SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2001
Commission File Numbers: 333-57285-01
333-57285
Mediacom LLC
Mediacom Capital Corporation*
(Exact names of Registrants as specified in their charters)
New York 06-1433421
New York 06-1513997
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Numbers)
100 Crystal Run Road
Middletown, New York 10941
(Address of principal executive offices)
(845) 695-2600
(Registrants' telephone number)
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days:
Yes X No
--- ---
Indicate the number of shares outstanding of the Registrants' common stock:
Not Applicable
*Mediacom Capital Corporation meets the conditions set forth in General
Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this form
with the reduced disclosure format.
MEDIACOM LLC AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2001
TABLE OF CONTENTS
PART I
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Page
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Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 2001 (unaudited) and December 31, 2000...................................... 1
Consolidated Statements of Operations and Comprehensive Loss -
Three and Nine Months Ended September 30, 2001 and 2000 (unaudited)....................... 2
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2001 and 2000 (unaudited)................................. 3
Notes to Consolidated Financial Statements (unaudited)....................................... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................ 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.................................................................................. 18
PART II
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Item 6. Exhibits and Reports on Form 8-K............................................................... 19
----------------------------------
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
Securities and Exchange Commission (the "SEC"). In this Quarterly Report, we
state our beliefs of future events and of our future financial performance. In
some cases, you can identify those so-called "forward-looking statements" by
words such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of those words and other comparable words. You should be aware that those
statements are only our predictions. Actual events or results may differ
materially. In evaluating those statements, you should specifically consider
various factors, including the risks discussed in our Annual Report on Form 10-K
for the year-ended December 31, 2000 and other reports or documents that we use
from time to time with the SEC. Those factors may cause our actual results to
differ materially from any of our forward-looking statements. All
forward-looking statements attributable to us or a person acting on our behalf
are expressly qualified in their entirety by this cautionary statement.
PART I
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ITEM 1. FINANCIAL STATEMENTS
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
September 30, December 31,
2001 2000
------------- ------------
ASSETS (Unaudited)
Cash and cash equivalents $ 7,399 $ 4,093
Subscriber accounts receivable, net of allowance for doubtful accounts
of $1,144 and $932, respectively 11,286 13,500
Prepaid expenses and other assets 18,609 7,023
Investments 3,277 3,985
Preferred investment in affiliated company 150,000 -
Investment in cable television systems:
Inventory 21,223 14,131
Property, plant and equipment, net of accumulated depreciation of
$305,640 and $204,440, respectively 681,345 635,612
Intangible assets, net of accumulated amortization of $179,408 and
$124,955, respectively 626,449 680,420
----------- -----------
Total investment in cable television systems 1,329,017 1,330,163
Other assets, net of accumulated amortization of $8,633 and
$5,749, respectively 27,461 17,008
----------- -----------
Total assets $ 1,547,049 $ 1,375,772
=========== ===========
LIABILITIES AND MEMBER'S EQUITY
LIABILITIES
Debt $ 1,388,000 $ 987,000
Accounts payable and accrued expenses 71,039 80,143
Subscriber advances 2,223 3,886
Management fees payable 4,358 1,236
Deferred revenue 10,097 40,510
Other liabilities 10,643 -
----------- -----------
Total liabilities $ 1,486,360 $ 1,112,775
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MEMBER'S EQUITY
Capital contributions 521,696 521,696
Other equity 21,010 18,598
Accumulated comprehensive loss (1,122) (414)
Accumulated deficit (480,895) (276,883)
----------- -----------
Total member's equity 60,689 262,997
----------- -----------
Total liabilities and member's equity $ 1,547,049 $ 1,375,772
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
1
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(All dollar amounts in 000's)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2001 2000 2001 2000
--------- ---------- ---------- ----------
Revenues $ 95,210 $ 84,478 $ 278,398 $ 244,513
Costs and expenses:
Service costs 34,282 28,947 98,246 83,813
Selling, general and
administrative expenses 16,365 13,889 46,327 41,171
Management fee expense 1,140 1,598 4,607 4,529
Depreciation and amortization 55,449 45,050 158,934 129,137
Non-cash stock charges relating to
management fee expense 529 609 2,412 27,596
--------- --------- --------- ----------
Operating loss (12,555) (5,615) (32,128) (41,733)
--------- --------- --------- ----------
Interest expense, net 25,563 16,868 68,396 51,461
Loss on derivative instruments, net 7,604 - 9,001 -
Investment income from affiliate (3,620) - (3,620) -
Other expenses (income) 384 353 (28,535) 1,224
--------- --------- --------- ---------
Net loss before cumulative effect of
accounting change (42,486) (22,836) (77,370) (94,418)
Cumulative effect of accounting change - - (1,642) -
--------- --------- ---------- ----------
Net loss (42,486) (22,836) (79,012) (94,418)
Unrealized loss on investments (1,034) (4,012) (708) (21,781)
--------- ---------- ---------- ----------
Comprehensive loss $ (43,520) $ (26,848) $ (79,720) $ (116,199)
========= ========== ========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
2
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2001 2000
----------- -----------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (79,012) $ (94,418)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation and amortization 158,934 129,137
Change in fair value of swaps 10,643 -
Vesting of management stock 2,412 3,123
Other non-cash stock charges relating to management fee expense - 24,473
Elimination and amortization of deferred SoftNet revenue (30,244) (947)
Changes in assets and liabilities, net of effects from
acquisitions:
Subscriber accounts receivable 2,214 1,055
Prepaid expenses and other assets (11,586) (1,344)
Accounts payable and accrued expenses (908) 6,251
Subscriber advances (1,663) (1,466)
Management fees payable 3,122 189
Deferred revenue (169) 353
----------- -----------
Net cash flows provided by operating activities 53,743 66,406
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (162,222) (133,376)
Acquisitions of cable television systems - (34,968)
Preferred investment in affiliated company (150,000) -
Other, net (1,085) (905)
----------- -----------
Net cash flows used in investing activities (313,307) (169,249)
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
New borrowings 872,000 211,000
Repayment of debt (471,000) (464,000)
Dividend payment (125,000) -
Capital contributions - 354,500
Financing costs (13,130) (207)
----------- -----------
Net cash flows provided by financing activities 262,870 101,293
----------- -----------
Net increase (decrease) in cash and cash equivalents 3,306 (1,550)
CASH AND CASH EQUIVALENTS, beginning of period 4,093 4,473
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 7,399 $ 2,923
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 63,899 $ 58,659
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
3
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization
Mediacom LLC ("Mediacom," and collectively with its subsidiaries, the
"Company"), a New York limited liability company, is involved in the acquisition
and development of cable television systems serving principally non-metropolitan
markets in the United States. Through these cable systems, the Company provides
entertainment, information and telecommunications services to its subscribers.
