Mediacom Franchise Fee Analysis
i5~
~ck~
MEMORANDUM
October 28, 2004
TO:
The Honorable Mayor and City Council Members
FROM:
Michael C. Van Milligen, City Manager
SUBJECT: Mediacom Franchise Fee Payment Analysis
On March 15, 2004, the City Council approved a contract with Lewis & Associates to
perform a detailed analysis of cable franchise fees due and paid to the City of Dubuque
by Mediacom for calendar years 2002 and 2003.
The cost of the Franchise Fee Payment Analysis was $10,150. While some of the
identified payments due from Mediacom are under active disagreement nationwide and
continue to be affected by litigation, we believe that $10,551 of the invoice sent to
Mediacom will not be in dispute and, hopefully, will be paid promptly. A course of action
on the remainder of the invoice can be decided after a response is received from
Mediacom.
~1ld){"t~
Mic ael C. Van Milligen '-
MCVM/jh
Attachment
cc: Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
Merrill Crawford, Cable Franchise Administrator
D~
~ck~
MEMORANDUM
October 27,2004
MEMO TO: Michael C. Van Milligen, City Manager
FROM: Merrill Crawford, Cable Franchise Administrator~
SUBJECT: Mediacom Franchise Fee Payment Analysis
INTRODUCTION: The purpose of this memorandum is to forward the final report
of Lewis & Associates re: Mediacom Cable Franchise Fees paid to the City of
Dubuque for calendar years 2002 and 2003.
BACKGROUND: At their March 15, 2004 meeting, the City Council approved a
contract with Lewis & Associates of Hollywood, Florida, to perform a detailed
analysis of cable franchise fees due and paid to the City of Dubuque by
Mediacom for calendar years 2002 and 2003.
The firm has completed its work and issued a report of its findings, which is
attached. Also attached is my letter of invoice and transmittal to Mediacom,
delivered to the local Mediacom office on October 25.
It should be noted that two significant categories of identified underpayment (or
more correctly, non-payment) of franchise fees are topics of active disagreement
between cable operators and local franchise authorities nationwide and continue
to be affected by legal actions and developments at that level.
As has been previously reported, cable operators ceased paying franchise fees
on revenues from their broadband Internet service in 2002 following an FCC
declaration that cable modem service is not a "cable service" for the purposes of
regulation (see Sec. B.1 of the report, pp. 2 & 3). The City of Dubuque has
joined other cities in an appeal of this declaration. Lewis and Associates
estimates the value of unpaid franchise fees from this category in 2002 and 2003
in Dubuque to be approximately $150,000.
More recently, a dispute has arisen as to whether "launch fee" and "marketing
support" payments made to cable operators by new programming services
should be included in the gross revenues base upon which franchise fees are
computed. Franchise authorities believe that these payments are a form of
revenue. Mediacom and other cable operators consider the payments a "contra-
expense" and exclude them from the computation of franchise fees (see Sec.
B.4 of the report, pp. 3 & 4). Lewis and Associates estimates the value of unpaid
franchise fees in these categories in 2002 and 2003 in Dubuque to be
approximately $24,061.
The report also identifies lesser amounts of underpaid franchise fees for 2002
and 2003 in more typical categories, amounting to $10,551.
The cost of the franchise fee payment analysis by Lewis and Associates,
including their expenses, was $10,150.
I will continue to monitor and report further developments in the collection of the
identified franchise fees, the correction of Mediacom's computation
methodologies going forward, and the status of resolving the disputed categories.
RECOMMENDED ACTION: The Recommended Action is that you present the
Lewis and Associates report and attached correspondence to the City Council.
cc: Cindy Steinhauser, Assistant City Manager
Barry Lindahl, Corporation Counsel
Cable TV Regulatory Commission
Frederick Ellrod III, Esq., Miller and Van Eaton P.LL.C.
~
Cable Television Division
City Hall Annex -1300 Main Street
Dubuque. Iowa 52001-4732
(563) 589-4181 office
(563) 589-4299 fax
(563) 589-4193 TDD
catv@cityofdubuque.org
[5u:íffi~ I~
~ck~
October 25, 2004
Kathy McMullen, Area Manager
Mediacom
3033 Asbury Road
Dubuque, IA 52001
Dear Kathy:
Attached please find the Franchise Fee Payment Report of Scott Lewis of Lewis
and Associates. As you know, the City retained Mr. Lewis to perform an analysis
of Mediacom's franchise fee payments to the City of Dubuque for calendar years
2002 and 2003. While the findings of the report need not be restated in this
letter, several corrective actions must be taken to complete the payment of
franchise fees due in 2002 and 2003, and to correct the procedures by which
Mediacom computes franchise fees due the City in 2004 and subsequent years.
Customer Codino Errors
A small number of customer address coding errors were discovered, as listed in
Exhibit 3. Please make the appropriate corrections, including additional
franchise fee payments for 2002, 2003 and 2004 where appropriate, and provide
a letter to me indicating when the corrections have been made.
Shop NBC Revenue
Mr. Lewis reports that Mediacom did not receive revenue payments from
ShopNBC until after the end of the two-year study period. Please provide me
with a statement of revenues received from Shop NBC attributed to carriage of
the service in 2003 but paid in 2004, as well as documentation that appropriate
franchise fees have been and continue to be paid on this revenue source.
