Add
MCCC to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| MCCC > SEC Filings for MCCC > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
Until recently, we generally have obtained retransmission consent for stations
in our markets without being required to provide consideration that did not
result in some offsetting value to us. The traditional retransmission consent
process is based on three year cycles, with the current cycle ending
December 31, 2008. In some prior negotiations we have entered into longer term
agreements so that not all of the broadcast stations carried by us are up for
renegotiation at this time. Most owners of multiple broadcast stations have
become much more aggressive in demanding significant cash payments from us and
other cable operators, DBS providers and local telephone companies.
Consequently, we believe that the cost to secure retransmission consent in 2009
and beyond will rise significantly. In some cases, refusal to meet the demands
of broadcast station owners could result in the loss of our ability to
retransmit those stations to our subscribers. That could cause some of our
existing or potential new subscribers to switch to, or choose, competitors which
offer the stations.
Significant selling, general and administrative expenses include: wages and
salaries for our call centers, customer service and support and administrative
personnel; franchise fees and taxes; marketing; bad debt; billing; advertising;
and office costs related to telecommunications and office administration.
Adjusted OIBDA
We define Adjusted OIBDA as operating income before depreciation and
amortization and non-cash, share-based compensation charges. Adjusted OIBDA is
one of the primary measures used by management to evaluate our performance and
to forecast future results but is not a financial measure calculated in
accordance with generally accepted accounting principles (GAAP) in the United
States. It is also a significant performance measure in our annual incentive
compensation programs. We believe Adjusted OIBDA is useful for investors because
it enables them to assess our performance in a manner similar to the methods
used by management, and provides a measure that can be used to analyze, value
and compare the companies in the cable television industry, which may have
different depreciation and amortization policies, as well as different non-cash,
share-based compensation programs. Adjusted OIBDA and similar measures are used
in calculating compliance with the covenants of our debt arrangements. A
limitation of Adjusted OIBDA, however, is that it excludes depreciation and
amortization, which represents the periodic costs of certain capitalized
tangible and intangible assets used in generating revenues in our business.
Management utilizes a separate process to budget, measure and evaluate capital
expenditures. In addition, Adjusted OIBDA has the limitation of not reflecting
the effect of the our non-cash, share-based compensation charges.
Adjusted OIBDA should not be regarded as an alternative to either operating
income or net income (loss) as an indicator of operating performance nor should
it be considered in isolation or as a substitute for financial measures prepared
in accordance with GAAP. We believe that operating income is the most directly
comparable GAAP financial measure to Adjusted OIBDA.
Retransmission Consent
Prior to February 2007, cable systems serving our subscribers carried the
broadcast signals of 22 local broadcast stations owned or programmed by Sinclair
Broadcast Group, Inc. ("Sinclair") under a month-to-month retransmission
arrangement terminable at the end of any month on 45-days notice. Eleven of
these stations are affiliates of one of the "big-4" networks (ABC, CBS, FOX and
NBC) that we deliver to approximately half of our total subscribers. The other
stations are affiliates of the recently launched CW or MyNetwork broadcast
networks or are unaffiliated with a national broadcast network.
On September 28, 2006, Sinclair exercised its right to deliver notice to us to
terminate retransmission of all of its stations effective December 1, 2006, but
subsequently agreed to extend our right to carriage of its signals until
January 5, 2007. We and Sinclair were unable to reach agreement, and on
January 5, 2007, Sinclair directed us to discontinue carriage of its stations.
On February 2, 2007, we and Sinclair reached a multi-year agreement and Sinclair
stations were immediately restored on the affected cable systems. As a result of
this retransmission consent dispute, we experienced higher levels of basic
subscriber losses and operating expenses in the fourth quarter of 2006 and the
first quarter of 2007.
