology to deliver our products and services and operates
within a similar regulatory environment. In addition, each
operating
68
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
segment has similar economic characteristics. Management
evaluated the criteria for aggregation of the operating segments
under ASC 280 and believes that we meet each of the respective
criteria set forth. Accordingly, management has identified
broadband services as our one reportable segment.
Accounting
for Derivative Instruments
We account for derivative instruments in accordance with ASC
815 Derivatives and Hedging (ASC
815) (formerly SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities,
SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities-an
amendment of FASB Statement No. 133, and
SFAS No. 149 Amendment of Statement 133 on
Derivative Instruments and Hedging Activities). These
pronouncements require that all derivative instruments be
recognized on the balance sheet at fair value. We enter into
interest rate swaps to fix the interest rate on a portion of our
variable interest rate debt to reduce the potential volatility
in our interest expense that would otherwise result from changes
in market interest rates. Our derivative instruments are
recorded at fair value and are included in other current assets,
other assets and other liabilities of our consolidated balance
sheet. Our accounting policies for these instruments are based
on whether they meet our criteria for designation as hedging
transactions, which include the instruments effectiveness,
risk reduction and, in most cases, a
one-to-one
matching of the derivative instrument to our underlying
transaction. Gains and losses from changes in fair values of
derivatives that are not designated as hedges for accounting
purposes are recognized in the consolidated statement of
operations. We have no derivative financial instruments
designated as hedges. Therefore, changes in fair value for the
respective periods were recognized in the consolidated statement
of operations.
Accounting
for Asset Retirement
We adopted ASC 410 Asset Retirement Obligations
(ASC 410) (formerly SFAS No. 143,
Accounting for Asset Retirement Obligations),
on January 1, 2003. ASC 410 addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. We reviewed our asset retirement obligations to determine
the fair value of such liabilities and if a reasonable estimate
of fair value could be made. This entailed the review of leases
covering tangible long-lived assets as well as our
rights-of-way
under franchise agreements. Certain of our franchise agreements
and leases contain provisions that require restoration or
removal of equipment if the franchises or leases are not
renewed. Based on historical experience, we expect to renew our
franchise or lease agreements. In the unlikely event that any
franchise or lease agreement is not expected to be renewed, we
would record an estimated liability. However, in determining the
fair value of our asset retirement obligation under our
franchise agreements, consideration will be given to the Cable
Communications Policy Act of 1984, which generally entitles the
cable operator to the fair market value for the
cable system covered by a franchise, if renewal is denied and
the franchising authority acquires ownership of the cable system
or effects a transfer of the cable system to another person.
Changes in these assumptions based on future information could
result in adjustments to estimated liabilities.
Upon adoption of ASC 410, we determined that in certain
instances, we are obligated by contractual terms or regulatory
requirements to remove facilities or perform other remediation
activities upon the retirement of our assets. We initially
recorded a $7.8 million asset in property, plant and
equipment and a corresponding liability of $7.8 million. As
of December 31, 2009 and 2008, the corresponding asset, net
of accumulated amortization, was $1.3 million and
$2.1 million, respectively.
Accounting
for Long-Lived Assets
In accordance with ASC 360 Property, Plant and
Equipment (ASC 360) (formerly
SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, we periodically
evaluate the recoverability and estimated lives of our
long-lived assets, including property and equipment and
intangible assets subject to amortization, whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable or the useful
69
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
life has changed. The measurement for such impairment loss is
based on the fair value of the asset, typically based upon the
future cash flows discounted at a rate commensurate with the
risk involved. Unless presented separately, the loss is included
as a component of either depreciation expense or amortization
expense, as appropriate.
Programming
Costs
We have various fixed-term carriage contracts to obtain
programming for our cable systems from content suppliers whose
compensation is generally based on a fixed monthly fee per
customer. These programming contracts are subject to negotiated
renewal. Programming costs are recognized when we distribute the
related programming. These programming costs are usually payable
each month based on calculations performed by us and are subject
to adjustments based on the results of periodic audits by the
content suppliers. Historically, such audit adjustments have
been immaterial to our total programming costs. Some content
suppliers offer financial incentives to support the launch of a
channel and ongoing marketing support. When such financial
incentives are received, we defer them within non-current
liabilities in our consolidated balance sheets and recognizes
such amounts as a reduction of programming costs (which are a
component of service costs in the consolidated statement of
operations) over the carriage term of the programming contract.
Share-based
Compensation
We estimate the fair value of stock options granted using the
Black-Scholes option-pricing model using
ASC 718 Compensation Stock
Compensation (ASC 718) (formerly
SFAS No. 123(R)
Share-Based
Payment). This fair value is then amortized on a
straight-line basis over the requisite service periods of the
awards, which is generally the vesting period. This
option-pricing model requires the input of highly subjective
assumptions, including the options expected life and the
price volatility of the underlying stock. The estimation of
stock awards that will ultimately vest requires judgment, and to
the extent actual results or updated estimates differ from our
current estimates, such amounts will be recorded as a cumulative
adjustment in the periods the estimates are revised. Actual
results, and future changes in estimates, may differ
substantially from our current estimates.
Income
Taxes
We account for income taxes using the liability method as
stipulated by ASC 740 Income Taxes (ASC
740) (formerly SFAS No. 109, Accounting
for Income Taxes). This method generally provides that
deferred tax assets and liabilities be recognized for temporary
differences between the financial reporting basis and the tax
basis of our assets and liabilities and anticipated benefit of
utilizing net operating loss carryforwards.
In evaluating our ability to recover our deferred tax assets and
net operating loss carryforwards, we assess all available
positive and negative evidence including recent performance, the
scheduled reversal of deferred tax liabilities, forecasts of
taxable income in future periods and available prudent tax
planning strategies. In forecasting future taxable income, we
use assumptions that require significant judgment and are
consistent with the estimates used to manage the business. At
December 31, 2009, the valuation allowances had a balance
of approximately $8.2 million, which reflected the reversal
of a substantial portion of our valuation allowances from prior
periods. This reversal took place during the fourth quarter of
2009. We adjusted our valuation allowances because we determined
that there was a sufficient change in our ability to recover our
deferred tax assets, and it is more likely than not that a
substantial portion of our deferred tax assets will be realized
in the future. We will continue to monitor the need for the
deferred tax asset valuation allowances in accordance with ASC
740. Our income tax expense in future periods will be reduced or
increased to the extent of offsetting decreases or increases,
respectively, in our remaining valuation allowances. These
changes could have a significant impact on our future earnings.
See Note 9.
70
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comprehensive
Income
ASC 220 Comprehensive Income (formerly
SFAS No. 130, Reporting Comprehensive
Income), requires companies to classify items of other
comprehensive income by their nature in the financial statements
and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial
position. We have had no other comprehensive income items to
report.
Reclassifications
Certain reclassifications have been made to prior year amounts
to conform to the current year presentation.
Recent
Accounting Pronouncements
FASB
Accounting Standards Codification
In June 2009, the Financial Accounting Standards Board
(FASB) issued FASB Statement No. 168, The
FASB Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principles a replacement of FASB Statement
No. 162. Statement 168 establishes the FASB Accounting
Standards
Codificationtm
(Codification or ASC) as the single
source of authoritative U.S. generally accepted accounting
principles (GAAP) recognized by the FASB to be
applied by nongovernmental entities for interim or annual
periods ending after September 30, 2009. Rules and
interpretive releases of the Securities and Exchange Commission
(SEC) under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. The
Codification supersedes all existing non-SEC accounting and
reporting standards. All other non-grandfathered, non-SEC
accounting literature not included in the Codification will be
considered non-authoritative.
Following the Codification, FASB will not issue new standards in
the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, FASB will issue Accounting
Standards Updates, which will serve to update the Codification,
provide background information about the guidance and provide
the basis for conclusions on the changes to the Codification.
GAAP is not intended to be changed as a result of FASBs
Codification project. However, it will change the way in which
accounting guidance is organized and presented. As a result, we
will change the way we reference GAAP in our financial
statements. We have begun the process of implementing the
Codification by providing references to the Codification topics
alongside references to the previously existing accounting
standards.
Other
Pronouncements
In September 2006, FASB issued ASC 820 Fair Value
Measurements and Disclosures (ASC 820) (formerly
SFAS No. 157, Fair Value Measurements).
ASC 820 establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and
expands on required disclosures about fair value measurement. On
January 1, 2009, we completed our adoption of the relevant
guidance in ASC 820 which did not have a material effect on our
consolidated financial statements.
In April 2009, the FASB issued ASC
820-10-65-4
Fair Value Measurements and Disclosures (ASC
820-10-65-4)
(formerly FSP
No. FAS 157-4,
Determining Fair Value When the Volume and Level of
Activity for the Asset or the Liability Have Significantly
Decreased and Identifying Transactions That Are Not
Orderly). ASC
820-10-65-4
provides additional guidance on (i) estimating fair value
when the volume and level of activity for an asset or liability
have significantly decreased in relation to normal market
activity for the asset or liability, and (ii) circumstances
that may indicate that a transaction is not orderly. ASC
820-10-65-4
also requires additional disclosures about fair value
measurements in interim and annual reporting periods. ASC
820-10-65-4
is effective for interim and annual reporting periods ending
after June 15, 2009, and shall be applied prospectively. We
have completed our evaluation of ASC
71
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
820-10-65-4
and determined that the adoption did not have a material effect
on our consolidated financial condition or results of operations.
The following sets forth our financial assets and liabilities
measured at fair value on a recurring basis at December 31,
2009. These assets and liabilities have been categorized
according to the three-level fair value hierarchy established by
ASC 820, which prioritizes the inputs used in measuring fair
value.
|
|
|
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.
|
As of December 31, 2009, our interest rate exchange
agreement liabilities, net, were valued at $50.4 million
using Level 2 inputs, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of December 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(dollars in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate exchange agreements
|
|
$
|
|
|
|
$
|
4,791
|
|
|
$
|
|
|
|
$
|
4,791
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate exchange agreements
|
|
$
|
|
|
|
$
|
55,155
|
|
|
$
|
|
|
|
$
|
55,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate exchange agreements liabilities, net
|
|
$
|
|
|
|
$
|
50,364
|
|
|
$
|
|
|
|
$
|
50,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, our interest rate exchange
agreement liabilities, net, were valued at $80.2 million
using Level 2 inputs, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of December 31, 2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(dollars in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate exchange agreements
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate exchange agreements
|
|
$
|
|
|
|
$
|
80,202
|
|
|
$
|
|
|
|
$
|
80,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate exchange agreements -liabilities, net
|
|
$
|
|
|
|
$
|
80,202
|
|
|
$
|
|
|
|
$
|
80,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In February 2007, the FASB issued ASC 820 Fair
Value Measurements and Disclosures (ASC 820)
(formerly SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities
Including an amendment of FASB Statement
No. 115). ASC 820 permits entities to choose to
measure many financial instruments and certain other items at
fair value. We adopted the relevant guidance in ASC 820 as of
January 1, 2008. We did not elect the fair value option of
ASC 820.
In December 2007, the FASB issued ASC 805
Business Combinations (ASC 805) (formerly
SFAS No. 141(R), Business Combinations)
which continues to require the treatment that all business
combinations be accounted for by applying the acquisition
method. Under the acquisition method, the acquirer recognizes
and measures the identifiable assets acquired, the liabilities
assumed, and any contingent consideration and contractual
contingencies, as a whole, at their fair value as of the
acquisition date. Under ASC 805, all transaction costs are
expensed as incurred. The guidance in ASC 805 will be applied
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning after December 15, 2008. We adopted ASC
805 on January 1, 2009 and determined that the adoption did
not have a material effect on our consolidated financial
condition or results of operations.
