<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
Commission File Number: 0-29227
Mediacom Communications Corporation
(Exact name of Registrant as specified in its charter)
Delaware 06-1566067
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 Crystal Run Road
Middletown, New York 10941
(Address of principal executive offices)
914-695-2600
(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 March 31, 2000, there were 60,657,010 shares of Class A common stock
and 29,342,990 shares of Class B common stock outstanding.
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2000
TABLE OF CONTENTS
PART I
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<TABLE>
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Page
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<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2000 (unaudited) and December 31, 1999........... 1
Consolidated Statements of Operations -
Three Months Ended March 31, 2000 and 1999 (unaudited)..... 2
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 (unaudited)..... 3
Consolidated Statement of Changes in Stockholders' Equity -
Three Months Ended March 31, 2000 (unaudited).............. 4
Notes to Consolidated Financial Statements (unaudited)........ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 14
Item 3. Quantitative and Qualitative Disclosures about
Market Risk................................................... 20
PART II
-------
Item 1. Legal Proceedings............................................... 21
Item 2. Changes in Securities and Use of Proceeds....................... 21
Item 6. Exhibits and Reports on Form 8-K................................ 21
</TABLE>
i
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Mediacom Communications Corporation, a Delaware corporation organized on
November 8, 1999, completed an initial public offering on February 9, 2000.
Prior to such time, Mediacom Communications Corporation had no assets,
liabilities, contingent liabilities or operations. Immediately prior to the
completion of its initial public offering, Mediacom Communications Corporation
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. Upon completion of such exchange, Mediacom LLC became a wholly-owned
subsidiary of Mediacom Communications Corporation.
This Quarterly Report on Form 10-Q is for the three months ended March 31,
2000. References in this Quarterly Report to "the Company," "we," "us," or "our"
are to Mediacom Communications Corporation and its direct and indirect
subsidiaries since the initial public offering and to Mediacom LLC and its
direct and indirect subsidiaries prior to the initial public offering, unless
the context specifies or requires otherwise.
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, in our
Annual Report on Form 10-K for the year ended December 31, 1999 and in our
definitive prospectus dated February 3, 2000. 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, 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 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.
ii
<PAGE>
PART I
------
ITEM 1. FINANCIAL STATEMENTS
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,774 $ 4,473
Subscriber accounts receivable, net of allowance for doubtful accounts
of $553 and $772, respectively 3,958 5,194
Prepaid expenses and other assets 7,148 4,376
Investments 27,539 8,794
Investment in cable television systems:
Inventory 13,867 12,384
Property, plant and equipment, at cost 733,694 700,696
Less - accumulated depreciation (127,697) (101,693)
---------- ----------
Property, plant and equipment, net 605,997 599,003
Intangible assets, net of accumulated amortization of $70,133 and
$56,171, respectively 574,345 588,103
---------- ----------
Total investment in cable television systems 1,194,209 1,199,490
Other assets, net of accumulated amortization of $7,031 and $6,343,
respectively 18,157 43,599
---------- ----------
Total assets $1,253,785 $1,265,926
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt $ 800,000 $1,139,000
Accounts payable and accrued expenses 59,755 57,183
Subscriber advances 2,930 3,188
Deferred revenue 28,552 11,940
Deferred tax liability 4,589 -
---------- ----------
Total liabilities 895,826 1,211,311
---------- ----------
STOCKHOLDERS' EQUITY
Class A common stock, $.01 par value; 300,000,000 shares authorized;
60,657,010 shares issued and outstanding as of March 31, 2000 607
Class B common stock, $.01 par value; 100,000,000 shares authorized;
29,342,990 shares issued and outstanding as of March 31, 2000 293
Additional paid in capital 537,166
Capital contributions - 182,013
Accumulated comprehensive income 1,778 261
Accumulated deficit (181,885) (127,659)
---------- ----------
Total stockholders' equity 357,959 54,615
---------- ----------
Total liabilities and stockholders' equity $1,253,785 $1,265,926
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
1
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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in 000's, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenues $ 77,440 $ 36,000
Costs and expenses:
Service costs 26,635 11,825
Selling, general and administrative expenses 13,389 7,201
Corporate expenses 1,420 1,665
Depreciation and amortization 40,680 20,402
Non-cash stock charges 26,073 -
-------- --------
Operating loss (30,757) (5,093)
-------- --------
Interest expense, net 18,423 6,380
Other expenses 457 993
-------- --------
Net loss before income taxes (49,637) (12,466)
Provision for income taxes 4,589 -
-------- --------
Net loss $(54,226) $(12,466)
======== ========
Basic and diluted loss per share $(0.83) $(1.58)
Weighted average common shares outstanding 65,223 7,895
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
2