Launch Fees. Marketino Support
Mr. Lewis reports that Mediacom excluded programming service launch fee and
marketing support proceeds from the gross revenues upon which Mediacom
computed and paid franchise fees to the City of Dubuque, and further, that
Mediacom declined to provide actual data that would enable Lewis and
Associates to calculate the exact franchise fee deficiency in 2002 and 2003. He
estimates from the information Mediacom did provide that unpaid franchise fees
attributable to launch fees and marketing support for the studied period amount
to $24,061 (see Schedule C).
----------------- - ----..- - ------ ,,---
Smice
P"'ple
tntegrity
Resporu;ibHity
hmov.tion
T..mwmk
In discussions with Mr. Lewis, Mediacom representatives claimed that these
launch fee and marketing support proceeds are properly considered as contra-
expense, not revenue. We disagree. Please read carefully pages 3 and 4 of Mr.
Lewis' report, regarding the applicability of Generally Accepted Accounting
Principles, and particularly those EITF documents cited by Mediacom, in the
context of the gross revenues definition of the Dubuque franchise, Ordinance No.
42-81. We are willing to schedule a meeting to discuss this item further, but the
City's position at this time is that programming service launch fee and marketing
support payments are part of the total gross revenues defined in the Dubuque
franchise, upon which franchise fees must be paid, and for which franchise fees
for 2002 and 2003 are past due.
Please consider this letter as an Invoice to Mediacom for underpaid franchise
fees for calendar years 2002 and 2003 as documented in the Lewis and
Associates report, to be adjusted per actual data regarding launch fees and
marketing support. Also, the corrections in gross revenues treatment or
computation methodology identified in the report must be applied to the payment
of franchise fees to the City of Dubuque for calendar year 2004 and in
subsequent years.
Thank you for your prompt attention to this matter.
cc: Michael C. Van Milligen, City Manager
Cindy Steinhauser, Assistant City Manager
Ken Tekippe, Finance Director
Cable TV Regulatory Commission
2131 Hollywood Boulevard, Suite 208. Hollywood, Florida 33020. Phone/Fax: (954) 922.9002
October 4, 2004
Mr. Merrill Crawford
Cable Administrator
City of Dubuque
City Hall Annex, 1300 Main Street
Dubuque, Iowa 52001-4732
Dear Mr. Crawford:
We have completed our franchise fee compliance review on the books of Mediacom iu accordance
with the City's Ordinance No. 42-81. Our objective with respect to this assignment was to verify
the accuracy of the franchise fees remitted to the City during the two year period beginning
January 1, 2002 and ended December 31, 2003. The scope of this project included the following
activities:
1. Confirm the timeliness of remittances.
2. Determine the proper application of revenues as defined in the applicable franchise
agreement.
3. Test the data base for cusfomer coding to determine if all active addresses within the City of
Dubuque's incorporated boundaries were properly coded to the City's designated franchise
area.
This examination revealed an underpayment offranchise fees totaling $34,612. Our findings are
presented for your review and comment as follows:
FINDINGS
A. Timeliness of Franchise Fee Remittances:
The following paragraphs were extracted from Section 8.6 of Ordinance 42-81:
"For each year whole or part that this contract or any renewal or extension thereof
is in effect, the fees due the grantor shall be calculated on an annual basis
corresponding to the city's fiscal year, and the grantor shall make its payment of
fees on the first day of the fiscal year for which the fees are calculated and due.
The amount due on the first day of the fiscal year shall be no less than ninety
(90)percent of the total fees anticipated to be due for that year, as determined by
the local regulatory agent ninety(90)days prior to the beginning of the applicable
fiscal year and communicated to the grantee.
No later than the twentieth day after the end of each fiscal quarter, the grantee
shall report to the grantor in such detail as the grantor's regulatory agent may
require, its gross revenues for the immediately preceding fiscal quarter, and shall
remit therewith the amount by which any fee due for that quarter exceeds twenty-
five (25)percent of the amount due on account o.n the first day of that fiscal year.
In the event that any payment due the grantor is not made on or before the
applicable due date and hour fixed in any section of this contract, the payment shall
be considered delinquent and in violation ofthis franchise. Each twenty-four hour
period or part thereof that a payment is delinquent shall be considered a separate
violation. Each violation automatically shall be assessed one hundred dollars
($100) due and payable with the payment which is delinquent."
As you know, two instances occurred during the review period where the required remittances
were received after the stipulated due date. Mediacom was subsequently invoiced $1,800 in the
aggregate in accordance with the provisions indicated above.
B. Proper Application of Revenues as Defined
Section 8.5 -of the Ordinance #42-81 requires Mediacom to pay the City annually during the term
ofthis Agreement an amount equal to five percent (5%), ofits gross revenues. Gross revenues are
defined in Section 3.23 as follows:
"Gross revenues shall mean any and all compensation, in whatever form, exchange,
or otherwise derived from all cable services within the service area of this
franchise, including, but not limited to, revenues from subscriber rates, pay
services, leased channels, advertising, installations, connection charges; provided
however, it does, not include any tax on service furnished by the grantee imposed
on any subscriber or user by a local, stateor federal governmental unit and
collected by the grantee for such entity."
Based upon the above definition, in conjunction with an analysis of the accounting records and
related recalculation of revenue subject to franchise fee application, we noted the following
observations and exceptions:
1. Subscriber Revenue Accuratelv Reported
We examined the cable operator's worksheet calculations and related supporting documentation
(CPSM 318 Reports) and found the cable service revenue reported to the City during the two year
period under review to be accurate and that such revenue had been allocated fairly between cable
and non-cable services taking into account the financial impact of packaging discounts and related
allocation issues. It was additionally noted that in March of 2002 Mediacom discontinued its
practice of reporting and paying franchise fees on the revenue generated from the provision of its
internet service to City suhscrihers. This action was taken apparently in response to a March 15,2002,
FCC declaratory ruling, finding that for classification purposes, cable modem service is an interstate
2
information service and as such not subject to franchise fee application as a cable service, under the
provisions as set forth in the franchise agreement. We estimate the financial impact in terms of lost
revenue to the City at approximately $150,000 during the two year period under review.
