##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-K   Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 For the fiscal year ended December 31, 2003 Commission File Number: 0-29227 Mediacom Communications Corporation (Exact name of Registrant as specified in its charter)
 Delaware
    
    06-1566067(State of incorporation)
    
    (I.R.S. Employer
Identification Number)
 100 Crystal Run Road
Middletown, New York 10941(Address of principal executive offices)
 (845) 695-2600(Registrants telephone number) Securities registered pursuant to Section 12(b) of the Exchange Act:
None Securities registered pursuant to Section 12(g) of the Exchange Act:
Class A Common Stock, $0.01 par value per share Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: [X] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes X No As of June 30, 2003, the aggregate market value of the Class A common
stock of the Registrant held by non-affiliates of the Registrant was
approximately $593.7 million. As of February 17, 2004 there were outstanding 89,808,627 shares of Class
A common stock and 28,913,145 shares of Class B common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrants Proxy Statement for the 2004 Annual Meeting of
Stockholders are incorporated by reference into Items 10, 11, 12, 13 and 14 of
Part III.




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MEDIACOM COMMUNICATIONS CORPORATION
2003 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART IPageItem 1.
    
    Business
    
    
    4Item 2.
    
    Properties
    
    
    27Item 3.
    
    Legal Proceedings
    
    
    27Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    28Item 4A.
    
    Directors and Executive Officers of the Registrant
    
    
    28PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    30Item 6.
    
    Selected Financial Data
    
    
    31Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    34Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    51Item 8.
    
    Financial Statements and Supplementary Data
    
    
    52Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    77Item 9A.
    
    Controls and Procedures
    
    
    77PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    78Item 11.
    
    Executive Compensation
    
    
    78Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    78Item 13.
    
    Certain Relationships and Related Transactions
    
    
    78Item 14.
    
    Principal Accountant Fees and Services
    
    
    78PART IVItem 15.
    
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    79CONSENT OF PRICEWATERHOUSECOOPERS LLPRULE 13A-14(A) CERTIFICATIONSSECTION 1350 CERTIFICATIONS
 2




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References in this Annual Report to we, us, or our are to Mediacom
Communications Corporation and its direct and indirect subsidiaries since its
initial public offering in February 2000 and to Mediacom LLC and its direct and
indirect subsidiaries prior to the initial public offering, unless the context
specifies or requires otherwise. Cautionary Statement Regarding Forward-Looking Statements You should carefully review the information contained in this Annual
Report and in other reports or documents that we file from time to time with
the Securities and Exchange Commission (the SEC). In this Annual Report, we
state our beliefs of future events and of our future financial performance. In
some cases, you can identify those so-called forward-looking statements by
words such as may, will, should, expects, plans, anticipates,
believes, estimates, predicts, potential, or continue or the negative
of those words and other comparable words. You should be aware that those
statements are only our predictions. Actual events or results may differ
materially. In evaluating those statements, you should specifically consider
various factors, including the risks discussed in this Annual Report and other
reports or documents that we file from time to time with the SEC. Those
factors may cause our actual results to differ materially from any of our
forward-looking statements. All forward-looking statements attributable to us
or a person acting on our behalf are expressly qualified in their entirety by
this cautionary statement. 3




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PART I 
 ITEM 1. BUSINESS Introduction We are currently the nations eighth largest cable television company
based on customers served and the leading cable operator focused on serving the
smaller cities and towns in the United States. We provide our customers with a
wide array of broadband products and services, including traditional analog
video services, digital television, video-on-demand, high-definition television
and high-speed Internet access. As of December 31, 2003, our cable systems
passed approximately 2.76 million homes and served approximately 1.54 million
basic subscribers in 23 states. A basic subscriber is a customer that
subscribes to a package of cable television services. Approximately 60% of our
customers are located within the top 100 television markets in the United
States. We were founded in July 1995 by Rocco B. Commisso, our Chairman and Chief
Executive Officer. Since commencement of our operations in March 1996, we have
experienced significant growth by executing a disciplined strategy of acquiring
underperforming cable systems and improving their operating and financial
performance. In 2001, we acquired cable systems from AT&T Broadband, LLC that
served approximately 800,000 basic subscribers, for an aggregate purchase price
of about $2.06 billion. This acquisition more than doubled our size and
enhanced our scale efficiencies in operations and capital investments in
technology. Business Strategy We believe that our high-speed, interactive broadband network is the
superior platform for the delivery of advanced video, data and voice products
and services. Our strategy is to use the capabilities of our broadband network
to expand the products and services we offer our subscribers, attract new
customers and diversify our revenue streams. We believe that the investment in
our broadband network and facilities, together with our attractive bundled
products and services, reliable customer service and local community presence
will enable us to execute our strategy and compete effectively in our markets. Technology 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 network was upgraded with 550MHz to
870MHz bandwidth capacity and about 97% of our homes passed were activated with
two-way communications capability. As of the same date, approximately 95% of
our basic subscribers were served by our 50 largest headend facilities.
Expressed in megahertz, or MHz, bandwidth represents a systems capacity to
deliver telecommunications services. A headend facility is the location where
signals are received and processed for distribution over a cable system. Our upgrade program increased our cable systems network capacity and
reliability, and the quality of the service that they deliver. This has allowed
us to introduce additional video programming and other products and services,
including digital video, video-on-demand, or VOD, high-definition television,
or HDTV, digital video recorders, or DVRs, and high-speed Internet access or
cable modem service. In addition, beginning in the fourth quarter of 2004, we
plan to introduce in certain markets Internet protocol telephony service, which
is sometimes referred to as Voice-over-Internet-Protocol, or VoIP, telephony. Bundling We plan to leverage the capacity and flexibility of our upgraded broadband
network, as we increasingly emphasize our offerings of bundled products and
services. A bundled customer is one who subscribes to two or more of our
primary services. Bundled products and services offer our subscribers key
benefits such as a single provider contact for ordering, provisioning, billing
and customer care. We currently offer video and data bundles, and when we
introduce telephony we will be able to offer a triple-play bundle of video,
data and voice. 4




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The availability of our multiple products and services in most of our
footprint has allowed us to offer bundled service to most of our subscribers.
As of December 31, 2003, our digital cable service was available to 99% of our
basic subscribers, and we served approximately 383,000 digital customers. Our
VOD and HDTV services were available to approximately 50% and
approximately 70%
of our digital customers, respectively. In addition, our high-speed Internet
access was marketed to approximately 97% of the homes passed by our cable
systems, and we served approximately 280,000 data customers. Customer Service Attaining higher levels of customer satisfaction is critical to our
success in the increasingly competitive environment we face today. We continue
to invest in our customer care personnel and call center technology to improve
our capabilities in customer service and have developed and attained internal
customer service standards that meet or exceed those standards established by
the National Cable and Telecommunications Association. In 2003, we invested in
virtual contact technology across our call centers and raised our level of
customer service and improved the productivity of our call center personnel. Community Presence When our company commenced operations in 1996, one of our key objectives
was to bridge the digital divide that had developed between the smaller
cities and towns and the large urban markets in the United States. Over the
past several years we have made significant investments in our cable systems,
and as a result, substantially all of the homes in our markets now have access
to the latest in broadband products and services. We continue our efforts to build good relationships with the communities
we serve by participating in a wide range of local educational and community
service initiatives. Our major company-wide programs include the Mediacom
Cable in the Classroom program which provides more than 2,800 schools with
free cable service and, where available, high-speed Internet access. We also
provide free cable service to government buildings, libraries, and
not-for-profit hospitals in our franchise areas. We also develop and offer
unique local programming in our communities. Corporate Address and Website Our principal executive offices are located at 100 Crystal Run Road,
Middletown, New York 10941 and our telephone number at that address is (845)
695-2600. Our website is located at www.mediacomcc.com.We have made
available free of charge through our website (follow the Corporate Info link to
the Investor Relations tab to Annual Reports/SEC Filings) our annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after such material was electronically filed with, or furnished to, the
Securities and Exchange Commission. The information on our website is not part
of this Annual Report. Products and Services Through our one operating segment, broadband services, we offer our
customers an array of traditional analog video services, also referred to as
our core cable television services. In addition, we offer to a significant
portion of our customer base advanced broadband products and services,
including digital cable television, VOD, HDTV and high-speed Internet access.
We introduced DVRs in March 2004 and plan to launch VoIP telephony service
in certain cable systems during the fourth quarter of 2004. Traditional Analog Video Services We receive the majority of our revenues from subscription services.
Subscribers typically pay us on a monthly basis and generally may discontinue
services at any time. Monthly subscription rates and related charges vary
according to the type of service selected and the type of equipment used by
subscribers. We design both our basic channel line-up and our additional channel
offerings for each system according to demographics, programming preferences,
channel capacity, competition, price sensitivity and local regulation. Our
core cable television service offerings are presented in an analog format and
include the following in most of our cable systems: 5




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Limited Basic Service.Our limited basic service includes, for a monthly
fee, local broadcast channels, network and independent stations, limited
satellite-delivered programming, and local public, government, home-shopping
and leased access channels. Expanded Basic Service. Our expanded basic service includes, for an
additional monthly fee, various satellite-delivered channels such as CNN, MTV,
USA Network, ESPN, Lifetime, Nickelodeon and TNT. Premium Service.Our premium services are satellite-delivered channels
consisting principally of feature films, original programming, live sports
events, concerts and other special entertainment features, usually presented
without commercial interruption. These services include HBO, Cinemax,
Showtime, The Movie Channel and Starz/Encore. Such premium programming
services are offered by our systems both on a per-channel basis and as part of
premium service packages designed to enhance customer value. Pay-Per-View Service.Our pay-per-view services allow customers to pay to
view a single showing of a feature film, live sporting event, concert and other
special event, on an unedited, commercial-free basis. Such pay-per-view
services are offered by us on a per-viewing basis, with subscribers only paying
for programs which they select for viewing. Digital Services Digital Cable.Digital video technology has significantly enhanced and
expanded the video and other service offerings we provide to our customers.
This technology has enabled us to improve picture quality and reliability, and
to greatly increase our channel offerings through the use of compression, which
converts one analog channel into eight to 12 digital channels. Customers who subscribe to our digital cable offerings receive up to 230
digital channels in many of our cable systems. We currently offer several
digital cable programming packages that include digital basic channels,
multichannel premium services, pay-per-view movie and sports channels, channels
of digital music, and an interactive on-screen program guide. Subscribers typically pay us on a monthly basis for digital cable service
and generally may discontinue services at any time. A digital converter is
required to receive our digital cable service. Monthly rates vary generally
according to the level of service and the number of digital converters selected
by the subscriber. As of December 31, 2003, our digital cable service was
available to approximately 99% of our basic subscribers and we served 383,000
digital customers. We have also introduced the following new digital video services to
bolster our competitive position and generate additional video revenues. Video-On-Demand.Video-on-demand is an interactive television service
that provides access to movies, special events or general interest titles on
demand with the ability to pause, rewind and fast forward selected programming.
Customers can watch their selected feature repeatedly during the viewing
window, which typically runs up to 24 hours, or stop the selection before it is
completed and return to it at a later time during the viewing window. Fees are
typically charged on a per-selection basis, although certain on-demand
programming services are available free of charge (such as Mag Rack), or for a
flat monthly fee (such as premium services), also known as subscription-based
video-on-demand. We currently offer VOD service to approximately 50% of our
digital customers. During 2004, we plan to make VOD service available in
additional cable systems representing another 15% of our digital customers and
increase the amount of content available to our customers via this service. High-Definition Television.High-definition television signals have twice
the color resolution and six times the picture sharpness of standard television
signals. A television set capable of receiving and displaying high-definition
signals is required to utilize this service. Our HDTV service requires the use
of an advanced digital converter for which we charge an additional monthly fee.
This service typically includes high-definition signals for certain premium
programming networks and local broadcast stations. We currently offer HDTV
service in markets serving approximately 70% of our digital customers. During
2004, we plan to make HDTV service available in additional cable systems
representing another 12% of our digital customers and to increase the amount of
HDTV content available to our customers. 6




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Digital Video Recorders.A digital video recorder, or DVR, has the ability
to store programs on a hard disk drive contained in an advanced digital
converter. DVRs provide consumers with the ability to view recorded
programming at will, and to pause and rewind live broadcasts. We began
deploying digital video recorders in certain of our cable systems in March 2004
and plan to expand to additional markets during the balance of the year. High-Speed Internet Access Our broadband cable network enables our high-speed Internet customers,
also referred to as cable modem customers, to transmit data up to 100 times
faster than traditional telephone modem technologies. Our cable modem
customers can receive and transmit large files over the Internet in a fraction
of the time required when using the traditional telephone modem. Our
high-speed Internet access service also allows much quicker response times when
surfing the Internet, providing a richer experience for the customer that
capitalizes on the significant capacity of our broadband cable network. In
addition, cable modem service eliminates the need to use a telephone line to
access the Internet. It is also always activated, and as a result, the
customer does not need to dial into an Internet service provider and await
authorization. Monthly subscription rates and related charges vary according
to whether the customer leases or owns the cable modem and whether the customer
subscribes to our video services. As of December 31, 2003, our cable modem
service was marketed to about 96% of our homes passed, and we served
approximately 280,000 data customers. Commercial Data Services During 2003, we began providing commercial high-speed Internet access
services to small and medium-sized businesses. This commercial cable modem
service allows businesses with multiple users to select from various service
options to suit their needs. We are currently rolling out on a broader scale advanced customized data
services to large commercial customers. We have the flexibility to provide
enterprise network services to these customers because as part of our network
upgrade and headend consolidation programs we deployed over 8,000 route miles
of fiber optic cable and created large high-capacity regional networks with
excess capacity. These services include virtual private networks, wide area
networks and point-to-point data communication. Telecommunications Services We are in active development of a VoIP platform, from which we plan to
launch voice services in certain of our cable systems in the fourth quarter of
2004. VoIP technology converts voice signals into data packets that are
transmitted over the Internet and then reconverted into voice signals at the
destination. VoIP technology is an alternative to traditional phone networks
that use dedicated circuits for each call. We believe the ability to offer
customers a bundle of video, voice and data services from a single provider
using its own network will be unique in nearly all of our markets. Advertising We generate revenues from the sale of local advertising on
satellite-delivered channels such as CNN, MTV, USA Network, ESPN, Lifetime,
Nickelodeon and TNT. We have an advertising sales infrastructure that includes
in-house production facilities, production and administrative employees and a
locally based sales workforce. We are extending our advertising infrastructure
to our cable systems that have third-party advertising agreements that are
expiring. In addition, the increasing concentration of customers served by our
headend facilities as a result of our headend consolidation program has also
positioned us to increase our advertising sales. 7




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Description of Our Cable Systems Overview The following table provides an overview of selected operating and cable
network data for our cable systems for the years ended: 2003
    
    2002
    
    2001
    
    2000
    
    1999Operating Data:Core VideoHomes passed(1)
    
    
    2,755,000
    
    
    
    2,715,000
    
    
    
    2,630,000
    
    
    
    1,173,000
    
    
    
    1,071,500Basic subscribers(2)
    
    
    1,543,000
    
    
    
    1,592,000
    
    
    
    1,595,000
    
    
    
    779,000
    
    
    
    719,000Basic penetration(3)
    
    
    56.0
    %
    
    
    58.6
    %
    
    
    60.6
    %
    
    
    66.4
    %
    
    
    67.1
    %Digital CableDigital-ready basic subscribers(4)
    
    
    1,523,000
    
    
    
    1,540,000
    
    
    
    1,400,000
    
    
    
    400,000
    
    
    
    168,000Digital customers(5)
    
    
    383,000
    
    
    
    371,000
    
    
    
    321,000
    
    
    
    40,000
    
    
    
    5,300Digital penetration(6)
    
    
    25.1
    %
    
    
    24.1
    %
    
    
    22.9
    %
    
    
    10.0
    %
    
    
    3.2
    %DataData-ready homes passed(7)
    
    
    2,665,000
    
    
    
    2,460,000
    
    
    
    1,780,000
    
    
    
    550,000
    
    
    
    120,000Data-ready homes marketed(8)
    
    
    2,655,000
    
    
    
    2,320,000
    
    
    
    1,420,000
    
    
    
    486,000
    
    
    
    105,500Data customers(9)
    
    
    280,000
    
    
    
    191,000
    
    
    
    115,000
    
    
    
    15,600
    
    
    
    5,100Data penetration(10)
    
    
    10.5
    %
    
    
    8.2
    %
    
    
    8.1
    %
    
    
    3.2
    %
    
    
    4.8
    %Revenue Generating Units(11)
    
    
    2,206,000
    
    
    
    2,154,000
    
    
    
    2,031,000
    
    
    
    834,600
    
    
    
    729,400Customer Relationships(12)
    
    
    1,570,000
    
    
    
    1,611,000
    
    
    
    1,607,000
    
    
    
    N/A
    
    
    
    N/ACable Network Data:Miles of plant
    
    
    45,900
    
    
    
    45,000
    
    
    
    44,100
    
    
    
    24,500
    
    
    
    22,444Density(13)
    
    
    60
    
    
    
    60
    
    
    
    60
    
    
    
    48
    
    
    
    48Percentage of cable network at 50MHz to 870MHz
    
    
    98
    %
    
    
    96
    %
    
    
    75
    %
    
    
    74
    %
    
    
    57
    %
   (1)
    
    Represents the estimated number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
systems service area.(2)
    
    Represents a dwelling with one or more television sets that receives a
package of over-the-air broadcast stations, local access channels or
certain satellite-delivered cable television services. Accounts that are
billed on a bulk basis, which typically receive discounted rates, are
converted into full-price equivalent basic subscribers by dividing total
bulk billed basic revenues of a particular system by the most prevalent
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
service, 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.(3)
    
    Represents basic subscribers as a percentage of homes passed.(4)
    
    A subscriber is digital-ready if the subscriber is in a cable system
where digital cable services are available.(5)
    
    Represents customers that receive digital cable services.(6)
    
    Represents digital customers as a percentage of digital-ready basic
subscribers.(7)
    
    A home passed is data-ready if it is in a cable system with two-way
communications capability.(8)
    
    Represents data-ready homes passed where cable modem service is
available.(9)
    
    Represents residential data customers and small to medium-sized
commercial accounts billed at higher rates than residential customers.
Small to medium-sized commercial accounts generally represent customers
with bandwidth requirements less than 5MHz. 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 commercial 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)
    
    Represents the number of total data customers as a percentage of
data-ready homes marketed.(11)
    
    Represents the sum of basic subscribers, digital customers and data
customers. 8




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(12)
    
    Represents the total number of customers that receive at least one level
of service, encompassing video and data services, without regard to which
service(s) customers purchase. This information is not available for
periods prior to 2001.(13)
    
    Represents homes passed divided by miles of plant. Selected Operating Data Our systems are organized into three geographic operating divisions. The
following table sets forth the principal states served by such divisions, and
their respective basic subscribers, digital customers and data customers as of
December 31, 2003: Basic
    
    Digital
    
    DataDivision
    
    States
    
    Subscribers
    
    Customers
    
    CustomersMidwest
    
    Illinois, Indiana, Iowa,
Kentucky, Missouri
    
    
    538,000
    
    
    
    121,000
    
    
    
    97,000North Central
    
    Iowa, Minnesota, South Dakota
    
    
    565,000
    
    
    
    134,000
    
    
    
    114,000Southern
    
    Alabama, California,
Delaware, Florida, Georgia,
North Carolina
    
    
    440,000
    
    
    
    128,000
    
    
    
    69,000Total
    
    
    1,543,000
    
    
    
    383,000
    
    
    
    280,000
 Approximately 60% of our subscribers are in the top 100 designated market
areas, or DMAs, in the United States. We are the leading provider of
broadband services in Iowa, and control the three largest Iowa markets that are
in the top 50 to 100 DMAs: Des Moines  Ames (70th DMA); Davenport, IA  Rock
Island  Moline, IL (88th DMA); and Cedar Rapids  Waterloo & Dubuque (90th
DMA). We also serve customers in top 100 DMA markets that include: Los
Angeles, CA (2nd DMA); Chicago, IL (3rd DMA); Minneapolis  St. Paul, MN (14th
DMA); Greenville  Spartanburg, SC (35th DMA); Mobile, AL  Pensacola, FL (62nd
DMA); Paducah, KY  Cape Girardeau, MO  Harrisburg  Mt. Vernon, IL (74th
DMA); Springfield, MO (79th DMA); and Champaign & Springfield  Decatur, IL
(83rd DMA). Technology Overview We believe in investing in advanced technology to improve our competitive
position. Since our inception we have made significant investments in our
cable network upgrade program to allow us to introduce new and enhanced
products and services to our customers. We completed our planned upgrade
program during 2003. As a result, we have transformed legacy cable plant into
a state-of-the-art broadband network. The primary features of our upgraded
broadband network are:  
    
    hybrid fiber-optic coaxial architecture;
    
    98% of bandwidth capacity is 550MHz to 870MHz;
    
    97% of homes passed have two-way communications capability;
    
    the 50 largest headend facilities serve 95% of our basic subscribers; and
    
    the ability to provide advanced broadband services across virtually our entire footprint. A central feature of our cable network is the deployment of high capacity,
hybrid fiber-optic coaxial architecture. The hybrid fiber-optic coaxial
architecture combines the use of fiber optic cable, which can carry hundreds of
video, data and voice channels over extended distances, with coaxial cable,
which requires more extensive signal amplification in order to obtain the
desired levels for delivering channels. 9