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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
----------- ------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (54,226) $ (12,466)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Accretion of interest on seller note - 74
Depreciation and amortization 40,680 20,402
Provision for income taxes 4,589 -
Other non-cash charges 26,073 755
Other (273) -
Changes in assets and liabilities:
Subscriber accounts receivable 1,236 1,259
Prepaid expenses and other assets (2,417) (56)
Accounts payable and accrued expenses 5,397 1,700
Subscriber advances (258) (455)
Deferred revenue (343) -
--------- ---------
Net cash flows provided by operating activities 20,458 11,213
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (36,775) (15,907)
Other, net (735) (255)
--------- ---------
Net cash flows used in investing activities (37,510) (16,162)
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
New borrowings 26,500 133,900
Repayment of debt (365,500) (126,575)
Net proceeds from sale of Class A common stock 354,453 -
Financing costs (100) (3,238)
--------- ---------
Net cash flows provided by financing activities 15,353 4,087
--------- ---------
Net decrease in cash and cash equivalents (1,699) (862)
CASH AND CASH EQUIVALENTS, beginning of period 4,473 2,212
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 2,774 $ 1,350
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 23,001 $ 1,930
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
3
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(All dollar amounts in 000's)
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B Additional Accumulated
Common Common Paid-In Capital Other Comprehensive Accumulated
Stock Stock Capital Contributions Equity Loss Deficit Total
-------- -------- --------- ------------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ - $ - $ - $ 142,096 $ 39,917 $ 261 $(127,659) $ 54,615
Comprehensive loss:
Net loss - - - - - - (54,226)
Unrealized gain on - - - - - 1,517 -
investments
Comprehensive loss (52,709)
Issuance of common stock in
exchange for membership interests 407 293 141,396 (142,096) - - - -
Issuance of common stock in initial
public offering 200 - 354,253 - - - - 354,453
Non-cash expense related to - - 1,600 - - - - 1,600
equity grant to employees
Reclassification of equity to
paid-in-capital - - 39,917 - (39,917) - - -
------ ------ -------- ---------- ------- ------ --------- --------
Balance, March 31, 2000 $ 607 $ 293 $537,166 $ - $ - $1,778 $(181,885) $357,959
====== ====== ======== ========== ======= ====== ========= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
4
<PAGE>
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. Through these cable systems, the Company provides entertainment,
information and telecommunications services to its subscribers. As of March 31,
2000, the Company had acquired and was operating cable systems in 21 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 that, prior to the initial public offering,
served as a holding company for certain operating subsidiaries. As a result of
this exchange, Mediacom LLC became a wholly-owned subsidiary of MCC and
continues to serve as the holding company for such operating subsidiaries. Each
operating subsidiary is wholly-owned by Mediacom LLC, 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 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 March 31, 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 MCC's
accounting policies, the interim financial statements should be read in
conjunction with MCC's Annual Report on Form 10-K (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, 2000.
Recent Accounting Pronouncements
In 1998, Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued. SFAS
133 established accounting and reporting standards requiring that derivative
instruments be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Company will adopt SFAS 133 in 2001, and has not
yet quantified the impact nor determined the timing or method of the adoption.
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 financial statements.
5
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Acquisitions
The Company completed the undernoted acquisitions (the "Acquired Systems")
in 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.
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.
6
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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Pro Forma Results for the
Three Months Ended March 31,
-----------------------------
2000 1999
---------- -------
(dollars in thousands, except per
share amounts)
Revenues.................................. $ 77,440 $ 71,161
Operating expenses and costs:
Service costs........................... 26,635 23,606
SG&A expenses........................... 13,389 12,829
Corporate expenses...................... 1,420 2,901
Depreciation and amortization........... 40,680 38,762
Non-cash stock charges.................. 26,073 -
-------- --------
Operating loss............................ (30,757) (6,937)
-------- --------
Net loss.................................. $(54,226) $(27,660)
======== ========
Basic and diluted loss per share.......... $(0.83) $(3.50)
(4) Income Tax
The accompanying consolidated statements of operations for the three months
ended March 31, 2000 include a provision for income taxes of approximately $4.6
million. This provision reflects a one-time, non-cash charge recognized upon the
exchange of outstanding membership interests in Mediacom LLC for shares of MCC
common stock. Since the predecessor company, Mediacom LLC, is a New York limited
liability company and is not subject to federal or state income taxes, no
provision for income taxes was recorded for the three months ended March 31,
1999.