As of September 30, 2001, the Company had acquired and was operating cable
television systems in 22 states, principally Alabama, California, Florida,
Illinois, Indiana, Iowa, Kentucky, Minnesota, Missouri and North Carolina.
Mediacom Capital Corporation ("Mediacom Capital"), a New York corporation
wholly-owned by Mediacom, was organized in March 1998 for the sole purpose of
acting as co-issuer of senior notes with Mediacom. Mediacom Capital has nominal
assets and does not conduct operations of its own.
On February 9, 2000, Mediacom Communications Corporation ("MCC"), a
Delaware corporation organized in November 1999, completed an initial public
offering. Prior to such time, MCC had no assets, liabilities, contingent
liabilities or operations. Immediately prior to the completion of its initial
public offering, MCC issued shares of its Class A and Class B common stock in
exchange for all of the outstanding membership interests in Mediacom. As a
result of this exchange, Mediacom became a wholly-owned subsidiary of MCC and
Mediacom's amended and restated operating agreement was amended to reflect MCC
as the sole member and manager of Mediacom.
(2) Statement of Accounting Presentation and Other Information
Basis of Preparation of Consolidated Financial Statements
The consolidated financial statements as of September 30, 2001 and 2000 are
unaudited. However, in the opinion of management, such statements include all
adjustments necessary for a fair presentation of the results for the periods
presented. The accounting policies followed during such interim periods reported
are in conformity with generally accepted accounting principles and are
consistent with those applied during annual periods. For additional disclosures,
including a summary of the Company's accounting policies, the interim financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended December 31, 2000 (File Nos. 333-57285-01 and
333-57285). The results of operations for the interim periods are not
necessarily indicative of the results that might be expected for future interim
periods or for the full year ending December 31, 2001.
Cumulative Effect of Accounting Change
Effective January 1, 2001, the Company adopted Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." As a result, the Company recorded a charge
of approximately $1.6 million, as a change in accounting principle, in the first
quarter of 2001.
4
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Adoption of SFAS 141 will have no
effect on the Company's results of operations or financial position. Under SFAS
142, goodwill and intangible assets with indefinite lives will no longer be
amortized but reviewed annually for impairment (or more frequently if impairment
indicators arise). Separable intangible assets that are not deemed to have
indefinite lives will continue to be amortized over their useful lives. The
amortization provisions of SFAS 142 apply immediately to goodwill and intangible
assets acquired after June 30, 2001. With respect to goodwill and intangible
assets acquired prior to July 1, 2001, the Company is required to adopt SFAS 142
effective January 1, 2002. The Company is currently evaluating the effect that
SFAS 142 will have on its results of operations and financial position,
including determining whether the Company's franchise licenses should be
accounted for as an indefinite life intangible asset. For the three and nine
months ended September 30, 2001, the Company has continued to amortize all
goodwill acquired prior to June 30, 2001 and all intangible assets, including
its franchise licenses. If it is determined that these intangibles qualify
for indefinite life treatment the Company will cease amortizing them.
In August 2001, the FASB issued Statements of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). This statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets, and provides
guidance on classification and accounting for such assets when held for sale or
abandonment. SFAS 144 is effective for fiscal years beginning after December 15,
2001. The Company does not expect that adoption of SFAS 144 will have a material
effect on its results of operations or financial position.
(3) Acquisitions
During 2000, the Company completed nine acquisitions of cable systems
serving approximately 53,000 basic subscribers for an aggregate purchase price
of $109.2 million. These acquisitions were accounted for using the purchase
method of accounting, and accordingly, the purchase price of each of these
acquired systems has been allocated to the assets acquired and liabilities
assumed at their estimated fair values at their respective dates of acquisition.
The cable systems serve communities in the states of Alabama, Illinois, Iowa,
Kentucky, Minnesota and South Dakota. The aggregate purchase price has been
allocated as follows: approximately $49.4 million to property, plant and
equipment, and approximately $59.8 million to intangible assets. These
acquisitions were financed with borrowings under the Company's subsidiary credit
facilities.
Unaudited Pro Forma Information
The Company has reported the operating results of the acquired systems from
the dates of their respective acquisition. The unaudited pro forma operating
results presented below give pro forma effect to the acquisitions of the
acquired systems as if such transactions had been consummated on January 1,
2000. This financial information has been prepared for comparative purposes only
and does not purport to be indicative of the operating results which actually
would have resulted had the acquisitions of the acquired systems been
consummated at the beginning of the period presented.
