<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 June 30, 2000
Commission File Number: 0-29227
Mediacom Communications Corporation
(Exact name of Registrant as specified in its charter)
Delaware 06-1566067
(State of incorporation) (I.R.S. Employer
Identification Number)
100 Crystal Run Road
Middletown, NY 10941
(Address of principal executive offices)
(845) 695-2600
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
--- ---
As of June 30, 2000, there were 60,577,010 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 JUNE 30, 2000
TABLE OF CONTENTS
PART I
------
<TABLE>
<CAPTION>
Page
----
Item 1. Financial Statements
<S> <C> <C>
Consolidated Balance Sheets -
June 30, 2000 (unaudited) and December 31, 1999............................................... 1
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 2000 and 1999 (unaudited)................................. 2
Consolidated Statement of Changes in Stockholders' Equity -
June 30, 2000 (unaudited)..................................................................... 3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999 (unaudited)........................................... 4
Notes to Consolidated Financial Statements (unaudited)......................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................. 13
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>
<PAGE>
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 June 30,
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.
<PAGE>
PART I
------
ITEM 1. FINANCIAL STATEMENTS
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 3,031 $ 4,473
Subscriber accounts receivable, net of allowance for doubtful accounts
of $907 and $772, respectively 3,336 5,194
Prepaid expenses and other assets 4,651 4,376
Investments 10,746 8,794
Investment in cable television systems:
Inventory 12,467 12,384
Property, plant and equipment, at cost 792,628 700,696
Less - accumulated depreciation (155,132) (101,693)
------------ ------------
Property, plant and equipment, net 637,496 599,003
Intangible assets, net of accumulated amortization of $84,152 and
$56,171, respectively 585,113 588,103
------------ ------------
Total investment in cable television systems 1,235,076 1,199,490
Other assets, net of accumulated amortization of $7,803 and $6,343,
respectively 17,553 43,599
------------ ------------
Total assets $1,274,393 $1,265,926
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt $ 856,000 $1,139,000
Accounts payable and accrued expenses 57,835 57,183
Subscriber advances 2,275 3,188
Deferred revenue 31,144 11,940
------------ ------------
Total liabilities $ 947,254 $1,211,311
------------ ------------
STOCKHOLDERS' EQUITY
Class A common stock, $.01 par value; 300,000,000 shares authorized;
60,577,010 shares issued and outstanding as of June 30, 2000 606
Class B common stock, $.01 par value; 100,000,000 shares authorized;
29,342,990 shares issued and outstanding as of June 30, 2000 293
Additional paid in capital 537,263
Capital contributions - 182,013
Accumulated comprehensive (loss) income (10,430) 261
Accumulated deficit (200,593) (127,659)
------------ ------------
Total stockholders' equity 327,139 54,615
------------ ------------
Total liabilities and stockholders' equity $1,274,393 $1,265,926
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
1
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in 000's, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
2000 1999 2000 1999
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 82,595 $ 38,178 $160,035 $ 74,178
Costs and expenses:
Service costs 28,232 12,350 54,867 24,175
Selling, general and administrative expenses 13,893 7,301 27,282 14,502
Corporate expenses 1,511 1,923 2,931 3,588
Depreciation and amortization 43,470 21,029 84,151 41,431
Non-cash stock charges 914 26,986
--------- --------- -------- --------
Operating loss (5,425) (4,425) (36,182) (9,518)
--------- --------- -------- --------
Interest expense, net 16,157 7,012 34,580 13,392
Other expenses 414 (259) 871 734
--------- --------- -------- --------
Net loss before income taxes (21,996) (11,178) (71,633) (23,644)
(Benefit) provision for income taxes (3,288) 1,301
--------- --------- -------- --------
Net loss $(18,708) $(11,178) $(72,934) $(23,644)
========= ========= ======== ========
Basic and diluted loss per share $(0.21) $(1.42) $(0.94) $(2.99)
Weighted average common shares
outstanding 89,974 7,895 77,599 7,895
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
2
<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 - - - - - - (72,934)
Unrealized loss on investments,
net of deferred taxes - - - - - (10,691) -
Comprehensive loss (83,625)
Issuance of common stock in
exchange for membership interests 407 293 141,396 (142,096) - - - -
Issuance of common stock in initial
public offering 200 - 354,093 - - - - 354,293
Repurchase of Class A common
stock (1) - (657) - - - - (658)
Non-cash expense related to
equity grant to employees - - 2,514 - - - - 2,514
Reclassification of equity to
paid-in-capital - - 39,917 - (39,917) - - -
-------- ------- ---------- ------------- -------- ------------- ----------- ---------
Balance, June 30, 2000 $606 $293 $537,263 $ - $ - $(10,430) $(200,593) $327,139
======== ======= ========== ============= ======== ============= =========== =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
3
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
2000 1999