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Our upgraded network design connects fiber optic cable to individual nodes
serving an average of 350 homes or commercial buildings. A node is a single
connection to a cable systems main, high-capacity fiber optic cable that is
shared by a number of customers. Coaxial cable is then connected from each
node to the individual homes or buildings. Our network design generally
provides for six strands of fiber to each node, with two strands active and
four strands reserved for future services. Our design also allows for the use
of advanced technology such as node-splitting, digital compression and
multi-plexing to increase capacity. The use of fiber optic technology in our cable network improves picture
quality and network reliability. It also gives our systems the flexibility to
run multiple separate channel line-ups from a single headend and transmit
advertisements to specific local communities. The following table describes the technological state of our cable network
as of December 31, 2001, 2002, 2003, and displays the progress we made during
these periods with our network upgrade program: Percentage of Cable NetworkLess than
    
    Standard
    
    Enhanced
    
    Greater Than
    
    Two-Way550MHz
    
    550MHz
    
    550MHz
    
    550MHz
    
    CapableDecember 31, 2001
    
    
    25
    %
    
    
    25
    %
    
    
    
    
    
    
    50
    %
    
    
    68
    %December 31, 2002
    
    
    4
    %
    
    
    23
    %
    
    
    
    
    
    
    73
    %
    
    
    91
    %December 31, 2003
    
    
    2
    %
    
    
    7
    %
    
    
    12
    %
    
    
    79
    %
    
    
    97
    %
 As of December 31, 2003, our 550MHz systems consisted of standard 550MHz
and enhanced 550MHz systems. We have used fiber-to-the-node construction to
increase the capacity of our enhanced 550MHz cable systems, enabling them to
deliver the same broadband video, data and voice services as our systems with
bandwidths greater than 550MHz. As a result, we have the ability to provide
digital cable television, VOD, HDTV, high-speed Internet access and other
telecommunications services across virtually our entire footprint. Two-way communications capability permits our customers to send and
receive signals over the cable network so that interactive services, such as
VOD, are accessible and high-speed Internet access does not require a separate
telephone line. Our two-way communications capability, together with hybrid
fiber-optic coaxial architecture, enhances our cable networks ability to
provide advanced telecommunications services, such as the VoIP telephony
service. As of December 31, 2003, our cable systems were operated from 145 headend
facilities. Fiber optics and advanced transmission technologies made it cost
effective to consolidate our headend facilities, allowing us to realize
operating efficiencies and resulting in lower fixed capital costs on a per home
basis as we introduce new products and services. Approximately 95% of our
customers are now served by our 50 largest headend facilities. As part of our headend consolidation program, we deployed over 8,000 route
miles of fiber optic cable, creating large regional fiber optic networks with
the potential to provide advanced telecommunications services. These regional
networks have excess fiber optic capacity to accommodate new and expanded
products and services, such as our commercial data business. With our upgrade from the traditional coaxial network design to hybrid
fiber-optic coaxial architecture, our broadband network now provides higher
capacity, superior signal quality, greater network reliability, reduced
operating costs and more reserve capacity for the addition of future services.
We also believe that the combination of reserve fiber strands and continued
advancements in bandwidth management techniques such as compression and
multi-plexing technology will preclude the need for additional widespread cable
network upgrades in the foreseeable future. Programming Supply Except as noted below, we have various contracts to obtain basic and
premium programming for our cable systems from program suppliers whose
compensation is typically based on a fixed monthly fee per customer. Our
programming contracts are generally for a stated period of time. 10




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We are a member of the National Cable Television Cooperative, Inc., a
programming cooperative primarily consisting of small to medium-sized multiple
system operators serving, in the aggregate, over 14 million cable subscribers.
The cooperative may help create efficiencies in the areas of obtaining and
administering programming contracts, as well as securing, in some cases, more
favorable programming rates and contract terms for small to medium-sized cable
operators. We negotiate programming contract renewals both directly and
through the cooperative. From time to time, the contracts covering the
programming services carried on our cable systems expire, and we generally
provide such services to our customers without written contracts with the
respective program suppliers as we negotiate contract renewals. Our programming costs are expected to rise in the future due to increased
costs to purchase programming, particularly sports programming, additional
programming being provided to our customers, and other factors affecting the
cable television industry. Although we are legally able to pass through
expected increases in our programming costs to customers, there can be no
assurance that competitive conditions or other factors in the marketplace will
allow us to do so. We also have various retransmission consent arrangements with commercial
broadcast stations, which generally expire in December 2005. In some cases,
retransmission consents have been contingent upon our carriage of satellite
delivered cable programming offered by companies affiliated with the stations
owners or the broadcast network carried by such stations. Customer Service System reliability and customer satisfaction represent a cornerstone of
our business strategy. We expect that investments in our cable network and our
regional contact centers significantly strengthen customer service, enhance the
reliability of our cable network and allow us to introduce new services to our
customers. We maintain regional contact centers staffed with dedicated
customer service representatives, or CSRs, who are available to respond to
customer calls 24 hours a day, seven days a week, on a toll-free basis. We
believe our regional contact centers allow us to effectively coordinate
installation appointments and reduce response times to customer inquiries. During 2003, we implemented virtual contact center technology which
provides customers with extensive self-service capabilities, such as making a
payment and verifying service appointments, and enables us to re-route customer
calls among our regional contact centers to minimize hold times. Our virtual
contact centers also give our CSRs instant access to the calling customers
file and our products and services in the customers market. We believe our
virtual contact centers will help us ensure the most efficient utilization of
our CSRs and the most effective customer interactions. Reinforcing our
commitment to customer service, we have developed and attained customer service
standards that meet or exceed those standards established by the National Cable
and Telecommunications Association. We continue to invest in both personnel and equipment and technology to
improve our customer care. Our newest initiatives include e-Care, a web-based
customer service platform, and field workforce management programs designed to
increase the productivity and sales performance of our technical field
employees. Community Relations We are dedicated to fostering strong community relations in the
communities served by our cable systems. We support local charities and
community causes in various ways, including staged events and promotional
campaigns to raise funds and supplies for persons in need and in-kind donations
that include production services and free airtime on cable networks. We
participate in the Cable in the Classroom program, which provides more than
2,800 schools with free cable service and, where available, high-speed Internet
service. We also provide free cable television service to government
buildings, libraries and not-for-profit hospitals in our franchise areas. We also develop and offer local programming to our communities, a
capability not available to direct broadcast satellite service providers, our
primary competition in our video business. Several of our systems have
production facilities to create local content. These locally produced programs
include local school sports events, fund-raising telethons by local chapters of
national charitable organizations, local concerts and other entertainment. We
also have the exclusive right to carry many of these events. For instance, in
Iowa, we are the exclusive broadcaster of city ouncil meetings, the Little League Championships in Des Moines and the Iowa
High School State Football Championships. We believe increasing our emphasis
on local programming builds customer loyalty. 11




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Franchises Cable systems are generally operated under non-exclusive franchises
granted by local governmental authorities. These franchises typically contain
many conditions, such as: time limitations on commencement and completion of
construction; conditions of service, including number of channels, types of
programming and the provision of free service to schools and other public
institutions; and the maintenance or posting of insurance or indemnity bonds by
the cable operator. Many of the provisions of local franchises are subject to
federal regulation under the Communications Act of 1934, or Communications Act,
as amended. As of December 31, 2003, we held 1,484 cable television franchises. These
franchises provide for the payment of fees to the issuing authority. In most
of the cable systems, such franchise fees are passed through directly to the
customers. The Cable Communications Policy Act of 1984, or 1984 Cable Act,
prohibits franchising authorities from imposing franchise fees in excess of 5%
of gross revenues from specified cable services and also permits the cable
operator to seek renegotiation and modification of franchise requirements if
warranted by changed circumstances. Substantially all of the basic subscribers of our cable systems are in
service areas that require a franchise. The table below groups the franchises
of our cable systems by year of expiration and presents the approximate number
and percentage of basic subscribers for each group as of December 31, 2003. Percentage of
    
    Number of
    
    Percentage ofNumber of
    
    Total
    
    Basic
    
    Total BasicYear of Franchise Expiration
    
    Franchises
    
    Franchises
    
    Subscribers
    
    Subscribers2004 through 2007
    
    
    561
    
    
    
    37.8
    %
    
    
    588,800
    
    
    
    38.2
    %2008 and thereafter
    
    
    923
    
    
    
    62.2
    
    
    
    954,200
    
    
    
    61.8Total
    
    
    1,484
    
    
    
    100.0
    %
    
    
    1,543,000
    
    
    
    100.0
    %
 We have never had a franchise revoked or failed to have a franchise
renewed. In addition, substantially all of our franchises eligible for renewal
have been renewed or extended prior to their stated expirations, and no
franchise community has refused to consent to a franchise transfer to us. The
1984 Cable Act provides, among other things, for an orderly franchise renewal
process in which franchise renewal will not be unreasonably withheld or, if
renewal is denied and the franchising authority acquires ownership of the cable
system or effects a transfer of the cable system to another person, the cable
operator generally is entitled to the fair market value for the cable system
covered by such franchise. In addition, the 1984 Cable Act established
comprehensive renewal procedures, which require that an incumbent franchisees
renewal application be assessed on its own merits and not as part of a
comparative process with competing applications. We believe that we have
satisfactory relationships with our franchising communities. Competition We, like most operators of cable systems, compete on the basis of several
factors, including price and the quality and variety of products and services
offered. We face competition from various communications and entertainment
providers, the number and type of which we expect will increase as we expand
the products and services offered over our broadband network. In recent years,
Congress has passed legislation and the Federal Communications Commission, or
FCC, has adopted policies authorizing new technologies and a more favorable
operating environment for certain existing technologies that provide, or may
provide, substantial additional competition for cable systems. The extent to
which a cable system operator is competitive depends in significant part upon
the operators ability to provide a greater variety of programming, superior
technical performance, the variety of services offered, including digital
cable, VOD, HDTV and DVRs, and superior customer service than are available
with over-the-air broadcasting or other competitive alternative delivery
sources. We believe our ability to package multiple services in a bundle, such
as combining our video products and services with our high speed internet
access services, is a unique advantage in our competitive business environment. 12




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Providers of Broadcast Television and Other Entertainment The extent to which a cable system competes with over-the-air
broadcasting, which provides signals that a viewer is able to receive directly,
depends upon the quality and quantity of the broadcast signals available by
direct antenna reception compared to the quality and quantity of such signals
and alternative services offered by a cable system. As local over-the-air
broadcasters continue their federally-mandated transition to digital-only
signal formats, the extent to which those local broadcasters offer digital
feeds of their analog programming, additional programming on other digital
channels and/or HDTV signals may increase competition for customers with
digital or HDTV receivers where such signals are not carried on the cable
system. Cable systems also face competition from other sources of
entertainment such as live sporting events, movie theaters and home video
products, including videotape recorders and videodisc players. Direct Broadcast Satellite Providers Direct broadcast satellite service, or DBS service, is the cable
industrys most significant competitor. DBS customers have grown rapidly over
the past several years, far exceeding the basic subscriber growth rate of the
cable industry. According to recent industry reports, DBS service providers
currently deliver video programming services to over 14 million individual
households, condominiums, apartments and office complexes in the United States.
The two largest DBS companies, DIRECTV, Inc. and EchoStar Communications
Corporation, provide service to substantially all of these DBS customers and
are each among the four largest providers of multichannel video programming
services based on reported customers. The News Corporation Limited, or News
Corporation, recently acquired a significant interest in DIRECTV. Affiliation
with News Corporation could strengthen DIRECTVs competitive positioning, as
News Corporation also owns Fox Television Network and several cable programming
services. A recently launched direct broadcast service, VOOM, has begun
offering primarily HDTV services on a national basis. DBS service can be received virtually anywhere in the continental United
States through the installation of a small rooftop or side-mounted antenna. DBS
service providers use video compression technology to increase channel capacity
and digital technology to improve the quality of the signals transmitted to
their customers, and typically offer more than 300 channels of programming,
including local television broadcast stations and other programming services
substantially similar to those provided by our cable systems. A change in legislation in 1999 allowed DBS service providers to deliver
local broadcast signals, eliminating a significant competitive advantage which
we and other cable system operators had over DBS service providers. As of
December 31, 2003, DBS service providers delivered local broadcast stations in
markets representing an estimated 62% of our basic subscribers. Based on
announced new markets, this figure could increase to an estimated 83% of our
basic subscribers. However, unlike our locally-based cable systems, DBS
service providers have limited ability to offer locally-produced programming in
each community where service is offered and do not have a meaningful local
presence in those communities. In addition, for the foreseeable future, there
may be technological and other limitations as to the capability of DBS service
providers to deliver most local broadcast signals in all markets, particularly
as these signals are delivered in the HDTV format. Overall we believe our
video products and services, including digital television, and our March 2004
launch of DVRs, and our unique ability to offer VOD, or greater quantities of
HDTV programming and locally produced content make us competitive with the
video products and services delivered by DBS service providers. DBS service providers also are currently offering two alternatives of
satellite-delivered high-speed Internet access service. One alternative is a
one-way service that utilizes a telephone return path, in contrast to our
two-way, high-speed service, which does not require a telephone line. The other
alternative is a two-way, high-speed service, which requires additional
equipment purchases by the customer and is offered at higher prices than our
own equivalent service. DBS service providers and certain phone companies are now jointly offering
bundled services that include video, voice and high-speed Internet access. We
believe our comparable bundled services are competitive with those offered by
the DBS and phone company alliances, particularly as we roll out our planned
voice telephony services over our cable systems. 13




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Multichannel Multipoint Distribution Multichannel
multipoint distribution systems, also known as MMDS, or
wireless cable systems, deliver programming services over microwave channels
licensed by the FCC and received by subscribers with special antennas. These
wireless cable systems are less capital intensive and subject to fewer
regulatory requirements than cable systems, and are not required to obtain
local franchises or pay franchise fees. Although relatively few wireless cable
systems in the United States are currently in operation or under construction,
virtually all markets have been licensed or tentatively licensed. The use of
digital compression technology, and the FCCs recent amendment to its rules to
permit reverse path or two-way transmission over wireless facilities, enable
multichannel multipoint distribution systems to deliver more channels and
additional services, including Internet related services. Digital compression
technology refers to the conversion of the standard video signal into a digital
signal and the compression of that signal to facilitate multiple channel
transmissions through a single channels signal. Generally, wireless cable
operators are now concentrated on data transmission services rather than
video-service. We have very limited competition from MMDS operators. Private Cable Television Systems Private cable television systems known as satellite master antenna
television, or SMATV systems, compete with conventional cable television systems
for the right to service condominiums, apartment complexes and other multiple
dwelling unit facilities. SMATV systems typically use a single satellite dish
for an entire building or complex to provide improved reception of local
television stations and many of the same satellite-delivered programming
services offered by franchised cable systems. SMATV systems typically are not
subject to regulation like local franchised cable operators. Under the Telecommunications Act of 1996, or 1996 Telecom Act, SMATV
systems can interconnect non-commonly owned buildings without having to comply
with local, state and federal regulatory requirements that are imposed upon
cable systems providing similar services, as long as they do not use public
rights of way. The FCC has held that the latter provision is not violated so
long as interconnection across public rights of way is provided by a third
party. SMATV system operators often enter into exclusive agreements with
apartment building owners or homeowners associations that preclude franchised
cable television operators from serving residents of such private complexes.
However, the 1984 Cable Act gives franchised cable operators the right to use
existing compatible easements within their franchise areas on nondiscriminatory
terms and conditions. Accordingly, where there are preexisting dedicated
compatible easements, cable operators may not be unfairly denied access or
discriminated against with respect to access to the premises served by those
easements. Conflicting judicial decisions have been issued interpreting the
scope of the access right granted by the 1984 Cable Act, with respect to
easements located entirely on private property. Traditional Overbuilds Cable television systems are operated under non-exclusive franchises
granted by local authorities. More than one cable system may legally be built
in the same area by another cable operator, a municipal-owned utility or
another service provider. Some of these competitors may be granted franchises
on more favorable terms or conditions or enjoy other advantages such as
exemptions from taxes or regulatory requirements to which we are subject. Well
financed businesses from outside the cable industry, such as public utilities
which already possess or are developing fiber optic and other transmission
facilities in the areas they serve, may over time become competitors. We
believe that various entities are currently offering cable service to an
estimated 9.2% of the homes passed in the service areas of our franchises. Internet Access We offer high-speed Internet access, or cable modem service, in many of
our cable systems. Our cable modem service competes with the high-speed
Internet access services offered by existing Internet service providers,
commonly known as ISPs, DBS service providers, and local and long distance
telephone companies. Many of these competitors have substantial resources. 14




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Digital subscriber line technology, known as DSL, provides Internet access
to subscribers at data transmission speeds equal to or greater than that of standard telephone line modems, putting
DSL service in direct competition with cable modem service. Numerous companies,
including telephone companies, have introduced DSL services. DBS service
providers currently offer satellite-delivered high-speed Internet access with a
telephone return path through a one-way service or a two-way interactive
high-speed service. Certain telecommunications companies are seeking to provide high-speed
broadband services, including interactive online services, using wireless
technologies that may transcend present service boundaries and avoid certain
regulatory restrictions. Moreover, some electric utilities have announced plans
to deliver broadband services over their electrical distribution networks. The
FCC has an on-going rulemaking which, to date, appears limited to basic
regulations to avoid technical interference with existing services. If
electric utilities provide broadband services over their existing electrical
distribution networks, depending upon the variety, quality and pricing of such
services, it could have a detrimental impact on us. A number of ISPs have asked local authorities and the FCC to give them
rights of access to cable systems broadband infrastructure so that they can
deliver their services directly to cable systems customers. This kind of
access is often called open access. Many local franchising authorities have
examined the issue of open access and a few have required cable operators to
provide such access. Several Federal courts have ruled that localities are not
authorized to require open access. The FCC has classified cable modem service
as an information service, not as a telecommunications service. As an
information service, the FCC has held that cable systems are not required to
open their networks for use by others to provide ISP services. The 9th Circuit
Court of Appeals has issued a contrary decision that finds cable modem services
to include both telecommunications service and information service
components. If the 9th Circuits decision (which is on appeal) prevails, it
could result in an open access requirement. If we were required to provide
open access to ISPs as a result of FCC action or court decisions, other
companies could use our cable system infrastructure to offer Internet services
competitive with our own. Telephony We plan to offer VoIP telephony service to our subscribers in certain
markets beginning in the fourth quarter of 2004 and expanding to additional
markets in subsequent years. Our planned telephony service will provide both
local and long distance calling. As such, it will directly compete with the
incumbent local phone company and long-distance service providers. Other
competitors include competitive local exchange carriers, which are
non-incumbent local phone companies that provide local services and access to
long distance services over their own networks or over leased networks, and
wireless telephone carriers. Other companies offering VoIP telephony will also
compete with our telephony service. We believe the addition of VoIP service
will help us compete with bundled service providers of voice, video and data,
including telephone/DBS bundled marketing arrangements. Other Competition Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. The FCC has authorized a new interactive television service which
permits non-video transmission of information between an individuals home and
entertainment and information service providers. This service, which can be
used by direct broadcast satellite systems, television stations and other video
programming distributors, including cable television systems, is an alternative
technology for the delivery of interactive video services. It does not appear
at the present time that this service will have a material impact on the
operations of cable television systems. The FCC has allocated spectrum in the 28GHz range for a new multichannel
wireless service that can be used to provide video and telecommunications
services. The FCC completed the process of awarding licenses to use this
spectrum via a market-by-market auction. We do not know whether such a service
would have a material impact on the operations of cable television systems. The 1996 Telecom Act eliminated many restrictions on the ability of local
telephone companies to offer video programming. Our markets are served by a
number of local telephone companies that may become competitors to our video
service if they decide to offer video services to homes. Local telephone
companies have a number of different ways to enter the video programming
business, some of which do not require obtaining a local franchise. Local
telephone companies and other potential competitors have the ability to certify
their competing video service as an open video system. Open video system
operators are not subject to certain requirements imposed by the Cable Act upon
more traditional cable operators. 15




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The 1996 Telecom Act directed the FCC to establish, and the FCC has
adopted, regulations and policies for the issuance of licenses for digital
television to incumbent television broadcast licensees. Digital television can
deliver high-definition television pictures and multiple digital-quality
program streams, as well as CD-quality audio programming and advanced digital
services, such as data transfer or subscription video. The FCC also has
authorized television broadcast stations to transmit text and graphic
information that may be useful to both consumers and businesses. The FCC also
permits commercial and non-commercial FM stations to use their subcarrier
frequencies to provide non-broadcast services, including data transmission. Employees As of December 31, 2003, we employed 3,754 full-time employees and 145
part-time employees. None of our employees were represented by a labor union.
We consider our relations with our employees to be satisfactory. 16




