Mediacom Cable Report 2003
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COIVIPANV PROFILE
IVI ediacom Communications is the nation's 8th largest cable television company and the
leading cable operator focused on serving smaller cities and towns in the United States- Our
cable systems connect 2_76 million homes and serve 1_54 million subscribers in 23 states-
nications technologies and first-class service to our
customers- We provide a wide array of broadband
products and services, including traditional
video services, digital television, video-
on-demand, high-definition television,
digital video recorders and high-
speed Internet access-
FINANCIAL AND
OPERATING HIGHLIGHTS
MEDIACOM COMMUNICATIONS CORPORATION
(dollars in thousands and unaudited) 2003 2002 2001 2000 1999 1998 1997 1996'"
Revenues $1,004,889 $ 923,033 $ 585,175 $ 328,258 $ 174,961 $129,297 $ 17,634 $ 5,411
OIBDA'" $ 405,697 $ 371,251 $ 248,293 $ 127,713 $ 62,649 $ 54,055 $ 8,509 $ 2,699
Operating Income (Loss) $ 132,390 $ 51,816 $ (62,492) $ (50,618) $ (38,416) $ (11,738) $ 873 $ 542
Capital Expenditures '" $ 240,541 $ 408,314 $ 285,396 $ 183,518 $ 86,669 $ 53,721 $ 4,699 $ 671
Total Assets $3,654,959 $3,703,974 $3,664,848 $1,379,972 $1,272,881 $451,152 $102,791 $46,560
Total Debt $3,051,493 $3,019,000 $2,798,000 $ 987,000 $1,139,000 $337,905 $ 72,768 $40,529
Total Stockholders' Equity $ 285,114 $ 346,541 $ 507,576 $ 261,621 $ 54,615 $ 78,651 $ 24,441 $ 4,537
Homes Passed 2,755,000 2,715,000 2,630,000 1,173,000 1,071,500 520,000 87,750 38,749
Basic Subscribers 1,543,000 1,592,000 1,595,000 779,000 719,000 354,000 64,350 27,153
Digital Customers 383,000 371,000 321,000 40,000 5,300
Data Customers 280,000 191,000 115,000 15,600 5,100 4,729 2,518 2,225
Total RGUs '" 2,206,000 2,154,000 2,031,000 834,600 729,400 358,729 66,868 29,378
RGU Penetration '" 80% 79% 77% 71% 68% 69% 76% 76%
Percentage of Cable
Network Upgraded 98% 96% 75% 74% 57% 45% 25% 0%
RGUs'"
REVENUES
(dollars in 'housands)
OIBDA'"
(dollars in 'housands)
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(110perating income before depreciation and amortization, or OIBDA, is a financial measure that is not calculated in accordance with generally accepted
accounting principles (GAAP) in the United States- For an explanation of why we refer to OIBDA and a reconciliation of OIBDA to operating income (loss),
please see "Use of Non-GAAP Financial Measures" on page f 8.
(2)Capital expenditures for 2003 include $9.0 million financed through capital leases.
(3) Revenue Generating Units, or RGUs, represent the sum of basic subscribers. digital customers and data customers.
(4)Represents RGUs as a percentage of homes passed.
(SIRevenues, OIBDA operating income (loss) and capital expenditures are for the period from the commencement of our operations on March 12, 1996
through December 31,1996.
was a year of key accomplishments
for Mediacom. We crossed the $1 bil-
lion revenue threshold only seven
years after commencement of opera-
tions, a singular accomplishment in the
cable industry. We finished our bililon-
dollar network investment program,
giving us superior technology capable
of delivering a complete array of video,
data and voice products and services
from a single platform. And, we turned
free cash flow'" positive during the sec-
ond half of the year, laying the founda-
tion for what we expect to be
accelerating free cash flow growth for
our Company.
Our achievements over the past
eight years are the result of our
adherence to a core set of guiding
principles-paying the right price for
cable systems we acquire, investing
in a disciplined manner to upgrade
our systems with the latest broad-
band technologies, expanding our
product offerings and providing the
best customer care.
Mediacom is now entering the next
phase of our business plan, the "sweet
spot" where we harvest the fruits of our
years of hard work and billions of dollars
of investment. We expect our future to
be one of increasing product and
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revenue diversification, dramatic growth
in free cash flow and expanding returns
on invested capital.
Mediacom achieved solid financial
results in 2003. Revenues grew 8.9%
to $1,004,9 million. Operating income
before depreciation and amortization,
or OIBDA r'" which we consider a key
indicator of our financial performance,
increased 9,3% to $405,7 million
Operating income rose 156% to $132 4
million. Capital expenditures, including
items financed through capital leases,
decreased 41,1% to $240,5 million, The
Company generated $1652 million of
unlevered free cash flow", as com-
pared to negative $37,1 million in the
prior year. The Company also gener-
ated $10,8 million of free cash flow
for the second half of the year and
negative free cash flow of $25.0 mil-
lion for the entire year, as compared
to negative $225.4 million in 2002.
We achieved these results desprte
a highly competitive enVIronment in
our video business. Satellite service
providers continued to present a strong
competitive challenge, expanding the"
launches of local television channels into
more of our markets, These "Iocal-into-
local" launches were usually accompa-
nied by heavy marketing and advertising
and were the primary cause of our loss
of basic subscribers in 2003. While we
expect to continue to experience com-
petitive pressures in our video business
in 2004 and beyond, we are fully pre-
pared to face these challenges with a
strategy that will permit Mediacom to
enjoy profitable long-term success,
We are poised for success. We are
no longer a single product company,
Our two-way, fiber-rich broadband
(1)Operating income before depreciation and amortization, unlevered free cash flow and free cash flow are non-GAAP financial measures. F'or an
explanation of why we refer to these measures and reconciliations of historical presentations of these measures to their most c"ectly comparable
GAAP measures, please see page 18
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network allows us to offer our cus-
tomers exciting new services with
greater value and choice, enabling us
not only to grow our revenues but also
to diversify away from the traditional
analog video business. Consider the
magnitude of the shift that has already
taken place in the past four years.
At the end of 1999, virtually all of our
revenue generating units, or RGUs, were
analog video subscribers, representing
a 68% penetration of homes passed,
and we generated about $34 per month
per RGU, By the end of 2003, this pene-
tration measure had jumped to 80% and
the corresponding monthly revenue had
Increased to $39. Over 30% of the RGUs
at year-end 2003 consisted of digital
video and data customers, As we
aggressively launch additionai broad-
band services, to both the residential
and commercial markets, we expect our
revenue diversification to accelerate,
We have the superior technological
platform. We have completed the
transformation of our legacy cable
systems into advanced broadband
networks, We believe our years of
investing in our superior platform give
us a strong competitive edge and a
powerful engine for future growth.
A major benefit of our network
investment is improved network relia-
bility, which translates into higher cus-
tomer satisfaction. Our investment has
enhanced operating efficiencies and
has given us the scale to iaunch new
products and services in a capital
efficient manner In addition, it has
created new opportunities for us to
tap into the non-residential market,
such as delivering commercial data
and voice services to small and
medium-sized businesses, as well as
large enterprise customers,
Importantly, our heavy capital
spending is done, as we have built
our network with excess fiber capac-
ity, eliminating the need for major
upgrades for years to come, We are
especially proud to reach this point
with a comparatively modest level of
investment. Our total assets per
basic subscriber were just $2,369 at
December 31, 2003-the lowest fig-
ure among public cable companies,
This underscores our intense focus
on managing our investment to drive
higher returns on capital.
We have the products and services
to succeed. Leveraging the power of
our broadband network, we are giving
our customers more choices of prod-
ucts and services, promoting greater
value through bundling and offering
the convenience of one-stop shopping,
. Video-an-demand, or VOD, is
available to 50% of digital cus-
tomers, increasing to 65% by
the end of 2004, With over 600
hours of programming, our
VOD service has a rapidly
growing library of first run
movies, traditional movie fare,
and event driven programming,
plus special interest program-
ming offered to our customers
at no additional charge.
. High definition television, or
HDTV, is available to 70% of our
digital customers, increasing
to 82% by year-end, We are
expanding availability of local
broadcast channeis in the HDTV
format and have launched an
HDTV tier of sports, movies
and special interest pro-
gramming to showcase HD's
crystal ciear picture, unmatched
sound quality and wide-screen
theater experience.
. Digital video recorders, or DVRs,
have been deployed in selected
markets since March 2004. DVRs
provide consumers with the abil-
ity to view recorded program-
ming at will, and to pause and
rewind "live" broadcasts, We
plan to expand their availability
throughout the year,
. High-speed Internet, or HSI, is
available to virtually all of our
customers and we continue to
enhance its performance and
convenience, We recently dou-
bled HSI speeds at no additional
charge to our customers, and we
are deploying Internet access
services with both siower and
faster speeds to further drive
customer acceptance,
. Voice-aver-Internet Protocol, or
VoIP, telephony leverages our
existing network investments and
allows us to offer our customers a
triple-play bundle of video, data
and voice services, voir teiephony
service is expected to be avail-
able in certain of our markets
during the fourth quarter of
2004, We believe voir telephony
has the potential to be as suc-
cessful as HSI, particularly given
telephony's ubiquity in U,S.
households today and the excit-
ing features that voir allows us
to offer customers,
. Bundiing is becoming increasingly
important to our customer growth,
We are positioned to be the domi-
nant single-source provider of the
triple-play bundle in our markets,
giving our customers the benefit of
having one point of contact for
sales, service and billing,
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We are local. We have another key
advantage; we are committed to our
local communities, helping us to build
brand ioyalty, We demonstrate this
each and every day in so many differ-
ent ways, Across our markets, our
employees provide valuable resources
and volunteer support for numerous
city, town and neighborhood programs,
We also give back to our communities
by producing exclusive local program-
ming, such as local sports and political
events, Mediacom is proud of the fact
that we take root in the communities we
serve, becoming an integral part of the
business and community estab-
lishment. For us, this is not just
good community relations;
it is good business and
people policy,
We are ready for the competition.
Product and service differentiation is
our critical advantage, We believe
the benefits of our local presence
and our single-source bundling of
services position us to compete
effectively, This differentiation is
becoming more and more apparent
to our customers,
In the video category, setting the
stage for the long term, we have
moved ahead of satellite providers,
Our VOD service, which satellite is
incapable of delivering, gives our
customers much greater choice and
convenience, Our HDTV service will
contain more iocal high-definition
broadcast signals in our markets, as
satellite confronts spectrum limita-
tions in its delivery of HDTV broad-
cast signals, Topping off our video
services, we are now making DVRs
available to our customers, Finally,
strengthening our home field advan-
tage, we are producing more and
more exclusive local programming
that is not available on satellite,
Our HSI product is superior to the
competing service offered by
local phone companies based
on speed, price and ease of
instailation, Moreover, our service
is more widely available than what
the phone competitors offer today,
This is because our markets have rel-
atively lower housing densities than
the major urban centers, making it
more expensive for the telephone
companies to upgrade their footprint
for high-speed Internet access,
We are also more customer-centric
than ever before, We have made
investments in our call centers that
have raised the ievel of our customer
service and improved the productivity
of our customer care personnel.
Overall, the enhancements to our
video product, our superior HSI
service, our plans to launch VolP
teiephony service later this year, and
our quality customer care and iocal
presence form the key differentiators
that enable us to compete effectively
in our markets,
We are intensely focused on gen-
erating free cash flow. We have
worked diligently to get to this stage
of the investment cycle, We built our
network with hard-earned capital
and now we are set to harvest the
returns on our investment. We focus
not only on top-line revenue growth
as we leverage our network's capa-
bilities, but also on careful manage-
ment of the controllable costs of our
business and the capital invest-
ments we make, Our overarching
objective is to balance the funding
of our business with maximizing free
cash flow generation,
With future capital investments
incremental in nature and largely
success-based, we have set the
stage for accelerating free cash flow
growth, Based on our 2004 guid-
ance, we expect un levered free
cash flow of at least $250 million, a
51% increase from the prior year,
and free cash flow of at least $50
million, We are pleased to see that
our long-term strategy of network
investment is beginning to payoff,
A flexible balance sheet has sup-
ported our growth initiatives thus far
and we expect our financial position
to show continuous improvement as
we expect to use our free cash flow
to reduce debt. Our capital structure
reflects long-dated debt maturities
and is reinforced by availability of
$560 million under our bank credit
facilities, Our 6.3% cost of debt at
December 31, 2003 rivals that of
investment grade companies, and we
have protected ourselves from interest
rate fluctuations by fixing the interest
rates on 72% of our total debt.
We see good things ahead. I am
pleased with what we achieved in
2003, but more importantly, I am
confident that the groundwork we
have laid since inception has set the
stage for a bright future, We built a
superior platform, capable of deliv-
ering new and exciting products and
services that differentiate us from
our competitors, We expect to con-
tinue to increase revenue diversifi-
cation and RGU growth over the
next several years, as our HSI busi-
ness maintains its impressive growth
trajectory and our planned VolP
teiephony service comes into its own,
Moreover, we have 3,600 hard-working
men and women at the local level
committed to providing quality cus-
tomer care. I believe that these
strengths are a powerful combination
for long-term success,
I would like to thank our communi-
ties and customers for their support.
We strive to earn their patronage by
providing an ever-expanding variety
of products and services at a rea-
sonable cost, and efficient and
effective customer service to sup-
port them. Equally important, build-
ing upon our multi-billion dollar
network investment, we continue to
devote additional funds to new tech-
nologies so that we can heip our
communities stay competitive in a
rapidly changing world.
Of course, Mediacom's successes
would not be possible without our
empioyees, whose hard work and
dedication form the bedrock of our
Company, They are the direct link to
our communities and customers;
they are the face of Mediacom. I
know that as our business continues
to evolve, they are confronted
with new challenges and asked
to do more. I am extremely grate-
fui for their swift adaptability and
tireless efforts, and proud of their
commitment to deliver quality cus-
tomer service and practice the
highest possible ethicai standards,
Finaily, I would like to thank you,
our shareholders, We are constantly
working to earn and keep your con-
fidence each and every day, As we
execute the next phase of our busi-
ness plan, we expect to deliver
accelerating free cash flow and
higher returns on Invested capital.
Just as important, we remain com-
mitted to the highest standards of
integrity in our business practices
which we believe are essential in
order to truly maximize long-term
value for you.
Thank you for your continuing trust
and support and for being part of
the Mediacom story.
~
Rocco B, Commisso
Chairman and Chief Executive Officer
Mediacom Communications Corporation
April 30, 2004
Since Mediacom's inception
in 1996, we have invested more than
$1 billion to transform our cable sys-
tems into state-of-the-art communica-
tions systems with tremendous scale,
Indeed, about 95% of Mediacom's cus-
tomers are now served by our 50 largest
headend facilities. Moreover, about 70%
of the homes we pass are situated within
two super regional networks,
As a result, we significantly improved our
cable systems' network reliability and the
quality, breadth and depth of the prod-
ucts and services that they deliver, We
are particularly proud of our efforts to
We provide our
customers with quick
and reliable access to
the latest advanced
broadband services.
close the "digital divide" between
large urban markets and the smaller
communities we serve, We are deliv-
ering today advanced products and
services to many communities that oth-
elWise would not have access to them.
We also created new opportunities in the
commercial services market, including
our burgeoning enterprise network busi-
ness that provides advanced customized
data servlces--Buch as virtual private
networks, wide area networks and point-
to-point data communication-to large
commercial customers,
Equally as important, our multi-year
network upgrade is now complete,
Reserve capacity and continued
advancements in bandwidth manage-
ment techniques eliminate the need for
major upgrades in the foreseeable
future. Accordingly, our future capital
investments are likely to be incremental
in nature and largely success based,
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Mediacom's high-speed, interactive
broadband network is the superior plat-
form for the delivery of advanced video,
data and voice products and servlces-
an extremely powerful engine for
future growth and the foundation of
our competitive advantage,
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~e transformation of our cable
systems into advanced broadband net-
works and concurrent product devel-
opment initiatives have radically
aitered the scope of products and serv-
ices we offer. Just a few years ago,
Mediacom generated neariy all of its
revenues by providing anaiog televi-
sian to residentiai customers, which
comprised core teievision channels
and pay networks, Consequently, basic
subscribers were an accurate measure
of unit trends in that business,
Fast forward to 2004, however, and the
world has changed dramatically. The
surge in demand for high-speed
internet access significantly expanded
Mediacom's market potential. Last
year, about 11,5% of our revenues
were derived from high-speed Internet
access, and 280,000 customers
subscribed to the service, in addition,
by that time, we had 383,000 digital
customers, and advertising revenue
had grown to 4,2% of the business,
Our efforts to diversify our revenue
base extend beyond new services for
the consumer market. We now offer
customized data solutions to large
commercial customers-a market
that is virtually untapped but offers
tremendous upside potential.
