SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001
Commission File Number: 0-29227
Mediacom Communications Corporation
(Exact name of Registrant as specified in its charter)
Delaware 06-1566067
(State of incorporation) (I.R.S. Employer
Identification Number)
100 Crystal Run Road
Middletown, NY 10941
(Address of principal executive offices)
(845) 695-2600
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has 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
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
--- ---
As of July 31, 2001, there were 90,538,955 shares of Class A common stock and
29,342,990 shares of Class B common stock outstanding.
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2001
TABLE OF CONTENTS
PART I
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Page
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Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2001 (unaudited) and December 31, 2000............................................... 1
Consolidated Statements of Operations and Comprehensive Loss -
Three and Six Months Ended June 30, 2001 and 2000 (unaudited)................................. 2
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000 (unaudited)........................................... 3
Notes to Consolidated Financial Statements (unaudited)........................................ 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................. 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk................................................................................... 17
PART II
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Item 4. Submission of Matters to a Vote of Security Holders........................................... 18
Item 6. Exhibits and Reports on Form 8-K.............................................................. 19
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You should carefully review the information contained in this Quarterly Report
and in other reports or documents that we file from time to time with the
Securities and Exchange Commission (the "SEC"). In this Quarterly Report, we
state our beliefs of future events and of our future financial performance. In
some cases, you can identify those so-called "forward-looking statements" by
words such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of those words and other comparable words. You should be aware that those
statements are only our predictions. Actual events or results may differ
materially. In evaluating those statements, you should specifically consider
various factors, including the risks discussed in our Annual Report on Form 10-K
for the year-ended December 31, 2000 and other reports that we file from time to
time with the SEC. Those factors may cause our actual results to differ
materially from any of our forward-looking statements. All forward-looking
statements attributable to us or a person acting on our behalf are expressly
qualified in their entirety by this cautionary statement.
PART I
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ITEM 1. FINANCIAL STATEMENTS
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
June 30, December 31,
2001 2000
----------- -----------
ASSETS (Unaudited)
Cash and cash equivalents $ 8,161 $ 4,152
Restricted cash 418,667 -
Marketable securities 264,924 -
Subscriber accounts receivable, net of allowance for doubtful accounts
of $935 and $932, respectively 12,672 13,500
Prepaid expenses and other assets 8,742 4,255
Investments 6,168 3,985
Investment in cable television systems:
Inventory 19,889 14,131
Property, plant and equipment, at cost 1,019,785 841,549
Less - accumulated depreciation (269,776) (204,617)
----------- -----------
Property, plant and equipment, net 750,009 636,932
Intangible assets, net of accumulated amortization of $161,628 and
$125,181, respectively 874,414 686,009
----------- -----------
Total investment in cable television systems 1,644,312 1,337,072
Other assets, net of accumulated amortization of $7,876 and
$5,749, respectively 44,431 17,008
----------- -----------
Total assets $2,408,077 $1,379,972
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt $1,635,500 $ 987,000
Accounts payable and accrued expenses 89,334 81,140
Subscriber advances 2,494 3,886
Deferred revenue 10,145 40,510
Other liabilities 10,710 5,815
----------- -----------
Total liabilities $1,748,183 $1,118,351
----------- -----------
STOCKHOLDERS' EQUITY
Class A common stock, $.01 par value; 300,000,000 shares authorized;
90,521,623 and 60,601,001 shares issued and outstanding, respectively 906 606
Class B common stock, $.01 par value; 100,000,000 shares authorized;
29,342,990 shares issued and outstanding 293 293
Additional paid in capital 973,584 538,642
Accumulated comprehensive loss (88) (414)
Accumulated deficit (314,801) (277,506)
----------- -----------
Total stockholders' equity 659,894 261,621
----------- -----------
Total liabilities and stockholders' equity $2,408,077 $1,379,972
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
1
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(All amounts in 000's, except per share data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues $ 93,067 $ 82,595 $183,401 $160,035
Costs and expenses:
Service costs 32,573 28,232 64,050 54,867
Selling, general and administrative
expenses 14,834 13,893 30,004 27,282
Corporate expenses 1,950 1,511 3,467 2,931
Depreciation and amortization 53,123 43,470 104,080 84,151
Non-cash stock charges relating to
corporate expenses 688 914 1,883 26,986
-------- -------- -------- --------
Operating loss (10,101) (5,425) (20,083) (36,182)
-------- -------- -------- --------
Interest expense, net 22,426 16,157 43,159 34,580
Other expenses (income) 129 414 (27,714) 871
-------- -------- -------- --------
Net loss before income taxes (32,656) (21,996) (35,528) (71,633)
Provision (benefit) for income taxes 62 (3,288) 125 1,301
-------- -------- -------- --------
Net loss before cumulative change in
accounting principle (32,718) (18,708) (35,653) (72,934)
Cumulative effect of change in
accounting principle - - 1,642 -
-------- -------- -------- --------
Net loss $(32,718) $(18,708) $(37,295) $(72,934)
Unrealized gain (loss) on investments 1,012 (12,208) 326 (10,691)
-------- -------- -------- --------
Comprehensive loss $(31,706) $(30,916) $(36,969) $(83,625)
======== ======== ======== ========
Basic and diluted loss per share:
Before cumulative effect of
accounting change $(0.35) $(0.21) $(0.39) $(0.94)
Cumulative effect of accounting
change - - (0.02) -
-------- -------- -------- --------
$(0.35) $(0.21) $(0.41) $(0.94)
======== ======== ======== ========
Weighted average common shares
outstanding 92,921 89,974 91,447 77,599
The accompanying notes to consolidated financial statements
are an integral part of these statements.
2
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
(Unaudited)
Six Months Ended June 30,
--------------------------------
2001 2000
----------- ---------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (37,295) $ (72,934)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation and amortization 104,080 84,151
Provision for deferred income taxes - 1,263
Change in fair value of swaps 3,039 -
Vesting of management stock 1,883 2,514
Other non-cash stock charges relating to corporate expenses - 24,474
Elimination and amortization of deferred SoftNet revenue (30,244) (947)
Changes in assets and liabilities, net of effects from acquisitions:
Subscriber accounts receivable 828 1,989
Prepaid expenses and other assets (4,487) 77
Accounts payable and accrued expenses 16,389 3,296
Subscriber advances (1,392) (1,043)
Deferred revenue (121) 342
----------- ---------
Net cash flows provided by operating activities 52,680 43,182
----------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (108,497) (82,100)
Cash deposited in escrow (418,667) -
Investments in marketable securities (264,924) -
Acquisitions of cable television systems (308,116) (31,646)
Other, net (936) (1,319)
----------- ---------
Net cash flows used in investing activities (1,101,140) (115,065)
----------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
New borrowings 1,119,500 139,000
Repayment of debt (471,000) (422,000)
Net proceeds from sale of Class A common stock 433,019 354,293
Proceeds from employees exercising stock options 51 -
Issuance of common stock in employee stock purchase plan 289 -
Repurchase of Class A common stock - (658)
Financing costs (29,390) (194)
----------- ---------
Net cash flows provided by financing activities 1,052,469 70,441
----------- ---------
Net increase (decrease) in cash and cash equivalents 4,009 (1,442)
CASH AND CASH EQUIVALENTS, beginning of period 4,152 4,473
----------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 8,161 $ 3,031
=========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 30,500 $ 42,079
=========== =========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
3
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization
Mediacom Communications Corporation ("MCC," and collectively with its direct
and indirect subsidiaries, the "Company") is involved in the acquisition and
development of cable television systems serving principally non-metropolitan
markets in the United States. Through these cable systems, the Company provides
entertainment, information and telecommunications services to its subscribers.
As of June 30, 2001, the Company had acquired and was operating cable systems in
22 states, principally Alabama, California, Florida, Illinois, Indiana, Iowa,
Kentucky, Minnesota, Missouri and North Carolina.
MCC, a Delaware corporation organized in November 1999, completed an initial
public offering on February 9, 2000. Prior to the initial public offering, MCC
had no assets, liabilities, contingent liabilities or operations. Immediately
prior to the completion of its initial public offering, MCC issued shares of its
Class A and Class B common stock in exchange for all of the outstanding
membership interests in Mediacom LLC, a New York limited liability company
organized in July 1995. As a result of this exchange, Mediacom LLC became a
wholly-owned subsidiary of MCC.