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Legislation and Regulation General Federal, state and local laws regulate the development and operation of
cable communications systems. In the following paragraphs, we summarize the
federal laws and regulations materially affecting the growth and operation of
the cable industry. We also provide a brief description of certain state and
local laws. Currently few laws or regulations apply to Internet services.
Existing federal, state and local laws and regulations and state and local
franchise requirements are currently the subject of judicial proceedings,
legislative hearings and administrative proceedings that could change, in
varying degrees, the manner in which cable systems operate. Neither the
outcome of these proceedings nor their impact upon the cable industry or our
business or operations can be predicted at this time. Federal Regulation The principal federal statutes governing the cable industry, the
Communications Act of 1934, as amended by the Cable Communications Policy Act
of 1984, the Cable Television Consumer Protection and Competition Act of 1992
and the Telecommunications Act of 1996, collectively the Cable Act, establish
the federal regulatory framework for the industry. The Cable Act allocates
principal responsibility for enforcing the federal policies among the Federal
Communications Commission, or FCC and state and local governmental authorities. The Cable Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:  
    
    subscriber rates;
    
    the content of the programming we offer to subscribers, as well as
the way we sell our program packages to subscribers;
    
    the use of our cable systems by the local franchising authorities,
the public and other unrelated companies;
    
    our franchise agreements with local governmental authorities;
    
    cable system ownership limitations and prohibitions; and
    
    our use of utility poles and conduit. The FCC and some state regulatory agencies regularly conduct
administrative proceedings to adopt or amend regulations implementing the
statutory mandate of the Cable Act. At various times, interested parties to
these administrative proceedings challenge the new or amended regulations and
policies in the courts with varying levels of success. Further court actions
and regulatory proceedings may occur that might affect the rights and
obligations of various parties under the Cable Act. The results of these
judicial and administrative proceedings may materially affect the cable
industry and our business and operations. Subscriber Rates The Cable Act and the FCCs regulations and policies limit the ability of
cable systems to raise rates for basic services and customer equipment. No
other rates are subject to regulation. Federal law exempts cable systems from
all rate regulation in communities that are subject to effective competition,
as defined by federal law and where affirmatively declared by the FCC. Where there is no effective competition to the cable operators services,
federal law gives local franchising authorities the responsibility to regulate
the rates charged by the operator for:  
    
    the lowest level of programming service offered by cable operator,
typically called basic service, which 17




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includes, at a minimum, the local broadcast channels and any public
access or governmental channels that are required by the operators
franchise;
    
    the installation of cable service and related service calls; and
    
    the installation, sale and lease of equipment used by subscribers
to receive basic service, such as converter boxes and remote control
units. Local franchising authorities who wish to regulate basic service rates and
related equipment rates must first obtain FCC certification to regulate by
following a simplified FCC certification process and agreeing to follow
established FCC rules and policies when regulating the cable operators rates. Several years ago, the FCC adopted detailed rate regulations, guidelines
and rate forms that a cable operator and the local franchising authority must
use in connection with the regulation of basic service and equipment rates.
The FCC adopted a benchmark methodology as the principal method of regulating
rates. However, if this methodology produces unacceptable rates, the operator
may also justify rates using a detailed cost-of-service methodology. The Cable
Act and FCC rules also allow franchising authorities to regulate equipment
rates on the basis of actual cost plus a reasonable profit, as defined by the
FCC. If the local franchising authority concludes that a cable operators rates
are too high under the FCCs rate rules, the local franchising authority may
require the cable operator to reduce rates and to refund overcharges to
subscribers, with interest. The cable operator may appeal adverse local rate
decisions to the FCC. The FCCs regulations allow a cable operator to modify regulated rates on
a quarterly or annual basis to account for changes in:  
    
    the number of regulated channels;
    
    inflation; and
    
    certain external costs, such as franchise and other governmental
fees, copyright and retransmission consent fees, taxes, programming
fees and franchise-imposed obligations. The Cable Act and/or the FCCs regulations also:  
    
    require cable operators to charge uniform rates throughout each
franchise area that is not subject to effective competition;
    
    prohibit regulation of non-predatory bulk discount rates offered by
cable operators to subscribers in multiple dwelling units; and
    
    permit regulated equipment rates to be computed by aggregating
costs of broad categories of equipment at the franchise, system,
regional or company level. Content Requirements Must Carry and Retransmission Consent The FCCs regulations contain broadcast signal carriage requirements that
allow local commercial television broadcast stations to elect once every three
years whether to require a cable system:  
    
    to carry the station, subject to certain exceptions; or
    
    to negotiate the terms by which the cable system may carry the
station on its cable systems, commonly called retransmission consent. 18




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The Cable Act and the FCCs regulations require a cable operator to devote
up to one-third of its activated channel capacity for the carriage of local
commercial television stations. The Cable Act and the FCCs rules also give
certain local non-commercial, educational television stations mandatory
carriage rights, but not the option to negotiate retransmission consent.
Additionally, cable systems must obtain retransmission consent for carriage of:  
    
    all distant commercial television stations, except for certain
commercial satellite-delivered independent superstations such as WGN;
    
    commercial radio stations; and
    
    certain low-power television stations. Must-carry obligations may decrease the attractiveness of the cable
operators overall programming offerings by including less popular programming
on the channel line-up, while cable operators may need to provide some form of
consideration to broadcasters to obtain retransmission consent to carry more
popular programming. We carry both broadcast stations based on must-carry
obligations and others that have granted retransmission consent. The FCC has issued a decision that effectively requires mandatory carriage
of local television stations that broadcast only digital signals. These
stations are entitled to request carriage in their choice of digital or
converted analog format. Stations transmitting in both digital and analog
formats (Dual Format Broadcast Stations), which is permitted during the
current several-year transition period, have no carriage rights for the digital
format during the transition unless and until they turn in their analog
channel. The FCC has an ongoing proceeding to determine whether cable
operators will be required to carry the digital signal of Dual Format Broadcast
Stations that currently have must-carry rights for their analog signals. The
FCC had tentatively concluded that it will not adopt the dual carriage
requirement during the transition, and had also concluded that a cable operator
need only carry a broadcasters primary video service (rather than all of the
digital multi-cast services) but those conclusions may change as a result of
the FCCs current proceeding. If the dual carriage rule is adopted, or the
FCC concludes that cable operators must carry all of the multi-cast services in
a broadcasters digital feed, this would have a negative impact on us because
it would reduce available channel capacity and thereby could require us to
either discontinue other channels of programming or restrict us from carrying
new channels of programming that are more desired by our customers. Tier Buy Through The Cable Act and the FCCs regulations require our cable systems, other
than those systems which are subject to effective competition, to permit
subscribers to purchase video programming we offer on a per channel or a per
program basis without the necessity of subscribing to any tier of service other
than the basic service tier. Program Access To increase competition between cable operators and other video program
distributors, the Cable Act and the FCCs regulations:  
    
    preclude any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly
to its subscribers, from favoring an affiliated company over
competitors;
    
    require such programmers to sell their programming to other
unaffiliated video program distributors; and
    
    limit the ability of such programmers to offer exclusive
programming arrangements to their related parties. Other Programming Federal law actively regulates other aspects of our programming, involving
such areas as:  
    
    our use of syndicated and network programs and local sports broadcast programming;
    
    advertising in childrens programming; 19




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
    
    political advertising;
    
    origination cablecasting;
    
    adult programming;
    
    sponsorship identification; and
    
    closed captioning of video programming. Use of Our Cable Systems by the Government and Unrelated Third Parties The Cable Act allows local franchising authorities and unrelated third
parties to have access to our cable systems channel capacity for their own
use. For example, the Cable Act:  
    
    permits franchising authorities to require cable operators to set
aside channels for public, educational and governmental access
programming; and
    
    requires a cable system with 36 or more activated channels to
designate a significant portion of its channel capacity for commercial
leased access by third parties to provide programming that may compete
with services offered by the cable operator. The FCC regulates various aspects of third party commercial use of channel
capacity on our cable systems, including:  
    
    the maximum reasonable rate a cable operator may charge for third
party commercial use of the designated channel capacity;
    
    the terms and conditions for commercial use of such channels; and
    
    the procedures for the expedited resolution of disputes concerning
rates or commercial use of the designated channel capacity. Franchise Matters We have non-exclusive franchises in virtually every community in which we
operate that authorize us to construct, operate and maintain our cable systems.
Although franchising matters are normally regulated at the local level through
a franchise agreement and/or a local ordinance, the Cable Act provides
oversight and guidelines to govern our relationship with local franchising
authorities. For example, the Cable Act and/or FCC regulations and determinations: Provide guidelines for the exercise of local regulatory authority that:  
    
    affirm the right of franchising authorities, which may be
state or local, depending on the practice in individual states, to
award one or more franchises within their jurisdictions;
    
    generally prohibit us from operating in communities without a
franchise;
    
    permit local authorities, when granting or renewing our
franchises, to establish requirements for cable-related facilities
and equipment, but prohibit franchising authorities from
establishing requirements for specific video programming or
information services other than in broad categories; and
    
    permit us to obtain modification of our franchise
requirements from the franchise authority or by judicial action if
warranted by commercial impracticability. 20




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Generally prohibit franchising authorities from:  
    
    imposing requirements during the initial cable franchising
process or during franchise renewal that require, prohibit or
restrict us from providing telecommunications services,
    
    imposing franchise fees on revenues we derive from providing
telecommunications or information services over our cable systems,
    
    restricting our use of any type of subscriber equipment or transmission
technology, and
    
    requiring payment of franchise fees to the local franchising
authority in excess of 5.0% of our gross revenues derived from
providing cable services over our cable system. Encourage competition with existing cable systems by:  
    
    allowing municipalities to operate their own cable systems without
franchises, and
    
    preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable systems service area. Provide renewal procedures:  
    
    The Cable Act contains renewal procedures designed to protect us
against arbitrary denials of renewal of our franchises although, under
certain circumstances, the franchising authority could deny us a
franchise renewal. Moreover, even if our franchise is renewed, the
franchising authority may seek to impose upon us new and more onerous
requirements, such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal to the extent
permitted by law. Similarly, if a franchising authoritys consent is
required for the purchase or sale of our cable system or franchise, the
franchising authority may attempt to impose more burdensome or onerous
franchise requirements on the purchaser in connection with a request for
such consent. Historically, cable operators providing satisfactory
services to their subscribers and complying with the terms of their
franchises have almost always obtained franchise renewals. We believe
that we have generally met the terms of our franchises and have provided
quality levels of service. We anticipate that our future franchise
renewal prospects generally will be favorable.
    
    Various courts have considered whether franchising authorities have
the legal right to limit the number of franchises awarded within a
community and to impose substantive franchise requirements. These
decisions have been inconsistent and, until the U.S. Supreme Court rules
definitively on the scope of cable operators First Amendment
protections, the legality of the franchising process generally and of
various specific franchise requirements is likely to be in a state of
flux. Ownership Limitations The Cable Act generally prohibits us from owning or operating a satellite
master antenna television system or multichannel multipoint distribution system
in any area where we provide franchised cable service and do not have effective
competition, as defined by federal law. We may, however, acquire and operate a
satellite master antenna television system in our existing franchise service
areas if the programming and other services provided to the satellite master
antenna television system subscribers are offered according to the terms and
conditions of our local franchise agreement. The Cable Act also authorizes the FCC to adopt nationwide limits on the
number of subscribers under the control of a cable operator and to impose
limits on the number of channels which can be occupied on a cable system by a
video programmer in which a cable operator has an interest. The U.S. Court of
Appeals for the District of Columbia Circuit overturned the FCCs rules
implementing these statutory provisions and remanded the case to the FCC for
further proceedings. 21




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The 1996 amendments to the Cable Act eliminated the statutory prohibition
on the common ownership, operation or control of a cable system and a
television broadcast station in the same service area. The identical FCC
regulation has been invalidated by a federal appellate court. The FCC has
eliminated its regulatory restriction on cross-ownership of cable systems and
national broadcasting networks. The 1996 amendments to the Cable Act also made far-reaching changes in the
relationship between local telephone companies and cable service providers.
These amendments:  
    
    eliminated federal legal barriers to competition in the local
telephone and cable communications businesses, including allowing local
telephone companies to offer video services in their local telephone
service areas;
    
    preempted legal barriers to telecommunications competition that
previously existed in state and local laws and regulations;
    
    set basic standards for relationships between telecommunications
providers; and
    
    generally limited acquisitions and prohibited joint ventures
between local telephone companies and cable operators in the same
market. Pursuant to these changes in federal law, local telephone companies may
now provide service as traditional cable operators with local franchises or
they may opt to provide their programming over open video systems, subject to
certain conditions, including, but not limited to, setting aside a portion of
their channel capacity for use by unaffiliated program distributors on a
non-discriminatory basis. The decision as to whether an operator of an open
video system must obtain a local franchise is left to each community. Pole Attachment Regulation The Cable Act requires certain public utilities, defined to include all
local telephone companies and electric utilities except those owned by
municipalities and co-operatives, to provide cable operators and
telecommunications carriers with nondiscriminatory access to poles, ducts,
conduit and rights-of-way at just and reasonable rates. This right to access
is beneficial to us. Federal law also requires the FCC to regulate the rates,
terms and conditions imposed by such public utilities for cable systems use of
utility pole and conduit space unless state authorities have demonstrated to
the FCC that they adequately regulate pole attachment rates, as is the case in
certain states in which we operate. In the absence of state regulation, the
FCC administers pole attachment rates on a formula basis. The FCC adopted a
new rate formula that became effective in 2001 which governs the maximum rate
certain utilities may charge for attachments to their poles and conduit by
companies providing telecommunications services, including cable operators. Increases in attachment rates due to the FCCs new rate formula are phased
in over a five-year period in equal annual increments, beginning in February
2001. This new formula will result in higher attachment rates than at present,
but they will apply only to cable television systems which elect to offer
telecommunications services. The FCC ruled that the provision of Internet
services will not, in and of itself, trigger use of the new formula. The
Supreme Court affirmed this decision and also held that the FCCs authority to
regulate rates for attachments to utility poles extended to attachments by
cable operators and telecommunications carriers that are used to provide
Internet service or for wireless telecommunications service. This development
benefits our business and will place a constraint on the prices that most
utilities can charge with regard to the cable facilities over which we also
provide Internet service so long as we do not offer other telecommunications
services over the cable system. Other Regulatory Requirements of the Cable Act and the FCC The FCC has adopted cable inside wiring rules to provide a more specific
procedure for the disposition of residential home wiring and internal building
wiring that belongs to an incumbent cable operator that is forced by the
building owner to terminate its cable services in a building with multiple
dwelling units. 22




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The Cable Act and/or FCC rules include provisions, among others,
regulating other parts of our cable operations, involving such areas as:  
    
    equal employment opportunity;
    
    consumer protection and customer service;
    
    technical standards and testing of cable facilities;
    
    consumer electronics equipment compatibility;
    
    registration of cable systems;
    
    maintenance of various records and public inspection files;
    
    microwave frequency usage; and
    
    antenna structure notification, marking and lighting. The FCC may enforce its regulations through the imposition of fines, the
issuance of cease and desist orders or the imposition of other administrative
sanctions, such as the revocation of FCC licenses needed to operate
transmission facilities often used in connection with cable operations. The
FCC has ongoing rulemaking proceedings that may change its existing rules or
lead to new regulations. We are unable to predict the impact that any further
FCC rule changes may have on our business and operations. Copyright Our cable systems typically include in their channel line-ups local and
distant television and radio broadcast signals, which are protected by the
copyright laws. We generally do not obtain a license to use this programming
directly from the owners of the programming, but instead comply with an
alternative federal compulsory copyright licensing process. In exchange for
filing certain reports and contributing a percentage of our revenues to a
federal copyright royalty pool, we obtain blanket permission to retransmit the
copyrighted material carried on these broadcast signals. The nature and amount
of future copyright payments for broadcast signal carriage cannot be predicted
at this time. In a report to Congress, the U.S. Copyright Office recommended that
Congress make major revisions to both the cable television and satellite
compulsory licenses. In 1999, Congress modified the satellite compulsory
license in a manner that permits DBS service providers to become more
competitive with cable operators. While this authority is due to expire on
December 31, 2004, extension legislation has been introduced in Congress. The
possible simplification, modification or elimination of the cable
communications compulsory copyright license is the subject of continuing
legislative review. The elimination or substantial modification of the cable
compulsory license could adversely affect our ability to obtain suitable
programming and could substantially increase the cost of programming that
remains available for distribution to our subscribers. We are unable to
predict the outcome of this legislative activity related to either the cable
compulsory license or the right of direct broadcast satellite providers to
deliver local broadcast signals. Copyrighted material in programming supplied to cable television systems
by pay cable networks and basic cable networks is licensed by the networks
through private agreements with the copyright owners. These entities generally
offer through to-the-viewer licenses to the cable networks that cover the
retransmission of the cable networks programming by cable television systems
to their customers. Our cable systems also utilize music in other programming and advertising
that we provide to subscribers. The rights to use this music are controlled by
various music performing rights organizations from which performance licenses
must be obtained. Cable industry representatives recently negotiated standard
license agreements with the three largest music performing rights organizations
covering locally originated programming, including advertising inserted by the
cable operator in programming produced by other parties. These standard
agreements require the payment of music license fees for earlier time periods,
but such license fees have not had a significant impact on our business and operations. 23




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Interactive Television The FCC has issued a Notice of Inquiry covering a wide range of issues
relating to interactive television, or ITV. Examples of ITV services are
interactive electronic program guides and access to a graphic interface that
provides supplementary information related to the video display. In the near
term, cable systems are likely to be the platform of choice for the
distribution of ITV services. The FCC posed a series of questions including
the definition of ITV, the potential for discrimination by cable systems in
favor of affiliated ITV providers, enforcement mechanisms, and the proper
regulatory classification of ITV service. Privacy The Cable Act imposes a number of restrictions on the manner in which
cable television operators can collect, disclose and retain data about
individual system customers as well as requiring cable operators to take such
actions as necessary to prevent unauthorized access to such information. The
statute also requires that the system operator periodically provide all
customers with written information about its policies including the types of
information collected; the use of such information; the nature, frequency and
purpose of any disclosures; the period of retention; the times and places where
a customer may have access to such information; the limitations placed on the
cable operator by the Cable Act; and a customers enforcement rights. In the
event that a cable television operator is found to have violated the customer
privacy provision of the Cable Act, it could be required to pay damages,
attorneys fees and other costs. Certain of these Cable Act requirements have
been modified by certain more recent federal laws. In addition, some states in
which we operate have also enacted customer privacy statutes that are in some
cases more restrictive than those in federal law. Voice-Over-Internet Protocol Numerous cable operators are either exploring or have commenced offering
VoIP as a competitive alternative to traditional circuit-switched telephone
service. Various states, including states where we operate, have adopted or
are considering differing regulatory treatment, ranging from minimal or no
regulation to full-blown common carrier status. The FCC has announced a
proceeding to determine any appropriate regulatory obligations for VoIP. While
the outcome of this proceeding cannot be predicted, it is generally believed
that the FCC favors a light touch regulatory approach for VoIP, which might
include preemption of certain state or local regulation. Cable Modem Service There are currently few laws or regulations that specifically regulate
communications or commerce over the Internet. Section 230 of the
Communications Act declares it to be the policy of the United States to promote
the continued development of the Internet and other interactive computer
services and interactive media, and to preserve the vibrant and competitive
free market that presently exists for the Internet and other interactive
computer services, unfettered by federal or state regulation. One area in
which Congress did attempt to regulate content over the Internet involved the
dissemination of obscene or indecent materials. The Digital Millennium Copyright Act is intended to reduce the liability
of online service providers for listing or linking to third-party Websites that
include materials that infringe copyrights or other rights or if customers use
the service to publish or disseminate infringing materials. The Childrens
Online Protection Act and the Childrens Online Privacy Protection Act are
intended to restrict the distribution of certain materials deemed harmful to
children and impose additional restrictions on the ability of online services
to collect user information from minors. In addition, the Protection of
Children From Sexual Predators Act of 1998 requires online service providers to
report evidence of violations of federal child pornography laws under certain
circumstances. A number of ISPs have asked local authorities and the FCC to give them
rights of access to cable systems broadband infrastructure so that they can
deliver their services directly to cable systems customers, which is often
called open access. Many local franchising authorities have examined the
issue of open access and a few have required cable operators to provide such
access. Several federal courts have ruled that localities are not authorized
to require open access. 24




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In March of 2002, the FCC announced that it was classifying Internet
access service provided through cable modems as an interstate information
service. At the same time, the FCC initiated a rulemaking proceeding designed
to address a number of issues resulting from this regulatory classification,
including the following:  
    
    the FCC confirmed that there is no current legal requirement for
cable operators to grant open access now that cable modem service is
classified as an information service. The FCC is considering, however,
whether it has the authority to impose open access requirements and, if
so, whether it should do so, or whether to permit local authorities to
impose such a requirement.
    
    the FCC found that cable modem service is an information service,
not a cable service, which has resulted in several court rulings that
local franchise authorities may not collect franchise fees on cable
modem service revenues under existing law and regulations.
    
    the FCC concluded that federal law does not permit local franchise
authorities to impose additional franchise requirements on cable modem
service. It is considering, however, whether local franchise
authorities nonetheless have the authority to impose restrictions,
requirements or fees because cable modem service is delivered over
cable using public rights of way.
    
    the FCC is considering whether cable operators providing cable
modem service should be required to contribute to a universal service
fund designed to support making service available to all consumers,
including those in low income, rural and high-cost areas at rates that
are reasonably comparable to those charged in urban areas.
    
