SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2002
Commission File Numbers: 333-72440
333-72440-01
Mediacom Broadband LLC
Mediacom Broadband Corporation*
(Exact names of Registrants as specified in their charters)
Delaware 06-1615412
Delaware 06-1630167
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Numbers)
100 Crystal Run Road
Middletown, New York 10941
(Address of principal executive offices)
(845) 695-2600
(Registrants' telephone number)
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days:
Yes X No
--- ---
Indicate the number of shares outstanding of the Registrants' common stock:
Not Applicable
*Mediacom Broadband Corporation meets the conditions set forth in General
Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this form
with the reduced disclosure format.
MEDIACOM BROADBAND LLC AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2002
TABLE OF CONTENTS
Page
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PART I
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets (unaudited) -
March 31, 2002 and December 31, 2001............................ 1
Consolidated Condensed Statement of Operations (unaudited) -
Three Months Ended March 31, 2002............................... 2
Consolidated Condensed Statement of Cash Flows (unaudited) -
Three Months Ended March 31, 2002............................... 3
Notes to Consolidated Condensed Financial Statements (unaudited)... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk............ 14
PART II
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Item 6. Exhibits and Reports on Form 8-K...................................... 15
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You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
Securities and Exchange Commission (the "SEC"). In this Quarterly Report, we
state our beliefs of future events and of our future financial performance. In
some cases, you can identify those so-called "forward-looking statements" by
words such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of those words and other comparable words. You should be aware that those
statements are only our predictions. Actual events or results may differ
materially. In evaluating those statements, you should specifically consider
various factors, including the risks discussed in our Annual Report on Form 10-K
for the year ended December 31, 2001 and other reports or documents that we file
from time to time with the SEC. Those factors may cause our actual results to
differ materially from any of our forward-looking statements. All
forward-looking statements attributable to us or a person acting on our behalf
are expressly qualified in their entirety by this cautionary statement.
PART I
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ITEM 1. FINANCIAL STATEMENTS - MEDIACOM BROADBAND LLC
MEDIACOM BROADBAND LLC AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(All dollar amounts in 000's)
(Unaudited)
March 31, December 31,
2002 2001
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ASSETS
Cash and cash equivalents $ 10,856 $ 7,578
Short-term investments 8,000 48,000
Investments 343 --
Subscriber accounts receivable, net of allowance for doubtful accounts
of $2,042 and $2,148, respectively 19,786 17,504
Prepaid expenses and other assets 67,644 63,600
Investment in cable television systems:
Inventory 25,906 24,670
Property, plant and equipment, net of accumulated depreciation of
$56,123 and $34,799, respectively 588,135 559,567
Intangible assets, net of accumulated amortization of $56,006 and
$51,879, respectively 1,538,390 1,541,464
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Total investment in cable television systems 2,154,902 2,125,701
Other assets, net of accumulated amortization of $1,686 and
$1,086, respectively 19,830 20,284
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Total assets $2,278,890 $2,282,667
========== ==========
LIABILITIES, PREFERRED MEMBERS' INTERESTS
AND MEMBER'S EQUITY
LIABILITIES
Debt $1,200,000 $1,200,000
Accounts payable and accrued expenses 234,382 229,700
Deferred revenue 36,459 36,673
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Total liabilities $1,470,841 $1,466,373
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PREFERRED MEMBERS' INTERESTS 150,000 150,000
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MEMBER'S EQUITY
Capital contributions 725,000 725,000
Accumulated deficit (66,951) (58,706)
Total member's equity 658,049 666,294
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Total liabilities, preferred members' interests and member's equity $2,278,890 $2,282,667
========== ==========
The accompanying notes to consolidated condensed financial statements are
an integral part of these statements.
1
MEDIACOM BROADBAND LLC AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(All dollar amounts in 000's)
(Unaudited)
Three Months
Ended
March 31, 2002
--------------
Revenues $122,356
Costs and expenses:
Service costs 54,547
Selling, general and administrative expenses 23,981
Management fee expense 1,634
Depreciation and amortization 26,019
--------
Operating income 16,175
--------
Interest expense, net 18,934
Gain on derivative instruments, net (343)
Other expenses 1,329
--------
Net loss $ (3,745)
========
The accompanying notes to consolidated condensed financial statements are
an integral part of these statements.