On February 26, 2001, the Company entered into four separate definitive asset
purchase agreements with AT&T Broadband, LLC under which various affiliates of
AT&T Broadband agreed to sell to the Company certain cable television systems in
the states of Georgia, Illinois, Iowa and Missouri (the "AT&T systems"), subject
to several closing conditions. See Notes 3 and 8.
Mediacom Broadband LLC ("Mediacom Broadband"), a wholly-owned subsidiary of
MCC, was organized as a Delaware limited liability company in April 2001 for the
purpose of acquiring the AT&T systems. Mediacom Broadband Corporation, a
Delaware corporation wholly-owned by Mediacom Broadband, was organized in May
2001 for the sole purpose of acting as co-issuer with Mediacom Broadband of
$400.0 million aggregate principal amount of the 11% senior notes due July 15,
2013. Mediacom Broadband Corporation does not conduct operations of its own.
(2) Statement of Accounting Presentation and Other Information
Basis of Preparation of Consolidated Financial Statements
The consolidated financial statements presented for periods prior to the
initial public offering of MCC are the consolidated financial statements of
Mediacom LLC. Certain reclassifications have been made to the prior year's
presentation and amounts to conform to the current year's presentation and
amounts.
The consolidated financial statements as of June 30, 2001 and 2000 are
unaudited. However, in the opinion of management, such statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the periods presented. The accounting
policies followed during such interim periods reported are in conformity with
generally accepted accounting principles and are consistent with those applied
during annual periods. For additional disclosures, including a summary of the
Company's accounting policies, the interim financial statements should be read
in conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 2000 (File No. 0-29227). The results of operations for the interim
periods are not necessarily indicative of the results that might be expected for
future interim periods or for the full year ending December 31, 2001.
Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities," was
issued effective January 1, 2001. This statement establishes the accounting and
reporting standards for derivatives and hedging activity. Upon adoption of SFAS
133, all derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. The
Company recorded an after tax charge of approximately $1.6 million, as a change
in accounting principle, in the first quarter of 2001.
4
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In June 2001, Statement of Financial Accounting Standards No. 142 ("SFAS
142"), "Accounting for Goodwill and other Intangible Assets," was issued
effective January 1, 2002. This statement establishes that goodwill is no
longer subject to amortization over its useful life. The new rule also states
that an acquired intangible asset must be separately recognized if it is
obtained through contractual or other legal rights, or if the asset can be sold,
licensed, transferred, exchanged or rented, regardless of the intent to do so.
The Company has not yet determined the impact that SFAS 142 may have on its
results of operations and the consolidated financial statements.
(3) Acquisitions
On June 29, 2001, the Company acquired cable systems serving approximately
94,000 basic subscribers in the state of Missouri from affiliates of AT&T
Broadband, LLC, for a purchase price of approximately $308.8 million. The
purchase price has been preliminarily allocated as follows: approximately $84.4
million to property, plant and equipment and approximately $224.4 million to
intangible assets. Such allocations are subject to adjustments based upon the
final appraisal information received by the Company. This acquisition was
financed with a portion of the net proceeds from the Company's public offering
of 29.9 million shares of Class A of common stock, which was completed on June
27, 2001. See Note 1.
During 2000, the Company completed nine acquisitions of cable systems serving
approximately 53,000 basic subscribers for an aggregate purchase price of $109.2
million, including a $2.5 million deferred conditional payment to a seller. The
cable systems serve communities in the states of Alabama, Illinois, Iowa,
Kentucky, Minnesota and South Dakota. The aggregate purchase price has been
allocated as follows: approximately $48.2 million to property, plant and
equipment, and approximately $58.5 million to intangible assets. Additionally,
approximately $2.7 million of direct acquisition costs have been allocated to
property, plant and equipment and intangible assets. These acquisitions were
financed with borrowings under the Company's subsidiary credit facilities.
These acquisitions were accounted for using the purchase method of accounting,
and accordingly, the purchase price of each of these acquired systems have been
allocated to the assets acquired and liabilities assumed at their estimated fair
values at their respective dates of acquisition.
Unaudited Pro Forma Information
The Company has reported the operating results of the acquired systems from
the dates of their respective acquisition. The unaudited pro forma operating
results presented below give pro forma effect to the acquisitions of the
acquired systems as if such transactions had been consummated on January 1,
2000. This financial information has been prepared for comparative purposes
only and does not purport to be indicative of the operating results which
actually would have resulted had the acquisitions of the acquired systems been
consummated at the beginning of the period presented.
5
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30,
---------------------------------
2001 2000
----------- ----------
(dollars in thousands, except per
share amounts)
Revenues...................................................................... $212,102 $195,105
Operating expenses and costs:
Service costs................................................................ 78,565 71,563
Selling, general and administrative expenses................................. 32,461 31,412
Corporate expenses........................................................... 5,198 3,775
Depreciation and amortization................................................ 117,406 102,659
Non-cash stock charges relating to corporate expenses........................ 1,883 26,986
-------- --------
Operating loss................................................................ (23,411) (41,290)
-------- --------
Net loss...................................................................... $(49,255) $(93,376)
======== ========
Basic and diluted loss per share.............................................. $(0.54) $(1.20)
(4) Loss Per Share
The Company calculates loss per share in accordance with Statement of
Financial of Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share."
SFAS 128 computes basic loss per share by dividing the net loss by the weighted
average number of shares of common stock outstanding during the period. Diluted
loss per share is computed by dividing the net loss by the weighted average
number of shares of common stock outstanding during the period plus the effects
of any potentially dilutive securities. Since the Company has reported a net
loss for the periods, the effects of the inclusion of stock options and
convertible debt would be anti-dilutive and therefore, in accordance with SFAS
128, are not included in the computation of diluted loss per share.
The following table summarizes the Company's calculation of basic and diluted
loss per share for the three and six months ended June 30, 2001 and 2000:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
-------- -------- -------- --------
(in thousands, except per share amounts)
Net loss....................................... $(32,718) $(18,708) $(37,295) $(72,934)
Basic and diluted loss per share:
Before cumulative effect of
accounting change........................... $ (0.35) $ (0.21) $ (0.39) $ (0.94)
Cumulative effect of accounting
change...................................... - - (0.02) -
-------- -------- -------- --------
$ (0.35) $ (0.21) $ (0.41) $ (0.94)
======== ======== ======== ========
Weighted average common
shares outstanding............................ 92,921 89,974 91,447 77,599
For the six months ended June 30, 2000, the weighted average shares
outstanding was based, in part, on the conversion ratio used to exchange the
Mediacom LLC membership units for shares of MCC common stock upon MCC's initial
public offering in February 2000.
6
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5) Debt
As of June 30, 2001 and December 31, 2000, debt consisted of:
June 30, December 31,
2001 2000
---------- ------------
(dollars in thousands)
Bank credit facilities....................................................... $ 238,000 $662,000
8 1/2% senior notes.......................................................... 200,000 200,000
7 7/8% senior notes........................................................... 125,000 125,000
9 1/2% senior notes(a)....................................................... 500,000 -
11% senior notes(b).......................................................... 400,000 -
5 1/4% convertible senior notes(c)........................................... 172,500 -
---------- --------
$1,635,500 $987,000
========== ========
Debt Issued in 2001
(a) On January 24, 2001, Mediacom LLC and its wholly-owned subsidiary, Mediacom
Capital Corporation jointly issued $500.0 million aggregate principal
amount of 9 1/2% senior notes due January 2013 (the "9 1/2% Senior Notes").
The 9 1/2% Senior Notes are unsecured obligations of Mediacom LLC, and the
indenture for the 9 1/2% Senior Notes stipulates, among other things,
restrictions on incurrence of indebtedness, distributions, mergers and
asset sales and has cross-default provisions related to other debt of
Mediacom LLC. Mediacom LLC was in compliance with the indenture governing
the 9 1/2% Senior Notes as of June 30, 2001.
(b) On June 29, 2001, Mediacom Broadband and Mediacom Broadband Corporation
jointly issued $400.0 million aggregate principal amount of 11% senior
notes due July 2013 (the "11% Senior Notes"). The 11% Senior Notes are
unsecured obligations of Mediacom Broadband, and the indenture for the 11%
Senior Notes stipulates, among other things, restrictions on incurrence of
indebtedness, distributions, mergers and asset sales and has cross-default
provisions related to other debt of Mediacom Broadband. The 11% Senior
Notes were also subject to a special mandatory redemption if all of the
acquisitions of the AT&T systems had not been consummated on or prior to
specified date, at a price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest to the date of redemption.