    the FCC is considering whether it should take steps to ensure that
the regulatory burdens on cable systems providing cable modem service
are comparable to those of other providers of Internet access service,
such as telephone companies. One method of achieving comparability
would be to make cable operators subject to some of the regulations
that do not now apply to them, but are applicable to telephone
companies. Challenges to the FCCs classification of cable Internet access service as
an information service and not a cable service or a telecommunications
service have been filed in federal court. Based on a finding that it was
bound by an earlier decision, the Ninth Circuit Court of Appeals overturned the
FCCs classification and found cable Internet service to include both
information service and telecommunications service components. The Ninth
Circuits decision is under appeal. In other previous actions over the
regulatory classification of cable modem service, the courts have issued
conflicting decisions. These conflicting rulings and the new court proceedings
increase the possibility that the classification of cable Internet service
could be decided by the Supreme Court. State and Local Regulation Our cable systems use local streets and rights-of-way. Consequently, we
must comply with state and local regulation, which is typically imposed through
the franchising process. Our cable systems generally are operated in
accordance with non-exclusive franchises, permits or licenses granted by a
municipality or other state or local government entity. Our franchises
generally are granted for fixed terms and in many cases are terminable if we
fail to comply with material provisions. The terms and conditions of our
franchises vary materially from jurisdiction to jurisdiction. Each franchise
generally contains provisions governing:  
    
    franchise fees;
    
    franchise term;
    
    system construction and maintenance obligations;
    
    system channel capacity; 25




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##### Table of Contents




    
    design and technical performance;
    
    customer service standards;
    
    sale or transfer of the franchise;
    
    territory of the franchise;
    
    indemnification of the franchising authority;
    
    use and occupancy of public streets; and
    
    types of cable services provided. In the process of renewing franchises, a franchising authority may seek to
impose new and more onerous requirements, such as upgraded facilities,
increased channel capacity or enhanced services, although protections available
under the Cable Act require the municipality to take into account the cost of
meeting such requirements. The Cable Act also contains renewal procedures and
criteria designed to protect incumbent franchisees against arbitrary denials of
renewal. A number of states subject cable systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Attempts in other states to
regulate cable systems are continuing and can be expected to increase. To
date, other than Delaware, no state in which we operate has enacted such
state-level regulation. State and local franchising jurisdiction is not
unlimited; it must be exercised consistent with federal law. The Cable Act
immunizes franchising authorities from most monetary damage awards arising from
regulation of cable systems or decisions made on franchise grants, renewals,
transfers and amendments. 26




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ITEM 2. PROPERTIES Our principal physical assets consist of cable television operating plant
and equipment, including signal receiving, encoding and decoding devices,
headend facilities and distribution systems and equipment at or near customers
homes for each of the systems. The signal receiving apparatus typically
includes a tower, antenna, ancillary electronic equipment and earth stations
for reception of satellite signals. Headend facilities are located near the
receiving devices. Our distribution system consists primarily of coaxial and
fiber optic cables and related electronic equipment. Customer premise
equipment consists of decoding converters and cable modems. Our cable television plant and related equipment generally are attached to
utility poles under pole rental agreements with local public utilities,
although in some areas the distribution cable is buried in underground ducts or
trenches. The physical components of the cable systems require maintenance and
periodic upgrading to improve system performance and capacity. We own and lease the real property housing our regional call centers,
business offices and warehouses throughout our operating regions. Our headend
facilities, signal reception sites and microwave facilities are located on
owned and leased parcels of land, and we generally own the towers on which
certain of our equipment is located. We own most of our service vehicles. We
believe that our properties, both owned and leased, are in good condition and
are suitable and adequate for our operations. 
 ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which we are a party or
to which any of our properties are subject. 27




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2003. 
 ITEM 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Name
    
    Age
    
    PositionRocco B. Commisso
    
    
    54
    
    
    Chairman and Chief Executive OfficerMark E. Stephan
    
    
    47
    
    
    Executive Vice President, Chief Financial
Officer, Treasurer and DirectorJohn G. Pascarelli
    
    
    42
    
    
    Executive Vice President, OperationsItalia Commisso Weinand
    
    
    50
    
    
    Senior Vice President, Programming and
Human ResourcesCharles J. Bartolotta
    
    
    49
    
    
    Senior Vice President, Customer OperationsCalvin G. Craib
    
    
    49
    
    
    Senior Vice President, Business DevelopmentWilliam I. Lees, Jr.
    
    
    45
    
    
    Senior Vice President, Corporate ControllerJoseph E. Young
    
    
    55
    
    
    Senior Vice President, General Counsel and
SecretaryCraig S. Mitchell
    
    
    45
    
    
    DirectorWilliam S. Morris III
    
    
    69
    
    
    DirectorThomas V. Reifenheiser
    
    
    68
    
    
    DirectorNatale S. Ricciardi
    
    
    55
    
    
    DirectorRobert L. Winikoff
    
    
    57
    
    
    Director
 Rocco B. Commissohas 26 years of experience with the cable television
industry and has served as our Chairman and Chief Executive Officer since
founding our predecessor company in July 1995. From 1986 to 1995, he served as
Executive Vice President, Chief Financial Officer and a director of Cablevision
Industries Corporation. Prior to that time, Mr. Commisso served as Senior Vice
President of Royal Bank of Canadas affiliate in the United States from 1981,
where he founded and directed a specialized lending group to media and
communications companies. Mr. Commisso began his association with the cable
industry in 1978 at The Chase Manhattan Bank, where he managed the banks
lending activities to communications firms including the cable industry. He
serves on the board of directors and executive committees of the National Cable Television Association,
and Cable Television Laboratories, Inc., and on the board of directors
of C-SPAN. Mr. Commisso holds a Bachelor
of Science in Industrial Engineering and a Master of Business Administration
from Columbia University. Mark E. Stephanhas 17 years of experience with the cable television
industry and has served as our Executive Vice President, Chief Financial
Officer and Treasurer since November 2003. Prior to that he was Senior Vice
President, Chief Financial Officer and Treasurer since the commencement of our
operations in March 1996. Before joining us, Mr. Stephan served as Vice
President, Finance for Cablevision Industries from July 1993. Prior to that
time, Mr. Stephan served as Manager of the telecommunications and media lending
group of Royal Bank of Canada. John G. Pascarellihas 23 years of experience in the cable television
industry and has served as our Executive Vice President, Operations since
November 2003. Prior to that he was our Senior Vice President, Marketing
Consumer Services from June 2000 and our Vice President of Marketing from March
1998. Before joining us in March 1998, Mr. Pascarelli served as Vice
President, Marketing for Helicon Communications Corporation from January 1996
to February 1998 and as Corporate Director of Marketing for Cablevision
Industries from 1988 to 1995. Prior to that time, Mr. Pascarelli served in
various marketing and system management capacities for Continental Cablevision,
Inc., Cablevision Systems and Storer Communications. Mr. Pascarelli is a
member of the board of directors of the Cable and Telecommunications
Association for Marketing. 28




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Italia Commisso Weinandhas 27 years of experience in the cable television
industry. Before joining us in April 1996, Ms. Weinand served as Regional
Manager for Comcast Corporation from July 1985. Prior to that
time, Ms. Weinand held various management positions with Tele-Communications, Times
Mirror Cable and Time Warner. Ms. Weinand is the sister of Mr. Commisso. Charles J. Bartolottahas 21 years of experience in the cable television
industry. Before joining us in October 2000, Mr. Bartolotta served as Division
President for AT&T Broadband, LLC from July 1998, where he was responsible for
managing an operating division serving nearly three million customers. Prior
to that time, he served as Regional Vice President of Telecommunications, Inc.
from January 1997 and as Vice President and General Manager for TKR Cable
Company from 1989. Prior to that time, Mr. Bartolotta held various management
positions with Cablevision Systems Corporation. Calvin G. Craibhas 22 years of experience in the cable television
industry. Before joining us in April 1999 as Vice President, Business
Development, Mr. Craib served as Vice President, Finance and Administration for
Interactive Marketing Group from June 1997 to December 1998 and as Senior Vice
President, Operations, and Chief Financial Officer for Douglas Communications
from January 1990 to May 1997. Prior to that time, Mr. Craib served in various
financial management capacities at Warner Amex Cable and Tribune Cable. William I. Lees, Jr.has over 2 years of experience in the cable
television industry. Before joining us in October 2001 as Senior Vice
President, Corporate Controller, Mr. Lees served as Executive Vice President
and Chief Financial Officer for Regus Business Centre Corp., a multinational
real estate services company, from July 1999 to September 2001. Prior to that
time, he served as Corporate Controller and Director for Formica Corporation
from September 1998 to July 1999, and as Chief Financial Officer for Imperial
Schrade Corporation from September 1993 to September 1998. He was previously
employed for 13 years by Ernst & Young. Joseph E. Younghas 19 years of experience with the cable television
industry. Before joining us in November 2001 as Senior Vice President, General
Counsel, Mr. Young served as Executive Vice President, Legal and Business
Affairs, for LinkShare Corporation, an Internet-based provider of marketing
services, from September 1999 to October 2001. Prior to that time, he
practiced corporate law with Baker & Botts, LLP from January 1995 to September
1999. Previously, Mr. Young was a partner with the Law Offices of Jerome H.
Kern and a partner with Shea & Gould. Craig S. Mitchellhas held various management positions with Morris
Communications Company LLC for more than the past five years. He currently
serves as its Senior Vice President of Finance, Treasurer and
Secretary and is also a
member of its board of directors. William S. Morris IIIhas served as the Chairman and Chief Executive
Officer of Morris Communications for more than the past five years. He was the
Chairman of the board of directors of the Newspapers Association of America for
1999-2000. Thomas V. Reifenheiserserved for more than five years as a Managing
Director and Group Executive of the Global Media and Telecom Group of Chase
Securities Inc. until his retirement in September 2000. He joined Chase in 1963
and had been the Global Media and Telecom Group Executive since 1977. He also
had been a director of the Management Committee of The Chase Manhattan Bank.
Mr. Reifenheiser is a member of the board of directors of Cablevision Systems
Corporation and Lamar Advertising Company, a leading owner and operator of
outdoor advertising and logo sign displays. Natale S. Ricciardihas held various management positions with Pfizer Inc.
for more than the past five years. Mr. Ricciardi joined Pfizer in 1972 and
currently serves as its Vice President, U.S. Manufacturing, with responsibility
for all of Pfizers U.S. manufacturing facilities. Robert L. Winikoffhas been a partner of the law firm of Sonnenschein Nath
& Rosenthal, LLP since August 2000. Prior thereto, he was a partner of the law firm
of Cooperman Levitt Winikoff Lester & Newman, P.C. for more than five years.
Sonnenschein Nath & Rosenthal, LLP currently serves as our outside general counsel
and prior to such representation Cooperman Levitt Winikoff Lester & Newman,
P.C. served as our outside general counsel since 1995. 29




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PART II 
 ITEM 5.
    
    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES
 Our Class A common stock is traded on the Nasdaq National Market under the
symbol MCCC. The following table sets forth, for the periods indicated, the
high and low closing sales prices for our Class A common stock as reported by
the Nasdaq National Market: 2003
    
    2002High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    10.04
    
    
    $
    6.86
    
    
    $
    18.22
    
    
    $
    13.68Second Quarter
    
    $
    10.79
    
    
    $
    8.37
    
    
    $
    13.78
    
    
    $
    7.45Third Quarter
    
    $
    10.80
    
    
    $
    6.71
    
    
    $
    7.25
    
    
    $
    3.98Fourth Quarter
    
    $
    8.80
    
    
    $
    6.46
    
    
    $
    10.36
    
    
    $
    3.63
 As of February 17, 2004, there were approximately 406 holders of record of
our Class A common stock and 6 holders of record of our Class B common stock.
The number of Class A stockholders does not include beneficial owners holding
shares through nominee 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, we do not anticipate paying
any cash dividends on our common stock in the foreseeable future. Our future
dividend policy will be determined by our board of directors and will depend on
various factors, including our results of operations, financial condition,
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 ranging 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 that the stock options were
granted for no consideration, or were offered and sold in transactions not
involving a public offering, exempt from registration under the Securities Act
of 1933 pursuant to Section 4(2). 30




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ITEM 6. SELECTED FINANCIAL DATA Mediacom Communications Corporation was organized as a Delaware
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 July 1995 and since that time its taxable income or loss has been included
in the federal and certain state income tax returns of its members. Upon
completion of our initial 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 million. 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 Financial Condition and
Results of Operations. Year Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(dollars in thousands, except per share data)(unaudited)Statement of Operations Data:Revenues
    
    $
    1,004,889
    
    
    $
    923,033
    
    
    $
    585,175
    
    
    $
    328,258
    
    
    $
    174,961Costs and expenses:Service costs
    
    
    385,129
    
    
    
    359,737
    
    
    
    219,479
    
    
    
    110,442
    
    
    
    56,967Selling, general and
administrative expenses
    
    
    196,826
    
    
    
    173,970
    
    
    
    105,794
    
    
    
    55,820
    
    
    
    32,949Corporate
expenses(1)
    
    
    17,237
    
    
    
    18,075
    
    
    
    11,609
    
    
    
    34,283
    
    
    
    22,396Depreciation and amortization
    
    
    273,307
    
    
    
    319,435
    
    
    
    310,785
    
    
    
    178,331
    
    
    
    101,065Operating 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(2)
    
    
    
    
    
    
    
    
    
    
    (1,642
    )
    
    
    
    
    
    
    Net loss
    
    $
    (62,475
    )
    
    $
    (161,658
    )
    
    $
    (190,876
    )
    
    $
    (149,847
    )
    
    $
    (81,320
    )Basic and diluted loss per share:(3)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(3)
    
    
    118,627,262
    
    
    
    119,607,605
    
    
    
    105,779,737
    
    
    
    83,803,032
    
    
    
    10,403,749Balance Sheet Data (end of period):Total assets
    
    $
    3,654,959
    
    
    $
    3,703,974
    
    
    $
    3,664,848
    
    
    $
    1,379,972
    
    
    $
    1,272,881Total debt
    
    
    3,051,493
    
    
    
    3,019,211
    
    
    
    2,798,000
    
    
    
    987,000
    
    
    
    1,139,000Total stockholders equity
    
    
    285,114
    
    
    
    346,541
    
    
    
    507,576
    
    
    
    261,621
    
    
    
    54,615
 (continued on next page) 31




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Year Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(dollars in thousands, except per subscriber data)(unaudited)Other Data:Operating income before depreciation
and amortization(4)
    
    $
    405,697
    
    
    $
    371,251
    
    
    $
    248,293
    
    
    $
    127,713
    
    
    $
    62,649Operating income before depreciation
and amortization margin(5)
    
    
    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
    
    
    $
    54,216Investing activities
    
    
    (222,799
    )
    
    
    (421,602
    )
    
    
    (2,402,947
    )
    
    
    (297,110
    )
    
    
    (851,548
    )Financing activities
    
    
    23,774
    
    
    
    215,316
    
    
    
    2,203,477
    
    
    
    201,262
    
    
    
    799,593Operating Data(end of period, except average):Homes
passed(6)
    
    
    2,755,000
    
    
    
    2,715,000
    
    
    
    2,630,000
    
    
    
    1,173,000
    
    
    
    1,071,500Basic
subscribers(7)
    
    
    1,543,000
    
    
    
    1,592,000
    
    
    
    1,595,000
    
    
    
    779,000
    
    
    
    719,000Basic
penetration(8)
    
    
    56.0
    %
    
    
    58.6
    %
    
    
    60.6
    %
    
    
    66.4
    %
    
    
    67.1
    %Digital
customers(9)
    
    
    383,000
    
    
    
    371,000
    
    
    
    321,000
    
    
    
    40,000
    
    
    
    5,300Data
customers(10)
    
    
    280,000
    
    
    
    191,000
    
    
    
    115,000
    
    
    
    15,600
    
    
    
    5,100
  (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 management 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 follows:
  
    
    for the years ended December 31, 2002 and 2001,
$5.3 million and $2.9 million, 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
million charge resulting from the termination of the management
agreements with Mediacom Management upon completion of our initial
public offering in February 2000 and a $3.8 million 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 million
charge resulting from amendments to our management agreements with
Mediacom Management and a $14.8 million 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
immediately prior to our initial public offering.(4)
    
    Operating income before depreciation and amortization represents a
non-GAAP measure and is one of the primary measures used by our management
to evaluate our performance and to forecast future results. We believe
operating income before depreciation and amortization is useful for
investors because it enables them to assess our performance in a manner
similar to the method used by our 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. A limitation of this measure is that it excludes
depreciation and amortization, which represents the period costs of
certain capitalized tangible and intangible assets. It is also not
intended to be a performance measure that should be regarded as an
alternative either to operating income (loss) or 32




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net income (loss) as an indicator of operating performance or to the
statement of cash flows as a measure of liquidity and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles. Our
definitions of operating income before depreciation and amortization may not
be identical to similarly titled measures reported by other companies.The following represents a reconciliation of operating income before
depreciation and amortization to operating income (loss), which is the most
directly comparable GAAP measure: Year Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(dollars in thousands)(unaudited)Operating income
before depreciation
and amortization
    
    $
    405,697
    
    
    $
    371,251
    
    
    $
    248,293
    
    
    $
    127,713
    
    
    $
    62,649Depreciation 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
    )
  (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 dwelling with one or more television sets that receives a
package of over-the-air broadcast stations, local access channels or
certain satellite-delivered cable television services. Accounts that are
billed on a bulk basis, which typically receive discounted rates, are
converted into full-price equivalent basic subscribers by dividing total
bulk billed basic revenues of a particular 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 basic subscribers as a percentage of homes passed.(9)
    
    Represents customers that receive digital cable services.(10)
    
    Represents residential data customers and small to medium-sized
commercial accounts billed at higher rates than residential customers.
Small to medium-sized commercial accounts generally represent customers
with bandwidth requirements less than 5MHz. 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 commercial 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. 33




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ITEM 7.
    
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS
 Reference is made to the Risk Factors below for a discussion of
important factors that could cause actual results to differ from expectations
and any of our forward-looking statements contained herein. The following
discussion should be read in conjunction with our audited consolidated
financial statements as of and for the years ended December 31, 2003, 2002 and
2001. Overview We significantly expanded our business in 2001 through acquisitions. All
acquisitions have been accounted for under the purchase 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 subscribers 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, Illinois 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 substantially 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 network was upgraded with 550MHz to
870MHz bandwidth capacity and about 97% of our homes passed were activated with
two-way communications capability. As of the same date, approximately 95% of
our basic subscribers were served by our 50 largest headend facilities.
Expressed in megahertz, or MHz, bandwidth represents a systems capacity to
deliver telecommunication 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 additional programming and
other services such as digital video, high-speed Internet access,
video-on-demand, high-definition television and, beginning in the fourth
quarter of 2004, Internet protocol telephony service, which is sometimes
referred to as Voice-over-Internet-Protocol, or VoIP telephony. We currently
offer video and data bundles. VoIP telephony will allow us to offer an
attractive triple-play bundle of video, data and voice products and services.
Bundled products and services offer our subscribers key benefits such as a
single provider contact for provisioning, billing and customer care. We face increasing competition for our video programming services, most
notably from direct broadcast satellite service, or DBS service providers. In
2003, competitive pressure from DBS service 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 to
deliver local television broadcast signals beginning in 1999, DIRECTV, Inc. and
Echostar Communications Corporation, the two largest DBS service providers,
have been increasing the number of markets in which they deliver these local
television signals. These local-into-local launches 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-local launches in
our markets represented an estimated 62% of our basic subscribers. 34




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##### Table of Contents



Actual Results of Operations 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): Year Ended December 31,2003
    
    2002
    
    $ Change
    
    % ChangeRevenues
    
    $
    1,004,889
    
    
    $
    923,033
    
    
    $
    81,856
    
    
    
    8.9
    %Costs and expenses:Service costs
    
    
    385,129
    
    
    
    359,737
    
    
    
    25,392
    
    
    
    7.1Selling, general and administrative
expenses
    
    
    196,826
    
    
    
    173,970
    
    
    
    22,856
    
    
    
    13.1Corporate expenses
    
    
    17,237
    
    
    
    18,075
    
    
    
    (838
    )
    
    
    (4.6
    )Depreciation and amortization
    
    
    273,307
    
    
    
    319,435
    
    
    
    (46,128
    )
    
    
    (14.4
    )Operating income
    
    
    132,390
    
    
    
    51,816
    
    
    
    80,574
    
    
    
    155.5Interest expense, net
    
    
    (190,199
    )
    
    
    (188,304
    )
    
    
    (1,895
    )
    
    
    1.0Gain (loss) on derivative instruments, net
    
    
    7,218
    
    
    
    (13,877
    )
    
    
    21,095
    
    
    NMOther expense
    
    
    (11,460
    )
    
    
    (11,093
    )
    
    
    367
    
    
    
    3.3Net loss before provision for income taxes
    
    
    (62,051
    )
    
    
    (161,458
    )
    
    
    (99,407
    )
    
    
    (61.6
    )Provision for income taxes
    
    
    (424
    )
    
    
    (200
    )
    
    
    (224
    )
    
