Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 March 31, 2010
Commission File Numbers: 333-57285-01
333-57285
Mediacom LLC
Mediacom Capital Corporation*
(Exact names of Registrants as specified in their charters)
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New York
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06-1433421 |
New York
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06-1513997 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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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. o Yes þ No
Note: As a voluntary filer, not subject to the filing requirements, the Registrants have filed all
reports under Section 13 or 15(d) of the Exchange Act during the preceding 12 months.
Indicate by check mark whether the Registrants have submitted electronically and posted on their
respective corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the Registrants were required to submit and post such
files). o Yes o No
Indicate by check mark whether the Registrants are large accelerated filers, accelerated filers,
non-accelerated filers, or smaller reporting companies. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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o Large accelerated Filers
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o Accelerated filers
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þ Non-accelerated filers
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o Smaller reporting companies |
Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the
Exchange Act). o Yes þ No
Indicate the number of shares outstanding of the Registrants common stock: Not Applicable
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* |
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Mediacom Capital Corporation meets the conditions set forth in General Instruction H (1) (a)
and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. |
MEDIACOM LLC AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2010
TABLE OF CONTENTS
This Quarterly Report on Form 10-Q is for the three months ended March 31, 2010. Any statement
contained in a prior periodic report shall be deemed to be modified or superseded for purposes of
this Quarterly Report to the extent that a statement contained herein modifies or supersedes such
statement. The Securities and Exchange Commission (SEC) allows us to incorporate by reference
information that we file with them, which means that we can disclose important information to you
by referring you directly to those documents. Information incorporated by reference is considered
to be part of this Quarterly Report. Throughout this Quarterly Report, we refer to Mediacom LLC as
Mediacom LLC, and Mediacom LLC and its consolidated subsidiaries as we, us and our.
2
Cautionary Statement Regarding Forward-Looking Statements
You should carefully review the information contained in this Quarterly Report and in other reports
or documents that we file from time to time with the SEC.
In this Quarterly Report, we state our beliefs of future events and of our future financial
performance. In some cases, you can identify those so-called forward-looking statements by words
such as anticipates, believes, continue, could, estimates, expects, intends, may,
plans, potential, predicts, should or will, or the negative of those and other comparable
words. These forward-looking statements are not guarantees of future performance or results, and
are subject to risks and uncertainties that could cause actual results to differ materially from
historical results or those we anticipate as a result of various factors, many of which are beyond
our control. Factors that may cause such differences to occur include, but are not limited to:
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increased levels of competition from existing and new competitors; |
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lower demand for our video, high-speed data and phone services; |
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our ability to successfully introduce new products and services to meet customer demands
and preferences; |
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changes in laws, regulatory requirements or technology that may cause us to incur
additional costs and expenses; |
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greater than anticipated increases in programming costs and delivery expenses related to
our products and services; |
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changes in assumptions underlying our critical accounting policies; |
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the ability to secure hardware, software and operational support for the delivery of
products and services to our customers; |
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disruptions or failures of network and information systems upon which our business
relies; |
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our reliance on certain intellectual properties; |
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our ability to generate sufficient cash flow to meet our debt service obligations; |
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fluctuations in short term interest rates which may cause our interest expense to vary
from quarter to quarter; |
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instability in the capital and credit markets, which may impact our ability to refinance
future debt maturities or provide funding for potential strategic transactions, on similar
terms as we currently experience; and |
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other risks and uncertainties discussed in this Quarterly Report, our Annual Report on
Form 10-K for the year ended December 31, 2009 and other reports or documents that we file
from time to time with the SEC. |
Statements included in this Quarterly Report are based upon information known to us as of the date
that this Quarterly Report is filed with the SEC, and we assume no obligation to update or alter
our forward-looking statements made in this Quarterly Report, whether as a result of new
information, future events or otherwise, except as required by applicable federal securities laws.
3
PART I
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ITEM 1. |
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FINANCIAL STATEMENTS |
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in thousands)
(Unaudited)
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March 31, |
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December 31, |
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2010 |
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2009 |
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ASSETS |
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CURRENT ASSETS |
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Cash |
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$ |
11,071 |
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$ |
8,868 |
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Accounts receivable, net of allowance for doubtful accounts of $590 and $927 |
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31,797 |
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37,405 |
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Prepaid expenses and other current assets |
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8,857 |
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7,272 |
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Total current assets |
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51,725 |
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53,545 |
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Preferred equity investment in affiliated company |
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150,000 |
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150,000 |
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Property, plant and equipment, net of accumulated depreciation of
$1,124,179 and $1,098,785 |
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692,388 |
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694,216 |
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Franchise rights |
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616,807 |
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616,807 |
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Goodwill |
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24,046 |
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24,046 |
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Subscriber lists, net of accumulated amortization of $117,458 and $117,351 |
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820 |
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927 |
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Other assets, net of accumulated amortization of $3,692 and $2,920 |
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24,767 |
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28,679 |
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Total assets |
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$ |
1,560,553 |
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$ |
1,568,220 |
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LIABILITIES AND MEMBERS DEFICIT |
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CURRENT LIABILITIES |
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Accounts payable, accrued expenses and other current liabilities |
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$ |
185,898 |
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$ |
213,974 |
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Deferred revenue |
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25,601 |
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25,327 |
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Current portion of long-term debt |
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60,000 |
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59,500 |
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Total current liabilities |
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271,499 |
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298,801 |
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Long-term debt, less current portion |
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1,455,000 |
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1,450,500 |
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Other non-current liabilities |
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12,243 |
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9,906 |
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Total liabilities |
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1,738,742 |
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1,759,207 |
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Commitments and contingencies (Note 9) |
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MEMBERS DEFICIT |
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Capital contributions |
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460,973 |
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455,973 |
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Accumulated deficit |
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(639,162 |
) |
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(646,960 |
) |
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Total members deficit |
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(178,189 |
) |
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(190,987 |
) |
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Total liabilities and members deficit |
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$ |
1,560,553 |
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$ |
1,568,220 |
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The accompanying notes to the unaudited financial
statements are an integral part of these statements
4
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands)
(Unaudited)
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Three Months Ended |
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March 31, |
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2010 |
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2009 |
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Revenues |
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$ |
159,900 |
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$ |
161,816 |
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Costs and expenses: |
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Service costs (exclusive of depreciation and amortization) |
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71,260 |
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72,180 |
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Selling, general and administrative expenses |
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26,414 |
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27,233 |
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Management fee expense |
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2,968 |
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2,984 |
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Depreciation and amortization |
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26,901 |
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28,593 |
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Operating income |
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32,357 |
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30,826 |
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Interest expense, net |
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(21,846 |
) |
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(22,046 |
) |
Loss on derivatives, net |
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(6,462 |
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(519 |
) |
Loss on sale of cable systems, net |
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(311 |
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Investment income from affiliate |
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4,500 |
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4,500 |
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Other expense, net |
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(751 |
) |
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(861 |
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Net income |
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$ |
7,798 |
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$ |
11,589 |
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The accompanying notes to the unaudited financial
statements are an integral part of these statements
5
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
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Three Months Ended |
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March 31, |
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2010 |
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2009 |
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OPERATING ACTIVITIES: |
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Net income |
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$ |
7,798 |
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$ |
11,589 |
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Adjustments to reconcile net loss to net cash flows provided by
operating activities: |
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Depreciation and amortization |
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26,901 |
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28,593 |
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Loss on derivatives, net |
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6,462 |
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519 |
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Loss on sale of cable systems, net |
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310 |
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Amortization of deferred financing costs |
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772 |
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409 |
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Share-based compensation |
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142 |
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138 |
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Changes in assets and liabilities, net of effects from acquisitions: |
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Accounts receivable, net |
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5,608 |
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2,134 |
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Prepaid expenses and other assets |
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(1,803 |
) |
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900 |
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Accounts payable, accrued expenses and other current liabilities |
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(29,528 |
) |
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(8,665 |
) |
Deferred revenue |
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274 |
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(620 |
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Other non-current liabilities |
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(63 |
) |
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(63 |
) |
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Net cash flows provided by operating activities |
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$ |
16,563 |
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$ |
35,244 |
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INVESTING ACTIVITIES: |
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Capital expenditures |
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(24,777 |
) |
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(23,925 |
) |
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Net cash flows used in investing activities |
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$ |
(24,777 |
) |
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$ |
(23,925 |
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FINANCING ACTIVITIES: |
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New borrowings |
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62,875 |
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131,625 |
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Repayment of debt |
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(57,875 |
) |
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(108,625 |
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Capital contributions from parent |
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25,000 |
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80,498 |
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Capital distributions to parent |
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(20,000 |
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(110,000 |
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Other financing activities book overdrafts |
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417 |
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(948 |
) |
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Net cash flows provided by (used in) financing activities |
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$ |
10,417 |
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$ |
(7,450 |
) |
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Net increase in cash |
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2,203 |
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3,869 |
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CASH, beginning of period |
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8,868 |
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10,060 |
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CASH, end of period |
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$ |
11,071 |
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$ |
13,929 |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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Cash paid during the period for interest, net of amounts capitalized |
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$ |
28,977 |
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$ |
38,190 |
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The accompanying notes to the unaudited financial
statements are an integral part of these statements
6
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Basis of Preparation of Unaudited Consolidated Financial Statements
Mediacom LLC (Mediacom LLC and collectively with its subsidiaries, we, our or us), a New York limited
liability company wholly-owned by Mediacom Communications Corporation (MCC), is involved in the
acquisition and operation of cable systems serving smaller cities and towns in the United States.