Mediacom Broadband placed the net proceeds of the offering of the 11%
Senior Notes, along with the additional amount of cash necessary to fund
the special mandatory redemption, including the accrued interest, in an
escrow account, pending application of the escrow funds by Mediacom
Broadband for the payment of (i) a portion of the purchase price for the
acquisitions of the AT&T systems and related fees and expenses or (ii) in
the event of a special mandatory redemption of the 11% Senior Notes, the
redemption price in connection therewith. The escrow funds were required
to be invested in cash or cash equivalents and are classified as restricted
cash on the Company's consolidated balance sheets as of June 30, 2001.
Pursuant to the escrow agreement, the escrow funds were released to
Mediacom Broadband on July 18, 2001 and applied towards the purchase price
for the acquisitions of the AT&T systems and to pay related fees and
expenses, in connection with the completion of such acquisitions on the
same date. See Notes 1, 3, and 8.
(c) On June 27, 2001, the Company issued $172.5 million aggregate principal
amount of 5 1/4% convertible senior notes ("Convertible Senior Notes") due
July 2006. The Convertible Senior Notes are convertible at any time at the
option of the holder into the Company's Class A common stock at an initial
conversion rate of 53.4171 shares per $1,000 principal amount of notes,
which is equivalent to a price of $18.72 per share. The conversion rate is
subject to adjustment.
7
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The average interest rate on outstanding debt under the bank credit facilities
was 7.0% and 8.3% for the three months ended June 30, 2001 and December 31,
2000, respectively, before giving effect to the interest rate swap agreements
discussed below.
The Company uses interest rate swap agreements in order to fix the interest
rate for the duration of the contract as a hedge against interest rate
volatility. As of June 30, 2001, the Company had entered into interest rate
exchange agreements (the "Swaps") with various banks pursuant to which the
interest rate on $170.0 million is fixed at a weighted average swap rate of
approximately 6.7%, plus the average applicable margin over the Eurodollar Rate
option under the bank credit agreements. Under the terms of the Swaps, which
expire from 2002 through 2004, the Company is exposed to credit loss in the
event of nonperformance by the other parties to the Swaps. However, the Company
does not anticipate nonperformance by the counterparties.
The stated maturities of all debt outstanding as of June 30, 2001 are as
follows (dollars in thousands):
2002....................................................... $ 750
2003....................................................... 2,000
2004....................................................... 2,000
2005....................................................... 2,000
2006....................................................... 174,500
Thereafter................................................. 1,454,250
----------
$1,635,500
==========
(6) SoftNet
As of December 31, 2000, deferred revenue resulting from the Company's receipt
of shares of SoftNet Systems, Inc. common stock amounted to approximately $30.2
million, net of amortization taken. As of January 31, 2001, the Company
formally terminated its relationship with SoftNet in all material respects. The
Company recognized revenue of approximately $0.3 million and $0.9 million for
the six months ended June 30, 2001 and 2000, respectively. As a result of the
termination of the SoftNet relationship in the first quarter of 2001, the
Company recognized the remaining deferred revenue of approximately $30.0 million
as other income in the consolidated statements of operations.
(7) Stockholders' Equity
On June 27, 2001, the Company completed a public offering of 29.9 million
shares of its Class A Common Stock at $15.22 per share. The net proceeds, after
underwriting discounts and other expenses of approximately $22.1 million, were
$433.0 million. Net proceeds from this offering were used to fund a portion of
the purchase price for the acquisitions of the AT&T systems. See Notes 3 and
8.
(8) Subsequent Events
On July 18, 2001, Mediacom Broadband acquired cable systems serving
approximately 706,000 basic subscribers in the states of Georgia, Illinois and
Iowa from affiliates of AT&T Broadband, LLC, for an aggregate price of
approximately $1.79 billion. See Notes 1 and 3.
On July 18, 2001, pursuant to the escrow agreement governing the 11% Senior
Notes, the escrow funds comprising the net proceeds of the offering of such
notes, along with the additional amounts representing the special mandatory
redemption, were released to the Company. Such escrow funds were applied toward
the purchase price for the acquisitions of the AT&T systems. See Note 5.
On July 18, 2001, the Company completed a $1.4 billion senior secured credit
facility for the operating subsidiaries of Mediacom Broadband. Borrowings under
this facility, in the amount of $855.0 million, were used to fund a portion of
the purchase price for the acquisitions of the AT&T systems. See Notes 1 and 3.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
The Company does not believe the discussion and analysis of its historical
financial condition and results of operations set forth below are indicative,
nor should they be relied upon as an indicator, of its future performance
because of certain significant past events. Those events include numerous
acquisitions and several financing transactions.
Organization
Mediacom Communications Corporation ("MCC") was organized as a Delaware
corporation in November 1999 and completed an initial public offering in
February 2000. Immediately prior to the completion of its initial public
offering, MCC issued shares of common stock in exchange for all of the
outstanding membership interests in Mediacom LLC, a New York limited liability
company. Mediacom LLC commenced operations in March 1996.
Until MCC's initial public offering in February 2000, Mediacom Management
Corporation, a Delaware corporation, provided management services to the
operating subsidiaries of Mediacom LLC and received annual management fees.
Mediacom Management utilized these fees to compensate its employees as well as
to fund its corporate overhead. Such management fees were 2% of the Company's
annual gross revenues. The management agreements were terminated upon the date
of MCC's initial public offering. At that time, Mediacom Management's employees
became the Company's employees and its corporate overhead became the Company's
corporate overhead. These expenses are reflected as corporate expenses in the
consolidated statements of operations.
Acquisitions
The Company has significantly expanded its business through acquisitions. All
acquisitions have been accounted for under the purchase method of accounting
and, therefore, the Company's historical results of operations include the
results of operations for each acquired system subsequent to its respective
acquisition date.
AT&T Acquisitions
On February 26, 2001, the Company entered into four separate definitive asset
purchase agreements with AT&T Broadband, LLC under which various affiliates of
AT&T Broadband agreed to sell to the Company certain cable television systems in
the states of Georgia, Illinois, Iowa and Missouri (the "AT&T systems"), subject
to several closing conditions.
On June 29, 2001, the Company completed the acquisition of AT&T cable systems
serving approximately 94,000 basic subscribers in the state of Missouri (the
"Missouri systems"). The purchase price for the Missouri systems was
approximately $309 million, after preliminary closing adjustments. This
transaction comprises cable systems serving Columbia, Jefferson City and
Springfield, Missouri.
On July 18, 2001, the Company completed the acquisitions of AT&T cable systems
serving approximately 706,000 basic subscribers in the states of Georgia,
Illinois and Iowa. The aggregate purchase price for these cable systems was
approximately $1.79 billion, after preliminary closing adjustments. These
transactions include cable systems serving the cities and surrounding
communities of Albany, Columbus, Tifton and Valdosta, Georgia; Charleston,
Carbondale, Effingham, Marion, Moline and Rock Island, Illinois; and Ames, Cedar
Rapids, Clinton, Davenport, Des Moines, Dubuque, Fort Dodge, Iowa City, Mason
City and Waterloo, Iowa.
9
2000 Acquisitions
In 2000, the Company completed nine acquisitions of cable systems serving a
total of approximately 53,000 basic subscribers (the "2000 Acquisitions"). The
table below sets forth information regarding the 2000 Acquisitions.
Basic Subscribers
Purchase Price as of
Predecessor Owner Acquisition Date (in millions) Acquisition Date
- ----------------- ---------------- ------------- ----------------
Rapid Communications Partners, L.P. April 2000 $ 8.0 6,000
MidAmerican Cable Systems, L.P. April 2000 8.0 5,000
TriCable, Inc May 2000 1.8 1,000
Spirit Lake Cable TV, Inc. June 2000 10.8 5,000
South Kentucky Services Corporation July 2000 2.1 1,000
Dowden Midwest Cable Partners, L.P. August 2000 1.2 1,000
Illinet Communications of Central Illinois, LLC October 2000 15.8 8,000
Satellite Cable Services, Inc. October 2000 27.5 12,000
AT&T Broadband, LLC-Alabama December 2000 34.0 14,000
------ ------
$109.2 53,000
====== ======
General
EBITDA represents operating loss before depreciation and amortization and non-
cash stock charges relating to corporate expenses. EBITDA:
. is not intended to be a performance measure that should be regarded as an
alternative either to operating income or net income as an indicator of
operating performance, or to the statement of cash flows as a measure of
liquidity;
. is not intended to represent funds available for debt service, dividends,
reinvestment or other discretionary uses; and
. should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
EBITDA is included herein because the Company's management believes that
EBITDA is a meaningful measure of performance as it is commonly used by the
cable television industry and by the investment community to analyze and compare
cable television companies. The Company's definition of EBITDA may not be
identical to similarly titled measures reported by other companies.