We beileve the market opportunity is
about to undergo even more profound
change, High-speed Internet access
remains a growth driver, and enhanced
digital video products abound, The
next major catalyst, however, is on the
horizon, Before the end of 2004,
we expect to launch Voice-
over-i nternet-Protocol
Med ¡âCõÏñ2
(VoIP) telephony service in certain mar-
kets, Telephony Is a multi~biili0n-d0lIar
business in our communities, and our
entry into this product segment will
create compelling new growth
prospects,
Overall, we expect that within a few
years, one-third of our revenues will
come from services other than
consumer video,
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lVIediacom
has
made
tremendous progress in launching
advanced broadband products and
services to our customers over the
past few years. Core digital and high-
speed Internet access services are
available to virtually all of the homes on
our network, Most of our digital cus-
tomers now have access to video-on-
demand (VOD) and high-definition
television (HDTV) as well, and we
expect to continue increasing the
amount of content available via these
services. In early 2004 Mediacom intro-
duced digital video recorders (DVRs)-
which provide the ability to view
recorded programming at wiil, and to
pause and rewind "live" broadcast&-in
certain of our cable systems, We plan to
expand the availability of this product
during the year. Together, VOD, HDTV
and DVRs give our customers greater
control and choice,
Together, VOD, HDTV and
OVRs give our customers
greater control and choice,
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High-definition television signals have
twice the color resolution and six times
the picture sIIarpness of standard
television signals,
we
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Mediacom continues to explore new
ways to create value for our customers,
Lastly, we are expanding our presence
in major retail electronics stores to
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view
We recently doubled the speeds of oor
high-speed Internet service without any
additionai charge to customers and
introduced tiers of internet service with
new products, We expect these store
locations to increase from 60 to 100
within the next several months,
d to
reach a larger audience and make it
more convenient for costomers to expe-
rience and subscribe to Mediacom's
-in
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duct
DTV
varying speeds,
ater
Our broadband bundle will grow even
more compelling as we expect to
laonch voir telephony service in cer-
tain markets in late 2004, We believe
this prodoct will further reinforce our
Mediacom remains determined to bring
our customers the best that broadband
has to offer,
vaioe proposition to consumers.
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I n today's increasingly competitive
environment, providing excellent cus-
tamer service is critical to Mediacom's
success, The expansion in the breadth
and depth of the products and serv-
ices we offer has Introduced additional
layers of complexity to our business,
Installing HDTV service as part of an
Integrated home entertainment center
is considerably more complicated than
installing basic cable service on a
standard television set. Our job Is to
make it all look simple,
Excelient customer service requires
attention to detaii in every aspect of
each customer interaction, It invoives
the customer service representatives
(CSRs) in our customer contact cen-
ters and our technicians in the field-
but it means much more than
titive
answering phones in a timely manner
and arriving on time for service
appointments, It aiso means having
critical information at your fingertips,
answering any question in a timely
manner, and anticipating the next one,
cus-
om's
adth
serv-
ional
Great customer service also requires
helping our customers understand
how our broadband products and
ess,
fan
enter
services can best suit their needs,
This ali leads to one cali resolution-
than
n a
doing it right the first time,
is to
Ongoing investments in customer serv-
ice technoiogy and training will remain
essential as our dynamic product
portfolio continues to expand, Last year,
we invested in virtuai contact technol-
ogy across our cali centers to improve
the productivity of our CSRs and reduce
response times to customer inquiries,
The virtual contact center technology
also provides customers with extensive
self-service capabilities, such as mak-
ing a payment and verifying billing sta-
tus and service appointments, Our
newest initiatives include e-Care, a
web-based customer service piatform,
and field workforce management pro-
grams designed to increase the pro-
ductivity and accountability of our
technical field employees.
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IVI edlacom strives to foster
strong ties with its 1,500 communi-
ties, We are truly a iocal company,
employing thousands of residents
throughout our cities and towns, and
supporting iocal charities, schools
and community causes in various
ways, Our efforts include staged
events and promotional campaigns
to raise funds and supplies for per-
sons in need, and in-kind donations
that include production services and
free airtime on cable networks,
Mediacom participates in the "Cable
in the Classroom" program, which
provides more than 2,800 schoois
with free cable service and, where
available, high-speed Internet serv-
ice, We also provide free cable serv-
ice to government buildings, libraries
and not-far-profit hospitals in our
franchise areas.
Our commitment to the communities we
serve is underscored by our develop-
ment and production of exclusive local
programming via our own channels-
such as Medlacom Connections and
Gulf Coast Network, Several of our
cable systems have production facili-
ties to create locally produced pro-
grams, including school sports events,
fund-raising telethons by local chapters
of national charitable organizations,
local concerts and other entertainment.
In Iowa, where we have a state-wide
presence, Mediacom is the exclusive
broadcaster of city council meetings,
the Little League Championships in Des
Moines and the Iowa High School State
Football Championships,
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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIE'
Financial Table of Contents
Selected Financial Data
16
Use of Non-GAAP Financial Measures
18
Management's Discussion and Analysis of
Financial Condition and Results of Operations
19
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of
Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
, Report of Management
Report of Independent Auditors
15
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Mediacom Communications Corporation was organized as a Deiaware corporation in November 1999 and completed an initial public
offering in February 2000, Mediacom LLC was formed as a New York limited liability company in Juiy 1995 and since that time its tax-
able Income or loss has been included In the federal and certain state income tax returns of its members, Upon completion of our ini,
tial public offering, we became subject to the provisions of Subchapter C of the Internal Revenue Code, As a C corporation, we are
subject to federal, state and local income taxes,
In the table below, we provide you with selected historical consolidated financial and operating data for the years ended December 31,
1999 through 2003 and balance sheet data as of December 31, 1999 through 2003, which are derived from our audited consolidated
financial statements, We have significantly expanded our business through acquisitions, In 2001, we acquired from AT&T Broadband, LLC
cable systems serving approximately 800,000 basic subscribers for an aggregate purchase price of $2,06 billion, In 2000, we acquired
cable systems serving approximately 53,000 basic subscribers for an aggregate purchase price of $109,2 miliion, In 1999, we acquired
cable systems serving approximately 358,000 basic subscribers for an aggregate purchase price of $759,6 million,
See "Management's Discussion and Analysis of Financiai Condition and Results of Operations,"
Year Ended December 31, 2003 2002 2001 2000 1999
(dollars in thousands, except per share and per subscriber data, and unaudited)
Statement of Operations Data:
Revenues $1,004,889 $ 923,033 $ 585,175 $ 328,258 $ 174,961
Costs and expenses:
Service costs 385,129 359,737 219,479 110,442 56,967
Selling, general and administrative expenses 196,826 173,970 105,794 55,820 32,949
Corporate expenses'" 17,237 18,075 11,609 34,283 22,396
Depreciation and amortization 273,307 319,435 310,785 178,331 101,065
Operating income (loss) 132,390 51,816 (62,492) (50,618) (38,416)
Interest expense, net (190,199) (188,304) (139,867) (68,955) (37,817)
Gain (loss) on derivative instruments, net 7,218 (13,877) (8,441)
Other (expense) income (11,460) (11,093) 21,653 (30,024) (5,087)
Net loss before income taxes (62,051) (161,458) (189,147) (149,597) (81,320)
Provision for income taxes (424) (200) (87) (250)
Net loss before cumulative effect of accounting change (62,475) (161,658) (189,234) (149,847) (81,320)
Cumulative effect of accounting change '" (1,642)
Net ioss $ (62,475) $ (161,658) $ (190,876) $ (149,847) $ (81,320)
Basic and diluted loss per share: '"
Before cumulative effect of accounting change $(0.53) $(1,35) $(1.78) $(1,79) $(7,82)
Cumulative effect of accounting change (0,02)
Loss per share $(0.53) $(1,35) $(1,80) $(1,79) $(7.82)
Weighted average common shares outstanding I" 118,627,262 119,607,605 105,779,737 83,803,032 10,403,749
Balance Sheet Data (end of period):
Totai assets $3,654,959 $3,703,974 $ 3,664,848 $1,379,972 $1,272,881
Total debt 3,051,493 3,019,211 2,798,000 987,000 1,139,000
Total stockholders' equity 285,114 346,541 507,576 261,621 54,615
Other Data:
OIBDA'" $ 405,697 $ 371,251 $ 248,293 $ 127,713 $ 62,649
OIBDA margin'" 40.4% 40,2% 42,4% 38.9% 35,8%
Net cash flows provided by (used in):
Operating activities $ 193,616 $ 174,203 $ 258,625 $ 95,527 $ 54,216
Investing activities (222,799) (421,602) (2,402,947) (297,110) (851,548)
Financing activities 23,774 215,316 2,203,477 201,262 799,593
Operating Data (end of period, except average):
Homes passed ,OJ 2,755,000 2,715,000 2,630,000 1,173,000 1,071,500
Basic subscribers '" 1,543,000 1,592,000 1,595,000 779,000 719,000
Digital customers'" 383,000 371,000 321,000 40,000 5,300
Data customers (0' 280,000 191,000 115,000 15,600 5,100
Total RGUs 'w, 2,206,000 2,154,000 2,031,000 834,600 729,400
RGU penetration "" 80% 79% 77% 71% 68%
:ial public
lie its tax-
:Of our ini-
:~" we are
.lmber31,
iþolidated
I: and, LLC
-.:.'aCqUired
,acquired
1999
4,961
6,967
2,949
2,396
01,065
8,416)
7,817)
. (5,087)
1,320)
1,320)
1,320)
'$(7,82)
$(7,82)
þ3,749
,
t~:~~6
F4,615
1a2,649
1358%
I
1,,4,216
~1,548)
\99,593
i
71,500
:19,000
i.5,300
,5,100
29,400
! 68%
¡
)
'i
Notes to Selected Financial Data
MEOIACOM COMMUNICATIONS CORPORATION AND SUBSIDIAR'E,;
(1) Represents actual corporate expenses subsequent to our initial public offering in February 2000 and fees paid to Mediacom
Management Corporation, a Delaware corporation, for management services rendered to our operating subsidiaries under man-
agement agreements prior to our initial public offering, Such management agreements were terminated upon the completion of
our initial public offering, At that time, Mediacom Management's employees became our employees and its corporate overhead
became our corporate overhead. Corporate expenses include non-cash stock charges relating to corporate expenses as foliows:
. forthe years ended December 31, 2002 and 2001, $5,3 million and $2,9 miliion, respectively, resulted from the vesting of equity
grants made during 1999 to certain members of our management team,
. for the year ended December 31, 2000 consist of a one-time $24,5 miilion charge resulting from the termination of the manage-
ment agreements with Mediacom Management upon completion of our initial public offering in February 2000 and a $3,8
miliion charge relating to the vesting of equity grants made during 1999 to certain members of our management team,
. for the year ended December 31, 1999 consist of a $0.6 miliion charge resulting from amendments to our management agree-
ments with Mediacom Management and a $14.8 miliion charge relating to the vesting of equity grants to certain members of our
management team,
(2) Relates to our adoption of Statements of Financial Accounting Standards No, 133, "Accounting for Derivative Instruments and
Hedging Activities,"
(3) Basic and diluted loss per share is calculated based on the weighted average shares outstanding, Since our initial public offering
in February 2000, the weighted average shares outstanding was based on the actual number of shares outstanding, Prior to our
initial public offering, the weighted average shares outstanding was computed based on the conversion ratio used to exchange
the Mediacom LLC's membership units for shares of Mediacom Communications Corporation Class A and Class B common stock
immediateiy prior to our initial public offering,
(4) Operating income before depreciation and amortization, or OIBDA, is a financial measure that is not calculated in accordance with
generaliy accepted accounting principles (GAAP) in the United States, For an explanation of why we refer to OIBDA, and a
reconciliation of OIBDA to operating income (loss), please see "Use of Non-GAAP Financial Measures" on page 18,
(5) Represents operating income before depreciation and amortization as a percentage of revenues, See note 4 above,
(6) Represents the number of single residence homes, apartments and condominium units passed by the cable distribution network
in a cable system's service area,
(7) Represents a dweliing with one or more television sets that receives a package of over-the~air broadcast stations, local access
channels or certain sateliite-delivered cable television services, Accounts that are bilied on a bulk basis, which typicaliy receive
discounted rates, are converted into fuli-price equivalent basic subscribers by dividing total bulk billed basic revenues of a par-
ticular system by the applicable combined limited and expanded cable rate charged to basic subscribers in that system, Basic
subscribers include connections to schools, libraries, local government offices and employee households that may not be
charged for limited and expanded cable services, but may be charged for premium units, pay-per~view events or high-speed
Internet service, Customers who exclusively purchase high-speed Internet service are not counted as basic subscribers. Our
methodology of calculating the number of basic subscribers may not be identical to those used by other cable companies,
(8) Represents customers that receive digital cable services,
(9) Represents residential data customers and smali to medium-sized commercial accounts billed at higher rates than residential
customers. Smali to medium-sized commercial accounts generaliy represent customers with bandwidth requirements less than
5Mbps, These commercial accounts are converted to equivalent residential data customers by dividing their associated revenues
by the applicable residential rate, Our data customers exclude large commerciai accounts and include an insignificant number of
dial-up customers, Our methodology of calculating data customers may not be identical to those used by other cable companies,
(10) Revenue Generating Units, or RGUs, represent the sum of basic subscribers, digitai customers and data customers,
(11) Represents RGUs as a percentage of homes passed,
""D'ACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
of Non-GAAP Financial Measures
Ol)eratlng income before depreciation and amortization" or
" "unlevered free cash flow," and "free cash flow" are
t}l'allcial measures calculated in accordance with generally
accounting principles (GAAP) in the United States,
clctlne unlevered free cash flow as OIBOA less capital
cxpwlclitures, and free cash flow as OIBOA less interest
net and capital expenditures,
OI~DA IS one of the primary measures used by our management
" evalcate our performance and to forecast future results, We
OIBOA is useful for investors because it enables them to
our performance in a manner similar to the method used
IJY lnanagement, and provides a measure that can be used to
value and compare the companies in the cable television
which may have different depreciation and amortization
A limitation of this measure, however, is that it excludes
cJeo"cciation and amortization, which represents the periodic costs
,,' "crtaln capitalized tangible and intangibie assets used in gen-
revenues in our business, Management utilizes a separate
to budget, measure and evaluate capital expenditures,
LlI'levered free cash flow and free cash flow are used by man-
E1c¡c'nellt to evaluate our ability to service our debt and to fund
continued growth with internally generated funds, We believe
unlevered free cash flow and free cash flow are useful for
investors because they enable them to assess our ability to
service our debt and to fund continued growth with internally
generated funds in a manner similar to the method used by
management, and provide measures that can be used to ana-
lyze, value and compare companies In the cable television
industry, Our definitions of unlevered free cash flow and free
cash flow eliminate the impact of quarterly working capital fluc-
tuations, most notably from the timing of semi-annual cash inter-
est payments on our senior notes, The only difference between
the terms unlevered free cash flow and free cash flow is that
unlevered free cash flow does not subtract interest expense,
net. Our definitions of un levered free cash flow and free cash
flow may not be comparable to similarly titied measures used
by other companies,
algOA, unlevered free cash flow and free cash flow should not
be regarded as alternatives to either operating income, net
income or net loss as indicators of operating performance or to
the statement of cash flows as measures of liquidity, nor should
they be considered in isolation or as substitutes for financial
measures prepared in accordance with GAAP,
I 'ie tiJI.lowing represents a reconciliation of historical presentations of OIBOA to operating income (loss), which is the most directly
comparable GAAP measure (dollars in thousands and unaudited):
~nded December 31, 2003 2002 2001 2000 1999 1998 1997 1996
OISLJ.A $ 405,697 $371,251 $ 248,293 $ 127,713 $ 62,649 $ 54,055 $ 8,509 $ 2,699
LJcpceclation and amortization (273,307) (319,435) (310,785) (178,331) (101,065) (65,793) (7,636) (2,157)
Ouwating income $132,390 $ 51,816 $ (62,492) $ (50,618) $ (38,416) $(11,738) $ 873 $ 542
108 following represents a reconciliation of historical presentations of unlevered free cash flow and free cash flow to net cash flows
prHrJed by operating activities, which is the most directly comparable GAAP measure (dollars in thousands and unaudited):
U'l'cvered free cash flow
li"te'est expense, net
cash flow
Capltc" expenditures
¡,on-cash stock charges
Olher expenses
Benefit (provision) for income taxes
Deterred income taxes
Change in assets and liabilities, net
Net cash flows provided by operating activities
Second Half Full Year
2003 2003 2002
$103,425 $165,157 $ (37,063)
(92,610) (190,199) (188,304)
10,815 (25,042) (225,367)
100,365 240,540 408,314
5,323
(1,661) (3,378) (3,910)
(11) (424) (200)
(26,392) (18,080) (9,957)
$ 83,116 $ 193;616 $ 174,203
On a forward-looking basis, we are unable to reconcile OIBOA, unlevered free cash flow and free cash flow to their most directly compa-
rable non~ßAAP measures primarily because it is impractical to project the timing of certain items, such as the initiation of depreciation
to network construction projects, or changes in working capital.