2
MEDIACOM BROADBAND LLC AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(All dollar amounts in 000's)
(Unaudited)
Three Months
Ended
March 31, 2002
--------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (3,745)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization 26,019
Gain on derivative instruments, net (343)
Other, net 497
Changes in assets and liabilities, net of effects from acquisitions:
Subscriber accounts receivable (2,282)
Prepaid expenses and other assets (4,044)
Accounts payable and accrued expenses 4,807
Deferred revenue (339)
--------
Net cash flows provided by operating activities 20,570
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CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (51,593)
Other investment activities (1,053)
Sale of short-term investments, net 40,000
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Net cash flows used in investing activities (12,646)
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CASH FLOWS USED IN FINANCING ACTIVITIES:
Dividend payment to affiliate (4,500)
Financing costs (146)
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Net cash flows used in financing activities (4,646)
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Net increase in cash and cash equivalents 3,278
CASH AND CASH EQUIVALENTS, beginning of period 7,578
--------
CASH AND CASH EQUIVALENTS, end of period $ 10,856
========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 34,468
========
The accompanying notes to consolidated condensed financial statements are
an integral part of these statements.
3
MEDIACOM BROADBAND LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization
Mediacom Broadband LLC ("Mediacom Broadband," and collectively with its
subsidiaries, the "Company"), a Delaware limited liability company, was formed
in April 2001 for the purpose of acquiring cable systems from AT&T Broadband,
LLC ("AT&T Broadband"). Through these cable systems (the "AT&T cable systems),
the Company provides entertainment, information and telecommunications services
to its subscribers. As of March 31, 2002, the Company had acquired and was
operating cable television systems in the states of Georgia, Illinois, Iowa and
Missouri.
Mediacom Broadband Corporation, a Delaware corporation wholly-owned by
Mediacom Broadband, was organized in May 2001 for the sole purpose of acting as
co-issuer with Mediacom Broadband of $400.0 million aggregate principal amount
of the 11% senior notes due July 15, 2013. Mediacom Broadband Corporation does
not conduct operations of its own.
The Company was initially capitalized on June 29, 2001 with an equity
contribution of $336.4 million from the Company's parent and manager, Mediacom
Communications Corporation ("MCC"), a Delaware corporation. On July 18, 2001,
the Company received an additional equity contribution of $388.6 million from
MCC and a $150.0 million preferred equity investment from subsidiaries of
Mediacom LLC, a New York limited liability company wholly-owned by MCC.
(2) Statement of Accounting Presentation and Other Information
Basis of Preparation of Consolidated Condensed Financial Statements
The consolidated condensed financial statements as of March 31, 2002 are
unaudited. However, in the opinion of management, such statements include all
adjustments, including 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 in the United States of America and are
consistent with those applied during annual periods. For additional disclosures,
including a summary of the Company's accounting policies, the interim financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended December 31, 2001 (File Nos. 333-72440 and
333-72440-01). 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, 2002.
Prior to the June 29, 2001 acquisition of certain cable systems from
affiliates of AT&T Broadband, the Company had no active business operations (see
Note 3).
Recent Accounting Pronouncements
Effective January 1, 2002, the Company adopted, Statement of Financial
Accounting Standards No. 141 ("SFAS 141") "Business Combinations" and No. 142
("SFAS 142") "Goodwill and Other Intangible Assets". SFAS 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Adoption of SFAS 141 had no effect on the Company's results
of operations or financial position as the Company accounts for all acquisitions
under the purchase method. The provisions of SFAS 142 prohibit the amortization
of goodwill and indefinite-lived intangible assets and require assets to be
tested annually for impairment. The impact of adopting SFAS 142 was to reduce
amortization expense by $24.7 million for the three months ended March 31, 2002.
Based on the Company's review, there has been no impairment of goodwill and
indefinite-lived intangible assets under SFAS 142.