We have prepared these unaudited consolidated financial statements in accordance with the rules and
regulations of the Securities and Exchange Commission (the SEC). In the opinion of management,
such statements include all adjustments, consisting of normal recurring accruals and adjustments,
necessary for a fair presentation of our consolidated results of operations and financial position
for the interim periods presented. The accounting policies followed during such interim periods
reported are in conformity with generally accepted accounting principles in the United States of
America and are consistent with those applied during annual periods. For a summary of our
accounting policies and other information, refer to our Annual Report on Form 10-K for the year
ended December 31, 2009. 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, 2010.
Mediacom Capital Corporation (Mediacom Capital), a New York corporation wholly-owned by us,
co-issued, jointly and severally with us, public debt securities. Mediacom Capital has no
operations, revenues or cash flows and has no assets, liabilities or stockholders equity on its
balance sheet, other than a one-hundred dollar receivable from an affiliate and the same dollar
amount of common stock. Therefore, separate financial statements have not been presented for this
entity.
Franchise fees imposed by local governmental authorities are collected on a monthly basis from our
customers and are periodically remitted to the local governmental authorities. Because franchise
fees are our obligation, we present them on a gross basis with a corresponding operating expense.
Franchise fees reported on a gross basis amounted to approximately $3.2 million and $3.1 million
for the three months ended March 31, 2010 and 2009, respectively.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current years
presentation.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2010, the FASB issued Accounting Standards Update (ASU) ASU No. 2010-06, Improving
Disclosures about Fair value Measurements, which amends ASC 820 to add new requirements for
disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about
purchases, sales, issuances, and settlements relating to Level 3 measurements. The ASU also
clarifies existing fair value disclosures about the level of disaggregation and about inputs and
valuation techniques used to measure fair value. The ASU is effective for the first reporting
period (including interim periods) beginning after December 15, 2009, except for the requirement to
provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis,
which will be effective for fiscal years beginning after December 15, 2010, and for interim periods
within those fiscal years. Early adoption is permitted. We do not expect that this ASU will have a
significant impact on the consolidated financial statements or related disclosures.
7
3. FAIR VALUE
The following sets forth our financial assets and liabilities measured at fair value on a recurring
basis using a market-based approach at March 31, 2010. These assets and liabilities have been categorized according to the
three-level fair value hierarchy established by ASC 820, which prioritizes the inputs used in
measuring fair value.
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Level 1 Quoted market prices in active markets for identical assets or liabilities. |
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Level 2 Observable market based inputs or unobservable inputs that are corroborated by
market data. |
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Level 3 Unobservable inputs that are not corroborated by market data. |
As of March 31, 2010, our interest rate exchange agreement liabilities, net, were valued at $26.2
million using Level 2 inputs, as follows:
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Fair Value as of March 31, 2010 |
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(dollars in thousands) |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Assets |
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Interest rate exchange agreements |
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$ |
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$ |
28 |
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$ |
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$ |
28 |
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Liabilities |
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Interest rate exchange agreements |
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$ |
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$ |
26,195 |
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$ |
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$ |
26,195 |
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Interest rate exchange agreements liabilities, net |
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$ |
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$ |
26,167 |
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$ |
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$ |
26,167 |
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As of December 31, 2009, our interest rate exchange agreement liabilities, net, were valued at
$19.7 million using Level 2 inputs, as follows:
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Fair Value as of December 31, 2009 |
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(dollars in thousands) |
|
Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Assets |
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Interest rate exchange agreements |
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$ |
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$ |
3,053 |
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$ |
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$ |
3,053 |
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Liabilities |
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Interest rate exchange agreements |
|
$ |
|
|
|
$ |
22,758 |
|
|
$ |
|
|
|
$ |
22,758 |
|
|
|
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|
|
|
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|
Interest rate exchange agreements liabilities, net |
|
$ |
|
|
|
$ |
19,705 |
|
|
$ |
|
|
|
$ |
19,705 |
|
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8
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (dollars in thousands):
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|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Cable systems, equipment and subscriber devices |
|
$ |
1,740,892 |
|
|
$ |
1,717,512 |
|
Vehicles |
|
|
36,439 |
|
|
|
36,507 |
|
Furniture, fixtures and office equipment |
|
|
21,869 |
|
|
|
21,692 |
|
Buildings and leasehold improvements |
|
|
15,832 |
|
|
|
15,755 |
|
Land and land improvements |
|
|
1,535 |
|
|
|
1,535 |
|
|
|
|
|
|
|
|
|
|
|
1,816,567 |
|
|
|
1,793,001 |
|
Accumulated depreciation |
|
|
(1,124,179 |
) |
|
|
(1,098,785 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
692,388 |
|
|
$ |
694,216 |
|
|
|
|
|
|
|
|
5. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable, accrued expenses and other current liabilities consisted of the following
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Accounts payable affiliates |
|
$ |
79,245 |
|
|
$ |
101,340 |
|
Liabilities under interest rate exchange agreements |
|
|
18,890 |
|
|
|
17,854 |
|
Accrued programming costs |
|
|
18,057 |
|
|
|
16,056 |
|
Accrued payroll and benefits |
|
|
11,787 |
|
|
|
10,999 |
|
Accrued taxes and fees |
|
|
11,166 |
|
|
|
12,910 |
|
Accrued service costs |
|
|
8,438 |
|
|
|
10,303 |
|
Accrued property, plant and equipment |
|
|
8,396 |
|
|
|
4,231 |
|
Accrued interest |
|
|
6,715 |
|
|
|
13,853 |
|
Book overdrafts (1) |
|
|
6,484 |
|
|
|
6,067 |
|
Subscriber advance payments |
|
|
5,955 |
|
|
|
5,875 |
|
Accounts payable |
|
|
1,952 |
|
|
|
4,864 |
|
Accrued telecommunications costs |
|
|
1,950 |
|
|
|
2,542 |
|
Intercompany accounts payable and other accrued expenses |
|
|
6,863 |
|
|
|
7,080 |
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other current
liabilities |
|
$ |
185,898 |
|
|
$ |
213,974 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Book overdrafts represent outstanding checks in excess of funds on deposit at our
disbursement accounts. We transfer funds from our depository accounts to our disbursement
accounts upon daily notification of checks presented for payment. Changes in book overdrafts
are reported as part of cash flows from financing activities in our consolidated statement of
cash flows. |
9
6. DEBT
Debt consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Bank credit facilities |
|
$ |
1,165,000 |
|
|
$ |
1,160,000 |
|
9 1/8% senior notes due 2017 |
|
|
350,000 |
|
|
|
350,000 |
|
|
|
|
|
|
|
|
|
|
$ |
1,515,000 |
|
|
$ |
1,510,000 |
|
Less: Current portion |
|
|
60,000 |
|
|
|
59,500 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
1,455,000 |
|
|
$ |
1,450,500 |
|
|
|
|
|
|
|
|
Bank Credit Facility
As of
March 31, 2010, our operating subsidiaries maintained a $1.471 billion credit facility (the credit facility), of
which $1.165 billion was outstanding. The average interest rate on such
outstanding debt, including the effect of the interest rate exchange agreements discussed below was
4.7%, as compared to 3.8% as of the same date last year.
As of March 31, 2010, we had revolving credit commitments of $400.0 million, of which $295.6
million was unused and available to be borrowed and used for general corporate purposes, based on
the terms and conditions of our debt arrangements. As of March 31, 2010, $10.3 million of letters
of credit were issued under the credit facility to various parties as collateral for our
performance relating to insurance and franchise requirements, which
reduced the availability of the unused portion
of the revolving credit commitments of the credit facility by such amount. Our revolving
credit commitments expire on September 30, 2011, and are not subject to scheduled reductions prior
to maturity.
The
credit agreement for the credit facility contains various covenants that, among other things,
impose certain limitations on mergers and acquisitions, consolidations and sales of certain assets,
liens, the incurrence of additional indebtedness, certain restricted payments and certain
transactions with affiliates. As of March 31, 2010, the principal financial covenant of the credit
facility required compliance with a ratio of senior indebtedness (as defined) to annualized system
cash flow (as defined) of no more than 6.0 to 1.0. Our ratio was 4.4 to 1.0 for the three months
ended March 31, 2010. The credit facility is collateralized by all of our ownership interests in
our operating subsidiaries, and is guaranteed by us on a limited recourse basis to the extent of
such ownership interests.
See Note 12 for a discussion of the
financing transactions completed on April 23, 2010.
Senior Notes
As of March 31, 2010, we had an aggregate of $350 million of senior notes outstanding. The
indenture governing our senior notes also contain various covenants, though they are generally less
restrictive than those found in our credit facility. As of March 31, 2010, the principal financial
covenant of these senior notes had a limitation on the incurrence of additional indebtedness based
upon a maximum ratio of total indebtedness to cash flow (as defined) of 8.5 to 1.0. Our ratio of
total indebtedness to cash flow was 5.9 to 1.0 for the
three months ended March 31, 2010. These covenants also restrict our ability, among other things,
to make certain distributions, investments and other restricted payments, sell certain assets,
create certain liens, merge, consolidate or sell substantially all of our assets and enter into
certain transactions with affiliates.
Interest Rate Swaps
We use interest rate exchange agreements, or interest rate swaps, in order to fix the rate of the
applicable Eurodollar portion of debt under the credit facility to reduce the potential volatility
in our interest expense that would otherwise result from changes in market interest rates. Our
interest rate swaps have not been designated as hedges for accounting purposes, and have been
accounted for on a mark-to-market basis as of, and for, the three months ended March 31, 2010 and
2009.