A reconciliation of the income tax provision at the United States federal
statutory rate to the actual income tax expense for the three months ended
March 31, 2000 is as follows (dollars in thousands):
Tax benefit at the United States statutory rate...................... $ 4,342
State taxes, net of federal tax benefit.............................. 247
--------
Total income tax provision......................................... $ 4,389
========
The Company's net deferred tax liability consisted of the following amounts
of deferred tax assets and liabilities as of March 31, 2000 (dollars in
thousands):
Deferred tax assets:
Deferred revenue................................................... $ 11,361
Intangibles........................................................ 12,703
Reserves........................................................... 623
--------
Deferred tax assets.................................................. $ 24,687
========
Deferred tax liabilities:
Depreciation and amortization................................. $(22,196)
Other......................................................... (7,080)
--------
Deferred tax liabilities............................................. (29,276)
========
Net deferred tax liabilities......................................... $ (4,589)
7
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5) Loss Per Share
The Company calculates loss per share in accordance with Statement
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 is reporting a net
loss for the period, the inclusion of outstanding stock options would cause its
loss per share to decrease and therefore these options 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 months ended March 31, 2000 and 1999:
Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
(in thousands, except per share
amounts)
Net loss................................ $(54,226) $(12,466)
Basic and diluted loss per share........ $ (0.83) $ (1.58)
Weighted average common shares
outstanding............................. 65,223 7,895
The weighted average shares outstanding is computed based on the conversion
ratio used to exchange the Mediacom LLC membership units for shares of MCC
common stock upon MCC's initial public offering.
(6) Debt
As of March 31, 2000 and December 31, 1999, debt consisted of:
March 31, December 31,
2000 1999
-------- -----------
(dollars in thousands)
8 1/2% Senior Notes (a)..................... $200,000 $ 200,000
7 7/8% Senior Notes (b)..................... 125,000 125,000
Bank Credit Facilities (c).................. 475,000 814,000
-------- ----------
$800,000 $1,139,000
======== ==========
(a) On April 1, 1998, Mediacom LLC and Mediacom Capital Corporation ("Mediacom
Capital"), a New York corporation wholly-owned by Mediacom LLC, jointly
issued $200.0 million aggregate principal amount of 8 1/2% Senior Notes due
on April 15, 2008. The 8 1/2% Senior Notes are unsecured obligations, and
the indenture for the 8 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 and its subsidiaries. Interest accrues at 8 1/2% per annum,
beginning from the date of issuance and is payable semi-annually on April
15 and October 15 of each year. The 8 1/2% Senior Notes may be redeemed at
the option of Mediacom LLC, in whole or part, at any time after April 15,
2003, at redemption prices decreasing from 104.25% of their principal
amount to 100% in 2006, plus accrued and unpaid interest.
(b) On February 26, 1999, Mediacom LLC and Mediacom Capital jointly issued
$125.0 million aggregate principal amount of 7 7/8% Senior Notes due on
February 15, 2011. The 7 7/8% Senior Notes are unsecured
8
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
obligations, and the indenture for the 7 7/8% 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 and its subsidiaries. Interest
accrues at 7 7/8% per annum, beginning from the date of issuance and is
payable semi-annually on February 15 and August 15 of each year. The 7 7/8%
Senior Notes may be redeemed at the option of Mediacom LLC, in whole or
part, at any time after February 15, 2006, at redemption prices decreasing
from 103.938% of their principal amount to 100% in 2008, plus accrued and
unpaid interest.
(c) On June 24, 1997, certain operating subsidiaries of Mediacom LLC (the
"Western Group") entered into an eight and one-half year $100.0 million
reducing revolver and term loan agreement (the "Western Credit Agreement").
On January 23, 1998, certain other operating subsidiaries of Mediacom LLC
(the "Southeast Group") entered into a separate eight and one-half year
$225.0 million reducing revolver and term loan agreement (the "Southeast
Credit Agreement" and together with the Western Credit Agreement, the
"Former Bank Credit Agreements"). By separate amendments to the Former Bank
Credit Agreements, each dated as of January 26, 1999, the term loans were
converted into additional revolving credit loans.
On September 30, 1999, the Former Bank Credit Agreements were replaced with
$550.0 million of credit facilities, consisting of a $450.0 million
reducing revolving credit facility and a $100.0 million term loan (the
"Mediacom USA Credit Agreement"). The revolving credit facility expires on
March 31, 2008, subject to earlier expiration on June 30, 2007 if Mediacom
LLC does not refinance the 8 1/2% Senior Notes by March 31, 2007. The term
loan is due and payable on September 30, 2008, and is subject to repayment
on September 30, 2007 if Mediacom LLC does not refinance the 8 1/2% Senior
Notes by March 31, 2007. The reducing revolving credit facility makes
available a maximum commitment amount for a period of up to eight and one-
half years, which is subject to quarterly reductions, beginning September
30, 2002, ranging from 1.25% to 17.50% of the original commitment amount of
the reducing revolver. The Mediacom USA Credit Agreement requires mandatory
reductions of the reducing revolver facility from excess cash flow, as
defined therein, beginning December 31, 2002. The Mediacom USA Credit
Agreement provides for interest at varying rates based upon various
borrowing options and the attainment of certain financial ratios, and for
commitment fees of 1/4% to 1/8% per annum on the unused portion of
available credit under the reducing revolver credit facility.