4
MEDIACOM BROADBAND LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The following table provides a reconciliation of the pro forma results of
operations for the three months ended March 31, 2001 to the net loss that would
have been reported had SFAS No. 142. been applied as of January 1, 2001
(dollars in thousands):
Reported pro forma net loss ....................... $(71,340)
Add back: franchise cost amortization .......... 24,639
--------
Adjusted pro forma net loss ....................... $(46,701)
========
As of March 31, 2002, intangible assets subject to amortization principally
consisted of subscriber lists, which are being amortized over five years. As of
March 31, 2002, the Company's amortizable intangible assets had a gross value of
$83.2 million, with accumulated amortization of $4.2 million. The Company's
estimated aggregate amortization expense is $15.8 million for each of the years
2002 through 2006.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 143 ("SFAS 143"), Accounting for Asset Retirement Obligations, which
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS 143 will become effective for fiscal years beginning after June 15,
2002. The Company does not expect that adoption of SFAS 143 will have a material
impact on its results of operations or financial position.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144") "Accounting for the Impairment or Disposal of Long-Lived
Assets". This statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and provides guidance on
classification and accounting for such assets when held for sale or abandonment.
SFAS 144 is effective for fiscal years beginning after December 15, 2001. The
Company adopted this standard effective January 1, 2002 and there was no impact
on its results of operations or financial position.
(3) Acquisitions
The Company completed the undernoted acquisitions of cable systems in 2001.
These acquisitions were made to increase the number of customers and markets it
serves. These acquisitions were accounted for using the purchase method of
accounting, and accordingly, the purchase price of these acquisitions has been
allocated to the assets acquired and liabilities assumed at their estimated fair
values at their respective date of acquisition. The results of operations of the
acquisitions have been included with those of the Company since the dates of
acquisition.
On June 29, 2001, the Company acquired cable systems serving approximately
94,000 basic subscribers in the state of Missouri from affiliates of AT&T
Broadband for a purchase price of approximately $300.0 million. The purchase
price has been preliminarily allocated as follows: approximately $82.2 million
to property, plant and equipment and approximately $217.8 million to intangible
assets. Such allocations are subject to adjustments based upon the final
appraisal information received by the Company. The acquisition was financed with
a portion of MCC's $336.4 million equity contribution on June 29, 2001.
On July 18, 2001, the Company acquired cable systems serving approximately
706,000 basic subscribers in the states of Georgia, Illinois and Iowa from
affiliates of AT&T Broadband for an aggregate purchase price of approximately
$1.77 billion. The purchase price has been preliminarily allocated as follows:
approximately $478.9 million to property, plant and equipment and approximately
$1.29 billion to intangible assets. Such allocations are subject to adjustments
based upon the final appraisal information received by the Company. These
acquisitions were financed with a portion of MCC's $388.6 million equity
contribution on July 18, 2001, and the $150.0 million preferred equity
investment by subsidiaries of Mediacom LLC, the net proceeds from the Company's
private offering of 11% senior notes due 2013 and borrowings under the Company's
subsidiary credit facilities.
5
MEDIACOM BROADBAND LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The opening balance sheet for the acquisitions is as follows (dollars in
thousands):
Accounts receivable.................. $ 5,758
Intangible assets.................... 1,551,188
Property, plant and equipment........ 562,646
Accrued expenses..................... (6,256)
----------
Total............................. $2,113,336
==========
Summarized below are the pro forma unaudited results of operations for the
quarter ended March 31, 2001, assuming the purchase of the AT&T cable systems
had been consummated as of January 1, 2001. Adjustments have been made to
depreciation and amortization, reflecting the fair value of the assets acquired,
and interest expense reflecting the debt incurred to finance the acquisitions.
The pro forma results may not be indicative of the results that would have
occurred if the acquisitions had been completed at the beginning of the period
presented or which may be obtained in the future (dollars in thousands).