    
    112.0Net loss
    
    $
    (62,475
    )
    
    $
    (161,658
    )
    
    $
    (99,183
    )
    
    
    61.4
    %
 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
    
    
    
    
    
    % ofAmount
    

Revenues
    
    Amount
    
    Revenues
    
    $ Change
    
    % ChangeVideo
    
    $
    846,787
    
    
    
    84.3
    %
    
    $
    812,838
    
    
    
    88.1
    %
    
    $
    33,949
    
    
    
    4.2
    %Data
    
    
    115,360
    
    
    
    11.5
    
    
    
    70,745
    
    
    
    7.6
    
    
    
    44,615
    
    
    
    63.1Advertising
    
    
    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 revenues represent monthly subscription fees charged to customers
for our core cable television products and services (including basic, expanded
basic and analog premium programming, digital cable television programming
services, wire maintenance, equipment rental and services to commercial
establishments), pay-per-view charges, installation and reconnection fees, late
payment fees, and other ancillary revenues. Data revenues primarily represent
monthly subscription fees charged to customers for our data products and
services 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. 35




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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 service providers, particularly in
those markets where we experienced their local-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 customer 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 revenues 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 installation 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 payments 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
services 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 service. 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,
service costs would have increased 8.4% or $29.7 million. Approximately half
of this increase was due to servicing the growth in our data customers of
89,000, with the balance primarily represented by increases in unit costs for
basic programming. The increase in total programming costs, however, was
partially offset by the aforementioned decline in basic subscribers 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 existing 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%, principally
due to higher customer support, marketing, call center 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 commissions to
our marketing personnel. We expect to maintain this level of marketing expense
going forward. Expenses relating to our call centers, mainly customer service
personnel and telecommunications costs, increased 9.0% 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 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 throughout the year of tighter customer credit controls. We
expect bad debt expense to moderate as we continue to improve our customer
credit controls. As a percentage of revenues, selling, general 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. 36




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We expect continued growth in advanced services, which include
digital cable and high-speed Internet access and, in late 2004, the launch of
VoIP 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 represented
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, corporate 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 depreciation for
investments in our cable network and ongoing investments to continue the
rollout of products and services such as video-on-demand, high-definition
television and high-speed Internet access. We expect depreciation and
amortization to decrease in 2004 as a result of the full year impact of the
changes in estimated lives. See Note 2 to our consolidated financial
statements. Interest Expense, Net Interest expense, net, remained relatively flat year over year. This was
primarily due to higher average indebtedness offset by a decrease in market
interest rates on our variable rate debt. Gain (loss) on derivative instruments, net Our stated strategy is to manage our interest expense using a combination
of fixed and variable interest rate debt. We enter into interest rate exchange
agreements, or interest rate swaps, to fix the interest rate on a portion of
our variable rate debt to reduce the potential volatility in our interest
expense due to changes in variable market interest rates. As of December 31,
2003 we had interest rate swaps with an aggregate principal amount of $800.0
million, compared to $790.0 million as of December 31, 2002. These interest
rate swaps are accounted for as fair value hedges of debt instruments as
prescribed by SFAS No. 133. The changes in their mark-to-market values are
derived from changes in variable market interest rates and the decrease in
their time to maturity. The aggregate change in value is reported as either a
noncash gain or loss on derivative instruments, net. Gain on derivative
instruments, net, was $7.2 million for the year ended December 31, 2003, as
compared to loss on derivative instruments, net of $13.9 million for the year
ended December 31, 2002. Other expense Other expense was $11.5 million for the year ended December 31, 2003, as
compared to $11.1 million for the year ended December 31, 2002. Other expense
primarily represents amortization of deferred financing costs and fees on
unused credit commitments. Other expense for the year ended December 31, 2003
was partly offset by a gain on sale of investments of $1.7 million. Net loss Due to the factors described above, we generated a net loss of $62.5
million for the year ended December 31, 2003 as compared to a net loss of
$161.7 million for the year ended December 31, 2002. 37




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Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 The following table sets forth the consolidated statements of operations
for the years ended December 31, 2002 and 2001 (dollars in thousands): Year Ended December 31,2002
    
    2001
    
    $ Change
    
    % ChangeRevenues
    
    $
    923,033
    
    
    $
    585,175
    
    
    $
    337,858
    
    
    
    57.7
    %Costs and expenses:Service costs
    
    
    359,737
    
    
    
    219,479
    
    
    
    140,258
    
    
    
    63.9Selling, general and administrative
expenses
    
    
    173,970
    
    
    
    105,794
    
    
    
    68,176
    
    
    
    64.4Corporate expenses
    
    
    18,075
    
    
    
    11,609
    
    
    
    6,466
    
    
    
    55.7Depreciation and amortization
    
    
    319,435
    
    
    
    310,785
    
    
    
    8,650
    
    
    
    2.8Operating income (loss)
    
    
    51,816
    
    
    
    (62,492
    )
    
    
    114,308
    
    
    NMInterest expense, net
    
    
    (188,304
    )
    
    
    (139,867
    )
    
    
    (48,437
    )
    
    
    34.6Loss on derivative instruments, net
    
    
    (13,877
    )
    
    
    (8,441
    )
    
    
    (5,436
    )
    
    
    64.4Other (expense) income
    
    
    (11,093
    )
    
    
    21,653
    
    
    
    (32,746
    )
    
    NMNet loss before provision for income taxes
    
    
    (161,458
    )
    
    
    (189,147
    )
    
    
    27,689
    
    
    
    (14.6
    )Provision for income taxes
    
    
    (200
    )
    
    
    (87
    )
    
    
    (113
    )
    
    NMNet loss before cumulative effect of
accounting change
    
    
    (161,658
    )
    
    
    (189,234
    )
    
    
    27,576
    
    
    
    (14.6
    )Cumulative effect of accounting change
    
    
    
    
    
    
    (1,642
    )
    
    
    1,642
    
    
    NMNet loss
    
    $
    (161,658
    )
    
    $
    (190,876
    )
    
    $
    (29,218
    )
    
    
    (15.3
    )%
 Revenues 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
    
    
    
    
    
    % ofAmount
    
    Revenues
    
    Amount
    
    Revenues
    
    $ Change
    
    % ChangeVideo
    
    $
    812,838
    
    
    
    88.1
    %
    
    $
    541,513
    
    
    
    92.5
    %
    
    $
    271,325
    
    
    
    50.1
    %Data
    
    
    70,745
    
    
    
    7.6
    
    
    
    26,160
    
    
    
    4.5
    
    
    
    44,585
    
    
    
    170.4Advertising
    
    
    39,450
    
    
    
    4.3
    
    
    
    17,502
    
    
    
    3.0
    
    
    
    21,948
    
    
    
    125.4$
    923,033
    
    
    
    100.0
    %
    
    $
    585,175
    
    
    
    100.0
    %
    
    $
    337,858
    
    
    
    57.7
    %
 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 in our video services, 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 $219.7 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. 38




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Data revenues increased 170.4% to $70.7 million, of which $13.8 million
was attributable to the acquisitions of the AT&T cable systems. Excluding the
effects of such acquisitions, data revenues increased primarily 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 local and national advertising
markets. Costs and Expenses Service costs increased 63.9% to $359.7 million, of which $102.2 million
was attributable to the acquisitions of the AT&T cable systems. Excluding the
effects of such acquisitions, service costs increased primarily due to higher
programming expenses, including rate increases by programming suppliers for
existing services and the cost of new channel additions, and greater technical
employee support and other operating costs directly 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. Selling, general and administrative expenses increased 64.4% to $174.0
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 percentage 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. Corporate expenses increased 55.7% to $18.1 million for the year ended
December 31, 2002, as compared to $11.6 million for the year ended December 31,
2001. This was principally due to an increase in corporate employees and their
related costs. In addition, 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 substantially offset by the
adoption of SFAS 142, effective January 1, 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 offset 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 our 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 to $170.0
million as of December 31, 2001. These interest rate swaps are accounted for as
fair value hedges of debt instruments as prescribed by SFAS No. 133. The
changes in their values are derived from changes in interest rates and the
reduction of their time to maturity. The change in their aggregate
mark-to-market value is reported as either a noncash gain or loss on derivative
instruments, net. Loss on derivative instruments, net, was $13.9 million for
the year ended December 31, 2002, as compared to $8.4 million for the year
ended December 31, 2001. 39




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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 year ended December 31, 2001.
Other expense represents fees on unused credit commitments under our bank
credit facilities, and 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. 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
requirements through a combination of internally generated funds, and amounts
available under our bank credit facilities. Operating Activities Net cash flows provided by operating activities increased 10.1%, or $17.6
million, to $193.6 million, reflecting a significant reduction in our net loss,
partially offset by an $18.1 million reduction in working capital accounts,
mostly attributable to the decrease in our accounts payable balances. Investing Activities Net cash flows used in investing activities consist principally of
investments in our cable network. During 2003, investing activities decreased
by $200.1 million, or 47.6% to $222.8 million. This decrease reflected
significantly lower capital 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 program, approximately 98% of our cable
network was upgraded with 550MHz to 870MHz 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 available 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. 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 equipment, new plant construction and
network replacement. We expect to invest approximately $165.0 million
to $175 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. We own our cable systems through our two principal subsidiaries, Mediacom
Broadband LLC and Mediacom LLC. The operating subsidiaries of Mediacom
Broadband LLC have a $1.4 billion bank credit facility expiring in September
2010, of which $950.0 million was outstanding as of December 31, 2003. The
operating subsidiaries of Mediacom LLC have two bank credit facilities
aggregating $1.03 billion, of which $696.5 million was outstanding as
of December 31, 2003. Mediacom LLCs bank credit facilities expire in
September 2008 and December 2008, however, their final maturities are subject
to earlier repayment on dates ranging from June 2007 to December 2007 if
Mediacom LLC does not refinance its $200.0 million 81/2% senior notes due
April 2008 prior to March 31, 2007. 40




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We have entered into interest rate exchange agreements, which expire from
June 2005 through March 2007, to hedge $800.0 million of floating rate
debt. Under the terms of all of our interest rate exchange agreements, we are
exposed to credit loss in the event of nonperformance by the other parties to
the interest rate exchange agreements. However, due to the high
creditworthiness of our counterparties, we do not anticipate their
nonperformance. As of the date of this report, about 72% of our outstanding
indebtedness was at fixed interest rates or subject to interest rate
protection. As of December 31, 2003, our total debt was $3.051 billion and we had
unused credit commitments of about $770.0 million under all of our bank credit
facilities and our annualized cost of debt capital was approximately 6.3%.As
of January 1, 2004, after giving effect to scheduled step downs in the maximum
leverage covenants in our bank credit facilities, approximately $562.0 million
could be borrowed and used for general corporate purposes under the most
restrictive covenants in our debt arrangements. We were in compliance with all
debt covenants as of, and for all periods in, the year ended December 31, 2003. As of December 31, 2003, approximately $13.6 million of letters of credit
were issued to various parties to secure our performance relating to insurance
and franchise requirements. Although we have not generated earnings sufficient to cover fixed charges,
we have generated cash and obtained financing sufficient to meet our short-term
requirements, including our debt service, working capital and capital
expenditures. We expect that we will continue to be able to generate funds and
obtain financing sufficient to service our long-term business plan, service our
debt obligations and complete any future acquisitions. However, there can be
no assurance that we will be able to obtain sufficient financing, or, if we
were able to do so, that the terms would be favorable to us. Contractual Obligations and Commercial Commitments The following table summarizes our contractual obligations and commercial
commitments for the five years subsequent to December 31, 2003 and thereafter: CapitalDebt(1)
    
    Leases
    
    Operating Leases
    
    Total(dollars in thousands)2004
    
    $
    10,500
    
    
    $
    2,071
    
    
    $
    3,129
    
    
    $
    15,7002005
    
    
    45,500
    
    
    
    2,130
    
    
    
    1,979
    
    
    
    49,6092006
    
    
    370,250
    
    
    
    2,191
    
    
    
    1,712
    
    
    
    374,1532007
    
    
    247,000
    
    
    
    1,071
    
    
    
    1,396
    
    
    
    249,4672008
    
    
    611,750
    
    
    
    30
    
    
    
    680
    
    
    
    612,460Thereafter
    
    
    1,759,000
    
    
    
    
    
    
    
    1,895
    
    
    
    1,760,895Total cash obligations
    
    $
    3,044,000
    
    
    $
    7,493
    
    
    $
    10,791
    
    
    $
    3,062,284
 (1)
Includes $172.5 million of convertible senior notes due 2006. 41




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Critical Accounting Policies The foregoing discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial statements,
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 assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. Periodically, we evaluate our estimates,
including those related to doubtful accounts, long-lived assets, capitalized
costs and accruals. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable. Actual results may
differ from these estimates under different assumptions or conditions. We
believe that the application of the critical accounting policies discussed
below requires significant judgments and estimates on the part of management.
For a summary of our accounting policies, see Note 2 of our consolidated
financial statements. Property, Plant and Equipment We capitalize the costs of new construction and replacement of our cable
transmission and distribution facilities and new cable service installations.
Capitalized costs include all direct labor and materials as well as certain
indirect costs and are based on historical construction and installation costs.
Capitalized costs are recorded as additions to property, plant and equipment
and depreciate over the life of the related asset. We perform periodic
evaluations of the estimates 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 liability method as stipulated 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 likelihood of realization of deferred tax assets and net
operating loss carryforwards by considering the scheduled reversal of deferred
tax liabilities, taxable income in future periods and tax planning strategies.
At December 31, 2003, we have recorded a net deferred tax asset valuation
allowance of approximately $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 cable 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, competitive, 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 determined that the unit of accounting for testing franchise
value for impairment resides at a cable system cluster level. Such level
reflects the financial 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 discounted cash
flow methodology. If the determined fair value of our franchise costs is less
the carrying 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 the goodwill carried on our financial
statements, 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. 42




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Upon adoption of SFAS No. 142, we determined that no impairment of our
franchise costs and goodwill existed as of January 1, 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 buyers
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 classification and accounting for such assets when held for sale or
abandonment. 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 disclosure about the effects on
reported net income of an entitys accounting policy decisions with respect to
stock-based employee compensation; and (iii) Accounting Principles Board
(APB) Opinion No. 28, Interim Financial Reporting, to require disclosure
about those effects in interim financial information. We adopted SFAS No. 148
on January 1, 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 activities under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. In general, SFAS No. 149 is effective 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 1, 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 1, 2003, and
such adoption did not have a material impact on our financial condition or
results 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 programming. However, competitive conditions and other factors in
the marketplace may limit our ability to increase our rates. 43




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Risk Factors We have a history of net losses. We have a history of net losses. We reported net losses of $190.9
million, $161.7 million and $62.5 million for the years ended December 31,
2001, 2002 and 2003, respectively; however we reported net income of $1.9 million
and $7.1 million for the third and fourth quarters of 2003, respectively. The
principal reasons for our prior net losses include the depreciation and
amortization expenses associated with our acquisitions, the capital
expenditures related to expanding and upgrading our cable systems and interest
costs on borrowed money. We are a holding company with no operations and we depend on our operating
subsidiaries for cash to fund our obligations. As a holding company, we do not have any operations or hold any assets
other than our investments in and our advances to our operating subsidiaries.
Consequently, our subsidiaries conduct all of our consolidated operations and
own substantially all of our consolidated assets. The only source of cash we
have to pay interest on, and repay the principal of, our indebtedness and to
meet our other obligations is the cash that our subsidiaries generate from
their operations and their borrowings. Our subsidiaries are not obligated to
make funds available to us. Our subsidiaries ability to make payments to us
will depend upon their operating results and will be subject to applicable laws
and contractual restrictions, including the agreements governing our subsidiary
credit facilities and other indebtedness. Those agreements permit our
subsidiaries to distribute cash to us under certain circumstances, but only so
long as there is no default under any of such agreements. We have grown rapidly and have a limited history of operating all of our
current cable systems, which may make it difficult for you to evaluate our
performance. We began operations in 1996 and have grown rapidly since then, principally
through acquisitions. In late 1999, we completed acquisitions that doubled the
number of subscribers served by our cable systems. In June and July 2001, we
made other acquisitions that again doubled our subscribers. As a result, you
have limited information upon which to evaluate our performance in managing all
of our current systems, and our historical financial information may not be
indicative of the future results we can achieve with our cable systems. We have substantial existing debt and may incur substantial additional
debt, which could adversely affect our ability to obtain financing in the
future and require our operating subsidiaries to apply a substantial portion of
their cash flow to debt service. Our total debt as of December 31, 2003 was approximately $3.1 billion.
Our interest expense for the year ended December 31, 2003 was $190.2 million.
We cannot assure you that our business will generate sufficient cash flows to
permit us, or our subsidiaries, to repay indebtedness or that refinancing of
that indebtedness will be possible on commercially reasonable terms or at all. This high level of debt and our debt service obligations could have
material consequences, including that:    our ability to access new sources of financing for working capital,
capital expenditures, acquisitions or other purposes may be limited;    we may need to use a large portion of our revenues to pay interest
on borrowings under our subsidiary credit facilities and our senior
         notes, which
will reduce the amount of money available to finance our
operations, capital expenditures and other activities;    some of our debt has a variable rate of interest, which may expose
us to the risk of increased interest rates;    we may be more vulnerable to economic downturns and adverse
developments in our business;    we may be less flexible in responding to changing business and
economic conditions, including increased competition and demand for
         new products and services; 44




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   we may be at a disadvantage when compared to those of our competitors that have less debt; and    we may not be able to fully implement our business strategy. A default under our indentures or our subsidiary credit facilities could
result in an acceleration of our indebtedness and other material adverse
effects. The agreements and instruments governing our own and our subsidiaries
indebtedness contain numerous financial and operating covenants. The breach of
any of these covenants could cause a default, which could result in the
indebtedness becoming immediately due and payable. If this were to occur, we
would be unable to adequately finance our operations. In addition, a default
could result in a default or acceleration of our other indebtedness subject to
cross-default provisions. If this occurs, we may not be able to pay our debts
or borrow sufficient funds to refinance them. Even if new financing is
available, it may not be on terms that are acceptable to us. The membership
interests of our operating subsidiaries are pledged as security under the
respective subsidiary credit facilities. A default under one of our subsidiary
credit facilities could result in a foreclosure by the lenders on the
membership interests pledged under that facility. Because we are dependent
upon our operating subsidiaries for all of our revenues, a foreclosure would
have a material adverse effect on our business, financial condition and results
of operations. The terms of our indebtedness could materially limit our financial and
operating flexibility. Several of the covenants contained in the agreements and instruments
governing our own and our subsidiaries indebtedness could materially limit our
financial and operating flexibility by restricting, among other things, our
ability and the ability of our operating subsidiaries to:    incur additional indebtedness;    create liens and other encumbrances;    pay dividends and make other payments, investments, loans and guarantees;    enter into transactions with related parties;    sell or otherwise dispose of assets and merge or consolidate with another entity;    repurchase or redeem capital stock, other equity interests or debt;    pledge assets; and    issue capital stock or other equity interests. Complying with these covenants could cause us to take actions that we
otherwise would not take or cause us not to take actions that we otherwise
would take. We may not be able to obtain additional capital to continue the
development of our business. We have invested substantial capital for the upgrade, expansion and
maintenance of our cable systems and the launch and expansion of new or
additional services. While we have completed our planned system upgrades, if
there is accelerated growth in our digital cable and data customers, or we
decide to introduce new advanced services, or the cost to provide these
services increases, we may need to make unplanned additional capital
expenditures. We may not be able to obtain the funds necessary to finance
additional capital requirements through internally generated funds, additional
borrowings or other sources. If we are unable to obtain these funds, we would
not be able to implement our business strategy and our results of operations
would be adversely affected. 45




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If we are unable to keep pace with technological change, our business and
results of operations could be adversely affected. The cable business is characterized by rapid technological change and the
introduction of new products and services. We cannot assure you that we will
be able to fund the capital expenditures necessary to keep pace with future
technological developments. We also cannot assure you that we will
successfully anticipate the demand of our customers for products and services
requiring new technology. This type of rapid technological change could
adversely affect our ability to maintain or expand our systems and respond to
competitive pressures. An inability to maintain and expand our systems and
provide advanced services in a timely manner, or to anticipate the demands of
the market place, could adversely affect our ability to compete and our results
of operations. If we are unsuccessful in implementing our growth strategy, our business
and results of operations could be adversely affected. We expect that a substantial portion of our future growth in revenues will
come from the expansion of relatively new services, the introduction of new
ones and acquisitions of additional cable systems. Relatively new services
include high-speed Internet access service, digital cable services,
video-on-demand, and HDTV. We plan to offer VoIP telephony service to our
subscribers beginning with certain markets in the second half of 2004 and
expanding to additional markets in subsequent years. We may not be able to
successfully expand existing services or introduce VoIP telephony due to
unpredictable technical, operational or regulatory challenges. It is also
possible that these services will not generate significant revenue growth. We
may not be successful in identifying attractive acquisition targets or
obtaining the financing necessary to complete future acquisitions. Among other
things, in recent years, the cable television industry has undergone dramatic
consolidation, which has reduced the number of future acquisition prospects and
may increase the purchase price for any acquisitions we pursue. Our programming costs are increasing, and our business and results of
operations will be adversely affected if we cannot pass through a sufficient
part of the additional costs to subscribers. Our programming costs have been, and are expected to continue to be, one
of our largest single expense items. In recent years, the cable and satellite
video industries have experienced a rapid increase in the cost of programming,
particularly sports programming. This increase in programming costs is
expected to continue, and we may not be able to pass all programming cost
increases on to our customers. In addition, as we add programming to our basic
and expanded basic programming tiers, we may not be able pass all of our costs
of the additional programming on to our customers without the potential loss of
basic subscribers. To the extent that we are unable to pass increased or
additional programming costs through to subscribers, our business and results
of operations will be adversely affected. We also expect to be subject to increasing financial and other demands by
broadcasters to obtain the required consents for the transmission of broadcast
programming to our subscribers. We cannot predict the impact of these
negotiations on our business and results of operations or the effect on our
subscribers should we be required to suspend the carriage of this programming. Failure to negotiate or renew programming contracts could adversely affect
our business and results of operations. From time to time, the contracts covering the programming services carried
on our cable systems expire, and we generally provide such services to our
customers without written contracts with the respective program suppliers as we
negotiate contract renewals. While we could obtain access to most of these
programming services through a national programming purchasing cooperative or
by relying on certain protective provisions of the Communications Act, we are
unable to guarantee that we will be able to provide without interruption any
programming service that is not covered by a written contract. Prolonged loss
of access to certain of these programming services could result in our
customers switching to our competitors or have other material adverse effects
on our business and results of operations. 46




