SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
Securities Exchange Act of 1934
For the quarterly period ended
SEPTEMBER 30, 1998
COMMISSION REGISTRATION 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)
914-695-2600
(Registrants' telephone number including area code)
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
- -
Number of shares of common stock outstanding of Mediacom Capital
Corporation as of the date hereof: 100
*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 THREE MONTHS ENDED SEPTEMBER 30, 1998
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements of Mediacom LLC
and Subsidiaries 2
Notes to Consolidated Financial Statements 6
Financial Statement of Mediacom Capital Corporation 12
Note to Financial Statement 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 20
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURE 22
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -----------
ASSETS (Unaudited)
- ----------
Cash and cash equivalents $ 968 $ 1,027
Subscriber accounts receivable, net of allowance for
doubtful accounts of $467 and $56 2,007 618
Prepaid expenses and other assets 2,961 1,358
Investment in cable television systems:
Inventory 5,970 1,032
Property, plant and equipment, at cost 216,900 51,735
Less- accumulated depreciation (26,136) (5,737)
---------- -----------
Property, plant and equipment, net 190,764 45,998
Intangible assets, net 226,057 47,859
---------- -----------
Total investment in cable television systems 422,791 94,889
Other assets, net 18,939 4,899
---------- -----------
Total assets $447,666 $102,791
========== ===========
LIABILITIES AND MEMBERS' EQUITY
- -----------------------------------
LIABILITIES
Debt $317,398 $ 72,768
Accounts payable 4,856 853
Accrued expenses 32,716 4,021
Subscriber advances 643 603
Management fees payable 514 105
---------- -----------
Total liabilities 356,127 78,350
Commitments and contingencies
MEMBERS' EQUITY
Capital contributions 124,990 30,990
Accumulated deficit (33,451) (6,549)
---------- -----------
Total members' equity 91,539 24,441
---------- -----------
Total liabilities and members' equity $447,666 $102,791
========== ===========
See accompanying notes to consolidated financial statements
2
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All dollar amounts in 000's)
(Unaudited)
THREE MONTHS ENDED Nine Months Ended
-------------------------------------- --------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------- --------------------------------------
1998 1997 1998 1997
------ ------ ------ ------
Revenues $34,306 $5,416 $ 94,374 $11,435
Costs and expenses:
Service costs 11,411 1,747 32,873 3,560
Selling, general and administrative expenses 6,562 778 18,101 1,794
Management fee expense 1,557 271 4,340 572
Depreciation and amortization 16,915 1,740 44,338 4,445
--------- --------- --------- ---------
Operating income (loss) (2,139) 880 (5,278) 1,064
--------- --------- --------- ---------
Interest expense, net 6,048 1,506 17,786 3,325
Other expenses 270 162 3,838 600
---------- ---------- ---------- ----------
Net loss $(8,457) $ (788) $(26,902) $(2,861)
========== ========== =========== ==========
See accompanying notes to consolidated financial statements
3
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(All dollar amounts in 000's)
Balance, commencement of operations (March 12, 1996) $ 5,490
Capital contributions 1,000
Net loss (1,953)
--------
Balance, December 31, 1996 4,537
Capital contributions 24,500
Net loss (4,596)
--------
Balance, December 31, 1997 24,441
Capital contributions 94,000
Net loss (unaudited) (26,902)
---------
Balance, September 30, 1998 $ 91,539
=========
See accompanying notes to consolidated financial statements
4
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
----- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (26,902) $ (2,861)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation and amortization 44,338 4,445
Decrease in subscriber accounts receivable (1,389) (549)
(Increase) decrease in prepaid expenses and other assets (1,603) 448
Increase in accounts payable 4,003 257
Increase in accrued expenses 28,695 1,642
Increase in subscriber advances 40 549
Increase in management fees payable 409 59
Other 205 194
--------- ---------
Net cash flows from operating activities 47,796 4,184
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (35,430) (1,979)
Acquisitions of cable television systems (336,994) (54,359)
Other, net (28) (314)
--------- ---------
Net cash flows used in investing activities (372,452) (56,652)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
New borrowings 466,225 70,700
Repayment of debt (221,800) (40,200)
Capital contributions 94,000 24,500
Financing costs (13,828) (2,339)
--------- ---------
Net cash flows from financing activities 324,597 52,661
--------- ---------
Net increase in cash and cash equivalents (59) 193
CASH AND CASH EQUIVALENTS, beginning of period 1,027 396
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 968 $ 589
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 9,420 $ 2,816
========= =========
See accompanying notes to consolidated financial statements
5
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
September 30, 1998
(All dollar amounts in 000's)
(UNAUDITED)
(1) STATEMENT OF ACCOUNTING PRESENTATION AND OTHER INFORMATION
Mediacom LLC ("Mediacom" and collectively with its subsidiaries, the
"Company"), a New York limited liability company, was formed in July 1995
principally to acquire and operate cable television systems. As of September
30, 1998, the Company had acquired and was operating cable television systems in
fourteen states, principally Alabama, California, Florida, Kentucky, 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 with Mediacom of $200,000 aggregate principal amount of 8.5%
Senior Notes due 2008 (the "Senior Notes"), which were issued on April 1, 1998
(see Note 3). Mediacom Capital has nominal assets and does not conduct
operations of its own. The Senior Notes are joint and several obligations of
Mediacom and Mediacom Capital, although Mediacom received all the net proceeds
of the Senior Notes.