72
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In March 2008, the FASB issued ASC 815
Derivatives and Hedging (ASC 815) (formerly
SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities an amendment of
FASB Statement No. 133). ASC 815 requires
enhanced disclosures about an entitys derivative and
hedging activities and thereby improves the transparency of
financial reporting. ASC 815 is effective for financial
statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early application encouraged.
We have completed our evaluation of ASC 815 and determined that
the adoption did not have a material effect on our consolidated
financial condition or results of operations.
In May 2009, the FASB issued ASC 855 Subsequent
Events (ASC 855) (formerly
SFAS No. 165, Subsequent Events).
ASC 855 establishes general standards for the accounting and
disclosure of events that occurred after the balance sheet date
but before the financial statements are issued. ASC 855 is
effective for interim or annual periods ending after
June 15, 2009. We have completed our evaluation of ASC 855
and determined that the adoption did not have a material effect
on our consolidated financial condition or results of
operations. See Note 16 for the disclosures required by ASC
855.
In April 2009, the FASB staff issued ASC
825-10-65
Financial Instruments (ASC
825-10-65)
(formerly FSP
No. FAS 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments). ASC
825-10-65
requires disclosures about fair value of financial instruments
in all interim financial statements as well as in annual
financial statements. ASC
825-10-65 is
effective for interim reporting periods ending after
June 15, 2009. We have completed our evaluation of ASC
825-10-65
and determined that the adoption did not have a material effect
on our consolidated financial condition or results of
operations. See Note 7 for more information.
|
|
4.
|
EARNINGS
(LOSS) PER SHARE
|
We calculate earnings or loss per share in accordance with ASC
260 Earnings per Share (ASC 260)
(formerly SFAS No. 128, Earnings per
Share) by dividing the net income or loss by the
weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share (Diluted
EPS) is computed by dividing the net income by the
weighted average number of shares of common stock outstanding
during the period plus the effects of any potentially dilutive
securities. Diluted EPS considers the impact of potentially
dilutive securities except in periods in which there is a loss
because the inclusion of the potential shares of common stock
would have an anti-dilutive effect. Our potentially dilutive
securities include shares of common stock which may be issued
upon exercise of our stock options or vesting of restricted
stock units. Diluted EPS excludes the impact of potential shares
of common stock related to our stock options in periods in which
the option exercise price is greater than the average market
price of our Class A common stock during the period.
For the year ended December 31, 2009, we generated net
income, and so the inclusion of the potential common shares
would have been dilutive. For the year ended December 31,
2009, the calculation of diluted earnings per share
included 3.2 million potential common shares related to our
stock options and restricted stock units.
For the years ended December 31, 2008 and 2007, we
generated net losses, and so the inclusion of the potential
common shares would have been anti-dilutive; accordingly,
diluted loss per share equaled basic loss per share. For the
years ended December 31, 2008 and 2007, the calculation of
diluted loss per share excludes 3.3 million and
2.1 million potential common shares, respectively, related
to our stock options and restricted stock units.
73
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table reconciles the numerator and denominator of
the computations of diluted loss per share for the years ended
December 31, 2009, 2008 and 2007 (amounts in thousands,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Net
|
|
|
Average
|
|
|
Amount
|
|
|
Net
|
|
|
Average
|
|
|
Amount
|
|
|
Net
|
|
|
Average
|
|
|
Amount
|
|
|
|
Income
|
|
|
Shares
|
|
|
per Share
|
|
|
Loss
|
|
|
Shares
|
|
|
Per Share
|
|
|
Loss
|
|
|
Shares
|
|
|
per Share
|
|
|
Basic earnings (loss) per share
|
|
$
|
744,067
|
|
|
|
70,777
|
|
|
$
|
10.51
|
|
|
$
|
(77,494
|
)
|
|
|
95,548
|
|
|
$
|
(0.81
|
)
|
|
$
|
(95,129
|
)
|
|
|
107,828
|
|
|
$
|
(0.88
|
)
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed exercise of stock options and restricted stock options
|
|
|
|
|
|
|
3,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
744,067
|
|
|
|
73,977
|
|
|
$
|
10.06
|
|
|
$
|
(77,494
|
)
|
|
|
95,548
|
|
|
$
|
(0.81
|
)
|
|
$
|
(95,129
|
)
|
|
|
107,828
|
|
|
$
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
PROPERTY,
PLANT AND EQUIPMENT
|
As of December 31, 2009 and 2008, property, plant and
equipment consisted of (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cable systems, equipment and subscriber devices
|
|
$
|
3,252,864
|
|
|
$
|
3,059,325
|
|
Vehicles
|
|
|
75,494
|
|
|
|
72,759
|
|
Furniture, fixtures and office equipment
|
|
|
64,099
|
|
|
|
60,028
|
|
Buildings and leasehold improvements
|
|
|
43,493
|
|
|
|
41,941
|
|
Land and land improvements
|
|
|
7,630
|
|
|
|
7,553
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,443,580
|
|
|
$
|
3,241,606
|
|
Accumulated depreciation
|
|
|
(1,965,091
|
)
|
|
|
(1,765,319
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
1,478,489
|
|
|
$
|
1,476,287
|
|
|
|
|
|
|
|
|
|
|
Change
in Estimate Useful lives
Effective July 1, 2008, we changed the estimated useful
lives of certain plant and equipment within our cable systems
due to the initial deployment of all digital video technology
both in the network and at the customers home. These
changes in asset lives were based on our plans, and our
experience thus far in executing such plans, to deploy all
digital video technology across certain of our cable systems.
This technology affords us the opportunity to increase network
capacity without costly upgrades and, as such, extends the
useful lives of cable plant by four years. We also provide
digital-only set-top boxes to our customer base as part of this
all digital network deployment. In connection with the all
digital set-top launch, we have reviewed the asset lives of our
customer premise equipment and determined that their useful
lives should be extended by two years. While the timing and
extent of current deployment plans are subject to modification,
management believes that extending the useful lives is
appropriate and will be subject to ongoing analysis. The
weighted average useful lives of such fixed assets changed as
follows:
|
|
|
|
|
|
|
|
|
|
|
Useful lives (in years)
|
|
|
From
|
|
To
|
|
Plant and equipment
|
|
|
12
|
|
|
|
16
|
|
Customer premise equipment
|
|
|
5
|
|
|
|
7
|
|
74
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
These changes were made on a prospective basis effective
July 1, 2008, and resulted in a reduction of depreciation
expense and a corresponding increase in net income of
approximately $11.6 million and an increase to basic and
diluted earnings per share of $0.12 for the year ended
December 31, 2008.
These changes resulted in a reduction of depreciation expense
and a corresponding increase in net income of approximately
$23.2 million and an increase to basic and diluted earnings
per share of $0.33 and $0.31, respectively, for the year ended
December 31, 2009.
Depreciation expense for the years ended December 31, 2009,
2008 and 2007 was approximately $232.2 million,
$225.3 million, and $232.8 million, respectively.
During the years ended December 31, 2009 and 2008, we
incurred gross interest costs of $205.7 million and
$217.8 million, respectively, of which $3.5 million
and $4.3 million was capitalized. See Note 3.
|
|
6.
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
|
Accounts payable and accrued expenses consisted of the following
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Liabilities under interest rate exchange agreements
|
|
$
|
40,591
|
|
|
$
|
45,208
|
|
Accrued programming costs
|
|
|
34,917
|
|
|
|
37,848
|
|
Accrued payroll and benefits
|
|
|
31,451
|
|
|
|
30,590
|
|
Accrued taxes and fees
|
|
|
30,611
|
|
|
|
31,198
|
|
Accrued interest
|
|
|
30,310
|
|
|
|
45,265
|
|
Accrued service costs
|
|
|
17,751
|
|
|
|
14,320
|
|
Book
overdrafts(1)
|
|
|
17,305
|
|
|
|
16,827
|
|
Subscriber advance payments
|
|
|
15,563
|
|
|
|
11,236
|
|
Accounts payable
|
|
|
13,287
|
|
|
|
464
|
|
Accrued property, plant and equipment
|
|
|
12,188
|
|
|
|
13,606
|
|
Accrued telecommunications
|
|
|
5,105
|
|
|
|
5,058
|
|
Other accrued expenses
|
|
|
19,496
|
|
|
|
16,954
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
$
|
268,575
|
|
|
$
|
268,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Book overdrafts represented 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
book overdrafts are reported as part of cash flows from
financing activities in our consolidated statement of cash flows.
|
75
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Debt consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Bank credit facilities
|
|
$
|
2,515,000
|
|
|
$
|
2,191,000
|
|
77/8% senior
notes due 2011
|
|
|
|
|
|
|
125,000
|
|
91/2% senior
notes due 2013
|
|
|
|
|
|
|
500,000
|
|
81/2%
senior notes due 2015
|
|
|
500,000
|
|
|
|
500,000
|
|
91/8% senior
notes due 2019
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,365,000
|
|
|
$
|
3,316,000
|
|
Less: Current portion
|
|
|
95,000
|
|
|
|
124,500
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
3,270,000
|
|
|
$
|
3,191,500
|
|
|
|
|
|
|
|
|
|
|
Bank
Credit Facilities
We maintain in aggregate $3.080 billion of senior secured
credit facilities, of which $1.486 billion is at the
operating subsidiaries of Mediacom LLC (the LLC credit
facility), and $1.594 billion is at the operating
subsidiaries of Mediacom Broadband LLC (the Broadband
credit facility, and together, the credit
facilities) As of December 31, 2009, we had revolving
credit commitments of $849.8 million under the credit
facilities, of which $545.0 million was unused and
available to be borrowed and used for general corporate purposes
based on the terms and conditions of our credit facilities,
specifically the ratio of senior indebtedness (as defined) to
annualized system cash flow (as defined). As of
December 31, 2009, $20.3 million of letters of credit
were issued under our credit facilities to various parties as
collateral for our performance relating to insurance and
franchise requirements, thus restricting the unused portion of
our revolving credit commitments by such amount. Our unused
revolving commitments expire in the amounts of
$19.5 million, $314.8 million and $210.7 million
on March 31, 2010, September 30, 2011 and
December 31, 2012, respectively.
The credit agreements to the each of the credit facilities (the
LLC credit agreement and the Broadband credit
agreement) contain various covenants that, among other
things, impose certain limitations on mergers and acquisitions,
consolidations and sales of certain assets, liens, the
incurrence of additional indebtedness, certain restricted
payments and certain transactions with affiliates. The principal
financial covenant of the credit facilities requires compliance
with a ratio of senior indebtedness (as defined) to annualized
system cash flow (as defined) of no more than 6.0 to 1.0. Our
ratios, which are calculated on a quarterly basis, were 4.4 to
1.0 at Mediacom LLC and 4.1 to 1.0 at Mediacom Broadband LLC for
the three months ended December 31, 2009. The credit
facilities are collateralized by the pledge of all of Mediacom
Broadband LLCs and Mediacom LLCs ownership interests
in their respective operating subsidiaries, and are guaranteed
by them on a limited recourse basis to the extent of such
ownership interests.
Mediacom
LLC Credit Facility
The LLC credit facility originally consisted of a revolving
credit facility (the LLC revolver) with a
$400.0 million revolving credit commitment, a
$200.0 million term loan (the LLC term loan A)
and a $550.0 million term loan (the LLC term loan
B). In May 2006, we refinanced the LLC term loan B with a
new term loan (the LLC term loan C) in the amount of
$650.0 million.
In August, 2009, the operating subsidiaries of Mediacom LLC
entered into an incremental facility agreement that provides for
a new term loan (LLC term loan D) under the LLC
credit facility in the principal amount of $300.0 million.
