<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
__________________
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
Commission File Numbers: 333-57285-01
333-57285
Mediacom LLC
Mediacom Capital Corporation*
(Exact names of Registrants as specified in their charters)
New York 06-1433421
New York 06-1513997
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Numbers)
100 Crystal Run Road
Middletown, New York 10941
(Address of principal executive office)
(845) 695-2600
(Registrants' telephone number)
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days:
Yes X No ____
---
Indicate the number of shares outstanding of the Registrants' common stock:
Not Applicable
*Mediacom Capital Corporation meets the conditions set forth in General
Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this form
with the reduced disclosure format.
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
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PART I
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Page
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Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 2000 (unaudited) and December 31, 1999........... 1
Consolidated Statements of Operations and Comprehensive Loss - Three and Nine Months Ended
September 30, 2000 and 1999 (unaudited)................................................... 2
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 2000 and 1999 (unaudited)................................................... 3
Notes to Consolidated Financial Statements (unaudited)....................................... 4
Balance Sheets of Mediacom Capital Corporation - September 30, 2000 (unaudited)
and December 31, 1999..................................................................... 10
Note to Balance Sheets (unaudited)........................................................... 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................... 19
PART II
-------
Item 1. Legal Proceedings......................................................................... 20
Item 6. Exhibits and Reports on Form 8-K.......................................................... 20
</TABLE>
<PAGE>
This Quarterly Report on Form 10-Q is for the three months ended September
30, 2000. In this Quarterly Report, "we," "us," "our" and the "Company" refer to
Mediacom LLC and its subsidiaries.
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 this Quarterly Report and in
our Annual Report on Form 10-K for the year-ended December 31, 1999. Those
factors may cause our actual results to differ materially from any of our
forward-looking statements.
Factors Affecting Future Operations
We commenced operations in 1996 and have grown rapidly since then,
principally through acquisitions. We acquired a substantial portion of our cable
systems in 1998 and 1999. As a result, you have limited information upon which
to evaluate our performance in managing our current systems, and our historical
financial information may not be indicative of the future results we can achieve
with our systems. If we are unable to successfully integrate our newly acquired
cable systems or implement the technological upgrade of our systems, our growth
and profitability could be adversely affected.
In addition, the cable television industry may be affected by, among other
things:
. changes in laws and regulations;
. changes in the competitive environment;
. changes in the costs of programming we distribute;
. changes in the costs of upgrading our systems;
. changes in technology;
. franchise related matters;
. market conditions that may adversely affect the availability of debt and
equity financing for working capital, capital expenditures or other
purposes; and
. general economic conditions.
<PAGE>
PART I
------
ITEM 1. FINANCIAL STATEMENTS
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS (Unaudited)
Cash and cash equivalents $ 2,923 $ 4,473
Subscriber accounts receivable, net of allowance for doubtful accounts
of $774 and $772, respectively 4,270 5,194
Prepaid expenses and other assets 6,072 4,376
Investments 9,797 8,794
Investment in cable television systems:
Inventory 13,759 12,384
Property, plant and equipment, at cost 846,173 700,696
Less - accumulated depreciation (184,940) (101,693)
----------- -----------
Property, plant and equipment, net 661,233 599,003
Intangible assets, net of accumulated amortization of $98,574 and
$56,171, respectively 564,222 588,103
----------- -----------
Total investment in cable television systems 1,239,214 1,199,490
Other assets, net of accumulated amortization of $8,433 and $6,343,
respectively 16,811 43,599
----------- -----------
Total assets $ 1,279,087 $ 1,265,926
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
LIABILITIES
Debt $ 886,000 $ 1,139,000
Accounts payable and accrued expenses 59,917 56,310
Subscriber advances 1,852 3,188
Management fees payable 1,062 873
Deferred revenue 34,217 11,940
----------- -----------
Total liabilities $ 983,048 $ 1,211,311
----------- -----------
MEMBERS' EQUITY
Capital contributions 521,696 142,096
Other equity 17,940 39,917
Accumulated comprehensive loss (21,520) 261
Accumulated deficit (222,077) (127,659)
----------- -----------
Total members' equity 296,039 54,615
----------- -----------
Total liabilities and members' equity $ 1,279,087 $ 1,265,926
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements
1
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MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(All dollar amounts in 000's)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 84,478 $ 39,052 $ 244,513 $113,230
Costs and expenses:
Service costs 28,947 12,396 83,813 36,571
Selling, general and 13,889 7,314 41,171 21,816
administrative expenses
Management fee expense 1,598 1,562 4,529 5,150
Depreciation and amortization 45,050 24,723 129,137 66,154
Non-cash stock charges 609 27,596
-------- -------- --------- --------
Operating loss (5,615) (6,943) (41,733) (16,461)
-------- -------- --------- --------
Interest expense, net 16,868 7,185 51,461 20,577
Other expenses 353 245 1,224 979
-------- -------- --------- --------
Net loss $(22,836) $(14,373) $ (94,418) $(38,017)
Unrealized loss on investments (4,012) - (21,781) -
-------- -------- --------- --------
Comprehensive loss $(26,848) $(14,373) $(116,199) $(38,017)
======== ======== ========= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements
2
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
------------- ------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (94,418) $ (38,017)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Accretion of interest on seller note - 225
Depreciation and amortization 129,137 66,154
Other non-cash charges 27,596
Other (947)
Changes in assets and liabilities, net of effects from acquisitions:
Subscriber accounts receivable 1,055 243
Prepaid expenses and other assets (1,344) (1,235)
Accounts payable and accrued expenses 6,251 1,159
Subscriber advances (1,466) 347
Management fees payable 189 919
Deferred revenue 353 -
--------- ---------
Net cash flows provided by operating activities 66,406 29,795
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (133,376) (60,245)
Acquisitions of cable television systems (34,968) -
Other, net (905) (387)
--------- ---------
Net cash flows used in investing activities (169,249) (60,632)
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
New borrowings 211,000 224,700
Repayment of debt (464,000) (185,330)
Capital contributions 354,500 -
Financing costs (207) (7,045)
--------- ---------
Net cash flows provided by financing activities 101,293 32,325
--------- ---------
Net decrease in cash and cash equivalents (1,550) 1,488
CASH AND CASH EQUIVALENTS, beginning of period 4,473 2,212
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 2,923 $ 3,700
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 58,659 $ 16,438
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements
3
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization
Mediacom LLC ("Mediacom," and collectively with its subsidiaries, the
"Company"), a New York limited liability company, is involved in the acquisition
and development of cable television systems serving principally non-metropolitan
markets of the United States. Through these cable systems, the Company provides
entertainment, information and telecommunications services to its subscribers.