Actual Results of Operations
Three Months Ended September 30, 2008 compared to Three Months Ended
September 30, 2007
The following tables set forth the unaudited consolidated statements of
operations for the three months ended September 30, 2008 and 2007 (dollars in
thousands and percentage changes that are not meaningful are marked NM):
Three Months Ended
September 30,
2008 2007 $ Change % Change
Revenues $ 352,553 $ 328,252 $ 24,301 7.4 %
Costs and expenses:
Service costs (exclusive of
depreciation and amortization) 148,714 137,555 11,159 8.1 %
Selling, general and administrative
expenses 71,117 68,634 2,483 3.6 %
Corporate expenses 7,762 6,654 1,108 16.7 %
Depreciation and amortization 53,781 59,970 (6,189 ) (10.3 %)
Operating income 71,179 55,439 15,740 28.4 %
Interest expense, net (54,678 ) (61,185 ) 6,507 (10.6 %)
Gain (loss) on derivatives, net 6,006 (13,791 ) 19,797 NM
Gain on sale of cable systems, net - 545 (545 ) NM
Other expense, net (5,816 ) (1,150 ) (4,666 ) NM
Income from continuing operations
before income taxes 16,691 (20,142 ) 36,833 NM
Provision for income taxes (14,494 ) (14,591 ) 97 (0.7 %)
Net income (loss) $ 2,197 $ (34,733 ) $ 36,930 NM
Adjusted OIBDA $ 126,404 $ 116,728 $ 9,676 8.3 %
September 30,
2008 2007 $ Change % Change
Adjusted OIBDA $ 126,404 $ 116,728 $ 9,676 8.3 %
Non-cash, share-based compensation (1,444 ) (1,319 ) (125 ) 9.5 %
Depreciation and amortization (53,781 ) (59,970 ) 6,189 (10.3 %)
Operating income $ 71,179 $ 55,439 $ 15,740 28.4 %
|
Revenues
The following tables set forth the unaudited revenues, and selected subscriber,
customer and average monthly revenue statistics for the three months ended
September 30, 2008 and 2007 (dollars in thousands, except per subscriber and RGU
data):
Three Months Ended
September 30,
2008 2007 $ Change % Change
Video $ 229,545 $ 225,887 $ 3,658 1.6 %
HSD 82,447 70,528 11,919 16.9 %
Phone 23,697 14,443 9,254 64.1 %
Advertising 16,864 17,394 (530 ) (3.0 %)
Total Revenues $ 352,553 $ 328,252 $ 24,301 7.4 %
September 30, Increase/
2008 2007 (Decrease) % Change
Basic subscribers 1,324,000 1,331,000 (7,000 ) (0.5 %)
Digital customers 624,000 541,000 83,000 15.3 %
HSD customers 726,000 636,000 90,000 14.2 %
Phone customers 239,000 165,000 74,000 44.8 %
RGUs (1) 2,913,000 2,673,000 240,000 9.0 %
Average total monthly revenue per
basic subscriber (2) $ 88.86 $ 81.81 $ 7.05 8.6 %
|
(1) RGUs represent the total of basic subscribers and digital, HSD and phone customers.
(2) Represents total average monthly revenues for the quarter divided by total average basic subscribers for such period.
Revenues rose 7.4%, largely attributable to growth in our HSD and phone
customers and, to a lesser extent, an increase in video revenues. Average total
monthly revenue per basic subscriber increased 8.6%.
Video revenues grew 1.6%, largely due to customer growth in our advanced video
products and services and, to a lesser extent, basic video rate increases offset
in part by a lower number of basic subscribers. During the three months ended
September 30, 2008, we gained 3,000 basic subscribers, compared to a loss of
13,000 basic subscribers for the same period last year. Digital customers grew
by 25,000 during the three months ended September 30, 2008, as compared to an
increase of 9,000 in the prior year period. As of September 30, 2008, 32.6% of
digital customers were taking our DVR and/or HDTV services, as compared to 22.4%
at the end of the prior year period.
HSD revenues rose 16.9%, largely due to a 14.2% year-over-year increase in HSD
customers and, to a lesser extent, growth in our enterprise network products and
services. During the three months ended September 30, 2008, HSD customers grew
by 24,000, as compared to a gain of 23,000 in the prior year period.
Phone revenues grew 64.1%, mainly due to a 44.8% year-over-year increase in
phone customers and a reduction in discounted pricing. During the three months
ended September 30, 2008, phone customers grew by 17,000, as compared to a gain
of 21,000 in the prior year period. As of September 30, 2008, our phone service
was marketed to 91% of our estimated 2.85 million homes passed.
Advertising revenues decreased 3.0%, largely as a result of a decrease in
automotive advertising and one less week in the broadcast calendar compared to
the prior year period, offset in part by an increase in political advertising.
Costs and Expenses
Service costs rose 8.1%, primarily due to increases in programming, phone
service, field operating and personnel expenses, offset in part by lower HSD
costs. Programming expenses grew 8.9%, principally as a result of higher
contractual rates charged by our programming vendors. Phone service costs rose
38.0%, primarily due to the growth in phone customers. Field operating expenses
grew 11.5%, largely due to higher vehicle fuel and repair costs. Personnel costs
rose 13.1%, primarily due to increased staffing and favorable insurance claim
experience in the prior year period. HSD expenses decreased 21.4% due to a
reduction in product delivery costs, offset in part by HSD customer growth.
Service costs as a percentage of revenues were 42.2% and 41.9% for the three
months ended September 30, 2008 and 2007, respectively.