In September 2009, the full amount of the LLC term loan D was
borrowed by the operating subsidiaries of Mediacom LLC, giving
us net proceeds of $291.2 million, after giving effect to
the original issue
76
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
discount of $4.5 million and financing costs of
$4.3 million. The net proceeds were used to fund, in part,
the redemption of Mediacom LLCs
77/8% senior
notes due February 2011 (the
77/8% Notes)
and
91/2% senior
notes due January 2013 (the
91/2% Notes)
described below, with the balance used to pay down, in part,
outstanding debt under the revolving credit portion of the LLC
Credit Facility, without any reduction in the revolving credit
commitments.
The LLC revolver expires on September 30, 2011, and its
commitment amount is not subject to scheduled reductions prior
to maturity. The LLC term loan A matures on September 30,
2012 and, since March 31, 2008, has been subject to
quarterly reductions ranging from 2.50% to 9.00% of the original
amount. The LLC term loan C matures on January 31, 2015,
and is subject to quarterly reductions of 0.25% that began on
March 31, 2007 and extend through December 31, 2014,
with a final payment at maturity representing 92.00% of the
original principal amount. The LLC term loan D matures on
March 31, 2017 and, since December 31, 2009, has been
subject to quarterly reductions of 0.25%, with a final payment
at maturity representing 92.75% of the original principal
amount. As of December 31, 2009, the maximum commitment
available under the LLC revolver was $400.0 million, with
an outstanding balance of $74.3 million. As of the same
date, the LLC term loans A, C and D had outstanding balances of
$156.0 million, $630.5 million and
$299.3 million, respectively.
The LLC credit agreement provides for interest at varying rates
based upon various borrowing options and certain financial
ratios, and for commitment fees of
1/2%
to
5/8%
per annum on the unused portion of the available revolving
credit commitment. Interest on outstanding LLC revolver and LLC
term loan A balances is payable at either the Eurodollar rate
plus a floating percentage ranging from 1.00% to 2.00% or the
base rate plus a floating percentage ranging from 0% to 1.00%.
Interest on the LLC term loan C is payable at either the
Eurodollar rate plus a floating percentage ranging from 1.50% to
1.75% or the base rate plus a floating percentage ranging from
0.50% to 0.75%. Interest on the LLC term loan D bears interest
at a floating rate or rates equal to the Eurodollar rate or the
base rate, plus a margin of 3.50% for Eurodollar loans and 2.50%
for base rate loans. Through August 2013, the Eurodollar rate
applicable to the LLC term loan D loan are subject to a minimum
rate of 2.00%.
For the year ended December 31, 2009, the outstanding debt
under the LLC term loan A was reduced by $24.0 million, or
12.00% of the original principal amount, the outstanding debt
under the LLC term loan C was reduced by $6.5 million, or
1.00% of the original principal amount and the outstanding debt
under the LLC term loan D was reduced by $0.8 million, or
0.25% of the original principal amount.
During the year ending December 31, 2010, the outstanding
debt under the LLC term loan A will be reduced by
$50.0 million, or 25.00% of the original principal amount,
the outstanding debt under the LLC term loan C will be reduced
by $6.5 million, or 1.00% of the original principal amount,
and the outstanding debt under the LLC term loan D will be
reduced by $3.0 million, or 1.0% of the original principal
amount.
Mediacom
Broadband Credit Facility
The Broadband credit facility originally consisted of a
revolving credit facility (the Broadband revolver),
a $300.0 million term loan A (the Broadband term loan
A) and a $500.0 million term loan B (the
Broadband term loan B). In October 2005, we amended
the Broadband revolver: (i) to increase the revolving
credit commitment from $543.0 million to
$650.5 million, of which $430.3 million is not subject
to scheduled reductions prior to the termination date; and
(ii) to extend the termination date of the commitments not
subject to reductions from March 31, 2010 to
December 31, 2012. In May 2005, we refinanced the Broadband
term loan B with a new term loan (the Broadband term loan
C) in the amount of $500.0 million. In May 2006, we
refinanced the Broadband term loan C with a new term loan (the
Broadband term loan D) in the amount of
$800.0 million. In May 2008, we entered into an incremental
facility agreement that provides for a new term loan
(Broadband term loan E) under our credit facility in
the principal amount of $350.0 million.
The Broadband revolver has a scheduled quarterly reduction of
$19.5 million on March 31, 2010, and the remaining
commitments of $430.3 million expire on December 31,
2012. The Broadband term loan A matures on March 31,
77
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2010 and, since September 30, 2004, has been subject to
quarterly reductions ranging from 1.00% to 8.00% of the original
principal amount. The Broadband term loan D matures on
January 31, 2015, and is subject to quarterly reductions of
0.25% that began on March 31, 2007 and extend through
December 31, 2014, with a final payment at maturity
representing 92.00% of the original principal amount. The
Broadband term loan E matures on January 3, 2016 and, since
June 30, 2008, has been subject to quarterly reductions of
0.25%, with a final payment at maturity representing 92.50% of
the original principal amount. As of December 31, 2009, the
maximum commitment available under the Broadband revolver was
$449.8 million, and the Broadband revolver had an
outstanding balance of $210.3 million. As of the same date,
the Broadband term loans A, D and E had outstanding balances of
$24.0 million, $776.0 million, and
$344.8 million, respectively.
The Broadband credit agreement provides for interest at varying
rates based upon various borrowing options and certain financial
ratios, and for commitment fees of
3/8%
to
5/8%
per annum on the unused portion of the available revolving
credit commitment. Interest on outstanding Broadband revolver
and Broadband term loan A balances is payable at either the
Eurodollar rate plus a floating percentage ranging from 1.00% to
2.50% or the base rate plus a floating percentage ranging from
0.25% to 1.50%. Interest on the Broadband term loan B is payable
at either the Eurodollar rate plus a floating percentage ranging
from 1.50% to 1.75% or the base rate plus a floating percentage
ranging from 0.50% to 0.75%. Interest on the Broadband term loan
E is payable at either the Eurodollar Rate plus a margin of
3.50% or the base rate plus a margin of 2.50%. Through May 2012,
the applicable Eurodollar and base rates applicable to the
Broadband term loan E are subject to a minimum of 3.00% and
4.00, respectively.
For the year ended December 31, 2009, the maximum
commitment amount under the Broadband revolver was reduced by
$66.9 million. The outstanding debt under the Broadband
term loan A was reduced by $82.5 million, or 27.50% of the
original principal amount, the outstanding debt under the
Broadband term loan D was reduced by $8.0 million, or 1.00%
of the original principal amount, and the outstanding debt under
the Broadband term loan E was reduced by $3.5 million, or
1.00% of the original principal amount.
During the year ending December 31, 2010, the Broadband
revolver will be subject to its final scheduled commitment
reduction, reducing its maximum commitment amount by
$19.5 million, and the remaining $24.0 million, or
8.00% of the original principal amount of the Broadband term
loan A will be repaid. Outstanding debt under the Broadband term
loan D will be reduced by $8.0 million, or 1.00% of the
original principal amount and the outstanding debt under the
Broadband term loan E will be reduced by $3.5 million, or
1.00% of the original principal amount.
Senior
Notes
As of December 31, 2009, we had in aggregate
$850 million of senior notes outstanding, consisting of
$500 million of senior notes at Mediacom Broadband LLC and
$350 million of senior notes at Mediacom LLC. The
indentures governing our senior notes also contain various
covenants, though they are generally less restrictive than those
found in our bank credit facilities. The principal financial
covenant of these senior notes has a limitation on the
incurrence of additional indebtedness based upon a maximum ratio
of total indebtedness to cash flow (as defined) of 8.5 to 1.0.
Our ratios of total indebtedness to cash flow, which are
calculated on a quarterly basis, were 5.8 to 1.0 at Mediacom
Broadband LLC and 6.0 to 1.0 at Mediacom LLC for the three
months ended December 31, 2009. These covenants also
restrict our ability, among other things, to make certain
distributions, investments and other restricted payments, sell
certain assets, to make restricted payments, create certain
liens, merge, consolidate or sell substantially all of our
assets and enter into certain transactions with affiliates.
Mediacom
LLC
In February 1999, Mediacom LLC and its affiliate, Mediacom
Capital Corporation (the LLC Issuers), jointly
issued $125 million aggregate principal amount of
77/8% Notes.
In January 2001, the LLC Issuers jointly issued
$500 million aggregate principal amount of
91/2% Notes.
78
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In August 2009, the LLC Issuers commenced cash tender offers
(the Tender Offers) for its outstanding
91/2% Notes
and its
77/8% Notes
(together, the Notes) Pursuant to the Tender Offers,
the LLC Issuers repurchased an aggregate of $390.2 million
principal amount of
91/2% Notes
and an aggregate of $71.1 million principal amount of
77/8% Notes.
The accrued interest paid on the repurchased
91/2% Notes
and
77/8% Notes
was $4.1 million and $0.2 million, respectively. The
Tender Offers were funded with proceeds from the issuance of the
91/8% Senior
Notes due August 2019 (the
91/8% Notes)
discussed below and borrowings under the revolving credit
portion of the LLC Credit Facility.
In August 2009, the LLC Issuers announced the redemption of any
Notes remaining outstanding following the expiration of the
Tender Offers. In September 2009, the LLC Issuers redeemed an
aggregate of $109.8 million principal amount of
91/2% Notes
and an aggregate of $53.9 million principal amount of
77/8% Notes,
representing the balance of the outstanding principal amounts of
such Notes. The accrued interest paid on the redeemed
91/2% Notes
and
77/8% Notes
was $2.0 million and $0.5 million, respectively. The
redemption was funded with proceeds from the new term loan D.
In August 2009, the LLC Issuers jointly issued $350 million
aggregate principal amount of
91/8% Notes.
Net proceeds from the issuance of the
91/8% Notes
were $334.9 million, after giving effect to the original
issue discount of $8.3 million and financing costs of
$6.8 million, and were used to fund a portion of the cash
tender offers described below. As a percentage of par value, the
91/8% Notes
are redeemable at 104.563% through August 15, 2014,
103.042% through August 15, 2015, 101.521% through
August 15, 2016 and at par value thereafter.
The
91/8% Notes
are unsecured obligations of the LLC Issuers, and the indenture
governing these Notes stipulates, among other things,
restrictions on the incurrence of indebtedness, distributions,
mergers and asset sales and has cross-default provisions related
to other debt of Mediacom LLC and its subsidiaries.
Mediacom
Broadband LLC
In August 2005, Mediacom Broadband LLC and its affiliate,
Mediacom Broadband Corporation (the Broadband
Issuers), jointly issued $200 million aggregate
principal amount of
81/2% senior
notes due October 2015 (the
81/2% Notes).
In October 2006, the Broadband Issuers jointly issued an
additional $300 million aggregate principal amount of
81/2% Notes,
thus extending the total amount of
81/2% Notes
outstanding to $500 million.
The
81/2% Notes
are unsecured obligations of the Broadband Issuers, and their
indenture governing these Notes stipulates, among other things,
restrictions on incurrence of indebtedness, distributions,
mergers and asset sales and has cross-default provisions related
to other debt of Mediacom Broadband LLC.
Loss
on Early Extinguishment of Debt
For the year ended December 31, 2009, as a result of the
Tender Offers and redemption of the Notes, we recorded in our
consolidated statements of operations a loss on extinguishment
of debt of $5.8 million. This amount included
$3.7 million of unamortized original issue discount and
deferred financing costs, $1.4 million of bank and other
professional fees and $0.7 million of net proceeds paid
above par as a result of the Early Tender Premium. There was no
loss on early extinguishment of debt in the years ended
December 31, 2007 and 2008.