----------- ----------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (72,934) $ (23,644)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Accretion of interest on seller note - 149
Depreciation and amortization 84,151 41,431
Provision for deferred income taxes 1,263
Other non-cash charges 26,986
Other (945) -
Changes in assets and liabilities, net of effects from acquisitions:
Subscriber accounts receivable 1,989 170
Prepaid expenses and other assets 77 22
Accounts payable and accrued expenses 3,296 (1,200)
Subscriber advances (1,043) 378
Deferred revenue 342 -
----------- ----------
Net cash flows provided by operating activities 43,182 17,306
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (82,100) (35,891)
Acquisitions of cable television systems (31,646) -
Other, net (1,319) (314)
----------- ----------
Net cash flows used in investing activities (115,065) (36,205)
----------- ----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
New borrowings 139,000 152,800
Repayment of debt (422,000) (131,225)
Net proceeds from sale of Class A common stock 354,293
Repurchase of Class A common stock (658)
Financing costs (194) (3,333)
----------- ----------
Net cash flows provided by financing activities 70,441 18,242
----------- ----------
Net decrease in cash and cash equivalents (1,442) (657)
CASH AND CASH EQUIVALENTS, beginning of period 4,473 2,212
----------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 3,031 $ 1,555
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 42,079 $ 10,999
=========== ==========
</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 June 30,
2000, the Company had acquired and was operating cable systems in 22 states,
principally Alabama, California, Florida, Illinois, Indiana, Iowa, Kentucky,
Minnesota, Missouri and North Carolina.
MCC, a Delaware corporation organized in November 1999, completed an initial
public offering on February 9, 2000. Prior to the initial public offering, MCC
had no assets, liabilities, contingent liabilities or operations. Immediately
prior to the completion of its initial public offering, MCC issued shares of its
Class A and Class B common stock in exchange for all of the outstanding
membership interests in Mediacom LLC, a New York limited liability company
organized in July 1995 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 June 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 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 was amended by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,"
which defers the effective date of SFAS 133. In March 2000, SFAS 133 was also
amended by SFAS No. 138 ("SFAS 138"), "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB Statement No.
133," which amends the accounting and reporting standards of Statement 133 for
certain derivative instruments and certain hedging activities. SFAS 133 and
SFAS 138 establish accounting and reporting standards that require
derivative instruments be recorded in the balance sheet as either an asset or
liability measured at their fair value. The Company will adopt SFAS 133 and SFAS
138 in 2001, and has not yet quantified the impact nor determined the timing or
method of the adoption.
5
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION 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 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 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.
The aggregate amount of the purchase prices stated above for the acquisitions
completed in 2000 have been preliminarily allocated as follows: $11.4 million to
property, plant and equipment and $17.2 million to intangible assets. Such
allocations are subject to adjustments based upon final appraisal information
received by the Company. The final allocations of the purchase prices are not
expected to differ materially from the preliminary allocations.
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
6
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
Pro Forma Results for the
Six Months Ended June 30,
------------------------------
2000 1999
--------- ---------
(dollars in thousands, except
per share amounts)
Revenues............................ $162,464 $148,626
Operating expenses and costs:
Service costs..................... 55,999 49,685
SG&A expenses..................... 27,705 26,593
Corporate expenses................ 2,931 6,059
Depreciation and amortization..... 85,178 79,571
Non-cash stock charges............ 26,986 -
--------- ---------
Operating loss...................... (36,335) (13,282)
--------- ---------
Net loss............................ $(73,960) $(56,040)
========= =========
Basic and diluted loss per share.... $(0.95) $(7.10)
(4) Income Tax
The accompanying consolidated statements of operations for the six months
ended June 30, 2000 include a provision for income taxes of approximately $1.3
million. This provision reflects a one-time $1.2 million non- recurring, non-
cash charge that was recognized upon the exchange of outstanding membership
interests in Mediacom LLC for shares of MCC common stock. This charge relates
to the deferred tax liabilities associated with the differences between the
financial statements and the tax basis of the assets and liabilities of the
7
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Company. Since the predecessor company, Mediacom LLC, was 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 six months ended June 30, 1999.