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We may not be able to compete effectively in the highly competitive media
and telecommunications industries. The communications industry in which we operate is highly competitive and
is often subject to rapid and significant changes and developments in the
marketplace and in the regulatory and legislative environment. In some
instances, we compete against companies with fewer regulatory burdens, easier
access to financing, greater resources and operating capabilities, greater
brand name recognition and long-standing relationships with regulatory
authorities. Our traditional cable television business faces direct competition
from other cable companies, municipal-owned utilities, telephone companies,
and, most significantly, from DBS service providers. Our high-speed Internet
access service is subject to competition from telephone companies using digital
subscriber line technology, DBS service providers and other Internet service
providers. We also face competition from over-the-air television and radio
broadcasters and from other communications and entertainment media such as
movie theaters, live entertainment and sports events, newspapers and home video
products. We anticipate that future advances in communications technology and new
business combinations and alliances in the communications industry could lead
to the introduction of new competitors and products and services that may
compete with our businesses. We cannot assure you that our upgraded cable
systems will allow us to compete effectively. Additionally, if we expand and
introduce new and enhanced telecommunications services, we will be subject to
competition from new and established telecommunications providers. We cannot
predict the extent to which competition may affect our business and results of
operations in the future. Continued growth of DBS service providers could adversely affect our
business and results of operations. Direct broadcast satellite service providers have grown at a rate far
exceeding the recent cable television industry growth rate and have emerged as
the cable industrys most significant competitors. DBS service consists of
television programming transmitted via high-powered satellites to individual
homes, each served by a small satellite dish. According to recent industry
reports, DBS service providers currently deliver video programming services to
over 14 million individual households, condominiums, apartments and office
complexes in the United States. The two largest DBS companies, DIRECTV, Inc.
and EchoStar Communications Corporation, provide service to substantially all
of these DBS customers and are each among the four largest providers of
multichannel video programming services based on reported customers. The News
Corporation Limited, or News Corporation, recently acquired a significant
interest in DIRECTV. Affiliation with News Corporation could strengthen
DIRECTVs competitive positioning, as News Corporation also owns Fox Television
Network and several cable programming services. A recently launched direct
broadcast service, VOOM, has begun offering primarily HDTV services on a
national basis. Legislation permitting DBS service providers to transmit local broadcast
signals was enacted on November 29, 1999. This eliminated a significant
competitive advantage that cable system operators had over DBS service
providers. DBS service providers deliver local broadcast signals in many
markets that we serve. They are developing ways to bring advanced
communications services to their customers. They are currently offering
satellite-delivered high-speed Internet access services. They and certain phone
companies are also now jointly offering bundled services that include video,
voice and high-speed Internet access. We may not be able to obtain critical items at a reasonable cost or when
required, which could adversely affect business, financial condition and
results of operations. We depend on third-party suppliers for equipment, software, services and
other items that are critical for the operation of our cable systems and the
provision of advanced services, including analog and digital set-top converter
boxes, servers and routers, fiber-optic cable, telephone circuits, software,
the backbone telecommunications network for our Internet access service and
construction services for expansion and upgrades of our cable systems. These
items are available from a limited number of suppliers. Demand for these items
has increased with the general growth in demand for Internet and
telecommunications services. We typically do not carry significant inventories
of equipment. Moreover, if there are no suppliers that are able to provide
set-top converter boxes that comply with evolving Internet and
telecommunications standards or that are compatible with other equipment and
software that we use, our business, financial condition and results of
operations could be materially adversely affected. If we are unable to obtain
critical equipment, software, services or other items on a timely basis and at
an acceptable cost, our ability to offer our products and services and roll out
advanced services may be impaired, and our business, financial condition and
results of operations could be materially adversely affected. 47




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The loss of key personnel could have a material adverse effect on our
business. Our success is substantially dependent upon the retention and continued
performance of our key personnel, including Rocco B. Commisso, our Chairman and
Chief Executive Officer. We have not entered into an employment agreement with Mr. Commisso. If Mr. Commisso or any of our other key personnel
cease to be employed by us for any reason, our business could be materially
adversely affected. We do not currently maintain key man life insurance on Mr.
Commisso or other key personnel. In addition, our subsidiary credit facilities provide that a default will
result if any person or group, other than Mr. Commisso and certain of his
affiliates, becomes the beneficial owner of an amount of aggregate voting power
of our common stock on a fully-diluted basis that equals or exceeds the greater
of: (i) 35% and (ii) the amount of aggregate voting power of our common stock
on a fully diluted basis owned by Mr. Commisso and such affiliates at the time. Our Chairman and Chief Executive Officer has the ability to control all
major corporate decisions, and a sale of his stock could result in a change of
control that would have unpredictable effects. Rocco B. Commisso, our Chairman and Chief Executive Officer, beneficially
owned our common stock representing approximately 80.5% of the combined voting
power as of December 31, 2003. As a result, Mr. Commisso will generally have
the ability to control the outcome of all matters requiring stockholder
approval, including the election of our entire board of directors, the approval
of any merger or consolidation and the sale of all or substantially all of our
assets. In addition, Mr. Commissos voting power may have the effect of
discouraging offers to acquire Mediacom because any such acquisition would
require his consent. We cannot assure you that Mr. Commisso will maintain all or any portion of
his ownership or that he would continue as an officer or director if he sold a
significant part of his stock. The disposition by Mr. Commisso of a sufficient
number of shares could result in a change in control of our company, and we
cannot assure you that a change of control would not adversely affect our
business, financial condition or results of operations. As noted above, it
could also result in a default under our subsidiary credit agreements. Our cable television business is subject to extensive governmental
regulation. The cable television industry is subject to extensive legislation and
regulation at the federal and local levels, and, in some instances, at the
state level. Many aspects of such regulation are currently the subject of
judicial and administrative proceedings and legislative and administrative
proposals. We expect that court actions and regulatory proceedings will
continue to refine our rights and obligations under applicable federal, state
and local laws. The results of these judicial and administrative proceedings
and legislative activities may materially affect our business operations.
Local authorities grant us non-exclusive franchises that permit us to operate
our cable systems. We renew or renegotiate these franchises from time to time.
Local franchising authorities may demand concessions, or other commitments, as
a condition to renewal, and these concessions or other commitments could be
costly to obtain. The Communications Act contains renewal procedures and
criteria designed to protect incumbent franchisees against arbitrary denials of
renewal, and although such Act requires the local franchising authorities to
take into account the costs of meeting such concessions or commitments, there
is no assurance that we will not be compelled to meet their demands in order to
obtain renewals. We cannot predict whether any of the markets in which we
operate will expand the regulation of our cable systems in the future or the
impact that any such expanded regulation may have upon our business. Similarly, due to the increasing popularity and use of commercial online
services and the Internet, it is possible that a number of laws and regulations
may be adopted with respect to commercial online services and the Internet.
These include laws covering such issues as privacy, access to some types of
content by minors, pricing, bulk e-mail or spam, encryption standards,
consumer protection, electronic commerce, taxation of e-commerce, copyright
infringement and other intellectual property matters. The adoption of such
laws or regulations in the future may decrease the growth of such services and
the Internet, which could in turn decrease the demand for our cable modem
service, increase our costs of providing such service or have other adverse
effects on our business, financial condition and results of operations. 48




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Our franchises are non-exclusive and local franchising authorities may
grant competing franchises in our markets. Our cable systems are operated under non-exclusive franchises granted by
local franchising authorities. As a result, competing operators of cable
systems and other potential competitors, such as municipal utility providers,
may be granted franchises and may build cable systems in markets where we hold
franchises. Any such competition could adversely affect our business. The existence of multiple cable systems in the
same geographic area is generally referred to as an overbuild. As of the
filing date of this report, approximately 9.2% of the homes passed by our cable
systems were overbuilt by other cable operators. We cannot assure you that
competition from overbuilders will not develop in other markets that we now
serve or will serve after any future acquisitions. Pending FCC and court proceedings could adversely affect our Internet
access service. The legal and regulatory status of providing high-speed Internet access
service by cable television companies is uncertain. The adoption of new rules
by the FCC or rulings in court proceedings could place additional costs and
regulatory burdens on us, reduce our anticipated revenues or increase our
anticipated costs for this service, complicate the franchise renewal process,
result in greater competition or otherwise adversely affect our business. The
FCC has issued a declaratory ruling that cable modem service, as it is
currently offered, is properly classified as an interstate information service
that is not subject to common carrier regulation. However, the FCC is still
considering the following: whether to require cable companies to provide
capacity on their systems to other entities to deliver high-speed Internet
directly to customers, also known as open access; whether certain other
regulatory requirements do or should apply to cable modem service; and whether
and to what extent cable modem service should be subject to local franchise
authorities regulatory requirements or franchise fees. There can be no
assurance that regulatory authorities will not impose open access or similar
requirements on us as part of an industry-wide requirement. Such requirements
could have a negative impact on our business and results of operations. We may become subject to additional regulatory burdens when we offer
telephony service. The regulatory obligations of Internet protocol telephony are currently
under consideration by the FCC and state authorities. If our planned VoIP
telephony service is deemed by regulators to be a telecommunications service or
a state-regulated telephone service, such service could subject us to
significant regulation as well as higher fees for pole attachments. The
additional regulatory requirements could cause us to incur additional costs and
we may not be able to meet them in a timely manner. We may be subject to legal liability because of the acts of our Internet
service customers or because of our own negligence. Our cable modem service enables individuals to access the Internet and to
exchange information, generate content, conduct business and engage in various
online activities on an international basis. The law relating to the liability
of providers of these online services for activities of their users is
currently unsettled both within the United States and abroad. Potentially,
third parties could seek to hold us liable for the actions and omissions of our
cable modem service customers, such as defamation, negligence, copyright or
trademark infringement, fraud or other theories based on the nature and content
of information that our customers use our service to post, download or
distribute. We also could be subject to similar claims based on the content of
other Websites to which we provide links or third-party products, services or
content that we may offer through our Internet service. Due to the global
nature of the Web, it is possible that the governments of other states and
foreign countries might attempt to regulate its transmissions or prosecute us
for violations of their laws. It is also possible that information provided directly by us will contain
errors or otherwise be negligently provided to users, resulting in third
parties making claims against us. For example, we offer Web-based email
services, which expose us to potential risks, such as liabilities or claims
resulting from unsolicited email, lost or misdirected messages, illegal or
fraudulent use of email, or interruptions or delays in email service. To date, no one has filed such a claim against us. However, in the future
someone may file such a claim against us in either a domestic or international
jurisdiction and may succeed in imposing liability on us. Our defense of any
such actions could be costly and involve significant distraction of our
management and other resources. If we are held or threatened with significant
liability, we may decide to take actions to reduce our exposure to this type of
liability. This may require us to spend significant amounts of money for new
equipment and may also require us to discontinue offering some features or our
cable modem service. 49




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Since we launched our proprietary Mediacom Online(SM) Internet service in
February 2002, we from time to time receive notices of claimed infringements by
our cable modem service users. The owners of copyrights and trademarks have
been increasingly active in seeking to prevent use of the Internet to violate
their rights. In many cases, their claims of infringement are based on the acts of customers of an
Internet service providerfor example, a customers use of an Internet service
or the resources it provides to post, download or disseminate copyrighted music
or other content without the consent of the copyright owner or to seek to
profit from the use of the goodwill associated with another persons trademark.
In some cases, copyright and trademark owners have sought to recover damages
from the Internet service provider, as well as or instead of the customer. The
law relating to the potential liability of Internet service providers in these
circumstances is unsettled. In 1996, Congress adopted the Digital Millennium
Copyright Act, which is intended to grant ISPs protection against certain
claims of copyright infringement resulting from the actions of customers,
provided that the ISP complies with certain requirements. So far, Congress has
not adopted similar protections for trademark infringement claims. 50




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, we manage our interest expense using a
combination of fixed and variable interest rate debt. We enter into interest
rate exchange agreements, or interest rate swaps, to fix the interest rate on
a portion of our variable interest rate debt to reduce the potential volatility
in our interest expense that would otherwise result from changes in market
interest rates. As of December 31, 2003, we 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 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 in the event of
nonperformance by the other parties. However, due to the high creditworthiness
of our counterparties, we do not anticipate their nonperformance. At December
31, 2003, based on the mark-to-market valuation, we would have paid
approximately $15.8 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 on derivative
instruments, net, in consolidated statement of operations. For the year ended
December 31, 2003 we had a net gain of $7.2 million. We have no plans to
change our hedging strategy as outline above.
Future gains or losses on derivative instruments are largely dependent on
changes in variable market interest rates, which we cannot predict, and the
reduction in the time to maturity of our existing interest rate exchange
agreements. All else being equal, as time elapses on our interest rate
exchange agreements, the mark-to-market gains or losses we have incurred under
our interest rate exchange agreements will reduce, resulting in corresponding
losses or gains, respectively, on derivative instruments. If we maintain these
agreements to maturity, their ultimate 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 thousands). See Note 7 to our
consolidated financial statements. Bank Credit
    
    Capital LeaseSenior Notes
    
    Facilities
    
    Obligations
    
    TotalExpected Maturity:January 1, 2004 to December 31, 2004
    
    $
    
    
    
    $
    10,500
    
    
    $
    2,071
    
    
    $
    12,571January 1, 2005 to December 31, 2005
    
    
    
    
    
    
    45,500
    
    
    
    2,130
    
    
    
    47,630January 1, 2006 to December 31, 2006
    
    
    172,500
    (1)
    
    
    197,750
    
    
    
    2,191
    
    
    
    372,441January 1, 2007 to December 31, 2007
    
    
    
    
    
    
    247,000
    
    
    
    1,071
    
    
    
    248,071January 1, 2008 to December 31, 2008
    
    
    200,000
    
    
    
    411,750
    
    
    
    30
    
    
    
    611,780Thereafter
    
    
    1,025,000
    
    
    
    734,000
    
    
    
    
    
    
    
    1,759,000Total
    
    $
    1,397,500
    
    
    $
    1,646,500
    
    
    $
    7,493
    
    
    $
    3,051,493Fair Value
    
    $
    1,474,751
    
    
    $
    1,646,500
    
    
    $
    7,493
    
    
    $
    3,128,744Weighted Average Interest Rate
    
    
    9.1
    %
    
    
    3.0
    %
    
    
    3.1
    %
    
    
    5.8
    %
   (1)   Represents convertible senior notes due July 2006. 51




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ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Contents PageReport of
Independent Auditors-PricewaterhouseCoopers LLP
    
    
    53Report of
Independent Auditors on Financial Statement
Schedule-PricewaterhouseCoopers LLP
    
    
    54Report of Independent Public Accountants-Arthur Andersen LLP
    
    
    55Consolidated Balance Sheets as of December 31, 2003 and 2002
    
    
    56Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001
    
    
    57Consolidated Statements of Changes in Stockholders Equity for the Years EndedDecember 31, 2003, 2002 and 2001
    
    
    58Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001
    
    
    59Notes to Consolidated Financial Statements
    
    
    60Financial Statement Schedule: Schedule II-Valuation and Qualifying Accounts
    
    
    76
 52




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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 changes in stockholders equity, and
of cash flows present fairly, in all material respects, the financial position
of Mediacom Communications Corporation and its subsidiaries (the Company) at
December 31, 2003 and 2002, and the results of its operations and
its cash flows for the years then ended
in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Companys management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion. The Companys
consolidated financial statements as of December 31, 2001 and for the year then
ended, were audited by other independent accountants who have ceased
operations. Those independent accountants expressed an unqualified opinion on
those financial 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 ended, were audited by other
independent accountants who have ceased operations. As described in Note 6,
those financial statements have been revised to include the transitional
disclosures required by Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, which was adopted by the Company as of
January 1, 2002. We audited the transitional disclosures for 2001 included in
Note 6. In our opinion, the transitional disclosures for 2001 in Note 6 are
appropriate. However, we were not engaged to audit, review, or apply any
procedures to the 2001 financial statements of the Company other than with
respect to such disclosures and, accordingly, we do not express an opinion or
any other form of assurance on the 2001 financial statements taken as a whole. As discussed in Notes 2 and 6 to the consolidated financial statements, the
Company changed its method of accounting for goodwill effective January 1,
2002. /s/ PricewaterhouseCoopers LLP
New York, New York
March 9, 2004 53




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Report of Independent Auditors on
Financial Statement Schedule To the Shareholders of Mediacom Communications Corporation: Our audits of the consolidated financial statements referred to in our report
dated March 9, 2004 appearing in this Annual Report on Form 10-K also included
an audit of the financial statement schedule listed in Item 8 of this Form
10-K. In our opinion, the financial statement schedule for the years ended
December 31, 2003 and 2002 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. The financial statement schedule of
Mediacom Communications Corporation and its subsidiaries for the year ended
December 31, 2001, was audited by other independent accountants who have ceased
operations. Those independent accountants expressed an unqualified opinion on
that financial statement schedule in their report dated February 13, 2002. /s/ PricewaterhouseCoopers LLP
New York, New York
March 9, 2004 54




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THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Mediacom Communications Corporation: We have audited the accompanying consolidated balance sheets of Mediacom
Communications Corporation (a Delaware corporation) and subsidiaries as of
December 31, 2001 and 2000, and the related 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 financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe 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 Mediacom Communications
Corporation and its subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States. As explained in Note 2 to the consolidated financial statements, effective
January 1, 2001, the Company changed its method of accounting for derivative
instruments. Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole.
Schedule IIValuation and
Qualifying Accounts is presented for purposes of complying with the Securities
and Exchange Commissions rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole. /S/ ARTHUR ANDERSEN LLP     Stamford, Connecticut
February 13, 2002 55




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000s) December 31,2003
    
    2002ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    25,815
    
    
    $
    31,224Investments
    
    
    2,933
    
    
    
    4,070Subscriber accounts receivable, net of allowance for doubtful accounts
of $3,524 and $3,789, respectively
    
    
    56,706
    
    
    
    56,205Prepaid expenses and other assets
    
    
    14,260
    
    
    
    10,278Total current assets
    
    
    99,714
    
    
    
    101,777Investment in cable television systems:Property, plant and equipment, net of accumulated depreciation of $844,519 and
$631,427, respectively
    
    
    1,465,362
    
    
    
    1,483,829Intangible assets, net of accumulated amortization of $289,906 and
$275,125, respectively
    
    
    2,050,095
    
    
    
    2,072,404Total investment in cable television systems
    
    
    3,515,457
    
    
    
    3,556,233Other assets, net of accumulated amortization of $23,823 and $17,966, respectively
    
    
    39,788
    
    
    
    45,964Total assets
    
    $
    3,654,959
    
    
    $
    3,703,974LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    247,728
    
    
    $
    271,260Deferred revenue
    
    
    43,633
    
    
    
    33,261Current portion of long-term debt
    
    
    12,571
    
    
    
    2,211Total current liabilities
    
    
    303,932
    
    
    
    306,732Long-term debt, less current portion
    
    
    3,038,922
    
    
    
    3,017,000Other non-current liabilities
    
    
    26,991
    
    
    
    33,701Total liabilities
    
    
    3,369,845
    
    
    
    3,357,433STOCKHOLDERS EQUITYClass 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
    
    
    913
    
    
    
    911Class 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
    
    
    289
    
    
    
    290Additional paid-in capital
    
    
    982,390
    
    
    
    981,343Accumulated deficit
    
    
    (692,515
    )
    
    
    (630,040
    )Treasury stock, at cost, 1,536,744 shares of Class A common stock
    
    
    (5,963
    )
    
    
    (5,963
    )Total stockholders equity
    
    
    285,114
    
    
    
    346,541Total liabilities and stockholders equity
    
    $
    3,654,959
    
    
    $
    3,703,974
 The accompanying notes to consolidated financial statements
are an integral part of these statements. 56




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS(All amounts in 000s, except per share amounts) Year Ended December 31,2003
    