As of September 30, 2000, the Company had acquired and was operating cable
television systems in 22 states, principally Alabama, California, Florida,
Illinois, Indiana, Iowa, Kentucky, Minnesota, Missouri and North Carolina.
Mediacom Capital Corporation ("Mediacom Capital"), a New York corporation
wholly-owned by Mediacom, was organized in March 1998 for the sole purpose of
acting as co-issuer with Mediacom of $200.0 million aggregate principal amount
of 8 1/2% senior notes due 2008 (the "8 1/2% Senior Notes") and of $125.0
million aggregate principal amount of 7 7/8% senior notes due 2011 (the "7 7/8%
Senior Notes" and collectively with the 8 1/2% Senior Notes, the "Senior
Notes"). Mediacom Capital has nominal assets and does not conduct operations of
its own. The Senior Notes are joint and several obligations of Mediacom and
Mediacom Capital, although Mediacom received all the net proceeds of the Senior
Notes.
On February 9, 2000, Mediacom Communications Corporation ("MCC"), a
Delaware corporation organized in November 1999, completed an initial public
offering. Prior to such time, MCC had no assets, liabilities, contingent
liabilities or operations. Immediately prior to the completion of its initial
public offering, MCC issued shares of its Class A and Class B common stock in
exchange for all of the outstanding membership interests in Mediacom. As a
result of this exchange, Mediacom became a wholly-owned subsidiary of MCC and
Mediacom's Fourth Amended and Restated Operating Agreement (the "1999 Operating
Agreement") was amended to reflect MCC as the sole member and manager of
Mediacom. Mediacom acts as a holding company for its operating subsidiaries.
Each operating subsidiary is wholly-owned by Mediacom, except for a 1.0%
ownership interest in a subsidiary, Mediacom California LLC, that is held by
Mediacom Management Corporation ("Mediacom Management"), a Delaware corporation
that is wholly-owned by the Chairman and Chief Executive Officer of MCC.
(2) Statement of Accounting Presentation and Other Information
The consolidated financial statements as of September 30, 2000 and 1999 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 (File Nos. 333-
57285-01 and 333-57285). The results of operations for the interim periods are
not necessarily indicative of the results that might be expected for future
interim periods or for the full year-ending December 31, 2000.
Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities," was
issued. This statement establishes the accounting and reporting standards for
derivatives and hedging activity. Upon adoption of SFAS No. 133, all
derivatives are required to be recognized in the statement of financial position
as either assets or liabilities and measured at fair value. In July 1999 and
June 2000, the Financial Accounting Standards Board issued SFAS No. 137 and SFAS
No. 138 which deferred the effective date for implementation of SFAS No. 133 and
which addressed a limited number of issues causing implementation difficulties
for entities that apply SFAS No. 133, respectively. The Company is continuing
to evaluate the impact the adoption of SFAS No. 133, as amended, will have on
its financial position and results of operations.
4
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MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On March 3, 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company does not expect SAB 101
to have a material impact on its results of operations and consolidated
financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and is effective July 1, 2000,
but certain conclusions in FIN 44 cover specific events as if they had occurred
after either December 15, 1998 or January 12, 2000. The Company does not expect
the application of FIN 44 to have a material impact on its financial statements.
(3) Acquisitions
The Company completed the undernoted acquisitions (the "Acquired Systems")
in 2000 and 1999. These acquisitions were accounted for using the purchase
method of accounting, and accordingly, the purchase price of each of these
Acquired Systems has been allocated to the assets acquired and liabilities
assumed at their estimated fair values at their respective dates of acquisition.
The results of operations of the Acquired Systems have been included with those
of the Company since the dates of acquisition.
2000
On April 6, 2000, the Company acquired the assets of cable television
systems owned by Rapid Communications Partners, L.P. ("Rapid") for a purchase
price of $8.0 million. The Rapid systems serve approximately 6,000 basic
subscribers primarily in Kentucky and Illinois.
On April 21, 2000, the Company acquired the assets of cable television
systems owned by MidAmerican Cable Systems, L.P. ("MidAmerican") for a purchase
price of approximately $8.0 million. The MidAmerican systems serve approximately
5,000 basic subscribers primarily in Illinois.
On May 25, 2000, the Company acquired the assets of a cable television
system owned by Tri Cable, Inc. ("Tri Cable") for a purchase price of
approximately $1.8 million. The Tri Cable system serves approximately 1,000
basic subscribers in Minnesota.
On June 28, 2000, the Company acquired the assets of a cable television
system owned by Spirit Lake Cable TV, Inc. and E.M. Parsen ("Spirit Lake") for a
purchase price of approximately $10.8 million. The Spirit Lake system serves
approximately 5,000 basic subscribers primarily in Iowa.