A reconciliation of the income tax provision at the United States federal
statutory rate to the actual income tax expense for the six months ended June
30, 2000 is as follows (dollars in thousands):
<TABLE>
<S> <C>
Tax benefit at the United States statutory rate.............................................. $(25,072)
State taxes, net of federal tax benefit...................................................... 45
Non-deductible items......................................................................... 18
Adjustment to record charge upon conversion from a LLC to a corporation...................... 1,236
Increase in valuation allowance.............................................................. 1,187
Losses not benefited......................................................................... 23,887
--------
Total income tax provision................................................................. $ 1,301
========
</TABLE>
The Company's net deferred tax liability consisted of the following amounts of
deferred tax assets and liabilities as of June 30, 2000 (dollars in thousands):
<TABLE>
<CAPTION>
Deferred tax assets:
<S> <C>
Deferred revenue........................................................................... $ 12,626
Tax over book basis of intangible assets................................................... 12,061
Unrealized loss on marketable securities................................................... 7,078
Reserves and other......................................................................... 4,676
Net operating loss carryforwards........................................................... 20,740
--------
Gross tax assets............................................................................. 57,181
Less: Valuation allowance............................................................. (26,516)
--------
Deferred tax assets.......................................................................... $ 30,665
</TABLE>
<TABLE>
<CAPTION>
Deferred tax liabilities:
<S> <C>
Book over tax basis of depreciable assets............................................. $30,665
--------
Deferred tax liabilities..................................................................... $30,665
--------
Net deferred tax liabilities................................................................. $ -
========
</TABLE>
(5) Loss Per Share
The Company calculates loss per share in accordance with Statement of
Financial of Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share."
SFAS 128 computes basic loss per share by dividing the net loss by the weighted
average number of shares of common stock outstanding during the period. Diluted
loss per share is computed by dividing the net loss by the weighted average
number of shares of common stock outstanding during the period plus the effects
of any potentially dilutive securities. Since the Company 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 and six months ended June 30, 2000 and 1999:
8
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ------------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net loss................................. $(18,708) $(11,178) $(72,934) $(23,644)
Basic and diluted loss per share......... $ (0.21) $ (1.42) $ (0.94) $ (2.99)
Weighted average common shares
outstanding............................. 89,974 7,895 77,599 7,895
</TABLE>
Except for the three months ended June 30, 2000, the weighted average shares
outstanding was computed based on the shares of MCC common stock outstanding, if
any, and 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 June 30, 2000 and December 31, 1999, debt consisted of:
<TABLE>
June 30, December 31,
2000 1999
----------- ------------
(dollars in thousands)
<S> <C> <C>
8 1/2% Senior Notes........................................................ $ 200,000 $ 200,000
77/8% Senior Notes......................................................... 125,000 125,000
Bank Credit Facilities..................................................... 531,000 814,000
----------- ------------
$ 856,000 $1,139,000
=========== ============
</TABLE>
The average interest rate on outstanding debt under the bank credit agreements
was 8.3% and 8.0% for the three months ended June 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 June 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 June 30, 2000 are as
follows (dollars in thousands):
<TABLE>
<S> <C>
2001......................................................................................... $ -
2002......................................................................................... 750
2003......................................................................................... 2,000
2004......................................................................................... 2,000
2005......................................................................................... 2,000
Thereafter................................................................................... 849,250
--------
$856,000
========
</TABLE>
9
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(7) Stockholders' Equity
In May 2000, the Company announced that its Board of Directors had authorized
a repurchase program (the "Repurchase Program") pursuant to which the Company
may purchase up to $50.0 million of its Class A common stock, in the open market
or through privately negotiated transactions, subject to certain restrictions
and market conditions. During the three months ended June 30, 2000 in connection
with the Repurchase Program, the Company repurchased 80,000 shares of its Class
A common stock for an aggregate cost of approximately $658,000, at share prices
ranging from $8.00 to $10.75 per share. The repurchased stock was retired and
resulted in a reduction of stockholders' equity.