    2002
    
    2001Revenues
    
    $
    1,004,889
    
    
    $
    923,033
    
    
    $
    585,175Costs and expenses:Service costs (exclusive of depreciation and amortization of
$273,307, $319,435 and $310,785, respectively, shown
separately below)
    
    
    385,129
    
    
    
    359,737
    
    
    
    219,479Selling, general and administrative expenses
    
    
    196,826
    
    
    
    173,970
    
    
    
    105,794Corporate expenses
    
    
    17,237
    
    
    
    18,075
    
    
    
    11,609Depreciation and amortization
    
    
    273,307
    
    
    
    319,435
    
    
    
    310,785Operating income (loss)
    
    
    132,390
    
    
    
    51,816
    
    
    
    (62,492
    )Interest expense, net
    
    
    (190,199
    )
    
    
    (188,304
    )
    
    
    (139,867
    )Gain (loss) on derivative instruments, net
    
    
    7,218
    
    
    
    (13,877
    )
    
    
    (8,441
    )Other (expense) income
    
    
    (11,460
    )
    
    
    (11,093
    )
    
    
    21,653Net loss before provision for income taxes
    
    
    (62,051
    )
    
    
    (161,458
    )
    
    
    (189,147
    )Provision for income taxes
    
    
    (424
    )
    
    
    (200
    )
    
    
    (87
    )Net loss before cumulative effect of accounting change
    
    
    (62,475
    )
    
    
    (161,658
    )
    
    
    (189,234
    )Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    (1,642
    )Net loss
    
    $
    (62,475
    )
    
    $
    (161,658
    )
    
    $
    (190,876
    )Basic and diluted loss per share:Before cumulative effect of accounting change
    
    $
    (0.53
    )
    
    $
    (1.35
    )
    
    $
    (1.78
    )Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Loss per share
    
    $
    (0.53
    )
    
    $
    (1.35
    )
    
    $
    (1.80
    )Weighted average common shares outstanding
    
    
    118,627
    
    
    
    119,608
    
    
    
    105,780
 The accompanying notes to consolidated financial statements
are an integral part of these statements. 57




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY
(All dollar amounts in 000s) Class A
    
    Class B
    
    Additional
    
    Accumulated
    
    
    
    
    
    TreasuryCommon
    
    Common
    
    Paid-In
    
    Comprehensive
    
    Accumulated
    
    Stock,Stock
    
    Stock
    
    Capital
    
    Loss
    
    Deficit
    
    at cost
    
    TotalBalance, December 31, 2000
    
    $
    606
    
    
    $
    293
    
    
    $
    538,642
    
    
    $
    (414
    )
    
    $
    (277,506
    )
    
    $
    
    
    
    $
    261,621Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (190,876
    )
    
    
    
    
    
    
    Unrealized gain on investments, net of
deferred taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    414
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (190,462
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51Issuance of common stock, net of issuance costs
    
    
    299
    
    
    
    
    
    
    
    432,616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    432,915Issuance of common stock in employee stock
purchase plan
    
    
    
    
    
    
    
    
    
    
    547
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    547Vesting of equity granted to management, net
of forfeiture
    
    
    
    
    
    
    
    
    
    
    2,904
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,904Balance, December 31, 2001
    
    $
    905
    
    
    $
    293
    
    
    $
    974,760
    
    
    $
    
    
    
    $
    (468,382
    )
    
    $
    
    
    
    $
    507,576Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (161,658
    )
    
    
    
    
    
    
    (161,658
    )Issuance of common stock in employee stock
purchase plan
    
    
    3
    
    
    
    
    
    
    
    1,260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,263Vesting of equity granted to management, net
of forfeiture
    
    
    
    
    
    
    
    
    
    
    5,323
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,323Transfer of stock
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury stock, at cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,963
    )
    
    
    (5,963
    )Balance, December 31, 2002
    
    $
    911
    
    
    $
    290
    
    
    $
    981,343
    
    
    $
    
    
    
    $
    (630,040
    )
    
    $
    (5,963
    )
    
    $
    346,541Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,475
    )
    
    
    
    
    
    
    (62,475
    )Issuance of common stock in employee stock
purchase plan
    
    
    1
    
    
    
    
    
    
    
    1,047
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,048Transfer 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. 58




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS(All dollar amounts in 000s) Year Ended December 31,2003
    
    2002
    
    2001CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:Net loss
    
    $
    (62,475
    )
    
    $
    (161,658
    )
    
    $
    (190,876
    )Adjustments to reconcile net loss to net cash flows from operating
activities:Depreciation and amortization
    
    
    273,307
    
    
    
    319,435
    
    
    
    310,785Impairment of available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    329(Gain) loss on investments, net
    
    
    (5,832
    )
    
    
    13,877
    
    
    
    8,441Vesting of management stock
    
    
    
    
    
    
    5,323
    
    
    
    2,904Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    (687
    )Amortization of SoftNet Systems revenue
    
    
    
    
    
    
    
    
    
    
    (287
    )Termination of SoftNet Systems agreement
    
    
    
    
    
    
    
    
    
    
    (29,957
    )Amortization of deferred financing costs
    
    
    6,696
    
    
    
    7,183
    
    
    
    5,725Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    
    
    
    
    1,642Changes in assets and liabilities, net of effects from acquisitions:Subscriber accounts receivable, net
    
    
    (501
    )
    
    
    (10,601
    )
    
    
    (10,560
    )Prepaid expenses and other assets
    
    
    (3,982
    )
    
    
    3,400
    
    
    
    (9,423
    )Accounts payable and accrued expenses
    
    
    (17,259
    )
    
    
    (2,473
    )
    
    
    140,032Deferred revenue
    
    
    10,372
    
    
    
    3,855
    
    
    
    31,998Other non-current liabilities
    
    
    (6,710
    )
    
    
    (4,138
    )
    
    
    (1,441
    )Net cash flows provided by operating activities
    
    
    193,616
    
    
    
    174,203
    
    
    
    258,625CASH FLOWS USED IN INVESTING ACTIVITIES:Capital expenditures
    
    
    (231,505
    )
    
    
    (408,314
    )
    
    
    (285,396
    )Acquisitions of cable television systems
    
    
    (7,374
    )
    
    
    (6,548
    )
    
    
    (2,113,336
    )Proceeds from sales of cable television systems
    
    
    15,409
    
    
    
    
    
    
    
    Other investment activities
    
    
    671
    
    
    
    (6,740
    )
    
    
    (4,215
    )Net cash flows used in investing activities
    
    
    (222,799
    )
    
    
    (421,602
    )
    
    
    (2,402,947
    )CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:New borrowings
    
    
    302,594
    
    
    
    539,750
    
    
    
    2,396,000Repayment of debt
    
    
    (279,348
    )
    
    
    (318,750
    )
    
    
    (585,000
    )Proceeds from issuance of Class A common stock
    
    
    1,048
    
    
    
    1,263
    
    
    
    433,513Repurchase of Class A common stock
    
    
    
    
    
    
    (5,963
    )
    
    
    Financing costs
    
    
    (520
    )
    
    
    (984
    )
    
    
    (41,036
    )Net cash flows provided by financing activities
    
    
    23,774
    
    
    
    215,316
    
    
    
    2,203,477Net (decrease) increase in cash and cash equivalents
    
    
    (5,409
    )
    
    
    (32,083
    )
    
    
    59,155CASH AND CASH EQUIVALENTS, beginning of year
    
    
    31,224
    
    
    
    63,307
    
    
    
    4,152CASH AND CASH EQUIVALENTS, end of year
    
    $
    25,815
    
    
    $
    31,224
    
    
    $
    63,307SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the year for interest, net of amounts capitalized
    
    $
    184,228
    
    
    $
    194,497
    
    
    $
    87,621SUPPLEMENTAL
DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:Capital expenditures financed through capital leases
    
    $
    9,036
    
    
    $
    
    
    
    $
    
 The accompanying notes to consolidated financial statements
are an integral part of these statements. 59




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Organization Mediacom Communications Corporation (MCC, and collectively with its
direct and indirect subsidiaries, the Company) was organized 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 provides entertainment, information and telecommunications services
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. Mediacom Broadband LLC, a wholly-owned subsidiary of MCC, was organized as
a Delaware limited liability company in April 2001 for 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 Consolidated 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 financial statements in
conformity with generally accepted accounting principles 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 liabilities 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 1, 2003, the Company changed the estimated useful 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 television 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 resulted in a decrease in net loss of approximately $63.5 million or $0.54
per share for the year ended December 31, 2003. Revenue Recognition Revenues include amounts billed to customers for services provided,
installations, advertising and other services. Revenues from video and data
services are recognized when the services are provided to the customers.
Installation revenues are recognized 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. 60




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Concentration 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 limited 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
    
    40 yearsLeasehold improvements
    
    Life of respective leaseCable systems and equipment and subscriber devices
    
    4 to 20 yearsVehicles
    
    5 yearsFurniture, fixtures and office equipment
    
    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 construction 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 customer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 Assets 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 1, 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 indicators arise. The Company
has determined that its cable franchise costs and goodwill are indefinite-lived
assets. Accordingly, on January 1, 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. 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. 61




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 system 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 similar. 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
geographic 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. Accounting for Derivative Instruments The Company adopted SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities on January 1, 2001. As a result, the Company recorded
an after tax charge of approximately $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. Accounting 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 obligation, consideration was
given to the Cable Communications Policy Act of 1984, which generally entitles
the cable operator to the fair market value for the cable system covered by a
franchise, if renewal is denied and the franchising authority acquires
ownership of the cable system or effects a transfer of the cable system to
another person. Upon adoption of SFAS No. 143, the Company determined that in certain
instances, it is obligated by contractual terms or regulatory requirements to
remove facilities or perform other remediation activities upon the retirement
of its assets. The aggregate fair value of the liability incurred by this is
immaterial to the Companys consolidated financial statements taken as a whole. Income Taxes The
Company provides for income taxes using the liability method in accordance with
SFAS No. 109, Accounting for Income Taxes, which requires an asset
and liability based approach in accounting for income taxes. The Company
recognizes deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and expected
benefits of utilizing net operating loss carryforwards. The Company periodically
assesses the likelihood of realization of deferred tax assets and net operating
loss carryforwards by considering the scheduled reversal of deferred tax
liabilities, taxable income in future periods and tax planning strategies. Reclassifications Certain reclassifications have been made to prior years amounts to
conform to the current years presentation. 62




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 disclosure about the effects on
reported net income of an entitys accounting policy decisions with respect to
stock-based employee compensation; and (iii) Accounting Principles Board
(APB) Opinion No. 28, Interim Financial Reporting, to require disclosure
about those effects in interim financial information. The Company adopted SFAS
No. 148 on January 1, 2003. The Company did not change to the fair value based method of accounting
for stock-based employees compensation. Accordingly, the adoption of SFAS No.
148 did not affect the Companys financial condition or results of operations.
However, SFAS No. 148 requires that information be provided as if the Company
had accounted for employee stock options under the fair value method of this
statement, including disclosing pro forma information regarding net income
(loss) and net income (loss) per share beginning with the first quarter of
2003. The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, as permitted by SFAS No. 123. Compensation expense for stock
options is measured as the excess, if any, of the quoted market price of the
Companys stock at the date of the grant over the amount the employee must pay
to acquire the stock. No compensation cost has been recognized for any option
grants in the accompanying consolidated statements of operations since the
price of the options was at their fair market 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 the Black-Scholes model. Had the Company applied the fair
value recognition provisions of SFAS No. 123 to stock-based compensation, MCCs
net income (loss) and basic and diluted net income (loss) per share would have
been changed from the as reported amounts to the pro forma amounts as
follows (dollars in thousands): 2003
    
    2002
    
    2001Net loss, as reported
    
    $
    (62,475
    )
    
    $
    (161,658
    )
    
    $
    (190,876
    )Deduct: Total stock based
compensation determined under
fair value based method for all
awards, net of related tax effects
    
    
    (4,027
    )
    
    
    (3,502
    )
    
    
    (4,095
    )Pro forma, net loss
    
    $
    (66,502
    )
    
    $
    (165,160
    )
    
    $
    (194,971
    )Basic and diluted net loss per share:As reported
    
    $
    (0.53
    )
    
    $
    (1.35
    )
    
    $
    (1.80
    )Pro forma
    
    $
    (0.56
    )
    
    $
    (1.38
    )
    
    $
    (1.84
    )
 Excluded
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 activities under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. In general, SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 63




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30, 2003. The Company adopted SFAS No. 149 on July 1,
2003, and such adoption did not have a material impact on the Companys
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. The Company adopted SFAS No. 150 on July 1,
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 dilutive
securities. Due to its current losses, the Company does not have any
additional securities outstanding that would have a dilutive effect on the
weighted average common shares outstanding. The effects of stock options and
convertible debt were anti-dilutive because the Company generated 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 table 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
    )
    
    $
    (161,658
    )
    
    $
    (190,876
    )Basic and diluted loss per share
    
    $
    (0.53
    )
    
    $
    (1.35
    )
    
    $
    (1.80
    )Weighted average common shares
outstanding
    
    
    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 respective dates of
acquisition. The results of operations of the acquired systems have been
included with those of the Company since the dates of acquisition. 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). 64




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 51/4% 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). 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 1, 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
acquisitions had been completed on the date indicated or which may be obtained
in the future. 2001Revenues
    
    $
    834,126Operating loss
    
    
    (86,416
    )Net loss before cumulative effect of accounting change
    
    
    (265,282
    )Net loss
    
    
    (266,924
    )Basic and diluted loss per share
    
    $
    (2.52
    )Weighted average common shares outstanding
    
    
    105,780
 (5) Property, Plant and Equipment As of December 31, 2003 and 2002, property, plant and equipment consisted
of (dollars in thousands): 2003
    
    2002Land and land improvements
    
    $
    7,059
    
    
    $
    6,536Buildings and leasehold improvements
    
    
    41,273
    
    
    
    37,748Cable systems, equipment and subscriber devices
    
    
    2,172,953
    
    
    
    2,003,489Vehicles
    
    
    63,023
    
    
    
    46,007Furniture, fixtures and office equipment
    
    
    25,573
    
    
    
    21,4762,309,881
    
    
    
    2,115,256Accumulated depreciation
    
    
    (844,519
    )
    
    
    (631,427
    )Property, plant and equipment, net
    
    $
    1,465,362
    
    
    $
    1,483,829
 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 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. 65




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 1, 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 1, 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 franchise
renewal; (iv) in the Companys history of renewing franchises, 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) valuations of cable
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 impairment resides at the cable system cluster level. Such
level reflects the financial reporting level managed and reviewed by the
corporate 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 purchase 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 the carrying 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
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 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. The Company completed its last impairment test in accordance with
SFAS No. 142 in September 2003. Such test indicated no impairment of franchise
costs or goodwill. The following table provides a reconciliation of the results of operations
for the years ended December 31, 2003, 2002 and 2001 to the net loss that would
have been reported had goodwill and franchise costs amortization not been
recorded as of January 1, 2001, assuming the purchase of the AT&T cable systems
had been consummated as of January 1, 2001: 2003
    
    2002
    
    2001(in thousands, except per share data)(unaudited)Reported net loss
    
    $
    (62,475
    )
    
    $
    (161,658
    )
    
    $
    (190,876
    )Add back: goodwill and franchise cost amortization
    
    
    
    
    
    
    
    
    
    
    144,933Adjusted pro forma net loss
    
    $
    (62,475
    )
    
    $
    (161,658
    )
    
    $
    (45,943
    )Reported basic and diluted loss per share
    
    $
    (0.53
    )
    
    $
    (1.35
    )
    
    $
    (1.80
    )Add back: goodwill and franchise cost amortization
    
    
    
    
    
    
    
    
    
    
    1.37Adjusted pro forma basic and diluted loss per share
    
    $
    (0.53
    )
    
    $
    (1.35
    )
    
    $
    (0.43
    )
 66




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the net asset value for each intangible
asset category as of December 31, 2003 and 2002 (dollars in thousands): Gross Asset
    
    Accumulated
    
    Net Asset2003
    
    Value
    
    Amortization
    
    ValueFranchise costs
    
    $
    1,943,010
    
    
    $
    141,118
    
    
    $
    1,801,892Goodwill
    
    
    224,281
    
    
    
    3,223
    
    
    
    221,058Subscriber lists
    
    
    167,015
    
    
    
    140,087
    
    
    
    26,928Covenants not to compete
    
    
    5,695
    
    
    
    5,478
    
    
    
    217$
    2,340,001
    
    
    $
    289,906
    
    
    $
    2,050,095
 Gross Asset
    
    Accumulated
    
    Net Asset2002
    
    Value
    
    Amortization
    
    ValueFranchise costs
    
    $
    1,949,670
    
    
    $
    141,777
    
    
    $
    1,807,893Goodwill
    
    
    224,318
    
    
    
    3,231
    
    
    
    221,087Subscriber lists
    
    
    167,846
    
    
    
    124,808
    
    
    
    43,038Covenants not to compete
    
    
    5,695
    
    
    
    5,309
    
    
    
    386$
    2,347,529
    
    
    $
    275,125
    
    
    $
    2,072,404
 Amortization expense for the years ended December 31, 2003, 2002 and 2001
was approximately $14.9 million, $33.0 million and $125.7 million,
respectively. The Companys estimated aggregate amortization expense for 2004
through 2008 and beyond is $10.8 million, $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): 2003
    
    2002Bank credit facilities
    
    $
    1,646,500
    
    
    $
    1,621,50081/2% senior notes
    
    
    200,000
    
    
    
    200,00077/8% senior notes
    
    
    125,000
    
    
    
    125,00091/2% senior notes
    
    
    500,000
    
    
    
    500,00011% senior notes
    
    
    400,000
    
    
    
    400,00051/4% convertible senior
notes
    
    
    172,500
    
    
    
    172,500Capital lease obligations
    
    
    7,493
    
    
    
    211$
    3,051,493
    
    
    $
    3,019,211Less: current portion
    
    
    12,571
    
    
    
    2,211Total long-term debt
    
    $
    3,038,922
    
    
    $
    3,017,000
 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 loan (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 1/2% Senior Notes by March 31, 2007. 67




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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
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 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 1/2% Senior Notes by March 31, 2007. The term loan
is payable in quarterly installments. 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 1/4% to 3/8% per annum on the unused portion of available credit under the
reducing revolver credit facility. Interest on 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 November 5, 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 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 1/2% 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 1/2%
Senior Notes by March 31, 2007. The term loan is payable in quarterly
installments. As of December 31, 2003, the outstanding 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 provides for
interest at varying rates based upon various borrowing options and the
attainment of certain financial ratios, and for commitment fees of 1/4% to
3/8% 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 billion 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 commitments 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 original amount of the term loan, while tranche B will be reduced by
$2.5 million or 0.5% of the original amount of the term loan. The Mediacom
Broadband Credit Agreement requires mandatory reductions of the revolving
credit facility from excess cash flow, as defined 68




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Mediacom Broadband 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 3/8% to
5/8% per annum on the unused portion of available credit under the revolving
credit facility. Interest on outstanding revolving loans and the tranche A
term loan is payable at either the eurodollar rate plus 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%. Interest on the tranche B 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 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
transactions 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 guaranteed 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 of nonperformance by the other
parties. However, due to the high creditworthiness of its counterparties, the
Company does not anticipate their nonperformance. The fair value of the interest rate exchange agreements is the estimated
amount that the Company would receive or pay to terminate such agreements,
taking into account current interest rates, the remaining time to maturities
and the current creditworthiness of the Companys counterparties. At December
31, 2003, based on the mark-to-market valuation, the Company would have paid
approximately $15.8 million if it terminated these agreements, inclusive of
accrued interest. Senior Notes On April 1, 1998, Mediacom LLC and its wholly-owned subsidiary, Mediacom
Capital Corporation, a New York corporation, jointly issued $200.0 million
aggregate principal amount of 8 1/2% senior notes due on April 2008 (the
8 1/2% Senior Notes). The 8 1/2% Senior Notes are unsecured obligations of
Mediacom LLC, and the indenture for the 8 1/2% Senior Notes stipulates, among
other things, restrictions on incurrence of indebtedness, distributions,
mergers and asset sales and has cross-default provisions related to other debt
of Mediacom LLC. Mediacom LLC was in compliance with the indenture governing
the 8 1/2% Senior Notes as of and for all periods in the year ended December 31, 2003. 69




