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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, 2004 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. EmployerIdentification Number)100 Crystal Run RoadMiddletown, 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:NoneSecurities 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 þ No o 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: þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes þ No o As of June 30, 2004, the aggregate market value of the Class A common stock of the Registrant
held by non-affiliates of the Registrant was approximately $474.6 million. As of February 4, 2005 there were outstanding 90,399,048 shares of Class A common stock and
27,461,939 shares of Class B common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrants Proxy Statement for the 2005 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
2004 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I
    
    
    PageItem 1.
Business
 
    
    4Item 2.
Properties
    
    
    30Item 3.
Legal Proceedings
    
    
    30Item 4.
Submission of Matters to a Vote of Security Holders
    
    
    31Item 4A.
Directors and Executive Officers of the Registrant    
    
    31PART IIItem 5.
Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    33Item 6.
Selected Financial Data

    
    34Item 7.
Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    37Item 7A.
Quantitative and Qualitative Disclosures About Market Risk

    
    55Item 8.
Financial Statements and Supplementary Data

    
    56Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    81Item 9A.
Controls and Procedures
    
    
    81Item 9B.
Other Information
    
    
    81PART IIIItem 10.
Directors and Executive Officers of the
Registrant
    
    
    82Item 11.
Executive Compensation
    
    
    82Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

    
    82Item 13.
Certain Relationships and Related Transactions
    
    
    82Item 14.
Principal Accountant Fees and Services
    
    
    82PART IVItem 15.
Exhibits, Financial Statement Schedule
    
    
    83EX-10.2: AMENDED AND RESTATED CREDIT AGREEMENTEX-23.1: CONSENT OF PRICEWATERHOUSECOOPERS LLPEX-31: CERTIFICATIONSEX-32: 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.
Through our interactive broadband network, we provide our customers with a wide array of products
and services, including analog and digital video services, advanced video services such as
video-on-demand (VOD), high-definition television (HDTV) and digital video recorders (DVR),
and high-speed data (HSD), also known as high-speed Internet access or cable modem service. We
currently offer our customers a variety of options to bundle our array of video services with HSD.
In the second quarter of 2005 we plan to begin the rollout of cable telephony, which will enable us
to offer our customers a triple-play bundle of video, HSD and voice services. As of December 31, 2004, our cable systems passed an estimated 2.79 million homes and served
approximately 1.46 million basic subscribers, and 2.22 million revenue generating units (RGUs).
Approximately 65% of our customers are located within the top 100 television markets in the United
States, with a concentration of customers in the midwest and southern regions. A basic subscriber
is a customer who subscribes to a package of cable television services. RGUs represent the sum of
basic subscribers, digital customers and HSD customers. We are a public company and our Class A common stock is listed on The Nasdaq National Market
under the symbol MCCC. We were founded in July 1995 by Rocco B. Commisso, our Chairman and Chief
Executive Officer, who beneficially owns shares in our company representing the majority of the
combined voting power of our common stock. 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 that served approximately 800,000 basic subscribers, more than doubling our
size and enhancing our scale efficiencies in operations and capital investments in technology. 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. We have also
made our Code of Ethnics available through our website, under the
heading Corporate Information. The information on our website is not part of
this Annual Report. Business Strategy Our strategy is to be the leading single-source provider of advanced video, data and voice
products and services in our markets, which will allow us to deepen relationships with our existing
customers, attract new customers and further diversify our revenue streams. We believe that our
interactive broadband network is the superior platform today for the delivery of these products and
services within our service areas. We have a local presence, with facilities and employees in the
communities where our customers live. We believe that offering products and services in bundles,
together with reliable customer service and our local community presence, will enable us to execute
our strategy and compete effectively.  Network Technology We operate high-capacity, fiber-optic cable systems, substantially all of which are activated
with two-way communications capability. We have also interconnected approximately 75% of our
estimated homes passed with a regional fiber network. In 2005, we plan to add synchronous optical
network (SONET) technology to our regional fiber network to create full redundancy. SONET is a fiber-optic 4




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transmission system for high-speed
digital traffic which uses a self-healing ring architecture to reroute traffic if a break in
communications occurs. We believe that our broadband networks extended reach and robust
capabilities facilitate launches of new products such as cable telephony.  Product Development and New Applications Our network technology allows us to offer an array of advanced video, data and voice products
and services. As of December 31, 2004, our digital cable service was available to substantially all
of our basic subscribers, and we served approximately 396,000 digital customers. Our VOD and HDTV
services were available to approximately 65% and 77% of our digital customers,
respectively, and DVRs were available to our entire digital customer base. As of the same date, HSD
was marketed to substantially all of the estimated homes passed by our cable systems, and we served
approximately 367,000 data customers. We will continue to capitalize on the capabilities of our
network technology to develop new products and services that will further differentiate us from our
competitors.  Bundling of Broadband Products and Services We believe that bundled products and services offer our customers the convenience of having a
single provider contact for ordering, scheduling, provisioning, billing and customer care. Our
customers can als o realize greater value through bundle discounts as they obtain additional
products and services from us. We currently offer video and HSD bundles, and when we introduce
cable telephony in the second quarter of 2005, we will offer triple-play bundles of video, HSD and
voice. We also believe that, as we become more effective in bundling products and services, it
will help us to attract new customers and reduce customer churn.  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
attained internal customer service measures that generally meet or exceed those standards
established by the National Cable and Telecommunications Association on a 24 hour per day, seven
day per week basis . In 2004, we completed our investment in virtual contact center technology
across our call centers and, as a result, raised our level of customer service and improved the
productivity of our call center personnel.  Community Presence Historically, one of our key objectives was to bridge the digital divide, or technology gap,
that had developed between the smaller cities and towns and the large urban markets in the United
States. Today, due to the significant investments we have made in our cable systems, substantially
all of the communities we serve 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 video service and more than 200 schools with free high-speed Internet
access. We also provide free cable service to over 3,000 government buildings, libraries, and
not-for-profit hospitals in our franchise areas. We develop and offer exclusive local programming
in our communities in an effort to foster community awareness. For example, in the communities we
serve in Iowa, the Mediacom Connections channel currently airs 60 to 70 hours of programming per
week, including high school and college sporting events and statewide public affairs programs. 5




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Products and Services  Video We receive a majority of our revenues from video subscription services. Subscribers typically pay
us on a monthly basis and generally may discontinue services at any time. We design our channel
line-ups for each system according to demographics, programming preferences, channel capacity,
competition, price sensitivity and local regulation. Monthly subscription rates and related charges
vary according to the type of service selected and the type of equipment used by subscribers. Our
video services include the following: Basic Service.Our 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. 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. Digital Cable Service.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, digital music channels , and an interactive on-screen
program guide. Our digital offerings of multichannel premium services include premium channels in
HD format and unlimited access to subscription-based VOD (SVOD). We believe that these
offerings highlight both the value of our digital cable services and our technologically advanced
broadband network, and encourage basic subscribers to upgrade to digital cable service. Customers
pay a monthly fee for digital cable service, which varies according to the level of service and the
number of digital converters selected by the subscriber. A digital converter or cable card is
required to receive our digital cable service. Video-On-Demand.Our VOD service provides on-demand access to approximately 1,200 hours of
movies, special events and general interest titles stored at our headend facilities. With this
service, our customers enjoy full functionality, including the ability to pause, rewind and fast
forward selected programming. Our VOD service is either free of charge, offered as part of an SVOD
premium package, such as Starz!, Showtime or HBO, or ordered on a pay-per-view basis . We
currently offer VOD service to approximately 65% of our digital customers. During 2005, we plan to
make VOD service available in additional cable systems representing another 15% of our digital
customers and increase the amount of available content, including additional childrens and music
programming. High-Definition Television.HDTV features improved, high-resolution picture quality, improved
audio quality and a wide-screen, theater-like display. Our HDTV service includes high definition
signals for local broadcast stations that make these signals available to us, and, as part of
premium channel subscriptions, Starz! HD, Showtime HD and HBO HD. We also provide, as part of our
HD Pak tier for an additional monthly fee, certain premium HDTV programming, such as ESPNHD, HDNet,
HDNet Movies, Universal HD and Discovery HD. As of December 31, 2004, 77 local broadcast channels
in our service areas were transmitting in HDTV, and we had secured agreements to carry 44 of them.
We currently offer HDTV service in markets serving approximately 77% of our digital customers.
During 2005, we plan to make HDTV service available in additional cable systems , representing
another 13% of our digital customers, and to increase the amount of available HDTV content,
including more local broadcast channels and other HDTV content. Our HDTV service requires the use
of an advanced digital converter for which we charge a monthly fee. Digital Video Recorders.We offer our customers digital converters that have digital video
recording capability. Using the interactive program guide, our customers with DVRs can record
programming on the hard drive component of the digital converter and view the recorded programming
using the play, pause, rewind and fast forward functions. The DVR can also pause live
television, and rewind or fast-forward it, as well as record one show while watching another, or
record two shows simultaneously. The DVRs we provide our customers are HDTV-capable. We began
deploying DVRs in certain of our cable systems in March 2004 and expanded this offering to all of
our cable systems by the end of 2004. 6