(8) SoftNet
As of June 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 $27.2 million and $8.4 million, respectively, net of amortization
taken. For the three and six months ended June 30, 2000, the Company recognized
revenue of approximately $674,000 and $947,000, respectively. The Company did
not recognize any deferred revenue for the three or six month period ended June
30, 1999.
(9) 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 $2.9 million, were
$354.3 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 (the "1999 Operating Agreement") was amended 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 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 a valuation of Mediacom LLC. 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 immediately prior to 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 immediately prior to the completion of the IPO.
In addition, immediately prior to the IPO, the Primary Members received
options on the date of the IPO 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 in August 2000, 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 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.
10
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The management agreements between Mediacom Management and each of MCC's
operating subsidiaries were terminated at the time of the IPO, and Mediacom
Management's employees became MCC's employees and its corporate expense became
MCC's corporate expense. The management fee expenses recorded prior to the IPO
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 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.
(10) 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 this plan. A maximum of 7,000,000
of these shares of common stock may be granted as incentive stock options. As
of June 30, 2000, options for 2,926,000 shares (the "Employee Options") had been
granted under the 1999 Stock Option Plan, consisting of 1,977,108 shares of
Class A common stock and 948,892 shares of Class B common stock. As of June 30,
2000, as noted above, additional options for 7,200,000 shares of Class B common
stock with a five-year duration had been issued to the Primary Members. See
Note 9.
The following table summarizes information concerning stock option activity as
of June 30, 2000:
<TABLE>
<CAPTION>
Shares Price
---------- ----------
Outstanding at January 1, 2000 - -
<S> <C> <C>
Granted...................................................................... 10,126,000 $19.00
Exercised.................................................................... - -
Forfeited.................................................................... (107,650) $19.00
---------- ----------
Outstanding at end of period................................................. 10,018,350 $19.00
========== ==========
Options exercisable at end of period......................................... 8,187,041 $19.00
Weighted average fair value of options granted
during period............................................................... $ 8.13
</TABLE>
Excluded from the weighted average fair value of options granted during the
period are the additioanl options issued to the Primary Members since these
options, as noted in Note 9, were issued in exchange for consideration
representing their fair value.
The weighted average remaining contractual life of the outstanding options is
6.3 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 since the price of the
options was at their fair market value at the date of grant. 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%.
11
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Had compensation costs been recorded for the Employee Options under SFAS 123,
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:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
2000 1999
-------- --------
(in thousands, except per
share amounts)
Net loss:
<S> <C> <C>
As reported.............................................................. $(72,934) $(23,644)
Pro forma................................................................ $(80,657) $(23,644)
Basic and diluted loss per share:
As reported.............................................................. $ (0.94) $ (2.99)
Pro forma................................................................ $ (1.04) $ (2.99)
</TABLE>
Excluded from the above pro forma calculation are the additional options
issued to the Primary Members since these options, as noted in Note 9, were
issued in exchange for consideration represented their fair value.
(11) Subsequent Events
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.
As of August 2, 2000, the Company has entered into three separate asset
purchase agreements to acquire cable television systems serving approximately
21,000 basic subscribers for an aggregate purchase price of approximately $44.7
million. The Company expects to complete the acquisition of these systems by
year end 2000.
12
<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 June 30, 2000, the Company had completed
15 acquisitions of cable television systems that on such date passed
approximately 1,113,400 homes and served approximately 735,000 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 quarter of 2000, the Company completed four acquisitions serving a
total of 17,000 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.
13
<PAGE>
Actual Results of Operations
The following historical information includes the results of operations of the
Zylstra systems, which were acquired in October 1999, the Triax systems, which
were acquired in November 1999, and the 2000 Acquisitions, which were acquired
in the second quarter of 2000, 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 the
Company's acquisitions in 2000 and 1999.
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Revenues. Revenues increased 116.3% to approximately $82.6 million for the
three months ended June 30, 2000 as compared to $38.2 million for the three
months ended June 30, 1999. Of the revenue increase of $44.4 million, $40.0
million was attributable to the Acquired Systems. Excluding the Acquired
Systems, revenues increased 11.6% primarily due to basic rate increases
associated with new programming introductions and new revenues associated with
our recently launched digital cable and high speed Internet access services.