On November 5, 1999, certain newly formed operating subsidiaries of
Mediacom LLC (the "Midwest Group") entered into a separate credit facility
consisting of a $450.0 million reducing revolving credit facility and a
$100.0 million term loan (the "Mediacom Midwest Credit Agreement", and
together with the Mediacom USA Credit Agreement, the "Bank Credit
Agreements"). The revolving credit facility expires on June 30, 2008,
subject to earlier expiration on September 30, 2007 if Mediacom LLC does
not refinance the 8 1/2% Senior Notes by March 31, 2007. The term loan is
due and payable on December 31, 2008, and is subject to repayment on
December 31, 2007 if Mediacom LLC does not refinance the 8 1/2% Senior
Notes by March 31, 2007. The reducing revolving credit facility makes
available a maximum commitment amount for a period of up to eight and one-
half years, which is subject to quarterly reductions, beginning September
30, 2002, ranging from 1.25% to 8.75% of the original commitment amount of
the reducing revolver. The Mediacom Midwest Credit Agreement requires
mandatory reductions of the reducing revolver facility from excess cash
flow, as defined therein, beginning December 31, 2002. The Midwest Credit
Agreement provides for interest at varying rates based upon various
borrowing options and the attainment of certain financial ratios, and for
commitment fees of 1/4% to 1/8% per annum on the unused portion of
available credit under the reducing revolver credit facility. The average
interest rate on outstanding debt under the Bank Credit Agreements was 8.3%
and 8.0% for the three months ended March 31, 2000 and December 31, 1999,
respectively, before giving effect to the interest rate swap agreements
discussed below.
The Bank Credit Agreements require the operating subsidiaries to maintain
compliance with certain financial covenants including, but not limited to
leverage, interest coverage and pro forma debt service coverage ratios, as
defined therein. The Bank Credit Agreements also require the operating
subsidiaries to maintain compliance with other
9
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
covenants, including, but not limited to, limitations on mergers and
acquisitions, consolidations and sales of certain assets, liens, the
incurrence of additional indebtedness, certain restrictive payments, and
certain transactions with affiliates. The operating subsidiaries were in
compliance with all covenants of the Bank Credit Agreements as of March 31,
2000.
The Bank Credit Agreements are secured by Mediacom LLC's pledge of all its
ownership interests in its operating subsidiaries and is guaranteed by
Mediacom LLC on a limited recourse basis to the extent of such ownership
interests. At March 31, 2000, the operating subsidiaries had approximately
$625.0 million of unused bank commitments under the Bank Credit Agreements.
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 March 31, 2000, the Company had entered into interest rate
exchange agreements (the "Swaps") with various banks pursuant to which the
interest rate on $40.0 million is fixed at a weighted average swap rate of
approximately 6.2%, plus the average applicable margin over the Eurodollar Rate
option under the Bank Credit Agreements. Under the terms of the Swaps, which
expire from 2000 through 2002, the Company is exposed to credit loss in the
event of nonperformance by the other parties to the Swaps. However, the Company
does not anticipate nonperformance by the counterparties.
The stated maturities of all debt outstanding as of March 31, 2000 are as
follows (dollars in thousands):
2001............................................................ $ -
2002............................................................ 750
2003............................................................ 2,000
2004............................................................ 2,000
2005............................................................ 2,000
Thereafter...................................................... 793,250
--------
$800,000
========
(7) SoftNet
As of March 31, 2000 and December 31, 1999, deferred revenue resulting from
the Company's receipt of SoftNet Systems, Inc. shares of common stock amounted
to approximately $25.3 million and $8.4 million, respectively, net of
amortization taken. For the three months ended March 31, 2000, the Company
recognized approximately $273,000 of this deferred revenue. The Company did not
recognize any deferred revenue for the three month period ended March 31, 1999.
(8) 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 $2.8 million, were $354.4
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 LLC. On
February 9, 2000, Mediacom LLC's Fourth Amended and Restated Operating Agreement
was amended (the "1999 Operating Agreement") to reflect MCC as the sole member
and manager of Mediacom LLC.
Immediately prior to the IPO, additional membership interests were issued
to all members of Mediacom LLC in accordance with a formula set forth in the
1999 Operating Agreement, which was based upon a valuation of
10
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Mediacom LLC 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 LLC
members (the "Primary Members") based upon valuations of Mediacom LLC performed
from time to time. In connection with the removal of these specified special
allocation provisions and the amendments to Mediacom LLC's management agreements
with Mediacom Management effective November 19, 1999, the Primary Members were
issued new membership interests in Mediacom LLC at the time of the IPO
representing 16.5% of the equity in Mediacom LLC in accordance with a formula
based upon the IPO Valuation. These newly issued membership interests were
exchanged for shares of MCC Class B common stock in the IPO.