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High-Speed Data We offer several packages of HSD services with differing speeds and prices. Our HSD services
are always activated, and as a result, the customer does not need to dial into an Internet service
provider and await authorization. Our HSD services include our interactive portal, which provides
multiple e-mail addresses and personal webspace for customers, as well as local content, such as
community chamber of commerce news, which we solicit and support.  Commercial Data Through our network technology, we provide a range of advanced data and communications
services for the commercial market. We leverage our existing cable systems and cable modem services
to offer small and medium-sized businesses a range of high-speed data access products. For larger
enterprise customers, we capitalize on the broad reach and capabilities of our regional fiber
network, with nearly 9,000 route miles of high-capacity fiber optic cable, to build customized
solutions, which may include transparent LAN services, virtual private networks, and high-volume,
high-speed data access  Telephony In the second quarter of 2005, we plan to begin the rollout of our cable telephony service in
certain of our cable systems . Our service will use technology that makes it possible to have a
telephone conversation over a dedicated Internet Protocol (IP) network instead of dedicated voice
transmission lines. This allows the elimination of circuit switching and the associated waste of
bandwidth. Instead, packet switching is used, where IP packets with voice data are sent over the
network only when data needs to be sent, i.e. when a caller is talking. Its advantages over
traditional telephony include: lower costs per call, especially for long-distance calls; lower infrastructure costs because once the IP infrastructure is installed, no
or little additional telephony infrastructure is needed; and new advanced features. Our telephony service will compete primarily with the phone service offered by the incumbent
local phone company. Its features will include: unlimited local and long-distance calling
throughout the U.S. and North America; the ability to keep existing phone number where local
number portability is supported; the ability to access enhanced
Emergency 911 dialing; and the ability to use existing phones and in-home wiring. In 2004, we entered into an agreement with Sprint Corporation whereby Sprint assists us with
provisioning capabilities and provides us with switching and termination of traffic to the public
switched telephone network, delivery of enhanced emergency 911 service, local number portability
and operator and directory services. We expect to offer cable telephony service to approximately
1.6 million homes in our markets within twelve months of our initial market launch.  Advertising We generate revenues from the sale of advertising time on up to 36 satellite-delivered
channels such as CNN, Lifetime, Discovery, ESPN, TBS and USA. We have an advertising sales
infrastructure that includes in-house production facilities, production and administrative
employees and a locally based sales workforce. In 2004, we completed the process of extending our
advertising infrastructure to our cable systems that previously had third-party advertising
agreements. In many of our markets, we have entered into agreements with other cable operators to
jointly sell local advertising, simplifying our prospective clients purchase of local advertising
and expanding the reach of advertising they purchase. In some of these markets, we represent the
advertising sales efforts of other cable operators; in other markets, other cable operators
represent us. 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: 2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Operating Data:Core VideoEstimated homes passed(1)
    
    
    2,785,000
    
    
    
    2,755,000
    
    
    
    2,715,000
    
    
    
    2,630,000
    
    
    
    1,173,000Basic subscribers(2)
    
    
    1,458,000
    
    
    
    1,543,000
    
    
    
    1,592,000
    
    
    
    1,595,000
    
    
    
    779,000Basic penetration(3)
    
    
    52.4
    %
    
    
    56.0
    %
    
    
    58.6
    %
    
    
    60.6
    %
    
    
    66.4
    %Digital CableDigital customers(4)
    
    
    396,000
    
    
    
    383,000
    
    
    
    371,000
    
    
    
    321,000
    
    
    
    40,000Digital penetration(5)
    
    
    27.2
    %
    
    
    24.8
    %
    
    
    23.3
    %
    
    
    20.1
    %
    
    
    5.1
    %DataData customers(6)
    
    
    367,000
    
    
    
    280,000
    
    
    
    191,000
    
    
    
    115,000
    
    
    
    15,600Data penetration(7)
    
    
    13.2
    %
    
    
    10.2
    %
    
    
    7.0
    %
    
    
    4.4
    %
    
    
    1.3
    %Revenue Generating Units(8)
    
    
    2,221,000
    
    
    
    2,206,000
    
    
    
    2,154,000
    
    
    
    2,031,000
    
    
    
    834,600Customer Relationships(9)
    
    
    1,495,000
    
    
    
    1,570,000
    
    
    
    1,611,000
    
    
    
    1,607,000
    
    
    
    N/ACable Network Data:Miles of plant
    
    
    46,900
    
    
    
    45,900
    
    
    
    45,000
    
    
    
    44,100
    
    
    
    24,500Density(10)
    
    
    59
    
    
    
    60
    
    
    
    60
    
    
    
    60
    
    
    
    48
   (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 digital cable, VOD, HDTV, DVR 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 estimated homes passed.(4)
    
    Represents customers that receive digital cable services .(5)
    
    Represents digital customers as a percentage of basic subscribers.(6)
    
    Represents residential data customers and small to medium-sized commercial cable
modem accounts billed at higher rates than residential customers. Small to medium-sized commercial accounts generally represent
customers with bandwidth requirements less than 5Mbps. These commercial accounts are converted to
equivalent residential data customers by dividing their associated revenues by the applicable
residential rate. Our data customers exclude large 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.(7)
    
    Represents the number of total data customers as a percentage of estimated homes
passed.(8)
    
    Represents the sum of basic subscribers, digital customers and data customers.(9)
    
    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.(10)
    
    Represents estimated homes passed divided by miles of plant. 8




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Selected Operating Data Our systems are organized into two 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, 2004: Basic
    
    
    Digital
    
    
    DataDivision
    
    States
    
    Subscribers
    
    
    Customers
    
    
    CustomersNorth Central
    
    Illinois, Iowa, Minnesota, South Dakota
    
    712,000
    
    
    185,000
    
    
    195,000South Central
    
    Alabama, California, Delaware,
Florida, Georgia, Illinois, Indiana, Kentucky, Missouri, North Carolina
    
    746,000
    
    
    211,000
    
    
    172,000Total
    
    1,458,000
    
    
    396,000
    
    
    367,000
 Approximately 65% of our subscribers are in the top 100 Nielsen Media Research
designated market areas (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; Cedar Rapids  Waterloo  Iowa City & Dubuque; and Davenport  Rock Island. The
following table provides a partial list of the markets in which we provide cable service: DMA Rank
    
    Designated Market Area2
    
    Los Angeles, CA3
    
    Chicago, IL14
    
    Minneapolis - St. Paul, MN35
    
    Greenville - Spartanburg, SC63
    
    Mobile, AL - Pensacola, FL73
    
    Des Moines - Ames, IA78
    
    Springfield, MO79
    
    Paducah, KY - Cape Girardeau, MO - Harrisburg - Mt. Vernon, IL82
    
    Champaign & Springfield - Decatur, IL88
    
    Cedar Rapids - Waterloo - Iowa City & Dubuque, IA94
    
    Davenport, IA - Rock Island - Moline, IL
 Technology Overview We believe in investing in our broadband network, our facilities and other equipment to
improve our competitive position. During our planned network upgrade, which was completed in 2003,
we made substantial investments in our cable network. The primary features of our network are:  
    hybrid fiber-optic coaxial, or HFC, architecture;
    99% of the network miles with bandwidth capacity of 550MHz to 870MHz;
    99% of estimated homes passed with two -way communications capability;
    130 headend facilities, the 50 largest of which serve 96% of our basic subscribers; and
    the ability to provide advanced broadband services across virtually our entire footprint. 9