2. Advertisin2 Revenue Adjustment
Our examination of the operator's advertising revenue allocation to the City's franchise area
found that revenues were understated by $187,033 and related franchise fees were underpaid by
$9,352. Our calculations appear on Schedule A of this report.
3. Shonninl! Channel Revenue Adiustment
Our examination of Mediacom's shopping channel revenue allocation to the City's franchise area
revealed that revenue generated from provision of the QVC & HSN services was understated in
the aggregate by $14,722, resulting in an underpaym~nt offranchise fees amounting to $736. Our
calculations appear on Schedule B of this report.
It was also noted that Mediacom failed to report any revenue derived from the Shop NBC service
launched on the cable system during calendar year 2003. Mediacom claimed that no revenues had
been recognized in 2003 because Shop NBC revenues are booked on a cash basis (when received)
and no ca~h was received during the review period. Mediacom indicated that it expects to
recognize Shop NBC revenues in the second half of 2004.
4. Imnrooer Exclusion of Prol!ramminl! Launch Fees and Marketinl! Support-
Our examination of the operator' records revealed that Mediacom excluded launch fee and
marketing support proceeds fr,om franchise fee application. Cable television operators typically
receive payments from various programming services as financial inducements to launch new
products and to maintain subscriber growth levels. Because competition among programmers
for the limited available channel space on cable systems has accelerated in receI\t years,
substantial sums of money are paid to MSO's to secure initial and continual carriage of the
respective services. We believe that cash payments received from programmers for such purposes
are covered under tile definition of gross revenues reflected in the City's franchise agreement,
and are therefore subject to franchise fee applicatiOn. Mediacom did not supply us with the
sp~cific data ne~ded to quantify all amounts received from the various programming services as
launch fees and marketing support, citing EITF (Emerging Issues Task Force) No .01-09 in support
of its position that such amounts are accounted for as a contra-expense and therefore not
considered a revenue item. EITF No. 01-09 deals exclusively with how the vendor(Programming
Service) should account for consideration given to acustomer(Cable Operator), and as such is not
relevant to this issue. More appropriate to this specific set of circumstances is EITF 02c16 (See
Attachment) which deals exclusively with the accounting by a customer (Cable Operator) for
certain consideration received from a vendor (Programming Service). Based upon the discussion
and examples set forth in EITF 02-16, it is not clear that the FASB EITF was contemplating a
situation like cable programming launch fees in its considerations, but the guidance in the paper
does imply that Mediacom's launch reimbursement proceeds derived from program suppliers could
appropriately be treated as revenue. Under Paragraph I, for instance, the Task Force reports that
it reached a consensus that "cash consideration represents a payment for assets or services
3
delivered to the vendor and should be characterized as revenue (or other income, as
appropriate)when recognized in the customer's income statement if the vendor receives, or will
receive, an identifiable benefit (goods or services) in exchange for consideration."Launch fees
typically represent payments by programmers (vendors) for carriage by cable operators
(customers), delivering a tangible benefit to the programmers, notably in the form of access to cable
subscribers for advertising carried on the programmers' networks (enabling programmers to sell
the accesS to advertisers). And the launch fee arrangements meet other conditions specified in
Paragraph 8: (1) this benefit is separable from the customer's purchase of the vendor's product,
since during the initial "launch" phase of carriage of new networks Mediacom (the customer) is
typically not "purchasing" the programmer's (vendor) product at all, but instead is being pajd to
carry it(and thus the launch fee); (2) there is a reasonably estimable fair market value for this
benefit, as determined by the transactions between programmers and cable operators; (3) and there
are typically multiple networks seeking carriage on cable systems and with whom cable operators
may enter into launch fee arrangements, so that the cable operator(cnstomer) could have entered
into similar arrangements with alternative vendors. As such, we believe that GAAP principles do
not provide the mandate as suggested by Mediacom, but that they also do not affect the definition
of gross revenues in the franchise that clearly covers this issue and requires the inclusion oflaunch
fees in the calculation of gross revenues under the franchise.
With respect to marketing support, again it is not clear that the Task Force had the cable television
situation directly in mind with respect to EITF 02-16. EITF 02-16, Paragraph 9, speaks to
situations where vendors reimburse customers for costs incurred on the vendor's behalf. For the
customer to record the receipts from the vendor as a reduction in cost, rather than as revenue, the
cost must be a " specific, incremental, and idelltifiable cost incurred by the customer in selling the
vendor's products or services." Note that the reimbursement must meet each criterion-specific,
incremental, and identifiable-to qualify. Even if the costs incurred by Mediacom were specific and
identifiable they would not necessarily be incremental(in addition to costs that Mediacom would
have otherwise incurred). Therefore, we believe that our position indicating Mediacom's
requirement to include marketing support proceeds in the revenue base is supported by Generally
Accepted Accounting Principles.
As indicated above, Mediacom did not provide us with actual data that would enable us to
calculate the exact deficiency pertaining to this matter. Based upon average subscriber activity we
estimated that Medicom received $481,229 in launch fee and marketing support covering the
City's franchise area during the two year period under review, and calculated a related
assessment totaling $24,061. Our calculations appear on Schedule C of this report.