Service costs. Service costs increased 128.6% to approximately $28.2 million
for the three months ended June 30, 2000 as compared to approximately $12.4
million for the three months ended June 30, 1999. The Acquired Systems accounted
for approximately $14.2 million of the total increase. Excluding the Acquired
Systems, these costs increased 13.6% 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 34.2% for the
three months ended June 30, 2000, as compared with 32.3% for the three months
ended June 30, 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 90.3% to approximately $13.9 million for the
three months ended June 30, 2000 as compared to approximately $7.3 million for
the three months ended June 30, 1999. The Acquired Systems accounted for
approximately $6.2 million of the total increase. Excluding the Acquired
Systems, these costs increased 4.5%. As a percentage of revenues, selling,
general and administrative expenses were 16.8% for the three months ended June
30, 2000, as compared with 19.1% for the three months ended June 30, 1999.
Corporate expenses. Corporate expenses decreased 21.4% to approximately $1.5
million for the three months ended June 30, 2000 as compared to approximately
$1.9 million for the three months ended June 30, 1999. The decrease in
corporate expenses was primarily due to higher amounts charged by Mediacom
Management Corporation ("Mediacom Management") during the three months ended
June 30, 1999 under of 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 in February 2000. At that
time, Mediacom Management's employees became the Company's employees and its
other overhead expenses became the Company's corporate expenses. 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 June 30, 2000 as compared with 5.0% for the three months
ended June 30, 1999. See Note 9 of the Company's consolidated financial
statements.
Depreciation and amortization. Depreciation and amortization increased 106.7%
to approximately $43.5 million for the three months ended June 30, 2000 as
compared to approximately $21.0 million in the three months ended June 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 $914,000
for the three months ended June 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 9 of the Company's consolidated financial statements.
Interest expense, net. Interest expense, net, increased 130.4% to
approximately $16.2 million for the three months ended June 30, 2000 as compared
to approximately $7.0 million for the three months ended June 30, 1999. This
increase was substantially due to higher average debt outstanding during the
three months ended June 30, 2000, principally as a result of debt incurred in
connection with the Company's acquisition of the Triax and Zylstra systems.
14
<PAGE>
Other expenses. Other expenses increased to approximately $414,000 for the
three months ended June 30, 2000 as compared to approximately $259,000 of other
income for the three months ended June 30, 1999. This change was principally
due to an increase in fees associated with the Company's credit arrangements.
(Benefit) provision for income taxes. Benefit for income taxes was
approximately $3.3 million for the three months ended June 30, 2000. This
benefit reflects the net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
Net loss. Due to the factors described above, the Company generated a net
loss of approximately $18.7 million for the three months ended June 30, 2000 as
compared to a net loss of approximately $11.2 million for the three months ended
June 30, 1999.
EBITDA. EBITDA increased 134.6% to approximately $39.0 million for the three
months ended June 30, 2000 as compared to approximately $16.6 million for the
three months ended June 30, 1999. This increase was substantially due to the
reasons noted above. As a percentage of revenues, EBITDA increased to 47.2% for
the three months ended June 30, 2000, compared to 43.5% for the three months
ended June 30, 1999.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenues. Revenues increased 115.7% to approximately $160.0 million for the
six months ended June 30, 2000 as compared to $74.2 million for the six months
ended June 30, 1999. Of the revenue increase of $85.8 million, $77.2 was
attributable to the Acquired Systems. Excluding the Acquired Systems, revenues
increased 11.6% 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 127.0% to approximately $54.9 million
for the six months ended June 30, 2000 as compared to approximately $24.2
million for the six months ended June 30, 1999. The Acquired Systems accounted
for approximately $27.6 million of the total increase. Excluding the Acquired
Systems, these costs increased 12.9% 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
six months ended June 30, 2000, as compared with 32.6% for the six months ended
June 30, 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 88.1% to approximately $27.3 million for the
six months ended June 30, 2000 as compared to approximately $14.5 million for
the six months ended June 30, 1999. The Acquired Systems accounted for
approximately $12.2 million of the total increase. Excluding the Acquired
Systems, these costs increased 3.6%. As a percentage of revenues, selling,
general and administrative expenses were 17.0% for the six months ended June 30,
2000, as compared with 19.5% for the six months ended June 30, 1999.