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A central feature of our cable network is the deployment of high capacity, HFC architecture. The
HFC 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. In most systems, we
deliver our signals via 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. 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. We believe that our design provides high
capacity and superior signal quality, as well as providing reserve capacity for the addition of
future services. The following table describes the technological state of our cable network as of December 31, 2004: Percentage of Cable NetworkLess than
    
    
    Standard
    
    
    Enhanced
    
    
    Greater than
    
    
    
    Two-Way550 MHz
    
    
    550 MHz
    
    
    550 MHz
    
    
    550 MHz
    
    
    
    Capable1.5%
    


    4.9%
    
    

    
    9.4%
    
    
    
    84.2%    
    
    
    
    99%
 As of December 31, 2004, our 550MHz systems consisted of standard 550MHz and enhanced
550MHz systems. Our enhanced 550MHz cable systems benefit from fiber-to-the-node construction to
increase their capacity, 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, HSD access and other telecommunications services across
virtually our entire footprint. In 2005, we plan to upgrade a portion of our 550MHz cable systems. As of December 31, 2004, our cable systems were operated from 130 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 96% of our basic subscribers are now served
by our 50 largest headend facilities. As part of our headend consolidation program, which was substantially completed in 2003, we
deployed nearly 9,000 route miles of fiber optic cable, creating a large regional fiber network
with the potential to provide advanced telecommunications services to approximately 70% of our
estimated homes passed. In 2005, we plan to add SONET technology to our regional fiber network in
order to create full redundancy. SONET is a fiber-optic transmission system for high-speed digital
traffic which uses a self-healing ring architecture to reroute traffic if a break in communications
occurs. This regional network has excess fiber optic capacity to accommodate new and expanded
products and services, such as our commercial data business. Its ability to reach more subscribers
from a single headend also makes it more efficient, in terms of capital investment, to introduce
new and advanced services. Programming Supply We have various fixed-term contracts to obtain, directly and indirectly, programming for our
cable systems from programming suppliers whose compensation is typically based on a fixed monthly
fee per customer. We negotiate programming contract renewals both directly and through a
programming cooperative of which we are a member. Most of our contracts are secured directly due
to the need to tailor contracts to our specific business concerns. We attempt to secure
longer-term programming contracts which may include marketing support and incentives from
programming suppliers. We expect our programming costs to remain our largest single expense item for the foreseeable
future. In recent years, we have experienced a substantial increase in the cost of our
programming, particularly sports programming, well in excess of the inflation rate or the change in
the consumer price index. Our programming costs will continue to rise in the future due to
increased costs to purchase programming and as we provide additional programming to our customers. 10




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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, a motivated and productive workforce and customer satisfaction are
cornerstones 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 benefit from
locally-based customer technical support staff who are available to visit customers premises if
problems arise. We maintain three regional contact centers staffed with dedicated customer service
representatives, or CSRs, and technical service representatives, or TSRs, who are available to
respond to customer calls 24 hours a day, seven days a week. We believe our regional contact
centers allow us to effectively manage resources and reduce response times to customer inquiries.
TSRs handle our HSD customers, ensuring prompt, efficient resolution of technical inquiries or
issues. In 2004, we completed the implementation of virtual contact center technology to provide
customers with extensive self-service capabilities, such as making a payment and verifying service
appointments, and to enable us to re-route customer calls among our three regional contact centers
and other satellite offices to minimize hold times. Our virtual contact centers also give our CSRs
and TSRs 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 call center personnel and the most effective customer interactions. Reinforcing
our commitment to customer service, we have attained customer service standards that meet or exceed
those standards established by the National Cable and Telecommunications Association. Also in 2004, we completed the rollout of interactive voice
response, or IVR, technology, and today over 25% of all inbound calls to our customer contact
centers are handled through the IVR, further enhancing the efficiencies of our customer service
operations. We continue to invest in personnel, equipment and technology to improve our customer care. In
2004, we implemented a web-based customer service platform called e-Care for bill presentment
purposes, and we are currently expanding our e-Care capabilities to include customer
self-fulfillment. 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 video
service and more than 200 schools with free high-speed Internet service. We also provide free cable
television service to over 3,000 government buildings, libraries and not-for-profit hospitals in
our franchise areas. We also develop and offer exclusive local programming to our communities, a capability not
available to direct broadcast satellite service providers, our primary competition in the video
business. Several of our cable systems have production facilities to create local programming,
which includes local school sports events, fund-raising telethons by local chapters of national
charitable organizations, local concerts and other entertainment. In Iowa, we are the exclusive
broadcaster of city council 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, 2004, we held 1,380 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, 2004. Percentage of
    
    
    Number of
    
    
    Percentage ofNumber of
    
    
    Total
    
    
    Basic
    
    
    Total BasicYear of Franchise Expiration
    
    Franchises
    
    
    Franchises
    
    
    Subscribers
    
    
    Subscribers2005 through 2008
    
    
    440
    
    
    
    32.0
    %
    
    
    694,000
    
    
    
    47.6
    %2009 and thereafter
    
    
    940
    
    
    
    68.0
    %
    
    
    764,000
    
    
    
    52.4
    %Total
    
    
    1,380
    
    
    
    100.0
    %
    
    
    1,458,000
    
    
    
    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 face intense competition from various communications and entertainment providers. Our
competitive positioning is significantly influenced by several factors, such as changes in
technology and regulation and the corporate size and affiliations of our competitors. We operate in
a constantly changing technological environment, and new technologies may give rise to new products
and services that compete against our own. Recent regulatory policies have created a more favorable
operating environment for new and existing technologies that provide, or may provide, both
opportunities and threats. Acquisitions or combinations that significantly change a companys size,
or permanent and temporary alliances also impact competitiveness as these may provide benefits,
such as improved access to resources (including financing, content and equipment), efficiencies of
scale and the ability to provide multiple services. We expect the number and types of our
competitors to increase as the expansion of our products and services brings us into new businesses
and as new providers of alternative products and services enter our markets. We are unable to
predict the effects, if any, of such future developments on our business. 12