C. Customer Codinl! Test
Our review of the cable operator's customer coding revealed eight (8) activ.e subscribers coded as
outside of the City's designated franchise area. The respective addresses of these customers were
subsequently confirmed by the City to be located within its incorporated boundaries. As a result,
franchise fees were underpaid during the period under review by an estimated $463. Our
calculations appear on Schedule D of this report. A listing of the coding errors can be found on
Exhibit 3.
4
RECOMMENDATIONS
W~ recommend that the City of Dubuque:
L Issue an invoice to Mediacom for the unpaid franchise fees and related penalty as detailed
in this report and shown in the Summary of Findings.
2. Obtain written confirmation from Mediacom that the customer coding errors reflected on Exhibit
3 of this report have in fact been corrected.
3. Follow-up on status of revenue received from Shop NBC covering calendar year 2003.
4. Instruct Mediacom to provide the City or this firm with the documentation detailing the actual
proceeds received from the various programming services ,pertaining to launch fees and marketing
support.
5. Monitor future judicial rulings pertaining to the internet service provided by cable operators and
revisit the issue if appropriate.
We would like to take this opportunity to thank the City, and the staff of Mediacom for the
cooperation and assistance provided in the conduct Of this examination. If we can be of further
service, please let us know.
Sincerely,
~iS~~
President
c: Mr. Thomas Beach
Senior Director Financial Reporting
Mediacom Communications Corporation
100 Crystal Run Road
Middletown, New York 10941
5
City of Dubuque Franchise Fee Compliance Revi.ew
Summary of Adjustments
Years Ended December 31, 2002 & 2003
Mediacom
Schedule
Reference
------------------
Advertising Revenue Adjustment
A
Shopping Channel Revenue Adjustment
B
Launch Fee & Marketing Support Exclusion
C
Customer Coding Adjustment
D
Total
Amount
--_---___om----
$9,352
736
24,061
463
m-------------
$34,612
------.-_____0--
-______0--------
City of Dubuque Franchise Fee Compliance Review
Advertising Revenue Adjustment
Years Ended December 31, 2002 & 2003
Mediacom
Schedule A
Revenue
Allocation 5%
Per Actual Franchise
Exhibit 1 Allocation Difference Fee
----______m_m -------------.--- _m--__--__----- ----------------
Quarter Ended 03/31/02 $157,266 $129,423 $27,844 $1,392
Quarter Ended 06/30/02 180,646 156,325 24,320 1,216
Quarter Ended 09/30/02 173,506 147,937 25,569 1,278
Quarter Ended 12/31/02 184,663 156,752 27,911 1,396
Quarter Ended 03/31/03 131,783 106,076 25,707 1,285
Quarter Ended 06/30/03 154,259 125,954 28,305 1,415
Quarter Ended 09/30/03 150,181 134,692 15,489 774
Quarter Ended 12/31/03 187,543 175,654 11,889 594
--mmm______-- ____m____---_---- m______---m_m ---_____m_----m
Total $1,319;848 $1,132,814 $187,033 $9,352
City of Dubuque Franchise Fee Compliance Review
Shopping Channel Revenue Adjustment
Years Ended December 31, 2002 & 2003
Mediacom
Schedule B
Revi$ed
Allocation
-----------------
Quarter Ended 03/31/02
Quarter Ended 06/30/02
Quarter Ended 09/30102
Quarter Ended 12/31/02
Quarter Ended 03/31/03
Quarter Ended 06/30/03
Quarter Ended 09/30/03
Quarter Ended 12/31/03
Total
$9,552
9,296
8.889
10,131
8,766
7,813
8,931
10,487
$73,864
5%
Actual Franchise
Allocation Difference Fee
---______m----- ----------------- -----------------
$9,718 ($167) ($8)
9,708 (412) (21)
9,671 (782) (39)
9,663 468 23
6,643 2,123 106
4,715 3,098 155
4,325 4,606 230
4,699 5,789 289
_n____- ------------------- ------__---___m_-
$59,141 $14,723 $736
City of Dubuque Franchise Fee Compliance Review
launch Fee & Marketing Support Exclusion
Years Ended December 31,2002 & 2003
Mediacom
Avg Active Subscribers
Year
Ended
12/31/02
_m______----
19,921
Estimated Per Subscriber launch & Marketing Support
Estimated Revenue
5% Franchise Fee
Total
m_--_m_m
99,605
$4,980
_mm__-_---
Schedule C
Year
Ended
12/31/03
-__m..-_----_-
19,081
$5
$20
--------------
381,623
$19,081
Total
______m______-
481,229
$24,061
--------------
--------------
City of Dubuque Franchise Fee Compliance Review
Customer Coding Adjustment
Years Ended December 31, 2002 & 2003
Mediacom
Annual Franchise Fees Paid
Adjustments:
Advertising Revenue Adjustment
Shopping Channel Revenue Adjustment
Launch Fee & Marketing Supþort Exclusion
Subtotal
Average Active Subscribers
Average Annual Franchise Fee Per Subscriber
Customer Coding Errors (Exhibit 3)
Franchise Fee Due
Total Amount Due
Schedule D
Year
Ended
12/31/02
Year
Ended
12/31/03
----------------
----------------
$550,990
$543,137
5,282 4,069
(45) 781
4,980 19,081
_m---- --------------
561,207 567,068
19.921 19,081
$28.17 $29.72
8 8
$225 $238
$463
_m__--------
City of Dubuque Franchise Fee Compliance Review
Advertising Revenue Analysis
Years Ended December 31,2002 & 2003
Mediacom
Exhibit 1
System Exhibit 2 Division Exhibit 2 Total
Advertising Franchise Franchise Advertising Franchise Franchise Franchise
Revenue Area Area Revenue Area Area Area
Base Percentage Allocation Base Percentage Ailocation Allocation
-------------- -------m--m- ---------- '----m-------- ------------- --------------- -----------
2002
Jan $81,239 41.74% $33,910 $120,906 8.54% $10,327 $44,237
Feb 100,996 41.48% 41,877 87,590 8.59% 7,520 49,397
Mar 129,834 41.47% 53,846 114,066 8.58% 9,786 63,632
Apr 127,823 41.68% 53,271 75.475 8.61% 6,497 59,769
May 133,611 41.28% 55,155 104,053 8.63% 8,977 134,132
Jun 115,904 41.32% 47,897 102,817 8.61% 8,848 56,745
Jul 109,930 41.23% 45,328 118,004 8.65% 10,204 55,532
AU9 104,324 41.30% 43,082 94,655 8.62% 8,155 51,238
Sep 144,208 41.28% 59,527 83,386 8.65% 7,209 66,737
Oct 132.469 41.18% 54,554 116,928 8.66% 10,125 64,679
Nov 120,030 41.22% 49.481 109,379 8.66% 9,474 58,955
Dee 127,633 41.30% 52,718 96,088 8.65% 8,312 61,029
----__--m_- ------m-------- -------.-------- ------------m-- ------m------..