Actual Results of Operations
The following historical information includes the results of operations of the
2000 Acquisitions and the Missouri systems (together, the "Acquired Systems"),
only for that portion of the respective period that such cable television
systems were owned by the Company.
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000
Revenues. Revenues increased 12.7% to $93.1 million for the three months
ended June 30, 2001 as compared to $82.6 million for the three months ended June
30, 2000. Of the revenue increase of $10.5 million, approximately $5.1 million
was attributable to the Acquired Systems. Excluding the Acquired Systems,
revenues increased primarily due to basic rate increases associated with new
programming introductions in the Company's core television services and to
customer growth in the Company's recently launched digital cable and high-speed
Internet access services.
10
Service costs. Service costs increased 15.4% to $32.6 million for the three
months ended June 30, 2001 as compared to $28.2 million for the three months
ended June 30, 2000. Of the service cost increase of $4.4 million,
approximately $2.0 million was attributable to the Acquired Systems. Excluding
the Acquired Systems, these costs increased primarily as a result of higher
programming expenses, including rate increases by programmers and the costs of
channel additions. As a percentage of revenues, service costs were 35.0% for
the three months ended June 30, 2001, as compared with 34.2% for the three
months ended June 30, 2000.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 6.8% to $14.8 million for the three months
ended June 30, 2001 as compared to $13.9 million for the three months ended June
30, 2000. Of the selling, general and administrative expense increase of $0.9
million, approximately $0.7 million was attributable to the Acquired Systems.
Excluding the Acquired Systems, these costs increased primarily as a result of
higher customer service employee expense. As a percentage of revenues, selling,
general and administrative expenses were 15.9% for the three months ended June
30, 2001 as compared with 16.8% for the three months ended June 30, 2000.
Corporate expenses. Corporate expenses increased 29.1% to $2.0 million for
the three months ended June 30, 2001 as compared to $1.5 million for the three
months ended June 30, 2000. As a percentage of revenues, corporate expenses
were 2.1% for the three months ended June 30, 2001 as compared with 1.8% for the
three months ended June 30, 2000. The increase is primarily due to additional
employee costs as a result of the anticipated AT&T acquisitions.
Depreciation and amortization. Depreciation and amortization increased 22.2%
to $53.1 million for the three months ended June 30, 2001 as compared to $43.5
million for the three months ended June 30, 2000. This increase was due to the
Company's purchase of the Acquired Systems and capital expenditures associated
with the upgrade of the Company's cable systems.
Non-cash stock charges relating to corporate expenses. Non-cash stock charges
relating to corporate expenses decreased 24.7% to $0.7 million for the three
months ended June 30, 2001 as compared to $0.9 million for the three months
ended June 30, 2000. This decrease is due to reduced vesting in equity
interests granted to certain members of MCC's management team.
Interest expense, net. Interest expense, net, increased 38.8% to $22.4
million for the three months ended June 30, 2001 as compared to $16.2 million
for the three months ended June 30, 2000. This increase was primarily due to a
higher interest rate associated with the Company's 9 1/2% senior notes, which
were issued in January 2001.
Other (income) expenses. Other expense was $0.1 million for the three months
ended June 30, 2001 as compared to $0.4 million of other expense for the three
months ended June 30, 2000. This change was principally due to the recording of
the fair value of the Company's interest rate derivatives as a result of the
adoption of SFAS 133.
Provision (benefit) for income taxes. Provision for income taxes was $0.1
million for the three months ended June 30, 2001 as compared to a $3.3 million
benefit for the three months ended June 30, 2000. This provision reflects the
net tax effect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes.
Net loss. Due to the factors described above, the Company generated a net
loss of $32.7 million for the three months ended June 30, 2001 as compared to a
net loss of $18.7 million for the three months ended June 30, 2000.
EBITDA. EBITDA increased 12.2% to $43.7 million for the three months ended
June 30, 2001 as compared to $39.0 million for the three months ended June 30,
2000. Of the EBITDA increase of $4.7 million, approximately $2.3 million was
attributable to the Acquired Systems. Excluding the Acquired Systems, EBITDA
increased primarily due to the increase in revenues described above, offset
primarily by the increases in programming expenses and customer service employee
expense described above. As a percentage of revenues, EBITDA was 47.0% for the
three months ended June 30, 2001 as compared with 47.2% for the three months
ended June 30, 2000.
11
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
Revenues. Revenues increased 14.6% to $183.4 million for the six months ended
June 30, 2001 as compared to $160.0 million for the six months ended June 30,
2000. Of the revenue increase of $23.4 million, approximately $11.2 million was
attributable to the Acquired Systems. Excluding the Acquired Systems, revenues
increased primarily due to basic rate increases associated with new programming
introductions in the Company's core television services and to customer growth
in the Company's recently launched digital cable and high-speed Internet access
services.
Service costs. Service costs increased 16.7% to $64.1 million for the six
months ended June 30, 2001 as compared to $54.9 million for the six months ended
June 30, 2000. Of the service cost increase of $9.2 million, approximately $4.5
million was attributable to the Acquired Systems. Excluding the Acquired
Systems, these costs increased primarily as a result of higher programming
expenses, including rate increases by programmers and the costs of channel
additions. As a percentage of revenues, service costs were 34.9% for the six
months ended June 30, 2001, as compared with 34.3% for the six months ended June
30, 2000.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 10.0% to $30.0 million for the six months
ended June 30, 2001 as compared to $27.3 million for the six months ended June
30, 2000. Of the selling, general and administrative expense increase of $2.7
million, approximately $1.8 million was attributable to the Acquired Systems.
Excluding the Acquired Systems, these costs increased primarily as a result of
higher customer service employee expense and marketing costs associated with the
promotion of the Company's new product offerings. As a percentage of revenues,
selling, general and administrative expenses were 16.4% for the six months ended
June 30, 2001 as compared with 17.0% for the six months ended June 30, 2000.
Corporate expenses. Corporate expenses increased 18.3% to $3.5 million for
the six months ended June 30, 2001 as compared to $2.9 million for the six
months ended June 30, 2000. As a percentage of revenues, corporate expenses
were 1.9% for the six months ended June 30, 2001 as compared with 1.8% for the
six months ended June 30, 2000. The increase is primarily due to additional
employee costs as a result of the anticipated AT&T acquisitions.
Depreciation and amortization. Depreciation and amortization increased 23.7%
to $104.1 million for the six months ended June 30, 2001 as compared to $84.2
million for the six months ended June 30, 2000. This increase was due to the
Company's purchase of the Acquired Systems and capital expenditures associated
with the upgrade of the Company's cable systems.
Non-cash stock charges relating to corporate expenses. Non-cash stock charges
relating to corporate expenses decreased 93.0% to $1.9 million for the six
months ended June 30, 2001 as compared to $27.0 million for the six months ended
June 30, 2000. This decrease is due to a one-time $24.5 million charge which
occurred in February 2000, resulting from the termination of the management
agreements with Mediacom Management on the date of MCC's initial public
offering.
Interest expense, net. Interest expense, net, increased 24.8% to $43.2
million for the six months ended June 30, 2001 as compared to $34.6 million for
the six months ended June 30, 2000. This increase was primarily due to a higher
interest rate associated with the Company's 9 1/2% senior notes, which were
issued in January 2001.
Other (income) expenses. Other income was $27.7 million for the six months
ended June 30, 2001 as compared to $0.9 million of other expenses for the six
months ended June 30, 2000. This change was principally due to the elimination
of the remainder of the deferred SoftNet revenue resulting from the termination
of the contract with SoftNet Systems, Inc. (See Note 6).
Provision (benefit) for income taxes. Provision for income taxes decreased to
$0.1 million for the six months ended June 30, 2001 as compared to $1.3 million
provision for the six months ended June 30, 2000. This provision reflects the
net tax effect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes.