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In
video services our principal competitors are direct broadcast
satellite (DBS) services. In high-speed data we compete
with digital subscriber line (DSL) services in
markets where it has been made available by telephone companies. Telephone companies now bundle
voice and data and have recently entered into marketing alliances that allow them to add DBS video
to their bundles. Major telephone companies have also begun to carry out their announced plans to
construct new fiber networks over the next several years, which will allow them to offer video
services over their networks. These phone companies may become significant direct video
competitors if they deploy new fiber networks on a large scale in our markets. With our planned
launch of cable telephony in the second quarter of 2005, we will compete with providers of various
types of telephone services, including providers of traditional circuit switched and wireless
telephony. We seek to compete effectively by using our broadband network to continue to provide a rich
variety of video programming and new products and services, including VOD, HDTV, DVRs, HSD and,
beginning this year, cable telephony. We believe our ability to deliver multiple services from a
single platform and to bundle these services strengthens our competitive position. We also believe
it is important for us to continue to provide high quality customer service and foster good
community relationships through our locally-based personnel and facilities. Video  Direct Broadcast Satellite Providers DBS service providers are the cable industrys most significant competitors, having grown
their customer base 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 24 million customers in the United States of America.
The two largest DBS companies, DIRECTV, Inc., or DIRECTV and EchoStar Communications Corporation,
or Echostar, 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, which acquired a controlling interest in DIRECTV in 2003, owns the Fox Television
Network and several cable programming services, as well as DBS operations in Europe, Asia and Latin
America. Affiliation with News Corporation could provide DIRECTV with access to financial,
programming and other resources that strengthen its competitive position. In early 2005, Echostar
entered into a definitive agreement to acquire from Cablevision Systems Corporation the broadcast
satellite and certain related assets of VOOM, a recently launched DBS service offering primarily
HDTV services on a national basis. DBS service providers have also entered into alliances with
certain telephone companies that allow the telephone companies to bundle DBS video with their voice
and data services. DBS differs from cable television in certain areas that impact competitiveness. DBS service
providers use high-powered satellites to offer their customers services with typically more than
300 channels of programming. DBS service can be received virtually anywhere in the continental
United States through the installation of a small rooftop or side-mounted antenna, with the only
requirement being an unobstructed view of the southern sky. DBS service providers do not pay the
franchise fees of up to 5% of revenues and property taxes that cable operators are required by many
localities to pay. These fundamental differences allow DBS providers to offer uniform nationwide
service, pricing and branding, giving them greater operating efficiencies overall and allowing them
to compete effectively. Furthermore, the initial investment by a DBS customer for equipment has
decreased substantially with offers by DBS service providers of discounted or free equipment,
installation and multiple units. DBS service providers have also benefited meaningfully from a change in legislation in 1999
that allowed them to deliver local broadcast signals, eliminating a significant competitive
advantage which we and other cable system operators had over them. As of December 31, 2004, DBS
service providers delivered local broadcast stations in markets representing an estimated 92% of
our basic subscribers, an increase of 30% from the prior year-end. The technological limitations of DBS give us and other cable operators certain advantages. DBS
technology has limited two-way interactivity, which restricts its ability to compete in interactive
video, HSD and voice services. In contrast, our broadband network allows full two-way interactivity
and greater varieties of advanced services. In video, we are able to offer VOD, SVOD and DVR
products and services while DBS is limited to DVRs. We also believe
our cable-delivered VOD and SVOD services are superior to DBS DVR
service, as our 13




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VOD/SVOD customer can access and independently control thousands of titles stored at a headend facility, while a DBS
DVR customer is limited to the much smaller number of titles that can be stored in the disk drive
of the DVR box sitting in the home. We are also able to deliver greater quantities of HDTV
programming for the foreseeable future, as DBS service providers currently face technological and
other limitations on their ability to deliver local HDTV broadcast signals in most of our markets. Our broadband network allows single platform delivery of video, HSD and, in the second quarter
of 2005, cable telephony. DBS service providers and certain phone companies have partnered to
provide these services in bundles. However, we believe our ability to deliver comparable bundles
from one platform is an advantage, as it allows us to provide customers a single provider contact
for ordering, provisioning, billing and customer care. We also believe our subscribers continue to prefer our meaningful presence in their
communities and the proprietary local content we produce and broadcast in several of our systems.
DBS service providers are not locally-based and do not have the ability to offer locally-produced
programming.  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 local utility or another service provider. Some of these competitors, such as
municipally-owned entities, 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 utilities which already possess or are developing fiber optic and other
transmission facilities in the areas they serve, are also competitors. We believe that various
entities are currently offering cable service to an estimated 12.4% of the estimated homes passed
in the service areas of our franchises.  Multichannel Multipoint Distribution Systems Multichannel multipoint distribution systems (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 (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. 14




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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.  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.
The FCC has issued digital television (DTV) licenses that give traditional broadcasters the
ability to deliver HDTV and advanced digital services such as data transmission and subscription
video. Over-the-air DTV subscription service is now available in a few cities in the United States. 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.  Telephone Companies The 1996 Telecom Act eliminated many restrictions on the ability of local telephone companies
to offer video programming. In addition to their joint-marketing alliances with DBS service
providers, certain local telephone companies have recently announced that they are now constructing
new fiber networks to replace their existing networks, which will allow them to offer video
services in addition to improved voice and high speed data services. If these and other telephone
companies decide to rebuild their networks in our markets and offer video services they will
compete with us and other video providers, which includes DBS service providers. Local telephone companies may 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
1984 Cable Act upon more traditional cable operators. High Speed Data We offer HSD, or cable modem service, in many of our cable systems. Our cable modem service
competes mainly with the high-speed Internet access services offered by local and long distance
telephone companies. These competitors have substantial resources. DSL services offered by telephone companies provide Internet access at data transmission
speeds greater than that of standard telephone line or dial-up modems, putting DSL
service in direct competition with our cable modem service. Telephone companies that have made the
necessary plant investment have introduced DSL services in many of our markets, however, we believe
their serviceable areas currently do not match our network reach in those markets. The FCC has an
ongoing rulemaking proceeding that may materially reduce existing regulation of DSL service,
essentially freeing such service from traditional telecommunications regulation. Federal
legislation or judicial decisions may also reduce regulation of Internet services offered by
incumbent telephone companies. 15




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As discussed above, certain major telephone companies are currently constructing new fiber
networks. These companies have indicated that this will create a new platform that will allow them
to offer significantly faster high-speed data services compared to the offerings available under
current DSL technology. DBS service providers are currently offering two alternatives of satellite-delivered
high-speed data. The first 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. Due to these differences we believe
our high-speed data service is superior to the satellite-delivered service. Some Internet service providers, or ISPs, offer dial-up Internet access service over standard
telephone lines in our markets. Dial-up service operates at much lower speeds than cable modem
service and is therefore not competitive with our high-speed data service. A number of these 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. 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. 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, they could become formidable competitors
given their resources. Cable Telephony We plan to roll out our cable telephony service in certain markets beginning in the second
quarter of 2005 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, wireless telephone carriers and IP-based service providers. IP phone is becoming more
widely deployed by an increasing number of telecommunication service providers, which may result in
heightened competition for our cable telephony service. We believe the addition of cable telephony
to our video and data service bundles will help us compete with other providers of bundled
services, including telephone companies that bundle DBS video with their voice and data services,
and the new providers of IP phone service. 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 that permits non-video transmission of information between an
individuals home and entertainment and information service providers. This service, which can be
used by DBS systems, television stations and other video programming distributors, including cable
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
systems. 16




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The FCC has allocated spectrum in the 28GHz range for a new multichannel wireless service called
Local Multipoint Distribution 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 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. The quality of real-time or streaming of video over the Internet and into homes and businesses
continues to improve. These services are also becoming more available as the use of high speed
Internet access becomes more widespread. In the future, it is possible that video streaming will compete with the video
services offered by cable operators and other providers of video services. For instance,
programming suppliers may market their content directly to consumers through video streaming over
the Internet, bypassing cable operators or DBS providers as video distributors, although the cable
operators may remain as the providers of high speed Internet access service. Employees As of December 31, 2004, we employed 3,749 full-time employees and 118 part-time employees.
Approximately 30 of our employees have organized but are not covered by a collective bargaining
agreement. We consider our relations with our employees to be satisfactory. 17




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##### Table of Contents



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 us and other cable operators and the level of competition that we face. We also provide a
brief description of certain relevant 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.
Federal law defines effective competition as existing in a variety of circumstances that
historically were rarely satisfied but are increasingly likely to be satisfied with the recent
increase in DBS penetration and the announced plans of some local phone companies to offer
comparable video service. Although the FCC is conducting a proceeding that may streamline the
process for obtaining effective competition
determinations, neither the outcome of this proceeding nor its impact upon the cable industry or
our business or operations can be predicted at this time. 18




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Where there is no effective competition to the cable operators services, federal law gives
local franchising authorities the ability to regulate the rates charged by the operator for:  
    the lowest level of programming service offered by the cable operator, typically
called basic service, which 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 affirmatively seek and 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. Currently, the majority of the communities we serve have
not sought such certification to regulate our 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 either a detailed cost-of-service methodology or an add-on to the
benchmark rate based on the additional capital cost and certain operating expenses resulting from
qualifying upgrades to the cable plant. 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. The FCC recently conducted an inquiry into the advisability of mandating the a la carte
offering of programming, as opposed to the cable industrys practice of packaging numerous channels
into tiers. Although the
FCC recommended against an a la carte mandate, it is possible that in the future rate regulation on
the cable industry could be expanded to include new restrictions on the retail pricing or packaging
of cable programming. Such restrictions could adversely impact our business. 19