5
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Months Ended September 30,
------------------------------
2001 2000
------------ -----------
(dollars in thousands)
Revenues................................................................. $ 278,398 $ 258,494
Operating expenses and costs:
Service costs......................................................... 98,246 89,350
Selling, general and administrative expenses.......................... 46,327 43,533
Management fee expense................................................ 4,607 4,529
Depreciation and amortization......................................... 158,934 136,052
Non-cash stock charges relating to management fee expense............. 2,412 27,596
------------ -----------
Operating loss........................................................... (32,128) (42,566)
------------ -----------
Net loss................................................................. $ (79,012) $ (100,230)
============ ===========
(4) Debt
As of September 30, 2001 and December 31, 2000, debt consisted of:
September 30, December 31,
2001 2000
----------- -----------
(dollars in thousands)
Bank credit facilities................................................... $ 563,000 $ 662,000
8 1/2% senior notes...................................................... 200,000 200,000
7 7/8% senior notes...................................................... 125,000 125,000
9 1/2% senior notes (a).................................................. 500,000 -
----------- -----------
$ 1,388,000 $ 987,000
=========== ===========
Debt Issued in 2001
(a) On January 24, 2001, Mediacom and Mediacom Capital jointly issued
$500.0 million aggregate principal amount of 9 1/2% senior notes due
January 2013 (the "9 1/2% Senior Notes"). The 9 1/2% Senior Notes are
unsecured obligations of Mediacom, and the indenture for the 9 1/2%
Senior 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. Mediacom
was in compliance with the indenture governing the 9 1/2% Senior Notes
as of September 30, 2001.
The average interest rate on outstanding debt under the bank credit
facilities was 5.3% for the three months ended September 30, 2001, before giving
effect to the interest rate swap agreements discussed below.
The Company uses interest rate swap agreements in order to fix the interest
rate for the duration of the contract as a hedge against interest rate
volatility. As of September 30, 2001, the Company had entered into interest rate
exchange agreements (the "Swaps") with various banks pursuant to which the
interest rate on $170.0 million is fixed at a weighted average swap rate of
approximately 6.7%, plus the average applicable margin over the Eurodollar Rate
option under the bank credit agreements. Under the terms of the Swaps, which
expire from 2002 through 2004, the Company is exposed to credit loss in the
event of nonperformance by the other parties to the Swaps. However, the Company
does not anticipate nonperformance by the counterparties. The Company accounts
for these interest rate swaps as speculative investments and therefore records
them at market value. For the three and nine months ended September 30, 2001,
the Company recorded a loss of $7.6 million and $9.0 million, respectively, in
the consolidated statements of operations.
6
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The stated maturities of all debt outstanding as of September 30, 2001 are as
follows (dollars in thousands):
2002.................................................................................... $ 750
2003.................................................................................... 2,000
2004.................................................................................... 2,000
2005.................................................................................... 2,000
2006.................................................................................... 27,500
Thereafter ............................................................................. 1,353,750
------------
$ 1,388,000
============
(5) SoftNet
As of December 31, 2000, deferred revenue resulting from the Company's
receipt of shares of SoftNet Systems, Inc. common stock amounted to
approximately $30.2 million, net of amortization taken. The Company recognized
revenue of approximately $0.3 million and $1.7 million for the nine months ended
September 30, 2001 and 2000, respectively. As of January 31, 2001, the Company
formally terminated its relationship with SoftNet in all material respects. As a
result of the termination of the SoftNet relationship in the first quarter of
2001, the Company recognized the remaining deferred revenue of approximately
$30.0 million as other income in the consolidated statements of operations.
(6) Equity
On July 17, 2001, the Company paid a $125.0 million cash dividend to MCC
that was funded with borrowings under its subsidiary credit facilities.
(7) Investments
On July 18, 2001, the Company made a $150.0 million preferred equity
investment in Mediacom Broadband LLC ("Mediacom Broadband"), a newly-formed
wholly-owned subsidiary of MCC, incorporated in Delaware, that was funded with
borrowings under the Company's subsidiary credit facilities. The preferred
equity investment has a 12% annual cash dividend, payable quarterly. The
proceeds from the preferred equity investment and, indirectly, the $125.0
million cash dividend discussed above were used by Mediacom Broadband to fund a
portion of the $2.1 billion purchase price of its acquisitions of cable systems,
serving approximately 800,000 basic subscribers in the states of Georgia,
Illinois, Iowa and Missouri, from affiliates of AT&T Broadband, LLC.
(8) Recent Developments
The Company utilizes Excite@Home to provide its customers with high-speed
Internet service. On September 28, 2001, Excite@Home filed for Chapter 11
bankruptcy protection in U.S. Bankruptcy Court in San Francisco. At the same
time, Excite@Home announced the sale of essentially all of its broadband
Internet access business assets and related services to AT&T Corp., subject to
court approval. On October 10, 2001, the Company was informed by Excite@Home
that it would no longer add new customers to its broadband Internet access
system. In addition, Excite@Home filed a motion to reject or terminate its
agreements with all cable companies, including Excite@Home's understanding with
the Company. On October 17, 2001, MCC entered into a letter agreement with
Excite@Home under which Excite@Home agreed to add new customers and provide
service to new and existing customers through November 30, 2001. Excite@Home
announced that it would temporarily withdraw its motion to reject or terminate
agreements with respect to any cable company that signed a letter agreement. On
October 19, 2001, a committee composed of the bondholders of Excite@Home filed a
motion with the bankruptcy court to compel
7
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Excite@Home to stop providing services to its cable customers unless the cable
companies agree to better terms or buy the company at a price acceptable to the
creditors. Furthermore, Excite@Home recently filed a similar motion with the
bankruptcy court seeking to stop providing services to its cable customers.