As of March 31, 2010, we had current interest rate swaps with various banks pursuant to which the
interest rate on $700 million was fixed at a weighted average rate of 3.4%. As of the same date,
about 69% of our total outstanding indebtedness was at fixed rates or subject to interest rate
protection. Our current interest rate swaps are scheduled to expire in the amounts of $200 million,
$300 million and $200 million during the years ended December 31, 2010, 2011 and 2012,
respectively.
10
We have also entered into forward-starting interest rate swaps that will fix rates for a four-year
period at a weighted average rate of 3.1% on $200 million of floating rate debt, which will
commence in December 2010, and a two-year period at a weighted average rate of 2.7% on
$200 million of floating rate debt, which will commence in December 2010.
The fair value of our interest rate swaps is the estimated amount that we would receive or pay to
terminate such agreements, taking into account market interest rates and the remaining time to
maturities. As of March 31, 2010, based upon mark-to-market valuation, we recorded on our
consolidated balance sheet a current asset of less than $0.1 million, an accumulated current liability of
$18.9 million and an accumulated long-term liability of $7.3 million. As of December 31, 2009,
based upon mark-to-market valuation, we recorded on our consolidated balance sheet a long-term
asset of $3.1 million, an accumulated current liability of $17.9 million and an accumulated
long-term liability of $4.9 million. As a result of the mark-to-market valuations on these interest
rate swaps, we recorded a net loss on derivatives of $6.5 million and $0.5 million for the three
months ended March 31, 2010 and 2009, respectively.
Covenant Compliance and Debt Ratings
For all periods through March 31, 2010, we were in compliance with all of the covenants under the
credit facility and senior note arrangements. There are no covenants, events of default, borrowing
conditions or other terms in the credit facility or senior note arrangements that are based on
changes in our credit rating assigned by any rating agency.
Our future access to the debt markets and the terms and conditions we receive are influenced by our
debt ratings. Our corporate credit ratings are B1, with a stable outlook, by Moodys, and B+, with
a stable outlook, by Standard and Poors. Any future downgrade to our credit ratings could result
in higher interest rates on future debt issuance than we currently experience, or adversely impact
our ability to raise additional funds.
Fair Value
As of March 31, 2010, the fair values of our senior notes and credit facility are as follows
(dollars in thousands):
|
|
|
|
|
91/8 % senior notes due 2019 |
|
$ |
361,594 |
|
|
|
|
|
|
|
|
|
|
Bank credit facilities |
|
$ |
1,147,491 |
|
|
|
|
|
|
|
|
|
|
7. MEMBERS DEFICIT
Share-based Compensation
Total share-based compensation expense, for the three months ended March 31, 2010 and 2009, was as
follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Share-based compensation expense by type of
award: |
|
|
|
|
|
|
|
|
Employee stock options |
|
$ |
7 |
|
|
$ |
8 |
|
Employee stock purchase plan |
|
|
17 |
|
|
|
27 |
|
Restricted stock units |
|
|
118 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
$ |
142 |
|
|
$ |
138 |
|
|
|
|
|
|
|
|
During the three months ended March 31, 2010, there were no restricted stock units or
stock options that had been granted to our employees under MCCs compensation programs. Each of the
restricted stock units and stock options in MCCs stock compensation programs are exchangeable and
exercisable, respectively, into a share of MCCs Class A common stock. During the three months
ended March 31, 2010, no restricted stock units were vested and no stock options were exercised.
11
Employee Stock Purchase Plan
Under MCCs employee stock purchase plan, all employees are allowed to participate in the purchase
of shares of MCCs Class A common stock at a 15% discount on the date of the allocation. Shares
purchased by our employees under MCCs plan amounted to approximately 23,000 and 31,000 for the
three months ended March 31, 2010 and 2009, respectively. Shares purchased by our employees under
MCCs plan amounted to approximately $0.1 million for each of the three months ended March 31, 2010
and 2009.
8. INVESTMENT IN AFFILIATED COMPANY
We have a $150 million preferred equity investment in Mediacom Broadband LLC, a wholly owned
subsidiary of MCC. The preferred equity investment has a 12% annual cash dividend, payable
quarterly. During each of the three months ended March 31, 2010 and 2009, we received in aggregate
$4.5 million in cash dividends on the preferred equity.
9. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are named as a defendant in a putative class action, captioned Gary Ogg and Janice Ogg v.
Mediacom LLC, pending in the Circuit Court of Clay County, Missouri, originally filed in April
2001. The lawsuit alleges that we, in areas where there was no cable franchise, failed to obtain
permission from landowners to place our fiber interconnection cable notwithstanding the possession
of agreements or permission from other third parties. While the parties continue to contest
liability, there also remains a dispute as to the proper measure of damages. Based on a report by
their experts, the plaintiffs claim compensatory damages of approximately $14.5 million. Legal
fees, prejudgment interest, potential punitive damages and other costs could increase that estimate
to approximately $26.0 million. Before trial, the plaintiffs proposed an alternative damage theory
of $42.0 million in compensatory damages. Notwithstanding the verdict in the trial described below,
we remain unable to reasonably determine the amount of our final liability in this lawsuit. Prior
to trial our experts estimated our liability to be within the range of approximately $0.1 million
to $2.3 million. This estimate did not include any estimate of damages for prejudgment interest,
attorneys fees or punitive damages.
On March 9, 2009, a jury trial commenced solely for the claim of Gary and Janice Ogg, the
designated class representatives. On March 18, 2009, the jury rendered a verdict in favor of Gary
and Janice Ogg setting compensatory damages of $8,863 and punitive damages of $35,000. The Court
did not enter a final judgment on this verdict and therefore the amount of the verdict cannot at
this time be judicially collected. Although we believe that the particular circumstances of each
class member may result in a different measure of damages for each member, if the same measure of
compensatory damages was used for each member, the aggregate compensatory damages would be
approximately $16.2 million plus the possibility of an award of attorneys fees, prejudgment
interest, and punitive damages. We are vigorously defending against the claims made by the other
members of the class, including filing and responding to post trial motions and preparing for
subsequent trials, and an appeal, if necessary.
We believe that the amount of actual liability would not have a significant effect on our
consolidated financial position, results of operations, cash flows or business. There can be no
assurance, however, that the actual liability ultimately determined for all members of the class
would not exceed our estimated range or any amount derived from the verdict rendered on March 18,
2009. We have tendered the lawsuit to our insurance carrier for defense and indemnification. The
carrier has agreed to defend us under a reservation of rights, and a declaratory judgment action is
pending regarding the carriers defense and coverage responsibilities.
A purported class action in the United States District Court for the Southern District of New York
entitled Jim Knight v. Mediacom Communications Corp., in which MCC is named as the defendant, was
filed on March 4, 2010. The complaint asserts that the potential class is comprised of all persons who
purchased premium cable services from MCC and rented a cable box distributed by MCC. The plaintiff
alleges that MCC improperly tied the rental of cable boxes to the provision of premium cable
services in violation of Section 1 of the Sherman Antitrust Act. The plaintiff also alleges a claim
for unjust enrichment and seeks injunctive relief and unspecified damages. MCC was served with the
complaint on April 16, 2010. MCC believes they have substantial defenses to the claims asserted in the
complaint, and they intend to defend the action vigorously. If MCC
were not successful in this litigation, Mediacom LLC may have to distribute cash to MCC in order
for MCC to pay any damages in regard to this litigation.
12
We, our parent company and other subsidiaries or affiliated companies are also involved in various
other legal actions arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these other matters will not have a material adverse effect on our
consolidated financial position, results of operations, cash flows or business.
10. RELATED PARTY TRANSACTION
Share Exchange Agreement between MCC and an affiliate of Morris Communications
On September 7, 2008, MCC entered into a Share Exchange Agreement (the Exchange Agreement) with
Shivers Investments, LLC (Shivers) and Shivers Trading & Operating Company (STOC). Both STOC
and Shivers are affiliates of Morris Communications Company, LLC (Morris Communications).
On February 13, 2009, MCC completed the Exchange Agreement pursuant to which it exchanged 100% of
the shares of stock of a wholly-owned subsidiary, which held approximately $110 million of cash and
non-strategic cable systems serving approximately 25,000 basic subscribers contributed to MCC by
us, for 28,309,674 shares of MCC Class A common stock held by Shivers.
Asset Transfer Agreement with MCC and Mediacom Broadband
On February 11, 2009, certain of our operating subsidiaries executed an Asset Transfer Agreement
(the Transfer Agreement) with MCC and the operating subsidiaries of Mediacom Broadband, pursuant
to which certain of our cable systems located in Florida, Illinois, Iowa, Kansas, Missouri and
Wisconsin, which serve approximately 45,900 basic subscribers would be exchanged for certain of
Mediacom Broadbands cable systems located in Illinois, which serve approximately 42,200 basic
subscribers, and a cash payment of $8.2 million (the Asset Transfer). The Asset Transfer was
completed on February 13, 2009 (the transfer date).
As part of the Transfer Agreement, we contributed to MCC cable systems located in Western North
Carolina, which serve approximately 25,000 basic subscribers. These cable systems were part of the
Exchange Agreement noted above. In connection therewith, we received a $74 million cash
contribution on February 12, 2009, of which funds had been contributed to MCC by Mediacom Broadband
on the same date.
In total, we received $82.2 million under the Transfer Agreement (the Transfer Proceeds), which
were used by us to repay a portion of the outstanding balance under the revolving commitments of
our operating subsidiaries bank credit facility.
On February 12, 2009, after giving effect to the debt repayment funded by the Transfer Proceeds,
our operating subsidiaries borrowed approximately $110 million under the revolving commitments of
our bank credit facility. This represented net new borrowings of about $28 million. On February 12,
2009, we contributed approximately $110 million to MCC to fund its cash obligation under the
Exchange Agreement.