Interest
Rate Swaps
We use interest rate exchange agreements, or interest rate
swaps, in order to fix the rate of the applicable Eurodollar
portion of debt under our credit facilities to reduce the
potential volatility in our interest expense that would
otherwise 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 years ended December 31, 2009,
2008 and 2007.
79
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2009, we had current interest rate swaps
with various banks pursuant to which the interest rate on
$1.5 billion was fixed at a weighted average rate of 3.5%.
As of the same date, about 70% of our total outstanding
indebtedness was at fixed rates or subject to interest rate
protection. Our current interest rate swaps are scheduled to
expire in the amounts of $300 million, $500 million
and $700 million during the years ended December 31,
2010, 2011 and 2012, respectively.
We have also entered into forward-starting interest rate swaps
that will fix rates for: (i) a four-year period at a
weighted average rate of 3.1% on $200 million of floating
rate debt, which will commence in December 2010; (ii) a
two-year period at a weighted average rate of 2.8% on
$300 million of floating rate debt, which will commence in
December 2010; and (iii) a two and a half year period at a
weighted average rate of 3.9% on $200 million of floating
rate debt, which will commence in June 2012.
The fair value of our interest rate swaps is the estimated
amount that we would receive or pay to terminate such
agreements, taking into account market interest rates and the
remaining time to maturities. As of December 31, 2009,
based upon
mark-to-market
valuation, we recorded on our consolidated balance sheet, a
long-term asset of $4.8 million, an accumulated current
liability of $40.6 million and an accumulated long-term
liability of $14.6 million. As of December 31, 2008,
based upon
mark-to-market
valuation, we recorded on our consolidated balance sheet an
accumulated current liability of $45.2 million and an
accumulated long-term liability of $35.0 million. As a
result of the
mark-to-market
valuations on these interest rate swaps, we recorded a net gain
on derivatives of $29.8 million and net losses on
derivatives of $54.4 million and $22.9 million for the
years ended December 31, 2009, 2008 and 2007, respectively.
Covenant
Compliance
For all periods through December 31, 2009, we were in
compliance with all of the covenants under our credit facilities
and senior note arrangements. There are no covenants, events of
default, borrowing conditions or other terms in our credit
facilities or senior note indentures that are based on changes
in our credit rating assigned by any rating agency.
Fair
Value and Debt Maturities
As of December 31, 2009, the fair values of our Senior
Notes and Bank Credit Facilities are as follows (dollars in
thousands):
|
|
|
|
|
81/2%
senior notes due 2015
|
|
$
|
506,250
|
|
91/8% senior
notes due 2019
|
|
|
354,813
|
|
|
|
|
|
|
|
|
$
|
861,063
|
|
|
|
|
|
|
Bank credit facilities
|
|
$
|
2,427,758
|
|
|
|
|
|
|
The stated maturities of all debt outstanding as of
December 31, 2009 are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
$
|
95,000
|
|
2011
|
|
|
|
|
|
|
147,250
|
|
2012
|
|
|
|
|
|
|
285,250
|
|
2013
|
|
|
|
|
|
|
21,000
|
|
2014
|
|
|
|
|
|
|
21,000
|
|
Thereafter
|
|
|
|
|
|
|
2,795,500
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
3,365,000
|
|
|
|
|
|
|
|
|
|
|
80
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
STOCKHOLDERS
EQUITY (DEFICIT)
|
We have authorized 300,000,000 shares of Class A
common stock, $.01 par value and 100,000,000 shares of
Class B common stock, $.01 par value. The holders of
Class A and Class B common stock are entitled to vote
as a single class on each matter in which our shareholders are
entitled to vote. Each Class A share is entitled to one
vote and each Class B share is entitled to ten votes.
Stock
Repurchase Plans
In November 2007, the Board of Directors authorized an
additional $50.0 million Class A common stock
repurchase program. During the year ended December 31,
2009, there were no repurchases under the repurchase program.
During the years ended, 2008 and 2007, we repurchased
approximately 4.9 million, and 11.2 million shares at
an average price per share of $4.68 and $6.18, for an aggregate
cost of $22.4 million and $69.0 million,
respectively,. As of December 31, 2009, approximately
$47.6 million remained available under the Class A
common stock repurchase program.
Share-based
Compensation
We grant stock options to certain employees and directors which
convey to recipients the right to purchase shares of our
Class A common stock at a specified strike price, upon
vesting of the stock option award, but prior to the expiration
date of that award. The awards are subject to annual vesting
periods not exceeding 4 years from the date of grant. We
made estimates of expected forfeitures based on historic
voluntary termination behavior and trends of actual stock option
forfeitures and recognized compensation costs for equity awards
expected to vest. We regularly adjust our forfeiture rate to
reflect compensation costs based actual forfeiture experience.
In April 2003, our Board of Directors adopted our 2003 Incentive
Plan, or 2003 Plan, which amended and restated our
1999 Stock Option Plan and incorporated into the 2003 Plan
options that were previously granted outside the 1999 Stock
Option Plan. The 2003 Plan was approved by our stockholders in
June 2003 and provides for the grant of incentive stock options,
nonqualified stock options, restricted shares, and other
stock-based awards, in addition to annual incentive awards. The
contractual life of share-based awards granted under the 2003
Plan is no more than 10 years. We deliver shares from
treasury upon the exercise of stock options or the conversion of
restricted stock units. The 2003 Plan has 21.0 million
shares of common stock available for issuance in settlement of
awards. As of December 31, 2009, approximately
9.4 million shares remained available for issuance under
the 2003 Plan.
ASC 718 requires the cost of all share-based payments to
employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair
values at the grant date, or the date of later modification,
over the requisite service period. In addition, ASC 718 requires
unrecognized cost, based on the amounts previously disclosed in
our pro forma footnote disclosure, related to options vesting
after the date of initial adoption to be recognized in the
financial statements over the remaining requisite service period.
We use the Black-Scholes option pricing model which requires
extensive use of accounting judgment and financial estimates,
including estimates of the expected term employees will retain
their vested stock options before exercising them, the estimated
volatility of our stock price over the expected term, and the
number of options that will be forfeited. Application of
alternative assumptions could produce significantly different
estimates of the fair value of share-based compensation and
consequently, the related amounts recognized in the consolidated
statements of operations. The provisions of ASC 718 apply to new
stock awards and stock awards outstanding, but not yet vested,
on the effective date. In March 2005, the SEC issued
SAB No. 107, Share-Based Payment,
relating to ASC 718. We have applied the provisions of
SAB No. 107 in our adoption.
81
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Total share-based compensation expense recognized was as follows
(dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Share-based compensation expense by type of award:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
$
|
2,354
|
|
|
$
|
1,638
|
|
|
$
|
1,920
|
|
Employee stock purchase plan
|
|
|
452
|
|
|
|
299
|
|
|
|
284
|
|
Restricted stock units
|
|
|
4,464
|
|
|
|
3,231
|
|
|
|
3,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
7,270
|
|
|
$
|
5,168
|
|
|
$
|
5,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total future compensation cost related to unvested
share-based awards that are expected to vest was
$13.3 million as of December 31, 2009, which will be
recognized over a weighted average period of 0.9 years.
In November 2005, the FASB issued FASB Staff Position
No. FAS 123(R)-3, Transition Election Related
to Accounting for Tax Effects of Shared-Based Payment
Awards. We have elected the short-cut
method to calculate the historical pool of windfall tax benefits.
Valuation
Assumptions
As required by ASC 718, we estimated the fair value of stock
options and shares purchased under our employee stock purchase
plan, using the Black-Scholes valuation model and the
straight-line attribution approach with the following weighted
average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Employee Stock
|
|
Employee Stock
|
|
|
Option Plans
|
|
Purchase Plans
|
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2009
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
59.0
|
%
|
|
|
59.0
|
%
|
Risk free interest rate
|
|
|
2.9
|
%
|
|
|
2.6
|
%
|
Expected option life (in years)
|
|
|
5.7
|
|
|
|
0.5
|
|
We do not expect to declare dividends in the near future.
Expected volatility is based on a combination of implied and
historical volatility of our Class A common stock. For the
years ended December 31, 2009, 2008 and 2007, we elected
the simplified method in accordance with SAB 107 and
SAB 110 to estimate the option life of share-based awards.
The simplified method is used for valuing stock option grants by
eligible public companies that do not have sufficient historical
exercise patterns of stock options. We have concluded that
sufficient historical exercise data is not available. The risk
free interest rate is based on the U.S. Treasury yield in
effect at the date of grant. The forfeiture rate is based on
trends in actual option forfeitures. The awards are generally
subject to annual vesting periods not to exceed 4 years
from the date of grant.
82
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the activity of our option plans
for the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate Intrinsic
|
|
|
|
|
|
|
Weighted Average
|
|
|
Contractual
|
|
|
Value (in
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term (In years)
|
|
|
thousands)
|
|
|
Outstanding at January 1, 2009
|
|
|
6,849,893
|
|
|
$
|
10.70
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,118,000
|
|
|
|
3.98
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(46,200
|
)
|
|
|
4.85
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(261,270
|
)
|
|
|
14.57
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
7,660,423
|
|
|
$
|
9.63
|
|
|
|
4.5
|
|
|
$
|
1,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2009
|
|
|
7,660,423
|
|
|
|
9.63
|
|
|
|
4.5
|
|
|
$
|
1,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
4,849,423
|
|
|
$
|
12.70
|
|
|
|
2.1
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic values in the table above represented
the total pre-tax intrinsic value, based on our stock price of
$4.47, per share as of December 31, 2009, which would have
been received by the option holders had all option holders
exercised their options as of that date.
The weighted average exercise price at the date of grant of a
Class A common stock option granted under our option plan
during the year ended December 31, 2009 was $3.98. During
the year ended December 31, 2009, there were 758,334 stock
options vested with a weighted average exercise price of $5.26.
The proceeds we received, the intrinsic value of options
exercised and the related tax benefits realized, resulting from
the exercise of stock options during 2009 were immaterial. The
weighted average grant date fair value for each of the options
granted during the year ended December 31, 2009 was $2.22.
The following table summarizes information concerning stock
options outstanding as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
Average
|
|
|
Aggregate
|
|
|
Number of
|
|
|
Remaining
|
|
|
Average
|
|
|
Aggregate
|
|
Range of
|
|
|
Shares
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Intrinsic Value
|
|
|
Shares
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Intrinsic Value
|
|
Exercise Prices
|
|
|
Outstanding
|
|
|
Life
|
|
|
Price
|
|
|
(In thousands)
|
|
|
Outstanding
|
|
|
Life
|
|
|
Price
|
|
|
(In thousands)
|
|
|
$
|
3.00 $12.00
|
|
|
|
5,444,110
|
|
|
|
6.2 years
|
|
|
$
|
5.91
|
|
|
$
|
1,230
|
|
|
|
2,633,110
|
|
|
|
3.6 years
|
|
|
$
|
7.62
|
|
|
$
|
26
|
|
$
|
12.01 $18.00
|
|
|
|
326,465
|
|
|
|
1.3 years
|
|
|
|
17.22
|
|
|
|
|
|
|
|
326,465
|
|
|
|
1.3 years
|
|
|
|
17.22
|
|
|
|
|
|
$
|
18.01 $22.00
|
|
|
|
1,889,848
|
|
|
|
0.1 years
|
|
|
|
19.01
|
|
|
|
|
|
|
|
1,889,848
|
|
|
|
0.1 years
|
|
|
|
19.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,660,423
|
|
|
|
4.5 years
|
|
|
$
|
9.63
|
|
|
$
|
1,230
|
|
|
|
4,849,423
|
|
|
|
2.1 years
|
|
|
$
|
12.70
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Units
We grant restricted stock units (RSUs) to certain
employees and directors (together, the participants)
in Class A common stock. Awards of RSUs are valued by
reference to shares of common stock that entitle participants to
receive, upon the settlement of the unit, one share of common
stock for each unit. The awards are subject to annual vesting
periods not exceeding 4 years from the date of grant. We
made estimates of expected forfeitures based on historic
voluntary termination behavior and trends of actual RSU
forfeitures and recognized compensation costs for equity awards
expected to vest. The aggregate intrinsic value of outstanding
RSUs was $12.0 million, based on the closing stock price of
$4.47 per share of our Class A common stock at
December 31, 2009.