Net loss. Due to the factors described above and a one-time charge of $1.6
million resulting from the cumulative effect of change in accounting principle,
the Company generated a net loss of $37.3 million for the six months ended June
30, 2001 as compared to a net loss of $72.9 million for the six months ended
June 30, 2000.
12
EBITDA. EBITDA increased 14.6% to $85.9 million for the six months ended June
30, 2001 as compared to $75.0 million for the three months ended June 30, 2000.
Of the EBITDA increase of $10.9 million, approximately $4.6 million was
attributable to the Acquired Systems. Excluding the Acquired Systems, EBITDA
increased primarily due to the increase in revenues described above, offset
primarily by the increases in programming expenses and customer service employee
expense described above. As a percentage of revenues, EBITDA was 46.8% for the
six months ended June 30, 2001 and 2000.
Selected Pro Forma Results
The Company has reported the results of operations of the Acquired Systems
from the date of their respective acquisition. The financial information below,
presents selected unaudited pro forma operating results for the six months ended
June 30, 2001 and 2000 assuming the purchase of the Acquired Systems had been
consummated on January 1, 2000. This financial information is not necessarily
indicative of what results would have been had the Company operated these cable
systems since the beginning of 2000.
Six Months Ended June 30,
-----------------------------
2001 2000
-------- --------
(dollars in thousands, except per
subscriber data)
Revenues..................................................................... $212,102 $195,105
Costs and expenses:
Service costs............................................................. 78,565 71,563
Selling, general & administrative expenses................................ 32,461 31,412
Corporate expenses........................................................ 5,198 3,775
Depreciation and amortization............................................. 117,406 102,659
Non-cash stock charges relating to corporate expenses..................... 1,883 26,986
-------- --------
Operating loss............................................................... $(23,411) $(41,290)
======== ========
Other Data:
EBITDA....................................................................... $ 95,878 $ 88,355
EBITDA margin(1)............................................................. 45.2% 45.3%
Basic subscribers(2)......................................................... 868,000 863,800
Average monthly revenue per basic subscriber(3).............................. $41.30 $38.47
- --------------------------
(1) Represents EBITDA as a percentage of revenues.
(2) At end of the period.
(3) Represents average monthly revenues for the last three months of the period
divided by average basic subscribers for the period.
Selected Pro Forma Results for Six Months Ended June 30, 2001 Compared to
Selected Pro Forma Results for Six Months Ended June 30, 2000
Revenues increased 8.7% to $212.1 million for the six months ended June 30,
2001, as compared to $195.1 million for the six months ended June 30, 2000.
This increase was attributable principally to basic rate increases associated
with new programming introductions in the Company's core television services,
internal subscriber growth of 0.4% and to customer growth in the Company's
recently launched digital cable and high-speed Internet access services.
Service costs and selling, general and administrative expenses in the
aggregate increased 7.8% to $111.0 million for the six months ended June 30,
2001 from $103.0 million for the six months ended June 30, 2000, principally due
to higher programming expenses and customer service employee expense.
Corporate expenses increased 37.7% to $5.2 million for the six months ended
June 30, 2001 from $3.8 million for the six months ended June 30, 2000. As a
percentage of revenues, corporate expenses were 2.5% for the six months ended
June 30, 2001 as compared with 1.9% for the six months ended June 30, 2000.
13
Depreciation and amortization increased 14.4% to $117.4 million for the six
months ended June 30, 2001 from $102.7 million for the six months ended June 30,
2000. This increase was principally due to capital expenditures associated with
the upgrade of the Company's cable systems. Non-cash stock charges relating to
corporate expenses were as reported above.
As a result of the above factors, the Company generated an operating loss of
$23.4 million for the six months ended June 30, 2001, compared to $41.3 million
for the six months ended June 30, 2000.
EBITDA increased by 8.5% to $95.9 million for the six months ended June 30,
2001 from $88.4 million for the six months ended June 30, 2000. The EBITDA
margin was 45.2% for the six months ended June 30, 2001 as compared with 45.3%
for the six months ended June 30, 2000.
Liquidity and Capital Resources
The Company's business requires substantial capital for the upgrade, expansion
and maintenance of its cable network. In addition, the Company has pursued, and
will continue to pursue, a business strategy that includes selective
acquisitions. The Company has funded and will continue to fund its working
capital requirements, capital expenditures and acquisitions through a
combination of internally generated funds, long-term borrowings and equity
financings.
Investing Activities
On February 26, 2001, the Company entered into four separate definitive asset
purchase agreements with AT&T Broadband, LLC under which various affiliates of
AT&T Broadband agreed to sell to the Company certain cable television systems in
Georgia, Illinois, Iowa and Missouri, subject to several closing conditions.
On June 29, 2001, the Company completed the acquisition of AT&T cable systems
serving approximately 94,000 basic subscribers in Missouri. The purchase price
for the Missouri systems was approximately $309 million, after preliminary
closing adjustments. This transaction comprises cable systems serving Columbia,
Jefferson City and Springfield, Missouri.
On July 18, 2001, the Company completed the acquisitions of AT&T cable systems
serving approximately 706,000 basic subscribers in Georgia, Illinois and Iowa.
The aggregate purchase price for these cable systems was approximately $1.79
billion, after preliminary closing adjustments. These transactions include cable
systems serving the cities and surrounding communities of Albany, Columbus,
Tifton and Valdosta, Georgia; Charleston, Carbondale, Effingham, Marion, Moline
and Rock Island, Illinois; and Ames, Cedar Rapids, Clinton, Davenport, Des
Moines, Dubuque, Fort Dodge, Iowa City, Mason City and Waterloo, Iowa.
In 2000, the Company completed nine acquisitions of cable systems that served
approximately 53,000 basic subscribers for an aggregate purchase price of $109.2
million.
As a result of the Company's recent acquisitions of the AT&T systems, the
Company has revised its capital investment program and now expects to spend
approximately $310 million on capital expenditures in 2001. This revision also
reflects an acceleration of the Company's previously announced network upgrade
plan. The Company plans to fund these expenditures through net cash flows from
operations and additional borrowings under its subsidiary bank credit
facilities. By December 2001, including the AT&T systems, the Company expects
that 77% of its cable network will be upgraded with 550MHz to 870MHz bandwidth
capacity and 68% of its homes passed will have two-way communications. For the
six months ended June 30, 2001, the Company's capital expenditures were $108.5
million.
14
Financing Activities
The AT&T systems were acquired by operating subsidiaries of Mediacom Broadband
LLC, a newly-formed, wholly-owned subsidiary of the Company. The aggregate
purchase price of $2.1 billion for the AT&T systems, together with related fees
and expenses and working capital, was financed through a combination of:
. Borrowings under the $1.4 billion credit facility of the operating
subsidiaries of Mediacom Broadband in the amount of $855.0 million;
. Borrowings under the aggregate $1.1 billion credit facilities of the
operating subsidiaries of Mediacom LLC, a wholly-owned subsidiary of the
Company, in the amount of $275.0 million;
. Gross proceeds from the Company's sale of its Class A common stock in the
amount of $455.1 million;
. Gross proceeds from the Company's sale of its 5 1/4% convertible senior
notes in the aggregate principal amount of $172.5 million; and
. Gross proceeds from Mediacom Broadband's sale of its 11% senior notes in the
aggregate principal amount of $400.0 million.
The credit facility of Mediacom Broadband's operating subsidiaries, the sale
of the Company's Class A common stock, the sale of the Company's 5 1/4%
convertible senior notes and the sale of Mediacom Broadband's 11% senior notes
are discussed below.
On January 24, 2001, Mediacom LLC and, its wholly-owned subsidiary, Mediacom
Capital Corporation, completed an offering of $500.0 million of 9 1/2% senior
notes due January 2013. Interest on the 9 1/2% senior notes is payable semi-
annually on January 15 and July 15 of each year, which commenced on July 15,
2001. Approximately $467.5 million of the net proceeds were used to repay a
substantial portion of the indebtedness outstanding under the Company's
subsidiary credit facilities and related accrued interest. The balance of the
net proceeds was used for general corporate purposes.
On June 27, 2001, the Company completed a public offering of 29.9 million
shares of its Class A common stock at $15.22 per share. The transaction
included 3.9 million shares of Class A common stock issued pursuant to the
exercise of an over-allotment option by the underwriters of the offering. The
net proceeds from this offering were used to pay a portion of the purchase price
of the acquisitions of AT&T systems.