In addition, the Primary Members received options to purchase 7,200,000
shares of 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 LLC. These options have a term of five years and are exercisable,
commencing six months after the completion of the IPO, at a price equal to the
initial public offering price of $19.00. With the exception of such options held
by the Company's Chairman and Chief Executive Officer to purchase approximately
6,900,000 shares of common stock, such options: (i) vest over five years which
vesting period is deemed to have commenced for these Primary Members on various
dates prior to the IPO; and (ii) are subject to forfeiture penalties to the
Company's Chairman and Chief Executive Officer during the three year period
between the date the options become vested and the date the Primary Member
terminates employment with the Company.
The management agreements between Mediacom Management and each of the
operating subsidiaries were terminated upon completion of the IPO, and Mediacom
Management's employees became MCC's employees and its corporate expense became
MCC's corporate expense. These expenses are reflected as corporate expenses in
the consolidated statements of operations.
As a result 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 future benefits associated with the
continuation of such management agreements, was recognized as a non-cash stock
charge in the consolidated statements of operations for the three months ended
March 31, 2000. Mediacom Management is wholly-owned by the Chairman and Chief
Executive Officer of MCC.
(9) Stock Options
As of December 20, 1999, the Board of Directors of the Company adopted the
1999 Stock Option Plan for officers, directors and key employees. Options
granted under this plan have a ten-year duration and vest at various times over
a five-year period. Our Board of Directors authorized 9,000,000 shares of common
stock to be granted as options under (the "Employee Options") this plan. A
maximum of 7,000,000 of these shares of common stock may be granted as incentive
stock options. As of March 31, 2000, options for 2,920,000 shares had been
granted under the 1999 Stock Option Plan, consisting of 1,971,108 shares of
Class A common stock and 948,892 shares of Class B common stock. As of March 31,
2000, as noted above, additional options for 7,200,000 shares of Class B common
stock had been issued to the Primary Members. See Note 8.
11
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes information concerning stock option activity
of the Employee Options as of March
31, 2000:
Weighted
Average
Exercise
Shares Price
---------- -------
Outstanding at beginning of period - -
Granted.................................................. 2,920,000 $19.00
Exercised................................................ - -
Forfeited................................................ (41,150) -
---------- ------
Outstanding at end of period............................. 2,878,850 $19.00
========== ======
Options exercisable at end of period..................... 1,002,041 $19.00
Weighted average fair value of options granted
during period........................................... $ 8.14
The weighted average remaining contractual life of the outstanding Employee
Options is 9.85 years.
MCC applied Accounting Principles Board No. 25, "Accounting for Stock
Issued to Employees," in accounting for stock options granted to key
employees and directors. Accordingly, no compensation cost has been recognized
for any option grants in the accompanying statements of operations. FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
requires that information be determined as if the Company had accounted for
employee stock options under the fair value method of this statement, including
disclosing pro forma information regarding net loss and loss per share. The fair
value of all of the Employee Options was estimated on the date of grant using
the Black-Scholes model with the following weighted-average assumptions: (i)
risk free interest rate of 6.7%; (ii) expected dividend yields of 0%; (iii)
expected lives of 6 years; and (iv) expected volatility of 29%. Had compensation
costs been recorded for the Employee Options, MCC's net loss and basic and
diluted loss per share would have been reduced from the "as reported" amounts to
the "pro forma" amounts as follows:
Three Months Ended March 31,
----------------------------
2000 1999
------------ ---------
(dollars in thousands, except per
share amounts)
Net loss:
As reported.............................. $ (54,226) $(12,466)
Pro forma................................ $ (62,383) $(12,466)
Basic and diluted loss per share:
As reported.............................. $ (0.83) $ (1.58)
Pro forma................................ $ (0.96) $ (1.58)
(10) Related Party Transactions
Pursuant to an agreement with Mediacom Management, upon the completion of
the IPO MCC paid Mediacom Management approximately $653,000 for the furniture,
computers and other office equipment that Mediacom Management previously
purchased to conduct its operations. The purchase price paid to Mediacom
Management for such assets approximated their carrying value.
12
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(11) Subsequent Events
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.
13
<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 March 31, 2000, the Company had completed
11 acquisitions of cable television systems that on such date passed
approximately 1,073,000 homes and served approximately 720,000 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," and together with Zylstra, the "Acquired
Systems") serving 344,000 basic subscribers. 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.
14
<PAGE>
Actual Results of Operations
The following historical information includes the results of operations of
the Zylstra systems, which were acquired on October 15, 1999 and the Triax
systems, which were acquired on November 5, 1999, only for that portion of the
respective period that such cable television systems were owned by the Company.
See Note 2 to the Company's consolidated financial statements for a detailed
description of the Company's acquisitions in 1999.