83
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the activity of our restricted
stock unit awards for the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of Non-Vested
|
|
|
Average Grant
|
|
|
|
Share Unit Awards
|
|
|
Date Fair Value
|
|
|
Unvested Awards at December 31, 2008
|
|
|
2,951,250
|
|
|
$
|
5.09
|
|
Granted
|
|
|
994,200
|
|
|
|
4.32
|
|
Awards Vested
|
|
|
(1,198,500
|
)
|
|
|
5.64
|
|
Forfeited
|
|
|
(60,200
|
)
|
|
|
5.72
|
|
|
|
|
|
|
|
|
|
|
Unvested Awards at December 31, 2009
|
|
|
2,686,750
|
|
|
$
|
4.55
|
|
|
|
|
|
|
|
|
|
|
Employee
Stock Purchase Plan
We maintain an employee stock purchase plan, under which
eligible employees are allowed to participate in the purchase of
shares of our Class A common stock at a minimum 15%
discount on the date of the allocation. Shares purchased by
employees amounted to 320,347 for the year ended
December 31, 2009. The net proceeds to us were
approximately $1.1 million for the year ended
December 31, 2009.
The reconciliation of the income tax expense (benefit) at the
United States federal statutory rate to the actual income tax
(benefit) expense is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Tax expense (benefit) at the United States statutory rate
|
|
$
|
44,229
|
|
|
$
|
(6,499
|
)
|
|
$
|
(13,353
|
)
|
State taxes, net of federal tax benefit
|
|
|
(73,092
|
)
|
|
|
7,765
|
|
|
|
8,549
|
|
Valuation allowances
|
|
|
(589,368
|
)
|
|
|
55,031
|
|
|
|
61,552
|
|
Permanent items and other
|
|
|
530
|
|
|
|
1,916
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense
|
|
$
|
(617,701
|
)
|
|
$
|
58,213
|
|
|
$
|
57,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, total income tax
benefit differed from the tax expense at the U.S. statutory
rate primarily due the reversal of the valuation allowances
against certain deferred tax assets (see below). State tax
benefit primarily represented the change in the state valuation
allowances.
A tax benefit of $617.7 million was recorded for the year
ended December 31, 2009. As noted above, valuation
allowances accounted for $589.4 million of the overall
income tax benefit in 2009. This amount was due to the
$593.9 million release of the Federal valuation allowance
in the fourth quarter of 2009, offset by the $4.5 million
impact of tax amortization on indefinite-lived intangible assets
and changes to book income. A tax provision of
$58.2 million and $57.6 million was recorded for the
years ended December 31, 2008 and 2007, respectively. In
2009, the tax benefit resulted from the reversal of
substantially all of our valuation allowances. In 2008 and 2007,
the respective tax provision amounts substantially represented
the increase in the deferred tax liabilities related to the
basis differences of our indefinite-lived intangible assets.
84
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our net deferred tax assets and liabilities consist of the
following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
6,252
|
|
|
$
|
8,133
|
|
|
$
|
6,884
|
|
Unrealized loss on interest rate exchange agreements
|
|
|
15,699
|
|
|
|
18,258
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
851
|
|
|
|
1,106
|
|
|
|
790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets
|
|
|
22,802
|
|
|
|
27,497
|
|
|
|
7,674
|
|
Less: Valuation allowance
|
|
|
(186
|
)
|
|
|
(19,237
|
)
|
|
|
(5,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets, net
|
|
$
|
22,616
|
|
|
$
|
8,260
|
|
|
$
|
2,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
969,589
|
|
|
$
|
918,061
|
|
|
$
|
897,921
|
|
Capital loss
|
|
|
4,598
|
|
|
|
4,593
|
|
|
|
10,300
|
|
Unrealized loss on interest rate exchange agreements
|
|
|
6,599
|
|
|
|
14,133
|
|
|
|
|
|
Other assets
|
|
|
3,723
|
|
|
|
4,031
|
|
|
|
6,382
|
|
Valuation allowance
|
|
|
(8,019
|
)
|
|
|
(658,211
|
)
|
|
|
(625,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred tax assets
|
|
$
|
976,490
|
|
|
$
|
282,607
|
|
|
$
|
288,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred tax assets, net
|
|
$
|
222,695
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in cable television systems:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible fixed assets and definite-lived intangible assets
|
|
$
|
317,215
|
|
|
$
|
290,867
|
|
|
$
|
291,270
|
|
Indefinite-lived intangible assets
|
|
|
436,580
|
|
|
|
372,390
|
|
|
|
314,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred tax liabilities
|
|
$
|
753,795
|
|
|
$
|
663,257
|
|
|
$
|
605,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred tax liabilities, net
|
|
$
|
|
|
|
$
|
380,650
|
|
|
$
|
316,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
Allowances
As of December 31, 2009 and 2008, we had deferred tax
assets of $1,007.3 million and $968.3 million,
respectively, with valuation allowances of $8.2 million and
$677.4 million, respectively. Most of the deferred tax
assets relate to pre-tax net operating loss (NOL)
carryforwards for federal and state purposes. These federal NOL
carryforwards had a balance of approximately $2.4 billion
and $2.3 billion as of December 31, 2009 and 2008,
respectively, and if not utilized will expire in the years 2020
through 2029. The state NOL carryforwards had a balance of
approximately $2.2 billion and $2.1 billion as of
December 31, 2009 and 2008, respectively, and if not
utilized, will expire in the years 2010 through 2029. For the
year ended December 31, 2008, we revised our estimates for
calculating our deferred tax asset for state NOL carryforwards,
by using a more accurate
state-by-state
calculation rather than applying a blended state rate. This
change resulted in a decrease to our deferred tax assets of
approximately $10.4 million. As a result of certain
realization requirements of ASC
718-740, the
amount of deferred tax assets and liabilities shown above does
not include a portion of the NOL deferred tax asset at
December 31, 2009 and 2008 that arose directly from tax
deductions related to equity compensation in excess of
compensation recognized for financial reporting. Equity would be
increased by approximately $0.2 million, if and when such
deferred tax asset is ultimately realized.
As required by ASC 740 Income Taxes
(ASC 740) (formerly SFAS No. 109,
Accounting for Income Taxes), we periodically
assess the likelihood of realization of our deferred tax assets
considering all available evidence, both positive and negative,
including our most recent performance, the scheduled reversal of
deferred tax liabilities,
85
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
our forecast of taxable income in future periods and the
availability of prudent tax planning strategies. As a result of
these assessments in prior periods, we established valuation
allowances on a portion of our deferred tax assets due to the
uncertainty surrounding the realization of these deferred tax
assets. We have utilized ASC 270 Interim
Reporting (ASC 270) (formerly APB No. 28,
Interim Financial Reporting) to record income
taxes on an interim period basis.
ASC 740 requires that a valuation allowance be established for
deferred tax assets if it is more likely than not that such
deferred tax assets will not be realized. Realization can be
demonstrated by one of the following:
|
|
|
Taxable income in the carry-back period;
|
|
|
Reversing taxable temporary differences;
|
|
|
Tax planning strategies; and,
|
|
|
Anticipated future taxable income.
|
During the years ended December 31, 2008, and 2007, based
on our assessment of the facts and circumstances, we concluded
that an additional portion of our deferred tax assets from NOL
carryfowards would not be realized under the
more-likely-than-not standard of ASC 740. As a result, we
increased our valuation allowances against deferred tax assets
by $58.2 million, and $57.3 million in these years,
respectively, and recognized a corresponding non-cash charge to
the income tax provision in each year. These amounts related to
the portion of deferred tax liabilities based upon the book vs.
tax basis difference of our indefinite-lived intangible assets
which caused an incremental increase to the valuation allowances
against deferred tax assets.
During the year ended December 31, 2009, based on the
weight of available evidence including our generation of
cumulative taxable income on a
12-quarter
look-back basis, our projection of budgeted pre-tax income in
2010 and our ability to sustain a core level of earnings, we
determined, in the fourth quarter of 2009, that it is more
likely than not that a substantial portion of our deferred tax
assets will be realized in the future. The increase in positive
evidence during the year was predominantly as a result of the
increase in pre-tax earnings during 2009. In addition, we
considered forecasted reversals of deferred tax liabilities and
potential tax planning strategies. With the exception of a
limited amount of state NOLs and other carryovers expected to
expire prior to utilization, all deferred tax assets are
expected to be realized on a more likely than not basis and
therefore no valuation allowances were required. We recorded the
reversal of our valuation allowances in benefit (provision) for
income taxes in our statements of operations during the three
months ended December 31, 2009. We believe the timing of
the release of our tax valuation allowances was appropriate for
these reasons.
During the fourth quarter for 2009, we determined that the net
loss for the year ended December 31, 2005 was understated
by $6.2 million due to errors in the accounting for tax
depreciation related to indefinite-lived assets and the
recognition of a related valuation allowance. We concluded that
this change was not material to our interim and annual financial
statements for 2009 or to the financial statements for any prior
period based on our consideration of quantitative and
qualitative factors. The recording of this adjustment in the
fourth quarter of 2009 increased the amount of the tax valuation
allowance release that would have occurred had the correction
been recorded in the 2005 period of origination.
Other
tax matters
In June 2006, the FASB issued ASC 740 (formerly Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes- An Interpretation of FASB Statement
No. 109). ASC 740 clarifies the accounting for
uncertainty in income taxes recognized in an entitys
financial statements, and prescribes a recognition threshold and
measurement attributes for financial statement disclosure of tax
positions taken or expected to be taken on a tax return. We
adopted the provisions of FIN 48 on January 1, 2007.
As of December 31, 2009 and 2008, we have not recorded any
liability for unrecognized tax benefits. We do not think it is
reasonably possible that the total amount of unrealized tax
benefits will significantly change in the next twelve months.
86
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We file U.S. federal consolidated income tax returns and
income tax returns in various state and local jurisdictions. Our
2006, 2007, and 2008 U.S. federal tax years and various
state and local years from 2005 through 2008 remain subject to
income tax examinations by tax authorities.
We classify interest and penalties associated with uncertain tax
positions as a component of income tax expense. During the years
ended December 31, 2009, 2008 and 2007, respectively, no
interest and penalties were accrued.
|
|
10.
|
RELATED
PARTY TRANSACTIONS
|
Mediacom Management Corporation (Mediacom
Management), a Delaware corporation, holds a 1% direct
ownership interest in Mediacom California LLC, which in turn
holds a 1% interest in Mediacom Arizona LLC. Revenues related to
these ownership interests represent less than 1% of our total
revenues. Mediacom Management is wholly-owned by our Chairman
and CEO.
One of our directors is a partner of a law firm that performs
various legal services for us. For the years ended
December 31, 2009, 2008 and 2007, we paid this law firm
approximately $0.8 million, $0.5 million and
$1.2 million, respectively, for services performed.