On June 27, 2001, the Company completed a public offering of $172.5 million of
5 1/4% convertible senior notes due July 2006. The transaction included $22.5
million of convertible senior notes issued pursuant to the exercise of an over-
allotment option by the underwriters of the offering. Interest on the 5 1/4%
convertible senior notes is payable semi-annually on January 1 and July 1 of
each year, commencing January 1, 2002. The convertible senior notes are
convertible at any time into the Company's Class A common stock at an initial
conversion rate of 53.4171 shares per $1,000 principal amount of notes, which is
equivalent to a price of $18.72 per share. The conversion rate is subject to
adjustment. The net proceeds from this offering were used to pay a portion of
the purchase price of the acquisitions of the AT&T systems.
On June 29, 2001, Mediacom Broadband and its wholly-owned subsidiary, Mediacom
Broadband Corporation, completed an offering of $400.0 million in aggregate
principal amount of 11% senior notes due July 2013. Interest on the 11% senior
notes is payable semi-annually on January 15 and July 15 of each year,
commencing January 15, 2002. The 11% senior notes were subject to a special
mandatory redemption if all of the acquisitions of the AT&T systems had not been
consummated on or prior to specified date, at a price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest to the date
of redemption. Upon the completion of the offering, the Company placed the net
proceeds of the offering of the 11% senior notes, along with the additional
amount of cash necessary to fund the special mandatory redemption, including the
accrued interest, in an escrow account, pending application of the escrow funds
by the Company for the payment of a portion of the purchase price for the
acquisitions of the AT&T systems and related fees and expenses, or in the event
of a special mandatory redemption of the 11% senior notes, the redemption price
in connection therewith. The escrow funds were required to be invested in cash
or cash equivalents and are classified as restricted cash on the Company's
consolidated balance sheets as of June 30, 2001. Pursuant to the escrow
15
agreement, the escrow funds were released to the Company on July 18, 2001, and
applied towards the purchase price for the acquisitions of the AT&T systems and
to pay related fees and expenses in connection with the completion of such
acquisitions on the same date.
On July 18, 2001, the Company entered into a $1.4 billion senior secured
credit facility for the operating subsidiaries of Mediacom Broadband. The
credit facility consists of a $600 million revolving credit facility, a $300
million tranche A term loan and a $500 million tranche B term loan. The
revolving credit facility expires on March 31, 2010 and commitments under the
revolving credit facility will be reduced in quarterly installments beginning on
December 31, 2004. The tranche A term loan matures on March 31, 2010 and the
tranche B term loan matures on September 30, 2010. The term loans are payable
in quarterly installments beginning on September 30, 2004. Interest on
outstanding revolving loans and the tranche A term loan is payable at either the
eurodollar rate plus a floating percentage ranging from 1.00% to 2.50% or the
base rate plus a floating percentage ranging from 0.25% to 1.50%. Interest on
tranche B term loan is payable at either the eurodollar rate plus a floating
percentage ranging from 2.50% to 2.75% or the base rate plus a floating
percentage ranging from 1.50% to 1.75%. Borrowings under this facility, in the
amount of $855.0 million, were used to fund a portion of the purchase price for
the acquisitions of the AT&T systems.
After giving pro forma effect to the completion of the acquisitions of the
AT&T systems and the related financings noted above, the Company's total
indebtedness was approximately $2.77 billion as of June 30, 2001, and it had
unused credit commitments of approximately $1.1 billion under its subsidiaries'
revolving credit facilities. On the same pro forma basis, the Company's
weighted average cost of indebtedness was approximately 7.6%.
Although the Company has not generated earnings sufficient to cover fixed
charges, the Company has generated cash and obtained financing sufficient to
meet its debt service, working capital, capital expenditure and acquisition
requirements. The Company expects that it will continue to be able to generate
funds and obtain financing sufficient to service the Company's obligations and
complete its future acquisitions. There can be no assurance that the Company
will be able to obtain sufficient financing, or, if it were able to do so, that
the terms would be favorable to them.
Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities," was
issued effective January 1, 2001. This statement establishes the accounting and
reporting standards for derivatives and hedging activity. Upon adoption of SFAS
133, all derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. The
Company recorded an after tax charge of approximately $1.6 million as a change
in accounting principle in the first quarter of 2001.
In June 2001, Statement of Financial Accounting Standards No. 142 ("SFAS
142"), "Accounting for Goodwill and other Intangible Assets," was issued
effective January 1, 2002. This statement establishes that goodwill is no
longer subject to amortization over its useful life. The new rule also states
that an acquired intangible assets must be separately recognized if it is
obtained through contractual or other legal rights, or if the asset can be sold,
licensed, transferred, exchanged or rented, regardless of the intent to do so.
The Company has not yet determined the impact that SFAS 142 may have on its
results of operations and the consolidated financial statements.
Inflation and Changing Prices
The Company's systems' costs and expenses are subject to inflation and price
fluctuations. Since changes in costs can be passed through to subscribers, such
changes are not expected to have a material effect on their results of
operations.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company uses interest rate swap
agreements in order to fix the interest rate for the duration of the contract as
a hedge against interest rate volatility. As of June 30, 2001, the Company had
interest rate exchange agreements (the "Swaps") with various banks pursuant to
which the interest rate on $170.0 million is fixed at a weighted average swap
rate of approximately 6.7%, plus the average applicable margin over the
Eurodollar Rate option under the Company's bank credit agreements. Under the
terms of the Swaps, which expire from 2002 through 2004, the Company is exposed
to credit loss in the event of nonperformance by the other parties to the Swaps.
However, the Company does not anticipate nonperformance by the counterparties.
The Company would have paid approximately $3.0 million if it terminated the
Swaps, inclusive of accrued interest, at June 30, 2001. The table below
provides information for the Company's long term debt. See Note 5 to the
Company's consolidated financial statements.
Expected Maturity
-------------------------------------------------------------
(All dollar amounts in thousands)
2002 2003 2004 2005 2006 Thereafter Total Fair Value
------ ------ ------ ------ ------ ------------ ------- ------------
Fixed rate $ - $ - $ - $ - $ - $200,000 $200,000 $185,000
Weighted average 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
interest rate
Fixed rate $ - $ - $ - $ - $ - $125,000 $125,000 $107,000
Weighted average 7.9% 7.9% 7.9% 7.9% 7.9% 7.9% 7.9%
interest rate
Fixed rate $ - $ - $ - $ - $ - $500,000 $500,000 $480,000
Weighted average 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5%
interest rate
Fixed rate $ - $ - $ - $ - $ - $400,000 $400,000 $407,000
Weighted average 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0%
interest rate
Fixed rate $ - $ - $ - $ - $172,500 $ - $172,500 $194,000
Weighted average 5.3% 5.3% 5.3% 5.3% 5.3% 5.3% 5.3%
interest rate
Variable rate $ 750 $2,000 $2,000 $2,000 $ 2,000 $229,250 $238,000 $238,000
Weighted average 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
interest rate
17
PART II
---------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 21, 2001, we held our annual meeting of stockholders to (i) elect
seven directors to serve for a term of one year and (ii) ratify the selection of
our independent auditors for the year ending December 31, 2001.
The following individuals were elected to serve as directors for a term of one
year:
Vote For Vote Withheld
--------------------------- ---------------------------
Rocco B. Commisso 344,632,658 5,430,766
Craig S. Mitchell 349,795,599 267,825
William S. Morris III 349,795,433 267,991
Thomas V. Reifenheiser 349,795,549 267,875
Natale S. Ricciardi 349,795,584 267,840
Mark E. Stephan 345,861,164 4,202,260
Robert L. Winikoff 348,755,478 1,307,946
These individuals constituted our entire Board of Directors and served as our
directors immediately preceding the annual meeting.
The stockholders ratified the selection of Arthur Andersen LLP as our
independent auditors for the year ending December 31, 2001. The result of the
vote was as follows: 349,999,562 votes were for the selection, 60,583 votes were
against the selection and 3,279 votes abstained from the selection.