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues. Revenues increased 115.1% to approximately $77.4 million for the
three months ended March 31, 2000 as compared to $36.0 million for the three
months ended March 31, 1999. Of the revenue increase of $41.4 million, $37.1 was
attributable to the Acquired Systems. Excluding the Acquired Systems, revenues
would have increased by 12.0%, principally due to monthly revenue per subscriber
increasing from $32.82 to $36.13. This increase in monthly revenue per
subscriber resulted primarily from basic rate increases associated with new
programming introductions and higher advertising revenues, offset by a decline
in pay-per-view revenues.
Service costs. Service costs increased 125.2% to approximately $26.6
million for the three months ended March 31, 2000 as compared to approximately
$11.8 million for the three months ended March 31, 1999. The Acquired Systems
accounted for approximately $13.4 million of the total increase. Excluding the
Acquired Systems, these costs increased by approximately 12.1% primarily as a
result of higher employee and programming costs and additional channel
offerings. As a percentage of revenues, service costs were 34.4% for the three
months ended March 31, 2000, as compared with 32.8% for the three months ended
March 31, 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 85.9% to approximately $13.4 million for the
three months ended March 31, 2000 as compared to approximately $7.2 million for
the three months ended March 31, 1999. The Acquired Systems accounted for
approximately $6.0 million of the total increase. Excluding the Acquired
Systems, these costs increased by approximately 2.9%. As a percentage of
revenues, selling, general and administrative expenses were 17.3% for the three
months ended March 31, 2000, as compared with 20.0% for the three months ended
March 31, 1999.
Corporate expenses. Corporate expenses decreased 14.7% to $1.4 million for
the three months ended March 31, 2000 as compared to $1.7 million for the three
months ended March 31, 1999. The decrease in corporate expenses was primarily
due to a reduction in amounts charged by Mediacom Management Corporation
("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 the Company's initial
public offering. The Company reported its corporate expenses as management fees
incurred before the initial public offering and as actual amounts incurred from
the date of its initial public offering. As a percentage of revenues, corporate
expenses were 1.8% for the three months ended March 31, 2000 as compared with
4.6% for the three months ended March 31, 1999. See Note 8 of the Company's
consolidated financial statements.
Depreciation and amortization. Depreciation and amortization increased
99.4% to approximately $40.7 million for the three months ended March 31, 2000
as compared to approximately $20.4 million in the three months ended March 31,
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 $26.1
million for the three months ended March 31, 2000. These non-cash charges
comprise a $24.5 million charge resulting from the termination of the management
agreements with Mediacom Management on the date of the Company's initial public
offering and a $1.6 million charge related to the grant of equity interests to
certain members of the Company's management team. See Note 8 of the Company's
consolidated financial statements.
Interest expense, net. Interest expense, net, increased 188.7% to
approximately $18.4 million for the three months ended March 31, 2000 as
compared to approximately $6.4 million for the three months ended March 31,
1999. This increase was substantially due to higher average debt outstanding
during the three months ended March 31, 2000 as a result of debt incurred in
connection with the Company's acquisitions in the fourth quarter of 1999.
15
<PAGE>
Other expenses. Other expenses decreased 54.0% to approximately $457,000
for the three months ended March 31, 2000 as compared to approximately $993,000
for the three months ended March 31, 1999. This change was principally due to a
decrease in fees associated with the Company's credit arrangements.
Provision for income taxes. Provision for income taxes was approximately
$4.6 million for the three months ended March 31, 2000. This provision reflects
a one-time, non-cash charge recognized upon the exchange of membership interests
in Mediacom LLC for shares of MCC common stock.
Net loss. Due to the factors described above, the Company generated a net
loss of approximately $54.2 million for the three months ended March 31, 2000 as
compared to a net loss of approximately $12.5 million for the three months ended
March 31, 1999.
EBITDA. EBITDA increased 135.1% to approximately $36.0 million for the
three months ended March 31, 2000 as compared to approximately $15.3 million for
the three months ended March 31, 1999. This increase was substantially due to
the reasons noted above. As a percentage of revenues, EBITDA increased to 46.5%
for the three months ended March 31, 2000, compared to 42.5% for the three
months ended March 31, 1999. Excluding the Acquired Systems, EBITDA increased by
23.7% over the comparable period in 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 following financial
information for the three months ended March 31, 2000 and 1999, presents
selected unaudited pro forma operating results assuming the purchase of the
Acquired Systems had been consummated on January 1, 1999. See Note 3 to the
Company's consolidated financial statements for a detailed description of the
Company's acquisitions in 1999.