18
believe
ful for
ility to
temally
sed by
to ana-
levlsion
. nd free
, tal fluc-
, h inter-
etween
is that
pense,
e cash
s used
uld not
e, net
ce or to
should
inanclal
directly
1996
2,699
(2,157)
542
, sh flows
2002
37,063)
88,304)
25,367)
08,314
5,323
(3,910)
(200)
(9,957)
74,203
compa-
reclation
MEDIACOM COMMUNICATIONS CORPORATION AN
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Reference is made to the "Risk Factors" contained in our annual
report on Form 10-K for the year ended December 31, 2003 for
a discussion of important factors that could cause actual results
to differ from expectations and any of our forward-looking state-
ments contained herein, The following discussion should be
read in conjunction with our audited consolidated financial state-
ments as of and for the years ended December 31, 2003, 2002
and 2001,
Overview
We significantly expanded our business in 2001 through acquisi-
tions, Ail acquisitions have been accounted for under the pur-
chase method of accounting and, therefore, our historical results
of operations include the results of operations for each acquired
system subsequent to its respective acquisition date, On June 29,
2001, we acquired from AT&T Broadband, LLC cable systems in
the state of Missouri serving approximately 94,000 basic sub-
scribers for a purchase price of approximately $300,0 million, On
July 18, 2001, we acquired from AT&T Broadband cable systems
In the states of Georgia, lliinois and Iowa serving approximately
706,000 basic subscribers for an aggregate purchase price of
approximately $1 ,76 billion, The AT&T cable systems substantially
increased the size of our cable operations and caused significant
changes in our financial position, including a substantiaily higher
amount of total debt. As a result, these acquisitions affect the
comparability of our historical results of operations,
In 2003, we completed our planned network upgrade program
that significantly increased bandwidth and enabled interactivity,
As of December 31, 2003, approximately 98% of our cable net-
work was upgraded with 550MHz to 870MHz bandwidth capac-
Ity and about 97% of our homes passed were activated with
two-way communications capability. As of the same date,
Actual Results of Operations
approximately 95% of our basic subscribers were served by ow
50 largest headend facilities, Expressed in megahertz, or MHz,
bandwidth represents a system's capacity to deliver telecommu-
nication services, A headend facility is the location where signals
are received and processed for distribution over a cable system
Our upgraded network allows us to introduce additionai pro-
gramming and other services such as digi'al video, high-speed
Internet access, video-an-demand, high-definition television and
beginning in the fourth quarter of 2004, Internet protocoi teleph-
ony service, which Is sometimes referred to as Voice-over-
Internet-Protocol, or VolP teiephony, We cur"ently offer video and
data bundles, VolP telephony will allow us to offer an attractive
triple-play bundle of video, data and voice products and serv-
ices, Bundled products and services offer our subscribers key
benefits such as a single provider contact fer provisioning, billing
and customer care,
We face increasing competition for our video programming serv-
ices, most notably from direct broadcast satellite service, or DBS
service providers, In 2003, competitive pressure from DBS serv-
ice providers intensified when they launched local television
channels in additional markets representing an estimated 34% Of
our basic subscriber base, Since they have been permitted tc
deliver local television broadcast signals beginning in 1999
DIRECTV, Inc, and Echostar Communications Corporation, the
two largest DBS service providers, have bee'l increasing the num-
ber of markets in which they deliver these local television signals
These "Iocal-into-Iocal" iaunches were usually accompanied by
heavy marketing and advertising and were the primary cause of
our loss of basic subscribers in 2003, As of December 31, 2003
local-to~10ca1 launches in our markets represented an estimated
62% of our basic subscribers.
Year Ended December 31,2003 Compared to Year Ended December 31,2002
The following table sets forth the consolidated statements of operations for the years ended December 31, 2003 and 2002 (dollars
in thousands):
Revenues
Costs and expenses:
Service costs
Selling, general and administrative expenses
Corporate expenses
Depreciation and amortization
Operating income
Interest expense, net
Gain (loss) on derivative instruments, net
Other expense
Net loss before provision for income taxes
Provision for income taxes
Net loss
Year Ended December 31,
2003 2002 $ Change % Change
$1,004,889 $ 923,O33 $ 81,856 8,9%
385,129 359,737 25,392 7,1
196,826 173,970 22,856 13.1
17,237 18,075 (838) (4,6)
273,307 319,435 (46,128) (14.4)
132,390 51,816 80,574 155.5
(190,199) (188,304) (1,895) 1,0
7,218 (13,877) 21,095 NM
(11,460) (11,093) 367 3,3
(62,051) (161,458) (99,407) (61,6)
(424) (200) (224) 112,0
$ (62,475) $(161,658) $(99,183) 61.4%
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Revenues
The following table sets forth revenue information for the years ended December 31,2003 and 2002 (dollars in thousands):
Year Ended December 31,
2003 2002
%of %of
Amount Revenues Amount Revenues $ Change % Change
$ 846,787 84.3% $812,838 88,1% $33,949 4,2%
115,360 11.5 70,745 7,6 44,615 63,1
42,742 4.2 39,450 4,3 3,292 8,3
$1,004,889 100.0% $923,033 100,0% $81,856 8,9%
Video
Data
Advertising
Video revenues represent monthly subscription fees charged to
customers for our core cable television products and seNices
(including basic, expanded basic and analog premium pro-
gramming, digital cable television programming services, wire
maintenance, equipment rental and services to commercial
establishments), pay-per~view charges, installation and reconnec-
tion fees, late payment fees, and other ancillary revenues, Data
revenues primarily represent monthly subscription fees charged
to customers for our data products and seNices and equipment
rental fee, Franchise fees charged to customers for payment to
local franchising authorities are included in their corresponding
revenue category,
Revenues rose 8,9% attributable to a 47% increase in high-
speed data customers and basic rate increases applied on our
video customers, driven in large part by our own programming
cost increases,
Video revenues increased 4,2% as a result of the aforementioned
basic rate increases, partially offset by a 3.0% decline In basic
subscribers after adjusting for small acquisitions and divestitures
during 2003, Our loss in basic subscribers resulted primarily from
greater competitive pressures by DBS seNice providers, partic-
ularly in those markets where we experienced their "Iocal-to-
local" launches. To reverse this video customer trend, we are
increasing our customer retention efforts and our emphasis on
bundling, enhancing and differentiating our video products and
services with video-on~demand, high-definition television and
digital video recorders,
Data revenues rose 63,1% due, in large part, to a 47% increase
in data customers from 191,000 to 280,000, We expect this cus-
tomer trend in our data business to continue and anticipate
continued demand for our high-speed data service,
Advertising revenues increased 8,3% primarily as a result of
bringing in-house certain markets previously managed by third
parties, Instead of receiving advertising revenues which are net of
commissions paid to the third parties, we now record the full rev-
enues from these markets with the related expenses, including in-
house commissions, which are recorded as selling, general and
administrative expenses,
Costs and expenses
Service costs Include fees paid to programming suppliers,
expenses related to wages and salaries of technical personnel,
who maintain our cable network and perform customer installa-
tion activities, high-speed Internet access costs, including costs
of bandwidth connectivity, customer provisioning and technical
support for our customers, and plant operating costs, such as
utilities and pole rental expense, Programming costs, which are
ments to programmers for content and are generally paid on
a per subscriber basis, have historically increased due to both
increases in the rates charged for existing programming serv-
ices and the introduction of new programming services to our
basic subscribers,
Service costs increased 7,1% over the prior year, which included
$4,3 million of one-time incremental costs related to our transition
to our Mediacom Online high-speed Internet access seNlce,
These costs represented the excess over the agreed-upon
charges owed to our former high-speed provider that were
incurred in the first quarter of 2002, Excluding these incremental
costs, seNlce costs would have increased 8,4% or $29,7 million,
Approximately half of this increase was due to seNicing the
growth in our data customers of 89,000, with the baiance prima-
riiy represented by increases in unit costs for basic program-
ming, The increase in total programming costs, however, was
partially offset by the aforementioned decline In basic sub-
scribers as well as a decrease in analog premium service units.
As a percentage of revenues, service costs were 38,3% for the
year ended December 31, 2003, as compared with 39.0% for the
year ended December 31,2002,
We expect continued increases In programming costs and will
continue to pass through some portion of these increases to our
customers, Under the Federal Communication Commission's exist-
ing cable rate regulations, we are allowed to increase our rates for
cable television services to more than cover any increases in the
programming, However, competitive conditions or other factors in
the marketplace may limit our ability to increase our rates,
Selling, general and administrative expenses Include: wages and
salaries for our call center, customer service and support and
administrative personnel; franchise fees and taxes; and
expenses related to billing, telecommunications, marketing, bad
debt, advertising and office administration,
Selling, general and administrative expenses increased 13,1%,
principaily due to higher customer support, marketing, call cen-
ter and bad debt expenses, and higher taxes and fees. Customer
support expenses increased 35.5% as a result of higher staffing
levels and employee commissions. We expect customer support
expense Increases to moderate as customer support staffing is
now at an appropriate level. Marketing expenses rose 13,7% to
support the digital television and data products and services, to
cover the costs of advertising campaigns we deployed to
counter competitive pressures from DBS, and to pay commis-
sions to our marketing personnel. We expect to maintain this level
of marketing expense going forward, Expenses relating to our
call centers, mainly customer seNice personnel and telecommu-
nications, increased g,O% as a result of increased staffing and
higher call volumes experienced during the year. We expect call
center expense increases to moderate, as recent call volumes
9%
oth
, rv-
. our
ded
ition
ice,
pan
ere
ntal
lion,
the
Ima-
ram-
, was
sub-
" nits,
rthe
rthe
will
our
xist-
s for
, n the
rs in
and
and
and
bad
,1%,
cen-
tomer
'affing
pport
ing is
7% to
es, to
ed to
mmis-
, level
0 our
mmu-
g and
ct call
lumes
have meaningfully decreased and call center staffing is now at an
appropriate level. Bad debt expense rose 24.7% primarily as a
result of higher customer churn and the implementation through-
out the year of tighter customer credit controls, We expect bad
debt expense to moderate as we continue to improve our cus-
tomer credit controls. As a percentage of revenues, selling, gen-
eral and administrative expenses were 19,6% for the year ended
December 31,2003, as compared with 18,8% for the year ended
December 31, 2002,
We expect continued growth in advanced services, which Include
digital cable and high-speed Internet access and, in late 2004,
the launch of VolP telephony service, As a result, we expect our
cost of services and selling, general and administrative expenses
to increase,
Corporate expenses reflect compensation of corporate employees
and other corporate overhead. Corporate expenses decreased
4,6% to $17,2 million for the year ended December 31,2003, as
compared to $18,1 million for the year ended December 31,2002,
This was due to the recognition of $5,3 million of non-cash stock
charges during the year ended December 31, 2002, which repre-
sented vesting in equity interests granted to certain members of
our management team, offset by a greater number of corporate
employees and increases in salaries, legal and other professional
fees, and insurance premiums, As a percentage of revenues, corpo-
rate expenses were 1,7% for the year ended December 31, 2003,
as compared with 2.0% for the year ended December 31, 2002,
Depreciation and amortization decreased 14.4% to $273,3
million for the year ended December 31, 2003, as compared
to $319.4 million for the year ended December 31, 2002. The
decrease was primarily due to changes, effective July 1,
2003, in the estimated useful lives of our cable systems and
equipment in conjunction with the completion of our network
upgrade and rebuild program, These changes reduced
depreciation by $63,5 million for the year ended December 31,
2003, This decrease was offset in part by increased deprecia-
tion for investments in our cable network and ongoing invest-
ments to continue the roilout of products and services such as
video-an-demand, high-definition television and high-speed
Internet access, We expect depreciation and amortization to
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIE',
decrease in 2004 as a result of the full year impacf ot
changes In estimated lives. See Note 2 to our consol,,:;]"'c!
financial statements,
Interest expense, net
Interest expense, net, remained relatively flat year over
was primarily due to higher average indebtedness
decrease In market interest rates on our variable rate deb'
Gain (loss) on derivative instruments, net
Our stated strategy Is to manage our interest expense
combination of fixed and variable Interest rate debt. We enter
interest rate exchange agreements, or "interest rate swaps I,x
the interest rate on a portion of our variable rate debt to reouce :',e
potential volatility in our Interest expense due to changes
able market Interest rates. As of December 31,2003, we hac!
est rate swaps with an aggregate principai amount of $800.l1
mililon, compared to $790,0 million as of December 312m2
These interest rate swaps are accounted for as fair value
oi debt instruments as prescribed by SFAS No, 133. The
in their mark~t0-market values are derived from changes in
market interest rates and the decrease In their time to maturity TIle
aggregate change in value is reported as either a noncash
loss on derivative instruments, net. Gain on derivative instruments
net, was $7,2 million for the year ended December 31,2003,
compared to loss on derivative instruments, net of $13,9 million 'or
the year ended December 31, 2002,
Other expense
Other expense was $11.5 million for the year ended Decembw 31
2003, as compared to$1'.' million for the year ended December
2002. Other expense primarily represents amortization of c!e:erre,j
financing costs and fees on unused credit commitments Oll',e,
expense for the year ended December 31, 2003 was partly
by a gain on sale of investments of $1,7 million,
Net loss
Due to the factors described above, we generated a net loss ot
$62,5 million for the year ended December 31, 2003
pared to a net loss of $161,7 million for the year
December 31,2002,
Year Ended December 31,2002 Compared to Year Ended December 31,2001
The foilowing table sets forth the consolidated statements of operations for the years ended December 31,2002 and 2001 (cfol,are,
in thousands):
Revenues
Costs and expenses:
Service costs
Selling, general and administrative expenses
Corporate expenses
Depreciation and amortization
Operating income (loss)
Interest expense, net
Loss on derivative instruments, net
Other (expense) income
Net loss before provision for income taxes
Provision for Income taxes
Net loss before cumulative effect of accounting change
Cumulative effect of accounting change
Net loss
Year Ended December 31,
2002 2001 $ Change % Cilanqp
$ 923,033 $ 585,175 $337,858
359,737 219.479 140,258 63.9
173,970 105,794 68,176 644
18,075 11,609 6,466
319,435 310,785 8,650
51,816 (62,492) 114,308 NI~:
(188,304) (139,867) (48,437) 346
(13,877) (8,441) (5,436) 64¿
(11,093) 21,653 (32,746) NM
(161,458) (189,147) 27,689
(200) (87) (113)
(161,658) (189,234) 27,576
(1,642) 1,642
$(161,658) $(190,876) $ (29,218)
21
"EDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
s
The following table sets forth revenue information for the years ended December 31,2002 and 2001 (dollars in thousands):
Year Ended December 31,
2002 2001
%of %of
Amount Revenues Amount Revenues
$812,838 88,1% $541,513 92,5%
70,745 7,6 26,160 4,5
39,450 4,3 17,502 3,0
$923,033 100,0% $585,175 100,0%
Video
Data
Advertising
Revenues increased 57,7% to $923,0 million, of which $249.2
was attributable to the acquisitions of the AT&T cable systems,
Excluding the effects of such acquisitions, revenues increased
primarily due to basic rate Increases applied on our video cus-
tomers, driven in large part by our own programming cost
Increases, and to customer growth in our digital and high-speed
Internet access services,
Video revenues increased 50.1% to $812,8 million, of which
$2197 million was attributable to the acquisitions of the AT&T
cable systems, Excluding the effects of such acquisitions,
video revenues increased primarily due to aforementioned
basic rate increases in our video services and to growth in our
digital customer base of 50,000,
Data revenues increased 170.4% to $70,7 miliion, of which $13,8 mil-
lion was attributable to the acquisitions of the AT&T cabie systems,
Excluding the effects of such acquisitions, data revenues increased
pnmanly due to growth in our data customer base of 75,000,
Advertising revenues increased 125.4% to $39,5 million, of which
$15.8 million was attributable to the acquisitions of the AT&T cable
systems, Excluding the effects of such acquisitions, advertising
revenues increased primarily due to a general improvement in
loca' and national advertising markets,
:u;;", and expenses
Service costs increased 63,9% to $359,7 million, of which $102,2
mil'lcn was attributable to the acquisitions of the AT&T cable sys-
tems. Excluding the effects of such acquisitions, service costs
Increased primarily due to higher programming expenses,
including rate increases by programming suppliers for existing
se.vlces and the cost of new channel additions, and greater
technical employee support and other operating costs directiy
related to customer growth in our high-speed Internet access
services, As a percentage of revenues, service costs were 39,0%
for the year ended December 31, 2002, as compared with 37,5%
for the year ended December 31, 2001,
general and administrative expenses increased 64.4% to
million, of which $57.4 million was attributable to the
acquisitions of the AT&T cable systems, Excluding the effects of
such acquisitions, selling, general and administrative expenses
increased primarily as a result of higher marketing expenses
related to our digital and high-speed Internet services, As a per-
centage of revenues, selling, general and administrative
expenses were 18,8% for the year ended December 31,2002, as
compared with 18,1% for the year ended December 31, 2001,
expenses Increased 55,7% to $18,1 million for the year
December 31, 2002, as compared to $11.6 million for the
$ Change
$271,325
44,585
21,948
$337,858
% Change
50,1%
170.4
125.4
57,7%
year ended Deoember 31, 2001, This was principally due to an
increase in corporate employees and their reiated costs, in addi-
tion, corporate expenses included $5,3 million and $2,9 million of
non-cash stock charges for the years ended December 31, 2002
and 2001, respectively, As a percentage of revenues, corporate
expenses were 2,0% for the years ended December 31,2002 and
December 31, 2001,
Depreciation and amortization increased 2,8% to $319.4 million
for the year ended December 31, 2002, as compared to $310.8
million for the year ended December 31, 2001, This was due to
the depreciation and amortization expense associated with our
purchase of the AT&T cable systems in mid-2001, which had a
full year impact in 2002, and ongoing investments primarily to
upgrade and rebuild our cable systems, This increase was sub-
stantially offset by the adoption of SFAS 142, effective January "
2002, which reduced amortization expense by $144,9 million
during the year ended December 31, 2002,
Interest expense, net
Interest expense, net, increased 34,6% to $188.3 million for the
year ended December 31, 2002 as compared to $139.9 million
for the year ended December 31, 2001, This was due primarily to
additional indebtedness resulting from the acquisitions of the
AT&T cable systems and the ongoing investments in our cable
systems, which increased our average indebtedness partially off-
set by a decrease in interest rates on our variable rate debt.