Revenues............................. $112,930
Operating loss....................... (12,939)
Net loss............................. (71,340)
(4) Debt
As of March 31, 2002 and December 31, 2001, debt consisted of:
March 31, December 31,
2002 2001
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(dollars in thousands)
Bank credit facility ............... $ 800,000 $ 800,000
11% senior notes ................... 400,000 400,000
---------- ----------
$1,200,000 $1,200,000
========== ==========
The average interest rate on outstanding debt under the bank credit
facility was 4.2% for the three months ended March 31, 2002, before giving
effect to the interest rate exchange agreements discussed below. As of March 31,
2002, the Company had unused credit commitments of approximately $600.0 million
under its bank credit facility, of which about $324.0 million could be
borrowed and used for general corporate purposes under the most restrictive
covenants in the Company's debt arrangements. The Company was in compliance with
all debt covenants as of March 31, 2002.
The Company uses interest rate exchange 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, 2002, the Company had entered into interest rate
exchange agreements with various banks pursuant to which the interest rate on
$50.0 million is fixed at a weighted average rate of approximately 4.9%, plus
the average applicable margin over the eurodollar rate option under the bank
credit agreement. Under the terms of the interest rate exchange agreements,
which expire in 2007, the Company is exposed to credit loss in the event of
nonperformance by the other parties. However, the Company does not anticipate
their nonperformance.
6
MEDIACOM BROADBAND LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The fair value of the interest rate exchange agreements is the estimated
amount that the Company would receive or pay to terminate such agreements,
taking into account current interest rates and the current creditworthiness of
the Company's counterparties. At March 31, 2002, the Company would have received
approximately $0.4 million if the exchange agreements were terminated, inclusive
of accrued interest.
(5) Preferred Members' Interests
On July 18, 2001, the Company received a $150.0 million preferred equity
investment from Mediacom LLC. The preferred equity investment has a 12% annual
dividend, payable quarterly in cash. The proceeds from the preferred equity
investment were used to fund a portion of the Company's acquisitions of the AT&T
cable systems.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated condensed financial statements as of and for the three months ended
March 31, 2002 and with the Company's annual report on Form 10-K for the year
ended December 31, 2001.
Organization
Mediacom Broadband LLC was organized as a Delaware limited liability
company in April 2001 and serves as a holding company for its operating
subsidiaries. Mediacom Broadband Corporation, its wholly-owned subsidiary, was
organized as a Delaware corporation in May 2001 for the sole purpose of acting
as a co-issuer with the Company's 11% senior notes due 2013 and does not conduct
operations of its own. The Company's parent and manager, Mediacom Communications
Corporation ("MCC"), was organized as a Delaware corporation in November 1999.
See Note 1 of the Company's consolidated condensed financial statements.
Acquisitions
The Company commenced operations on June 29, 2001 with the acquisition from
AT&T Broadband, LLC of cable systems serving approximately 94,000 basic
subscribers in the state of Missouri. The purchase price for these cable systems
was approximately $300.0 million.
On July 18, 2001, the Company acquired from AT&T Broadband cable systems
serving approximately 706,000 basic subscribers in the states of Georgia,
Illinois and Iowa. The aggregate purchase price for these cable systems was
approximately $1.77 billion.
General
The Company has generated significant increases in revenues principally as
a result of its acquisition activities and increases in monthly revenues per
basic subscriber. Approximately 89.7% of the Company's revenues for the three
months ended March 31, 2002 are attributable to monthly subscription fees
charged to customers for their core cable television services, including basic,
expanded basic and premium programming, digital cable television programming
services, cable modem service, wire maintenance, equipment rental and services
to commercial establishments provided by the Company's cable systems. The
remaining 10.3% of revenue represents pay-per-view charges, installation and
reconnection fees, late payment fees, advertising revenues and other ancillary
revenues. Franchise fees charged to customers are included in their
corresponding revenue category.
The Company's operating expenses consist of service costs and selling,
general and administrative expenses directly attributable to its cable systems.
Service costs include fees paid to programming suppliers, expenses related to
copyright fees, wages and salaries of technical personnel and plant operating
costs. Programming costs have historically increased at rates in excess of
inflation due to increases in the number of programming services the Company has
offered and significant increases in the rates charged for the programming
services already carried on their cable systems. Under the Federal Communication
Commission's existing cable rate regulations, the Company is allowed to increase
its rates for cable television services to more than cover any increases in the
programming costs. However, competitive conditions or other factors in the
marketplace may limit their ability to increase their rates Selling, general and
administrative expenses directly attributable to the Company's cable systems
include wages and salaries for customer service and administrative personnel,
franchise fees and expenses related to billing, marketing, bad debt, advertising
and office administration. Corporate expenses reflect compensation of corporate
employees and other corporate overhead.