These motions are scheduled to be heard on November 30, 2001. MCC intends to
vigorously oppose these motions.
The Company is currently exploring options that will enable it to continue
to provide high-speed Internet service. These options include extending MCC's
agreement with Excite@Home, establishing a relationship with other providers of
high-speed Internet service or developing the infrastructure and expertise
necessary to provide the service itself. There can be no assurance that the
Company will be able to continue to provide high-speed Internet service to its
customers without disruptions.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The Company does not believe the discussion and analysis of the its
historical financial condition and results of operations set forth below are
indicative, nor should they be relied upon as an indicator, of its future
performance because of certain significant past events. Those events include
numerous acquisitions and several financing transactions.
Organization
Mediacom LLC ("Mediacom") was organized as a New York limited liability
company in July 1995 and serves as a holding company for its operating
subsidiaries. Mediacom Capital Corporation, Mediacom's wholly-owned subsidiary,
was organized as a New York corporation in March 1998 for the sole purpose of
acting as a co-issuer with Mediacom of public debt securities and does not
conduct operations of its own. Mediacom Communications Corporation ("MCC") was
organized as a Delaware corporation in November 1999 and completed an initial
public offering in February 2000. Immediately prior to the completion of MCC's
initial public offering, MCC issued shares of its common stock in exchange for
all of Mediacom's outstanding membership interests and became the Mediacom's
sole member and manager. See Note 1 of the Company's consolidated financial
statements.
Until MCC's initial public offering in February 2000, Mediacom Management
Corporation, a Delaware corporation, provided management services to the
Company's operating subsidiaries and received annual management fees. Mediacom
Management utilized these fees to compensate its employees as well as to fund
its corporate overhead. Such management fees were 2% of the Company's annual
gross revenues. The management agreements were terminated upon the date of MCC's
initial public offering and were replaced with new agreements between MCC and
the Company's operating subsidiaries.
Acquisitions
The Company has significantly expanded its business through acquisitions.
All acquisitions have been accounted for under the purchase method of accounting
and, therefore, the Company's historical results of operations include the
results of operations for each acquired system subsequent to its respective
acquisition date.
2000 Acquisitions
In 2000, the Company completed nine acquisitions of cable systems serving a
total of approximately 53,000 basic subscribers (the "2000 Acquisitions"). The
table below sets forth information regarding the 2000 Acquisitions.
Basic Subscribers
Purchase Price as of
Predecessor Owner Acquisition Date (in millions) Acquisition Date
- ----------------- ---------------- -------------- ----------------
Rapid Communications Partners, L.P. April 2000 $ 8.0 6,000
MidAmerican Cable Systems, L.P. April 2000 8.0 5,000
TriCable, Inc May 2000 1.8 1,000
Spirit Lake Cable TV, Inc. June 2000 10.8 5,000
South Kentucky Services Corporation July 2000 2.1 1,000
Dowden Midwest Cable Partners, L.P. August 2000 1.2 1,000
Illinet Communications of Central Illinois, LLC October 2000 15.8 8,000
Satellite Cable Services, Inc. October 2000 27.5 12,000
AT&T Broadband, LLC-Alabama December 2000 34.0 14,000
------- ------
$ 109.2 53,000
======= ======
9
General
EBITDA represents operating loss before depreciation and amortization and
non-cash stock charges relating to management fee expense. EBITDA:
o is not intended to be a performance measure that should be regarded as
an alternative either to operating income or net income as an
indicator of operating performance, or to the statement of cash flows
as a measure of liquidity;
o is not intended to represent funds available for debt service,
dividends, reinvestment or other discretionary uses; and
o should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted
accounting principles.
EBITDA is included herein because the Company's management believes that
EBITDA is a meaningful measure of performance as it is commonly used by the
cable television industry and by the investment community to analyze and compare
cable television companies. The Company's definition of EBITDA may not be
identical to similarly titled measures reported by other companies.
Actual Results of Operations
The following historical information includes the results of operations of
the 2000 Acquisitions, only for that portion of the respective period that such
cable television systems were owned by the Company.
10
Three Months Ended September 30, 2001 Compared to Three Months Ended
September 30, 2000
Three Months Ended September 30,
-------------------------------- Percent
2001 2000 Change
------------ ----------- -------
(dollars in thousands)
Revenues............................................... $ 95,210 $ 84,478 12.7%
Costs and expenses:
Service costs....................................... 34,282 28,947 18.4
Selling, general and
administrative expenses........................... 16,365 13,889 17.8
Management fee expense.............................. 1,140 1,598 (28.7)
Depreciation and amortization....................... 55,449 45,050 23.1
Non-cash stock charges relating to
management fee expense............................ 529 609 (13.1)
----------- ---------- -------
Operating loss......................................... (12,555) (5,615) 123.6
----------- ---------- -------
Interest expense, net.................................. 25,563 16,868 51.5
Loss on derivative instruments, net.................... 7,604 - -
Investment income from affiliate....................... (3,620) - -
Other expenses (income)................................ 384 353 8.8
----------- ---------- -------
Net loss before cumulative effect
of accounting change................................ (42,486) (22,836) 86.0
Cumulative effect of effect of
accounting change................................... - - -
----------- ---------- -------
Net loss............................................... $ (42,486) $ (22,836) 86.0%
=========== ========== =======
Other Data:
EBITDA................................................. $ 43,423 $ 40,044 8.4%
EBITDA margin(1)....................................... 45.6% 47.4%
- --------------------------------
(1) Represents EBITDA as a percentage of revenues.