The consolidated financial statements include the accounts of Mediacom and
its subsidiaries and have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted.
The consolidated financial statements as of September 30, 1998 and 1997 are
unaudited; however, in the opinion of management, such statements include all
adjustments, consisting only of normal recurring 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 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 Registration Statement on Form S-4 (Registration
Nos. 333-57285-01 and 333-57285), as amended. 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,
1998.
During the second quarter of 1998, the Company commenced capitalizing
interest on funds borrowed for projects under construction. Such interest is
charged to property, plant and equipment and amortized over the approximate life
of the related assets. Capitalized interest for the three and nine months ended
September 30, 1998, was $379 and $559, respectively.
(2) ACQUISITIONS
The Company has completed the undernoted acquisitions (the "Acquired
Systems") in 1998 and 1997. These acquisitions were accounted for using the
purchase method of accounting, and accordingly, the purchase price of these
acquisitions has been allocated to the assets acquired and liabilities assumed
at their estimated fair values at their respective date of acquisition. Such
allocations are subject to adjustments based upon the final appraisal
information received by the Company. The final allocations of the purchase
price are not expected to differ materially from the preliminary allocations.
The results of operations of the Acquired Systems have been included with those
of the Company since the dates of acquisition.
6
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
September 30, 1998
(ALL DOLLAR AMOUNTS IN 000'S)
(UNAUDITED)
(2) ACQUISITIONS (CON'T)
1998
----
On January 9, 1998, Mediacom California LLC ("Mediacom California"), a
subsidiary of Mediacom, acquired the assets of a cable television system serving
approximately 17,200 subscribers in Clearlake, California and surrounding
communities (the "Clearlake System") for a purchase price of $21,400. The
purchase price has been preliminarily allocated as follows: approximately
$8,560 to property, plant and equipment, and $12,840 to intangible assets.
Additionally, approximately $210 of direct acquisition costs has been allocated
to other assets. In the first quarter of 1998, the Company recorded acquisition
reserves related to this acquisition in the amount of approximately $370, which
are primarily included in intangible assets and accrued expenses. The
acquisition of the Clearlake System was financed with borrowings under the
Company's bank credit facilities (see Note 3).
On January 23, 1998, Mediacom Southeast LLC ("Mediacom Southeast"), a
wholly-owned subsidiary of Mediacom, acquired the assets of cable television
systems serving approximately 260,100 subscribers in various regions of the
United States (the "Cablevision Systems") for a purchase price of approximately
$308,240. The purchase price has been preliminarily allocated as follows:
approximately $126,000 to property, plant and equipment, and $182,240 to
intangible assets. Additionally, approximately $2,880 of direct acquisition
costs has been allocated to other assets. In the first quarter of 1998, the
Company recorded acquisition reserves related to this acquisition in the amount
of approximately $3,750, which are primarily included in intangible assets and
accrued expenses. The acquisition of the Cablevision Systems and related closing
costs and adjustments were financed with equity contributions, borrowings under
the Company's bank credit facilities, and other bank debt (see Note 3).
1997
----
On June 24, 1997, Mediacom Delaware LLC ("Mediacom Delaware"), a wholly-
owned subsidiary of Mediacom, acquired the assets of a cable television system
serving approximately 29,300 subscribers in lower Delaware and southwestern
Maryland (the "Lower Delaware System") for a purchase price of $42,600. The
purchase price has been allocated as follows: $21,300 to property, plant and
equipment, and $21,300 to intangible assets. Additionally, $247 of direct
acquisition costs has been allocated to other assets.
On September 19, 1997, Mediacom California acquired the assets of a cable
television system serving approximately 9,600 subscribers in Sun City,
California (the "Sun City System") for a purchase price of $11,500. The
purchase price has been allocated as follows: $7,150 to property, plant and
equipment, and $4,350 to intangible assets. Additionally, $25 of direct
acquisition costs has been allocated to other assets.
7
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
September 30, 1998
(ALL DOLLAR AMOUNTS IN 000'S)
(UNAUDITED)
(2) Acquisitions (con't)
The Company has reported the operating results of the Acquired Systems from
the date 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,
1997.
PRO FORMA RESULTS FOR THE
Nine Months Ended September 30,
----------------------------------------------
1998 1997
---------- ---------
Revenues $100,110 $ 88,709
Operating expenses and costs:
Service costs 35,298 36,028
Selling, general and administrative expenses 20,081 20,330
Management fee expense 4,346 572
Depreciation and amortization 46,665 39,954
---------- ---------
Operating loss $ (6,280) $ (8,175)
========== =========
Net loss $(29,396) $(31,226)
========== =========
The pro forma financial information presented above 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 on January 1, 1997.
(3) DEBT
As of September 30, 1998 and December 31, 1997, debt consisted of:
SEPTEMBER 30, December 31,
1998 1997
------------- --------------
Mediacom:
Holding Company Notes (a) - -
8-1/2% Senior Notes (b) $200,000 -
Subsidiaries:
Bank Credit Facilities (c) 114,000 $69,575
Seller Note (d) 3,398 3,193
------------- --------------
$317,398 $72,768
============= ==============
8
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
September 30, 1998
(All dollar amounts in 000's)
(UNAUDITED)
(3) Debt (con't)
(a) On January 23, 1998, Mediacom issued two notes (the "Holding Company
Notes") to a bank in the aggregate principal amount of $20,000 to finance
in part the acquisition of the Cablevision Systems. On April 1, 1998, the
Holding Company Notes were repaid in full from the net proceeds of the
Senior Notes (see below).