On July 12, 2000, the Company acquired the assets of a cable television
system owned by South Kentucky Services Corporation ("South Kentucky") for a
purchase price of approximately $2.1 million. The South Kentucky system serves
approximately 1,000 basic subscribers primarily in Kentucky.
On August 31, 2000, the Company acquired the assets of cable television
systems owned by Dowden Midwest Cable Partners, L.P. ("Dowden") for a purchase
price of approximately $1.2 million. The Dowden systems serve approximately
1,000 basic subscribers primarily in Illinois.
The aggregate amount of the purchase prices stated above for the
acquisitions completed in 2000 have been allocated as follows: $15.5 million to
property, plant and equipment and $16.4 million to intangible assets.
5
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1999
On October 15, 1999, the Company acquired the stock of Zylstra
Communications Corporation ("Zylstra") for a purchase price of approximately
$19.5 million. Zylstra owned and operated cable television systems serving
approximately 14,000 subscribers in Iowa, Minnesota and South Dakota. The
purchase price has been preliminarily allocated as follows: $7.8 million to
property, plant and equipment and $11.7 million to intangible assets. Such
allocations are subject to adjustments based upon the final appraisal
information received by the Company. The final allocations of the purchase price
are not expected to differ materially from the preliminary allocations.
Additionally, approximately $400,000 of direct acquisition costs has been
allocated to property, plant and equipment and intangible assets. In the fourth
quarter of 1999, the Company recorded acquisition reserves related to this
acquisition in the amount of approximately $200,000, which are included in
accrued expenses.
On November 5, 1999, the Company acquired the assets of cable television
systems owned by Triax Midwest Associates, L.P. ("Triax") for a purchase price
of approximately $740.1 million. The Triax systems served approximately 344,000
subscribers primarily in Illinois, Indiana, Iowa and Minnesota. The purchase
price has been preliminarily allocated as follows: $296.0 million to property,
plant and equipment and $444.1 million to intangible assets. Such allocations
are subject to adjustments based upon the final appraisal information received
by the Company. The final allocations of the purchase price are not expected to
differ materially from the preliminary allocations. Additionally, approximately
$10.5 million of direct acquisition costs has been allocated to property, plant
and equipment, intangible assets and other assets. In the fourth quarter of
1999, the Company recorded acquisition reserves related to this acquisition in
the amount of approximately $5.5 million, which are included in accrued
expenses.
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,
1999. 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.
<TABLE>
<CAPTION>
Pro Forma Results for the
Nine Months Ended September 30,
-------------------------------
2000 1999
-------------- --------------
(dollars in thousands)
<S> <C> <C>
Revenues........................................................ $247,423 $226,423
Operating expenses and costs:
Service costs.................................................. 85,040 75,770
SG&A expenses.................................................. 41,754 40,720
Management fee expense......................................... 4,529 8,933
Depreciation and amortization.................................. 130,718 124,017
Non-cash stock charges......................................... 27,596 -
-------- --------
Operating loss.................................................. (42,214) (23,017)
-------- --------
Net loss........................................................ $(95,954) $(87,811)
======== ========
</TABLE>
6
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) Debt
As of September 30, 2000 and December 31, 1999, debt consisted of:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
Mediacom: (dollars in thousands)
<S> <C> <C>
8 1/2% Senior Notes.......................... $ 200,000 $ 200,000
7 7/8% Senior Notes.......................... 125,000 125,000
Subsidiaries:
Bank Credit Facilities....................... 561,000 814,000
--------- ----------
$ 886,000 $1,139,000
========= ==========
</TABLE>
The average interest rate on outstanding debt under the bank credit
agreements was 8.1% and 8.2% as of September 30, 2000 and December 31, 1999,
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 September 30, 2000, the Company had entered into interest
rate exchange agreements (the "Swaps") with various banks pursuant to which the
interest rate on $140.0 million is fixed at a weighted average swap rate of
approximately 6.8%, 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 2003, 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 September 30, 2000 are
as follows (dollars in thousands):
2001....................................................... $ -
2002....................................................... 750
2003....................................................... 2,000
2004....................................................... 2,000
2005....................................................... 2,000
Thereafter................................................. 879,250
--------
$886,000
========
(5) SoftNet
As of September 30, 2000 and December 31, 1999, deferred revenue resulting
from the Company's receipt of SoftNet Systems, Inc. shares of common stock
amounted to approximately $29.5 million and $8.4 million, respectively, net of
amortization taken. For the three and nine months ended September 30, 2000, the
Company recognized revenue of approximately $737,000 and $1.7 million,
respectively. The Company did not recognize any deferred revenue for the three
or nine month period ended September 30, 1999. The Company carries this
available-for-sale security at a market value of $9.8 million with a share
price of $5.97, as of September 30, 2000. The difference between this fair value
and the Company's original basis of $31.3 million for SoftNet's common stock is
recorded as unrealized loss in accumulated comprehensive loss. If the Company
determines that this decline in fair value is other than temporary, the decrease
in the original basis of the Company's SoftNet shares will be recorded as a
realized loss in other expenses in the consolidated statements of operations.
7
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(6) MCC Initial Public Offering
On February 9, 2000, MCC completed an initial public offering ("IPO") of
20,000,000 shares of Class A common stock at $19.00 per share. The net proceeds,
after underwriting discounts of approximately $22.8 million and estimated
expenses related to the offering of approximately $3.0 million, were $354.2
million. Immediately prior to the completion of the IPO, MCC issued 40,657,010
shares of Class A common stock and 29,342,990 shares of Class B common stock in
exchange for all the outstanding membership interests in Mediacom.