8
The high level of depreciation and amortization associated with the
Company's acquisition activities and capital investment program, as well as the
interest expense related to their financing activities, have caused the Company
to report net losses in its limited operating history. The Company believes that
such net losses are common for cable television companies and anticipates that
it will continue to incur net losses for the foreseeable future.
Operating cash flow represents operating income (loss) before depreciation
and amortization and restructuring charge. Operating cash flow:
. is not intended to be a performance measure that should be regarded as
an alternative either to operating income (loss) or net income (loss)
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.
Operating cash flow is included herein because the Company's management
believes that operating cash flow 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 operating cash flow may not be identical to similarly titled
measures reported by other companies.
Critical Accounting Policies
The following represents the Company's critical accounting policies which
reflect significant judgments and uncertainties and could possibly result in
materially different results under different conditions or assumptions.
Property, Plant and Equipment
The Company capitalizes a portion of direct and indirect costs related to
the construction, replacement and installation of property, plant and equipment.
Capitalized costs are charged to property, plant and equipment and depreciated
over the life of the related assets. The Company performs periodic evaluations
of the estimates used to determine the amount of costs that are capitalized.
Impairment of Long-Lived Assets
The Company follows the provisions of Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." SFAS 121 requires that
long-lived assets and certain identifiable intangibles to be held and used by
any entity be reviewed for impairment at each year end and whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. Based on the Company's review there has been no impairment of
long-lived assets under SFAS 121.
Goodwill and Other Intangible Assets
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible
Assets." The provisions of SFAS 142 prohibit the amortization of goodwill and
indefinite-lived intangible assets and require assets to be tested annually for
impairment. The impact of adopting SFAS 142 was to reduce amortization expense
by $24.7 million for the three months ended March 31, 2002. Based on the
Company's review, there has been no impairment of goodwill and indefinite-lived
intangible assets under SFAS 142.
9
Actual Results of Operations
The following historical information includes the results of operations of
the Company subsequent to its acquisitions of the AT&T cable systems on June 29
and July 18, 2001, and the historical results of predecessor operations prior to
those dates. The results of operations for the three months ended March 31, 2001
reflect an adjustment from selling, general and administrative expenses to
service costs of $9.2 million to conform to the presentation of the Company's
results of operations.
Three Months Ended March 31, 2002 Compared to Three Months Ended March 31,
2001
Three Months Ended March 31,
----------------------------
2002 2001
-------- --------
(dollars in thousands)
Revenues ..................................... $122,356 $112,930
Costs and expenses:
Service costs ............................. 54,547 52,517
Selling, general and
administrative expenses ................ 23,981 19,240
Management fee expense .................... 1,634 8,490
Restructuring charge ...................... -- 570
Depreciation and amortization ............. 26,019 38,407
-------- --------
Operating income (loss) ...................... 16,175 (6,294)
-------- --------
Interest expense, net ........................ 18,934 --
Gain on derivative instruments, net .......... (343) --
Other expenses ............................... 1,329 --
-------- --------
Net loss before income taxes ................. $ (3,745) $ (6,294)
Benefit for income taxes ..................... -- (2,591)
-------- --------
Net loss ..................................... $ (3,745) $ (3,703)
======== ========
Revenues. Revenues increased 8.3% to $122.4 million for the three months
ended March 31, 2002 as compared to $112.9 million for the three months ended
March 31, 2001. Revenues increased principally as a result of customer growth in
the Company's high-speed Internet access and digital cable services and basic
rate increases in the Company's core cable television services.
Service costs. Service costs increased 3.9% to $54.6 million for the three
months ended March 31, 2002 as compared to $52.5 million for the three months
ended March 31, 2001. Service costs for the three months ended March 31, 2002
include $3.0 million of non-recurring incremental expenses related to the
Company's transition to its Mediacom Online high-speed Internet access service.