Three Months Ended March 31,
----------------------------
2000 1999
--------- -----------
(dollars in thousands except per
subscriber data)
Revenues $ 77,440 $ 71,161
Costs and expenses:
Service costs 26,635 23,606
SG&A expenses 13,389 12,829
Corporate expenses 1,420 2,901
Depreciation and amortization 40,680 38,762
Non-cash stock charges 26,073 -
--------- ---------
Operating loss $ (30,757) $ (6,937)
========= =========
Other Data:
EBITDA $ 35,996 $ 31,825
EBITDA margin (1) 46.5% 44.7%
Basic subscribers (2) 720,000 709,000
Average monthly revenue per basic subscriber (3) $ 35.88 $ 33.49
- ----------------------------
(1) Represents EBITDA as a percentage of revenues.
(2) At end of period.
(3) Represents average monthly revenues for the period divided by average basic
subscribers for the period.
Selected Pro Forma Results for Three Months Ended March 31, 2000 Compared
to Selected Pro Forma Results for Three Months Ended March 31, 1999
Revenues increased 8.8% to approximately $77.4 million for the three months
ended March 31, 2000, as compared to approximately $71.2 million for the three
months ended March 31, 1999. This increase was attributable principally to
internal subscriber growth of 1.6% and higher average monthly revenue per basic
subscriber of $35.88 for the three months ended March 31, 2000, as compared to
$33.49 for the three months ended March 31, 1999.
16
<PAGE>
Service costs and selling, general and administrative expenses in the
aggregate increased 9.9% to approximately $40.0 million for the three months
ended March 31, 2000 from approximately $36.4 million for the three months ended
March 31, 1999, principally due to higher programming costs incurred by the
Company for the systems acquired in 1999, increased employee costs and
incremental marketing expenses associated with the launch of new products.
Corporate expenses decreased 51.1% to approximately $1.4 million for the
three months ended March 31, 2000 from approximately $2.9 million for the three
months ended March 31, 1999. The decrease in corporate expenses 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 the Company's initial public offering. The Company reported its
corporate expenses as actual amounts incurred from the date of its initial
public offering.
Depreciation and amortization increased 4.9% to approximately $40.7 million
for the three months ended March 31, 2000 from approximately $38.8 million for
the three months ended March 31, 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 $30.8 million for the three
months ended March 31, 2000, compared to approximately $6.9 million for the
three months ended March 31, 1999.
EBITDA increased by 13.1% to approximately $36.0 million for the three
months ended March 31, 2000 from approximately $31.8 million for the three
months ended March 31, 1999. The EBITDA margin improved to 46.5% for the three
months ended March 31, 2000 from 44.7% for the three months ended March 31,
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 720,000 basic
subscribers as of March 31, 2000.
In 2000, the Company has completed or anticipates completing the undernoted
acquisitions of cable systems serving 100,000 basic subscribers for an aggregate
purchase price of $193.0 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.
. 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.
. The Company has two pending acquisitions of cable television systems
under contract serving, in total, approximately 6,500 basic
subscribers for an aggregate purchase price of $12.5 million. In
addition, the Company has signed several letters of intent to acquire
cable systems serving, in total, approximately 82,500 basic
subscribers for an aggregate purchase price of approximately $164.5
million.
17
<PAGE>
Substantially all of the basic subscribers served by these expected
acquisitions are contiguous or in close proximity to the Company's existing
operating clusters. The acquisitions under letter of intent are subject to the
negotiation and completion of definitive documentation, which will include
customary representations and warranties and will be subject to a number of
closing conditions, including regulatory approvals and other third party
consents. No assurance can be given that such definitive agreements will be
entered into or that if entered into, these acquisitions will be consummated.
The Company expects to complete its pending acquisitions during fiscal year
2000.
The Company has announced plans to increase its capital spending to
approximately $175.0 million in 2000, compared to the $140.0 million, as
previously disclosed. However, the Company's projected capital expenditures will
remain at the original amount of $400.0 million for the three-year period ending
2002. These amounts exclude any capital expenditures related to any acquisitions
completed in 2000 or beyond. For the first quarter of 2000, the Company's
capital expenditures were $36.8 million. As a result of its accelerated capital
investment plans, the Company anticipates that by December 2000, 77% of its
cable network will be upgraded to 550MHz - 750MHz bandwidth capacity as compared
to 57% as of December 1999 and that 50% of its existing homes passed will be
activated with two-way communications capability as compared to 11% as of
December 1999.
On February 9, 2000, the Company completed an initial public offering 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 $2.8 million, were $354.4
million and were used to repay bank indebtedness.
To finance the Company's acquisitions, working capital requirements and
capital expenditures and to provide liquidity for future capital needs, the
Company has completed the following debt financing arrangements as of March 31,
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;
and
. $550.0 million subsidiary credit facility expiring in December 2008.
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 March 31, 2000, the Company was in compliance with all of the financial
and other covenants provided for in its subsidiary credit agreements.
As of April 30, 2000, the Company entered into interest rate swap
agreements, which expire from 2000 through 2003, to hedge $120.0 million of
floating rate debt under its subsidiary credit facilities. As a result of these
interest rate swap agreements, approximately 56% 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 April
30, 2000, the Company's weighted average cost of indebtedness (defined as
interest expense, net, as a percentage of total outstanding indebtedness) was
approximately 8.1%.