Subtotai 1.428,001 590,647 1,223,349 105.434 696,081
----m---------- ------_m--m-- _m----------_-- ----------------- ----------------
2003
Jan 72,311 41.46% 29,982 117,728 8.74% 10,287 40,269
Feb 89,238 41.19% 36,758 92,362 8.65% 7,991 44,749
Mar 94,226 40.78% 38.423 96,042 8.69% 8,344 46,766
Apr 109.452 40.86% 44,719 109,352 8.68% 9.488 54,207
May 98,708 40.83% 40,300 143,212 8.73% 12,505 52,804
Jun 100,500 40.73% 40,935 72.455 8.71% 6,312 47,248
Jul 80,958 40.57% 32,842 118,296 8.72% 10,311 43,153
Aug 106,006 40.17% 42,578 115,435 8.60% 9,927 52,504
Sep 108,034 40.16% 43,387 129,972 8.57% 11,137 54,524
Oct 109,576 40.30% 44,161 125,146 8.57% 10,724 54,885
Nov 134,217 39.52% 53,042 171,167 8.63% 14,779 67,821
Dee 130,205 39,35% 51,242 158,077 8.60% 13,595 64,837
----_mm---- ------------ _--m_-----_---- -----mm_m--
Subtotal 1,233.432 498,368 1.449,244 125,399 623,767
-----_m--_--- --m---- ------mm_m-
Total $2,661.433 $1,089,015 $2,672,593 $230.833 $1,319,848
-------
.m--------m--
Reference Schedule A
City of Dubuque Franchise Fee Compliance Review
Subscriber Statistical Summary
Years Ended December 31. 2002 & 2003
Mediacom
Exhibit 2
Franchise Franchise
Franchise Area Midwest Area
Area System System % Division Division %
__--_m_--m __m_____----- _____--m___- _____m___m _m--m------
2002
Jan 20,252 48,518 41.74% 568,034 8.54%
Feb 20,153 48,604 41.46% 566,116 8.59%
Mar 20,102 48,470 41.47% 564,993 8.58%
Apr 20,227 48,534 41.68% 563,799 8.61%
May 19,813 47.996 41.28% 556,345 8.63%
Jun 19,726 47,734 41.32% 554,690 8.61%
Jui 19,612 47,563 41,23% 550,068 8.65%
Aug 19,627 47,527 41.30% 551,615 8.62%
Sep 19,799 47,964 41.28% 554,761 8.65%
Oct 19,842 48,181 41.18% 556,409 8.66%
Nov 19,918 48,317 41.22% 557,810 8.66%
Dee 19,982 48,378 41.30% 559,289 8.65%
Avg 19,921 48,149 41.37% 558,661 8.62%
38,781
2003
Jan 20,008 48,256 41.46% 552,274 8.74%
Feb 19,634 47,666 41.19% 550,952 8.65%
Mar 19,590 48,042 40.78% 552,985 8.69%
Apr 19,572 47,903 40.86% 552,113 8.68%
May 19,500 47,762 40.83% 547,011 8.73%
Jun 19,261 47,288 40.73% 542,771 8.71%
Jut 19,082 47,039 40.57% 539,652 8.72%
Aug 18,547 46,177 40.17% 536,989 8.60%
Sep 18,598 46,309 40.16% 540,439 8.57%
Oet 18,627 46,219 40.30% 539,364 8.57%
Nov 18,342 46,412 39,52% 537,534 8.63%
Dee 18,213 46,279 39.35% 538,107 8,60%
Avg 19,081 47,113 40.50% 544,183 8.66%
City of Dubuque Franchise Fee Compliance Review
Customer Coding Exception Lisiting
Years Ended December 31,2002 & 2003
Mediacom
Exhibit 3
1
2
3
4
5
6
7
8
1475 Associates Dr.
4800 Chavenelle Rd.
5035 Chavenelle Rd,
3600 Digital Dr.
954 Edmore Ln.
4916 Red Violet Dr.
4919 Red Violet Dr.
3187 University Ave.
52002
52002
52002
52003
52001
52002
52002
52001
EITF 02-16
ATTACHMENT
EITF Abstracts
Issue No. 02-16
litle: Accounting by a Customer (Including a ReseHer) for Cenain Consideration
Received from a Vendor
)ates Discussed: September 11~12. 2002: November 21, 2002: January 23, 2003;
March 2Ò. 2003
References: FASB Slatement No.3. Reporting Accollnting Chllltges in Interim
Financia¡ Swtements
FASB Statement No.5, ..\ccOllnti/lg jÒr CO/ttingencies
FASB Statement No. 116. AcC(Jlmti,'g jÒr Contributions ReceÌl'ed and
Contributions Made
FASB Statement No. 131, Di.,c/osures abollt Segments of an Enterprise
arId Related Information
FASB Concepts Statement No.5, Recognition and Measllremel11 in
Financial Statements of Business Enterprises
FASB.Concepts Statemeot No.6. J';lemeats of Financial Statemeliis
APB Opinion No. 20, Accounting Changes
APB Opinion No. 29. AccmmtingfÒr Nonmonetary 1i'am-actions
AICPAAudit and Accounting Guide, Agricullural Producers arId
Agricultural Cooperative.!
International Accounting Standard 20. Aècollnti"g for Government
Gm"ts arId Disclosure ofGovemmwt As.!ista"ce
ISSUE
1. Issue No. 01-9. "Accounting for Consideration Given by a Vendor to a Customer (111-
cluding a ReseHer of thc Vendor's Products)." addresses the accounting by a vendor)
for consideration given to a customer, including both a reseHer of the vendor's products
and an entity that purchases the vendor's products from a reseller. That Issue provided
accounting guidance on how a vendor should characterize consideration given to a cus-
tomer and when to recognize and how to measure that consideration in its income state-
ment.
2. Questions have arisen regarding how a reseller of a vendor's products should account