Loss on derivative instruments, net
As indicated above, we manage our interest expense using a
combination of fixed and variable interest rate debt. We enter into
interest rate swap, agreements to fix the interest rate on a portion
of our variable rate debt to reduce the potential volatility in au!
interest expense due to changes in variable market interest rates.
As of December 31, 2002 we had Interest rate swaps with an
aggregate principal amount of $790,0 million, compared tc
$170,0 million as of December 31, 2001, These interest rate
swaps are accounted for as fair value hedges of debt instru,
ments as prescribed by SFAS No. 133, The changes In their val,
ues are derived from changes in interest rates and the reductior
of their time to maturity, The change in their aggregate mark-to,
market value is reported as either a noncash gain or loss or
derivative instruments, net. Loss on derivative instruments, net
was $13,9 million for the year ended December 31, 2002, a,
compared to $8.4 million forthe year ended December 31,2001
Other expense (income)
Other expense was $11,1 million for the year ended December 31
2002, as compared to $21.7 million of other income for the yea
ended December 31, 2001, Other expense represents fees or
unused credit commitments under our bank credit facilities, am
amortization of deferred financing costs, Other income in 2001
reflected the recognition of the remaining $30,0 million of
deferred revenue resulting from the termination of our contract
with SoftNet Systems,
Net loss
Due to the factors described above, we generated a net loss of
$161.7 million for the year ended December 31, 2002 as compared
to a net loss of $190,9 million for the year ended December 31, 2001,
i-
f
,2
Liquidity and Capital Resources
As an Integral part of our business plan, we have significantly
Invested, and will continue to invest, additional capital in our
cable network to enhance its reliability and capacity, which will
allow for the introduction of new advanced broadband services,
We also will continue to pursue a business strategy that includes
selective acquisitions, We expect to fund our capital require-
ments through a combination of internally generated funds, and
amounts available under our bank credit facilities,
'e
,n
8
a
r
a
0
Operating Activities
Net cash flows provided by operating activities Increased 10,1%,
or $17,6 million, to $193,6 million, reflecting a significant reduc-
tion in our net ioss, partially øffset by an $18.1 million reduction In
working capital accounts, mostly attributable to the decrease in
our accounts payable balances,
e
n
a
e
Ie
Investing Activities
Net cash flows used in investing activities consist principally of
investments in our cable network, During 2003, investing activi-
ties decreased by $200,1 million, or 47,6% to $222,8 million,
This decrease reflected significantly lower capitai expenditures
in 2003 due to the completion of our planned network upgrade
and rebuild program,
Our capital expenditures were $240,5 million (including $9,0 million
of capital expenditures financed through capital leases), $408,3
million and $285.4 million for the years ended December 31,2003,
2002 and 2001, respectively, As of December 31, 2003, as a result
of our cumulative capital investment in our network upgrade pro-
gram, approximateiy 98% of our cable network was upgraded with
550MHz to 870M Hz bandwidth capacity and about 97% of our
homes passed were activated with two-way communications
capability, At year end 2003, our digital cable service was avail-
able to approximately 99% of our basic subscribers, and our high-
speed Internet access service was marketed to about 96% homes
passed by our cable systems,
a
to
n
ur
s, ,
n
to
te
u-
I-
n
o-
n
t,
as
"
With the completion of our planned network upgrade program,
we expect prospective capital expenditures to consist primarily
of the costs of new advanced service installations and equip-
ment, new plant construction and network replacement. We
expect to invest approximately $165,0 million to $175,0 million In
capital expenditures in 2004,
Financing Activities
Net cash flows provided by financing activities decreased 89,0%
to $23,8 million for the year ended December 31, 2003, This
reflected a reduction in borrowings as a result of decreases in our
capital expenditures resulting from the wind down of our network
upgrade program in 2003,
"
ar
n
d
We own our cable systems through our two principal sub-
sidiaries: MediacÇ)m Broadband LLC and Mediacom LLC, The
operating subsidiaries of Mediacom Broadband LLC have a
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIEC
$1.4 billion bank credit facility expiring in September 2[)11\
which $950.0 million was outstanding as of December 31. 2C10:,
The operating subsidiaries of Mediacom LLC have two Ilank
credit facilities aggregating $1,03 billion, of which $696,5 IID1
was outstanding as of December 31, 2003, Mediacom " _C s
bank credit facilities expire in September 2008 and DecHnb"r
2008, however, their final maturities are subject to earlier
rnent on dates ranging from June 2007 to December
Mediacom LLC does not refinance its $200,0 million 8Y,"!o
notes due April 2008 prior to March 31, 2007,
We have entered into interest rate exchange agreements
expire from June 2005 through March 2007, to hedge $800 :: mil-
lion of floating rate debt. Under the terms of all of our inte"",; ra'e
exchange agreements, we are exposed to credit loss In the iNe'lt
of nonperformance by the other parties to the interes rate
exchange agreements, However, due to the high creditworthi-
ness of our counterparties, we do not anticipate their nonperfor-
mance, As of the date of this report, about 72% our
outstanding indebtedness was at fixed interest rates or subjPct:o
interest rate protection,
As of December 31, 2003, our total debt was $3,051 bill'()" ard
we had unused credit commitments of about $770,0 million onel",
all of our bank credit facilities and our annualized cost 01 deat
capital was approximately 6,3%, As of January " 2004, alte' giv-
ing effect to scheduled step downs in the maximum
covenants in our bank credit facilities, approximately $562 (,
lion could be borrowed and used for general corporate pUipOS"S
under the most restrictive covenants in our debt arrangelnen's,
We were in compliance with all debt covenants as of, ane tor all
periods in, the year ended December 31, 2003,
As of December 31,2003, approximately $13,6 million of lettors 01
credit were issued to various parties to secure our perforl1lar'Ge
relating to Insurance and franchise requirements,
Although we have not generated earnings sufficient to covor fixec
charges, we have generated cash and obtained financing sufflcien1
to meet our short-term requirements, including our debt service
working capital and capital expenditures, We expect that we wil
continue to be able to generate funds and obtain financing sL,f!c'ent
to service our long-term business plan, service our debt obllçjatims
and complete any future acquisitions, However, there car De no
assurance that we will be able to obtain sufficient financing, If wo
were able to do so, that the terms would be favorable to us
Contractual Obligations and Commercial Commitmell
The following table summarizes our contractual ob,igations.
and commercial commitments for the five years subseolJent to
December 31,2003 and thereafter:
Debt (1)
Capital Operating
Leases Leases
Total
(dollars in thousands)
2004 $ 10,500 $2,071 $ 3,129 $ 1S,70C
2005 45,500 2,130 1,979 49,609
2006 370,250 2,191 1,712 314,153
2007 247,000 1,071 1,396 "49,467
2008 611,750 30 680 612,460
Thereafter 1,759,000 1,895 1,760,8%
Total cash
obligations $3,044,000 $7,493 $10,791
(1) Includes $172,S million of convertible senior notes due 2006.
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Critical Accounting Policies
The foregoing discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial state-
ments, which have been prepared in accordance with accounting
principles generally accepted in the United States, The preparation of
these financial statements requires us to make estimates and assump-
tions that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabiii-
ties, Periodically, we evaluate our estimates, including those related
to doubtful accounts, long-lived assets, capitalized costs and accru-
als, We base our estimates on historical experience and on various
other assumptions that we beiieve are reasonable, Actual results may
differ from these estimates under different assumptions or conditions,
We believe that the application of the critical accounting policies dis-
cussed below requires significant judgments and estimates on the
part of management. For a summary of our accounting poiicies, see
Note 2 of our consoiidated financiai statements.
Property, Planf and Equipment
We capitaiize the costs of new construction and replacement of our
cable transmission and distribution faciiities and new cable service
Installations, Capitaiized costs include all direct labor and materials
as well as certain indirect costs and are based on historical con-
struction and installation costs, Capitalized costs are recorded as
additions to property, piant and equipment and depreciate over the
life of the related asset. We perform periodic evaluations of the esti-
mates used to determine the amount of costs that are capitalized,
Any changes to these estimates, which may be significant, would be
applied during the period in which the evaluations were completed,
Income Taxes
We account for income taxes using the iiabllity method as stipu-
lated by SFAS No, 109, "Accounting for Income Taxes," This
method generally provides that deferred tax assets and liabilities
be recognized for temporary differences between the financial
reporting basis and the tax basis of our assets and liabilities and
anticipated benefit of utilizing net operating loss carryforwards,
We assess the Ilkeiihood of reaiization of deferred tax assets and
net operating loss carryforwards by considering the scheduled
reversal of deferred tax iiabilities, taxabie income in future peri-
ods and tax planning strategies, At December 31,2003, we have
recorded a net deferred tax asset valuation allowance of approx-
imately $224,1 million, We will continue to monitor the need for
the deferred tax asset valuation allowance in 2004 and beyond
as we anticipate to report accounting earnings,
Intangibles
Our cabie systems operate under non-exclusive franchises
granted by state and local governmental authorities for varying
lengths of time, We acquired these cable franchises through
acquisitions of cable systems and were accounted for using the
purchase method of accounting, We have concluded that our
cable franchise rights have an indefinite useful life since, among
other things, there are no legal, regulatory, contractual, competi-
tive, economic or other factors limiting the period over which
these cable franchise rights contribute to our revenues,
Accordingly, with our adoption of SFAS No, 142, we no longer
amortize the cable franchise rights and other indefinite-lived
assets, Instead, such assets are tested annually for impairment,
or more frequently if impairment indicators arise.
Based on the guidance outlined in Emerging Issues Task Force, or
"EITF," issue No, 02-7, we deterrnined that the unit of accounting for
testing franchise value for impairment resides at a cable system-clus-
I. Such level reflects the financiai reporting level managed and
reviewed by the corporate office (I.e" chief operating decision maker)
as well as how we allocated capital resources and utilize the assets,
Lastly, the unit reporting level reflects the level at which the purchase
method of accounting for our acquisitions was originally recorded,
We have three cable system clusters, or reporting units, for the
purpose of applying SFAS No, 142,
We assess the fair value of our franchise costs based on a dis-
counted cash flow methodology, If the determined fair value of our
franchise costs is less than the carrying amount on the financial
statements, an impairment charge would be recognized for the dif-
ference between the fair value and the carrying value of the assets,
To test the impairment of the goodwill carried on our financial state-
ments, the fair value of the cable system cluster's tangible and
intangible assets (including franchise value) other than goodwill is
deducted from the cable system cluster's fair value, The balance
represents the fair value of goodwill which is then compared to the
carrying value of goodwill to determine if there is any impairment.
Upon adoption of SFAS No. 142, we determined that no impair-
ment of our franchise costs and goodwill existed as of January "
2002, Subsequent Impairment tests as of September 2002 and
2003, reflected no impairment of our franchise costs and goodwill.
Our use of discounted cash flow analyses in determining the fair
value of each cable system cluster Involves certain assumptions
and estimates, which are consistent with the expectations of buy-
ers and sellers of cable systems in determining fair value,
Significant impairment in value resulting in impairment charges
may result if these estimates and assumptions used in the fair
value determination change in the future,
Impairment of Long-Lived Assets
We follow the provisions of SFAS No, 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," SFAS No. 144
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and provides guidance on classifica-
tion and accounting for such assets when held for sale or abandon-
ment. There have been no changes in our circumstances that would
indicate that we would need to perform an impairment review,
Recent Accounting Pronouncements
The FASB issued SFAS No, 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," in December 2002,
which amends: (i) SFAS No, 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for
an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation; (ii) the
disclosure provisions of SFAS No, 123 to require prominent dis-
closure about the effects on reported net income of an entity's
accounting policy decisions with respect to stock-based
employee compensation; and (ill) Accounting Principles Board
("APB") Opinion No, 28, "Interim Financial Reporting," to require
disclosure about those effects in interim financiai information, We
adopted SFAS No, 148 on January " 2003. We did not change
to the fair value based method of accounting for stock-based
employee compensation, Accordingly, the adoption of SFAS No, 148
did not affect our financial condition or results of operations,
In April 2003, the FASB Issued SFAS No, 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities."
SFAS No, 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activi-
ties under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," In generai, SFAS No, 149 is effective for
er)
ts,
se
ed.
the
is-
our
cial
dif-
ets,
te-
nd
ill is
nce
the
, nt.
air-
y 1,
and
, fair
, ions
uy-
lue,
, rges
fair
the
144
nt or
iflca-
don-
auld
ased
002,
ased
n for
thod
i) me
t dls-
tlty'S
ased
oard
quire
,We
ange
ased
,148
nt of
, ities."
and
vative
activi-
ents
for
contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003, We adopted
SFAS No, 149 on July " 2003, and such adoption did not have a
material impact on our financial condition or results of operations,
In May 2003, the FASB issued SFAS No, 150, "Accounting for
Certain Financial Instruments with Characteristics of both
liabilities and Equity," SFAS No, 150 establishes standards for
how an issuer classifies and measures in Its statement of financial
position certain financial instruments with characteristics of both
liabilities and equity. In accordance with SFAS No. 150, certain
financial instruments that embody obligations for the issuer are
required to be classified as liabilities, SFAS No, 150 is effective for
financial instruments entered Into or modified after May 31, 2003,
and otherwise shall be effective at the beginning of the first interim
period beginning after June 15, 2003, We adopted SFAS No, 150
on July " 2003, and such adoption did not have a material Impact
on our financial condition or IBsults of operations.