Revenues. Revenues increased 12.7% to $95.2 for the three months ended
September 30, 2001 as compared to $84.5 for the three months ended September 30,
2000. Of the revenue increase of $10.7 million, approximately $4.4 million was
attributable to the 2000 Acquisitions. Excluding the 2000 Acquisitions, revenues
increased primarily due to basic rate increases associated with new programming
introductions in the Company's core television services and to customer growth
in the Company's digital cable and high-speed Internet access services.
Service costs. Service costs increased 18.4% to $34.3 million for the three
months ended September 30, 2001 as compared to $28.9 million for the three
months ended September 30, 2000. Of the service cost increase of $5.3 million,
approximately $1.7 million was attributable to the 2000 Acquisitions. Excluding
the 2000 Acquisitions, these costs increased primarily as a result of higher
programming expenses, including rate increases by programmers, the costs of
channel additions and the Company's digital customer growth. As a percentage of
revenues, service costs were 36.0% for the three months ended September 30,
2001, as compared with 34.3% for the three months ended September 30, 2000.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 17.8% to $16.4 million for the three months
ended September 30, 2001 as compared to $13.9 million for the three months ended
September 30, 2000. Of the selling, general and administrative expense increase
of $2.5 million, approximately $0.7 million was attributable to the 2000
Acquisitions. Excluding the 2000 Acquisitions, these costs increased primarily
as a result of higher employee and bad debt expenses. As a percentage of
revenues, selling, general and administrative expenses were 17.2% for the three
months ended September 30, 2001 as compared with 16.4% for the three months
ended September 30, 2000.
11
Management fee expense. Management fee expense decreased 28.7% to $1.1
million for the three months ended September 30, 2001 as compared to $1.6
million the three months ended September 30, 2000. As a percentage of revenues,
management fee expense was 1.2% for the three months ended September 30, 2001 as
compared with 1.9% for the three months ended September 30, 2000. The decrease
was primarily due to the sharing of MCC's overhead with Mediacom Broadband LLC
("Mediacom Broadband"), a Delaware limited liability company and wholly-owned
subsidiary of MCC.
Depreciation and amortization. Depreciation and amortization increased
23.1% to $55.4 million for the three months ended September 30, 2001 as compared
to $45.1 million for the three months ended September 30, 2000. This increase
was due to the Company's 2000 Acquisitions and capital expenditures associated
with the upgrade of the Company's cable systems.
Non-cash stock charges relating to management fee expense. Non-cash stock
charges relating to management fee expense decreased 13.1% to $0.5 million for
the three months ended September 30, 2001 as compared to $0.6 million for the
three months ended September 30, 2000. This decrease is due to reduced vesting
in equity interests granted to certain members of MCC's management team in 1999.
Interest expense, net. Interest expense, net, increased 51.5% to $25.6
million for the three months ended September 30, 2001 as compared to $16.9
million for the three months ended September 30, 2000. This increase was due to
a higher interest rate associated with the Company's 9 1/2% senior notes, which
were issued in January 2001 and borrowings under the Company's subsidiary credit
facilities to fund a portion of the purchase price of the AT&T systems acquired
by Mediacom Broadband. See Notes 6 and 7.
Loss on derivative instruments, net. Loss on derivative instruments, net
was $7.6 million for the three months ended September 30, 2001, due to the
change in the fair value of the Company's interest rate derivatives as a result
of the decrease in market interest rates.
Investment income from affiliate. Investment income from affiliate was $3.6
million for the three months ended September 30, 2001. This amount represents
the investment income on the Company's $150.0 million preferred equity
investment in Mediacom Broadband. See Note 7.
Other expenses (income). Other expense was $0.4 million for the three
months ended September 30, 2001 and September 30, 2000.
Net loss. Due to the factors described above, the Company generated a net
loss of $42.5 million for the three months ended September 30, 2001 as compared
to a net loss of $22.8 million for the three months ended September 30, 2000.
EBITDA. EBITDA increased 8.4% to $43.4 million for the three months ended
September 30, 2001 as compared to $40.0 million for the three months ended
September 30, 2000. Of the EBITDA increase of $3.4 million, approximately $1.9
million was attributable to the 2000 Acquisitions. Excluding the 2000
Acquisitions, EBITDA increased primarily due to the increase in revenues
described above, offset primarily by the increases in programming, employee and
bad debt expenses described above. As a percentage of revenues, EBITDA was 45.6%
for the three months ended September 30, 2001 as compared with 47.4% for the
three months ended September 30, 2000.