for cash consideration (as that term is defined in Issue 01-9) received from â vendor.
tTerms defined in Exhibit 02-16B, the glossary, are set forth ¡o boldface type the first time they appear.
1479
3-20.03
EITF 02-16
EITF Abstracts
3. The issues are:
Issue I-The circumstances under which cash consideration received from a vendor by
a resener should be considered (a) an adjusunent of the prices of the vendor's
products or services and, therefore. characterized as a reduction of cost 0:
sales when recognized in the resener's income statement, (b) an adjustment to
a cost incurred by the resener and. therefore. characterized as a reduction of
that cost when recognized in the reseller' s income statemen\. or (c) a payment
for assets or services delivered to the vendor and, therefore. characterized as
revenue when recognized in the reseller's income statement
Issue 2-If a vendor offers a customer a re.bate or refund of a specified amount of cash
consideration that is payable only if the customer completes a specified cumu-
lative level of purchases or remains a customer for a specified time period,
when the customer should recognize the rebate and how the customer should
measure the amount of the offer
Issue 3-Under what circumstances up-front nonrefundable cash consideration given
by a vendor to a customer should be recognized immediately in the customer's
income statement rather than as a liability
Issue 4-How to measure and when to recognize the reduction of a liability incurred
upon receipt of up-front nonrefundable cash consideration in the custOmer's'
income statement.
ElTF DISCUSSION
4. At the November 21,2002 meeting, the Task Force reached a consensus on ]ssue I
that cash consideration received by a customer from a vendor is presumed to be a reduc-
tion of the, prices of the vendor's product' or services and should, therefore. be charac-
terized as a reduction of cost of sales when recognized in the customer's income state- "
ment. However,that presumption is overcome when the consideration is either (a) a
payment for assets or services delivered to the vendor, in which case the cash consider-
ation should be characterized as revenue (or other income. as appropriate) when recog-
nized in the customer's income statement. or (b) a reimbursement of costS incurred by
the customer to sell the vendor's products. in which case the cash consideration should
be characterized as a reduction of that cost when recognized in the customer's income
statement.
5. The Task Force reached a consensuS that cash consideration represents a payment for
assets or services delivered to the vendor and should be characterized as revenue (or
3-2(1-03
]480
Accounting by B Customer (IncludIng B Rese/ler) EITF. 02-16
for Certain Consideration Received from B Vendor
other income, 8$ appropriate) when n:cognized in the customer's income statement if
the vendor receives, or will receive, an identifiable benefit (goods or services) in ex-
change for the consideration. In order to meet that condition the identified benefit must
be sufficientlY separable from the customer's p\IfChase of the vendor's products such
that the cusiorner would håve entered ID.to an exchange tranSaction with a party other
1hanthe vendor in order to prrNide tbal-benefi\, and the customer can reasonably esti-
mate the fair value of the benefit provided. If the amouni of cash consideration paid by
the vendor exceeds the estimåted fair value of the benefit received, that excess amount
should be characterized as a reduction of cost of sales when recogni1.ed in the custom-
er's income statemenL
6. The Task Force reached a consensus that cash consideration representS a reimburse-
ment of costS incUITed by the customer to sell the vendor's productS and should be char-
acterized as a reduction oethat cost when recognized in the customer's income state-
ment if the cash consideration representS a reimbursement of a specific, incremental,
identifiable cost incurred by the customer in selling the vendor's productS or services. If
the amount of cash consideration paid by the vendor exceeds the-cosl being reimbursed,
that exceSS amount should be characterized in the customer's income statement åS a re-
duction of cost of s;¡les when recognized in the customer's income statement.