(b) On April 1, 1998, Mediacom and Mediacom Capital jointly issued $200,000
aggregate principal amount of 8.5% Senior Notes due on April 15, 2008.
The Senior Notes are unsecured obligations of the Company, and the
indenture for the 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 the
Company. Interest accrues at 8.5% per annum, beginning from the date of
issuance and is payable semi-annually on April 15 and October 15 of each
year, commencing on October 15, 1998. The Senior Notes may be redeemed at
the option of Mediacom, in whole or part, at any time after April 15,
2003, at redemption prices decreasing from 104.25% of their principal
amount to 100% in 2006, plus accrued and unpaid interest.
(c) On January 23, 1998, Mediacom Southeast entered into an eight and one-half
year, $225,000 reducing revolver and term loan agreement (the "Southeast
Credit Facility"). On June 24, 1997, Mediacom California, Mediacom
Delaware and Mediacom Arizona LLC, a wholly-owned subsidiary of Mediacom
(collectively, the "Western Group"), entered into an eight and one-
half year, $100,000 reducing revolver and term loan agreement (the
"Western Credit Facility" and, together with the Southeast Credit
Facility, the "Bank Credit Facilities"). At September 30, 1998,
the aggregate bank commitments under the Bank Credit Facilities were
$324,675. The Bank Credit Facilities are non-recourse to Mediacom and have
no cross-default provisions relating directly to each other. The reducing
revolving credit lines under the Bank Credit Facilities make available a
maximum commitment amount for a period of up to eight and one-half years,
which is subject to quarterly reductions, beginning September 30, 1998,
ranging from 0.21% to 12.42% of the original commitment amount of the
reducing revolver. The term loans under the Bank Credit Facilities are
repaid in consecutive installments beginning September 30, 1998, ranging
from 0.42% to 12.92% of the original term loan amount. The Bank Credit
Facilities require mandatory reductions of the reducing revolvers and
mandatory prepayments of the term loans from excess cash flow, as defined,
beginning December 31, 1999. The Bank Credit Facilities provide for
interest at varying rates based upon various borrowing options and the
attainment of certain financial ratios and for commitment fees of 3/8% to
1/2% per annum on the unused portion of available credit under the reducing
revolver credit lines. The effective interest rates on outstanding debt
under the Bank Credit Facilities were 7.2% at September 30, 1998 and 8.7%
at December 31, 1997, after giving effect to the interest rate swap
agreements discussed below.
The Bank Credit Facilities require the Company's subsidiaries to maintain
compliance with certain financial covenants including, but not limited to,
the leverage ratio, the interest coverage ratio, the fixed charge coverage
ratio and the pro forma debt service coverage ratio, as defined in the bank
credit agreements. The Bank Credit Facilities also require the Company's
subsidiaries to maintain compliance with other covenants including, but not
limited to, limitations on mergers and acquisitions, consolidations and
sales of certain assets, liens, the incurrence of additional indebtedness,
certain restrictive payments, and certain transactions with affiliates.
The Company was in compliance with all covenants as of September 30, 1998.
9
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
September 30, 1998
(ALL DOLLAR AMOUNTS IN 000'S)
(UNAUDITED)
(3) DEBT (CON'T)
The Bank Credit Facilities are secured by Mediacom's pledge of all its
ownership interests in the subsidiaries and a first priority lien on all
the tangible and intangible assets of the subsidiaries, other than real
property. The indebtedness under the Bank Credit Facilities is guaranteed
by Mediacom on a limited recourse basis to the extent of its ownership
interests in the subsidiaries. At September 30, 1998, the Company had
$210,175 of unused bank commitments under the Bank Credit Facilities, of
which approximately $206,700 could have been borrowed by the subsidiaries
for purposes of distributing such borrowed proceeds to Mediacom under the
most restrictive covenants of the bank credit agreements.
The stated maturities of all debt outstanding under the Bank Credit
Facilities as of September 30, 1998 are as follows:
1998 $ 125
1999 2,000
2000 2,300
2001 6,600
2002 9,500
Thereafter 93,475
----------
$114,000
----------
As of September 30, 1998, the Company had entered into interest rate
exchange agreements (the "Swaps") with various banks pursuant to which the
interest rate on $60,000 is fixed at a weighted average swap rate of
approximately 6.2%, plus the average applicable margin over the Eurodollar
Rate option under the Bank Credit Facilities. Under the terms of the
Swaps, which expire from 1999 through 2002, 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.
(d) In connection with the acquisition of a cable television system in June
1996, the Western Group issued to the seller an unsecured senior
subordinated note (the "Seller Note") in the amount of $2,800, with a final
maturity of June 28, 2006. Interest is deferred throughout the term of the
Seller Note and is payable at maturity or upon prepayment. For the five-
year period ending June 28, 2001, the annual interest rate is 9.0%. After
the initial five-year period, the annual interest rate increases to 15.0%,
with an interest clawback for the first five years. After the initial
seven-year period, the interest rate increases to 18.0%, with an interest
clawback for the first seven years. There are no penalties associated with
prepayment of this note.