The net assets of the cable systems we received as part of the Asset Transfer were accounted for as
a transfer of businesses under common control in accordance with ASC 805. Under this method of
accounting: (i) the net assets we received have been recorded at Mediacom Broadbands carrying
amounts; (ii) the net assets of the cable systems we transferred to Mediacom Broadband through MCC
were removed from our consolidated balance sheet at net book value on the transfer date; (iii) for
the cable systems we received, we recorded their results of operations as if the transfer date was
January 1, 2009; and (iv) for the cable systems we transferred to Mediacom Broadband through MCC,
we ceased recording those results of operations as of the transfer date. See Note 2.
We recognized an additional $5.5 million in revenues and $1.7 million of net income, for the period
January 1, 2009 through the transfer date, because we recorded the results of operations for the
cable systems we received as part of the Asset Transfer, as if the transfer date was January 1,
2009. This $1.7 million of cash flows was recorded under the caption capital contributions from
parent on our consolidated statements of cash flows for the three months ended March 31, 2009.
The financial statements for the periods prior to January 1, 2009 were not adjusted for the receipt
of net assets because the net assets did not meet the definition of a business under generally
accepted accounting principles in effect prior to the adoption of ASC 805.
11. GOODWILL AND OTHER INTANGIBLE ASSETS
In accordance with ASC 350 Intangibles Goodwill and Other (ASC 350) (formerly SFAS No. 142,
Goodwill and Other Intangible Assets), the amortization of goodwill and indefinite-lived
intangible assets is prohibited and requires such assets to be tested annually for impairment, or
more frequently if impairment indicators arise. We have determined that our cable franchise rights
and goodwill are indefinite-lived assets and therefore not amortizable.
13
We directly assess the value of cable franchise rights for impairment under ASC 350 by utilizing a
discounted cash flow methodology. In performing an impairment test in accordance with ASC 350, we
make assumptions, such as future cash flow expectations, customer growth, competition, industry
outlook, capital expenditures, and other future benefits related to cable franchise rights, which
are consistent with the expectations of buyers and sellers of cable systems in determining fair
value. If the determined fair value of our cable franchise rights is less than the carrying amount
on the financial statements, an impairment charge would be recognized for the difference between
the fair value and the carrying value of such assets.
Goodwill impairment is determined using a two-step process. The first step compares the fair value
of a reporting unit with our carrying amount, including goodwill. If the fair value of a reporting
unit exceeds our carrying amount, goodwill of the reporting unit is considered not impaired and the
second step is unnecessary. If the carrying amount of a reporting unit exceeds our fair value, the
second step is performed to measure the amount of impairment loss, if any. The second step compares
the implied fair value of the reporting units goodwill, calculated using the residual method, with
the carrying amount of that goodwill. If the carrying amount of the goodwill exceeds the implied
fair value, the excess is recognized as an impairment loss. We have determined that we have one
reporting unit for the purpose of applying ASC 350, Mediacom LLC. We conducted our annual
impairment test as of October 1, 2009.
The economic conditions currently affecting the U.S. economy and how that may impact the long-term
fundamentals of our business may have a negative impact on the fair values of the assets in our
reporting units. This may result in the recognition of an impairment loss when we perform our next
annual impairment testing during the fourth quarter of 2010.
Because there has not been a meaningful change in the long-term fundamentals of our business during
the first three months of 2010, we have determined that there has been no triggering event under
ASC 350, and as such, no interim impairment test is required as of March 31, 2010.
12. SUBSEQUENT EVENTS
We have evaluated the impact of subsequent events on our consolidated financial statements and
related footnotes through the date of issuance, May 10, 2010.
On April 23, 2010, our operating subsidiaries entered into an incremental facility agreement that
provides for a new term loan under the credit facility in the principal amount of $250.0 million
(Term Loan E). On April 23, 2010, the full amount of Term Loan E was borrowed by our operating
subsidiaries. The proceeds from Term Loan E were largely used to repay the outstanding balance of Term Loan
A and the revolving credit portion of the credit facility, without any reduction in the revolving
credit commitments, as well as related fees and expenses. Following the borrowing of Term Loan E,
there were three term loans outstanding under the credit facility (Term Loan C, Term Loan D and
Term Loan E).
Borrowings under Term Loan E bear interest at a floating rate or rates equal to, at the option of
our operating subsidiaries, the Eurodollar Rate or the Base Rate (each as defined in the related
credit agreement, as amended), plus a margin of 3.00% for Eurodollar Rate loans and a margin of
2.00% for Base Rate loans; provided that if the margin for any new incremental facility term loans
borrowed within 18 months of April 23, 2010 exceeds the margin for borrowings under Term Loan E by
more than 0.25%, the margin for borrowings under Term Loan E shall be increased to the extent
necessary so that the margin for such new incremental facility term loans is equal to the margin
for borrowings under Term Loan E plus 0.25%. For the first four years of Term Loan E, the
Eurodollar Rate will be subject to a floor of 1.50% and the Base Rate will be subject to a floor of
2.50%. Term Loan E matures on October 23, 2017, and is subject to quarterly reductions of 0.25% of
the original principal amount. The obligations of our operating subsidiaries under Term Loan E are
governed by the terms of the related credit agreement, as amended.
14
On April 23, 2010, the credit facility was amended to:
|
|
|
extend the termination date with respect to $225.2 million of the revolving credit
portion of the credit facility from September 30, 2011 to December 31, 2014 (or June 30,
2014 if Term Loan C under the credit facility has not been repaid or refinanced prior to
June 30, 2014); |
|
|
|
maintain the termination date of September 30, 2011 with respect to $79.0 million of the
revolving credit commitments; |
|
|
|
reduce the aggregate of the revolving credit commitments from $400.0 million to
$304.2 million as of April 23, 2010; and |
|
|
|
|
permit additional incremental facility term loans in an aggregate principal amount equal
to not more than 100% of any future reductions in the revolving credit commitments. |
In addition, the financial covenants were amended as follows:
|
|
|
the maximum ratio of senior indebtedness (as defined) to annualized system cash flow (as
defined), or the Total Leverage Ratio, which is currently 6.0 to 1.0, will be reduced to
5.5 to 1.0 commencing with the quarter ending December 31, 2011; |
|
|
|
the maximum Total Leverage Ratio will be reduced to 5.0 to 1.0 commencing with the
quarter ending December 31, 2012 and thereafter, so long as any revolving credit
commitments remain outstanding; |
|
|
|
the minimum ratio of operating cash flow (as defined) to interest expense (as defined),
or the Interest Coverage Ratio, will be 2.0 to 1.0 as of the last day of any fiscal
quarter ending after April 23, 2010, so long as any revolving credit commitments remain
outstanding; and |
|
|
|
after the termination of all revolving credit commitments, the maximum Total Leverage
Ratio will be increased to 6.0 to 1.0 and the Interest Coverage Ratio covenant will no
longer be applicable. |
15
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with our unaudited consolidated financial
statements as of, and for, the three months ended March 31, 2010 and 2009, and with our annual
report on Form 10-K for the year ended December 31, 2009. Certain items have been reclassified to
conform to the current years presentation.
Overview
We are a wholly-owned subsidiary of Mediacom Communications Corporation (MCC). MCC is the
nations seventh largest cable company based on the number of customers who purchase one or more
video services, also known as basic subscribers. Through our interactive broadband network, we
provide our customers with a wide variety of advanced products and services, including video
services, such as video-on-demand, high-definition television (HDTV) and digital video recorders
(DVRs), high-speed data (HSD) and phone service. We offer the triple-play bundle of video, HSD
and phone over a single communications platform, a significant advantage over most competitors in
our service areas.
As of March 31, 2010, we offered our bundle of video, HSD and phone services to approximately 92%
of our estimated 1.29 million homes passed in twenty states. As of the same date, we served
approximately 546,000 basic subscribers, 309,000 digital video customers, 362,000 HSD customers and
141,000 phone customers, aggregating 1.36 million revenue generating units (RGUs).
Direct broadcast satellite (DBS) companies are our most significant video competitor, and we have
recently faced increased levels of price competition from DBS providers, who offer video
programming substantially similar to ours. We compete with these providers by offering our
triple-play bundle and interactive video services that are unavailable to DBS customers due to the
limited two-way interactivity of DBS service. Our HSD service competes primarily with digital
subscriber line (DSL) services offered by local telephone companies; based upon the speeds we
offer, we believe our HSD product is superior to comparable DSL offerings in our service areas. Our
phone service mainly competes with substantially comparable phone services offered by local
telephone companies, as well as with national wireless providers and the impact of wireless
substitution, where certain phone customers have chosen a wireless or cellular phone product as
their only phone service. We believe our customers prefer the cost savings of the bundled products
and services we offer, as well as the convenience of having a single provider contact for ordering,
provisioning, billing and customer care.
Our
ability to continue to grow our customer base and revenues is dependent on a number of factors,
including the competition we face and general economic conditions. The recent economic downturn has
had many effects on our business, including a reduction in sales activity, lower levels of
television advertising and greater instances of customers inability to pay for our products and
services. Most notably, as a result of continuing weak economic conditions and increasing price
competition from DBS providers, we have seen lower demand for our video, HSD and phone services,
which have led to a reduction in basic subscribers and slower growth rates of digital, HSD and
phone customers. Consequently, we believe we will experience lower revenue growth for the full year
2010 than in prior years. A continuation or broadening of such effects as a result of the current
downturn or increased competition may adversely impact our results of operations, cash flows and
financial position.