Immediately prior to the IPO, additional membership interests were issued
to all members of Mediacom in accordance with a formula set forth in the 1999
Operating Agreement, which was based upon a valuation of Mediacom established at
the time of the IPO (the "IPO Valuation"). A provision in the 1999 Operating
Agreement eliminated a certain portion of the special allocation of membership
interests awarded to certain Mediacom members (the "Primary Members") based upon
a valuation of Mediacom. In connection with the removal of these specified
special allocation provisions and the amendments to Mediacom's management
agreements with Mediacom Management effective November 19, 1999, the Primary
Members were issued new membership interests in Mediacom immediately prior to
the IPO representing 16.5% of the equity in Mediacom. These newly issued
membership interests were exchanged for shares of MCC Class B common stock
immediately prior to the completion of the IPO. In addition, immediately prior
to the completion of the IPO, the Primary Members received options to purchase
7,200,000 shares of MCC Class B common stock in exchange for the elimination of
the balance of the provision providing for a special allocation of membership
interests in Mediacom.
The management agreements between Mediacom Management and each of the
operating subsidiaries were terminated upon completion of the IPO and replaced
with new management agreements between MCC and the Company's operating
subsidiaries. Under such agreements, MCC is entitled to receive annual
management fees in amounts not to exceed 4.5% of the Company's gross operating
revenues.
As a result of the completion of the IPO and the termination of the
management agreements with Mediacom Management, the deferred non-cash stock
expense of $24.5 million, net of amortization taken, relating to the future
benefits associated with the continuation of such management agreements, was
recognized in the first quarter of 2000 as a non-cash stock charge in the
consolidated statements of operations. Mediacom Management is wholly-owned by
the Chairman and Chief Executive Officer of MCC.
(7) Subsequent Events
On October 12, 2000, the Company acquired the stock and assets of cable
television systems owned by Illinet Communications of Central Illinois, LLC
("Illinet") for a purchase price of approximately $15.6 million. The Illinet
systems serve approximately 8,000 basic subscribers primarily in Illinois.
On October 19, 2000, SoftNet Systems, Inc. announced that it is
restructuring its wholly-owned ISP Channel subsidiary. ISP Channel is Mediacom's
turnkey provider of high-speed Internet access. In connection with these
developments, the Chairman and Chief Executive Officer of MCC resigned from the
SoftNet board of directors effective October 27, 2000.
On October 31, 2000, the Company acquired the assets of cable television
systems owned by Satellite Cable Services, Inc. ("Satellite") for a purchase
price of approximately $25.0 million. The Satellite systems serve approximately
12,000 basic subscribers primarily in South Dakota.
8
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On November 3, 2000, the Company signed a definitive agreement to acquire
cable television systems serving approximately 14,000 basic subscribers for a
purchase price of approximately $34.0 million. The completion of this
acquisition is subject to a number of closing conditions, including regulatory
approvals and other third party consents and no assurance can be given that such
acquisition will be completed. The Company expects to complete its pending
acquisition by year-end 2000.
On November 3, 2000, the Company resolved litigation brought against it by
Grey Advertising, Inc. ("Grey") in January 2000. MCC and Grey entered into a
final settlement agreement that involves no monetary payments by either party
and that permits MCC and its subsidiaries to continue to use the name "Mediacom"
in accordance with the terms of their confidential agreement.
9
<PAGE>
MEDIACOM CAPITAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS (Unaudited)
Note receivable - from affiliate for issuance of common stock........... $ 100 $ 100
------ ------
Total assets......................................................... $ 100 $ 100
====== ======
STOCKHOLDER'S EQUITY
Common stock, par value $0.10; 200 shares authorized;
100 shares issued and outstanding.................................... $ 10 $ 10
Additional paid-in capital.............................................. $ 90 $ 90
------ ------
Total stockholder's equity........................................... $ 100 $ 100
====== ======
</TABLE>
The accompanying note to the balance sheets
is an integral part of these financial statements
10
<PAGE>
MEDIACOM CAPITAL CORPORATION
NOTE TO THE BALANCE SHEETS
(Unaudited)
(1) Organization
Mediacom Capital Corporation ("Mediacom Capital"), a New York corporation,
wholly-owned by Mediacom LLC ("Mediacom"), was organized on March 9, 1998 for
the sole purpose of acting as co-issuer with Mediacom of $200.0 million
aggregate principal amount of the 8 1/2% senior notes due April 15, 2008.
Interest on the 8 1/2% senior notes is payable semi-annually on April 15 and
October 15 of each year. Mediacom Capital does not conduct operations of its
own.
On February 26, 1999, Mediacom and Mediacom Capital jointly issued $125.0
million aggregate principal amount of 7 7/8% senior notes due on February 15,
2011. The net proceeds from this offering of approximately $121.9 million were
used to repay a substantial portion of outstanding bank debt under the bank
credit facilities of Mediacom's operating subsidiaries. Interest on the 7 7/8%
senior notes is payable semi-annually on February 15 and August 15 of each year.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
The following discussion of the financial condition and results of
operations of the Company, the description of the Company's business as well as
other sections of this Form 10-Q contain certain forward-looking statements. The
Company's actual results could differ materially from those discussed herein and
its current business plans could be altered in response to market conditions and
other factors beyond the Company's control.
EBITDA represents operating loss before depreciation and amortization and
non-cash stock charges. 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.
The Company was founded in July 1995 principally to acquire, operate and
develop cable television systems in selected non-metropolitan markets of the
United States. The Company's business strategy is to:
. improve the operating and financial performance of its acquired cable
systems;
. develop efficient operating clusters;
. rapidly upgrade its cable network;
. introduce new and enhanced products and services;
. maximize customer satisfaction to build customer loyalty;
. acquire underperforming cable television systems principally in non-
metropolitan markets; and
. implement a flexible financing structure.