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On February 26, 1999, Mediacom LLC and Mediacom Capital Corporation
jointly issued $125.0 million aggregate principal amount of 7 7/8% senior notes
due on February 2011 (the 7 7/8% Senior Notes). The 7 7/8% Senior Notes are
unsecured obligations of Mediacom LLC, and the indenture for the 7 7/8% Senior
Notes stipulates, among other things, restrictions on incurrence of
indebtedness, distributions, mergers and asset sales and has cross-default
provisions related to other debt of Mediacom LLC. Mediacom LLC was in
compliance with the indenture governing the 7 7/8% Senior Notes as of and for
all periods in the year ended December 31, 2003. On January 24, 2001, Mediacom LLC and its wholly-owned subsidiary,
Mediacom Capital Corporation, completed an offering of $500.0 million of
9 1/2% senior notes due January 2013 (the 9 1/2% Senior Notes). The
9 1/2% Senior Notes are unsecured obligations of Mediacom LLC, and the
indenture for the 9 1/2% Senior Notes stipulates, among other things,
restrictions on incurrence of indebtedness, distributions, mergers, and asset
sales and has cross-default provisions related to other debt of Mediacom LLC.
Mediacom LLC was in compliance with the indenture governing the 9 1/2% Senior
Notes as of and for all periods in the year ended December 31, 2003. On June 29, 2001, Mediacom Broadband LLC and its wholly-owned subsidiary,
Mediacom Broadband Corporation, a Delaware corporation, completed an offering
of $400.0 million in aggregate principal amount of 11% senior notes due July
2013 (the 11% Senior Notes). The 11% Senior Notes are unsecured obligations
of Mediacom Broadband, and the indenture for the 11% Senior Notes stipulates,
among other things, restrictions of incurrence of indebtedness, distributions,
mergers and assets sales and has cross-default 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 all periods in the year ended
December 31, 2003. Convertible Senior Notes The Company maintains $172.5 million aggregate principal amount of 5 1/4%
convertible senior notes (Convertible Senior Notes) due July 2006. The
Convertible Senior Notes are convertible 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 8 1/2% Senior
Notes, the 7 7/8% Senior Notes, the 9 1/2% 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
    
    $
    12,5712005
    
    
    47,6302006
    
    
    372,4412007
    
    
    248,0712008
    
    
    611,780Thereafter
    
    
    1,759,000$
    3,051,493
 70




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 Class 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 million 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 participate 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 approximately $1.0 million
and $1.3 million in 2003 and 2002, respectively. 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
jurisdictions.  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
    
    2001Tax benefit at the United States statutory rate
    
    $
    (21,718
    )
    
    $
    (54,896
    )
    
    $
    (66,201
    )State taxes, net of federal tax benefit
    
    
    276
    
    
    
    700
    
    
    
    774Losses not benefited
    
    
    21,866
    
    
    
    54,396
    
    
    
    65,514Total income tax expense
    
    $
    424
    
    
    $
    200
    
    
    $
    87
 The Companys net deferred tax liability consists of the following
(dollars in thousands): 2003
    
    2002Deferred tax asset:Unrealized loss on marketable securities
    
    $
    5,648
    
    
    $
    11,527Reserves and other
    
    
    32,656
    
    
    
    28,650Net operating loss carryforwards
    
    
    456,670
    
    
    
    280,163Gross tax assets
    
    
    494,974
    
    
    
    320,340Less: Valuation allowance
    
    
    (224,101
    )
    
    
    (182,518
    )Deferred tax assets, net
    
    
    270,873
    
    
    
    137,822Deferred tax liabilities:Investment in cable television systems
    
    
    270,873
    
    
    
    137,822Net deferred tax liability
    
    $
    
    
    
    $
    
 At
December 31, 2003, the Company had net operating loss carryforwards 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 carryforwards 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. 71




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) 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 Mediacom 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 performs
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 participate in
a defined contribution plan pursuant to the Internal Revenue Code Section
401(k) (the Plan). Under such Plan, eligible employees may contribute up to
15% of their current pre-tax 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 maximum percentage
of participant contributions, as determined annually 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, warehouses 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
    
    $
    3,1292005
    
    
    1,9792006
    
    
    1,7122007
    
    
    1,3962008
    
    
    680Thereafter
    
    
    1,895
 In addition, the Company rents utility poles in its operations generally
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. 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. 72




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 1, 2001. These
shares are reported as investments in the Companys consolidated balance sheet.
The Company recognized SoftNet-related revenue of approximately $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 sold 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 stockholders 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 plan has available under it 21,000,000 shares of common stock for
issuance in settlement 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 AverageShares
    
    Exercise PriceOutstanding at December 31, 2000
    
    
    9,907,010
    
    
    $
    18.93Granted
    
    
    778,120
    
    
    
    17.24Exercised
    
    
    (2,700
    )
    
    
    19.00Forfeited
    
    
    (173,835
    )
    
    
    18.41Outstanding at December 31, 2001
    
    
    10,508,595
    
    
    $
    18.81Granted
    
    
    604,735
    
    
    
    11.97Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (216,775
    )
    
    
    16.69Outstanding at December 31, 2002
    
    
    10,896,555
    
    
    $
    18.47Granted
    
    
    1,009,000
    
    
    
    7.93Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (162,240
    )
    
    
    15.78Outstanding 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. 73




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 accompanying 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 information 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; (ii) 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. The following table summarizes information concerning stock options
outstanding as of December 31, 2003: Options Outstanding
    
    Options ExercisableWeightedNumber
    
    Average
    
    Weighted
    
    Number
    
    WeightedRange of
    
    Outstanding at
    
    Remaining
    
    Average
    
    Exercisable at
    
    AverageExercise
    
    December 31,
    
    Contractual
    
    Exercise
    
    December 31,
    
    ExercisePrices
    
    2003
    
    Life
    
    Price
    
    2003
    
    Price$7.00 to $12.00
    
    
    1,540,235
    
    
    9.24 years
    
    $
    9.19
    
    
    
    130,347
    
    
    $
    10.82$12.01 to $18.00
    
    
    616,660
    
    
    7.28 years
    
    
    16.89
    
    
    
    250,324
    
    
    
    16.90$18.01 to $22.00
    
    
    9,586,420
    
    
    2.35 years
    
    
    19.00
    
    
    
    9,056,958
    
    
    
    19.0011,743,315
    
    
    3.51 years
    
    $
    17.60
    
    
    
    9,437,629
    
    
    $
    18.83
 74




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) Selected Quarterly Financial Data (Unaudited) First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter(in thousands, except per share data)2003Revenues
    
    $
    242,775
    
    
    $
    252,194
    
    
    $
    251,107
    
    
    $
    258,813Operating income
    
    
    19,029
    
    
    
    21,400
    
    
    
    44,134
    
    
    
    47,827Net (loss) income
    
    
    (33,366
    )
    
    
    (38,158
    )
    
    
    1,937
    
    
    
    7,112Basic and diluted net income
(loss) per share
    
    
    (0.28
    )
    
    
    (0.32
    )
    
    
    0.02
    
    
    
    0.06Weighted average common
shares outstanding
    
    
    118,525
    
    
    
    118,632
    
    
    
    118,633
    
    
    
    118,7172002Revenues
    
    $
    219,547
    
    
    $
    230,792
    
    
    $
    233,723
    
    
    $
    238,971Operating income
    
    
    11,997
    
    
    
    13,722
    
    
    
    21,584
    
    
    
    4,513Net loss
    
    
    (35,190
    )
    
    
    (37,487
    )
    
    
    (39,940
    )
    
    
    (49,041
    )Basic and diluted loss per share
    
    
    (0.29
    )
    
    
    (0.31
    )
    
    
    (0.33
    )
    
    
    (0.41
    )Weighted average common
shares outstanding
    
    
    119,892
    
    
    
    119,942
    
    
    
    119,943
    
    
    
    118,6622001Revenues
    
    $
    89,131
    
    
    $
    91,864
    
    
    $
    191,734
    
    
    $
    212,446Operating loss
    
    
    (9,982
    )
    
    
    (10,101
    )
    
    
    (8,854
    )
    
    
    (33,555
    )Net loss before cumulative effect
of
accounting change
    
    
    (2,935
    )
    
    
    (32,718
    )
    
    
    (65,262
    )
    
    
    (88,319
    )Net loss
    
    
    (4,577
    )
    
    
    (32,718
    )
    
    
    (65,262
    )
    
    
    (88,319
    )Basic and diluted loss per share
before
cumulative effect of accounting
change
    
    
    (0.03
    )
    
    
    (0.35
    )
    
    
    (0.54
    )
    
    
    (0.74
    )Basic and diluted loss
per share(a)
    
    
    (0.05
    )
    
    
    (0.35
    )
    
    
    (0.54
    )
    
    
    (0.74
    )Weighted average common
shares outstanding
    
    
    89,956
    
    
    
    92,921
    
    
    
    119,876
    
    
    
    119,882
   (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 its shares of its common stock during 2001. 75




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Schedule II MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
(All dollar amounts in 000s) Additions
    
    DeductionsBalance at
    
    Charged to
    
    Charged to
    
    Charged to
    
    Charged tobeginning of
    
    costs
    
    other
    
    costs
    
    other
    
    Balance atperiod
    
    and expenses
    
    accounts
    
    and expenses
    
    accounts
    
    end of periodDecember 31, 2001Allowance for doubtful accountsCurrent receivables
    
    $
    932
    
    
    $
    9,826
    
    
    $
    2,557
    
    
    $
    10,072
    
    
    $
    
    
    
    $
    3,243Acquisition reserves(1)Accrued expenses
    
    $
    5,382
    
    
    $
    
    
    
    $
    42,156
    
    
    $
    10,959
    
    
    $
    
    
    
    $
    36,579December 31, 2002Allowance for doubtful accountsCurrent receivables
    
    $
    3,243
    
    
    $
    13,685
    
    
    $
    
    
    
    $
    13,139
    
    
    $
    
    
    
    $
    3,789Acquisition reserves(1)Accrued expenses
    
    $
    36,579
    
    
    $
    
    
    
    $
    427
    
    
    $
    4,613
    
    
    $
    31,966
    
    
    $
    427December 31, 2003Allowance for doubtful accountsCurrent receivables
    
    $
    3,789
    
    
    $
    6,477
    
    
    $
    
    
    
    $
    6,742
    
    
    $
    
    
    
    $
    3,524Acquisition reservesAccrued expenses
    
    $
    427
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    127
    
    
    $
    300
   (1)
    
    Additions were charged in connection with
purchase accounting. 76




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE We have previously reported in a current report on Form 8-K, dated April
19, 2002, that we terminated our engagement of Arthur Andersen LLP. 
 ITEM 9A. CONTROLS AND PROCEDURES Our management carried out an evaluation, with the participation of its
Chief Executive Officer and Chief Financial Officer, of the effectiveness of
our disclosure controls and procedures as of December 31, 2003. Based upon that
evaluation, the Companys Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective to ensure
that information required to be disclosed by us in reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission. There has not been any change in our internal control over financial
reporting in connection with the evaluation required by Rule 13a-15(d) under
the Exchange Act that occurred during the quarter ended December 31, 2003 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. 77




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PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information called for by Item 10 is set forth under the heading
Directors and Executive Officers of the Registrant in Part I hereof and in
Election of Directors and Compliance with Section 16(a) of the Securities
Exchange Act of 1934 in our proxy statement relating to the 2004 Annual
Meeting of Stockholders, which information is incorporated herein by this
reference. 
 ITEM 11. EXECUTIVE COMPENSATION Information called for by Item 11 is set forth under the heading
Executive Compensation in the proxy statement, which information is
incorporated herein by this reference. 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information called for by Item 12 is set forth under the heading Security
Ownership of Certain Beneficial Owners and Management and Equity Compensation
Plan Information in the proxy statement, which information is incorporated
herein by this reference. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information called for by Item 13 is set forth under the heading Certain
Relationships and Related Transactions in the proxy statement, which
information is incorporated herein by this reference. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information called for by Item 14 is set forth under the heading
Ratification of Appointment of Independent Auditors in the proxy statement,
which information is incorporated herein by this reference. 78




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PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements Our financial statements as set forth in the Index to Consolidated
Financial Statements under Part II, Item 8 of this Form 10-K are hereby
incorporated by reference. (b) Exhibits The following exhibits, which are numbered in accordance with Item 601 of
Regulation S-K, are filed herewith or, as noted, incorporated by reference
herein: ExhibitNumber
    
    Exhibit Description2.1
    
    Asset Purchase Agreement, dated February 26, 2001 among Mediacom Communications
Corporation and the AT&T Broadband Parties (Central Missouri) (1)2.2
    
    Asset Purchase Agreement, dated February 26, 2001 among Mediacom Communications
Corporation and the AT&T Broadband Parties (Georgia) (1)2.3
    
    Asset Purchase Agreement, dated February 26, 2001 among Mediacom Communications
Corporation and the AT&T Broadband Parties (Iowa/Illinois) (1)2.4
    
    Asset Purchase Agreement, dated February 26, 2001 among Mediacom Communications
Corporation and the AT&T Broadband Parties (Southern Illinois) (1)3.1
    
    Restated Certificate of Incorporation of Mediacom Communications Corporation (2)3.2
    
    By-laws of Mediacom Communications Corporation (2)4.1
    
    Form of certificate evidencing share of Class A common stock(2)4.2
    
    Indenture relating to 81/2% senior notes due 2008 of Mediacom LLC and Mediacom Capital
Corporation (3)4.3
    
    Indenture relating to 77/8% senior notes due 2011 of Mediacom LLC and Mediacom Capital
Corporation (4)4.4
    
    Indenture relating to 91/2% senior notes due 2013 of Mediacom LLC and Mediacom Capital
Corporation (1)4.5
    
    Indenture relating to 11% senior notes due 2013 of Mediacom Broadband LLC and Mediacom
Broadband Corporation (3)4.6
    
    Indenture relating to 5.25% Convertible Senior Note due 2006 (5)4.7
    
    Indenture Supplement No. 1, dated as of August 6, 2002, to the Indenture relating to
11% senior notes due 2013 of Mediacom Broadband LLC and Mediacom Broadband Corporation.
(6)4.8
    
    Indenture Supplement No. 1, dated as of August 6, 2002, to the Indenture relating to
5.25% convertible senior notes due 2006 of the Company. (6)
 79




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ExhibitNumber
    
    Exhibit Description10.1(a)
    
    Credit Agreement dated as of September 30, 1999 for the Mediacom USA Credit Facility (2)10.1(b)
    
    Amendment No. 1 dated December 17, 1999 between Mediacom Southeast LLC, Mediacom California LLC,
Mediacom Delaware LLC, Mediacom Arizona LLC and The Chase Manhattan Bank, as administrative agent
for the lenders. (1)10.1(c)
    
    Amendment No. 2 dated February 4, 2000 between Mediacom Southeast LLC, Mediacom California LLC,
Mediacom Delaware LLC, Mediacom Arizona LLC and The Chase Manhattan Bank, as administrative agent
for the lenders. (1)10.1(d)
    
    Amendment No. 3 dated September 12, 2002 between Mediacom Southeast LLC, Mediacom California LLC,
Mediacom Delaware LLC, Mediacom Arizona LLC and JPMorgan Chase Bank, as administrative agent for the
lenders. (7)10.2(a)
    
    Credit Agreement dated as of November 5, 1999 for the Mediacom Midwest Credit Facility (2)10.2(b)
    
    Amendment No. 1 dated December 17, 1999 between Mediacom Illinois LLC, Mediacom Indiana LLC,
Mediacom Iowa LLC, Mediacom Minnesota LLC, Mediacom Wisconsin LLC, Zylstra Communications
Corporation and The Chase Manhattan Bank, as administrative agent for the lenders. (1)10.2(c)
    
    Amendment No. 2 dated February 4, 2000 between Mediacom Illinois LLC, Mediacom Indiana LLC, Mediacom
Iowa LLC, Mediacom Minnesota LLC, Mediacom Wisconsin LLC, Zylstra Communications Corporation and The
Chase Manhattan Bank, as administrative agent for the lenders. (1)10.2(d)
    
    Amendment No. 3 dated September 12, 2002 between Mediacom Illinois LLC, Mediacom Indiana LLC,
Mediacom Iowa LLC, Mediacom Minnesota LLC, Mediacom Wisconsin LLC, Zylstra Communications
Corporation and JPMorgan Chase Bank, as administrative agent for the lenders. (7)10.3
    
    Credit Agreement dated as of July 18, 2001 for the Mediacom Broadband Subsidiary Credit Facility. (3)10.3(a)
    
    Amendment No. 1 dated September 12, 2002 between MCC Iowa LLC, MCC Illinois LLC, MCC Georgia LLC,
MCC Missouri LLC and JPMorgan Chase Bank, as administrative agent for the lenders. (7)10.4*
    
    Form of Amended and Restated Registration Rights Agreement by and among Mediacom Communications
Corporation, Rocco B. Commisso, BMO Financial, Inc., CB Capital Investors, L.P., Chase Manhattan
Capital, L.P., Morris Communications Corporation, Private Market Fund, L.P. and U.S. Investor, Inc.
(2)10.5
    
    Fifth Amended and Restated Operating Agreement of Mediacom LLC (8)10.6
    
    Amended and Restated Limited Liability Company Operating Agreement of Mediacom Broadband LLC (9)10.7
    
    1999 Employee Stock Purchase Plan (2)10.8
    
    2001 Employee Stock Purchase Plan (10)10.9*
    
    2003 Incentive Plan (11)21.1
    
    Subsidiaries of Mediacom Communications Corporation(12)23.1
    
    Consent of PricewaterhouseCoopers LLP23.2
    
    Consent of Arthur Andersen LLP(13)31
    
    Rule 13a-14(a) Certifications32
    
    Section 1350 Certifications
 80




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(c) Financial Statement Schedule The
following financial statement schedule  Schedule II  Valuation
and Qualifying Accounts  is part of this Form 10-K and is on
page 76. (d) Reports on Form 8-K During
the quarter ended December 31, 2003, Mediacom Communications
Corporation filed or furnished
the following current report on Form 8-K with the Securities and Exchange
Commission:  Current report on Form 8-K, dated November 5, 2003, was furnished on
November 5, 2003. The item reported was:
    
    Item 12  Regulation FD Disclosure, which reported the issuance of
a press release announcing the Companys financial results for the
quarter ended September 30, 2003.   *
    
    Compensatory plan(1)
    
    Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 of Mediacom Communications Corporation and
incorporated herein by reference.(2)
    
    Filed as an exhibit to the Registration Statement on Form S-1 (File No.
333-90879) of Mediacom Communications Corporation and incorporated herein
by reference.(3)
    
    Filed as an exhibit to the Registration Statement on Form S-4 (File No.
333-57285) of Mediacom LLC and Mediacom Capital Corporation and
incorporated herein by reference.(4)
    
    Filed as an exhibit to the Registration Statement on Form S-4 (File No.
333-85893) of Mediacom LLC and Mediacom Capital Corporation and
incorporated herein by reference.(5)
    
    Filed as an exhibit to Amendment No. 1 of the Current Report on Form 8-K,
dated June 22, 2001, of Mediacom Communications Corporation and
incorporated herein by reference.(6)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2002 of Mediacom Communications
Corporation and incorporated herein by reference.(7)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2002 of Mediacom Communications
Corporation and incorporated herein by reference.(8)
    
    Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 of Mediacom Communications Corporation and
incorporated herein by reference.(9)
    
    Filed as an exhibit to the Registration Statement on Form S-4 (File No.
333-72440) of Mediacom Broadband LLC and Mediacom Broadband Corporation
and incorporated herein by reference.(10)
    
    Filed as an exhibit to the Registration Statement on Form S-8 (File No.
333-68306) of Mediacom Communications Corporation and incorporated herein
by reference.(11)
    
    Filed as Exhibit A to the definitive Proxy
Statement of Mediacom Communications Corporation filed with the SEC
on April 30, 2003 and incorporated herein by reference.(12)
    
    Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended December 31, 2001 of Mediacom Communications Corporation and
incorporated herein by reference.(13)
    
    The consolidated financial statements of Mediacom Communications
Corporation (the Registrant) as of December 31, 2001 and 2000 and for
the years then ended included in this Annual Report on Form 10-K
which are incorporated by reference into the Registrants 81




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Registration Statements
on Form S-3/A (File No. 333-82124) and Forms S-8 (File Nos. 333-41366,
333-41360 and 333-68306), have been audited by Arthur Andersen LLP,
independent public accountants (AA). However, after reasonable efforts,
the Registrant has been unable to obtain the written consent of AA with
respect to the incorporation by reference of such financial statements in
the Registration Statements. Therefore, the Registrant has dispensed with
the requirement to file the written consent of AA in reliance upon Rule 437a
of the Securities Act of 1933. As a result, you may not be able to recover
damages from AA under Section 11 of the Securities Act of 1933, for any
untrue statements of material fact or any omissions to state a material
fact, if any, contained in the aforementioned financial statements of the
Registrant which are incorporated in the Registration Statements by
reference. 82




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized. MEDIACOM COMMUNICATIONS CORPORATIONMarch 12, 2004
    
    BY:
    
    /s/ ROCCO B. COMMISSORocco B. Commisso
    Chairman and Chief
    Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ ROCCO B. COMMISSO
Rocco B. Commisso
    
    Chairman and Chief Executive Officer
(principal executive officer)
    
    March 12, 2004/s/ MARK E. STEPHAN
Mark E. Stephan
    

Executive Vice President, Chief Financial Officer,
        Treasurer and Director (principal financial
officer and principal accounting officer)
    
    March 12, 2004/s/ WILLIAM S. MORRIS III
William S. Morris III
    
    Director
    
    March 12, 2004/s/ CRAIG S. MITCHELL
Craig S. Mitchell
    
    Director
    
    March 12, 2004/s/ THOMAS V. REIFENHEISER
Thomas V. Reifenheiser
    
    Director
    
    March 12, 2004/s/ NATALE S. RICCIARDI
Natale S. Ricciardi
    
    Director
    
    March 12, 2004/s/ ROBERT L. WINIKOFF
Robert L. Winikoff
    
    Director
    
    March 12, 2004
 83