12
Nine Months Ended September 30, 2001 Compared to Nine Months Ended
September 30, 2000
Nine Months Ended September 30,
------------------------------- Percent
2001 2000 Change
----------- ----------- -------
(dollars in thousands)
Revenues............................................... $ 278,398 $ 244,513 13.9%
Costs and expenses:
Service costs....................................... 98,246 83,813 17.2
Selling, general and
administrative expenses........................... 46,327 41,171 12.5
Management fee expense.............................. 4,607 4,529 1.7
Depreciation and amortization....................... 158,934 129,137 23.1
Non-cash stock charges relating to
management fee expense............................ 2,412 27,596 (91.3)
----------- ---------- --------
Operating loss ........................................ (32,128) (41,733) (23.0)
----------- ---------- --------
Interest expense, net.................................. 68,396 51,461 32.9
Loss on derivative instruments, net.................... 9,001 - -
Investment income from affiliate....................... (3,620) - -
Other expenses (income)................................ (28,535) 1,224 NM
----------- ---------- --------
Net loss before cumulative effect of
accounting change................................... (77,370) (94,418) (18.1)
Cumulative effect of effect of
accounting change................................... (1,642) - -
----------- ---------- --------
Net loss............................................... $ (79,012) $ (94,418) (16.3)%
=========== ========== ========
Other Data:
EBITDA................................................. $ 129,218 $ 115,000 12.4%
EBITDA margin(1)....................................... 46.4% 47.0%
- -----------------------------
(1) Represents EBITDA as a percentage of revenues.
Revenues. Revenues increased 13.9% to $278.4 for the nine months ended
September 30, 2001 as compared to $244.5 for the nine months ended September 30,
2000. Of the revenue increase of $33.9 million, approximately $15.4 million was
attributable to the 2000 Acquisitions. Excluding the 2000 Acquisitions, revenues
increased primarily due to basic rate increases associated with new programming
introductions in the Company's core television services and to customer growth
in the Company's digital cable and high-speed Internet access services.
Service costs. Service costs increased 17.2% to $98.2 million for the nine
months ended September 30, 2001 as compared to $83.8 million for the nine months
ended September 30, 2000. Of the service cost increase of $14.4 million,
approximately $6.2 million was attributable to the 2000 Acquisitions. Excluding
the 2000 Acquisitions, these costs increased primarily as a result of higher
programming expenses, including rate increases by programmers, the costs of
channel additions and the Company's digital customer growth. As a percentage of
revenues, service costs were 35.3% for the nine months ended September 30, 2001,
as compared with 34.3% for the nine months ended September 30, 2000.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 12.5% to $46.3 million for the nine months
ended September 30, 2001 as compared to $41.2 million for the nine months ended
September 30, 2000. Of the selling, general and administrative expense increase
of $5.1 million, approximately $2.5 million was attributable to the 2000
Acquisitions. Excluding the 2000 Acquisitions, these costs increased primarily
as a result of higher employee and bad debt expenses and marketing costs
associated with the promotion of the Company's digital cable and high-speed
Internet services. As a percentage of revenues, selling, general and
administrative expenses were 16.6% for the nine months ended September 30, 2001
as compared with 16.8% for the nine months ended September 30, 2000.
13
Management fee expense. Management fee expense increased 1.7% to $4.6
million for the nine months ended September 30, 2001 as compared to $4.5 million
the nine months ended September 30, 2000. As a percentage of revenues,
management fee expense was 1.7% for the nine months ended September 30, 2001 as
compared with 1.9% for the nine months ended September 30, 2000. The increase
was primarily due to MCC's additional employee cost partially offset by a the
sharing of MCC's overhead with Mediacom Broadband.
Depreciation and amortization. Depreciation and amortization increased
23.1% to $158.9 million for the nine months ended September 30, 2001 as compared
to $129.1 million for the nine months ended September 30, 2000. This increase
was due to the Company's purchase of 2000 Acquisitions and capital expenditures
associated with the upgrade of the Company's cable systems.
Non-cash stock charges relating to management fee expense. Non-cash stock
charges relating to management fee expense decreased 91.3% to $2.4 million for
the nine months ended September 30, 2001 as compared to $27.6 million for the
nine months ended September 30, 2000. This decrease is due to a one-time $24.5
million charge which occurred in February 2000, resulting from the termination
of the management agreements with Mediacom Management on the date of MCC's
initial public offering.
Interest expense, net. Interest expense, net, increased 32.9% to $68.4
million for the nine months ended September 30, 2001 as compared to $51.5
million for the nine months ended September 30, 2000. This increase was
primarily due to a higher interest rate associated with the Company's 9 1/2%
senior notes, which were issued in January 2001 and borrowings under the
Company's subsidiary credit facilities to fund a portion of the purchase price
of the AT&T systems acquired by Mediacom Broadband.
Loss on derivative instruments, net. Loss on derivative instruments, net
was $9.0 million for the nine months ended September 30, 2001, due to the change
in the fair value of the Company's interest rate derivatives as a result of the
decrease in market interest rates.
Investment income from affiliate. Investment income from affiliate was $3.6
million for the nine months ended September 30, 2001. This amount represents the
investment income on the Company's $150.0 million preferred equity investment in
Mediacom Broadband.
Other expenses (income). Other income was $28.5 million for the nine months
ended September 30, 2001 as compared to $1.2 million of other expense for the
nine months ended September 30, 2001. This change was principally due to the
elimination of the remainder of the deferred SoftNet revenue resulting from the
termination of the contract with SoftNet Systems, Inc. See Note 5.
Net loss. Due to the factors described above and a one-time charge of $1.6
million resulting from the cumulative effect of change in accounting principle,
the Company generated a net loss of $79.0 million for the nine months ended
September 30, 2001 as compared to a net loss of $94.4 million for the nine
months ended September 30, 2000.
EBITDA. EBITDA increased 12.4% to $129.2 million for the nine months ended
September 30, 2001 as compared to $115.0 million for the nine months ended
September 30, 2000. Of the EBITDA increase of $14.2 million, approximately $6.3
million was attributable to the 2000 Acquisitions. Excluding the 2000
Acquisitions, EBITDA increased primarily due to the increase in revenues
described above, offset primarily by the increases in programming, employee and
bad debt expenses described above. As a percentage of revenues, EBITDA was 46.4%
for the nine months ended September 30, 2001, as compared with 47.0% for the
nine months ended September 30, 2000.