The Company commenced operations in March 1996 with the acquisition of its
first cable television system. As of September 30, 2000, the Company had
completed 17 acquisitions of cable television systems that on such date passed
approximately 1,120,000 homes and served approximately 743,000 basic
subscribers. In October 1999, the Company purchased the outstanding stock of
Zylstra Communications Corporation ("Zylstra") serving 14,000 basic subscribers.
In November 1999, the Company acquired cable television systems from Triax
Midwest Associates, L.P. ("Triax"), serving 344,000 basic subscribers. During
the second and third quarters of 2000, the Company completed six acquisitions
serving a total of 19,000 basic subscribers in locations within the Company's
regional operating clusters (the "2000 Acquisitions," and together with Triax
and Zylstra systems the "Acquired Systems"). 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.
12
<PAGE>
On October 19, 2000, SoftNet Systems, Inc. announced that it is
restructuring its wholly-owned ISP Channel subsidiary. ISP Channel is Mediacom's
turnkey provider of high-speed Internet access. The Company has not yet
determined the full effects of SoftNet's announcement and is having continuing
discussions with SoftNet regarding its plans for the ISP Channel. Mediacom is
also taking the necessary steps to ensure that the impact of this restructuring
on its high-speed Internet business will be minimal. These steps include ongoing
discussions with other providers of high-speed Internet services as well as
plans to bring these activities currently performed by ISP Channel under
Mediacom's control. In connection with these developments, the Chairman and
Chief Executive Officer of Mediacom Communications Corporation ("MCC") resigned
from the SoftNet board of directors effective October 27, 2000.
Actual Results of Operations
The following historical information includes the results of operations of
Acquired Systems, only for that portion of the respective period that such cable
television systems were owned by the Company. See Note 3 to the Company's
consolidated financial statements for a detailed description of Acquired
Systems.
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Revenues. Revenues increased 116.3% to approximately $84.5 million for the
three months ended September 30, 2000 as compared to $39.1 million for the three
months ended September 30, 1999. Of the revenue increase of $45.4 million,
$41.0 million was attributable to the Acquired Systems. Excluding the Acquired
Systems, revenues increased 11.3% primarily due to basic rate increases
associated with new programming introductions and the new revenues associated
with our recently launched digital cable and high-speed Internet access
services.
Service costs. Service costs increased 133.5% to approximately $28.9
million for the three months ended September 30, 2000 as compared to
approximately $12.4 million for the three months ended September 30, 1999. The
Acquired Systems accounted for approximately $14.3 million of the total
increase. Excluding the Acquired Systems, these costs increased 17.8% primarily
as a result of higher programming expenses, including the cost of additional
channel offerings to the Company's basic subscribers. As a percentage of
revenues, service costs were 34.3% for the three months ended September 30,
2000, as compared with 31.7% for the three months ended September 30, 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 89.9% to approximately $13.9 million for the
three months ended September 30, 2000 as compared to approximately $7.3 million
for the three months ended September 30, 1999. The Acquired Systems accounted
for approximately $6.4 million of the total increase. Excluding the Acquired
Systems, these costs increased 2.9%. As a percentage of revenues, selling,
general and administrative expenses were 16.4% for the three months ended
September 30, 2000, as compared with 18.7% for the three months ended September
30, 1999.
Management fee expense. Management fee expense was unchanged at
approximately $1.6 million as compared to the three months ended September 30,
1999. As a percentage of revenues, management fee expense was 1.9% for the three
months ended September 30, 2000 as compared with 4.0% for the three months ended
September 30, 1999. During the three months ended September 30, 1999, Mediacom
Management Corporation ("Mediacom Management") was paid certain amounts by the
Company pursuant to management agreements between Mediacom Management and the
Company's operating agreements. Such management agreements were terminated on
the date of MCC's initial public offering in February 2000 and were replaced
with new management agreements between MCC and the Company's operating
subsidiaries. See Note 6 of the Company's consolidated financial statements.
Depreciation and amortization. Depreciation and amortization increased
82.2% to approximately $45.1 million for the three months ended September 30,
2000 as compared to approximately $24.7 million in the three months ended
September 30, 1999. This increase was due to the Acquired Systems and additional
capital expenditures associated with the upgrade of the Company's systems.
Non-cash stock charges. Non-cash stock charges were approximately $609,000
for the three months ended September 30, 2000, resulting from the grant of
equity interests in the fourth quarter of 1999 to certain members of the
Company's management team. See Note 6 of the Company's consolidated financial
statements.
13
<PAGE>
Interest expense, net. Interest expense, net, increased 134.8% to
approximately $16.9 million for the three months ended September 30, 2000 as
compared to approximately $7.2 million for the three months ended September 30,
1999. This increase was substantially due to higher average debt outstanding
during the three months ended September 30, 2000, principally as a result of
debt incurred in connection with the Company's acquisition of the Acquired
Systems.
Other expenses. Other expenses were approximately $353,000 for the three
months ended September 30, 2000 as compared to approximately $245,000 of other
income for the three months ended September 30, 1999. This change was
principally due to an increase in fees associated with the Company's credit
arrangements.
Net loss. Due to the factors described above, the Company generated a net
loss of approximately $22.8 million for the three months ended September 30,
2000 as compared to a net loss of approximately $14.4 million for the three
months ended September 30, 1999.