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit Description
-------- -------------------
3.1 Amended and Restated By-laws of Mediacom Communications Corporation
21.1 Subsidiaries of Mediacom Communications Corporation
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the three months
ended June 30, 2001:
Date Report
Date of Report Filed with SEC Items Reported
- --------------------- ------------------------ ----------------------------------------------------------------
February 26, 2001 June 6, 2001 Item 5 - Other Events
(Amendment No. 1) Item 7 - Financial Statements, Pro Forma Financial
Information and Exhibits *
June 6, 2001 June 6, 2001 Item 5 - Other Events
Item 7 - Financial Statements, Pro Forma Financial
Information and Exhibits
June 22, 2001 June 26, 2001 Item 5 - Other Events
Item 7 - Financial Statements, Pro Forma Financial
Information and Exhibits
June 22, 2001 June 29, 2001 Item 5 - Other Events
Item 7 - Financial Statements, Pro Forma Financial
Information and Exhibits
______________
* Included historical financial statements for Georgia Mediacom Systems, the
Southern Illinois Mediacom Systems, the Iowa Mediacom Systems and the
Missouri Mediacom Systems
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Mediacom Communications Corporation
August 14, 2001 By: /s/ Mark E. Stephan
-----------------------------
Mark E. Stephan
Senior Vice President,
Chief Financial Officer,
Treasurer and Principal Financial
Officer
20
Exhibit 3.1
AMENDED AND RESTATED BY-LAWS
OF
MEDIACOM COMMUNICATIONS CORPORATION
ARTICLE I
Stockholders
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Section 1. Annual Meeting. A meeting of stockholders of the Corporation
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shall be held annually at such place within or without the State of Delaware, at
such time and on such date as may from time to time be fixed by the Board of
Directors, for the election of directors and for the transaction of such other
business as may come before the meeting.
Section 2. Special Meetings. Special meetings of stockholders of the
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Corporation may be called by the Board of Directors or the Chief Executive
Officer, and shall be called by the Secretary upon the written request of
stockholders of record holding at least a majority in number of the issued and
outstanding shares of the Corporation entitled to vote at such meeting. Special
meetings shall be held at such places within or without the State of Delaware,
at such time and on such date as shall be specified in the call thereof. At any
special meeting, only such business may be transacted which is related to the
purpose or purposes set forth in the notice of such special meeting.
Section 3. Notice of Meetings. Written notice of each meeting of
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stockholders stating the place, date and hour thereof and, unless it is an
annual meeting, the purpose or purposes for which the meeting is called and that
it is being issued by or at the direction of the person or persons calling the
meeting, shall be given personally or by mail, not less than ten nor more than
sixty days before the date of such meeting, to each stockholder entitled to vote
at such meeting. If mailed, such notice is given when deposited in the United
States mail, with postage thereon prepaid, directed to the stockholder at his or
her address as it appears on the record of stockholders or, if he or she shall
have filed with the Secretary a written request that notices to
him or her be mailed to some other address then directed to him or her at such
other address.
Section 4. Waiver of Notice. Notice of any meeting of stockholders need not
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be given to any stockholder who submits a signed waiver of notice, in person or
by proxy, whether before or after the meeting. The attendance of any stockholder
at a meeting in person or by proxy, without protesting prior to the conclusion
of the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him or her.
Section 5. Adjournment. When any meeting of stockholders is adjourned to
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another time or place, it shall not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and at the adjourned
meeting any business may be transacted that might have been transacted on the
original date of the meeting. However, if after such adjournment the Board of
Directors fixes a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of record on the new record
date entitled to vote at such meeting.
Section 6. Quorum. Except as otherwise provided by law, the holders of a
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majority of the shares entitled to vote at any meeting of stockholders, shall
constitute a quorum thereat for the transaction of any business. When a quorum
is once present to organize a meeting, it is not broken by the subsequent
withdrawal of any stockholders. The stockholders present may adjourn a meeting
despite the absence of a quorum.
Section 7. Proxies. Every stockholder entitled to vote at a meeting of
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stockholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him or her by proxy. Every proxy must be
signed by the stockholder or his or her attorney-in-fact. No proxy shall be
valid after the expiration of eleven months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the stockholder executing it, except as otherwise provided by law.
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Section 8. Voting. Every stockholder of record shall be entitled at every
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meeting of stockholders to one vote for every share standing in his or her name
on the record of stockholders. Directors shall, except as otherwise required by
law, be elected by a plurality of the votes cast at a meeting of stockholders by
the holders of shares entitled to vote in such election. Whenever any corporate
action, other than the election of directors, is to be taken by vote of the
stockholders, it shall, except as otherwise required by law, be authorized by a
majority of the votes cast at a meeting of stockholders by the holders of shares
entitled to vote thereon.
Section 9. Action Without a Meeting. Any action required or permitted to be
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taken by stockholders by vote may be taken without a meeting on written consent,
setting forth the action so taken, signed by the holders of all outstanding
shares entitled to vote thereon.
Section 10. Record Date. The Board of Directors may fix, in advance, a
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date, which date shall not be more than sixty nor less than ten days before the
date of any meeting of stockholders nor more than sixty days prior to any other
action, as the record date for the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action. When a determination of stockholders of record
entitled to notice of or to vote at any meeting of stockholders has been made as
provided herein, such determination shall apply to any adjournment thereof,
unless the Board of Directors fixes a new record date for the adjourned meeting.
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ARTICLE II
Directors
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Section 1. Number and Qualifications. The Board of Directors shall consist
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of one or more members. The number of directors shall be fixed by the Board of
Directors. Directors need not be stockholders of the Corporation. Each of the
directors shall be at least eighteen years of age.
Section 2. Election and Term of Office. At each annual meeting of
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stockholders, directors shall be elected to hold office until the next annual
meeting of stockholders. Each director shall hold office until the expiration of
such term, and until his or her successor has been elected and qualified, unless
he or she shall sooner die, resign or be removed.
Section 3. Meetings. A meeting of the Board of Directors shall be held for
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the election of a Chairman of the Board of Directors, for the election of
officers and for the transaction of such other business as may properly come
before such meeting as soon as practicable after the annual meeting of
stockholders. Other regular meetings of the Board of Directors may be held at
such times as the Board of Directors may from time to time determine. Special
meetings of the Board of Directors may be called at any time by the Chief
Executive Officer or by a majority of the directors then in office. Meetings of
the Board of Directors shall be held at the principal office of the Corporation
in the State of Delaware or at such other place within or without the State of
Delaware as may from time to time be fixed by the Board of Directors.
Section 4. Notice of Meetings; Adjournment. No notice need be given of the
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first meeting of the Board of Directors after the annual meeting of stockholders
or of any other regular meeting of the Board of Directors, provided the time and
place of such meetings are fixed by the Board of Directors. Notice of each
special meeting of the Board of Directors and of each regular meeting the time
and place of which has not been fixed by the Board of Directors, specifying the
place, date and time thereof, shall be given personally, by mail or telegraphed
to each director at his or her address as such address appears upon the books of
the Corporation at least two
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business days (Saturdays, Sundays and legal holidays not being considered
business days for the purpose of these By-Laws) before the date of such meeting.
Notice of any meeting need not be given to any director who submits a signed
waiver of notice, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to him or her. Notice of any directors' meeting or any waiver thereof
need not state the purpose of the meeting. A majority of the directors present,
whether or not a quorum is present, may adjourn any meeting to another time and
place. Notice of any adjournment of a meeting of the Board of Directors to
another time or place shall be given to the directors who were not present at
the time of the adjournment and, unless such time and place are announced at the
meeting, to the other directors.
Section 5. Quorum; Voting. At any meeting of the Board of Directors, a
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majority of the entire Board of Directors shall constitute a quorum for the
transaction of business or of any specified item of business. Except as
otherwise required by law, the vote of a majority of the directors present at
the time of the vote, if a quorum is present at such time, shall be the act of
the Board of Directors.
Section 6. Participation by Telephone. Any one or more members of the Board
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of Directors or any committee thereof may participate in a meeting of the Board
of Directors or such committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
Section 7. Action Without a Meeting. Any action required or permitted to be
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taken by the Board of Directors or any committee thereof may be taken without a
meeting if all members of the Board of Directors or such committee consent in
writing to the adoption of a resolution authorizing the action. The resolution
and the written consents thereto by the members of the Board of Directors or
such committee shall be filed with the minutes of the proceedings of the Board
of Directors or such committee.