Corporate expenses. Corporate expenses decreased 18.3% to approximately $2.9
million for the six months ended June 30, 2000 as compared to approximately $3.6
million for the six months ended June 30, 1999. The decrease in corporate
expenses was primarily due to higher amounts charged by Mediacom Management
during the six months ended June 30, 1999 under of 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
in February 2000. At that time, Mediacom Management's employees became the
Company's employees and its other overhead expenses became the Company's
corporate expenses. 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 six months ended June 30, 2000 as compared
with 4.8% for the six months ended June 30, 1999.
Depreciation and amortization. Depreciation and amortization increased 103.1%
to approximately $84.2 million for the six months ended June 30, 2000 as
compared to approximately $41.4 million in the six months ended June 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 $27.0
million for the six months ended June 30, 2000. These non-cash charges comprise
a one-time $24.5 million charge resulting from the termination of
15
<PAGE>
the management agreements with Mediacom Management on the date of the Company's
initial public offering and a $2.5 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 9 of the Company's consolidated financial statements.
Interest expense, net. Interest expense, net, increased 158.2% to
approximately $34.6 million for the six months ended June 30, 2000 as compared
to approximately $13.4 million for the six months ended June 30, 1999. This
increase was substantially due to higher average debt outstanding during the six
months ended June 30, 2000 as a result of debt incurred in connection with the
Company's acquisition of the Triax and Zylstra systems.
Other expenses. Other expenses increased 18.7% to approximately $871,000 for
the six months ended June 30, 2000 as compared to approximately $734,000 for the
six months ended June 30, 1999. This change was principally due to an increase
in fees associated with the Company's credit arrangements.
(Benefit) provision for income taxes. Provision for income taxes was
approximately $1.3 million for the six months ended June 30, 2000. This
provision primarily 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 $72.9 million for the six months ended June 30, 2000 as
compared to a net loss of approximately $23.6 million for the six months ended
June 30, 1999.
EBITDA. EBITDA increased 134.9% to approximately $75.0 million for the six
months ended June 30, 2000 as compared to approximately $31.9 million for the
six months ended June 30, 1999. This increase was substantially due to the
reasons noted above. As a percentage of revenues, EBITDA increased to 46.8% for
the six months ended June 30, 2000, compared to 43.0% for the six months ended
June 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 six months ended June 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>
Six Months Ended June 30,
-----------------------------
2000 1999
-------- --------
(dollars in thousands, except
per subscriber data)
<S> <C> <C>
Revenues................................................................... $162,464 $148,626
Costs and expenses:
Service costs........................................................... 55,999 49,685
SG&A expenses........................................................... 27,705 26,593
Corporate expenses...................................................... 2,931 6,059
Depreciation and amortization........................................... 85,178 79,571
Non-cash stock charges.................................................. 26,986 -
-------- --------
Operating loss............................................................. $(36,335) $(13,282)
======== ========
Other Data:
EBITDA..................................................................... 75,829 66,289
EBITDA margin (1).......................................................... 46.7% 44.6%
Basic subscribers (2)...................................................... 735,000 728,000
Average monthly revenue per basic subscriber (3)........................... $ 37.77 $ 34.82
</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.
16
<PAGE>
Selected Pro Forma Results for Six Months Ended June 30, 2000 Compared to
Selected Pro Forma Results for Six Months Ended June 30, 1999
Revenues increased 9.3% to approximately $162.5 million for the six months
ended June 30, 2000, as compared to approximately $148.6 million for the six
months ended June 30, 1999. This increase was attributable principally to
internal subscriber growth of 1.0%, 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 and selling, general and administrative expenses in the
aggregate increased 9.7% to approximately $83.7 million for the six months ended
June 30, 2000 from approximately $76.3 million for the six months ended June 30,
1999, principally due to higher programming costs incurred by the Company for
the systems acquired in 1999.
Corporate expenses decreased 51.6% to approximately $2.9 million for the six
months ended June 30, 2000 from approximately $6.1 million for the six months
ended June 30, 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 in February 2000. 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.