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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. 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. Under legislation enacted in 1999, Congress barred broadcasters from entering into exclusive
retransmission consent agreements (through 2006) and required that broadcasters negotiate
retransmission consent agreements in good faith. In November 2004, Congress extended the ban on
exclusive retransmission consent agreements to cover all multi-channel video programming
distributors, including cable operators. The FCC has opened an inquiry into the impact on competition in the multichannel video
programming distribution market of the Cable Acts provisions and the FCCs rules on retransmission
consent, network nonduplication, syndicated exclusivity and sports blackouts. The FCCs inquiry
will form the basis for a report to Congress mandated by the Satellite Home Viewer Extension and
Reauthorization Act of 2004 (SHVERA), which is due September 8, 2005. The FCC also recently
opened a rulemaking to implement the requirement in SHVERA that extends the good faith
retransmission consent bargaining requirements from broadcasters to multichannel video programming
providers, including cable operators. Neither the outcome of these proceedings nor their impact
upon subsequent legislation, FCC regulations or the cable industry or our business or operations
can be predicted at this time. 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 surrender their analog channel and 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 recently reaffirmed that
cable operators are not required to carry the digital signal of Dual Format Broadcast Stations that
currently have must-carry rights for their analog signals. In addition to rejecting a dual
carriage requirement
during the transition, the FCC also confirmed 20




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that a cable operator need only carry a broadcasters
primary video service (rather than all of the digital multi-cast services), both during and
after the transition. In addition, in November 2004, Congress passed a non-binding resolution
urging that legislation be considered in 2005 that would set a firm date for the broadcasters to
return their analog spectrum. The adoption, by legislation or FCC regulation, of additional
must-carry requirements 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 our ability to carry new channels of programming that may be more desirable to 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;
    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 obtain
access to a portion of 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 21




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
    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.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 22




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
    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. The Cable Act and the FCC allow cable operators to pass franchise fees on to subscribers and
to separately itemize them on subscriber bills. In 2003 an appellate court affirmed an FCC ruling
that franchise fees paid by cable operators on non-subscriber related revenue (such as cable
advertising revenue and home shopping commissions) may be passed through to subscribers and
itemized on subscriber bills regardless of the source of the revenues on which they were assessed. In connection with its decision in March 2002 classifying high-speed Internet services
provided over a cable system as interstate information services, the FCC stated that revenues
derived from cable operators Internet services should not be included in the revenue base from
which franchise fees are calculated. In 2003 an appellate court vacated the FCCs decision
classifying cable operators Internet services as an interstate information service and not a
telecommunications service; however, the United States Supreme Court has agreed to hear the
FCCs appeal of the appellate court decision. Because of the FCCs decision, we are no longer
collecting and remitting franchise fees on our high-speed Internet service revenues. We are unable
to predict the ultimate resolution of these matters but do not expect that any additional franchise
fees we may be required to pay will be material to our business and operations.  Ownership Limitations The FCC previously adopted nationwide limits on the number of subscribers under the control of
a cable operator and on the number of channels which can be occupied on a cable system by video
programming in which the 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. 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. 23




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The 1996 amendments to the Cable Act 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.
Open video systems are exempt from certain regulatory obligations that currently apply to cable
operators. The decision as to whether an operator of an open video system must obtain a local
franchise is left to each community. The 1996 amendments to the Cable Act allow registered utility holding companies and
subsidiaries to provide telecommunications services, including cable television, notwithstanding
the Public Utilities Holding Company Act of 1935, as amended. In 2004, the FCC adopted rules: 1)
that affirmed the ability of electric service providers to provide broadband Internet access
services over their distribution systems; and 2) that seek to avoid interference with existing
services. Electric utilities could be formidable competitors to cable system operators. 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.  Cable Equipment The Cable Act and FCC regulations seek to promote competition in the delivery of cable
equipment by giving consumers the right to purchase set-top converters from third parties as long
as the equipment does not harm the network, does not interfere with services purchased by other
customers and is not used to receive unauthorized services. Over a multi-year phase-in period, the
rules also require multichannel video programming distributors, other than direct broadcast
satellite operators, to separate security from non-security functions in set-top converters to
allow third party vendors to provide set-tops with basic converter functions. Beginning July 1,
2006 cable operators will be prohibited from leasing digital set-top terminals that integrate
security and basic navigation functions. To promote compatibility of cable television systems and consumer electronics equipment the
FCC recently adopted rules implementing plug and play specifications for one-way digital
televisions. The rules require cable operators to provide CableCard security modules and support
for digital televisions equipped with built-in set-top functionality.  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 24




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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 will regulate pole
attachment rates, terms and conditions only in response to a formal complaint. 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. The United States Supreme Court will
review an appellate court decision classifying Internet services provided over cable systems to
include a telecommunications service component. If the Supreme Court affirms the appellate
courts decision, it may subject our pole attachments to higher rates. 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. 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 routinely conducts 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. 25




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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. Congress recently adopted legislation extending this
authority through 2009. 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
negotiated standard license agreements with the 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. Interactive Television The FCC has issued a Notice of Inquiry covering a wide range of issues relating to interactive
television (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 and requires
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 provisions 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 26




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federal laws. Other federal laws
currently impact the circumstances and the manner in which we disclose certain customer information
and future federal legislation may further impact our obligations. 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. 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,
although several federal courts have ruled that localities are not authorized to require open
access. The FCC, in connection with its review of the AOL-Time Warner merger, imposed, together
with the Federal Trade Commission, limited multiple access and other requirements related to the
merged companys Internet and Instant Messaging platforms. In March of 2002, the FCC announced that it was classifying Internet access service provided
through cable modems as an interstate information service, a classification that is currently under
review by the United States Supreme Court. 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 laws 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. 27




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
    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, an
appellate courts overturned the FCCs classification and found
cable Internet service to include both information service and
telecommunications service components. The United States Supreme
Court has agreed to hear an appeal of the appellate courts
decision. If the lower courts decision prevails, it could
result in an open access requirement and other obligations imposed on
telecommunications carriers. Any such requirements could adversely
affect our results of operations. Voice-Over-Internet
Protocol Telephony The
1996 amendments to the Cable Act created a more favorable regulatory
environment for cable operators to enter the phone business.
Currently, numerous cable operators are exploring, planning or have
commenced offering Voice-over-Internet-Protocol (VoIP)
telephony 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. As part of the proceeding to
determine any appropriate regulatory obligations for VoIP telephony,
the FCC recently decided that alternative voice technologies, like
certain types of VoIP telephony, should be regulated only at the
federal level, rather than by individual states. Many implementation
details remain unsolved, and there are substantial regulatory changes
being considered that could either benefit or harm VoIP telephony as
a business operation. While the final outcome of the FCC proceedings
cannot be predicted, it is generally believed that the FCC favors a
light touch regulatory approach for VoIP telephony, which
might include preemption of certain state or local regulation. 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;
    design and technical performance;
    customer service standards;
    sale or transfer of the franchise;
    territory of the franchise;
    indemnification of the franchising authority; 28




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
    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. 29




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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 set-top devices 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 On April 5, 2004, a lawsuit was filed against us, MCC Georgia LLC, one of our indirect
subsidiaries, and other, currently unnamed potential defendants in the United States District Court
for the District of Colorado by Echostar Satellite LLC, which operates a direct broadcast satellite
business under the name Dish Network. Echostar alleges that systems operated by us and MCC
Georgia LLC have used, without authorization, Dish Network satellite dishes activated under
residential accounts to receive the signals of certain broadcast television stations in one or more
locations in Georgia and that it has then been redistributing those signals, through its cable
systems, to its subscribers. Among other claims, the complaint filed by Echostar alleges that
these actions violate a provision of the Communications Act of 1934 (47 U.S.C. Sec. 605) that
prohibits unauthorized interception of radio communications. The plaintiff seeks injunctive
relief, actual and statutory damages, disgorgement of profits, punitive damages and litigation
costs, including attorneys fees. On June 29, 2004, Echostar amended its complaint to also allege that this conduct amounted to
a breach of the contract between Echostar and one of our employees, who allegedly acted as an agent
for the defendants, by which we received the Echostar satellite signal. On September 7, 2004, the
U.S. District Court granted our motion to transfer the case to the Middle District of Georgia,
where venue is proper and where personal jurisdiction over us exists. There have been no further
proceedings since that date. We intend to vigorously defend against these claims. At the present
time, we are unable to reasonably evaluate the likelihood of an unfavorable outcome or quantify the
possible damages, if any, associated with these matters, or whether or not those damages would be
material. We are also involved in various other legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these matters will not have a
material adverse effect on our consolidated financial position, results of operations, cash flows
or business. 30