Selling, general and administrative expenses rose 3.6%, principally due to
higher customer service employee costs, greater marketing expenses and an
increase in taxes and fees, offset in part by a decrease in telecommunications
and billing expenses. Customer service employee costs rose 16.5%, principally
due to additional staffing. Marketing expenses grew 9.0%, primarily due to
greater expenses related to sales activity, higher staffing levels and more
frequent direct mailing campaigns, offset in part by a reduction in other
advertising. Taxes and fees rose 7.7% due to higher property taxes in certain of
our service areas. Telecommunications costs decreased 24.4%, principally due to
more favorable rates. Billing expenses fell 13.3%, primarily due to decreased
processing fees, offset in part by higher bank fees and credit card charges.
Selling, general and administrative expenses as a percentage of revenues were
20.2% and 20.9% for the three months ended September 30, 2008 and 2007,
respectively.
Corporate expenses reflect compensation of corporate employees and general
corporate overhead. Corporate expenses rose 16.7%, primarily due to higher
staffing levels. Corporate expenses as a percentage of revenues were 2.2% and
2.0% for each of the three months ended September 30, 2008 and 2007,
respectively.
Depreciation and amortization decreased 10.3%, largely as a result of an
increase in the useful lives of certain fixed assets, offset in part by
increased depreciation on the deployment of shorter-lived customer premise
equipment.
Adjusted OIBDA
Adjusted OIBDA increased 8.3%, due to growth in HSD, phone and, to a lesser
extent, video revenues, offset in part by higher service costs and, to a lesser
extent, selling, general and administrative expenses.
Operating Income
Operating income grew 28.4%, due to the increase in Adjusted OIBDA and, to a
lesser extent, lower depreciation and amortization.
Interest Expense, Net
Interest expense, net decreased 10.6%, primarily due to lower market interest
rates on variable rate debt, offset in part by higher average indebtedness.
Gain (Loss) on Derivatives, Net
We enter into interest rate exchange agreements, or "interest rate swaps," with
counterparties to fix the interest rate on a portion of our variable rate debt
to reduce the potential volatility in our interest expense that would otherwise
result from changes in variable market interest rates. As of September 30, 2008,
we had interest rate swaps with an aggregate notional amount of $1.1 billion.
The changes in their mark-to-market values are derived primarily from changes in
market interest rates, the decrease in their time to maturity and other factors.
These swaps have not been designated as hedges for accounting purposes. As a
result of the quarterly mark-to-market valuation of these interest rate swaps,
we recorded a net gain on derivatives of $6.0 million and a net loss on
derivatives of $13.8 million, based upon information provided by our
counterparties, for the three months ended September 30, 2008 and 2007,
respectively.
Other Expense, Net
Other expense, net was $5.8 million and $1.2 million for the three months ended
September 30, 2008 and 2007, respectively. In the most recent period, other
expense, net included $3.0 million for transaction costs related to the
repurchase of our Class A common stock (see Liquidity and Capital Resources),
$1.3 million for commitment fees and $0.7 million related to deferred financing
costs. In the comparable prior year period, other expense, net included
$1.0 million related to deferred financing costs and $0.3 million for commitment
fees.
Provision for Income Taxes
Provision for income taxes was $14.5 million and $14.6 million for the three
months ended September 30, 2008 and 2007, respectively. These provisions for
income taxes for each of the three months ended September 30, 2008 and 2007
resulted from non-cash charges related to our deferred tax asset positions. See
Note 9 of our Notes to Consolidated Financial Statements.
Net Income (Loss)
As a result of the factors described above, we recognized net income of
$2.2 million for the three months ended September 30, 2008 compared to a net
loss of $34.7 million for the prior year period.