The Seller Note agreement contains a debt incurrence covenant limiting the
ability of the Western Group to incur additional indebtedness. The Seller
Note is subordinated and junior in right of payment to all senior
obligations of the Western Group, as defined in the Western Credit
Facility.
10
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
September 30, 1998
(ALL DOLLAR AMOUNTS IN 000'S)
(UNAUDITED)
(4) COMMITMENTS AND CONTINGENCIES
Pursuant to the Cable Television Consumer Protection and Competition Act of
1992, the Federal Communications Commission ("FCC") has adopted comprehensive
regulations governing rates charged to subscribers for basic cable and cable
programming services. These rates must be set using a benchmark formula.
Alternatively, a cable operator can attempt to establish higher rates
through a cost-of-service showing. The FCC has also adopted regulations
that permit qualifying small cable operators to justify their regulated rates
using a simplified rate-setting methodology. This methodology almost always
results in rates which exceed those produced by the cost-of-service rules
applicable to larger cable television operators. Approximately 80% of the basic
subscribers served by the Company's cable television systems are covered by such
FCC rules. Once rates for basic cable and cable programming services have been
established pursuant to one of these methodologies, the rate level can
subsequently be adjusted only to reflect changes in the number of regulated
channels, inflation, and increases in certain external costs, such as franchise
and other governmental fees, copyright and retransmission consent fees, taxes,
programming costs and franchise-related obligations. FCC regulations also
govern the rates which can be charged for the lease of customer premises
equipment and for installation services.
As a result of such legislation and FCC regulations, the Company's basic
service and cable programming service rates and its equipment and installation
charges (the "Regulated Services") are subject to the jurisdiction of local
franchising authorities and the FCC. The Company believes that it has complied
in all material respects with the rate regulation provisions of the federal law.
However, the Company's rates for Regulated Services are subject to review by the
FCC if a complaint has been filed, or by the appropriate franchise authority if
it is certified by the FCC to regulate basic rates. If, as a result of the
review process, the Company cannot substantiate the rates charged by its cable
television systems for Regulated Services, the Company could be required to
reduce its rates for Regulated Services to the appropriate level and refund the
excess portion of rates received for up to one year prior to the implementation.
The Company's agreements with franchise authorities require the payment of
fees of up to 5% of annual system revenues. Such franchises are generally
nonexclusive and are granted by local governmental authorities for a specified
term of years, generally for periods of up to fifteen years.
On June 24, 1998, a bank issued a $500 irrevocable letter of credit on
behalf of the Company in favor of the seller of the Caruthersville System
(defined below) to secure the Company's performance under the related asset
purchase agreement. Such letter of credit was terminated upon the consummation
of the purchase of the Caruthersville System on October 1, 1998 (see Note 5).
(5) SUBSEQUENT EVENT
On October 1, 1998, Mediacom Southeast acquired the assets of a cable
television system serving approximately 3,800 subscribers in Caruthersville,
Missouri (the "Caruthersville System") for a cash purchase price of $5,000.
The acquisition of the Caruthersville System was financed with borrowings under
the Southeast Credit Facility (see Note 3).
11
MEDIACOM CAPITAL CORPORATION
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
------
Note receivable - from affiliate for issuance of common stock $100
-----
Total assets $100
=====
LIABILITIES AND OWNER'S EQUITY
Owner's equity
Common stock, par value $0.10; 200 shares authorized;
100 shares issued and outstanding $ 10
Additional paid-in capital 90
-----
Total owner's equity $100
-----
Total liabilities and owner's equity $100
=====
12
MEDIACOM CAPITAL CORPORATION
NOTE TO THE BALANCE SHEET
____________________
Mediacom Capital Corporation ("Mediacom Capital"), a New York corporation,
is a wholly-owned subsidiary of Mediacom LLC and was organized on March 9, 1998
for the sole purpose of acting as co-issuer with Mediacom LLC of $200 million
aggregate principal amount of the 8.5% Senior Notes due April 15, 2008.
Mediacom Capital has no operations.
13
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
The following discussion of the financial condition and results of
operations of the Company, the description of the Company's business as well as
other sections of this Form 10-Q contain certain forward-looking statements.
The Company's actual results could differ materially from those discussed herein
and its current business plans could be altered in response to market conditions
and other factors beyond the Company's control. Important factors that could
cause or contribute to such differences or changes include those discussed under
"Risk Factors" in the Company's Registration Statement on Form S-4, as amended.
EBITDA represents operating income (loss) before depreciation and
amortization. EBITDA 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, as determined in accordance with generally accepted
accounting principles. EBITDA is included herein because the Company 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 on the basis of operating performance, leverage and
liquidity. In addition, the primary debt instruments of the Company contain
certain covenants, compliance with which is measured by computations similar to
determining EBITDA. The Company's definition of EBITDA may not be identical to
similarly titled measures reported by other companies.