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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, 2004. 
 ITEM 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Name
    
    Age
    
    PositionRocco B. Commisso
    
    
    55
    
    
    Chairman and Chief Executive OfficerMark E. Stephan
    
    
    48
    
    
    Executive Vice President, Chief Financial Officer, Treasurer & DirectorJohn G. Pascarelli
    
    
    43
    
    
    Executive Vice President, OperationsItalia Commisso Weinand
    
    
    51
    
    
    Senior Vice President, Programming & Human ResourcesJoseph E. Young
    
    
    56
    
    
    Senior Vice President, General Counsel & SecretaryCharles J. Bartolotta
    
    
    50
    
    
    Senior Vice President, Customer OperationsCalvin G. Craib
    
    
    50
    
    
    Senior Vice President, Business DevelopmentBrian M. Walsh
    
    
    39
    
    
    Senior Vice President & Corporate ControllerCraig S. Mitchell
    
    
    46
    
    
    DirectorWilliam S. Morris III
    
    
    70
    
    
    DirectorThomas V. Reifenheiser
    
    
    69
    
    
    DirectorNatale S. Ricciardi
    
    
    56
    
    
    DirectorRobert L. Winikoff
    
    
    58
    
    
    Director
 Rocco
B. Commisso has 27 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. Stephan has 18 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. Pascarelli has 24 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. Italia
Commisso Weinand has 28 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,
Inc., Times Mirror Cable and Time Warner, Inc. Ms. Weinand is the sister of Mr. Commisso. 31




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Joseph E. Young has 20 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. Charles
J. Bartolotta has 22 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
Tele-Communications, 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. Craib has 23 years of experience in the cable television industry and has served as
our Senior Vice President, Business Development since August 2001. Prior to that he was our Vice
President, Business Development since April 1999. Before joining us in April 1999, 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. Brian M. Walsh has 16 years of experience in the cable television industry and has served as
our Senior Vice President and Corporate Controller since February 2005. Prior to that he was our
Senior Vice President, Financial Operations from November 2003, our Vice President, Finance and
Assistant to the Chairman from November 2001, our Vice President and Corporate Controller from
February 1998 and our Director of Accounting from November 1996. Before joining us in April 1996,
Mr. Walsh held various management positions with Cablevision Industries from 1988 to 1995. Craig S. Mitchell has 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 III has 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. Reifenheiser served 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 also a member of the board of directors of Cablevision Systems Corporation and Lamar
Advertising Company. Natale S. Ricciardi has 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 President/Team
Leader, Global Manufacturing, with responsibility for all of Pfizers manufacturing facilities. Robert L. Winikoff has 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 from 1995. 32




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PART II 
 ITEM 5. MARKET FOR
REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER                 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: 2004
    
    
    2003High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    9.99
    
    
    $
    7.40
    
    
    $
    10.04
    
    
    $
    6.86Second Quarter
    
    $
    8.23
    
    
    $
    6.95
    
    
    $
    10.79
    
    
    $
    8.37Third Quarter
    
    $
    7.85
    
    
    $
    5.86
    
    
    $
    10.80
    
    
    $
    6.71Fourth Quarter
    
    $
    7.11
    
    
    $
    5.10
    
    
    $
    8.80
    
    
    $
    6.46
 As of February 4, 2005, there were approximately 750 holders of record of our Class A
common stock and 5 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. The following is a
summary of our repurchases of Class A common shares during 2004 under the $50.0 million
repurchase program, authorized by our Board of Directors in May 2000 and reaffirmed on August 3,
2004: Approximate DollarTotal Number of
    
    
    Value of Shares thatTotal Number
    
    
    
    
    
    
    Shares Purchased
    
    
    May Yet Beof Shares
    
    
    Average Price
    
    
    as Part of Publicly
    
    
    Purchased UnderPeriod
    
    Purchased
    
    
    Per share
    
    
    Announced Program
    
    
    the ProgramThird Quarter 2004
    
    
    596,092
    
    
    $
    6.13
    
    
    
    596,092
    
    
    $
    40,380,751October
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    40,380,751November
    
    
    446,100
    
    
    $
    5.66
    
    
    
    446,100
    
    
    $
    37,853,837December
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    37,853,837Fourth Quarter 2004
    
    
    446,100
    
    
    $
    5.66
    
    
    
    446,100
    
    
    $
    37,853,8371,042,192
    
    
    $
    5.93
    
    
    
    1,042,192
    
    
    $
    37,853,837
 33




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA In the table below, we provide you with selected historical consolidated financial and
operating data for the years ended December 31, 2000 through 2004 and balance sheet data as of
December 31, 2000 through 2004, which are derived from our audited consolidated financial
statements. We have significantly expanded our business through acquisitions. In June and July
2001, we acquired cable systems serving approximately 800,000 basic subscribers for an aggregate
purchase price of $2.06 billion. See Managements Discussion and Analysis of Financial Condition and Results of Operations. Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(1)(dollars in thousands, except per share data)(unaudited)Statement of Operations Data:Revenues
    
    $
    1,057,226
    
    
    $
    1,004,889
    
    
    $
    923,033
    
    
    $
    585,175
    
    
    $
    328,258Costs and expenses:Service costs
    
    
    412,841
    
    
    
    385,129
    
    
    
    359,737
    
    
    
    219,479
    
    
    
    110,442Selling, general and administrative
expenses
    
    
    211,428
    
    
    
    196,826
    
    
    
    173,970
    
    
    
    105,794
    
    
    
    55,820Corporate expenses(2)
    
    
    19,276
    
    
    
    17,237
    
    
    
    18,075
    
    
    
    11,609
    
    
    
    34,283Depreciation and amortization
    
    
    217,262
    
    
    
    273,307
    
    
    
    319,435
    
    
    
    310,785
    
    
    
    178,331Operating income (loss)
    
    
    196,419
    
    
    
    132,390
    
    
    
    51,816
    
    
    
    (62,492
    )
    
    
    (50,618
    )Interest expense, net
    
    
    (192,740
    )
    
    
    (190,199
    )
    
    
    (188,304
    )
    
    
    (139,867
    )
    
    
    (68,955
    )Gain (loss) on derivative instruments, net
    
    
    16,125
    
    
    
    9,057
    
    
    
    (13,877
    )
    
    
    (8,441
    )
    
    
    Gain (loss) on sale of assets and
investments, net
    
    
    5,885
    
    
    
    (1,839
    )
    
    
    
    
    
    
    
    
    
    
    Other (expense) income
    
    
    (12,061
    )
    
    
    (11,460
    )
    
    
    (11,093
    )
    
    
    21,653
    
    
    
    (30,024
    )Net income (loss) before income taxes
    
    
    13,628
    
    
    
    (62,051
    )
    
    
    (161,458
    )
    
    
    (189,147
    )
    
    
    (149,597
    )Provision for income taxes
    
    
    76
    
    
    
    424
    
    
    
    200
    
    
    
    87
    
    
    
    250Net income (loss) before cumulative effect
of accounting change
    
    
    13,552
    
    
    
    (62,475
    )
    
    
    (161,658
    )
    
    
    (189,234
    )
    
    
    (149,847
    )Cumulative effect of accounting
change(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,642
    )
    
    
    Net income (loss)
    
    $
    13,552
    
    
    $
    (62,475
    )
    