Inflation and Changing Prices
Our 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, We believe that under the Federal Communications
Commission's existing cable rate regulations we may increase rates
for cable television services to more than cover any increases in
MEOIACOM COMMUNICATIONS CORPORATION ANa SUBSIOIARIf ,
programming. However, competitive conditions and other factors In
the marketplace may limit our ability to increase our rates
Cautionary Statement Regarding Forward-looking Sù
You should carefully review the information contained in this
Report and in other reports or documents that we file from time 10 time
with the Securities and Exchange Commission (the "SEC') It thiS
Annual Report, we state our beliefs of future events and of 01 ,e 'ululS
financial performance, In some cases, you can identify 80-
called "folWard-looking statements" by words such as "may
"should," "expects," "plans," "anticipates," "believes," "esl'rT1ates"
"predicts," "potential," or "continue" or the negative of those words
and other comparable words, You should be aware that those state
ments are only our predictions. Actual events or results may ,lrKel
materially, In evaluating those statements, you should speuilcaly
consider various factors, including competition in our video and 'llgh-
speed Internet access businesses; our ability to achieve antlclpelelî
customer and revenue growth and to successfully introclucc
products and services; increasing programming costs; chô}lc¡es 1'1
laws and regulations; our ability to generate sufficient casll to
meet our debt service obligations; and the other risks discussed II
our annual report on Form 10-K for the year ended Deceml:;er 31
2003 and other reports or documents that we file from time tliTIC
with the SEC, Those factors may cause our actual results 10
materially from any of our folWard-looking statements, All forwarcl
looking statements attributable to us or a person acting on OU' iJchal'
are expressly qualified in their entirety by this cautionary statemenT
Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we manage our interest expense using a combination of fixed and variabie Interest rate delJ: We
enter into interest rate exchange agreements, or "interest rate swaps," to fix the interest rate on a portion of our variable interes,
debt to reduce the potential volatility in our interest expense that would othelWise result from changes in market interest rates As 0'
December 31, 2003, we had interest rate exchange agreements with various banks pursuant to which the interest rate on $8C1D 0
lion is fixed at a weighted average rate of approximately 3,3%, plus the average applicable margin over the eurodollar rate option ..lneel
our bank credit agreements,
Under the terms of the interest rate exchange agreements, which expire from 2005 through 2007, we are exposed to credit loss II
the event of nonperformance by the other parties, However, due to the high creditworthiness of our counterparties, we do 11m
[pate their nonperformance, At December 31, 2003, based on the mark-to~market valuation, we would have paid approximately
million if we terminated these agreements, inclusive of accrued interest.
The change in the mark-to~market value of our interest rate exchange agreements is reflected as either a noncash gain or loss
derivative instruments, net, in consolidated statement of operations, For the year ended December 31, 2003 we had a ne~ galnT
$7,2 million, We have no plans to change our hedging strategy as outiined above, Future gains or losses on derivative instr'JI11erts
are largely dependent on changes in variable market interest rates, which we cannot predict, and the reduction in the time to
rity of our existing interest rate exchange agreements, All else being equal, as time elapses on our interest rate exchange
ments, the mark-to~market gains or losses we have incurred under our interest rate exchange agreements will reduce,
corresponding losses or gains, respectively, on derivative instruments. If we maintain these agreements to maturity, their
value will be zero, and all gains or losses on derivative instruments, net, recognized to date will have been reversed,
The table below provides the expected maturity and estimated fair value of our debt as of December 31,2003 (dollars in thouscnds,
See Note 7 to our consolidated financial statements.
Expected Maturity:
January " 2004 to December 31, 2004
January " 2005 to December 31,2005
January " 2006 to December 31,2006
January " 2007 to December 31, 2007
January " 2008 to December 31, 2008
Thereafter
Total
Fair Value
Weighted Average Interest Rate
(II Represents convertible senior notes due July 2006,
Bank Credit Capital Lease
Senior Notes Facilities Obligations eel",
$ $ 10,500 $2,071 $
45,500 2,130 47,fi3C
172,500(1) 197,750 2,191 :372 441
247,000 1,071 ;243C7'
200,000 411,750 30 13" "780
1,025,000 734,000 1,759.COO
$1,397,500 $1,646,500 $7,493 $3,??i~~~
$1,474,751 $1,646,500 $7,493 $3,!?3 !~:
9,1% 3,0% 3,1% 5.8~,
MEDIACOM COMMUNICATIONS CORPORATION ANa SUBSIDIARIES
Clolusolidated Balance Sheets
(All dollar amounts in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
Deferred revenue
~rent portion of long-term debt
Total current liabilities
Long-term debt, less current portion
Other non-current liabilities
Total liabilities
2003 2002
$ 25,815 $ 31,224
2,933 4,070
56,706 56,205
14,260 10,278
99,714 101,777
1,465,362 1,483,829
2,050,095 2,072,404
3,515,457 3,556,233
39,788 45,964
$3,654,959 $3,703,974
$ 247,728 $ 271,260
43,633 33,261
12,571 2,211
303,932 308,732
3,038,922 3,017,000
26,991 33,701
3,369,845 3,357,433
December 31,
ASSETS
CURRENT ASSETS
Cash and cash equivaients
Investments
Subscriber accounts receivable, net of allowance for
doubtful accounts of $3,524 and $3,789, respectively
Prepaid expenses and other assets
Total current assets
Investment in cable television systems:
Property, plant and equipment, net of accumulated
depreciation of $844,519 and $631,427, respectively
Intangible assets, net of accumulated amortization of
..---:B289,906 and $275,125, respectively
Total investment in cable television systems
Other assets, net of accumulated amortization of
~:23~,823 and $17,966, respectively
Total assets
STOCKHOLDERS' EQUITY
Class A common stock, $,01 par value; 300,000,000 shares authorized;
91,345,346 shares issued and 89,808,602 shares outstanding as of
December 31,2003 and 91 ,068,774 shares issued and 89,532,030
shares outstanding as of December 31,2002
Class B common stock, $,01 par value; 100,000,000 shares authorized;
28,913,145 and 28,991,456 shares issued and outstanding as of
December 31, 2003 and 2002, respectively
Additional paid-in capital
Accumulated deficit
Treasury stock, at cost, 1,536,744 shares of Class A common stock
Total stockholders' equity
Total liabilities and stockholders' equity
913
911
289
982,390
(692,515)
(5,963)
285,114
$3,654,959
290
981,343
(630,040)
(5,983)
346,541
$3,703,974
The accompanying notes to consolidated financial statements are an integral part of these statements,
002
224
070
205
278
,777
829
404
,233
, ,964
,974
¡ ,260
, ,261
,211
732
,000
,701
,433
911
290
,343
,040)
,963)
,541
,974
MEDIACOM COMMUNICATIONS CORPORATION ANI SUBSIDIARieS
Consolidated Statements of Operations
(All amounts in thousands, except per share amounts)
Year Ended December 31,
Revenues
Costs and expenses:
Service costs (exclusive of depreciation and amortization of
$273,307, $319,435 and $310,785, respectively, shown
separately below)
Selling, general and administrative expenses
Corporate expenses
Depreciation and amortization
Operating income (loss)
Interest expense, net
Gain (loss) on derivative instruments, net
Other (expense) income
Net loss before provision for income taxes
Provision for income taxes
Net loss before cumulative effect of accounting change
Cumulative effect of accounting change
Net loss
2003
$1,004,889
2002 2001
-~-
$ 923,033 $ ,,85,175
Basic and diluted loss per share:
Before cumulative effect of accounting change
Cumulative effect of accounting change
Loss per share
385,129 359,737 219,479
196,826 173,970 105,794
17,237 18,075 11,609
273,307 319,435 310,785
132,390 51,816 (62,492)
(190,199) (188,304) (139,867)
7,218 (13,877) (8,441)
(11,460) (11,093) 21,653
(62,051) (161,458) (189,147)
(424) (200) (87)
(62,475) (161,658) (189,234)
(1,642)
$ ----
(62,475) $(161,658) $(190,876)
$(0.53) $(1,35) $(178)
(0,02)
$(0.53) $(1,35) _,$(1,80)
118,627 119,608 105,780
-,,-
Weighted average common shares outstanding
The accompanying notes to con,olidated financial statement, are an integral part of these statements.
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of
Changes in Stockholders' Equity
(All dollar amounts in thousands)
Class A Class B Additional Accumulated Treasury
Common Common Paid-In Comprehensive Accumulated Stock,
Stock Stock Capital Loss Deficit at Cost Total
Balance, December 31,2000 $606 $293 $538,642 $(414) $(277,506) $ $ 261,621
Comprehensive loss:
Net loss (190,876)
Unrealized gain on investments,
net of deferred taxes 414
Comprehensive loss (190,462)
Exercise of stock options 51 51
Issuance of common stock,
net of issuance costs 299 432,616 432,915
Issuance of common stock in
employee stock purchase plan 547 547
Vesting of equity granted to
management, net of forfeiture 2,904 2,904
Balance, December 31,2001 $905 $293 $974,760 $ - $(468,382) $ $ 507,576
Net loss (161,658) (161,658)
Issuance of common stock in
employee stock purchase plan 3 1,260 1,263
Vesting of equity granted to
management, net of forfeiture 5,323 5,323
Transfer of stock 3 (3)
Treasury stock, at cost (5,963) (5,963)
Balance, December 31,2002 $911 $290 $981,343 $ - $(630,040) $(5,963) $ 346,541
Net Loss (62,475) (62,475)
Issuance of common stock in
employee stock purchase plan 1 1,047 1,048
Transfer of stock 1 (1)
Balance, December 31, 2003 $913 $289 $982,390 $ - $(692,515) ${5,963) $ 285,114
The accompanying notes to consolidated financial statements are an integral part of these statements,
MEOIACOM COMMUNICATIONS CORPORATION ANO SUSSIOIARIE
Consolidated Statements .of Cash Flo,^,s
(All doll.. amounts in thousands)
Year Ended December 31,
CASH FLOWS PROVIDED BY OPERATING ACTIViTIES:
Net loss
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization
Impairment of available-far-sale securities
(Gain) loss on investments, n,at
Vesting of management stock
Deferred income taxes
Amortization of SoftNet Systems revenue
Termination of SoftNet Systems agreement
Amortization of deferred financing costs
Cumulative effect of accounting change, net of tax
Changes in assets and liabilities, net of effects from acquisitions:
Subscriber accounts receivable, net
Prepaid expenses and other assets
Accounts payable and accrued expenses
Deferred revenue
Other non-current liabilities
Net cash flows provided by operating activities
I CASH FLOWS USED IN INVESTING ACTIVITiES:
I Capital expenditures
Acquisitions of cable television systems
Proceeds from sales of cable television systems
Other investment activities
Net cash flows used in investing activities
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
New borrowings
Repayment of debt
Proceeds from issuance of Class A common stock
Repurchase of Class A common stock
Financing costs
Net cash flows provided by financing activities
Net (decrease) increase in cash and cash equivalents
CASH AND CASH EQUIVALENTS, beginning of year
CASH AND CASH EQUIVALENTS, end of year
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest, net of amounts capitalized
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Capital expenditures financed through capital leases
2003 2002
$ (62,475) $(161,658) $
273,307 319,435
(5,832) 13,877
5,323
6,696 7,183
(501) (10,601)
(3,982) 3,400
(17,259) (2,473)
10,372 3,855
(6,710) (4,138)
193,616 174,203
(231,505) (408,314)
(7,374) (6,548)
15,409
671 (6,740)
(222,799) (421,602)
302,594 539,750
(279,348) (318,750)
1,048 1,263
(5,963)
(520) (984)
23,774 215,316
(5,409) (32,083)
31,224 63,307
$ 25,815 $ 31,224
$184,228 $ 194,497
$ 9,036 $
The accompanying notes to consolidated financial statements are an integral part of these statements.
2::1' : 'I,
(2,4:~' "elf
4,1:351::
(,11
2,2l13 ~177
$
fi:: :107
$
$
IEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
es to Consolidated Financial Statements
1 " Organization
Medlacom Communications Corporation ("MCC," and collectively
with lis direct and indirect subsidiaries, the "Company") was
organlLed in November 1999 and is involved in the acquisition and
development of cable systems serving smaller cities and towns in
the United States, Through these cable systems, the Company
provioes entertainment, information and telecommunications serv-
ices to Its subscribers. As of December 31, 2003, the Company
was operating cable systems in 23 states, principally Alabama,
California, Delaware, Florida, Georgia, Illinois, Indiana, Iowa,
Kentucky, Minnesota, Missouri, North Carolina and South Dakota,
Medl8com Broadband LLC, a wholly-owned subsidiary of MCC,
was o'ganized as a Delaware limited liability company in Aprii
2001 lor the purpose of acquiring cable systems from AT&T
Broadband, LLC in the states of Georgia, Illinois, Iowa and
Missouri (the "AT&T cable systems"), The Company completed
the acquisitions of the AT&T cable systems in June and July 2001,
2:. Summary of Significant Accounting Policies
Basis of Preparation of Consolidafed Financial Statements
The consolidated financial statements include the accounts of MCC
and its subsidiaries. All significant intercompany transactions and
balances have been eliminated, The preparation of the consolidated
finanGal statements in conformity with generally accepted account-
ing pnnciples in the United States of America requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and lia-
bilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period,
Actual results could differ from those estimates.
Change in Estimate
Effective July " 2003, the Company changed the estimated use-
ful lives of its cable systems and equipment in conjunction with
the Company's recently completed network upgrade and rebuild
program. The changes in estimated useful lives were made to
reflect management's evaluation of the longer economic lives of
the Company's upgraded and rebuilt network, The new asset lives
are consistent with those used by companies in the cable televi-
sion industry, The weighted average useful lives of such fixed
assets changed from approximately 7 years to approximately 12
years. These changes were made on a prospective basis and
resuited in a decrease in net loss of approximately $63.5 million or
$0,54 p,", share for the year ended December 31, 2003.
Revenu'e Recognition
Revenues include amounts billed to customers for services pro-
vided, installations, advertising and other services. Revenues
from 'Jldeo and data services are recognized when the services
are p-c'/ided to the customers, Installation revenues are recog-
nized to the extent of direct installation costs incurred, Advertising
sales are recognized in the period that the advertisements are
exhibited, Franchise fees are collected on a monthly basis and
are periodically remitted to local franchise authorities, Franchise
fees collected and paid are reported as revenues and expenses,
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents,
Concenfration of Credit Risk
The Company's accounts receivable are comprised of amounts due
from subscribers in varying regions throughout the United States,
Concentration of credit risk with respect to these receivables is lim-
Ited due to the large number of customers comprising the
Company's customer base and their geographic dispersion, The
Company Invests its cash with high quality financial Institutions,
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Additions to
property, plant and equipment generally include material, labor
and indirect costs. Depreciation is calculated on a straight-line
basis over the following useful lives:
Buildings
Leasehold improvements
Cable systems and equipment
and subscriber devices
Vehicles
Furniture, fixtures
and office equipment
40 years
Life of respective lease
4 to 20 years
5 years
5 years
The Company capitalizes improvements that extend asset lives
and expenses repairs and maintenance as incurred. At the time
of retirements, sales or other dispositions of property, the original
cost and related accumulated depreciation are removed from the
respective accounts and the gains and losses are presented as
a component of depreciation expense.