Excluding the non-recurring incremental expenses, service costs increased
primarily as a result of higher programming expenses, including rate increases
by programming suppliers, and greater service costs associated with customer
growth in the Company's high-speed Internet access service. As a percentage of
revenues, service costs were 44.6% for the three months ended March 31, 2002, as
compared with 46.5% for the three months ended March 31, 2001.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 24.6% to $24.0 million for the three months
ended March 31, 2002 as compared to $19.2 million for the three months ended
March 31, 2001. These costs increased primarily as a result of higher marketing
expenses and costs associated with the Company's in-house advertising operation.
As a percentage of revenues, selling, general and administrative expenses were
19.6% for the three months ended March 31, 2002 as compared with 17.0% for the
three months ended March 31, 2001.
10
Management fee expense. Management fee expense decreased 80.8% to $1.6
million for the three months ended March 31, 2002 as compared to $8.5 million
the three months ended March 31, 2001. As a percentage of revenues, management
fee expense was 1.3% for the three months ended March 31, 2002 as compared with
7.5% for the three months ended March 31, 2001. This decrease was due to the
lower management fees charged by MCC subsequent to the Company's acquisitions of
the AT&T cable systems.
Restructuring charge. Restructuring charge was $570,000 for the three
months ended March 31, 2001. Restructuring charge was part of a cost reduction
plan undertaken by AT&T Broadband in 2001, whereby certain employees of the AT&T
cable systems were terminated resulting in a one-time charge.
Depreciation and amortization. Depreciation and amortization decreased
32.3% to $26.0 million for the three months ended March 31, 2002 as compared to
$38.4 million for the three months ended March 31, 2001. This decrease was
substantially due to the impact of adopting SFAS 142, which reduced amortization
expense by $24.6 million. This was partially offset by the preliminary purchase
price recorded in connection with the Company's acquisitions of the AT&T cable
systems, which increased the assets that were subject to amortization.
Interest expense, net. Interest expense, net, was $18.9 million for the
three months ended March 31, 2002. This amount represented interest on
financings for the Company's acquisitions of the AT&T cable systems. For the
three months ended March 31, 2001, the AT&T cable systems had no material
indebtedness and were not otherwise allocated any interest expense by AT&T
Broadband.
Gain on derivative instruments, net. Gain on derivative instruments, net,
was $0.3 million for the three months ended March 31, 2002, primarily due to the
decrease in the time to maturity of the derivative instruments.
Other expenses. Other expense was $1.3 million for the three months ended
March 31, 2002. This amount represented fees on unused credit commitments under
the Company's bank credit facility and amortization of deferred financing costs.
Benefit for income taxes. The Company had no provision for income taxes for
the three months ended March 31, 2002 as compared to a benefit for income taxes
of $2.6 million for the three months ended March 31, 2001. Under the Company's
ownership, the AT&T cable systems are organized as limited liability companies
and are subject to minimum income taxes.
Net loss. Due to the factors described above, the Company generated a net
loss of $3.7 million for the three months ended March 31, 2002 and March 31,
2001.
Operating cash flow. Operating cash flow increased 29.1% to $42.2 million
for the three months ended March 31, 2002, as compared to $32.7 million for the
three months ended March 31, 2001. Operating cash flow reflected $3.0 million of
non-recurring incremental costs related to the Company's transition to Mediacom
Online. The operating cash flow increase of $12.5 million, excluding these
non-recurring incremental costs, was primarily due to higher revenues resulting
from customer growth in the Company's high-speed Internet access and digital
cable services and basic rate increases in the Company's core cable television
services, partially offset by the increases in programming, marketing expenses
and costs associated with the Company's in-house advertising operation described
above. As a percentage of revenues, operating cash flow was 34.5% for the three
months ended March 31, 2002 as compared with 28.9% for the three months ended
March 31, 2001.