On September 7, 2008, we entered into a Share Exchange
Agreement (the Exchange Agreement) with Shivers
Investments, LLC (Shivers) and Shivers
Trading & Operating Company (STOC). Both
STOC and Shivers are affiliates of Morris Communications
Company, LLC (Morris Communications), and STOC,
Shivers and Morris Communications are controlled by William S.
Morris III, a member of the our Board of Directors (the
Board). Effective upon closing of the transaction,
Messrs. Morris and Mitchell resigned from our Board of
Directors. See Note 11.
|
|
11.
|
REPURCHASE
OF MEDIACOM CLASS A COMMON STOCK
|
On February 13, 2009, we completed the Exchange Agreement,
pursuant to which we exchanged all of the capital stock of a
wholly-owned subsidiary, which held approximately
$110 million of cash and non-strategic cable systems
serving approximately 25,000 basic subscribers, for
28,309,674 shares of Mediacom Class A common stock
held by Shivers. As of December 31, 2008, after giving
effect to the completion of this transaction, our total
Class A and Class B outstanding shares were
approximately 66.5 million.
The $110 million cash portion of the Exchange Agreement was
funded with borrowings made under the revolving commitments of
our bank credit facilities. The effective rate of this borrowing
was 1.79% as of February 12, 2009, and was based on our
Eurodollar rate plus a spread of 1.44%. The revolving
commitments under the bank credit facilities mature in September
2011.
The results of operations for the sale of assets were as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
Revenues
|
|
$
|
2,722
|
|
|
$
|
22,499
|
|
Pre-tax net income
|
|
$
|
863
|
|
|
$
|
2,271
|
|
87
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The sale assets from the Exchange Agreement are presented below
under the caption Assets held for sale and
Liabilities held for sale in the accompanying
consolidated balance sheets at December 31, 2009 and 2008
respectively (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets held for sale current:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
|
|
|
$
|
53
|
|
Accounts receivable, net
|
|
|
|
|
|
|
1,618
|
|
Prepaid and other current assets
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
Total assets held for sale current
|
|
$
|
|
|
|
$
|
1,693
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale long term:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
6,396
|
|
Franchise rights, net
|
|
|
|
|
|
|
4,532
|
|
Other assets
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total assets held for sale long term
|
|
$
|
|
|
|
$
|
10,933
|
|
|
|
|
|
|
|
|
|
|
Liabilities held for sale current:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
|
|
|
$
|
2,020
|
|
|
|
|
|
|
|
|
|
|
Total liabilities held for sale current
|
|
$
|
|
|
|
$
|
2,020
|
|
|
|
|
|
|
|
|
|
|
Based upon the $4.30 closing price per share of our Class A
common stock on December 31, 2008, we recorded a non-cash
write-down on the sale assets of approximately
$17.7 million for the year ended December 31, 2008.
This unrealized loss was included in our statements of
operations for the year ended December 31, 2008 under the
caption loss on sale of cable systems, net. This loss on sale of
cable systems, net included approximately $3.6 million in
advisory and consulting fees paid in connection with the
Exchange Agreement.
Based upon the $4.92 closing price per share of our Class A
common stock on February 13, 2009 (Closing
Price), we recognized a gain on sale of cable systems,
net, of approximately $13.8 million for the three months
ended March 31, 2009, which included approximately
$1.3 million in legal and consulting fees, as well as other
customary closing adjustments.
For the year ended December 31, 2009, there is an amount of
$29.3 million in our consolidated statements of cash flows,
under the caption Non-Cash Transactions Financing.
This amount is determined by multiplying the number of shares
received in the transaction times the Closing Price less the
$110 million cash payment.
|
|
12.
|
EMPLOYEE
BENEFIT PLANS
|
Substantially all of our employees are eligible to participate
in a defined contribution plan pursuant to the Internal Revenue
Code Section 401(k) (the Plan). Under the Plan,
eligible employees may contribute up to 15% of their current
pre-tax compensation. The Plan permits, but does not require,
matching contributions and non-matching (profit sharing)
contributions to be made by us up to a maximum dollar amount or
maximum percentage of participant contributions, as we determine
annually. We presently match 50% on the first 6% of employee
contributions. Our contributions under the Plan totaled
approximately $2.5 million, $2.5 million and
$2.4 million for the years ended December 31, 2009,
2008 and 2007, respectively.
88
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
COMMITMENTS
AND CONTINGENCIES
|
Lease
and Rental Agreements
Under various lease and rental agreements for offices,
warehouses and computer terminals, we had rental expense of
approximately $6.2 million, $6.5 million and
$6.3 million for the years ended December 31, 2009,
2008 and 2007, respectively.
Future minimum annual rental payments are as follows (dollars in
thousands):
|
|
|
|
|
2010
|
|
$
|
5,701
|
|
2011
|
|
|
4,588
|
|
2012
|
|
|
3,499
|
|
2013
|
|
|
2,020
|
|
2014
|
|
|
1,392
|
|
Thereafter
|
|
|
6,490
|
|
|
|
|
|
|
Total
|
|
$
|
23,690
|
|
|
|
|
|
|
In addition, we rent utility poles in our operations generally
under short-term arrangements, but we expect these arrangements
to recur. Total rental expense for utility poles was
approximately $11.2 million, $11.0 million and
$9.8 million for the years ended December 31, 2009,
2008 and 2007, respectively.
Letters
of Credit
As of December 31, 2009, approximately $20.3 million
of letters of credit were issued to various parties to secure
our performance relating to insurance and franchise
requirements. The fair value of such letters of credit was
immaterial.
Legal
Proceedings
Mediacom LLC, one of our wholly owned subsidiaries, is named as
a defendant in a putative class action, captioned Gary Ogg
and Janice Ogg v. Mediacom LLC, pending in the Circuit
Court of Clay County, Missouri, originally filed in April 2001.
The lawsuit alleges that Mediacom LLC, in areas where there was
no cable franchise failed to obtain permission from landowners
to place our fiber interconnection cable notwithstanding the
possession of agreements or permission from other third parties.
While the parties continue to contest liability, there also
remains a dispute as to the proper measure of damages. Based on
a report by their experts, the plaintiffs claim compensatory
damages of approximately $14.5 million. Legal fees,
prejudgment interest, potential punitive damages and other costs
could increase that estimate to approximately
$26.0 million. Before trial, the plaintiffs proposed an
alternative damage theory of $42.0 million in compensatory
damages. Notwithstanding the verdict in the trial described
below, we remain unable to reasonably determine the amount of
our final liability in this lawsuit. Prior to trial our experts
estimated our liability to be within the range of approximately
$0.1 million to $2.3 million. This estimate did not
include any estimate of damages for prejudgment interest,
attorneys fees or punitive damages.
On March 9, 2009, a jury trial commenced solely for the
claim of Gary and Janice Ogg, the designated class
representatives. On March 18, 2009, the jury rendered a
verdict in favor of Gary and Janice Ogg setting compensatory
damages of $8,863 and punitive damages of $35,000. The Court did
not enter a final judgment on this verdict and therefore the
amount of the verdict cannot at this time be judicially
collected. Although we believe that the particular circumstances
of each class member may result in a different measure of
damages for each member, if the same measure of compensatory
damages was used for each member, the aggregate compensatory
damages would be approximately $16.2 million plus the
possibility of an award of attorneys fees, prejudgment
interest, and punitive damages. Mediacom LLC is vigorously
defending against the claims made
89
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
by the other members of the class, including filing and
responding to post trial motions and preparing for subsequent
trials, and an appeal, if necessary.
We believe that the amount of actual liability would not have a
significant effect on our consolidated financial position,
results of operations, cash flows or business. There can be no
assurance, however, that the actual liability ultimately
determined for all members of the class would not exceed our
estimated range or any amount derived from the verdict rendered
on March 18, 2009. Mediacom LLC has tendered the lawsuit to
our insurance carrier for defense and indemnification. The
carrier has agreed to defend Mediacom LLC under a reservation of
rights, and a declaratory judgment action is pending regarding
the carriers defense and coverage responsibilities.
In addition, we became aware on March 5, 2010 of the filing
of a purported class action in the United States District Court
for the Southern District of New York entitled Jim
Knight v. Mediacom Communications Corp., in which we
are named as the defendant. The complaint asserts that the
potential class is comprised of all persons who purchased
premium cable services from us and rented a cable box
distributed by us. The plaintiff alleges that we improperly
tie the rental of cable boxes to the provision of
premium cable services in violation of Section 1 of the
Sherman Antitrust Act. The plaintiff also alleges a claim for
unjust enrichment and seeks injunctive relief and unspecified
damages. We believe we have substantial defenses to the claims
asserted in the complaint, which has not yet been served on us,
and we intend to defend the action vigorously.
We are also involved in various other legal actions arising in
the ordinary course of business. In the opinion of management,
the ultimate disposition of these other matters will not have a
material adverse effect on our consolidated financial position,
results of operations, cash flows or business.
|
|
14.
|
SALE OF
CABLE SYSTEMS, NET
|
We recorded a gain on sale of cable systems, net, of
$13.8 million and a loss on sale of cable systems, net of
$21.3 million for the years ended December 31, 2009
and 2008, respectively. See Note 11 for a further
discussion of the gain on sale of cable systems, net, recorded
in 2009.
We recorded a gain on sale of cable systems, net amounting to
$11.1 million, for the year ended December 31, 2007,
due to the sale of certain cable systems in Iowa and South
Dakota.
90
MEDIACOM
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
SELECTED
QUARTERLY FINANCIAL DATA (all amounts in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
(Unaudited)
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
360,438
|
|
|
$
|
364,495
|
|
|
$
|
363,383
|
|
|
$
|
372,043
|
|
Operating income
|
|
|
74,945
|
|
|
|
77,062
|
|
|
|
70,949
|
|
|
|
76,805
|
|
Net income (loss)
|
|
$
|
22,362
|
|
|
$
|
34,406
|
|
|
$
|
(10,000
|
)
|
|
$
|
697,299
|
|
Basic net income (loss) per share
|
|
$
|
0.28
|
|
|
$
|
0.51
|
|
|
$
|
(0.15
|
)
|
|
$
|
10.31
|
|
Diluted net income (loss) per share
|
|
$
|
0.27
|
|
|
$
|
0.49
|
|
|
$
|
(0.15
|
)
|
|
$
|
9.86
|
|
Basic weighted average common shares outstanding
|
|
|
80,597
|
|
|
|
67,435
|
|
|
|
67,458
|
|
|
|
67,619
|
|
Diluted weighted average common shares outstanding
|
|
|
83,607
|
|
|
|
70,857
|
|
|
|
67,458
|
|
|
|
70,708
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
339,679
|
|
|
$
|
349,501
|
|
|
$
|
352,553
|
|
|
$
|
360,161
|
|
Operating income
|
|
|
64,616
|
|
|
|
69,332
|
|
|
|
71,179
|
|
|
|
73,729
|
|
Net (loss) income
|
|
$
|
(30,635
|
)
|
|
$
|
20,932
|
|
|
$
|
2,197
|
|
|
$
|
(69,988
|
)
|
Basic and diluted net (loss) income per share
|
|
|
(0.31
|
)
|
|
|
0.22
|
|
|
|
0.02
|
|
|
|
(0.74
|
)
|
Basic weighted average common shares outstanding
|
|
|
97,645
|
|
|
|
95,137
|
|
|
|
94,628
|
|
|
|
94,781
|
|
Diluted weighted average common shares outstanding
|
|
|
97,645
|
|
|
|
97,257
|
|
|
|
96,916
|
|
|
|
94,781
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
307,876
|
|
|
$
|
324,734
|
|
|
$
|
328,252
|
|
|
$
|
332,513
|
|
Operating income
|
|
|
52,327
|
|
|
|
60,961
|
|
|
|
55,439
|
|
|
|
53,602
|
|
Net loss
|
|
$
|
(16,880
|
)
|
|
$
|
(6,644
|
)
|
|
$
|
(34,733
|
)
|
|
$
|
(36,872
|
)
|
Basic and diluted net loss per share
|
|
|
(0.15
|
)
|
|
|
(0.06
|
)
|
|
|
(0.32
|
)
|
|
|
(0.36
|
)
|
Basic and diluted weighted average common shares outstanding
|
|
|
109,890
|
|
|
|
109,758
|
|
|
|
108,013
|
|
|
|
103,649
|
|
We have evaluated the impact of subsequent events on our
consolidated financial statements and related footnotes through
the date of issuance, March 5, 2010.