The Company capitalizes the costs associated with the construc-
tion of cable transmission and distribution facilities, and new
cable installations. Costs include direct labor and material, as
well as certain indirect costs, The Company performs periodic
evaluations of certain estimates used to determine such costs
that are capitalized. Any changes to these estimates, which may
be significant, are applied in the period in which the evaluations
were completed, The costs of disconnecting service at a cus-
tomer's dwelling or reconnecting to a previously installed
dwelling are charged as expense in the period incurred, Costs
associated with subsequent installations of additional services
not previously installed at a customer's dwelling are capitalized to
the extent such costs are incremental and directly attributable to
the installation of such additional services,
Intangible Assefs
Indefinite-lived intangible assets include goodwill and cable
franchise costs and are accounted for in accordance with SFAS
No, 142, "Goodwill and Other Intangible Assets," The provisions
of SFAS No, 142, which were adopted by the Company on
January " 2002, prohibit the amortization of indefinite-lived
intangible assets and goodwill, but require such assets to be
tested annually for impairment, or more frequently if impairment
e
indicators arise, The Company has determined that its cable
franchise costs and goodwill are indefinite~iived assets,
Accordingly, on January " 2002, the Company ceased the
amortization of its indefinite-lived intangible assets, Other finite-
lived intangible assets, which consist primarily of subscriber lists
and covenants not to compete, continue to be amortized over
their useful lives of 5 to 10 years and 5 years, respectively. See
Note 6, Intangible Assets,
e
e
e
Other Assets
Other assets, net, represent financing costs incurred to raise
debt, which are deferred and amortized as other expense over
the expected term of such financings.
a
, r
e
Segment Reporting
SFAS No, 131, "Disclosure about Segments of an Enterprise and
Related Information," requires the disclosure of factors used to
identify an enterprise's reportable segments, The Company's
operations are organized and managed on the basis of cable sys-
tem clusters that represent operating segments responsible for
certain geographical regions, Each operating segment derives its
revenues from the delivery of similar products and services to a
customer base that is also simiiar, Each operating segment
deploys similar technology to deliver our products and services
and operates within a similar regulatory environment. In addition,
each operating segment has similar economic characteristics,
Management evaluated the criteria for aggregation of the geo-
graphic operating segments under SFAS No, 131 and believes
the Company meets each of the respective criteria set forth,
Accordingly, management has identified broadband services as
the Company's one reportable segment.
s
e
I
e
s
Accounting for Derivative Instruments
The Company adopted SFAS No, 133, "Accounting for Derivative
Instruments and Hedging Activities," on January " 2001, As a
result, the Company recorded an after tax charge of approxi-
mately $1.6 million, as a change in accounting principle, in the
first quarter of 2001 , The Company's stated strategy is to manage
its interest expense using a combination of fixed and variable
interest rate debt. The Company enters into interest rate
exchange agreements to fix the interest rate on a portion of its
variable interest rate debt to reduce the potential volatility in its
interest expense that would otherwise result from changes in
market interest rates,
,s
y
s
Accounfing for Asset Retirement
The Company adopted SFAS No, 143, "Accounting for Asset
Retirement Obligations," on January 1, 2003, SFAS No, 143
addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and
the associated asset retirement costs, The Company reviewed its
asset retirement obligations to determine the fair value of such
liabilities and if a reasonable estimate of fair value can be made,
This entailed the review of leases covering tangible long-lived
assets as well as the Company's rights-of-way under franchise
agreements. In determining the fair value of the Company's
asset retirement obiigation, consideration was given to the
Cable Communications Policy Act of 1984, which generally
entitles the cable operator to the "fair market vaiue" for the
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARII
cable system covered by a franchise, if renewal is denll'!
the franchising authority acquires ownership of the cable
or effects a transfer of the cabie system to another persOl,
Upon adoption of SFAS No, 143, the Company determine,1
in certain instances, it is obligated by contractual terms O!
latory requirements to remove facilities or perform other
ation activities upon the retirement of its assets, The aggTcldlc
fair value of the liability incurred by this is immateria to
Company's consolidated financial statements taken as a
Income Taxes
The Company provides for income taxes using the liabiiity
in accordance with SFAS No, 109, "Accounting for income
which requires an asset and liability based approach in
ing for income taxes. The Company recognizes deferme
assets and liabilities for the future tax consequences atttlbclHJlc
to differences between the financial statement carrying iJl1l()1I11,
of existing assets and liabilities and their respective tax bases
expected benefits of utilizing net operating loss
The Company periodically assesses the likelihood of
deferred tax assets and net operating loss carryforwards
sidering the scheduled reversal of deferred tax liabilities
income in future periods and tax planning strategies,
Reclassifications
Certain reclassifications have been made to prior years'
to conform to the current year's presentation,
Recent Accounfing Pronouncements
The FASB issued SFAS No, 148, "Accounting for StockB"seCi
Compensation-Transition and Disclosure," in December
which amends: (I) SFAS No, 123, "Accounting for Stock-Benee
Compensation," to provide alternative methods of tranSIllon
an entity that voluntarily changes to the fair value based ms.hod
of accounting for stock-based employee compensation, llle'
disclosure provisions of SFAS No, 123 to require prominc'lt
closure about the effects on reported net income of an
accounting policy decisions with respect to stock-Di'se,1
employee compensation; and (iii) Accounting Principles Boarrl
("APB") Opinion No, 28, "Interim Financiai Reporting," to
disclosure about those effects in interim financial information The
Company adopted SFAS No, 148 on January " 2003,
The Company did not change to the fair value based mel'l(),( 01
accounting for stock-based employees compensation
Accordingly, the adoption of SFAS No, 148 did not a!feci
Company's financial condition or results of operations,
SFAS No. 148 requires that information be provided II II'",
Company had accounted for employee stock options Utl,j", Ille
fair value method of this statement, including disclosing
information regarding net income (loss) and net income
share beginning with the first quarter of 2003, The
accounts for stock-based compensation in accordance
Accounting Principles Board Opinion No, 25, "Accoun',ng for
Stock Issued to Employees," as permitted by SFAS No
Compensation expense for stock options is measurer! as the
excess, if any, of the quoted market price of the Company s s:ock
at the date of the grant over the amount the employee rm:st pey
per
',1EDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
to acquire the stock, No compensation cost has been recognized
for any option grants in the accompanying consolidated state-
ments of operations since the price of the options was at their fair
marko: value at the date of grant. The weighted average fair value
of all of the employee options was estimated on the date of grant
using tile Black-Scholes model. Had the Company applied the fair
value recognition provisions of SFAS No, 123 to stock-based com-
pensaton, MCC's net income (loss) and basic and diluted net
income (loss) per share would have been changed from the "as
reporled" amounts to the "pro forma" amounts as follows (dollars
in thousands):
2003 2002 2001
Net loss, as reported $(62,475) $(161,658) $(190,876)
DedL,ct: Total stock-
based compensation
determined under fair
value based method
for all awards, net
0' related tax effects (4,027) (3,502) (4,095)
,-
~..:?:ma, net loss $(66,502) $(165,160) $(194,971)
Basic and diluted
net loss per share:
_..!.:~ reported $(0.53) $(1.35) $(1,80)
Pro forma $(0.56) $(1,38) $(1,84)
Excludod from the above pro forma calculation are 7,200,000 of
additional stock options Issued to certain members of the
Company's management since these options were issued for
consideration representing their fair value, These options were
issued prior to the completion of MCC's initial public offering in
February 2000,
In April 2003, the FASB issued SFAS No, 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities,"
SFAS No, 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activi-
ties under SFAS No, 133, "Accounting for Derivative Instruments
and Hedging Activities," In generai, SFAS No, 149 is effective for
contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003, The
Compaoy adopted SFAS No, 149 on July " 2003, and such adop-
tion c,d not have a material impact on the Company's financial
condi:icn or results of operations,
In May 2003, the FASB issued SFAS No, 150, "Accounting for
Certa[fl Financial Instruments with Characteristics of both
Liabilities and Equity," SFAS No, 150 establishes standards for
how en issuer classifies and measures in Its statement of financiai
position certain financial instruments with characteristics of both
liabilites and equity, In accordance with SFAS No, 150, certain
financal instruments that embody obligations for the issuer are
required to be classified as liabilities. SFAS No, 150 is effective for
financial instruments entered into or modified after May 31, 2003,
and otherwise shall be effective at the beginning of the first interim
period beginning after June 15, 2003, The Company adopted
SFAS No. 150 on Juiy " 2003, and such adoption did not have
a material impact on the Company's financial condition or results
of operations,
3. Loss per Share
The Company calculates loss per share in accordance with SFAS
No, 128, "Earnings per Share," SFAS No. 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 dilutlve securities. Due to
its current losses, the Company does not have any additional secu-
rities outstanding that would have a dilutive effect on the weighted
average common shares outstanding, The effects of stock options
and convertible debt were anti~di1utive because the Company gen-
erated net losses for the periods presented, Accordingly, diluted
loss per share equaled basic loss per share, If the Company did not
have net losses for the years ended December 31,2003,2002 and
2001, the number of dilutive shares that would have been included
in the earnings per share calculation totaled 30,000, 20,000 and
18,200, respectively,
The following tabie summarizes the Company's calculation of basic
and diluted loss per share for the years ended December 31,
2003, 2002 and 2001 :
2003
2002
2001
(in thousands, except per share data)
Net loss $(62,475)
Basic and diluted
loss per share
Weighted average
common shares
outstanding
$(161,658) $(190,876)
$(0.53)
$(1,35)
$(1.80)
118,627
119,608
105,780
4. Acquisitions
The Company has made acquisitions of cable systems 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
acquired systems has been allocated to the assets acquired and
liabilities assumed at their estimated fair values at their respec-
tive dates of acquisition, The results of operations of the acquired
systems have been included with those of the Company since
the dates of acquisition,
On June 29, 2001, the Company acquired cable systems serving
approximately 94,000 subscribers in the state of Missouri from
affiliates of AT&T Broadband, LLC, for a purchase price of
approximately $300,0 million. This acquisition was financed with
a portion of the net proceeds from the Company's public offering
of 29,9 million shares of its Class A common stock (See Note 8),
,s
,r
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, LLC, for an
aggregate purchase price of approximately $1.76 billion, This
acquisition was financed with a portion of the net proceeds from
the Company's public offerings of 29,9 million shares of Class A
common stock and 5%% convertible senior notes due 2006, the
net proceeds of the 11% senior notes due 2013 and borrowings
under the Company's bank credit facilities (See Notes 7 and 8),
e
'0
Summarized below are the pro forma unaudited results of operations
for the year ended December 31, 2001 assuming the purchase of
the AT&T cable systems had been consummated as of January "
2001 (in thousands, except per share data), Adjustments have been
made to: (i) depreciation and amortization reflecting the fair value of
the assets acquired; and (ii) 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 acquisi-
tions had been completed on the date indicated or which may be
obtained in the future,
'd
d
t
d
d
d
2001
$834,126
(86,416)
Revenues
Operating loss
Net loss before cumulative effect
of accounting change
Net loss
Basic and diluted loss per share
Weighted average common shares outstanding
(265,282)
(266,924)
$(2,52)
105,780
ic
"
5. Property, Plant and Equipment
As of December 31,2003 and 2002, property, plant and equipment
consisted of (dollars in thousands):
to
se
of
se
nd
,c-
ed
ce
Land and land improvements
Buildings and leasehold
improvements
Cable systems, equipment
and subscriber devices
Vehicles
Furniture, fixtures and
office equipment
2003 2002
$ 7,059 $ 6,536
41,273 37,748
2,172,953 2,003,489
63,023 46,007
25,573 21,476
2,309,881 2,115,256
(844,519) (631,427)
$1,465,362 $1,483,629
Accumulated depreciation
Property, plant and equipment, net
ng
m
of
ith
'ing
8),
Depreciation expense for the years ended December 31, 2003,
2002 and 2001 was approximately $258.4 million, $286.4 million
and $185,1 million, respectively, As of December 31, 2003 and
2002, the Company had property under capitalized leases of
$10,7 million and $2.4 million, respectively, before accumulated
depreciation, and $8,9 million and $1,9 million, respectively, net
of accumulated depreciation,
6. Intangible Assets
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
The Company operates Its cable systems under non-exclusive
cable franchises that are granted by state or local government
authorities for varying lengths of time, The Company acquired
these cable franchises through acquisitions of cable systems and
were accounted for using the purchase method of accounting,
On January 1,2002, the Company adopted SFAS No, 142, which
eliminates amortization of goodwill and certain intangibles that
have indefinite lives but requires that such assets be tested for
impairment at least annually. Prior to adoption of SFAS No, 142 on
January " 2002, the Company amortized cable franchises and
goodwill over 15 years, The Company evaluated the expected
useful life of its cable franchises, also referred to as franchise
costs, upon adoption of SFAS No, 142 and determined that all of
its cable franchises have an indefinite useful life, As such, the
Company ceased amortizing its cable franchises effective
January " 2002, In determining whether its cable franchises
have an indefinite life, the Company considered that: (i) there are
no legal, regulatory, contractual, competitive, economic or other
factors limiting the period over which these cable franchise rights
will continue to contribute to the Company's revenues; (ii) the
Company has sufficient experience with the local franchising
authorities to conclude that franchise renewals can and will be
accomplished indefinitely; (iii) the Company has never had a
cable franchise right revoked, and has never been denied a fran-
chise renewal; (iv) in the Company's history of renewing fran-
chises, minimal costs have been incurred in the franchise
renewal process; (v) the Company has sufficiently upgraded the
technological state of its cable systems; (vi) under the 1984
Cable Act, a local franchising authority may not unreasonably
withhold the renewal of a cable system franchise; and (vii) valua-
tions of cabie franchises by market participants presume that
franchise renewals can and will be accomplished indefinitely,
The Company will continue to reevaluate the expected life of its
cable franchises periodically to determine whether events and
circumstances continue to support an indefinite life.
Based on the guidance of Emerging Issues Task Force, or~"EITF,"
Issue No. 02-7, Unit for Accounting for Testing Impairment of
Indefinite-Lived Intangible Assets, the Company determined that
the unit of accounting for testing cable franchise value for Impair-
ment resides at the cable system cluster level. Such level reflects
the financial reporting level managed and reviewed by the corpo-
rate office (i.e., chief operating decision maker) as well as how the
Company allocates capital resources and utilizes the assets,
Lastly, the financial unit level reflects the level at which the pur-
chase method of accounting for the Company's acquisitions were
originally recorded, The Company has three cable system clusters,
or reporting units, for the purpose of applying SFAS No. 142,
The Company assesses the fair value of Its franchise costs
based on a discounted cash flow methodology, If the determined
fair value of the Company's franchise costs is less than the carry-
ing amount on the financial statements, an impairment charge
would be recognized for the difference between the fair value
and the carrying value of the assets, To test the impairment of
',IEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
the goodwill carried on the Company's financial statements, the
fair value of the cable system cluster's tangible and intangible
assets (Includes franchise costs) other than goodwili is deducted
from the cable system cluster's fair value, The balance repre-
sents the fair vaiue of goodwill which is then compared to the car-
rying value of goodwill to determine if there is any impairment.
The Co'Tlpany completed its last impairment test in accordance
with SFAS No, 142 in September 2003, Such test indicated no
imp211ment of franchise costs or goodwill.