Selected Pro Forma Results
The Company has reported the results of operations of the 2000 Acquisitions
from the date of their respective acquisition. The financial information below
for the nine months ended September 30, 2001 and 2000, presents selected
unaudited pro forma operating results assuming the purchase of the 2000
Acquisitions had been consummated on January 1, 2000. This financial information
is not necessarily indicative of what results would have been had the Company
operated these cable systems since the beginning of 2000.
14
Nine Months Ended September 30,
--------------------------------
2001 2000
------------ ------------
(dollars in thousands)
Revenues..................................................................... $ 278,398 $ 258,494
Costs and expenses:
Service costs............................................................. 98,246 89,350
Selling, general and administrative expenses.............................. 46,327 43,533
Management fee expense.................................................... 4,607 4,529
Depreciation and amortization............................................. 158,934 136,052
Non-cash stock charges relating to management fee expense................. 2,412 27,596
------------ ------------
Operating loss............................................................... $ (32,128) $ (42,566)
============ ============
Other Data:
EBITDA....................................................................... $ 129,218 $ 121,082
EBITDA margin(1)............................................................. 46.4% 46.8%
- --------------------------
(1) Represents EBITDA as a percentage of revenues.
Selected Pro Forma Results for Nine Months Ended September 30, 2001
Compared to Selected Pro Forma Results for Nine Months Ended September 30, 2000
Revenues. Revenues increased 7.7% to $278.4 million for the nine months
ended September 30, 2001, as compared to $258.5 million for the nine months
ended September 30, 2000. This increase was attributable principally to basic
rate increases associated with new programming introductions in the Company's
core television services and to customer growth in the Company's digital cable
and high-speed Internet access services, partially offset by a decline in basic
subscribers.
Service costs. Service costs increased 10.0% to $98.2 million for the nine
months ended September 30, 2001 from $89.4 million for the nine months ended
September 30, 2000, principally due to higher programming expenses.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 6.4% to $46.3 million for the nine months
ended September 30, 2001 from $43.5 million for the nine months ended September
30, 2000, principally due to higher employee expenses and higher bad debt
expense.
Management fee expense. Management fee expense increased 1.7% to $4.6
million for the nine months ended September 30, 2001 from $4.5 million for the
nine months ended September 30, 2000. As a percentage of revenues, management
fee expense was 1.7% for the nine months ended September 30, 2001 as compared
with 1.8% for the nine months ended September 30, 2000.
Depreciation and amortization. Depreciation and amortization increased
16.8% to $158.9 million for the nine months ended September 30, 2001 from $136.1
million for the nine months ended September 30, 2000. This increase was
principally due to capital expenditures associated with the upgrade of the
Company's cable systems.
Non-cash stock charges. Non-cash stock charges were as reported above.
Operating loss. As a result of the above factors, the Company generated an
operating loss of $32.1 million for the nine months ended September 30, 2001,
compared to $42.6 million for the nine months ended September 30, 2000.
EBITDA. EBITDA increased by 6.7% to $129.2 million for the nine months
ended September 30, 2001 from $121.1 million for the nine months ended September
30, 2000. The EBITDA margin was 46.4% for the nine months ended September 30,
2001 as compared with 46.8% for the nine months ended September 30, 2000.
15
Liquidity and Capital Resources
The Company's business requires substantial capital for the upgrade,
expansion and maintenance of its cable network. In addition, the Company has
pursued, and will continue to pursue, a business strategy that includes
selective acquisitions. The Company has funded and will continue to fund its
working capital requirements, capital expenditures and acquisitions through a
combination of internally generated funds, long-term borrowings and equity
financings.
Investing Activities
The Company expects to spend approximately $220.0 million on capital
expenditures in 2001. The Company plans to fund these expenditures through net
cash flows from operations and additional borrowings under its subsidiary bank
credit facilities. By December 2001, the Company expects that 89% of its cable
network will be upgraded with 550MHz to 870MHz bandwidth capacity and 78% of its
homes passed will have two-way communications. For the nine months ended
September 30, 2001, the Company's capital expenditures were $162.2 million.
On July 18, 2001, the Company made a $150.0 million preferred equity
investment in Mediacom Broadband, that was funded with borrowings under the
Company's subsidiary credit facilities. The preferred equity investment has a
12% annual cash dividend, payable quarterly. The proceeds from the preferred
equity investment, were used by Mediacom Broadband to pay a portion of the $2.1
billion purchase price of its acquisition of cable systems serving approximately
800,000 subscribers in the states of Georgia, Illinois, Iowa and Missouri (the
"AT&T systems") from affiliates of AT&T Broadband, LLC.
In 2000, the Company completed nine acquisitions of cable systems that
served approximately 53,000 basic subscribers for an aggregate purchase price of
$109.2 million.
Financing Activities
As of September 30, 2001 and December 31, 2000 the Company's debt was $1.4
billion and $987.0 million, respectively.
As of September 30, 2001, the Company entered into interest rate swap
agreements, which expire from 2002 through 2004, to hedge $170.0 million of
floating rate debt under its subsidiary credit facilities. As a result of these
interest rate swap agreements, approximately 72% of the Company's outstanding
indebtedness was at fixed interest rates or subject to interest rate protection
on such date. After giving effect to these interest rate swap agreements, as of
September 30, 2001, the Company's weighted average cost of indebtedness was
approximately 8.0%. As of September 30, 2001, the Company was in compliance with
all of the financial and other covenants in its subsidiary credit facilities and
public debt indentures and it had approximately $536.0 million of unused credit
commitments under its subsidiary credit facilities.