91
Schedule II
VALUATION
AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
Deductions
|
|
|
|
|
Balance at
|
|
Charged to
|
|
Charged to
|
|
Charged to
|
|
Charged to
|
|
|
|
|
beginning
|
|
costs and
|
|
other
|
|
costs and
|
|
other
|
|
Balance at
|
|
|
of period
|
|
expenses
|
|
accounts
|
|
expenses
|
|
accounts
|
|
end of period
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current receivables
|
|
$
|
2,173
|
|
|
$
|
5,416
|
|
|
$
|
|
|
|
$
|
5,482
|
|
|
$
|
|
|
|
$
|
2,107
|
|
Valuation allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
551,787
|
|
|
$
|
79,220
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
631,007
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current receivables
|
|
$
|
2,107
|
|
|
$
|
3,165
|
|
|
$
|
|
|
|
$
|
2,456
|
|
|
$
|
42
|
|
|
$
|
2,774
|
|
Valuation allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
631,007
|
|
|
$
|
46,441
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
677,448
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current receivables
|
|
$
|
2,774
|
|
|
$
|
4,095
|
|
|
$
|
42
|
|
|
$
|
4,731
|
|
|
$
|
|
|
|
$
|
2,180
|
|
Valuation allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
677,448
|
|
|
|
|
|
|
$
|
|
|
|
$
|
669,243
|
|
|
$
|
|
|
|
$
|
8,205
|
|
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we evaluated the effectiveness of our
disclosure controls and procedures (as defined in
Rule 13a-15(e)
under the Securities Exchange Act of 1934) as of the end of
the period covered by this report. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were
effective as of December 31, 2009.
There has not been any change in our internal control over
financial reporting (as defined in
Rule 13a-15(f)
under the Exchange Act) during the quarter ended
December 31, 2009 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
Managements
Report on Internal Control Over Financial Reporting
Management of our company is responsible for establishing and
maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act as a process designed by, or under the
supervision of our principal executive and principal financial
officers and effected by our board of directors, management and
other personnel to provide reasonable assurance
92
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
|
|
pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the company;
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
directors of the company; and
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial
statements.
|
Because of our inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risks that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our companys
internal control over financial reporting as of
December 31, 2009. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment,
management determined that, as of December 31, 2009, our
companys internal control over financial reporting was
effective.
The effectiveness of our internal control over financial
reporting as of December 31, 2009 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included
herein.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None
PART III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information called for by Item 10 is set forth under the
heading Executive Officers of the Registrant in
Item 4A of this annual report and in our proxy statement
relating to the 2010 Annual Meeting of Stockholders (the
Proxy Statement), which information is incorporated
herein by this reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Information called for by Item 11 is set forth in our Proxy
Statement, which information is incorporated herein by this
reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information called for by Item 12 is set forth in our Proxy
Statement, which information is incorporated herein by this
reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Information called for by Item 13 is set forth in our Proxy
Statement, which information is incorporated herein by this
reference.
93
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Information called for by Item 14 is set forth in our Proxy
Statement, which information is incorporated herein by this
reference.
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
Our financial statements as set forth in the Index to
Consolidated Financial Statements under Part II,
Item 8 of this
Form 10-K
are hereby incorporated by reference.
The following exhibits, which are numbered in accordance with
Item 601 of
Regulation S-K,
are filed herewith or, as noted, incorporated by reference
herein:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
2
|
.1
|
|
Share Exchange Agreement, dated as of September 7, 2008, by
and between Mediacom Communications Corporation, Shivers
Investments, LLC, and Shivers Trading & Operating
Company(1)
|
|
2
|
.2
|
|
Significant Stockholder Agreement, dated as of September 7,
2008 by and between Mediacom Communications Corporation and
Rocco B.
Commisso(1)
|
|
2
|
.3
|
|
Asset Transfer Agreement, dated February 11, 2009, by and
among Mediacom Communications Corporation, certain operating
subsidiaries of Mediacom LLC and the operating subsidiaries of
Mediacom Broadband
LLC(2)
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of Mediacom Communications
Corporation(3)
|
|
3
|
.2
|
|
Amended and Restated By-laws of Mediacom Communications
Corporation(4)
|
|
4
|
.1
|
|
Form of certificate evidencing share of Class A common
stock(3)
|
|
4
|
.2
|
|
Indenture relating to
81/2% senior
notes due 2015 of Mediacom Broadband LLC and Mediacom Broadband
Corporation(5)
|
|
4
|
.3
|
|
Indenture relating to
91/8% senior
notes due 2019 of Mediacom LLC and Mediacom Capital
Corporation(6)
|
|
10
|
.1(a)
|
|
Credit Agreement, dated as of October 21, 2004, among the
operating subsidiaries of Mediacom LLC, the lenders thereto and
JPMorgan Chase Bank, as administrative agent for the
lenders(7)
|
|
10
|
.1(b)
|
|
Amendment No. 1, dated as of May 5, 2006, to the
Credit Agreement, dated as of October 21, 2004, among the
operating subsidiaries of Mediacom LLC, the lenders thereto and
JPMorgan Chase Bank, as administrative agent for the
lenders(8)
|
|
10
|
.1(c)
|
|
Amendment No. 2, dated as of June 11, 2007, to the
Credit Agreement, dated as of October 21, 2004, among the
operating subsidiaries of Mediacom LLC, the lenders party
thereto and JPMorgan Chase Bank as administrative agent for the
lenders(9)
|
|
10
|
.1(d)
|
|
Amendment No. 3, dated as of June 11, 2007, to the
Credit Agreement, dated of October 21, 2004, among the
operating subsidiaries of Mediacom LLC, the lenders party
thereto and JPMorgan Chase Bank, as administrative agent for the
lenders(9)
|
|
10
|
.2(a)
|
|
Amendment and Restatement, dated December 16, 2004, of
Credit Agreement, dated as of July 18, 2001, among the
operating subsidiaries of Mediacom Broadband LLC, the lenders
thereto and JPMorgan Chase Bank, as administrative agent for the
lenders(10)
|
|
10
|
.2(b)
|
|
Amendment No. 1, dated as of October 11, 2005, to the
Amendment and Restatement, dated as of December 16, 2004,
of Credit Agreement, dated as of July 18, 2001, among the
operating subsidiaries of Mediacom Broadband LLC, the lenders
thereto and JP Morgan Chase Bank, as administrative agent for
the
lenders(11)
|
94
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.2(c)
|
|
Amendment No. 2, dated as of May 5, 2006, to the
Amendment and Restatement, dated as of December 16, 2004,
of Credit Agreement, dated as of July 18, 2001, among the
operating subsidiaries of Mediacom Broadband LLC, the lenders
thereto and JPMorgan Chase Bank, as administrative agent for the
lenders(8)
|
|
10
|
.2(d)
|
|
Amendment No. 3, dated as of June 11, 2007, to the
Amendment and Restatement, dated as of December 16, 2004,
of Credit Agreement, dated as of July 18, 2001, among the
operating subsidiaries of Mediacom Broadband LLC, the lenders
party thereto and JPMorgan Chase Bank, as administrative agent
for the
lenders(9)
|
|
10
|
.2(e)
|
|
Amendment No. 4, dated as of June 11, 2007, to the
Amendment and Restatement, dates as of December 16, 2004,
of Credit Agreement, dated as of July 18, 2001, among the
operating subsidiaries of Mediacom Broadband LLC, the lenders
party thereto and JPMorgan Chase Bank, as administrative agent
for the
lenders(9)
|
|
10
|
.3
|
|
Incremental Facility Agreement, dated as of May 5, 2006,
between the operating subsidiaries of Mediacom LLC, the lenders
signatory thereto and JPMorgan Chase Bank, N.A., as
administrative
agent(8)
|
|
10
|
.4
|
|
Incremental Facility Agreement, dated as of August 25,
2009, between the operating subsidiaries of Mediacom LLC, the
lenders signatory thereto and JPMorgan Chase Base, N.A., as
administrative
agent(6)
|
|
10
|
.5
|
|
Incremental Facility Agreement, dated as of May 5, 2006,
between the operating subsidiaries of Mediacom Broadband LLC,
the lenders signatory thereto and JPMorgan Chase Bank. N.A., as
administrative
agent(8)
|
|
10
|
.6
|
|
Incremental Facility Agreement, dated as of May 29, 2008,
between the operating subsidiaries of Mediacom Broadband LLC,
the lenders signatory thereto and JPMorgan Chase Bank, N.A., as
administrative
agent(12)
|
|
10
|
.7*
|
|
Form of Amended and Restated Registration Rights Agreement by
and among Mediacom Communications Corporation, Rocco B. Commisso
and others who are named in the
agreement(3)
|
|
10
|
.8
|
|
Fifth Amended and Restated Operating Agreement of Mediacom
LLC(13)
|
|
10
|
.9
|
|
Amended and Restated Limited Liability Company Operating
Agreement of Mediacom Broadband
LLC(14)
|
|
10
|
.10*
|
|
Compensation Agreement of Rocco
Commisso(15)
|
|
10
|
.11
|
|
2001 Employee Stock Purchase
Plan(16)
|
|
10
|
.12(a)*
|
|
2003 Incentive
Plan(17)
|
|
10
|
.12(b)*
|
|
Form of Stock Option Agreement for Executive
Officers(2)
|
|
10
|
.12(c)*
|
|
Form of Restricted Stock Unit Award Agreement for Executive
Officers(2)
|
|
10
|
.13(a)
|
|
Non-Employee Directors Equity Incentive
Plan(18)
|
|
10
|
.13(b)
|
|
Form of Stock Option Agreement for Non-Employee
Directors(2)
|
|
10
|
.13(c)
|
|
Form of Restricted Stock Unit Award Agreement for Non-Employee
Directors(2)
|
|
12
|
.1
|
|
Schedule of Computation of Ratio of Earnings to Fixed Charges
|
|
21
|
.1
|
|
Subsidiaries of Mediacom Communications Corporation
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP
|
|
31
|
.1
|
|
Rule 13a-14(a)
Certifications
|
|
32
|
.1
|
|
Section 1350 Certifications
|
95
|
|
(c)
|
Financial
Statement Schedule
|
The financial statement schedule
Schedule II Valuation and Qualifying
Accounts is part of this
Form 10-K.