EBITDA. EBITDA increased 125.2% to approximately $40.0 million for the
three months ended September 30, 2000 as compared to approximately $17.8 million
for the three months ended September 30, 1999. This increase was substantially
due to the reasons noted above. As a percentage of revenues, EBITDA increased to
47.4% for the three months ended September 30, 2000, compared to 45.5% for the
three months ended September 30, 1999.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999
Revenues. Revenues increased 115.9% to approximately $244.5 million for
the nine months ended September 30, 2000 as compared to $113.2 million for the
nine months ended September 30, 1999. Of the revenue increase of $131.3 million,
$118.2 was attributable to the Acquired Systems. Excluding the Acquired Systems,
revenues increased 11.5% primarily due to basic rate increases associated with
new programming introductions and to revenues associated with our recently
launched digital cable and high-speed Internet access services.
Service costs. Service costs increased 129.2% to approximately $83.8
million for the nine months ended September 30, 2000 as compared to
approximately $36.6 million for the nine months ended September 30, 1999. The
Acquired Systems accounted for approximately $41.9 million of the total
increase. Excluding the Acquired Systems, these costs increased 14.5% primarily
as a result of higher programming expenses, including the cost of additional
channel offerings to the Company's basic subscribers. As a percentage of
revenues, service costs were 34.3% for the nine months ended September 30, 2000,
as compared with 32.3% for the nine months ended September 30, 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 88.7% to approximately $41.2 million for the
nine months ended September 30, 2000 as compared to approximately $21.8 million
for the nine months ended September 30, 1999. The Acquired Systems accounted
for approximately $18.6 million of the total increase. Excluding the Acquired
Systems, these costs increased 3.4%. As a percentage of revenues, selling,
general and administrative expenses were 16.8% for the nine months ended
September 30, 2000, as compared with 19.3% for the nine months ended September
30, 1999.
Management fee expense. Management fee expense decreased 12.1% to
approximately $4.5 million for the nine months ended September 30, 2000 as
compared to approximately $5.2 million for the nine months ended September 30,
1999. As a percentage of revenues, management fee expense was 1.9% for the nine
months ended September 30, 2000 as compared with 4.5% for the nine months ended
September 30, 1999. The decrease in management fee expense was primarily due to
higher amounts charged by Mediacom Management during the nine months ended
September 30, 1999 under management agreements between Mediacom Management and
the Company's operating subsidiaries. Such management agreements were
terminated on the date of MCC's initial public offering in February 2000 and
were replaced with new management agreements between MCC and the Company's
operating subsidiaries.
Depreciation and amortization. Depreciation and amortization increased
95.2% to approximately $129.1 million for the nine months ended September 30,
2000 as compared to approximately $66.2 million in the nine months ended
September 30, 1999. This increase was due to the Acquired Systems and additional
capital expenditures associated with the upgrade of the Company's systems.
Non-cash stock charges. Non-cash stock charges were approximately $27.6
million for the nine months ended September 30, 2000. These non-cash charges
comprise a one-time $24.5 million charge resulting from the termination of the
management agreements with Mediacom Management on the date of the MCC's initial
public offering and a
14
<PAGE>
$3.1 million charge related to the grant of equity interests in the fourth
quarter of 1999 to certain members of the Company's management team. See Note 6
of the Company's consolidated financial statements.
Interest expense, net. Interest expense, net, increased 150.1% to
approximately $51.5 million for the nine months ended September 30, 2000 as
compared to approximately $20.6 million for the nine months ended September 30,
1999. This increase was substantially due to higher average debt outstanding
during the nine months ended September 30, 2000 as a result of debt incurred in
connection with the Acquired Systems.
Other expenses. Other expenses increased 25.1% to approximately $1.2
million for the nine months ended September 30, 2000 as compared to
approximately $979,000 for the nine months ended September 30, 1999. This change
was principally due to an increase in fees associated with the Company's credit
arrangements.
Net loss. Due to the factors described above, the Company generated a net
loss of approximately $94.4 million for the nine months ended September 30, 2000
as compared to a net loss of approximately $38.0 million for the nine months
ended September 30, 1999.
EBITDA. EBITDA increased 131.4% to approximately $115.0 million for the
nine months ended September 30, 2000 as compared to approximately $49.7 million
for the nine months ended September 30, 1999. This increase was substantially
due to the reasons noted above. As a percentage of revenues, EBITDA increased to
47.0% for the nine months ended September 30, 2000, compared to 43.9% for the
nine months ended September 30, 1999
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
for the nine months ended September 30, 2000 and 1999, presents selected
unaudited pro forma operating results assuming the purchase of the Acquired
Systems had been consummated on January 1, 1999. This financial information is
not necessarily indicative of what results would have been had the Company
operated these cable systems since the beginning of 1999. See Note 3 to the
Company's consolidated financial statements for a detailed description of the
Company's acquisitions in 2000 and 1999.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
-------------- --------------
(dollars in thousands, except per
subscriber data)
<S> <C> <C>
Revenues................................................ $247,423 $226,423
Costs and expenses:
Service costs.......................................... 85,040 75,770
SG&A expenses.......................................... 41,754 40,720
Management fee expense................................. 4,529 8,933
Depreciation and amortization.......................... 130,718 124,017
Non-cash stock charges................................. 27,596 -
-------- --------
Operating loss.......................................... $(42,214) $(23,017)
======== ========
Other Data:
EBITDA.................................................. 116,100 101,000
EBITDA margin/(1)/...................................... 46.9% 44.6%
Basic subscribers/(2)/.................................. 743,000 734,000
Average monthly revenue per basic subscriber/(3)/....... $ 38.08 $ 35.26
</TABLE>
____________________
/(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.
15
<PAGE>
Selected Pro Forma Results for Nine Months Ended September 30, 2000 Compared
to Selected Pro Forma Results for Nine Months Ended September 30, 1999
Revenues increased 9.3% to approximately 247.4 million for the nine months
ended September 30, 2000, as compared to approximately $226.4 million for the
nine months ended September 30, 1999. This increase was attributable
principally to internal subscriber growth of 1.2%, basic rate increases
associated with new programming introductions and to revenues associated with
our recently launched digital cable and high-speed Internet access services.