Mediacom was founded in July 1995, principally to acquire, operate and
develop cable television systems through its subsidiaries in selected non-
metropolitan markets of the United States. The Company's business strategy is
to: (i) acquire underperforming and undervalued cable television systems, as
well as related telecommunications businesses; (ii) build subscriber clusters
through regionalized operations; (iii) implement operating plans and system
improvements designed to enhance the long-term operational and financial
performance of the Company; and (iv) deploy a flexible financing strategy to
complement the Company's growth objectives and operating plans. As of September
30, 1998, the Company has completed eight acquisitions of cable television
systems that, as of such date, passed approximately 493,000 homes and served
approximately 348,000 basic subscribers.
ACTUAL RESULTS OF OPERATIONS
The following historical information includes the results of operations of
the Lower Delaware System (acquired on June 24, 1997), the Sun City System
(acquired on September 19, 1997), the Clearlake System (acquired on January 9,
1998) and the Cablevision Systems (acquired on January 23, 1998) (collectively,
the "Acquired Systems") only for that portion of the respective period that such
cable television systems were owned by the Company. See Note 2 to the Company's
Consolidated Financial Statements for a detailed description of the Company's
acquisitions in 1997 and 1998.
The Acquired Systems comprise a significant portion of the Company's basic
subscribers. At September 30, 1998, these systems served approximately 322,100
basic subscribers, representing 92.6% of the approximately 348,000 subscribers
served by the Company as of such date. Accordingly, the Company's acquisitions
of the Acquired Systems have resulted in substantial increases in the revenues,
operating expenses, operating loss, net loss and EBITDA for the three and nine
months ended September 30, 1998, compared to the corresponding periods of 1997.
Consequently, the Company believes that any comparison of its results of
operations between the periods in 1998 and 1997 are not indicative of the
Company's results of operations in the future.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Revenues increased to approximately $34.3 million for the three months
ended September 30, 1998, from approximately $5.4 million for the corresponding
period of 1997, due to: (i) the inclusion of the results of operations of the
Sun City System, the Clearlake System and the Cablevision Systems for the full
14
three months ended September 30, 1998; and (ii) the implementation of basic
service rate increases in March and April 1998 affecting approximately 237,000
and 22,000 basic subscribers, respectively. The average monthly basic service
rate increase was approximately $3.20 per affected basic subscriber. At
September 30, 1998, the Company served approximately 348,000 basic subscribers
compared to approximately 65,300 basic subscribers at September 30, 1997.
Service costs increased to approximately $11.4 million for the three months
ended September 30, 1998, from approximately $1.7 million for the corresponding
period of 1997. Selling, general and administrative expenses increased to
approximately $6.6 million for the three months ended September 30, 1998, from
approximately $778,000 for the corresponding period of 1997. Substantially all
of the increases in service costs and selling, general and administrative
expenses were due to the inclusion of the results of operations of the Acquired
Systems.
Management fee expense increased to approximately $1.6 million for the
three months ended September 30, 1998, from approximately $271,000 for the
corresponding period of 1997. Such increase was due to the higher revenues
generated in the 1998 period. In accordance with the separate management
agreements with each of the Company's subsidiaries, Mediacom Management
Corporation ("Mediacom Management"), a Delaware corporation, earns fees for
management services performed for the Company. Under such agreements, Mediacom
Management is entitled to receive annual management fees calculated as follows:
(i) 5.0% of the first $50 million of annual gross operating revenues of the
Company; (ii) 4.5% of such revenues in excess thereof up to $75 million; and
(iii) 4.0% of such revenues in excess of $75 million.
Depreciation and amortization expense increased to approximately $16.9
million for the three months ended September 30, 1998, from approximately $1.7
million for the corresponding period of 1997. This increase was substantially
due to the aforementioned acquisitions by the Company.
The Company generated an operating loss of approximately $2.1 million for
the three months ended September 30, 1998, compared to operating income of
approximately $880,000 for the corresponding period of 1997, principally due to
the increase in depreciation and amortization expense as discussed above.
Interest expense, net, increased to approximately $6.0 million for the
three months ended September 30, 1998, from approximately $1.5 million for the
corresponding period of 1997. This increase was substantially due to the
additional debt incurred in connection with the aforementioned acquisitions by
the Company. Other expenses increased to approximately $270,000 for the three
months ended September 30, 1998, from approximately $162,000 for the
corresponding period of 1997. Due to the factors described above, the net loss
increased to approximately $8.5 million for the three months ended September 30,
1998, from approximately $788,000 for the corresponding period of 1997.
EBITDA increased to approximately $14.8 million for the three months ended
September 30, 1998, from approximately $2.6 million for the corresponding period
of 1997. This increase was substantially due to the aforementioned acquisitions
by the Company. EBITDA as a percentage of revenues decreased to 43.1% for the
three months ended September 30, 1998, from 48.4% for the corresponding period
of 1997. This decrease was principally due to higher programming costs, as a
percentage of revenues, in the Acquired Systems.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Revenues increased to approximately $94.4 million for the nine months ended
September 30, 1998, from approximately $11.4 million for the corresponding
period of 1997, due to: (i) the inclusion of the results of operations of the
Lower Delaware System and the Sun City System for the full nine months ended
September 30, 1998; (ii) the inclusion of the results of operations of the
Clearlake System and Cablevision Systems from their respective acquisition
dates; and (iii) the aforementioned implementation of basic service rate
increases in March and April of 1998.