    $
    (161,658
    )
    
    $
    (190,876
    )
    
    $
    (149,847
    )Basic and diluted earnings (loss) per
share:(4)Before cumulative effect of accounting
change
    
    $
    0.11
    
    
    $
    (0.53
    )
    
    $
    (1.35
    )
    
    $
    (1.78
    )
    
    $
    (1.79
    )Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )
    
    
    Basic and diluted earnings (loss) per
share:
    
    $
    0.11
    
    
    $
    (0.53
    )
    
    $
    (1.35
    )
    
    $
    (1.80
    )
    
    $
    (1.79
    )Weighted average common shares
outstanding (4)Basic weighted average shares outstanding
    
    
    118,533,513
    
    
    
    118,627,262
    
    
    
    119,607,605
    
    
    
    105,779,737
    
    
    
    83,803,032Diluted weighted average share outstanding
    
    
    118,543,126
    
    
    
    118,627,262
    
    
    
    119,607,605
    
    
    
    105,779,737
    
    
    
    83,803,032Balance Sheet Data (end of period):Total assets
    
    $
    3,635,655
    
    
    $
    3,662,763
    
    
    $
    3,703,974
    
    
    $
    3,664,848
    
    
    $
    1,379,972Total debt
    
    
    3,009,632
    
    
    
    3,051,492
    
    
    
    3,019,211
    
    
    
    2,798,000
    
    
    
    987,000Total stockholders equity
    
    
    293,512
    
    
    
    285,114
    
    
    
    346,541
    
    
    
    507,576
    
    
    
    261,621
 (continued on next page) 34




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##### Table of Contents



Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(1)(dollars in thousands, except per share data)(unaudited)Other Data:Operating income before depreciation
and amortization(5)
    
    $
    413,681
    
    
    $
    405,697
    
    
    $
    371,251
    
    
    $
    248,293
    
    
    $
    127,713Operating income before depreciation
and amortization margin(6)
    
    
    39.1
    %
    
    
    40.4
    %
    
    
    40.2
    %
    
    
    42.4
    %
    
    
    38.9
    %Net cash flows provided by (used in):Operating activities
    
    $
    224,611
    
    
    $
    206,900
    
    
    $
    172,596
    
    
    $
    258,625
    
    
    $
    95,527Investing activities
    
    
    (177,424
    )
    
    
    (221,444
    )
    
    
    (421,602
    )
    
    
    (2,402,947
    )
    
    
    (297,110
    )Financing activities
    
    
    (49,127
    )
    
    
    9,135
    
    
    
    216,923
    
    
    
    2,203,477
    
    
    
    201,262Operating Data: (end of period)Estimated homes passed(7)
    
    
    2,785,000
    
    
    
    2,755,000
    
    
    
    2,715,000
    
    
    
    2,630,000
    
    
    
    1,173,000Basic subscribers(8)
    
    
    1,458,000
    
    
    
    1,543,000
    
    
    
    1,592,000
    
    
    
    1,595,000
    
    
    
    779,000Basic penetration(9)
    
    
    52.4
    %
    
    
    56.0
    %
    
    
    58.6
    %
    
    
    60.6
    %
    
    
    66.4
    %Digital customers(10)
    
    
    396,000
    
    
    
    383,000
    
    
    
    371,000
    
    
    
    321,000
    
    
    
    40,000Data customers(11)
    
    
    367,000
    
    
    
    280,000
    
    
    
    191,000
    
    
    
    115,000
    
    
    
    15,600
   (1)
    
    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.(2)
    
    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, 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.  (3)
    
    Relates to our adoption of Statements of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities.(4)
    
    Basic and diluted earnings (loss) per share is calculated based on the weighted
average 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. 35




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##### Table of Contents



(5)
    
    Operating income before depreciation and amortization (OIBDA) is not a financial
measure calculated in accordance with generally accepted accounting principles (GAAP) in the
United States of America. However, OIBDA is one of the primary measures used by management to
evaluate our performance and to forecast future results. We believe OIBDA is useful for
investors because it enables them to assess our performance in a manner similar to the method
used by management, and provides a measure that can be used to analyze, value and compare the
companies in the cable television industry, which may have different depreciation and
amortization policies. A limitation of this measure, however, is that it excludes
depreciation and amortization, which represents the periodic costs of certain capitalized
tangible and intangible assets used in generating revenues in our business. Management
utilizes a separate process to budget, measure and evaluate capital expenditures.OIBDA should not be regarded as an alternative to either operating income or net income (loss)
as an indicator of operating performance nor should it be considered in isolation or as a
substitute for financial measures prepared in accordance with GAAP. We believe that operating
income is the most directly comparable GAAP financial measure to OIBDA.The following represents a reconciliation of OBIDA to operating income (loss), which is the most
directly comparable GAAP measure: Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000OIBDA
    
    $
    413,681
    
    
    $
    405,697
    
    
    $
    371,251
    
    
    $
    248,293
    
    
    $
    127,713Depreciation and amortization
    
    
    (217,262
    )
    
    
    (273,307
    )
    
    
    (319,435
    )
    
    
    (310,785
    )
    
    
    (178,331
    )Operating income (loss)
    
    $
    196,419
    
    
    $
    132,390
    
    
    $
    51,816
    
    
    $
    (62,492
    )
    
    $
    (50,618
    )
  (6)
    
    Represents OIBDA as a percentage of revenues. See note 5 above.(7)
    
    Represents an estimate of the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable systems service area.(8)
    
    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 digital cable, VOD, HDTV, DVR 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.(9)
    
    Represents basic subscribers as a percentage of estimated homes passed.(10)
    
    Represents customers that receive digital cable services.(11)
    
    Represents residential data customers and small to medium-sized commercial cable
modem accounts billed at higher rates than residential customers. Small to medium-sized
commercial accounts generally represent customers with bandwidth requirements less than 5Mbps.
These commercial accounts are converted to equivalent residential data customers by dividing
their associated revenues by the applicable residential rate. Our data customers exclude
large 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. 36




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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, 2004, 2003 and 2002. Overview In 2003, we completed our planned network upgrade program that significantly increased
bandwidth and enabled interactivity. As of December 31, 2004, approximately 99% of our cable
network was upgraded with 550MHz to 870MHz bandwidth capacity and about 99% of our estimated homes
passed were activated with two-way communications capability. As of the same date, approximately
96% 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 to our customers. Our network technology allows us to offer an array of advanced video, data and voice products
and services, including VOD, DVRs, HDTV, HSD and, beginning in the second quarter of 2005, cable
telephony. We currently offer video and HSD bundles, and when we introduce cable telephony, we
will offer triple play bundles of video, HSD and voice. Bundled products and services offer our
subscribers a single provider contact for provisioning, billing and customer care. We face increasing competition for our video programming services, most notably from DBS
service providers. 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. As of December 31, 2004, local-to-local launches in our markets represented an
estimated 92% of our basic subscribers. During 2004, competitive pressure from DBS service
providers further intensified when they launched local television channels in additional markets
representing an estimated 30% of our basic subscriber base. These local-into-local launches were
usually accompanied by heavy marketing and advertising and are the primary cause of our loss of
basic subscribers during the last two years. In September 2004, as a result of Hurricane Ivan, our cable systems in areas of Alabama,
Florida and Mississippi experienced, to varying degrees, damage to cable plant and other property
and equipment, business interruption and loss of customers. This hurricane caused a temporary loss
of an estimated 8,000 basic subscribers, 2,000 digital customers and 1,000 data customers in these
three states. While we believe many of these customers will return to our service, there can be no
assurance that they will do so. The revenue impact and the costs incurred are reflected in our
consolidated financial statements, and are detailed as follows: revenues were recorded net of
$2.9 million of service interruption credits issued to
customers; service costs included $0.9
million of incremental costs to cover the repair of our facilities, the use of outside contractors
to help repair cable plant and increased employee costs; selling, general and administrative
expenses included incremental costs of $0.3 million related to additional customer service employee
costs required to support customers needs; and depreciation expense included $2.1 million due
to an impairment of cable plant and other property and equipment. In addition, we incurred capital
expenditures of approximately $8.1 million to replace or rebuild property, plant and equipment
damaged by Hurricane Ivan. We are insured against certain losses related to the hurricane, subject
to varying deductible amounts. At this time, we cannot estimate the amounts that will be
ultimately recoverable under our insurance policies. 37