Recent Developments
On April 23, 2010, we completed financing transactions (the new financings) that
provided for a new term loan in the principal amount of $250 million, and amendments to our
existing bank credit facility (the credit facility) which, among other things, extended the
termination date on a portion of, and reduced the total revolving
credit commitments of, our revolving credit facility. The net
proceeds from the new term loan were used to repay an existing term loan and the full balance of
outstanding revolving credit loans under our credit facility. For more information, see Liquidity and
Capital Resources Capital Structure New Financings below and Note 12 in our Notes to Consolidated
Financial Statements.
16
Revenues, Costs and Expenses
Video revenues primarily represent monthly subscription fees charged to customers for our core
cable products and services (including basic and digital cable programming services, wire
maintenance, equipment rental and services to commercial establishments), pay-per-view charges,
installation, reconnection and late payment fees, franchise fees and other ancillary revenues.
HSD revenues primarily represent monthly fees charged to customers (including small to medium sized
commercial establishments) for our HSD products and services and equipment rental fees, as well as
fees charged to large-sized businesses for our scalable, fiber- based enterprise network products
and services. Phone revenues primarily represent monthly fees charged to customers (including small
to medium sized commercial establishments) for our phone service. Advertising revenues represent
the sale of advertising placed on our video services.
If we continue to lose video customers as a result of greater competition and weak economic
conditions, our video revenues could continue to decline for the foreseeable future. However, we
believe this will be mostly offset through increased gains in penetration of our advanced video
services as well as rate increases. We expect further growth in HSD and phone revenues, as we
believe we will continue to expand our penetration of our HSD and phone services. However, future
growth in HSD and phone customers may be adversely affected by intensifying competition, weakened
economic conditions and, specific to phone, wireless substitution. Advertising revenues may
continue to stabilize in 2010, given the potential for an economic recovery and upcoming elections.
Service costs consist primarily of video programming costs and other direct costs related to
providing and maintaining services to our customers. Significant service costs include: programming
expenses; wages and salaries of technical personnel who maintain our cable network, perform
customer installation activities and provide customer support; HSD costs, including costs of
bandwidth connectivity and customer provisioning; phone service costs, including delivery and other
expenses; and field operating costs, including outside contractors, vehicle, utilities and pole
rental expenses. These costs generally rise because of customer growth, contractual increases in
video programming rates and inflationary cost increases for personnel, outside vendors and other
expenses. Costs relating to personnel and their support may increase as the percentage of our
expenses that we can capitalize declines due to lower levels of new service installations. Cable
network related costs also fluctuate with the level of investment we make, including the use of our
own personnel, in the cable network. We anticipate that our service costs will continue to grow,
but should remain fairly consistent as a percentage of our revenues, with the exception of
programming costs, which we discuss below.
Video programming expenses, which are generally paid on a per subscriber basis, have historically
been our largest single expense item. In recent years, we have experienced a substantial increase
in the cost of our programming, particularly sports and local broadcast programming, well in excess
of the inflation rate or the change in the consumer price index. We believe that these expenses
will continue to grow, principally due to contractual unit rate increases and the increasing
demands of sports programmers and television broadcast station owners for retransmission consent
fees. While such growth in programming expenses can be partially offset by rate increases, it is
expected that our video gross margins will continue to decline as increases in programming costs
outpace growth, or further decreases, in video revenues.
Significant selling, general and administrative expenses include: wages and salaries for our call
centers, customer service and support and administrative personnel; franchise fees and taxes;
marketing; bad debt; billing; advertising; and office costs related to telecommunications and
office administration. These costs typically rise because of customer growth and inflationary cost
increases for employees and other expenses, but we expect such costs should remain fairly
consistent as a percentage of revenues.
Management fee expenses reflect compensation of corporate employees and other corporate overhead.
17
Use of Non-GAAP Financial Measures
Adjusted OIBDA is not a financial measure calculated in accordance with generally accepted
accounting principles (GAAP) in the United States. We define Adjusted OIBDA as operating income
before depreciation and amortization and non-cash, share-based compensation charges. Adjusted OIBDA
has inherent limitations as discussed below.
Adjusted OIBDA is one of the primary measures used by management to evaluate our performance and to
forecast future results. We believe Adjusted OIBDA is useful for investors because it enables them
to assess our performance in a manner similar to the methods used by management, and provides a
measure that can be used to analyze, value and compare the companies in the cable industry. A
limitation of Adjusted OIBDA, however, is that it excludes depreciation and amortization, which
represents the periodic costs of certain capitalized tangible and intangible assets used in
generating revenues in our business. Management uses a separate process to budget, measure and
evaluate capital expenditures. In addition, Adjusted OIBDA also has the limitation of not
reflecting the effect of our non-cash, share-based compensation charges. We believe that excluding
share-based compensation allows investors to better understand our performance without the effects
of these obligations that are not expected to be settled in cash. Adjusted OIBDA may not be
comparable to similarly titled measures used by other companies, which may have different
depreciation and amortization policies, as well as different share-based compensation programs.
Adjusted OIBDA should not be regarded as an alternative to operating income or net income (loss) as
indicators of operating performance, or to the statement of cash flows as measures of liquidity,
nor should it be considered in isolation or as a substitute for financial measures prepared in
accordance with GAAP. We believe that operating income is the most directly comparable GAAP
financial measure to Adjusted OIBDA.
Actual Results of Operations
Three Months Ended March 31, 2010 compared to Three Months Ended March 31, 2009
On February 11, 2009 (the Transfer Date), certain of our operating subsidiaries executed an Asset Transfer Agreement (the
Transfer Agreement) with MCC and the operating subsidiaries of Mediacom Broadband LLC (Mediacom Broadband). As part of
the Transfer Agreement, we contributed to MCC cable systems located in Western North Carolina (the
WNC Systems), and exchanged certain of our cable systems for certain of Mediacom Broadbands
cable systems (the Asset Transfer). During the three months ended March 31, 2009, the WNC Systems recorded
$2.7 million of total revenues, $1.4 million of service costs, $0.5 million of selling, general and
administrative expenses and $2.2 million of operating income; the results of operations of the
exchanged cable systems between us and Mediacom Broadband were substantially similar. All 2010
comparisons to prior year results are on an actual basis, and instances where the inclusion of the
WNC Systems in the results of operations in the prior year may affect comparisons to 2010 results,
the effect of such 2009 results are referred to as the impact of the WNC Systems Transfer. The
net effects of the Transfer Agreement were the reduction of 28,700 basic subscribers, 9,000 digital
customers, 12,000 HSD customers and 2,400 phone customers. Such effects on discussions of
subscriber and customer gains and losses are referred to as the effect
of the Transfer Agreement.
In accordance with ASC 805, the cable systems we received from Mediacom Broadband under the Transfer Agreement were recorded as a
business under common control, and therefore we recorded the results of operations of such systems as if the transfer date was January 1, 2009. However, for the cable systems we transferred to
Mediacom Broadband, we recorded the results of operations, comprising $5.3 million of revenues and $1.7 million of net income, for the period of January 1, 2009 through the transfer
date. Where the inclusion of such results of operations of these transferred cable systems in the prior years data may affect comparisons to 2010 results, the effect of such 2009 results are referred
to as related to the Asset Transfer.
For more information, see Note 10 in
our Notes to Consolidated Financial Statements.
18
The tables below set forth the consolidated statements of operations for the three months ended
March 31, 2010 and 2009 (dollars in thousands and percentage changes that are not meaningful are
marked NM):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
159,900 |
|
|
$ |
161,816 |
|
|
$ |
(1,916 |
) |
|
|
(1.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs (exclusive of depreciation
and amortization) |
|
|
71,260 |
|
|
|
72,180 |
|
|
|
(920 |
) |
|
|
(1.3 |
%) |
Selling, general and administrative expenses |
|
|
26,414 |
|
|
|
27,233 |
|
|
|
(819 |
) |
|
|
(3.0 |
%) |
Management fee expense |
|
|
2,968 |
|
|
|
2,984 |
|
|
|
(16 |
) |
|
|
(0.5 |
%) |
Depreciation and amortization |
|
|
26,901 |
|
|
|
28,593 |
|
|
|
(1,692 |
) |
|
|
(5.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
32,357 |
|
|
|
30,826 |
|
|
|
1,531 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(21,846 |
) |
|
|
(22,046 |
) |
|
|
200 |
|
|
|
(0.9 |
%) |
Loss on derivatives, net |
|
|
(6,462 |
) |
|
|
(519 |
) |
|
|
(5,943 |
) |
|
NM |
|
Loss on sale of cable systems, net |
|
|
|
|
|
|
(311 |
) |
|
|
311 |
|
|
NM |
|
Investment income from affiliate |
|
|
4,500 |
|
|
|
4,500 |
|
|
|
|
|
|
NM |
|
Other expense, net |
|
|
(751 |
) |
|
|
(861 |
) |
|
|
110 |
|
|
|
(12.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,798 |
|
|
$ |
11,589 |
|
|
$ |
(3,791 |
) |
|
|
(32.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted OIBDA |
|
$ |
59,400 |
|
|
$ |
59,557 |
|
|
$ |
(157 |
) |
|
|
(0.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below represents a reconciliation of Adjusted OIBDA to operating income, which is the
most directly comparable GAAP measure (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted OIBDA |
|
$ |
59,400 |
|
|
$ |
59,557 |
|
|
$ |
(157 |
) |
|
|
(0.3 |
%) |
Non-cash, share-based compensation |
|
|
(142 |
) |
|
|
(138 |
) |
|
|
(4 |
) |
|
|
2.9 |
% |
Depreciation and amortization |
|
|
(26,901 |
) |
|
|
(28,593 |
) |
|
|
1,692 |
|
|
|
(5.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
32,357 |
|
|
$ |
30,826 |
|
|
$ |
1,531 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Revenues
The tables below set forth the revenues and selected subscriber, customer and average monthly
revenue statistics for the three months ended March 31, 2010 and 2009 (dollars in thousands, except
per subscriber data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Video |
|
$ |
98,912 |
|
|
$ |
105,281 |
|
|
|
(6,369 |
) |
|
|
(6.0 |
%) |
HSD |
|
|
42,882 |
|
|
|
40,403 |
|
|
|
2,479 |
|
|
|
6.1 |
% |
Phone |
|
|
14,303 |
|
|
|
12,324 |
|
|
|
1,979 |
|
|
|
16.1 |
% |
Advertising |
|
|
3,803 |
|
|
|
3,808 |
|
|
|
(5 |
) |
|
|
(0.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
$ |
159,900 |
|
|
$ |
161,816 |
|
|
|
(1,916 |
) |
|
|
(1.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Increase/ |
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
% Change |
|
Basic subscribers |
|
|
546,000 |
|
|
|
573,000 |
|
|
|
(27,000 |
) |
|
|
(4.7 |
%) |
Digital customers |
|
|
309,000 |
|
|
|
288,000 |
|
|
|
21,000 |
|
|
|
7.3 |
% |
HSD customers |
|
|
362,000 |
|
|
|
335,000 |
|
|
|
27,000 |
|
|
|
8.1 |
% |
Phone customers |
|
|
141,000 |
|
|
|
119,000 |
|
|
|
22,000 |
|
|
|
18.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
RGUs(1) |
|
|
1,358,000 |
|
|
|
1,315,000 |
|
|
|
43,000 |
|
|
|
3.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total monthly revenue per basic subscriber (2) |
|
$ |
97.44 |
|
|
$ |
91.89 |
|
|
$ |
5.55 |
|
|
|
6.0 |
% |
|
|
|
(1) |
|
RGUs represent the total of basic subscribers and digital, HSD and phone customers. |
|
(2) |
|
Represents total average monthly revenues for the quarter divided by total average basic
subscribers for such period. |
Revenues declined $1.9 million, or 1.2%, largely as a result of an unfavorable comparison to the
prior year period, in which we recognized $5.3 million of revenues related to the Asset Transfer,
the impact of the WNC Systems Transfer and lower video revenues, offset in part by continued growth
in HSD and to a lesser extent, digital and phone services. Average total monthly revenue per basic
subscriber grew 6.0% to $97.44.