Actual Results of Operations
Nine Months Ended September 30, 2008 compared to Nine Months Ended September 30,
2007
The following tables set forth the unaudited consolidated statements of
operations for the nine months ended September 30, 2008 and 2007 (dollars in
thousands and percentage changes that are not meaningful are marked NM):
Nine Months Ended
September 30,
2008 2007 $ Change % Change
Revenues $ 1,041,732 $ 960,861 $ 80,871 8.4 %
Costs and expenses:
Service costs (exclusive of
depreciation and amortization) 434,276 404,060 30,216 7.5 %
Selling, general and administrative
expenses 206,064 197,149 8,915 4.5 %
Corporate expenses 23,000 20,222 2,778 13.7 %
Depreciation and amortization 173,266 170,705 2,561 1.5 %
Operating income 205,126 168,725 36,401 21.6 %
Interest expense, net (163,302 ) (180,196 ) 16,894 (9.4 %)
Gain (loss) on derivatives, net 4,122 (8,972 ) 13,094 NM
(Loss) gain on sale of cable systems,
net (170 ) 11,326 (11,496 ) NM
Other expense, net (9,650 ) (6,054 ) (3,596 ) 59.4 %
Income from continuing operations
before income taxes 36,126 (15,171 ) 51,297 NM
Provision for income taxes (43,632 ) (43,086 ) (546 ) 1.3 %
Net loss $ (7,506 ) $ (58,257 ) $ 50,751 (87.1 %)
Adjusted OIBDA $ 382,323 $ 343,436 $ 38,887 11.3 %
|
September 30,
2008 2007 $ Change % Change
Adjusted OIBDA $ 382,323 $ 343,436 $ 38,887 11.3 %
Non-cash, share-based compensation (3,931 ) (4,006 ) 75 (1.9 %)
Depreciation and amortization (173,266 ) (170,705 ) (2,561 ) 1.5 %
Operating income $ 205,126 $ 168,725 $ 36,401 21.6 %
|
The following tables set forth the unaudited revenues, and selected subscriber, customer and average monthly revenue statistics for the nine months ended September 30, 2008 and 2007 (dollars in thousands, except per subscriber and RGU data):
Nine Months Ended
September 30,
2008 2007 $ Change % Change
Video $ 689,194 $ 667,544 $ 21,650 3.2 %
HSD 239,463 205,481 33,982 16.5 %
Phone 65,436 39,268 26,168 66.6 %
Advertising 47,639 48,568 (929 ) (1.9 %)
Total Revenues $ 1,041,732 $ 960,861 $ 80,871 8.4 %
September 30, Increase/
2008 2007 (Decrease) % Change
Basic subscribers 1,324,000 1,331,000 (7,000 ) (0.5 %)
Digital customers 624,000 541,000 83,000 15.3 %
HSD customers 726,000 636,000 90,000 14.2 %
Phone customers 239,000 165,000 74,000 44.8 %
RGUs 2,913,000 2,673,000 240,000 9.0 %
Average total monthly revenue per
basic subscriber $ 87.42 $ 78.76 $ 8.66 11.0 %
|
Revenues rose 8.4%, largely attributable to growth in our HSD and phone
customers and an increase in video revenues. Average total monthly revenue per
basic subscriber increased 11.0%.
Video revenues grew 3.2%, largely due to basic video rate increases and customer
growth in our advanced video products and services, offset in part by a lower
number of basic subscribers. During the nine months ended September 30, 2008,
the number of basic subscribers was unchanged, compared to a reduction in 49,000
basic subscribers for the same period last year, which includes a significant
number of basic subscribers lost in connection with the aforementioned
retransmission consent dispute, and the sale during the period of cable systems
serving on a net basis 3,000 basic subscribers.
HSD revenues rose 16.5%, primarily due to a 14.2% year-over-year increase in HSD
customers and, to a lesser extent, growth in our enterprise network products and
services.
Phone revenues grew 66.6%, mainly due to a 44.8% year-over-year increase in
phone customers and a reduction in discounted pricing.
Advertising revenues were lower by 1.9%, largely as a result of an overall
reduction in national advertising.
Costs and Expenses
Service costs rose 7.5%, primarily due to increases in programming, phone
service and field operating expenses, offset in part by lower HSD costs.
Programming expenses grew 7.1%, principally as a result of higher contractual
rates charged by our programming vendors. Phone service costs rose 53.1%, mainly
due to the growth in phone customers. Field operating expenses grew 16.9%,
primarily due to greater vehicle fuel and repair expenses, lower capitalization
of overhead costs and increased pole rental costs, offset in part by
non-recurring expenses in the prior year period relating to the retransmission
consent dispute noted above and lower insurance costs. HSD expenses decreased
21.5% due to a reduction in product delivery costs, offset in part by HSD
customer growth. Service costs as a percentage of revenues were 41.7% and 42.1%
for the nine months ended September 30, 2008 and 2007, respectively.
Selling, general and administrative expenses rose 4.5%, principally due to
higher expenses related to marketing and customer service employee costs, offset
in part by a decrease in telecommunications expenses. Marketing expenses grew
15.2%, primarily due to greater expenses tied to sales activity, higher staffing
levels, more frequent direct mailing campaigns and greater use of third-party
sales support, offset in part by a reduction in other advertising. Customer
service employee costs rose 13.3%, principally due to higher staffing levels.
Telecommunications costs fell 19.4%, primarily due to more favorable rates.
Selling, general and administrative expenses as a percentage of revenues were
19.8% and 20.5% for the nine months ended September 30, 2008 and 2007,
respectively.
Corporate expenses rose 13.7%, primarily due to higher staffing levels.
. . .
|
|