Depreciation and amortization increased 7.0% to approximately $85.2 million
for the six months ended June 30, 2000 from approximately $79.6 million for the
six months ended June 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 $36.3 million for the six months ended June 30, 2000, compared to
approximately $13.3 million for the six months ended June 30, 1999.
EBITDA increased by 14.4% to approximately $75.8 million for the six months
ended June 30, 2000 from approximately $66.3 million for the six months ended
June 30, 1999. The EBITDA margin improved to 46.7% for the six months ended
June 30, 2000 from 44.6% for the six months ended June 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 718,000 basic
subscribers as of June 30, 2000.
In 2000, the Company has completed or anticipates completing the undernoted
acquisitions of cable systems serving 39,000 basic subscribers for an aggregate
purchase price of $75.4 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.
17
<PAGE>
. 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.
. In addition, the Company signed three definitive asset purchase agreements
to acquire cable systems serving, in total, approximately 21,000 basic
subscribers for an aggregate purchase price of approximately $44.7 million.
Substantially all of the basic subscribers served by the completed and pending
acquisitions are within the Company's regional operating clusters. The pending
acquisitions are subject to a number of closing conditions, including regulatory
approvals and other third party consents. No assurance can be given that these
acquisitions will be consummated. The Company expects to complete its pending
acquisitions by year end 2000.
The Company announced plans earlier this year 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 six months ended June 30,
2000, the Company's capital expenditures were $82.1 million. As a result of its
accelerated 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 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 $2.9 million, were
$354.3 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 had the following debt financing arrangements in place as of June 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; 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 June 30, 2000, the Company was in compliance with all of the financial and
other covenants provided for in its subsidiary credit agreements.
As of June 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 54% of the Company's outstanding debt was at
fixed interest rates or subject to
18
<PAGE>
interest rate protection on such date. After giving effect to these interest
rate swap agreements, as of June 30, 2000, the Company's weighted average cost
of indebtedness was approximately 8.4%.
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 June 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 5.4x and the Company's interest coverage ratio (defined as
EBITDA divided by interest expense, net for the period) was 2.4x. As of June
30, 2000, the Company had approximately $567.0 million of unused credit
commitments under its subsidiary credit facilities.
In May 2000, the Company announced that its Board of Directors had authorized
a repurchase program (the "Repurchase Program") pursuant to which the Company
may purchase up to $50.0 million of its Class A common stock, in the open market
or through privately negotiated transactions, subject to certain restrictions
and market conditions. During the three months ended June 30, 2000 in connection
with the Repurchase Program, the Company repurchased 80,000 shares of its Class
A common stock for the aggregate cost of approximately $658,000, at share prices
ranging from $8.00 to $10.75 per share. The repurchased stock was retired and
resulted in a reduction of stockholders' equity.
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 1998, Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued.
SFAS 133 was amended by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,"
which defers the effective date of SFAS 133. In March 2000, SFAS 133 was also
amended by SFAS No. 138 ("SFAS 138"), "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB SFAS No. 133,"
which amends the accounting and reporting standards of Statement 133 for certain
derivative instruments and certain hedging activities. SFAS 133 and SFAS 138
establish accounting and reporting standards that require derivative instruments
be recorded in the balance sheet as either an asset or liability measured at
their fair value. The Company will adopt SFAS 133 and SFAS 138 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.
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.
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 June 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 $666,000 at June 30, 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 $189,000
Weighted average
interest rate 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
Fixed rate $ - $ - $ - $ - $ - $125,000 $125,000 $110,000
Weighted average
interest rate 7.9% 7.9% 7.9% 7.9% 7.9% 7.9% 7.9%
Variable rate $ - $ 750 $2,000 $2,000 $2,000 $524,250 $531,000 $531,000
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
As of April 10, 2000, we granted options to purchase 6,000 shares of Class A
common stock at $12.00 per share to an employee of the Company. The options
vest in five equal annual installments commencing on April 10, 2000. The
expiration date of the options is April 9, 2010. These options were granted in
a transaction not involving a public offering in reliance on the exemption
provided by Section 4(2) of the Securities Act of 1933 for transactions by an
issuer not involving a public offering.
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
August 14, 2000 By: /s/ Mark E. Stephan
-----------------------------------
Mark E. Stephan
Senior Vice President,
Chief Financial Officer,
Treasurer and Principal Financial
Officer
22