The fo'iowing table provides a reconciliation of the resuits of
operations for the years ended December 31, 2003, 2002 and
2001 to the net loss that would have been reported had good-
will and franchise costs amortization not been recorded as of
JanualY " 2001, assuming the purchase of the AT&T cable
syste'l1S had been consummated as of January " 2001:
2003 2002 2001
(in tho.lc",ds, except per share data) (unauditedl
Repo'tcd net loss $(62,475) $(161,658) $(190,876)
Add back: goodwill and
I'anchise cost amortization 144,933
Adjus'ec pro forma net loss $(62,475) $(161,658) $ (45,943)
Repo'ted basic and diluted
loss per share $(0.53) $(1.35) $(1,80)
Add back: 900dwlll and
'ranchise cost amortization 1.37
Adjus:od pro forma basic
~d diluted loss per share $(0.53) $(1.35) $(0.43)
The following table summarizes the net asset value for each intan-
gible asset category as of December 31, 2003 and 2002 (dollars
in thousands):
Gross Asset Accumulated Net Asset
Value Amortization Value
2003
FranC"lse costs $1,943,010 $141,118 $1,801,892
Goodwi'l 224,281 3,223 221,058
Subscriber lists 167,015 140,087 26,928
Covenants not to compete 5,695 5,478 217
$2,340,001 $289,906 $2,050,095
2002
Franchise costs $1,949,670 $141,777 $1,807,893
Goodwill 224,318 3,231 221,087
Subscriber lists 167,846 124,808 43,038
Coverlants not to compete 5,695 5,309 386
$2,347,529 $275,125 $2,072,404
Amo'tization expense for the years ended December 31, 2003,
2002 and 2001 was approximately $14,9 miliion, $33.0 million and
$125.7 million, respectively. The Company's estimated aggregate
amortization expense for 2004 through 2008 and beyond is $10.8
miilion, $2,8 million, $2,1 million, $2,1 million, $2.1 million and $7.9
million, respectively,
7. Debt
As of December 31,2003 and 2002, debt consisted of (dollars
in thousands):
Bank credit facilities
8 %% senior notes
7 %% senior notes
9 %% senior notes
11% senior notes
5 V,% convertible senior notes
Capitai lease obligations
2003
$1,646,500
200,000
125,000
500,000
400,000
172,500
7,493
$3,051,493
12,571
$3,038,922
2002
$1,621,500
200,000
125,000
500,000
400,000
172,500
211
$3,019,211
2,211
$3,017,000
Less: current portion
Total iong-term debt
Bank Credit Facilities
On September 30, 1999, operating subsidiaries of Mediacom
LLC entered into a $550,0 million senior secured credit facility,
consisting of a $450,0 million reducing revolving credit facility
and a $100,0 million term ioan (the "Mediacom USA Credit
Agreement"), The revolving credit facility expires on March 31,
2008, and is subject to earlier expiration on June 30, 2007 if
Mediacom LLC does not refinance the 8 %% Senior Notes by
March 31, 2007,
The revolving credit facility makes available a maximum commit-
ment amount for a period of up to eight and one-half years, which
is subject to quarterly reductions ranging from 1,25% to 17,50%
of the original commitment amount. As of December 31, 2003,
the maximum commitment amount available under the revolving
credit facility was $416,3 million, and $232,0 million was out-
standing under such facility, For the year ended December 31,
2004, the maximum commitment amount under the revolving
credit facility will be reduced by $67.5 million, or 15% of the orig-
inal commitment amount. The Mediacom USA Credit Agreement
requires mandatory reductions of the revolving credit facility from
excess cash flow, as defined therein, The term loan matures on
September 30, 2008, and is subject to repayment on September 30,
2007 if Mediacom LLC does not refinance the 8 'f,% Senior Notes
by March 31, 2007, The term loan is payable in quarterly Install-
ments, As of December 31,2003, the outstanding debt under the
term loan was $98,5 million, For the year ended December 31,
2004, the outstanding debt under the term loan will be reduced
by $1,0 million or 1% of the original amount of the term loan, The
Mediacom USA Credit Agreement provides for interest at varying
rates based upon various borrowing options and the attainment of
certain financial ratios, and for commitment fees of '4% to %% per
annum on the unused portion of available credit under the reducing
revolver credit facility, Interest on outstanding revoiver loans is
payable at either the eurodollar rate plus a floating percentage
ranging from 0,75% to 2,25% or the base rate plus a floating per-
centage ranging from 0% to 1.25%, Interest on the term loan is
payable at either the eurodollar rate plus a floating percentage
ranging from 2,50% to 2,75% or the base rate pius a floating rate
percentage ranging from 1.50% to 1.75%,
On November 5, 1999, operating subsidiaries of Medlacom LLC
entered into a $550,0 million senior secured credit facility, con-
sisting of a $450.0 million reducing revolving credit facility and a
$100.0 million term loan (the "Mediacom Midwest Credit
Agreement"), The revolving credit facility expires on June 30,
2008, and is subject to earlier expiration on September 30, 2007
if Mediacom LLC does not refinance the 8 %% Senior Notes by
March 31, 2007, The revolving credit facility makes available a
maximum commitment amount for a period of up to eight and
one-half years, which is subject to quarterly reductions ranging
from 1,25% to 8.75% of the original commitment amount. As of
December 31,2003, the maximum commitment amount available
under the revolving credit facility was $416,3 million, and $267.3
million was outstanding under such facility, For the year ended
December 31, 2004, the maximum commitment amount under
the revolving credit facility will be reduced by $67,5 million, or
15% of the original commitment amount. The Mediacom Midwest
Credit Agreement requires mandatory reductions of the revolving
credit facility from excess cash flow, as defined therein, The term
loan matures on December 31,2008, and is subject to repayment
on December 31, 2007 if Mediacom LLC does not refinance the
8 %% Senior Notes by March 31, 2007. The term loan is payable
in quarterly installments, As of December 31 , 2003, the outstand-
ing debt under the term loan was $98,8 million, For the year
ended December 31, 2004, the outstanding debt under the term
loan will be reduced by $1.0 million or 1 % of the original amount
of the term loan, The Mediacom Midwest Credit Agreement pro-
vides for interest at varying rates based upon various borrowing
options and the attainment of certain financial ratios, and for
commitment fees of '¡'% to %% per annum on the unused portion
of available credit under the reducing revolver credit facility,
Interest on the outstanding revolver loans is payable at either the
eurodollar rate plus a floating percentage ranging from 0,75% to
2,25% or the base rate plus a floating percentage ranging from
0% to 1,25%, Interest on the term loan is payable at either the
eurodollar rate plus a floating percentage ranging from 2,50% to
2,75% or the base rate plus a floating rate percentage ranging
from 1,50% to 1,75%,
On July 18, 2001, the operating subsidiaries of Mediacom
Broadband LLC entered into a $1.4 biilion senior secured credit
facility, consisting of a $600.0 million revolving credit facility, a
$300,0 million tranche A term loan and a $500,0 million tranche B
term loan ("Mediacom Broadband Credit Agreement" and together
with the Mediacom USA Credit Agreement and the Mediacom
Midwest Credit Agreement, the "Bank Credit Agreements"), The
revolving credit facility expires on March 31, 2010, and commit-
ments under the revolving credit facility are subject to quarterly
reductions beginning on December 31, 2004, ranging from 2.00%
to 8.00% of the original commitment amount. As of December 31,
2003, $150.0 million was outstanding under the revolving credit
facility, The tranche A term loan matures on March 31,2010 and
the tranche B term loan matures on September 30, 2010, The term
loans are payable in quarterly installments beginning on
September 30, 2004, For the year ended December 31, 2004, the
outstanding debt under tranche A will be reduced by $6,0 million
or 2% of the originai amount of the term loan, while tranche B wiil
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIE[,
be reduced by $2,5 million or 0,5% of the original amoun'. of tile
term loan, The Mediacom Broadband Credit Agreement mqulCes
mandatory reductions of the revolving credit facility from [)xcess
cash flow, as defined therein, beginning December 31, 2004, For
the year ended December 31,2004, the maximum commitment
amount under the revolving credit facility will be reduced by $12.0
million or 2% of the original commitment amount. The Medlacom
Broadband Credit Agreement provides for interest at varyirg rates
based upon various borrowing options and the attainment ot cer-
tain financial ratios, and for commitment fees of %% to per
annum on the unused portion of available credit under the revolv-
ing credit facility. Interest on outstanding revolving loans and the
tranche A term loan is payable at either the eurodollar rate plLS a
floating percentage ranging from 1,00% to 2,50% or the base rate
plus a floating percentage ranging from 0,25% to 1,50%, InWest
on the tranche B term loan is payabie at either the eurodollar rate
plus a floating percentage ranging from 2.50% to 2,75% or the
base rate plus a floating percentage ranging from 1,50% to 1.75%,
The Bank Credit Agreements require compliance with certain
financial covenants including, but not limited to, leverage, Interest
coverage and pro forma debt service coverage or debt service
coverage ratios, as defined therein, The Bank Credit Agreements
also require compliance with other covenants including, but not
limited to, limitations on mergers and acquisitions, consolidations
and sales of certain assets, liens, the Incurrence of additional
indebtedness, certain restricted payments, and certain transac-
tions with affiliates. The Company was in compliance with all
covenants of the Bank Credit Agreements as of and for all periods
in the year ended December 31, 2003,
The Mediacom USA Credit Agreement and the Mediacom Midwest
Credit Agreement are collateralized by Mediacom LLC's pledge of
all its ownership interests in its operating subsidiaries and is guar-
anteed by Mediacom LLC on a limited recourse basis to the extent
of such ownership interests, The Mediacom Broadband Credit
Agreement is collateralized by Mediacom Broadband LLC's
pledge of all its ownership interests in its operating subsidiaries
and is guaranteed by Mediacom Broadband LLC on a limited
recourse basis to the extent of such ownership interests,
The average interest rate on debt outstanding under the Bank credit
Agreements was 3,0% and 4,3% for the years ended December 31,
2003 and December 31,2002, respectively, before giving effect to
the interest rate exchange agreements discussed below. As of
December 31,2003, the Company had approximately $770,0 million
of unused bank commitments under the Bank Credit Agreements,
The Company uses interest rate exchange agreements in order to
fix the interest rate on its floating rate debt. As of December 31,
2003, the Company had interest rate exchange agreements with
various banks pursuant to which the interest rate on $800,0 million
is fixed at a weighted average rate of approximately 3,3%, 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 from 2005
through 2007, the Company is exposed to credit loss in the event
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
or }]c"performance by the other parties, However, due to the high
(('"worthiness of its counterparties, the Company does not
their nonperformance.
lair value of the interest rate exchange agreements Is the esti-
amount that the Company would receive or pay to termi-
such agreements, taking into account current interest rates,
remaining time to maturities and the current creditworthiness
Company's counterparties, At December 31, 2003, based
!he mark~t0-market valuation, the Company would have paid
ê'plyoximateiy $15,8 million if it terminated these agreements,
of accrued interest.
,J!
Senior Nofes
" 1998, Mediacom LLC and its whoily-owned subsidiary,
Merilacom Capitai Corporation, a New York corporation, jointly
$200.0 million aggregate principai amount of 8 %% senior
due on Aprii 2008 (the "8'/>% Senior Notes"), The 8'/>%
Notes are unsecured obligations of Mediacom LLC, and
tllEI menture for the 8)1,% Senior Notes stipulates, among other
'estrictions on incurrence of indebtedness, distributions,
and asset sales and has cross-default provisions related
debt of Mediacom LLC, Mediacom LLC was in compli-
with the indenture governing the 8)1,% Senior Notes as of
lor ail periods in the year ended December 31, 2003,
0'1 cebruary 26, 1999, Mediacom LLC and Mediacom Capital
,- ICoration jointly issued $125.0 million aggregate principai
of 7J\% senior notes due on February 2011 (the "7J\%
Seilor Notes"), The 7J\% Senior Notes are unsecured obligations
\'colacom LLC, and the indenture for the 7J\% Senior Notes
sl!pl,ntas, among other things, restrictions on incurrence of
IIldecledness, distributions, mergers and asset sales and has
,;ross-default provisions related to other debt of Mediacom LLC,
l\c1cclacom LLC was in compliance with the indenture governing
Senior Notes as of and for all periods in the year ended
Dccember 31, 2003,
0,- J"1uary 24,2001, Mediacom LLC and its whoily-owned sub-
Mediacom Capital Corporation, completed an offering of
'"iilion of 9'/>% senior notes due January 2013 (the "9%%
SCIlID' Notes"), The 9%% Senior Notes are unsecured obligations
ul Mediacom LLC, and the indenture for the g%% Senior Notes
sl!p.1 ates, among other things, restrictions on incurrence of
Inctentedness, distributions, mergers, and asset sales and has
cross-('efault provisions related to other debt of Mediacom LLC,
Ivle:llacom LLC was in compliance with the Indenture governing
tete Senior Notes as of and for all periods in the year ended
December 31, 2003,
On June 29, 2001, Mediacom Broadband LLC and its whoily-
subsidiary, Mediacom Broadband Corporation, a Delaware
I'ocpcration, completed an offering of $400,0 million in aggregate
amount of 11% senior notes due July 2013 (the "11%
Notes"), The 11 % Senior Notes are unsecured obligations
ot ò/ediacom Broadband, and the indenture for the 11 % Senior
J6
Notes stipulates, among other things, restrictions of incurrence of
indebtedness, distributions, mergers and assets sales and has
cross~defauit provisions related to other debt of Mediacom
Broadband, Mediacom Broadband was in compliance with the
Indenture governing the 11 % Senior Notes as of and for ail periods
in the year ended December 31, 2003,
Convertible Senior Nofes
The Company maintains $172,5 million aggregate principal
amount of 5 ìI% convertible senior notes ("Convertible Senior
Notes") due July 2006, The Convertible Senior Notes are convertibie
at any time at the option of the holder into the Company's Class A
common stock at an initial conversion rate of 53.4171 shares per
$1,000 principal amount of notes, which is equivalent to a price of
$18,72 per share. The conversion rate is subject to adjustment as
specified in the indenture governing the Convertible Senior Notes,
The Company may redeem the Convertible Senior Notes at
101,313% of par value from July 5,2004 through June 30,2005 and
at par value thereafter,
Fair Value and Debt Maturities
The fair value of the Company's bank credit facilities approximate
the carrying value, The fair value at December 31, 2003 of the
8Y,% Senior Notes, the 7J\% Senior Notes, the g%% Senior Notes
and the 11% Senior Notes was approximately $204,0 million,
$125,0 million, $531,0 million and $450,0 million, respectively,
The fair value at December 31, 2003 of the Convertible Senior
Notes was approximately $164.0 million,
The stated maturities of all debt outstanding as of December 31,
2003 are as follows (dollars in thousands):
2004
2005
2006
2007
2008
Thereafter
$ 12,571
47,630
372,441
248,071
611,780
1,759,000
$3,051,493
8. Stockholders' Equity
The Company has authorized 300,000,000 shares of Class A
common stock, $0.01 par value and 100,000,000 shares of
Class B common stock, $0,01 par value, The holders of Class A
and Ciass B common stock are entitled to vote as a single class
on each matter in which the shareholders of the Company are
entitled to vote, Each Class A share is entitled to one vote and
each Class B share is entitled to ten votes,
On June 27, 2001, MCC completed a public offering of 29,9 mil-
lion shares of its Class A common stock at $15,22 per share, The
net proceeds, after underwriting discounts and other expenses of
approximately $22,2 million, were $432,9 million.
The Company maintains Employee Stock Purchase Plans
("ESPP"), Under the plans, all employees are allowed to partici-
pate in the purchase of MCC's Class A Common Stock at a 15%
discount on the date of the allocation, Shares purchased by
employees amounted to 191,336 and 176,600 in 2003 and 2002,
respectively, The net proceeds to the Company were approxi-
mately $1,0 million and $1.3 million In 2003 and 2002, respec-
tively, Compensation expense was not recorded on the
distribution of these shares in accordance with APB No, 25.
9. Income Tax
Income tax expense relates to minimum state and local taxes and
capital taxes that the Company is required to pay in certain juris-
dictions, The reconciliation of the income tax expense at the
United States federal statutory rate to the actual income tax
expense is as follows (dollars in thousands):
2003 2002 2001
Tax benefit at the United
States statutory rate $(21,718) $(54,896) $(66,201)
State taxes, net of
federal tax benefit 276 700 774
Losses not benefited 21,866 54,396 65,514
Total income
tax expense $ 424 $ 200 $ 87
The Company's net deferred tax liability consists of the following
(dollars in thousands):
2003
2002
A
f
A
s
e
d
Deferred tax asset:
Unrealized loss on
marketable securities
Reserves and other
Net operating loss
carryforwards
Gross tax assets
Less: Valuation allowance
Deferred tax assets, net
Deferred tax liabilities:
Investment in cable
television systems
Net deferred tax liability
270,873 137,822
$ - $
$ 5,648 $ 11,527
32,656 28,650
456,670
494,974
(224,101)
270,873
280,163
320,340
(182,518)
137,822
il-
e
Df
At December 31, 2003, the Company had net operating loss car-
ryforwards of approximately $1,2 billion which will expire in the
years 2020 through 2023, The Company assesses the likelihood
of realization of deferred tax assets and net operating loss carry-
forwards by considering the scheduled reversal of deferred tax
liabilities, taxable income in future periods and tax planning
strategies, At December 31, 2003, the Company has recorded a
net deferred tax asset valuation allowance of approximately
$224,1 million, The Company will continue to monitor the need for
the deferred tax asset valuation allowance in 2004 and beyond
as the Company anticipates to report accounting earnings,
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
1 O. Related Party Transactions
Mediacom Management Corporation ("Mediacom Management"),
a Delaware corporation, holds a 1 % direct ownership interest in
Mediacom California LLC, which in turn holds a 1% Interest In
Medlacom Arizona LLC. These ownership interests represent less
than 1 % of the Company's total revenues. Mediacom Management
is wholly-owned by the Chairman and CEO of MCC,
One of the Company's directors is a partner of a law firm that per-
forms various legal services for the Company, For the years ended
December 31, 2003, 2002 and 2001, the Company paid this law
firm approximately $1,0 million, $1,3 million and $3.4 million,
respectively, for services performed.
11. Employee Benefit Plans
Substantially all employees of the Company are eligible to partici-
pate in a defined contribution plan pursuant to the Internal
Revenue Code Section 401(k) (the "Plan"), Under such Plan, eligi-
ble employees may contribute up to 15% of their current pretax
compensation, The Plan permits, but does not require, matching
contributions and non-matching (profit sharing) contributions to be
made by the Company up to a maximum dollar amount or maxi-
mum percentage of participant contributions, as determined annu-
ally by the Company, The Company presently matches 50% on the
first 6% of employee contributions, The Company's contributions
under the Plan totaled approximately $1,8 million, $1,8 million and
$1,1 million for the years ended December 31,2003,2002 and
2001, respectively,
12. Commitments and Contingencies
Under various lease and rental agreements for offices, ware-
houses and computer terminals, the Company had rental
expense of approximately $5.4 million, $5,0 million and $4,7
million for the years ended December 31, 2003, 2002 and
2001, respectively, Future minimum annual rental payments are
as follows (dollars in thousands):
2004
2005
2006
2007
2008
Thereafter
$3,129
1,979
1,712
1,396
680
1,895
In addition, the Company rents utility poles in its operations gener-
ally under short-term arrangements, but the Company expects
these arrangements to recur, Total rental expense for utility poles
was approximately $8,5 million, $7,0 million and $4,6 million for the
years ended December 31, 2003, 2002 and 2001, respectively,
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
As of December 31,2003, approximately $13,6 million of letters
of credit were issued to various parties to secure the Company's
performance relating to insurance and franchise requirements.