|
|
|
* |
|
Compensatory Plan |
|
(1) |
|
Filed as an exhibit to the Current Report on
Form 8-K,
dated September 7, 2008, of Mediacom Communications
Corporation and incorporated herein by reference. |
|
(2) |
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 of Mediacom
Communications Corporation and incorporated herein by reference. |
|
(3) |
|
Filed as an exhibit to the Registration Statement on
Form S-1
(File
No. 333-90879)
of Mediacom Communications Corporation and incorporated herein
by reference. |
|
(4) |
|
Filed as an exhibit to the Current Report on
Form 8-K,
dated April 21, 2009, of Mediacom Communications
Corporation and incorporated herein by reference. |
|
(5) |
|
Filed as an exhibit to the Current Report on
Form 8-K,
dated August 30, 2005, of Mediacom Broadband LLC and
Mediacom Broadband Corporation and incorporated herein by
reference. |
|
(6) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2009 of
Mediacom Communications Corporation and incorporated herein by
reference. |
|
(7) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2004 of
Mediacom Communications Corporation and incorporated herein by
reference. |
|
(8) |
|
Filed as an exhibit to the Quarterly Report of
Form 10-Q
for the quarterly period ended March 31, 2006 of Mediacom
Communications Corporation and incorporated herein by reference. |
|
(9) |
|
Filed as an exhibit to the Quarterly Report of
Form 10-Q
for the quarterly period ended June 30, 2007 of Mediacom
Communications Corporation and incorporated herein by reference. |
|
(10) |
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2004 of Mediacom
Communications Corporation and incorporated herein by reference. |
|
(11) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2005 of
Mediacom Communications Corporation and incorporated herein by
reference. |
|
(12) |
|
Filed as an exhibit to the Current Report on
Form 8-K,
dated May 29, 2008, of Mediacom Broadband LLC and
incorporated herein by reference. |
|
(13) |
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 1999 of Mediacom
Communications Corporation and incorporated herein by reference. |
|
(14) |
|
Filed as an exhibit to the Registration Statement on
Form S-4
(File
No. 333-72440)
of Mediacom Broadband LLC and Mediacom Broadband Corporation and
incorporated herein by reference. |
|
(15) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2004 of Mediacom
Communications Corporation and incorporated herein by reference. |
|
(16) |
|
Filed as an exhibit to the Registration Statement on
Form S-8
(File
No. 333-68306)
of Mediacom Communications Corporation and incorporated herein
by reference. |
|
(17) |
|
Filed as Exhibit A to the definitive Proxy Statement of
Mediacom Communications Corporation on April 30, 2003 and
incorporated herein by reference. |
|
(18) |
|
Filed as Exhibit A to the definitive Proxy Statement of
Mediacom Communications Corporation on April 29, 2004 and
incorporated herein by reference. |
96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on our
behalf by the undersigned, thereunto duly authorized.
Mediacom Communications Corporation
March 5, 2010
|
|
|
|
By:
|
/s/ Rocco
B. Commisso
|
Rocco B. Commisso
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Rocco
B. Commisso
Rocco
B. Commisso
|
|
Chairman and Chief Executive Officer (principal executive
officer)
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Mark
E. Stephan
Mark
E. Stephan
|
|
Executive Vice President, Chief Financial Officer and Director
(principal financial officer and principal accounting officer)
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Thomas
V. Reifenheiser
Thomas
V. Reifenheiser
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Natale
S. Ricciardi
Natale
S. Ricciardi
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Robert
L. Winikoff
Robert
L. Winikoff
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Scott
W. Seaton
Scott
W. Seaton
|
|
Director
|
|
March 5, 2010
|
97
exv12w1
Exhibit 12.1
Mediacom
Communications Corporation and Subsidiaries
Schedule
of Computation of Ratio of Earnings to Fixed Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands, except ratio amounts)
|
|
|
|
|
|
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
126,366
|
|
|
$
|
(19,281
|
)
|
|
$
|
(37,563
|
)
|
|
$
|
(65,188
|
)
|
|
$
|
(24,966
|
)
|
Interest expense, net
|
|
|
201,995
|
|
|
|
213,333
|
|
|
|
239,015
|
|
|
|
227,206
|
|
|
|
208,264
|
|
Amortization of capitalized interest
|
|
|
2,261
|
|
|
|
2,872
|
|
|
|
3,069
|
|
|
|
2,678
|
|
|
|
2,357
|
|
Amortization of debt issuance costs
|
|
|
5,520
|
|
|
|
5,070
|
|
|
|
4,884
|
|
|
|
5,998
|
|
|
|
8,613
|
|
Interest component of rent
expense(1)
|
|
|
6,237
|
|
|
|
6,289
|
|
|
|
5,787
|
|
|
|
5,755
|
|
|
|
5,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings available for fixed charges
|
|
$
|
342,379
|
|
|
$
|
208,283
|
|
|
$
|
215,192
|
|
|
$
|
176,449
|
|
|
$
|
199,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
201,995
|
|
|
$
|
213,333
|
|
|
$
|
239,015
|
|
|
$
|
227,206
|
|
|
$
|
208,264
|
|
Capitalized interest
|
|
|
3,527
|
|
|
|
4,273
|
|
|
|
3,818
|
|
|
|
3,603
|
|
|
|
3,756
|
|
Amortization of debt issuance cost
|
|
|
5,520
|
|
|
|
5,070
|
|
|
|
4,884
|
|
|
|
5,998
|
|
|
|
8,613
|
|
Interest component of rent
expense(1)
|
|
|
6,237
|
|
|
|
6,289
|
|
|
|
5,787
|
|
|
|
5,755
|
|
|
|
5,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed charges
|
|
$
|
217,279
|
|
|
$
|
228,965
|
|
|
$
|
253,504
|
|
|
$
|
242,562
|
|
|
$
|
225,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges
|
|
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficiency of earnings over fixed charges
|
|
$
|
|
|
|
$
|
(20,682
|
)
|
|
$
|
(38,312
|
)
|
|
$
|
(66,113
|
)
|
|
$
|
(26,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A reasonable approximation (one-third) is deemed to be the
interest factor included in rental expense. |
exv21w1
Exhibit 21.1
Subsidiaries
of Mediacom Communications Corporation
|
|
|
|
|
|
|
State of Incorporation
|
|
Names Under Which
|
Subsidiary
|
|
or Organization
|
|
Subsidiary does Business
|
|
Mediacom LLC
|
|
New York
|
|
Mediacom LLC
|
|
|
|
|
Mediacom Cable TV I LLC
|
Mediacom Arizona LLC
|
|
Delaware
|
|
Mediacom Arizona LLC
|
|
|
|
|
Mediacom Cable LLC
|
Mediacom California LLC
|
|
Delaware
|
|
Mediacom California LLC
|
Mediacom Capital Corporation
|
|
New York
|
|
Mediacom Capital Corporation
|
Mediacom Delaware LLC
|
|
New York
|
|
Mediacom Delaware LLC
|
|
|
|
|
Maryland Mediacom Delaware
|
Mediacom Illinois LLC
|
|
Delaware
|
|
Mediacom Illinois LLC
|
Mediacom Indiana LLC
|
|
Delaware
|
|
Mediacom Indiana LLC
|
Mediacom Indiana Partnerco LLC
|
|
Delaware
|
|
Mediacom Indiana Partnerco
|
Mediacom Indiana Holdings, L.P.
|
|
Delaware
|
|
Mediacom Indiana Holdings, L.P.
|
Mediacom Iowa LLC
|
|
Delaware
|
|
Mediacom Iowa LLC
|
Mediacom Minnesota LLC
|
|
Delaware
|
|
Mediacom Minnesota LLC
|
Mediacom Southeast LLC
|
|
Delaware
|
|
Mediacom Southeast LLC
|
|
|
|
|
Mediacom New York LLC
|
Mediacom Wisconsin LLC
|
|
Delaware
|
|
Mediacom Wisconsin LLC
|
Zylstra Communications Corporation
|
|
Minnesota
|
|
Zylstra Communications Corporation
|
Ill Illini Cable Holding, Inc.
|
|
Illinois
|
|
Illini Cable Holding, Inc.
|
Illini Cablevision of Illinois, Inc.
|
|
Illinois
|
|
Illini Cablevision of Illinois, Inc.
|
Mediacom Broadband LLC
|
|
Delaware
|
|
Mediacom Broadband LLC
|
Mediacom Broadband Corporation
|
|
Delaware
|
|
Mediacom Broadband Corporation
|
MCC Georgia LLC
|
|
Delaware
|
|
MCC Georgia LLC
|
MCC Illinois LLC
|
|
Delaware
|
|
MCC Illinois LLC
|
MCC Iowa LLC
|
|
Delaware
|
|
MCC Iowa LLC
|
MCC Missouri LLC
|
|
Delaware
|
|
MCC Missouri LLC
|
MCC Telephony, LLC
|
|
Delaware
|
|
MCC Telephony, LLC
|
MCC Telephony of Florida, LLC
|
|
Delaware
|
|
MCC Telephony of Florida, LLC
|
MCC Telephony of Georgia, LLC
|
|
Delaware
|
|
MCC Telephony of Georgia, LLC
|
Mediacom Telephony of Illinois, LLC
|
|
Delaware
|
|
Mediacom Telephony of Illinois, LLC
|
MCC Telephony of Iowa, LLC
|
|
Delaware
|
|
MCC Telephony of Iowa, LLC
|
MCC Telephony of Missouri, LLC
|
|
Delaware
|
|
MCC Telephony of Missouri, LLC
|
MCC Telephony of the Mid-Atlantic, LLC
|
|
Delaware
|
|
MCC Telephony of the Mid-Atlantic, LLC
|
MCC Telephony of the Mid-West, LLC
|
|
Delaware
|
|
MCC Telephony of the Mid-West, LLC
|
MCC Telephony of the South, LLC
|
|
Delaware
|
|
MCC Telephony of the South, LLC
|
MCC Telephony of Minnesota, LLC
|
|
Delaware
|
|
MCC Telephony of Minnesota, LLC
|
MCC Telephony of the West, LLC
|
|
Delaware
|
|
MCC Telephony of the West, LLC
|
Mediacom Arizona Cable Network LLC
|
|
Delaware
|
|
Mediacom Arizona Cable Network LLC
|
Mediacom Aviation LLC
|
|
Delaware
|
|
Mediacom Aviation LLC
|
Mediacom Realty LLC
|
|
New York
|
|
Mediacom Realty LLC
|
exv23w1
Exhibit 23.1
Consent
of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the
Registration Statements on
Form S-3
(File No. 333-82124)
and
Form S-8
(File Nos.
333-41360,
333-68306,
333-122787
and
333-129008)
of Mediacom Communications Corporation of our report dated
March 5, 2010 relating to the financial statements,
financial statement schedule, and the effectiveness of internal
control over financial reporting, which appears in this
Form 10-K.
/s/ PricewaterhouseCoopers
LLP
PricewaterhouseCoopers LLP
New York, New York
March 5, 2010
exv31w1
Exhibit 31.1
CERTIFICATIONS
I, Rocco B. Commisso, certify that:
(1) I have reviewed this report on
Form 10-K
of Mediacom Communications 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 registrants 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
15d-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 registrants
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
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
(5) The registrants other certifying officer and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants 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
registrants 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
registrants internal control over financial reporting.
Rocco B. Commisso
Chairman and Chief Executive Officer
March 5, 2010
Exhibit 31.1
I, Mark E. Stephan, certify that:
(1) I have reviewed this report on
Form 10-K
of Mediacom Communications 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 registrants 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
15d-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 registrants
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
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
(5) The registrants other certifying officer and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants 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
registrants 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
registrants internal control over financial reporting.
Mark E. Stephan
Executive Vice President and Chief Financial Officer
March 5, 2010
exv32w1
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 Annual Report of Mediacom Communications
Corporation (the Company) on
Form 10-K
for the period ended December 31, 2009 as filed with the
Securities and Exchange Commission on the date hereof (the
Report), Rocco B. Commisso, Chief Executive Officer,
and Mark E. Stephan, 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:
(1) the Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) the information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Company.
|
|
|
|
By:
|
/s/ Rocco
B. Commisso
|
Rocco B. Commisso
Chairman and Chief Executive Officer
Mark E. Stephan
Executive Vice President and
Chief Financial Officer
March 5, 2010