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 March 31, 2000, the Company's debt leverage ratio (defined as
total debt at the end of the period, divided by annualized EBITDA for the
period) was 5.6x and the Company's interest coverage ratio (defined as EBITDA
divided by interest expense, net for the period) was 2.0x. As of March 31, 2000,
the Company had approximately $625.0 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.
18
<PAGE>
Recent Accounting Pronouncements
In 1998, Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued. SFAS
133 established accounting and reporting standards requiring that derivative
instruments be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Company will adopt SFAS 133 in 2001, and has not
yet quantified the impact nor determined the timing or method of the adoption.
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 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.
19
<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 March 31, 2000, the Company had
interest rate exchange agreements (the "Swaps") with various banks pursuant to
which the interest rate on $40.0 million is fixed at a weighted average swap
rate of approximately 6.2%, plus the average applicable margin over the
Eurodollar Rate option under the Company's bank credit agreement. Under the
terms of the Swaps, which expire from 2000 through 2002, the Company is exposed
to credit loss in the event of nonperformance by the other parties to the Swaps.
However, the Company does not anticipate nonperformance by the counterparties.
The Company would have received approximately $675,000 at March 31, 2000 to
terminate the Swaps, inclusive of accrued interest. The table below provides
information for the Company's long term debt. See Note 6 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 $182,000
Weighted average
interest rate 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
Fixed rate $ - $ - $ - $ - $ - $125,000 $125,000 $108,125
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 $471,500 $475,000 $475,000
Weighted average
interest rate 8.3% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3%
</TABLE>
20
<PAGE>
PART II
-------
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 for a discussion of certain litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
Immediately prior to the completion of its Initial Public Offering ("IPO"),
MCC issued on February 9, 2000: (i) 40,657,010 shares of its Class A common
stock to certain members of Mediacom LLC; and (ii) 29,342,990 shares of its
Class B common stock to certain members of Mediacom LLC who are also members of
MCC's management as defined in MCC's certificate of incorporation. Also,
immediately prior to completion of its IPO, MCC issued on February 9, 2000,
options to purchase 7,200,000 shares of its Class B common stock at a price of
$19.00 per share to such members of Mediacom LLC who are also members of MCC's
management. All of such persons are accredited investors as defined by Rule 501
under the Securities Act of 1933. In connection with its issuance of such common
stock and the grant of such options, MCC received all of the membership
interests of Mediacom LLC.
The offer and sale of the Class A common stock and Class B common stock and
the issuance of options to the members of Mediacom LLC were not registered under
the Securities Act of 1933 because the offer, sale and issuance were made in
reliance on the exemption provided by Section 4(2) of the Securities Act of 1933
and Rule 506 thereunder for transactions by an issuer not involving a public
offering.
As of February 3, 2000, the Company granted stock options to certain of its
employees to purchase an aggregate of 1,851,108 shares of Class A common stock
and 948,892 shares of Class B common stock at a price of $19.00 per share. As of
February 3, 2000, the Company also granted stock options to its non-employee
directors to purchase an aggregate of 120,000 shares of Class A common stock at
a price of $19.00 per share.
The grant of stock options to the employees and non-employee directors of
the Company was not registered under the Securities Act of 1933 because the
stock options either did not involve an offer or sale for purposes of Section
2(a)(3) of the Securities Act of 1933, in reliance on the fact that the stock
options were granted for no consideration, or were offered and sold in
transactions not involving a public offering, exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) and in compliance with Rule 506
thereunder.
ITEM 6.
(a) Exhibits
Exhibit
Number Exhibit Descriptions
------- --------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities 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
May 15, 2000 By: /s/ Mark E. Stephan
-------------------------------
Mark E. Stephan
Senior Vice President,
Chief Financial Officer, Treasurer
and Principal Financial Officer
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS OF MEDIACOM
COMMUNICATIONS CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,774
<SECURITIES> 27,539
<RECEIVABLES> 4,511
<ALLOWANCES> 553
<INVENTORY> 13,867
<CURRENT-ASSETS> 0
<PP&E> 733,694
<DEPRECIATION> (127,697)
<TOTAL-ASSETS> 1,253,785
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 357,959
<TOTAL-LIABILITY-AND-EQUITY> 1,253,785
<SALES> 77,440
<TOTAL-REVENUES> 77,440
<CGS> 26,635
<TOTAL-COSTS> 108,197
<OTHER-EXPENSES> 457
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,423
<INCOME-PRETAX> (49,637)
<INCOME-TAX> 4,589
<INCOME-CONTINUING> (54,226)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,226)
<EPS-BASIC> (0.83)
<EPS-DILUTED> (0.83)
</TABLE>