Service costs and selling, general and administrative expenses in the
aggregate increased 8.8% to approximately $126.8 million for the nine months
ended September 30, 2000 from approximately $116.5 million for the nine months
ended September 30, 1999, principally due to higher programming costs incurred
by the Company for the systems acquired in 1999.
Management fee expense decreased 49.3% to approximately $4.5 million for
the nine months ended September 30, 2000 from approximately $8.9 million for the
nine months ended September 30, 1999. As a percentage of revenues, management
fee expense was 1.8% for the nine months ended September 30, 2000 as compared
with 3.9% for the nine months ended September 30, 1999. The decrease in
management fee expense was primarily due to a reduction in amounts charged by
Mediacom Management, resulting from amendments to management agreements between
Mediacom Management and the Company's operating subsidiaries. Such management
agreements were terminated on the date of MCC's initial public offering in
February 2000 and were replaced with new management agreements between MCC and
the Company's operating subsidiaries.
Depreciation and amortization increased 5.4% to approximately $130.7
million for the nine months ended September 30, 2000 from approximately $124.0
million for the nine months ended September 30, 1999. This increase was
principally due to capital expenditures associated with the upgrade of the
Company's systems. Non-cash stock charges were as reported above.
As a result of the above factors, the Company generated an operating loss
of approximately $42.2 million for the nine months ended September 30, 2000,
compared to approximately $23.0 million for the nine months ended September 30,
1999.
EBITDA increased by 15.0% to approximately $116.1 million for the nine
months ended September 30, 2000 from approximately $101.0 million for the nine
months ended September 30, 1999. The EBITDA margin improved to 46.9% for the
nine months ended September 30, 2000 from 44.6% for the nine months ended
September 30, 1999.
Liquidity and Capital Resources
The Company's business requires substantial capital for the upgrade,
expansion and maintenance of its cable and fiber network. In addition, the
Company has pursued, and will continue to pursue, a business strategy that
includes selective acquisitions. The Company has funded its working capital
requirements, capital expenditures and acquisitions through a combination of
internally generated funds, long-term borrowings and equity contributions. The
Company intends to continue to finance such expenditures through internally
generated funds, long-term borrowings and equity financings.
From the commencement of its operations in March 1996 through December
1999, the Company invested approximately $1.2 billion, before closing costs and
adjustments, to acquire cable television systems serving 724,000 basic
subscribers as of September 30, 2000.
In 2000, the Company has completed or anticipates completing the undernoted
acquisitions of cable systems serving 53,000 basic subscribers for an aggregate
purchase price of $109.0 million.
. On April 6, 2000, the Company acquired the assets of cable television
systems owned by Rapid Communications Partners, L.P. ("Rapid") for a
purchase price of $8.0 million. The Rapid systems serve approximately
6,000 basic subscribers primarily in Kentucky and Illinois.
16
<PAGE>
. On April 21, 2000, the Company acquired the assets of cable television
systems owned by MidAmerican Cable Systems, L.P. ("MidAmerican") for a
purchase price of approximately $8.0 million. The MidAmerican systems
serve approximately 5,000 basic subscribers primarily in Illinois.
. On May 25, 2000, the Company acquired the assets of cable television
systems owned by Tri Cable, Inc. ("Tri Cable") for a purchase price of
approximately $1.8 million. The Tri Cable systems serve approximately
1,000 basic subscribers in Minnesota.
. On June 28, 2000, the Company acquired the assets of a cable television
system owned by Spirit Lake Cable TV, Inc. and E.M. Parsen ("Spirit
Lake") for a purchase price of approximately $10.8 million. The Spirit
Lake system serves approximately 5,000 basic subscribers primarily in
Iowa.
. On July 12, 2000, the Company acquired the assets of a cable television
system owned by South Kentucky Services Corporation ("South Kentucky")
for a purchase price of approximately $2.1 million. The South Kentucky
system serves approximately 1,000 basic subscribers primarily in
Kentucky.
. On August 31, 2000, the Company acquired the assets of cable television
systems owned by Dowden Midwest Cable Partners, L.P. ("Dowden") for a
purchase price of approximately $1.2 million. The Dowden systems serve
approximately 1,000 basic subscribers primarily in Illinois.
. On October 12, 2000, the Company acquired the stock and assets of cable
television systems owned by Illinet Communications of Central Illinois,
LLC ("Illinet") for a purchase price of approximately $15.6 million. The
Illinet systems serve approximately 8,000 basic subscribers primarily in
Illinois.
. On October 31, 2000, the Company acquired the assets of cable television
systems owned by Satellite Cable Services, Inc. ("Satellite") for a
purchase price of approximately $27.5 million. The Satellite systems
serve approximately 12,000 basic subscribers primarily in South Dakota.
. On November 3, 2000, the Company signed a definitive agreement to
acquire cable television systems serving approximately 14,000 basic
subscribers for a purchase price of approximately $34.0 million.
Substantially all of the basic subscribers served by the completed and
pending acquisitions are within the Company's regional operating clusters. The
pending acquisition is subject to a number of closing conditions, including
regulatory approvals and other third party consents and no assurance can be
given that this acquisition will be consummated. The Company expects to complete
this pending acquisition by year-end 2000.
For the nine months ended September 30, 2000, the Company's capital
expenditures were $133.4 million. The Company expects to spend approximately
$180.0 million in capital expenditures in 2000, including capital expenditures
associated with acquisitions completed in 2000. As a result of its capital
investment plans, excluding the 2000 acquisitions, the Company anticipates that
by December 2000, 77% of its cable network will be upgraded to 550MHz - 750MHz
bandwidth capacity compared to 57% as of December 1999 and that 50% of its homes
passed will be activated with two-way communications capability compared to 11%
as of December 1999.