The fair value of such letters of credit were not material.
Legal Proceedings
There are no material pending legal proceedings to which the
Company is a party or to which any of the Company's properties
are subject.
13. American Independence Corp.
(formerly "SoftNet Systems, Inc,")
As of January 31, 2001, the Company formally terminated its
business relationship with SoftNet Systems, Inc, ("SoftNet") in all
material respects, As part of the termination the Company
received SoftNet common stock representing 8,7% of aggregate
voting power as of January " 2001, These shares are reported
as investments In the Company's consolidated balance sheet.
The Company recognized SoftNet-related revenue of approxi-
mately $0,3 million and approximately $30,0 million of other
income in the consolidated statements of operations in 2001,
During 2002, SoftNet changed its name to American
Independence Corp, ("AMIC"), During 2003, the Company said
portions of its Investment in AMIC and recognized a gain on sale
of investments of $1,7 million, As of December 31, 2003, the
Company owned 358,053 shares of AMIC, which had a market
value of $4,2 million based on the closing price that day at the
Nasdaq National Market.
14. Stock Options
In April 2003, MCC's Board of Directors adopted the Company's
2003 Incentive Plan, or "2003 Plan," which amended and restated
the Company's 1999 Stock Option Plan and incorporated into the
2003 Plan options that were previously granted outside the 1999
Stock Option Plan, The 2003 Plan was approved by MCC's stock-
holders in June 2003, The 2003 Plan provides for the grant of
incentive stock options, nonqualified stock options, restricted
shares, and other stock-based awards, in addition to annual
incentive awards, The 2003 pian has available under it 21 ,000,000
shares of common stock for issuance in settiement of awards, As
of December 31, 2003, options for 11,743,315 had been granted
under the 2003 Plan, consisting of 3,594,423 shares of Class A
common stock and 8,148,892 of Class B common stock,
The following table summarizes Information concerning stock option
activity for the years ended December 31,2003, 2002 and 2001:
Weighted
Average
Exercise
Shares Price
Outstanding at December 31, 2000 9,907,010 $18,93
Granted 778,120 17,24
Exercised (2,700) 19,00
Forfeited (173,835) 18.41
Outstanding at December 31,2001 10,508,595 $18,81
Granted 604,735 11,97
Exercised
Forfeited (216,775) 16,69
Outstanding at December 31, 2002 10,896,555 $18.47
Granted 1,009,000 7.93
Exercised
Forfeited (162,240) 15.78
Outstanding at December 31,2003 11,743,315 $17.60
The Company had options exercisable amounting to 9,437,629,
8,934,548 and 8,497,496, with average prices of $18,83, $18.94
and $18,98 at December 31,2003,2002 and 2001, respectively.
The weighted average fair value of options granted was $5,51,
$6,04 and $8,61 per share for the years ended December 31,
2003,2002 and 2001, respectively,
The Company accounts for its stock option plans under
Accounting Principles Board ("APB") opinion No, 25, "Accounting
for Stock Issued to Employees," Accordingly, no compensation
cost has been recognized for any option grants in the accompa-
nying consolidated statements of operations since the price of the
options was at their fair market value at the date of grant. SFAS 148
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 informa-
tion regarding net loss and loss per share, The weighted average
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 average Interest rate
of 3,6%, 5,0% and 4,7% for the years ended December 31,2003,
2002 and 2001, respectively; (il) expected dividend yields of 0%;
(iii) expected lives of 6 years; and (iv) expected volatility of 45%,
Had compensation costs been recorded for the Employee
Options under SFAS 148, the compensation costs would have
been $4,1 million, $3,5 million and $4,1 million for the years ended
December 31,2003,2002 and 2001, respectively,
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIE
The following table summarizes information concerning stock options outstanding as of December 31,2003:
Options Outstanding Options Exercisable
Weighted V, ,,¡Ired
Number Average Weighted Number
Outstanding at Remaining Average Exercisable at I~"" oise
December 31,2003 Contractual Life Exercise Price December 31, 2003 F flee
1,540,235 9,24 years $ 9,19 130,347 HJ82
616,660 7.28 years 16.89 250,324 J.3 90
9,588,420 2.35 years 19.00 9,056,958 aoo
11,743,315 3.51 years $17,60 9,437,629 $1,83
Range of Exercise Prices
$ 7.00 to $12,00
$12.01 to $18.00
$18,01 to $22.00
15. Selected Quarterly Financial Data (Unaudited)
First Quarter
Third Quarter
Fourth Q,jiuter
Second Quarter
(in thousands, except per share data)
2003
Revenues $242,775 $252,194 $251,107
Operating income 19,029 21,400 44,134
Net (loss) income (33,366) (38,158) 1,937
Basic and diluted net income (loss) per share (0.28) (0.32) 0.02
Weig~ted average common shares outstanding 118,525 118,632 118,633
2002
Revenues $219,547 $230,792 $233,723
Operating income ",997 13,722 21,584
Net loss (35,190) (37,487) (39,940)
Basic and diluted loss per share (0.29) (0,31) (0.33)
Weighted average common shares outstanding 119,892 119,942 119,943
2001
Revenues $ 89,131 $ 91,864 $191,734
Operating loss (9,982) (10,101) (8,854)
Net loss before cumulative effect of accounting change (2,935) (32,718) (65,262)
Net loss (4,577) (32,718) (65,262)
Basic and diluted loss per share before
cumulative effect of accounting change (0.03) (0,35) (0.54)
Basic and diluted loss per share (a) (0.05) (0,35) (0,54)
Weighted average common shares outstanding 89,956 92,921 119,876
$258,813
47,827
7,112
0.06
118,717
$238.,,371
<1,'jI3
$212"jL.6
10.74)
(0.74)
1 'D,882
(a) The sum of quarterly earnings may not equal total year earnings per share due to the effect of the Company's public offering of ita shares of its common stock de"
2:101.
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
The management of Mediacom Communications Corporation is responsible for the preparation and integrity of the consolidated finan-
cial statements, related notes and other information contained in this Annual Report. The financial statements were prepared in accor-
dance with accounting principles generally accepted In the United States of America and, where necessary, include certain amounts
that are based upon management's informed judgments and estimates,
Mediacom's system of internal controis is a major element in management's responsibility to assure that the consolidated financial
statements present fairly Mediacom's financial condition, The system includes both accounting controls and the internal auditing pro-
gram, which are designed to provide reasonable assurance that Mediacom's assets are safeguarded, that transactions are properly
recorded and executed in accordance with management's authorization, and that fraudulent financial reporting is prevented or
detected. A staff of internal auditors regularly monitors the adequacy and application of internal controls on a company-wide basis,
Mediacom's consolidated financial statements are audited by PricewaterhouseCoopers LLP, independent accountants, whose
appointment is ratified by Mediacom's shareholders, Mediacom provides the independent accountants access to all financial
records and related data, including minutes of the meetings of the Board of Directors and Committees of the Board, The independ-
ent accountants maintain an understanding of our internal controls and conduct tests and other auditing procedures
considered necessary under the circumstances to express their opinion,
The Audit Committee of the Board of Directors, which is comprised solely of directors who are "independent" as defined by the Nasdaq
Marketplace Rules, provides oversight to Mediacom's financial reporting process and meets periodically with management and the
independent accountants to review the manner in which these groups are performing their responsibilities and to carry out the Audit
Committee's oversight role with respect to auditing, internal controls and financial reporting matters. The independent accountants
have fuli and free access to the Audit Committee with and without management.
Although no cost-effective internal control system will preclude all errors and irregularities, we believe our controls as of December 31, 2003
provide reasonable assurance that the financial statements are reliable and that our assets are reasonably safeguarded.
~
Lt-<,k-
Rocco B. Commisso
Chairman and Chief Executive Officer
Mark E, Stephan
Executive Vice President,
Chief Rnanciai Officer, Treasurer and Director
an-
cor-
cial
pro-
erly
or
i's,
ose
: cial
nd-.
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARI
Report of Independent Auditors
To the Shareholders of Mediacom Communications Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of
stockholders' equity, and of cash flows present fairly, in all material respects, the financial position of Mediacom Commum C'ICJrh
Corporation and its subsidiaries (the "Company") at December 31, 2003 and 2002, and the results of its operations and its CW 11
for the years then ended in conformity with accounting principles generally accepted in the United States of America, These
statements are the responsibility of the Company's management: our responsibility is to express an opinion on these finane ~,I state
ments based on our audits, We conducted our audits of these statements in accordance with auditing standards generally
in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whe'lcr
financial statements are free of materiai misstatement. An audit includes examining, on a test basis, evidence supporting the
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by manaqcmel,t
and evaluating the overall financial statement presentation, We believe that our audits provide a reasonable basis for our
Company's consolidated financial statements as of December 31 , 2001 and for the year then ended, were audited by other
ent accountants who have ceased operations, Those independent accountants expressed an unqualified opinion on those
statements in their report dated February 13, 2002,
As discussed above, the Company's consolidated financial statements as of December 31, 2001, and for the year then endec
audited by other independent accountants who have ceased operations, As described In Note 6, those financial statements hav,~
revised to include the transitional disclosures required by Statement of Financial Accounting Standards No, 142, "Goodwill ann 01'10'
Intangible Assets," which was adopted by the Company as of January " 2002. We audited the transitional disclosures 20C! t
included in Note 6. In our opinion, the transitional disclosures for 2001 in Note 6 are appropriate, However, we were not
audit, review, or apply any procedures to the 2001 financial statements of the Company other than with respect to such
and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financiai statements taken as a w'm:e
As discussed in Notes 2 and 6 to the consolidated financial statements, the Company changed its method of accounllng 1m
goodwill effective January " 2002,
~~
New York, New York
March 9, 2004
THE FOLLOWING REPORT IS A CDPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOr BEEN
REISSUED BY ARTHUR ANDERSEN LLP.
Report of Independent Public Accountants
To the Shareholders of Mediacom Communications Corporation:
We have audited the accompanying consoiidated baiance sheets of Mediacom Communications Corporation (a Delaware corporat,o'11
subsidiaries as of December 31, 2001 and 2000, and the reiated consolidated statements of operations, changes in stockholders equity
and cash flows for each of the three years in the period ended December 31,2001, These financiai statements are the responsibility of tile
Company's management. Our responsibility is to express an opinion on these financiai statements based on our audits,
We conducted our audits in accordance with auditing standards generally accepted in the United States, Those standards require :1-al
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material missta:emonl
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, An aucl'l
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation, We beiieve that our audits provide a reasonable basis for our opinion,
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Meclla:;om
Communications Corporation and its subsidiaries as of December 31, 2001 and 2000, and the results of their operations and the' casl'
f:ows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally aCC8ye:l,n
the United States,
As explained in Note 2 to the consoiidated financial statements, effective January " 2001, the Company changed its me'11)C of
accounting for derivative instruments.
~~
¿"L",4'
Stamford, Connecticut
February 13, 2002
'.IEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
ket for Registrant's
l"1mon Equity and Related
::kholder Matters
Our Class A common stock is traded on the Nasdaq National
Marko: under the symbol "MCCC." The following table sets forth,
for the periods indicated, the high and low closing sales prices
for ow Class A common stock as reported by the Nasdaq
National Market:
2003 2002
High Low High Low
First Quarter $10.04 $6.86 $18,22 $13.68
Seconcl Quarter $10.79 $8.37 $13,78 $ 7.45
Third Ouarter $10.80 $6.71 $ 7,25 $ 3,98
Fourtf¡ Quarter $ 8.80 $6.46 $10,36 $ 3.63
As of February 17, 2004, there were approximateiy 406 holders
of reccrd of our Class A common stock and 6 holders of record
of our Ciass B common stock, The number of Class A stockhold-
ers docs not include beneficial owners holding shares through
nomlllCQ names,
We have never declared or paid any dividends on our common
stock. We currently anticipate that we will retain all of our future
earnings for use in the expansion and operation of our business.
Thus, Vie do not anticipate paying any cash dividends on our
common stock in the foreseeable future, Our future dividend pol-
icy w,1I IJe determined by our Board of Directors and will depend
on various factors, including our results of operations, financial
condl:lon, capital requirements and investment opportunities,
During the year ended December 31, 2003, we granted stock
options to certain of our employees to purchase an aggregate of
1,009,000 shares of Class A common stock at exercise prices
rangier] from $6,94 to $8.80 per share, The grant of stock options
to the employees and non-employee directors of MCC was not
registered under the Securities Act of 1933 because the stock
options either did not involve an offer or sale for purposes of
Section 2(a)(3) of the Securities Act of 1933, in reliance on the
fact tllat the stock options were granted for no consideration, or
were offered and sold in transactions not involving a public offer-
ing, exempt from registration under the Securities Act of 1933
pursuant to Section 4(2).
Mediae"" Mediaeom Online, Mediacom Digital. Mediacom HOW, Mediacom A' Demand,
Mediae"" DVR, O,Media and the logoe Mediâêõñi), Medi~, Me.d,i~
M~~[.~°I!Y,!'!~IY.., MediijÇOÏñ). M~,~~~~" and OnMediã7 are
service " ,"ks of Mediacom Commu,icatione Corporation. We coneider all of,hese marks,
the go",' . ill therein a,d the aeeociated name recognition to be valuable to our bueineae.
Company Information
INVESTOR INFORMATION
Annual Report on Form 10-K
We will provide by mail, without charge, a copy of our annual
report on Form 1 O~K at your request. Please direct all inquiries to
Investor Relations at the address or phone number listed below.
Investor Relations
Mediacom Communications Corporation
100 Crystal Run Road
Middletown, New York 10941
845-695-2642
Transfer Agent & Registrar
Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, NJ 07660
Website: www,melioninvestor,com
Toll free number: 1-800-288-9541 (within the US)
Outside the US: 201-329-8660
TTD number: 1-800-231-5469 (Hearing Impaired)
Trustee for Senior Notes and Convertible Senior Notes
The Bank of New York
Corporate Trust Division
101 Barclay Street--8W
New York, New York 10286
Annual Meeting of Shareholders
June 17, 2004,10 a,m, (Eastern Time)
Sonnenschein Nath & Rosenthai LLP
1221 Avenue of the Americas, 24th Floor
New York, New York 10020
CORPORATE INFORMATION
Corporate Headquarters
100 Crystal Run Road
Middletown, New York 10941
845-695-2600
www,mediacomcc,com
Independent Auditors
PricewaterhouseCoopers LLP
New York, New York
Corporate Legal Counsel
Sonnenschein Nath & Rosenthal LLP
New York, New York
Directors and Officers
Board of Directors
Medi~
Officers and Key Management
Rocco B. Commisso
Chairman and Chief Executive Officee
Mediacom Communications Corporation
Rocco B. Commisso
Chairman and Chief Executive Officer
Charles J. Bartolotta
Craig S. Mitchell
Senior Vice President of Finance,
Treasurer and Secretary:
Morris Communications Compan~ LLC
Senior Vice President,
Customer Operations
James M. Carey
Senior Vice President,
Divisional Opera'ions,
Midwes' and Southern Divisions
William S. Morris III
Chairman and Chief Executive Officer
Morris Communications Compan~ LLC
Thomas V. Reifenheiser
Retired Managing Directoe
JP Morgan Chase & Co,
ltalia Commisso Weinand
Senior Vice President,
Programming and Human Resources
Calvin G. Craib
Natale S. Ricciardi
Senior Vice President,
Business Development
Vice President,
US. Manufac'uring,
pfizer Inc,
Sonja L. Farrand
Vice President,
Advertising Sales,
OnMedia Division
Mark E. Stephan
Executive Vice President,
Chief Financial Officer and Treasuree
Mediacom Communications Corpora'ion
Charles F. King
Vice Presiden',
Divisional Opera'ions,
North Central Division
Robert L. Winikoff
Partnee
Sonnenschein Nath & Rosenthal LLP
William I. Lees, Jr.
Senior Vice President,
Corpora'e Controller
John G. Pascarelli
Executive Vice President,
Operations
Michael Rahimi
Senior Vice President,
Marketing and Consumer Service'!
Mark E. Stephan
Executive Vice President,
Chief Financial Officer and Treasure'
Brian M. Walsh
Senior Vice President,
Financial Operations
Joseph E. Young
Senior Vice President,
General Counsel and Secre'ary
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