7. The Task Force reached a consensus on Issue 2 that a rebate or refund of a specified
amount of cash consideration that is payable pursuant to a binding mangement only if
the customer completes a specified cumulati\'e Jevel of purchases or remains a customer
for a specified time period should be recognized as a reduction of the cost of sales based
on a systematic and rational allocation of the cash consideration offered to each of the
underlying transactions that resultS in progress by the customer toward earning the re-
bate or refund provided the amountS are probable and reasonably estimable. If the rebate
or refund is not probable and reasonabJy estimable, it should be recognized as the mile-
stones are achieved,
3, The Task Force observed that the ability 10 make a reasonabJe estimate of the amounl
of future cash rebates or refunds depends on many faclors and circumstances that will
"ary from case to case. However, the Task Force reached a consensus thai the following
factors may impair a customer's ability to deterntine whether the rebale or refund is
prnbable and reasonably estimable:
a. The rebate or refund relates to purchases that will occur over a relatively long period.
b. Th= is an absence of histOrical experience willi similar productS or the inability 10
apply such experience because of changing circumstances.
c. Significant adjustmentS to expected cash rebates or refunds have been necessary in
the pasL .
1481
11-13-03
EITF 02.16
EITF Abstracts
d. The product is susceptible to significant external factors (for example, teChnological!
obsolescence or changes in demand). ~
9, 'The Task Force reached a consensus that changes in the estimated amount of casJi'
rèb<1tesor, refundsandre trO active, Cha,ng.,s by a vendor to a previous ofler (an in= . sear,..
a decrease in the rebate amount that is applied retroactively) are changes in estimate that'
should be'recognized using a cumulative catch-up adjustmenL That is. the custome:
would adjust the cumulative balance of its rebate recognized to the revised cumulati ,
estimate immediately. 'The Task Force observed that entities should èonsider whether)
any portion of the cumulative..!!'ec. adjus1ment impacts, for example. inventory, in;
which case only a portion of that adjustment would be reflected in the income statemen(
10. The Task Force agreed to discontinue consideration of Issues 3 and 4 regarding
whether up-front nonrefundable cash consideration given by a vendor 10 a customer reo'
suits in a liability or should be recognized immediately in the cusromer's income stat~'
ment due 10 the broad, general nature of related questions. .
II. The SEC Observer commented Ihat, unlil further guidance is issued, resellers that:
provide goods or services to a vendor from whiéh they also purchase goods orservices :
should consider whether certain Iransaclions between the two pm1ies (for example. a
reseller providing goods or services 10 a vendor with a contemporaneous agreement to '.
purchasc an equal amount of that vendor's goods or services) are subject to the guidance
contained in paragraph 21 of Opinion 29,
12. The examples in Exhibit 02-16A illustrate the consensUSeS reached in this Issue.
'J)-ansition
15.<1101
13. The consensus on Issue 1 should be aprli'ed to new arTangements, including modi-
fications of existing arrangements. enlered into after December 31, 2002, If determin-
ablc. pro forma disclosure of the impaét of the consensus on prior periods presente4 is
encoufaged. Early application of the consensus is permitted as of the beginning of peri.
ods for which financial slatements have no! been issued. Recasting of prior-period finan-
cial slalements for comparative purposes is permitted provided that previousl)' reported
net income would not change as a result of applying the consensus.
14. An entity that has not issued financial statement, also is pennined to report the change
in accounting as a cumulative-eJfect adjustment in accordance with Opinion 20 and State-
ment 3 when the effect of applying ~Je consensus on prior-period financial stalements re-
sults in a change 10 previously reporte4 net income. For example, an entity with a calendar
II-t3,Œ
1482
,
Accounting by B Customer (Including B, RBSBIIer) EITF 02-16
fo, Certain Conslderstlon Received from B Vendor .
year--end thai bas DOl i$sued financial statements for the year ended Dec=ber 3~, 2002,
may adopt the CODSc:DS1JS as a cuinulative-e1fect adjustmen1 as of cilbcr January I, 2002, cr
January I, 2003. However, an cnôty wUh a JIID\I8I'Y 31 iiBcal year-Gld thai has DOl issued
financia1 statementS for thefiscál year ",,<led J'!Duary 31, 2003, could only adopt the CO >-
sensus as a cumulallve-dfect adjustment as of February I, 2002. An cnôty should disclose
the selected method Of adopông the consensus on Issue I. . .
15: The SEe Ob=ver reminded registrantS tó consider the MD&A dìscloSlD'e require-
meDts regarding the comparabi)ity of financial statement informaôon.
, , .
Issue 2
16, The consensus on Issue 2 is effective for ammgements entered into ~ Novem-
be121,2002.
STATUS
17. No furtherEI1F discussion is planned.
1483.
11-13-03
,
EITF 02-16
EfTF Abstracts
ExhlbltO2-16A
EXAMPLFS OF THE APPUCA110N OF THE
EITF CONSENSUS ON ISSUE 02-16
Example 1
Vendor manwactures toys that are sold by Retailer, Vendor offers a cooperative adver-
tising arrangement through which Retail..- receives an allowance for qualifying adver-
tising costs of up to 2 percent of the total purchases from Vendor if certain qualitative
criteria are met Retail..- must maintain documentation of advertising performed and
related costs,
Evaluation: The cash consideration received for cooperative advenising, to the extent
that it represents a reimbursement of specific, incremental, identifiable costs incurred by
the CUStOm..- to sell Vendor's products, should be characterized as a reduction of those
costs when recognized in the customer's income statement, provided thai the cash con-
sideration received does not exceed such costs incurred. If the amount of cash consider-
ation pajd by Vendor exceeds the costs being reimbursed, that excess amount should
be characterized as a reduction of cost of sales when recognized in Retailer's, income
statement.