To finance the Company's acquisitions, working capital requirements and
capital expenditures and to provide liquidity for future capital needs, the
Company had completed the following financing arrangements in place as of
September 30, 2000:
. $200.0 million offering of 8 1/2% senior notes due April 2008;
. $125.0 million offering of 7 7/8% senior notes due February 2011;
. $550.0 million subsidiary credit facility expiring in September 2008;
. $550.0 million subsidiary credit facility expiring in December 2008; and
. $489.9 million of equity capital contributions by members of Mediacom,
including a $354.4 million equity contribution by Mediacom
Communications Corporation in February 2000.
17
<PAGE>
The final maturities of the Company's subsidiary credit facilities are
subject to earlier repayment on dates ranging from June 2007 to December 2007 if
the Company does not refinance its 8 1/2% senior notes prior to March 31, 2007.
As of September 30, 2000, the Company was in compliance with all of the
financial and other covenants provided for in its subsidiary credit agreements.
As of September 30, 2000, the Company entered into interest rate swap
agreements, which expire from 2002 through 2003, to hedge $140.0 million of
floating rate debt under its subsidiary credit facilities. As a result of these
interest rate swap agreements, approximately 53% of the Company's outstanding
debt was at fixed interest rates or subject to interest rate protection on such
date. After giving effect to these interest rate swap agreements, as of
September 30, 2000, the Company's weighted average cost of indebtedness was
approximately 8.2%.
Debt leverage and interest coverage ratios are commonly used in the cable
television industry to measure liquidity and financial condition. For the three
month period ended September 30, 2000, the Company's debt leverage ratio
(defined as total debt at the end of the period, divided by pro forma annualized
EBITDA for the period) was 5.5x and the Company's interest coverage ratio
(defined as EBITDA divided by interest expense, net for the period) 2.4x As of
September 30, 2000, the Company had approximately $537.6 million of unused
credit commitments under its subsidiary credit facilities.
Although the Company has not generated earnings sufficient to cover fixed
charges, the Company has generated cash and obtained financing sufficient to
meet its debt service, working capital, capital expenditure and acquisition
requirements. The Company expects that it will continue to be able to generate
funds and obtain financing sufficient to service its obligations and complete
its pending and future acquisitions. There can be no assurance that the Company
will be able to obtain sufficient financing, or, if it was 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. This statement establishes the accounting and reporting standards for
derivatives and hedging activity. Upon adoption of SFAS No. 133, all
derivatives are required to be recognized in the statement of financial position
as either assets or liabilities and measured at fair value. In July 1999 and
June 2000, the Financial Accounting Standards Board issued SFAS No. 137 and SFAS
No. 138 which deferred the effective date for implementation of SFAS No. 133 and
which addressed a limited number of issues causing implementation difficulties
for entities that apply SFAS No. 133, respectively. The Company is continuing
to evaluate the impact the adoption of SFAS No. 133, as amended, will have on
its financial position and results of operations.
On March 3, 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company does not expect SAB 101
to have a material impact on its results of operations and consolidated
financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and is effective July 1, 2000,
but certain conclusions in FIN 44 cover specific events as if they had occurred
after either December 15, 1998 or January 12, 2000. The Company does not expect
the application of FIN 44 to have a material impact on its 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.
18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company uses interest rate swap
agreements in order to fix the interest rate for the duration of the contract as
a hedge against interest rate volatility. As of September 30, 2000, the Company
had interest rate exchange agreements (the "Swaps") with various banks pursuant
to which the interest rate on $140.0 million is fixed at a weighted average swap
rate of approximately 6.8%, plus the average applicable margin over the
Eurodollar Rate option under the Company's bank credit agreement. Under the
terms of the Swaps, which expire from 2002 through 2003, 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 received approximately $396,000 if it terminated the
Swaps, inclusive of accrued interest, at September 30, 2000. The table below
provides information for the Company's long term debt. See Note 4 to the
Company's consolidated financial statements.
<TABLE>
<CAPTION>
Expected Maturity
---------------------------------------------------------------
(All dollar amounts in thousands)
2001 2002 2003 2004 2005 Thereafter Total Fair Value
------ ------ ------ ------ ------ ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $ - $ - $ - $ - $ - $ 200,000 $200,000 $ 191,000
Weighted average
interest rate 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
Fixed rate $ - $ - $ - $ - $ - $ 125,000 $125,000 $ 109,000
Weighted average
interest rate 7.9% 7.9% 7.9% 7.9% 7.9% 7.9% 7.9%
Variable rate $ - $ 500 $1,000 $2,000 $2,000 $ 554,250 $561,000 $ 561,000
Weighted average
interest rate 8.1% 8.1% 8.1% 8.1% 8.1% 8.1% 8.1%
</TABLE>
19
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
On November 3, 2000, the Company resolved litigation brought against it by
Grey Advertising, Inc. ("Grey") in January 2000. MCC and Grey entered into a
final settlement agreement that involves no monetary payments by either party
and that permits MCC and its subsidiaries to continue to use the name "Mediacom"
in accordance with the terms of their confidential agreement.
ITEM 6.
(a) Exhibits
Exhibit
Number Exhibit Descriptions
--------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDIACOM LLC
November 14, 2000 By: /s/ Mark E. Stephan
--------------------
Mark E. Stephan
Senior Vice President,
Chief Financial Officer, Treasurer
and Principal Financial Officer
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDIACOM CAPITAL CORPORATION
November 14, 2000 By: /s/ Mark E. Stephan
-------------------
Mark E. Stephan
Treasurer, Secretary and
Principal Financial Officer
22