Service costs increased to approximately $32.9 million for the nine months
ended September 30, 1998, from approximately $3.6 million for the corresponding
period of 1997. Selling, general and administrative expenses increased to
approximately $18.1 million for the nine months ended September 30, 1998, from
approximately $1.8
15
million for the corresponding period of 1997. Substantially all of the increases
in service costs and selling, general and administrative expenses were due to
the inclusion of the results of operations of the Acquired Systems.
Management fee expense increased to approximately $4.3 million for the nine
months ended September 30, 1998, from approximately $572,000 for the
corresponding period of 1997. Such increase was due to the higher revenues
generated in the 1998 period. Depreciation and amortization expense increased
to approximately $44.3 million for the nine months ended September 30, 1998,
from approximately $4.4 million for the corresponding period of 1997. This
increase was substantially due to the aforementioned acquisitions by the
Company.
The Company generated an operating loss of approximately $5.3 million for
the nine months ended September 30, 1998, compared to operating income of
approximately $1.1 million for the corresponding period of 1997, principally due
to the increase in depreciation and amortization expense as discussed above.
Interest expense, net, increased to approximately $17.8 million for the
nine months ended September 30, 1998, from approximately $3.3 million for the
corresponding period of 1997. This increase was substantially due to the
additional debt incurred in connection with the aforementioned acquisitions by
the Company. Other expenses increased to approximately $3.8 million for the
nine months ended September 30, 1998, from approximately $600,000 for the
corresponding period of 1997. This increase was substantially due to acquisition
fees paid to Mediacom Management in connection with the acquisitions of the
Clearlake System and the Cablevision Systems. Due to the factors described
above, the net loss increased to approximately $26.9 million for the nine months
ended September 30, 1998, from approximately $2.9 million for the corresponding
period of 1997.
EBITDA increased to approximately $39.1 million for the nine months ended
September 30, 1998, from approximately $5.5 million for the corresponding period
of 1997. This increase was substantially due to the aforementioned acquisitions
by the Company. EBITDA as a percentage of revenues decreased to 41.4% for the
nine months ended September 30, 1998, from 48.2% for the corresponding period of
1997. This decrease was principally due to higher programming costs, as a
percentage of revenues, in the Acquired Systems.
SELECTED PRO FORMA RESULTS
The Company has reported the results of operations of the Acquired Systems
from the date of their respective acquisition. The following financial
information for the three and nine months ended September 30, 1998 and 1997,
presents selected unaudited pro forma operating results assuming the purchase of
the Acquired Systems had been consummated on January 1, 1997. See Note 2 to the
Company's Consolidated Financial Statements for a detailed description of the
Company's acquisitions in 1997 and 1998.
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT Three Months Ended Nine Months Ended
PER SUBSCRIBER DATA) -------------------------------------- ---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------- ---------------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenues $ 34,306 $ 30,664 $100,110 $ 88,709
Costs and expenses:
Service costs 11,411 11,574 35,298 36,028
Selling, general and administrative expenses 6,562 7,250 20,081 20,330
Management fee expense 1,557 271 4,346 572
----------- ----------- ----------- -----------
EBITDA $ 14,776 $ 11,569 $ 40,385 $ 31,779
=========== =========== =========== ===========
EBITDA margin (1) 43.1% 37.7% 40.3% 35.8%
Basic subscribers (2) 348,000 342,670 348,000 342,670
Average monthly revenue
per basic subscriber (3) $ 33.00 $ 29.95 $ 32.25 $ 29.13
- --------------------------------------------------
(1) Represents EBITDA as a percentage of revenues.
(2) As of end of period.
(3) Represents average monthly revenues for the period divided by the average
number of basic subscribers as of the beginning and end of the period.
16
SELECTED PRO FORMA RESULTS FOR THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO SELECTED PRO FORMA RESULTS FOR THREE MONTHS ENDED SEPTEMBER 30, 1997
Revenues were approximately $34.3 million for the three months ended
September 30, 1998, as compared to approximately $30.7 million for the
corresponding period of 1997, an increase of 11.9%. This increase was
attributable principally to internal subscriber growth of 1.6% and higher
average monthly revenue per basic subscriber of $33.00 as compared to $29.95 for
the corresponding period of 1997. Service costs and selling, general and
administrative expenses in the aggregate decreased to approximately $18.0
million for the 1998 period from approximately $18.8 million for the
corresponding period of 1997, principally due to cost reductions realized by the
Company and elimination of the corporate overhead incurred by the previous
owners of the Acquired Systems, offset in part by higher programming costs.
Management fee expense increased to approximately $1.6 million for the 1998
period from approximately $271,000 for the corresponding period of 1997. This
expense has been incurred by the Company from the respective acquisition dates
of the Acquired Systems and in accordance with the aforementioned management
agreements with Mediacom Management.
As a result of the above factors, EBITDA increased by 27.7% to
approximately $14.8 million for the 1998 period from approximately $11.6 million
for the corresponding period of 1997. The EBITDA margin improved to 43.1% for
the 1998 period from 37.7% for the corresponding period of 1997.
SELECTED PRO FORMA RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO SELECTED PRO FORMA RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997
Revenues were approximately $100.1 million for the nine months ended
September 30, 1998, as compared to approximately $88.7 million for the
corresponding period of 1997, an increase of 12.9%. This increase was
attributable principally to the aforementioned internal subscriber growth and
higher average monthly revenue per basic subscriber of $32.25 as compared to
$29.13 for the corresponding period of 1997. Service costs and selling, general
and administrative expenses in the aggregate decreased to approximately $55.4
million for the 1998 period from approximately $56.4 million for the
corresponding period of 1997, principally due to cost reductions realized by the
Company and elimination of the corporate overhead incurred by the previous
owners of the Acquired Systems, offset in part by higher programming costs.