Liquidity and Capital Resources
The Company's business requires substantial capital for the upgrade,
expansion and maintenance of its cable network. In addition, the Company has
pursued, and will continue to pursue, a business strategy that includes
selective acquisitions. The Company has funded and will continue to fund its
working capital requirements, capital expenditures and acquisitions through a
combination of internally generated funds, long-term borrowings and equity
financings.
11
Investing Activities
The Company's capital expenditures were approximately $51.6 million for the
three months ended March 31, 2002. As of March 31, 2002, approximately 63% of
the Company's cable network was upgraded with 550MHz to 870MHz bandwidth
capacity and about 60% of the Company's homes passed were activated with two-way
communications capability. As of March 31, 2002, the Company's digital cable
service was available to approximately 810,000 basic subscribers, and the
Company's cable modem service was marketed to about 832,000 homes passed by the
Company's cable systems.
The Company plans to continue its aggressive cable network upgrade program
and expects that approximately 92% of its cable network will be upgraded with
550MHz to 870MHz bandwidth capacity and about 87% of the Company's homes passed
will have two-way communications capability by year end 2002. To achieve these
targets and to fund other requirements, including cable modems, digital
converters, new plant construction, headend eliminations, regional fiber
interconnections and network repair and maintenance, the Company expects to
invest between $230.0 million and $240.0 million in capital expenditures in
2002.
On June 29, 2001, the Company completed the acquisition of AT&T cable
systems serving approximately 94,000 basic subscribers in Missouri. The purchase
price for the Missouri systems was approximately $300.0 million.
On July 18, 2001, the Company completed the acquisitions of AT&T cable
systems serving approximately 706,000 basic subscribers in the states of
Georgia, Illinois and Iowa. The aggregate purchase price for these cable systems
was approximately $1.77 billion.
Financing Activities
To finance the Company's acquisitions and network upgrade program and to
provide liquidity for future capital needs the Company completed the undernoted
financing arrangements.
On June 29, 2001, Mediacom Broadband and Mediacom Broadband Corporation
completed an offering of $400.0 million aggregate principal amount of 11% senior
notes due June 2013. The proceeds were used to fund a portion of the price for
the acquisitions of the AT&T cable systems.
On June 29, 2001, MCC made a $336.4 million equity contribution to the
Company. MCC made an additional $388.6 million equity contribution to the
Company on July 18, 2001. The proceeds were used to fund a portion of the
purchase price for the acquisitions of the AT&T cable systems.
On July 18, 2001, the Company received a $150.0 million preferred equity
investment from subsidiaries of Mediacom LLC, a New York limited liability
company wholly owned by MCC. The preferred equity investment has a 12% annual
dividend, payable quarterly in cash. The proceeds from the preferred equity
investment were used to fund a portion of the purchase price of its acquisitions
of AT&T cable systems.
The operating subsidiaries of the Company have a $1.4 billion bank credit
facility which expires in September 2010. On January 24, 2002, the Company
entered into interest rate exchange agreements, which expire in 2007, to hedge
$50.0 million of floating rate debt under the Company's bank credit
facility. Under the terms of all of the Company's interest rate exchange
agreements, the Company is exposed to credit loss in the event of nonperformance
by the other parties to the interest rate exchange agreements. However, the
Company does not anticipate their nonperformance.
On February 4, 2002, the Company and MCC filed a registration statement
with the SEC under which the Company may sell debt securities unconditionally
guaranteed by MCC for a maximum amount of $1.5 billion. The SEC declared this
registration statement effective on February 13, 2002. The Company has not
issued any securities under this registration statement.
12
As of March 31, 2002, the Company's total debt was $1.2 billion, with
approximately $600.0 million of unused credit commitments under its bank credit
facilities, of which about $324.0 million could be borrowed and used for general
corporate purposes under the most restrictive covenants in the Company's debt
arrangements. On such date, about 38% of the Company's outstanding indebtedness
was at fixed interest rates or subject to interest rate protection, and its
weighted average cost of indebtedness, including such interest rate exchange
agreements, was approximately 6.5%. As of March 31, 2002, the Company was in
compliance with all debt covenants.