Video revenues declined $6.4 million, or 6.0%, principally due to an unfavorable comparison to the
prior year period, in which we recognized $3.7 million of video revenues related to the Asset
Transfer and a lower number of basic subscribers, including the impact of the WNC Systems Transfer,
offset in part by continued growth in digital customers and customers taking our DVR and HDTV
services and, to a lesser extent, video rate increases. During the three months ended March 31,
2010, we lost 2,000 basic subscribers and gained 9,000 digital customers; this compares to gains of
700 basic subscribers and 9,000 digital customers in the prior year period, excluding the effect of
the Transfer Agreement. As of March 31, 2010, we served 546,000 basic subscribers, representing a
penetration of 42.4% of our estimated homes passed and 309,000 digital customers, representing a
penetration of 56.6% of our basic subscribers. As of March 31, 2010, 39.2% of our digital customers
were taking our DVR and/or HDTV services, as compared to 33.4% as of the same date last year.
HSD revenues were $2.5 million, or 6.1% higher, primarily due to an 8.1% increase in HSD customers,
offset in part by an unfavorable comparison to the prior year period, in which we recognized $1.2
million of HSD revenues related to the Asset Transfer. During the three months ended March 31,
2010, we gained 12,000 HSD customers, as compared to a gain of 10,000 in the prior year period,
excluding the impact of the Transfer Agreement. As of March 31, 2010, we served 362,000 HSD
customers, representing a penetration of 28.1% of our estimated homes passed.
Phone revenues grew $2.0 million, or 16.1%, principally due to an 18.5% increase in phone
customers, offset in part by an unfavorable comparison to the prior year period, in which we recognized $0.4 million of phone revenues related to the Asset Transfer. During the three months ended March 31, 2010, we gained 6,000 phone customers, as
compared to a gain of 7,400 in the prior year period, excluding the
impact of the Transfer Agreement. As of March 31, 2010, we served 141,000 phone customers,
representing a penetration of 11.9% of our estimated marketable phone homes.
20
Advertising revenues were flat as increased national and local advertising sales, particularly in
the automotive segment, were offset by an unfavorable comparison to the prior year period,
offset by the impact of the WNC Systems Transfer.
Costs and Expenses
Service costs fell $0.9 million, or 1.3%, primarily due to an unfavorable comparison to the prior
year period, in which we recognized $2.6 million of service costs related to the Asset Transfer, as
well as lower HSD delivery expenses, offset in part by higher programming expenses and, to a lesser
extent, phone service and field operating costs. The following analysis of service cost components
excluded the effects of the Asset Transfer. HSD delivery expenses were 24.0% lower, principally due
to the transition to an internally managed e-mail system. Programming expenses increased 4.0%,
mostly due to higher contractual rates charged by our programming vendors and, to a lesser extent,
greater retransmission consent fees, offset in part by a lower number of video customers, including
the impact of the WNC Systems Transfer. Phone service costs were 11.5% higher, mainly due to unit
growth. Field operating costs grew 5.2%, largely as a result of higher vehicle fuel costs and
other operating expenses. Service costs as a percentage of revenues were 44.6% for each of the
three months ended March 31, 2010 and 2009.
Selling, general and administrative expenses decreased $0.8 million, or 3.0%, largely as a result
of an unfavorable comparison to the prior year period, in which we recognized $0.7 million of
selling, general and administrative expenses related to the Asset Transfer, as well as lower
employee costs, offset in part by higher bad debt expense. The following analysis of selling,
general and administrative expenses excluded the effects of the Asset Transfer. Employee costs
fell 16.0%, principally due to a favorable insurance loss experience. Bad debt expense rose 11.0%
as a result of an adjustment made to our accrual allowance for uncollectable accounts. Selling,
general and administrative expenses as a percentage of revenues were 16.5% and 16.8% for the three
months ended March 31, 2010 and 2009, respectively.
Management fee expense was virtually unchanged from the prior year, reflecting substantially
similar overhead charges at MCC. Management fee expense as a percentage of revenues were 1.9% and
1.8% for the three months ended March 31, 2010 and 2009, respectively.
Depreciation and amortization fell $1.7 million, or 5.9%, largely as a result of greater deployment
of shorter-lived customer premise equipment.
Adjusted OIBDA
Adjusted OIBDA fell $0.2 million, or 0.3%, mainly due to lower video revenues and an unfavorable
comparison to the prior year period, in which we recognized $2.0 million of Adjusted OIBDA related
to the Asset Transfer, offset in part by growth in HSD and, to a lesser extent, phone revenues.
Operating Income
Operating income grew $1.5 million, or 5.0%, primarily due to the decrease in depreciation and
amortization.
Interest Expense, Net
Interest expense, net, fell $0.2 million, or 0.9%, primarily due to greater amortization of
deferred financing costs, mostly offset by a lower average cost of debt.
Loss on Derivatives, Net
As of March 31, 2010, based upon mark-to-market valuation, we recorded on our consolidated balance
sheet a current asset of $0.1 million, an accumulated current liability of $18.9 million and an
accumulated long-term liability of $7.3 million. As of December 31, 2009, based upon mark-to-market
valuation, we recorded on our consolidated balance sheet a long-term asset of $3.1 million, an
accumulated current liability of $17.9 million and an accumulated long-term liability of $4.9
million. As a result of the mark-to-market valuations on these interest rate swaps, based upon information provided by our counterparties, we recorded a
net loss on derivatives of $6.5 million and $0.5 million for the three months ended March 31, 2010
and 2009, respectively.
21
Loss on Sale of Cable Systems, Net
For the three months ended March 31, 2009, we recognized a loss on sale of cable systems, net, of
approximately $0.3 million related to minor transactions.
Other Expense, Net
Other expense, net, was $0.8 million and $0.9 million for the three months ended March 31, 2010 and
2009, respectively. During the three months ended March 31, 2010, other expense, net, consisted of
$0.5 million of revolving credit facility commitment fees and $0.3 million of other fees. During
the three months ended March 31, 2009, other expense, net, included $0.4 million of revolving
credit facility commitment fees, $0.2 million of deferred financing costs, and $0.3 million of
other fees.
Net Income
Net Income was $7.8 million for the three
months ended March 31, 2010, compared to net income of $11.6 million for the prior year period, principally due to a net change in loss on derivatives, net, of $6.0 million, offset in part by the increase in operating income.
Liquidity and Capital Resources
Overview
Our net cash flows provided by operating and financing activities are used primarily to fund
network investments to accommodate customer growth and the further deployment of our advanced
products and services, as well as scheduled repayments of our external financing, repurchases of
our Class A common stock and other investments. We expect that cash generated by us or available to
us will meet our anticipated capital and liquidity needs for the foreseeable future, including, as
of March 31, 2010, scheduled term loan maturities, during the remainder of 2010 and the years
ending December 31, 2011 and 2012, of $44.6 million, $61.5 million and $63.5 million, respectively.
As of March 31, 2010, our sources of liquidity included $11.1 million of cash and cash equivalents on
hand and $295.6 million of unused and available lines under our $400.0 million revolving credit
facility. On April 23, 2010, we completed new financings that provided for a term loan in the
aggregate principal amount of $250 milllion and amendments to our existing credit facility which,
among other things, extended the termination date on a portion of,
and reduced the total revolving credit commitments of, our revolving
credit facility. See Capital Structure New Financings below and Note 12 in our Notes to
Consolidated Financial Statements for additional information.