Management fee expense increased to approximately $4.3 million for the 1998
period from approximately $572,000 for the corresponding period of 1997. This
expense has been incurred by the Company from the respective acquisition dates
of the Acquired Systems and in accordance with the aforementioned management
agreements with Mediacom Management.
As a result of the above factors, EBITDA increased by 27.1% to
approximately $40.4 million for the 1998 period from approximately $31.8 million
for the corresponding period of 1997. The EBITDA margin improved to 40.3% for
the 1998 period from 35.8% for the corresponding period of 1997.
The selected pro forma financial information presented above has been
prepared for comparative purposes only and does not purport to be indicative of
the operating results which actually would have resulted if the purchase of the
Acquired Systems had been consummated on January 1, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The cable television business is a capital-intensive business that
generally requires financing for the upgrade, expansion and maintenance of the
technical infrastructure. In addition, the Company has pursued, and continues
to pursue, a business strategy that includes selective acquisitions. Since it
commenced operations in March 1996, the Company has funded its debt service,
working capital requirements, capital expenditures and acquisitions through a
combination of internally generated funds, long-term borrowings and equity
contributions. The Company intends to continue to finance such requirements and
expenditures through these same sources.
17
Due to the Company's improved financial condition and the market demand for
advanced video and high-speed data services, during the third quarter of 1998,
the Company modified its previously disclosed five-year capital improvement
program by accelerating its planned completion date to June 30, 2000. Moreover,
various projects that were originally scheduled to be upgraded to 550MHz
bandwidth capacity are being redesigned at 750MHz capacity, with two-way
capability, and greater utilization of fiber optic technology. This accelerated
program will enable the Company to deploy digital cable television technology
and cable modem service earlier and more widespread than previously planned,
beginning in 1999. Upon completion of the capital improvement program in June
30, 2000, the Company anticipates that over 85% of its customer base will be
served by cable television systems with 550-750MHz bandwidth capacity.
As a result of these new strategic initiatives, total capital expenditures
(other than those related to acquisitions) are budgeted at $53.0 million for
1998, of which $35.4 million was spent during the first nine months. In
addition, the Company plans to spend $50.0 million in 1999 and $22.0 million in
2000. The Company intends to utilize cash generated from operations and its
available unused credit commitments under its subsidiary credit facilities, as
described below, to fund the foregoing capital expenditures.
On January 9, 1998, the Company completed the acquisition of the Clearlake
System, serving approximately 17,200 subscribers on such date, for a purchase
price of $21.4 million (before closing costs and adjustments). The acquisition
of the Clearlake System and related closing costs and adjustments were financed
with cash on hand and borrowings under the Western Group's bank credit
facility. See Note 3 to the Company's Consolidated Financial Statements.
On January 23, 1998, the Company completed the acquisition of the
Cablevision Systems, serving approximately 260,100 subscribers on such date, for
a purchase price of approximately $308.2 million (before closing costs and
adjustments). The acquisition of the Cablevision Systems and related closing
costs and adjustments were financed with: (i) $211.0 million of borrowings
under Mediacom Southeast's bank credit facility; (ii) the proceeds of $20.0
million aggregate principal amount of the notes issued by the Company to a bank
(the "Holding Company Notes"); and (iii) $94.0 million of equity capital
contributed to Mediacom by its members. On April 1, 1998, the Holding Company
Notes were repaid in full from the proceeds of the Senior Note issuance (see
below). See Note 3 to the Company's Consolidated Financial Statements.
Mediacom is a limited liability company that serves as the holding company
for its various subsidiaries, each of which is also a limited liability company.
The Company's financing strategy is to raise equity from its members and issue
public long-term debt at the holding company level, while utilizing its
subsidiaries to access debt capital in the bank and private placement markets
through multiple stand-alone borrowing groups. The Company believes that this
financing strategy is beneficial because it broadens the Company's access to
various debt markets, enhances its flexibility in managing the Company's capital
structure, reduces the overall cost of debt capital and permits the Company to
maintain a substantial liquidity position in the form of unused and available
bank credit commitments.
Financings of the Company's subsidiaries are currently effected through two
stand-alone borrowing groups, the Western Group and Mediacom Southeast, each
with separate lending groups. The credit arrangements of these borrowing groups
are non-recourse to Mediacom, have no cross-default provisions relating directly
to each other, have different revolving credit and term periods and contain
separately negotiated covenants tailored for each borrowing group. These credit
arrangements permit the stand-alone borrowing groups, subject to covenant
restrictions, to make distributions to Mediacom. As of September 30, 1998, the
Company was in compliance with all of the financial covenants as provided in its
bank credit arrangements.