Example 2
Retailer enters into an agreement with Vendor to perform a significant amount of market
research for Vendor related to the launch of a new product Vendor believes that it is
paying for the expertise and knowledge available from Retailer, Retailer believes Ven-
dor is electing to purchase its knowledge of the market rather than internally developing
such knowledge. Retailer would offer such services to a non vendor.
Evaluation: The cash consideration received is in return for Retailer providing goods or
services that provide an identifiable benefit to Vendor that is sufficiently separable from
Retailer's purchase of Vendor's goods. Since Retailer offers those research services to a
nonvendor and the fajr value of the research services is determinable, the cash consider-
ation received from the vendor represents revenue (or other income. as appropriate) and
should be characterized as such when recognized in Retailer's income statement, pro-
vided that the cash consideration received does not exceed the estimated fair value of the
. benefit =ived by Vendor. If the amount of cash consideration pajd by Vendor exceeds
the estimated fair value of related benefits received, that excess amount should be char-
acterized as a red"ction ,of cost of sales when recogniud in Retailer's income statement.
11-13-03
1484
\
Accounting by 8 Customer (Including 8 ReM/liB,) EITF 02.16
for Certain Consideration Received from 8 Vendor
Example 3
On J8DIIa1}' 1, 2OXI, in a binding IIII'IIIgcment, Vendor offers a cash æfund of $1,000 to
Customec if during the calendar year 2OXl, Customer purchases 1,000 units. Customer,
aD average, purchases 1,700 units each year.
Evaluation: Since Customec is entitled to. the æfund offCled by Vendor based on the
pwcl1ase of 1,000 units of inventory, Customer should accrue the æfund offer over the
pwcl1ase of the 1,000 units, provided that it is probable and reasonably eStimable that
Cu~ win purchase 1,000 units during 20Xl.
1485
3-2(1.()3
\
. ElTF02-16
EfTF Abstracù
Exhibit 02-168
GLOSSARY
'Ibis c.xbibit contains definitions of cenain terms used in Ibis Issue.
CallI œadclei'atiOD .
Fer purpòses of Ibis Issue, cash considclation includes cash pàyments and "crcd-
ill" tbat the customer can apply against IrBde amounts owed 10 the vendor. In ad-
dition. unde.- the consensus on Issue 2 ofIssuc No. %- 18, "Accounting for Equity
lnstruments ThaI AIc !ssuéd 10 Other Than Employees for AcqtUring.or in Con-
junçtíOJÌ with Selling, Goods or Sctviccs," considetation ill the form of equity iII-
Sll'Umcnts is rccognizc<l"in the same pcliod(s) and ,ill the same mann..- (that is,
capitaJiu v=s expense) as if the enterprise had paid cash for the goods or serv-
iCes or used cash rebates as I sales discount instead of paying' with or using the
equity instruments," Accordingly, for pwposes of Ibis Issue, guidance with re-
spectlO cash consideration is applicable 10 consideration that consistS of equity
instruments (regardJess of whether a measurement date has been reached). For
. pwposes of this Issue, cash consideration may be referred 10 by terms such as
sales iIIccntives, discountS, coupons, rebales, price reductions, and so fonh.
Cooperative advertising
A vendor agrees to reimburse a cuslom..- for a portion of the advertising costs
illcurred by the customer. Cooperative advertising' programs gencraJJy provide
that a vendor will participate in the cost of a customer's advertising, The amount
rcimb=ed 10 the cuslOm..- 1)'PicalJy is limiled 10 a specified percentage of that
customer's purchases from the vendor. The program may or may not require the
CUstOm..- 10 provide documentation of the actúal costs incurred to advertise the
vendor'sproducts.
Customer
A resell..- or a consum..- (cither an individual or a business that purchases a ven-
dor's products or sCl"lices for end use rather thari for resale). Customer should be
defiDed consistent with paragraph 39 of Statement 13 I, which states that "a group
of entities known 10 a reporting enterprise to be.undercommon control shall be .
considered as a single customer. and the federal gov=ent, a state government,
I local government (for example, a county or municipali1)'), or a foreign govern-
incril each shall be considered as a single custom..-." For purposes of this Issue,
. c:ustomcf iIIcludes any purchaser of the ~endor's products at any point along the.
.dislribution chain, regardless of whether the purchaser acquires the vendor's.
3-20-03
1486
,
Accounting by. Customer (Including. RessllBr) E/TF 02.16 .
for Certain Consideration RÐCÐIved from. Vøndor
""-..
products directly or inditectly (for example, from a distributor) from the vendor,
For example, a vendor may seJl its products to a distributor who in turn =ells the
products to a retail.... The retailer in that, example is a .custonw of Ibe vendor as
that term is used in this Issue. .
R~~ .
hyentity that purchases another vendor's products for'resale, regardless of
wbe!hec that entity is a distributor or wholesaler, retailer, or olber type of =eller.
Vendor
For pwposes of ibis Is~e, the terni vendor is used to represent a service provider
or prixIuct seller, c sucb as a' manufacturer, distn'butor, Or reSeller.
1486A
3-2()..()3
,