Although the Company has not generated earnings sufficient to cover fixed
charges, the Company has generated cash and obtained financing sufficient to
meet its debt service, working capital, capital expenditure and acquisition
requirements. The Company expects that it will continue to be able to generate
funds and obtain financing sufficient to service the Company's obligations and
complete its future acquisitions. There can be no assurance that the Company
will be able to obtain sufficient financing, or, if it were able to do so, that
the terms would be favorable to them.
Recent Accounting Pronouncements
Effective January 1, 2002, the Company adopted, Statement of Financial
Accounting Standards No. 141 ("SFAS 141") "Business Combinations" and No. 142
("SFAS 142") "Goodwill and Other Intangible Assets". SFAS 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Adoption of SFAS 141 had no effect on the Company's results
of operations or financial position as the Company accounts for all acquisitions
under the purchase method. The provisions of SFAS 142 prohibit the amortization
of goodwill and indefinite-lived intangible assets and require assets to be
tested annually for impairment. The impact of adopting SFAS 142 was to reduce
amortization expense by $24.7 million for the three months ended March 31, 2002.
Based on the Company's review, there has been no impairment of goodwill and
indefinite-lived intangible assets under SFAS 142.
In July 2001, the FASB issued Statements of Financial Accounting Standards
No. 143 ("SFAS 143"), Accounting for Asset Retirement Obligations, which
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS 143 will become effective for fiscal years beginning after June 15,
2002. The Company does not expect that adoption of SFAS 143 will have a material
impact on its results of operations or financial position.
In August 2001, the FASB issued Statements of Financial Accounting
Standards No. 144 ("SFAS 144") "Accounting for the Impairment or Disposal of
Long-Lived Assets.". This statement addresses financial accounting and reporting
for the impairment or disposal of long-lived assets and provides guidance on
classification and accounting for such assets when held for sale or abandonment.
SFAS 144 is effective for fiscal years beginning after December 15, 2001. The
Company adopted this standard effective January 1, 2002 and there was no impact
on its results of operations or financial position.
Inflation and Changing Prices
The Company's systems' costs and expenses are subject to inflation and
price fluctuations. Such changes in costs and expenses can generally be passed
through to subscribers. Programming costs have historically increased at rates
in excess of inflation and are expected to continue to do so. The Company
believes that under the Federal Communications Commission's existing cable rate
regulations that the Company may increase rates for cable television services to
more than cover any increases in programming costs. However, competitive
conditions and other factors in the marketplace may limit the Company's ability
to increase its rates.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company uses interest rate exchange
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, 2001, the Company had
interest rate exchange agreements with various banks pursuant to which the
interest rate on $50.0 million is fixed at a weighted average rate of
approximately 4.9%, plus the average applicable margin over the Eurodollar Rate
option under the Company's bank credit agreements. Under the terms of the
interest rate exchange agreements, which expire in 2007, the Company is exposed
to credit loss in the event of nonperformance by the other parties. However, the
Company does not anticipate their nonperformance. At March 31, 2002 the Company
would have received approximately $0.4 million if it terminated the interest
rate exchange agreements, inclusive of accrued interest. The table below
provides information for the Company's long term debt. See Note 4 to the
Company's consolidated condensed financial statements
Expected Maturity
------------------------------------------------------------
(All dollar amounts in thousands)
2002 2003 2004 2005 2006 Thereafter Total Fair Value
----- ----- ------ ------- ------- ---------- -------- ----------
Fixed rate $ -- $ -- $ -- $ -- $ -- $400,000 $400,000 $443,000
Weighted average
interest rate 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0%
Variable rate $ -- $ -- $8,500 $35,000 $42,500 $714,000 $800,000 $800,000
Weighted average
interest rate 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2%
14
PART II
-------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit Description
- ------- -------------------
None.
(b) Reports on Form 8-K
None.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDIACOM BROADBAND LLC
May 15, 2002 By: /s/ Mark E. Stephan
-------------------
Mark E. Stephan
Senior Vice President,
Chief Financial Officer, Treasurer
and Principal Financial Officer
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDIACOM BROADBAND CORPORATION
May 15, 2002 By: /s/ Mark E. Stephan
-------------------
Mark E. Stephan
Treasurer, Secretary and
Principal Financial Officer
17