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Section 8. Committees. The Board of Directors, by resolution adopted by a
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majority of the entire Board of Directors, may designate from among its members
an Executive Committee and other committees, each consisting of three or more
directors. Each such committee, to the extent provided in such resolution, shall
have all the authority of the Board of Directors, except that no such committee
shall have authority as to the following matters: (a) the submission to
stockholders of any action that needs stockholders' approval pursuant to law,
(b) the filling of vacancies in the Board of Directors or in any committee, (c)
the fixing of the compensation of the directors for serving on the Board of
Directors or on any committee, (d) the amendment or repeal of these By-Laws, or
the adoption of new By-Laws, or (e) the amendment or repeal of any resolution of
the Board of Directors which by its terms shall not be so amendable or
repealable. The Board of Directors may designate one or more directors as
alternate members of any such committee, who may replace any absent member or
members at any meeting of such committee. Each such committee shall serve at the
pleasure of the Board of Directors.
Section 9. Removal; Resignation. Any or all of the directors may be removed
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for cause by vote of the stockholders, and any of the directors may be removed
for cause by action of the Board of Directors. Any director may resign at any
time, such resignation to be made in writing and to take effect immediately or
on any future date stated in such writing, without acceptance by the
Corporation.
Section 10. Vacancies. Newly created directorships resulting from an
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increase in the number of directors and vacancies occurring in the Board of
Directors for any reason may be filled by vote of the Board of Directors or by
vote of the stockholders. If any newly created directorship or vacancy is to be
filled by vote of the Board of Directors and the number of directors then in
office is less than a quorum, such newly created directorship or vacancy may be
filled by vote of a majority of the directors then in office. A director elected
to fill a vacancy, unless elected by the stockholders, shall hold office until
the next meeting of stockholders at which the election of directors is in the
regular order of business, and until his or her successor
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has been elected and qualified, and any director elected by the stockholders to
fill a vacancy shall hold office for the unexpired term of his or her
predecessor unless, in either case, he or she shall sooner die, resign or be
removed.
ARTICLE III
Officers
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Section 1. Election; Qualifications. At the first meeting of the Board of
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Directors and as soon as practicable after each annual meeting of stockholders,
the Board of Directors shall elect or appoint a Chief Executive Officer, one or
more Vice-Presidents, a Secretary and a Treasurer, and may elect or appoint at
such time and from time to time such other officers as it may determine. No
officer need be a director of the Corporation. Any two or more offices may be
held by the same person, except the offices of Chief Executive Officer and
Secretary. When all of the issued and outstanding stock of the Corporation is
owned by one person, such person may hold all or any combination of offices.
Section 2. Term of Office; Vacancies. All officers shall be elected or
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appointed to hold office until the meeting of the Board of Directors following
the next annual meeting of stockholders. Each officer shall hold office for such
term and until his or her successor has been elected or appointed and qualified
unless he or she shall earlier resign, die, or be removed. Any vacancy occurring
in any office, whether because of death, resignation or removal, with cause, or
any other reason, shall be filled by the Board of Directors.
Section 3. Removal; Resignation. Any officer may be removed by the Board of
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Directors with cause. Any officer may resign his or her office at any time, such
resignation to be made in writing and to take effect immediately or on any
future date stated in such writing, without acceptance by the Corporation.
Section 4. Powers and Duties of the Chief Executive Officer. The Chief
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Executive Officer shall be the chief executive, operating and administrative
officer of the Corporation and
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shall have general charge and supervision of its business, affairs,
administration and operations. The Chief Executive Officer shall from time to
time make such reports concerning the Corporation as the Board of Directors may
direct. The Chief Executive Officer shall preside at all meetings of
stockholders and the Board of Directors. The Chief Executive Officer shall have
such other powers and shall perform such other duties as may from time to time
be assigned to him or her by the Board of Directors.
Section 5. Powers and Duties of the Vice-Presidents. Each of the Vice-
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Presidents shall have such powers and shall perform such duties as may from time
to time be assigned to him or her by the Board of Directors.
Section 6. Powers and Duties of the Secretary. The Secretary shall record
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and keep the minutes of all meetings of stockholders and of the Board of
Directors. The Secretary shall attend to the giving and serving of all notices
by the Corporation. The Secretary shall be the custodian of, and shall make or
cause to be made the proper entries in, the minute book of the Corporation and
such books and records as the Board of Directors may direct. The Secretary shall
be the custodian of the seal of the Corporation and shall affix or cause to be
affixed such seal to such contracts, instruments and other documents as the
Board of Directors may direct. The Secretary shall have such other powers and
shall perform such other duties as may from time to time be assigned to him or
her by the Board of Directors.
Section 7. Powers and Duties of the Treasurer. The Treasurer shall be the
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custodian of all funds and securities of the Corporation. Whenever required by
the Board of Directors, the Treasurer shall render a statement of the
Corporation's cash and other accounts, and shall cause to be entered regularly
in the proper books and records of the Corporation to be kept for such purpose
full and accurate accounts of the Corporation's receipts and disbursements. The
Treasurer shall at all reasonable times exhibit the Corporation's books and
accounts to any director of the Corporation upon application at the principal
office of the corporation during business hours. The Treasurer shall have such
other powers and shall perform such other duties
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as may from time to time be assigned to him or her by the Board of Directors.
Section 8. Delegation. In the event of the absence of any officer of the
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Corporation or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors may at any time and from time to time
delegate all or any part of the powers or duties of any officer to any other
officer or officers or to any director or directors.
ARTICLE IV
Shares
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The shares of the Corporation shall be represented by certificates signed
by the Chief Executive Officer or any Vice-President and by the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer, and may be sealed
with the seal of the Corporation or a facsimile thereof. Each certificate
representing shares shall state upon the face thereof (a) that the Corporation
is formed under the laws of the State of Delaware, (b) the name of the person or
persons to whom it is issued, (c) the number and class of shares which such
certificate represents and (d) the designation of the series, if any, which such
certificate represents.
ARTICLE V
Execution of Documents
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All contracts, instruments, agreements, bills payable, notes, checks,
drafts, warrants or other obligations of the Corporation shall be made in the
name of the Corporation and shall be signed by such officer or officers as the
Board of Directors may from time to time designate.
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ARTICLE VI
Seal
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The seal of the Corporation shall contain the name of the Corporation, the
words "Corporate Seal", the year of its organization and the word "Delaware".
ARTICLE VII
Indemnification
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The Corporation shall indemnify any person to the full extent permitted,
and in the manner provided, by the General Corporation Law of the State of
Delaware, as the same now exists or may hereafter be amended.
ARTICLE VIII
Fiscal Year
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The fiscal year of the Corporation shall end on December 31 of each year or
on such other date as shall be determined by the Board of Directors.
ARTICLE IX
Amendment of By-Laws
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Except as otherwise provided by law, these By-Laws may be amended or
repealed, and any new By-Law may be adopted, by vote of the holders of the
shares at the time entitled to vote in the election of any directors or by a
majority of the entire Board of Directors, but any by-law adopted by the Board
of Directors may be amended or repealed by the stockholders entitled to vote
thereon as herein provided.
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Exhibit 21.1
Subsidiaries of Mediacom Communications Corporation
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State of Incorporation Names under which
Subsidiary or Organization subsidiary does business
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Mediacom LLC New York Mediacom LLC
Mediacom Arizona LLC Delaware Mediacom Arizona Cable Network LLC
Mediacom California LLC Delaware Mediacom California LLC
Mediacom Capital Corporation New York Mediacom Capital Corporation
Mediacom Delaware LLC Delaware Mediacom Delaware LLC
Maryland Mediacom Delaware LLC
Mediacom Illinois LLC Delaware Mediacom Illinois LLC
Mediacom Indiana LLC Delaware Mediacom Indiana LLC
Mediacom Iowa LLC Delaware Mediacom Iowa LLC
Mediacom Minnesota LLC Delaware Mediacom Minnesota LLC
Mediacom Southeast LLC Delaware Mediacom Southeast LLC
Mediacom Wisconsin LLC Delaware Mediacom Wisconsin LLC
Zylstra Communications Corporation Minnesota Zylstra Communications Corporation
Illini Cable Holding, Inc. Illinois Illini Cable Holding, Inc.
Illini Cablevision of Illinois, Inc. Illinois Illini Cablevision of Illinois, Inc.
Mediacom Broadband LLC Delaware Mediacom Broadband LLC
Mediacom Broadband Corporation Delaware Mediacom Broadband Corporation
MCC Georgia LLC Delaware MCC Georgia LLC
MCC Illinois LLC Delaware MCC Illinois LLC
MCC Iowa LLC Delaware MCC Iowa LLC
MCC Missouri LLC Delaware MCC Missouri LLC