In the longer term, specifically 2015 and beyond, we do not expect to generate sufficient net cash
flows from operations to fund our maturing term loans and senior notes. If we are unable to obtain
sufficient future financing or, if we not able to do so on similar terms as we currently
experience, we may need to take other actions to conserve or raise capital that we would not take
otherwise. However, we have accessed the debt markets for significant amounts of capital in the
past, and expect to continue to be able to access these markets in the future as necessary.
Net Cash Flows Provided by Operating Activities
Net cash flows provided by operating activities were $16.6 million for the three months ended March
31, 2010, largely as a result of Adjusted OIBDA of $59.4 million, offset in part by the net change
in our operating assets and liabilities of $25.5 million and interest expense of $21.8 million. The
net change in our operating assets and liabilities was largely as a result of a decrease in
accounts payable, accrued expenses and other liabilities of $29.5 million, offset in part by a
decrease in accounts receivable, net, of $5.6 million.
Net cash flows provided by operating activities were $35.2 million for the three months ended March
31, 2009, primarily due to Adjusted OIBDA of $59.6 million, offset in part by interest expense of
$22.0 million and, to a lesser extent, the $6.3 million change in our operating assets and
liabilities. The net change in our operating assets and liabilities was primarily due to a decrease
in accounts payable, accrued expenses and other current liabilities of $8.7 million, offset in part
by a decrease in accounts receivable, net, of $2.1 million and a decrease in prepaid expenses and
other assets of $0.9 million.
22
Net Cash Flows Used in Investing Activities
Capital expenditures continue to be our primary use of capital resources and the entirety of our
net cash flows used in investing activities. Net cash flows used in investing activities were
$24.8 million for the three months ended March 31, 2010, as compared to $23.9 million for the prior
year period. The $0.9 million increase in capital expenditures largely reflected greater
investments in the internal phone platform and, to a much lesser extent, high-speed data delivery
system. This was offset in part by reduced outlays for customer premise equipment and network
improvements and extensions.
Net Cash Flows Provided by (Used in) Financing Activities
Net cash flows provided by financing activities were $10.4 million for the three months ended March
31, 2010, primarily due to capital contributions from parent of $25.0 million and, to a lesser
extent, net new borrowings of $5.0 million, offset in part by capital distributions to parent of
$20.0 million.
Net cash flows used in financing activities were $7.5 million for the three months ended March 31,
2009, primarily due to our capital contribution to MCC of $110.0 million, substantially offset by a
capital contribution from MCC of $80.5 million, and net bank borrowings of $23.0 million under our
revolving credit facility.
Capital Structure
As of March 31, 2010, our outstanding total indebtedness was $1.515 billion, of which approximately
69% was at fixed interest rates or subject to interest rate protection. During the three months
ended March 31, 2010, we paid cash interest of $29.0 million, net of capitalized interest.
Bank Credit Facility
As of March 31, 2010, we had a $1.471 billion bank credit facility (the credit facility), of
which $1.165 billion was outstanding. The credit agreement governing the credit facility contains
various covenants that, among other things, impose certain limitations on mergers and acquisitions,
consolidations and sales of certain assets, liens, the incurrence of additional indebtedness,
certain restricted payments and certain transactions with affiliates. As of March 31, 2010, the
principal financial covenant of the credit facility required compliance with a ratio of total
senior indebtedness (as defined) to annualized system cash flow (as defined) of no more than 6.0 to
1.0. See Note 6 in our Notes to Consolidated Financial Statements.
As of March 31, 2010, we had revolving credit commitments of $400.0 million, of which $295.6
was unused and available to be borrowed and used for general corporate purposes, based on the terms
and conditions of our debt arrangements. As of the same date, our revolving credit
commitments were scheduled to expire on September 30, 2011, and were not subject to scheduled
reductions prior to maturity. As of March 31, 2010, $10.3 million of letters of credit were issued
under the credit facility to various parties as collateral for our performance relating to
insurance and franchise requirements, which restricted the unused portion of the revolving credit
commitments of the credit facility by such amount.
New Financings
On April 23, 2010, we completed new financings that provided for a new term loan under our existing
credit facility in the aggregate principal amount of $250 million. The new term loan matures in
October 2017, and beginning on September 30, 2010, will be subject to quarterly reductions of
0.25%, with a final payment at maturity representing 92.75% of the original principal amount. The
net proceeds of the new term loan were largely used to repay an existing term loan and the full balance of
outstanding revolving credit loans under our credit facility. On the same date, we
also reduced the total revolving credit
commitments under our revolving credit facility from $400.0 million to $304.2 million, while
extending their expiration, in the amount of $225.2 million, to December 31, 2014. As a result of
these transactions, we believe our overall liquidity position has strengthened.
As of March 31, 2010, after giving effect to the new financings: (i) our outstanding total
indebtedness would have been $1.527 billion; (ii) our credit facility would have been $1.482
billion, of which $1.177 billion would have been outstanding; (iii) our cash would have been $17.8 million; (iv) our scheduled debt maturities
during the remainder of 2010 and the years ended December 31, 2011 and 2012 would have been $8.4
million, $12.0 million and $12.0 million, respectively; (v) our aggregate $304.2 million of
revolving credit commitments would have had no outstanding balance, with unused lines of $293.9
million, net of $10.3 million of letters of credit, all available to be borrowed and used for
general corporate purposes; and (vi) our revolving credit commitments would be scheduled to
expire in the amounts of
$79.0 million and $225.2 million on September 30, 2011 and December 31, 2014, respectively.
Pursuant to the new financings, certain terms and conditions of the credit facility were amended,
including the principal financial covenants of the extended revolving credit facility. See Note 12
in our Notes to Consolidated Financial Statements for further information.
23
Interest Rate Swaps
We use interest rate exchange agreements, or interest rate swaps, in order to fix the rate of the
applicable Eurodollar portion of debt under the credit facility to reduce the potential volatility
in our interest expense that would otherwise result from changes in market interest rates. As of
March 31, 2010, we had current interest rate swaps with various banks pursuant to which the
interest rate on $700 million of floating rate debt was fixed at a weighted average rate of 3.4%.
We also had $400 million of forward starting interest rate swaps with a weighted average fixed rate
of approximately 2.9%, all of which commence during the year ended December 31, 2010. Including the
effects of such interest rate swaps, the average interest rates on outstanding debt under our bank
credit facility as of March 31, 2010 and 2009 was 4.7% and 3.8%, respectively.
Senior Notes
As of March 31, 2010, we had $350.0 million of senior notes outstanding. The indentures governing
our senior notes also contain various covenants, though they are generally less restrictive than
those found in our credit facility. Such covenants restrict our ability, among other things, make
certain distributions, investments and other restricted payments, sell certain assets, to make
restricted payments, create certain liens, merge, consolidate or sell substantially all of our
assets and enter into certain transactions with affiliates. As of March 31, 2010, the principal
financial covenant of these senior notes had a limitation on the incurrence of additional
indebtedness based upon a maximum ratio of total indebtedness to cash flow (as defined) of 8.5 to
1.0. See Note 6 in our Notes to Consolidated Financial Statements.
Covenant Compliance and Debt Ratings
For all periods through March 31, 2010, we were in compliance with all of the covenants under the
credit facility and senior note arrangements. There are no covenants, events of default, borrowing
conditions or other terms in the credit facility or senior note arrangements that are based on
changes in our credit rating assigned by any rating agency. We do not believe that we will have any
difficulty complying with any of the applicable covenants in the foreseeable future.
Our future access to the debt markets and the terms and conditions we receive are influenced by our
debt ratings. Our corporate credit ratings are B1, with a stable outlook, by Moodys, and B+, with
a stable outlook, by Standard and Poors. Any future downgrade to our credit ratings could result
in higher interest rates on future debt issuance than we currently experience, or adversely impact
our ability to raise additional funds.
Contractual Obligations and Commercial Commitments
Other
than the items noted above in Capital Structure New Financings, there have been no
material changes to our contractual obligations and commercial commitments as previously disclosed
in our annual report on Form 10-K for the year ended December 31, 2009.
The following table updates our contractual obligations and commercial commitments for debt and
interest expense after giving effect to the new financings, and the effects they are expected to
have on our liquidity and cash flow, for the five years subsequent to December 31, 2009 and
thereafter (dollars in thousands)*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Debt |
|
|
Expense(1) |
|
|
Total |
|
2010 |
|
$ |
10,750 |
|
|
$ |
87,468 |
|
|
$ |
98,218 |
|
2011-2012 |
|
|
24,000 |
|
|
|
172,428 |
|
|
|
196,428 |
|
2013-2014 |
|
|
24,000 |
|
|
|
136,984 |
|
|
|
160,984 |
|
Thereafter |
|
|
1,471,000 |
|
|
|
185,263 |
|
|
|
1,656,263 |
|
|
|
|
|
|
|
|
|
|
|
Total cash obligations |
|
$ |
1,529,750 |
|
|
$ |
582,143 |
|
|
$ |
2,111,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Refer to Note 12 of our consolidated financial statements for a discussion of the new
financings. The amounts included in the table herein reflect our contractual obligations and
commercial commitments as if the new financings had occurred as of December 31, 2009. |
|
(1) |
|
Interest payments on floating rate debt and interest rate swaps are estimated using amounts
outstanding, and scheduled amortization, as of December 31, 2009, as if the new financings had
occurred on the same date, and the average interest rates applicable under such debt
obligations. |
24
Critical Accounting Policies
The preparation of our financial statements requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. Periodically, we evaluate our estimates, including those
related to doubtful accounts, long-lived assets, capitalized costs and accruals. We base our
estimates on historical experience and on various other assumptions that we believe are reasonable.