On January 24, 2001, Mediacom and its wholly-owned subsidiary, Mediacom
Capital, a New York corporation completed an offering of $500.0 million of
9 1/2% senior notes due January 2013. Interest on the 9 1/2% senior notes is
payable semi-annually on January 15 and July 15 of each year, which commenced on
July 15, 2001. Approximately $467.5 million of the net proceeds were used to
repay a substantial portion of the indebtedness outstanding under the Company's
subsidiary credit facilities and related accrued interest. The balance of the
net proceeds was used for general corporate purposes.
On July 17, 2001, the Company paid a $125.0 million cash dividend to MCC
that was funded with borrowings under its subsidiary credit facilities. The
proceeds of this cash dividend were then contributed to Mediacom Broadband to
pay a portion of $2.1 billion purchase price of Mediacom Broadband's
acquisitions of the AT&T systems.
Although the Company has not generated earnings sufficient to cover fixed
charges, the Company has generated cash and obtained financing sufficient to
meet its debt service, working capital, capital expenditure and acquisition
requirements. The Company expects that it will continue to be able to generate
funds and obtain financing sufficient to service the Company's obligations and
complete its future acquisitions. There can be no assurance that the Company
will be able to obtain sufficient financing, or, if it were able to do so, that
the terms would be favorable to them.
16
Cumulative Effect of Accounting Change
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." As a result, the Company recorded a charge
of approximately $1.6 million as a change in accounting principle in the first
quarter of 2001.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Adoption of SFAS 141 will have no
effect on the Company's results of operations or financial position. Under SFAS
142, goodwill and intangible assets with indefinite lives will no longer be
amortized but reviewed annually for impairment (or more frequently if impairment
indicators arise). Separable intangible assets that are not deemed to have
indefinite lives will continue to be amortized over their useful lives. The
amortization provisions of SFAS 142 apply immediately to goodwill and intangible
assets acquired after June 30, 2001. With respect to goodwill and intangible
assets acquired prior to July 1, 2001, the Company is required to adopt SFAS 142
effective January 1, 2002. The Company is currently evaluating the effect that
SFAS 142 will have on its results of operations and financial position,
including determining whether the Company's franchise licenses should be
accounted for as an indefinite life intangible asset. For the three and nine
months ended September 30, 2001, the Company has continued to amortize all
goodwill acquired prior to June 30, 2001 and all intangible assets, including
its franchise licenses. If it is determined that these intangibles qualify for
indefinite life treatment the Company will cease amortizing them.
In August 2001, the FASB issued Statements of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). This statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets, and provides
guidance on classification and accounting for such assets when held for sale or
abandonment. SFAS 144 is effective for fiscal years beginning after December 15,
2001. The Company does not expect that adoption of SFAS 144 will have a material
effect on its results of operations or financial position.
Inflation and Changing Prices
The Company's systems' costs and expenses are subject to inflation and
price fluctuations. Since changes in costs can be passed through to subscribers,
such changes are not expected to have a material effect on their results of
operations.
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company uses interest rate swap
agreements in order to fix the interest rate for the duration of the contract as
a hedge against interest rate volatility. As of September 30, 2001, the Company
had interest rate exchange agreements (the "Swaps") with various banks pursuant
to which the interest rate on $170.0 million is fixed at a weighted average swap
rate of approximately 6.7%, plus the average applicable margin over the
Eurodollar Rate option under the Company's bank credit agreements. Under the
terms of the Swaps, which expire from 2002 through 2004, the Company is exposed
to credit loss in the event of nonperformance by the other parties to the Swaps.
However, the Company does not anticipate nonperformance by the counterparties.
At September 30, 2001, the Company would have paid approximately $10.6 million
if it terminated the Swaps, inclusive of accrued interest. The table below
provides information for the Company's long term debt. See Note 4 to the
Company's consolidated financial statements.
Expected Maturity
--------------------------------------------------------------------
(All dollar amounts in thousands)
2002 2003 2004 2005 2006 Thereafter Total Fair Value
--------- --------- --------- --------- --------- ---------- ---------- -----------
Fixed rate $ - $ - $ - $ - $ - $ 200,000 $ 200,000 $ 194,000
Weighted average
interest rate 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
Fixed rate $ - $ - $ - $ - $ - $ 125,000 $ 125,000 $ 111,000
Weighted average
interest rate 7.9% 7.9% 7.9% 7.9% 7.9% 7.9% 7.9%
Fixed rate $ - $ - $ - $ - $ - $ 500,000 $ 500,000 $ 488,000
Weighted average
interest rate 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5%
Variable rate $ 750 $ 2,000 $ 2,000 $ 2,000 $ 27,500 $1,353,750 $1,388,000 $ 1,388,000
Weighted average
interest rate 5.3% 5.3% 5.3% 5.3% 5.3% 5.3% 5.3%
18
PART II
-------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDIACOM LLC
November 14, 2001 By: /s/ Mark E. Stephan
-------------------
Mark E. Stephan
Senior Vice President,
Chief Financial Officer, Treasurer
and Principal Financial Officer
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDIACOM CAPITAL CORPORATION
November 14, 2001 By: /s/ Mark E. Stephan
-------------------
Mark E. Stephan
Treasurer, Secretary and
Principal Financial Officer
21