As of September 30, 1998, in order to finance its working capital
requirements, capital expenditures and acquisitions and to provide liquidity for
future capital requirements, the Company had completed the following financing
arrangements: (i) a $100.0 million bank credit facility for the Western Group
expiring in September 2005; (ii) a $225.0 million bank credit facility for
Mediacom Southeast expiring in September 2006; (iii) a seller note in the
original principal amount of $2.8 million issued by the Western Group in
connection with the acquisition of a cable television system; (iv) $200.0
million of 8.5% Senior Notes (see below); and (v) $135.5 million of equity
capital committed by the members of Mediacom, of which $125.0 million has been
invested thus far in Mediacom. See Note 3 to the Company's Consolidated
Financial Statements.
18
On April 1, 1998, Mediacom and Mediacom Capital Corporation, a New York
corporation wholly owned by Mediacom, jointly issued $200.0 million aggregate
principal amount of 8.5% Senior Notes due on April 15, 2008. The net proceeds
of the Senior Notes were used at closing to repay outstanding bank debt under
the bank credit facilities in the aggregate principal amount of $173.5 million
and to repay in full the outstanding principal amounts due under the Holding
Company Notes. Interest on the Senior Notes is payable semi-annually on April
15 and October 15 of each year, commencing on October 15, 1998.
As a result of the financing transactions described above, as of September
30, 1998, the Company had approximately $210.2 million of unused bank credit
commitments, of which approximately $206.7 million could have been borrowed and
distributed to Mediacom under the most restrictive covenants in the bank credit
agreements. In addition to unused bank credit commitments and borrowing
availability thereunder, debt leverage and interest coverage ratios are commonly
used in the cable television industry to measure liquidity and financial
condition. For the three month period ended September 30, 1998, the debt
leverage ratio (defined as total debt at the end of the period divided by
annualized EBITDA for the period) was 5.37x and the interest coverage ratio
(defined as EBITDA divided by interest expense, net, for the period) was 2.44x.
As of September 30, 1998, the Company had entered into interest rate swap
agreements to hedge a notional amount of $60.0 million of borrowings under the
subsidiary credit facilities with expiration dates of April 1999 through October
2002. On such date, approximately 83.0% of the Company's indebtedness was at
fixed interest rates or subject to interest rate protection. The Company's
effective cost of debt at September 30, 1998 was approximately 8.0% compared to
8.7% at December 31, 1997.
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 its obligations under the
Notes. There can be no assurance that the Company will be able to refinance its
indebtedness or obtain new financing in the future or, if the Company were able
to do so, that the terms would be favorable to the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," and in 1998, issued SFAS No. 132 "Employer's Disclosure
about Pension and Other Post Retirement Benefits" and SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities." The adoption of these
standards are not expected to have a significant impact on the Company's results
of operations, financial position or cash flows, or the Company's consolidated
financial statements and the related footnotes.
INFLATION AND CHANGING PRICES
The Company's costs and expenses are subject to inflation and price
fluctuations. However, because changes in costs are generally passed through to
subscribers, such changes are not expected to have a material effect on the
Company's results of operations.
YEAR 2000
The Company has performed a review of its Year 2000 preparedness relative
to its cable television systems, its accounting software and its computer
hardware. Based on such review, the Company believes that it will not incur
material costs in connection with becoming Year 2000 compliant and has taken the
necessary action to remedy no later than June 1999, all non-compliant cable
television equipment and computer hardware and software. In addition, the
Company has received communications from its significant third party vendors and
service providers stating that they are generally on target to become year 2000
compliant in 1999 if they have not already done so. There can be no assurance
that these third party vendors and service providers will complete their own
Year 2000 compliant projects in a timely manner and that failure to do so would
not have any adverse impact on the Company's business.
19
PART I - FINANCIAL INFORMATION
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 mitigate its expposure to interest rate fluctuations. As
of September 30, 1998, the Company had entered into interest rate exchange
agreements (the "Swaps") with various banks pursuant to which the interest rate
on $60.0 million is fixed at a weighted average swap rate of approximately 6.2%,
plus the average applicable margin over the Eurodollar Rate option under the
Bank Credit Facilities. Under the terms of the Swaps, which expire from 1999
through 2002, 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. See Note 3 to the Company's
Consolidated Financial Statements.
20
PART II OTHER INFORMATION
ITEMS 1 THROUGH 5.
None.
ITEM 6.
(a) Exhibits
Exhibit Number
--------------
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
21
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 , 1998 By: /s/ Mark E. Stephan
-----------------------------------
Mark E. Stephan
Senior Vice President,
Chief Financial Officer, Treasurer
and Principal Financial Officer
22
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 , 1998 By: /s/ Mark E. Stephan
---------------------------
Mark E. Stephan
Treasurer, Secretary and
Principal Financial Officer
23
5
1,000
12-MOS 12-MOS 9-MOS
DEC-31-1997 DEC-31-1996 DEC-31-1998
JAN-01-1997 MAR-12-1996 JAN-01-1998
DEC-31-1997 DEC-31-1996 SEP-30-1998
1027 396 968
0 0 0
674 292 2474
56 25 467
1032 0 0
0 0 0
51735 18993 216900
(5737) (1056) (26136)
102791 46560 447666
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
24441 4537 91539
102791 46560 447666
17634 5411 94374
17634 5411 94374
5547 1511 32873
16761 4869 99652
640 967 3838
0 0 0
4829 1528 17786
(4586) (1953) (26902)
0 0 0
(4596) (1953) (26902)
0 0 0
0 0 0
0 0 0
(4596) (1953) (26902)
0 0 0
0 0 0