Actual results may differ from these estimates under different assumptions or conditions. We
believe that the application of the critical accounting policies requires significant judgments and
estimates on the part of management. For a summary of our critical accounting policies, please
refer to our annual report on Form 10-K for the year ended December 31, 2009.
Goodwill and Other Intangible Assets
In accordance with the Financial Accounting Standards Boards Accounting Standards Codification No.
350 (ASC 350) (formerly SFAS No. 142, Goodwill and Other Intangible Assets), the amortization
of goodwill and indefinite-lived intangible assets is prohibited and requires such assets to be
tested annually for impairment, or more frequently if impairment indicators arise. We have
determined that our cable franchise rights and goodwill are indefinite-lived assets and therefore
not amortizable.
We directly assess the value of cable franchise rights for impairment under ASC 350 by utilizing a
discounted cash flow methodology. In performing an impairment test in accordance with ASC 350, we
make assumptions, such as future cash flow expectations, unit growth, competition, industry
outlook, capital expenditures, and other future benefits related to cable franchise rights, which
are consistent with the expectations of buyers and sellers of cable systems in determining fair
value. If the determined fair value of our cable franchise rights is less than the carrying amount
on the financial statements, an impairment charge would be recognized for the difference between
the fair value and the carrying value of such assets.
Goodwill impairment is determined using a two-step process. The first step compares the fair value
of a reporting unit with our carrying amount, including goodwill. If the fair value of a reporting
unit exceeds our carrying amount, goodwill of the reporting unit is considered not impaired and the
second step is unnecessary. If the carrying amount of a reporting unit exceeds our fair value, the
second step is performed to measure the amount of impairment loss, if any. The second step compares
the implied fair value of the reporting units goodwill, calculated using the residual method, with
the carrying amount of that goodwill. If the carrying amount of the goodwill exceeds the implied
fair value, the excess is recognized as an impairment loss. We have determined that we have one
reporting unit for the purpose of applying ASC 350, Mediacom LLC. We conducted our annual
impairment test as of October 1, 2009.
The economic conditions currently affecting the U.S. economy and how that may impact the long-term
fundamentals of our business may have a negative impact on the fair values of the assets in our
reporting units. This may result in the recognition of an impairment loss when we perform our next
annual impairment testing during the fourth quarter of 2010.
Because there has not been a meaningful change in the long-term fundamentals of our business during
the first three months of 2010, we have determined that there has been no triggering event under
ASC 350, and as such, no interim impairment test is required as of March 31, 2010.
Inflation and Changing Prices
Our systems costs and expenses are subject to inflation and price fluctuations. Such changes in
costs and expenses can generally be passed through to subscribers. Programming costs have
historically increased at rates in excess of inflation and are expected to continue to do so. We
believe that under the Federal Communications Commissions existing cable rate regulations we may
increase rates for cable television services to more than cover any increases in programming.
However, competitive conditions and other factors in the marketplace may limit our ability to
increase our rates.
25
|
|
|
ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There have been no significant changes to the information required under this Item from what was
disclosed in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2009.
|
|
|
ITEM 4. |
|
CONTROLS AND PROCEDURES |
Mediacom LLC
Under the supervision and with the participation of the management of Mediacom LLC, including
Mediacom LLCs Chief Executive Officer and Chief Financial Officer, Mediacom LLC evaluated the
effectiveness of Mediacom LLCs disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this
report. Based upon that evaluation, Mediacom LLCs Chief Executive Officer and Chief Financial
Officer concluded that Mediacom LLCs disclosure controls and procedures were effective as of March
31, 2010.
There has not been any change in Mediacom LLCs internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31,
2010 that has materially affected, or is reasonably likely to materially affect, Mediacom LLCs
internal control over financial reporting.
Mediacom Capital Corporation
Under the supervision and with the participation of the management of Mediacom Capital Corporation
(Mediacom Capital), including Mediacom Capitals Chief Executive Officer and Chief Financial
Officer, Mediacom Capital evaluated the effectiveness of Mediacom Capitals disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)
as of the end of the period covered by this report. Based upon that evaluation, Mediacom Capitals
Chief Executive Officer and Chief Financial Officer concluded that Mediacom Capitals disclosure
controls and procedures were effective as of March 31, 2010.
There has not been any change in Mediacom Capitals internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31,
2010 that has materially affected, or is reasonably likely to materially affect, Mediacom Capitals
internal control over financial reporting.
PART II
|
|
|
ITEM 1. |
|
LEGAL PROCEEDINGS |
See Note 9 to our consolidated financial statements.
There have been no material changes in our risk factors from those disclosed in our Annual Report
on Form 10-K for the year ended December 31, 2009.
26
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
31.1 |
|
|
Rule 15d-14(a) Certifications of Mediacom LLC |
|
31.2 |
|
|
Rule 15d-14(a) Certifications of Mediacom Capital Corporation |
|
32.1 |
|
|
Section 1350 Certifications of Mediacom LLC |
|
32.2 |
|
|
Section 1350 Certifications of Mediacom Capital Corporation |
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
MEDIACOM LLC
|
|
May 10, 2010 |
By: |
/s/ Mark E. Stephan
|
|
|
|
Mark E. Stephan |
|
|
|
Executive Vice President and Chief Financial Officer |
|
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
MEDIACOM CAPITAL CORPORATION
|
|
May 10, 2010 |
By: |
/s/ Mark E. Stephan
|
|
|
|
Mark E. Stephan |
|
|
|
Executive Vice President and Chief Financial Officer |
|
29
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
31.1 |
|
|
Rule 15d-14(a) Certifications of Mediacom LLC |
|
31.2 |
|
|
Rule 15d-14(a) Certifications of Mediacom Capital Corporation |
|
32.1 |
|
|
Section 1350 Certifications of Mediacom LLC |
|
32.2 |
|
|
Section 1350 Certifications of Mediacom Capital Corporation |
30
Exhibit 31.1
Exhibit 31.1
CERTIFICATIONS
I, Rocco B. Commisso, certify that:
(1) |
|
I have reviewed this report on Form 10-Q of Mediacom LLC; |
(2) |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
(3) |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
(4) |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and l5d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
b) |
|
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of end of the period covered by this report based on such evaluation; and |
|
d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
(5) |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent
function): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
|
b) |
|
Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
|
|
|
|
|
May 10, 2010 |
By: |
/s/ Rocco B. Commisso
|
|
|
|
Rocco B. Commisso |
|
|
|
Chairman and Chief Executive Officer |
|
CERTIFICATIONS
I, Mark E. Stephan, certify that:
(1) |
|
I have reviewed this report on Form 10-Q of Mediacom LLC; |
(2) |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
(3) |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
(4) |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and l5d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
b) |
|
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of end of the period covered by this report based on such evaluation; and |
|
d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
(5) |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent
function): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
|
b) |
|
Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
|
|
|
|
|
May 10, 2010 |
By: |
/s/ Mark E. Stephan
|
|
|
|
Mark E. Stephan |
|
|
|
Executive Vice President and Chief Financial Officer |
|
Exhibit 31.2
Exhibit 31.2
CERTIFICATIONS
I, Rocco B. Commisso, certify that:
(1) |
|
I have reviewed this report on Form 10-Q of Mediacom Capital Corporation; |
(2) |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
(3) |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
(4) |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and l5d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
b) |
|
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of end of the period covered by this report based on such evaluation; and |
|
d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
(5) |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent
function): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
|
b) |
|
Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
|
|
|
|
|
May 10, 2010 |
By: |
/s/ Rocco B. Commisso
|
|
|
|
Rocco B. Commisso |
|
|
|
Chairman and Chief Executive Officer |
|
CERTIFICATIONS
I, Mark E. Stephan, certify that:
(1) |
|
I have reviewed this report on Form 10-Q of Mediacom Capital Corporation; |
(2) |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
(3) |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
(4) |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and l5d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
b) |
|
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of end of the period covered by this report based on such evaluation; and |
|
d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
(5) |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent
function): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
|
b) |
|
Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
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May 10, 2010 |
By: |
/s/ Mark E. Stephan
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Mark E. Stephan |
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Executive Vice President and Chief Financial Officer |
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Exhibit 32.1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Mediacom LLC (the Company) on Form 10-Q for the period
ended March 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the
Report), Rocco B. Commisso, Chairman and Chief Executive Officer and Mark E. Stephan, Executive
Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350,
as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
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the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
(2) |
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the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
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May 10, 2010 |
By: |
/s/ Rocco B. Commisso
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Rocco B. Commisso |
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Chairman and Chief Executive Officer |
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By: |
/s/ Mark E. Stephan
|
|
|
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Mark E. Stephan |
|
|
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Executive Vice President and Chief Financial Officer |
|
Exhibit 32.2
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Mediacom Capital Corporation (the Company) on Form
10-Q for the period ended March 31, 2010 as filed with the Securities and Exchange Commission on
the date hereof (the Report), Rocco B. Commisso, Chairman and Chief Executive Officer and Mark E.
Stephan, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
|
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
(2) |
|
the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
|
|
|
|
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May 10, 2010 |
By: |
/s/ Rocco B. Commisso
|
|
|
|
Rocco B. Commisso |
|
|
|
Chairman and Chief Executive Officer |
|
|
|
|
|
By: |
/s/ Mark E. Stephan
|
|
|
|
Mark E. Stephan |
|
|
|
Executive Vice President and Chief Financial Officer |
|