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##### Table of Contents



Actual Results of Operations Year Ended
December 31, 2004 Compared to Year Ended December 31,
2003 The following table sets forth the consolidated statements of operations for the years ended
December 31, 2004 and 2003 (dollars in thousands and percentage changes that are not meaningful are
marked NM): Year Ended December 31,2004
    
    
    2003
    
    
    $ Change
    
    
    % ChangeRevenues
    
    $
    1,057,226
    
    
    $
    1,004,889
    
    
    $
    52,337
    
    
    
    5.2
    %Costs and expenses:Service costs
    
    
    412,841
    
    
    
    385,129
    
    
    
    27,712
    
    
    
    7.2
    %Selling, general and administrative expenses
    
    
    211,428
    
    
    
    196,826
    
    
    
    14,602
    
    
    
    7.4
    %Corporate expenses
    
    
    19,276
    
    
    
    17,237
    
    
    
    2,039
    
    
    
    11.8
    %Depreciation and amortization
    
    
    217,262
    
    
    
    273,307
    
    
    
    (56,045
    )
    
    
    (20.5
    %)Operating income
    
    
    196,419
    
    
    
    132,390
    
    
    
    64,029
    
    
    
    48.4
    %Interest expense, net
    
    
    (192,740
    )
    
    
    (190,199
    )
    
    
    (2,541
    )
    
    
    1.3
    %Gain on derivatives, net
    
    
    16,125
    
    
    
    9,057
    
    
    
    7,068
    
    
    NMGain (loss) on sale of assets and investments, net
    
    
    5,885
    
    
    
    (1,839
    )
    
    
    7,724
    
    
    NMOther expense
    
    
    (12,061
    )
    
    
    (11,460
    )
    
    
    (601
    )
    
    
    5.2
    %Net income (loss) before provision for income taxes
    
    
    13,628
    
    
    
    (62,051
    )
    
    
    75,679
    
    
    NMProvision for income taxes
    
    
    76
    
    
    
    424
    
    
    
    (348
    )
    
    
    (82.1
    %)Net income (loss)
    
    $
    13,552
    
    
    $
    (62,475
    )
    
    $
    76,027
    
    
    NM
 Revenues The following table sets forth revenue information for the years ended December 31, 2004 and
2003 (dollars in millions): Year Ended December 31,2004
    
    
    2003% of
    
    
    
    
    
    
    % ofAmount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    $ Change
    
    
    % ChangeVideo
    
    $
    848.8
    
    
    
    80.3
    %
    
    $
    845.9
    
    
    
    84.2
    %
    
    $
    2.9
    
    
    
    0.3
    %Data
    
    
    156.3
    
    
    
    14.8
    %
    
    
    116.3
    
    
    
    11.6
    %
    
    
    40.0
    
    
    
    34.4
    %Advertising
    
    
    52.1
    
    
    
    4.9
    %
    
    
    42.7
    
    
    
    4.2
    %
    
    
    9.4
    
    
    
    22.0
    %$
    1,057.2
    
    
    
    100.0
    %
    
    $
    1,004.9
    
    
    
    100.0
    %
    
    $
    52.3
    
    
    
    5.2
    %
 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 5.2%, net of service interruption credits given to customers affected by the
hurricane. Excluding such credits, revenues rose 5.5%, largely attributable to an increase in
broadband data customers and basic rate increases applied on our video customers, driven in large
part by our own video programming cost increases, offset by a reduction in basic subscribers during
the period. 38




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Video revenues rose 0.3% as a result of the aforementioned basic rate increases, substantially
offset by a loss of basic subscribers from 1,543,000 to 1,458,000. Digital customers increased
3.4% to 396,000 as compared to 383,000 a year ago. Our loss in basic subscribers resulted
primarily from increased competitive pressures by DBS service providers, particularly in those
markets where we experienced their local-into-local launches and, to a lesser extent, from our
tighter customer credit policies. In an effort to reverse this video subscriber trend, we have
been increasing our customer retention efforts and our emphasis on product bundling, enhancing and
differentiating our video products and services with new digital packages, VOD, HDTV, DVR and more
local programming. Data revenues rose 34.4%, due primarily to a 31.1% increase in data customers from 280,000 to
367,000 and an increased contribution from our relatively new commercial enterprise business. Advertising revenues increased 22.0%, primarily as a result of higher local advertising sales,
including political advertising and, to a lesser extent, the completion of an interconnect in one
of our larger markets. Political advertising contributed approximately 45.0% of this increase.
Also in 2004, we completed an interconnect agreement, under which we represent other cable
operators to jointly sell local advertising, which accounted for 29.8% of the growth. We do not
expect growth in advertising revenues to continue at the same rate in 2005, due to the likely
reduction in political advertising and because we do not currently expect to enter into any new
material interconnect agreements. 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; broadband data access costs, including costs of bandwidth connectivity, customer
provisioning and technical support 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 7.2%, primarily due to increases in programming expenses, employee
costs and plant operating costs. The largest component of service costs is programming related
expense which increased 3.5%, as a result of rate increases on basic and premium services,
significantly offset by a reduction in basic subscribers and an increase in launch support received
from programmers in return for our carriage of their programming services. Employee and plant
operating costs increased 23.7%, primarily due to increases in employee benefits, operational
insurance claims and the expensing of such operational costs resulting from the continued
transition from upgrade construction in 2003 to maintenance activities in 2004. Service costs as a
percentage of revenues were 39.0% for the year ended December 31, 2004, as compared with 38.3% for
the year ended December 31, 2003. 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 7.4%, principally due to higher
advertising, marketing and employee costs and higher taxes and fees, partially offset by a decrease
in bad debt expense. Advertising costs increased 22.7% as a result of employee commissions on
increased revenues. Employee costs increased 6.3% as a result of increases in employee
compensation, benefit costs and customer service overtime, driven by higher call volumes related to
the rollout of new products. Marketing costs rose 16.9% as a result of mass media campaigns to
support the rollout of new advanced services, and to promote customer retention and acquisition
initiatives. Taxes and fees increased 4.9% due to higher state property taxes. This increase in
selling, general and administrative expenses was partly offset by a 7.6% decrease in bad debt
expense as a result of improved customer credit and collection policies. Selling, general and
administrative expenses as a percentage of revenues were 20.0% for the year ended December 31,
2004, as compared with 19.6% for the year ended December 31, 2003. We expect continued revenue growth in advanced services, which include digital video, HDTV and
broadband data access and, in the second quarter of 2005, the launch of cable telephony service.
As a result, we expect our service costs and selling, general and administrative expenses to
increase. Corporate expenses reflect compensation of corporate employees and other corporate overhead.
Corporate expenses increased 11.8%, primarily due to increases in legal and accounting fees,
general insurance expenses and employee costs offset by greater capitalization of labor and
overhead costs related to increased capital activities in 2004 related to the cable telephony
project. Corporate expenses as a percentage of revenues were 1.8% for the year ended December 31,
2004, as compared with 1.7% for the year ended December 31, 2003. 39




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Depreciation and amortization decreased 20.5%, 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, this was offset in part by increased
depreciation for investments in our cable network and ongoing investments to continue the rollout
of products and services including video-on-demand, high-definition television, digital video
recorders and broadband data access. See Note 2 to our consolidated financial statements. Interest Expense, net Interest expense, net, increased by 1.3%, primarily due to slightly higher market interest
rates on variable rate debt and lower interest expense capitalization associated with the
substantial reduction of upgrade/rebuild capital expenditures, partially offset by lower
indebtedness. Gain on Derivatives, net We enter into interest rate exchange agreements, or interest rate swaps, with counterparties
to fix the interest rate on a portion of our variable rate debt to reduce the potential volatility
in our interest expense that would otherwise result from changes in market interest rates. As of
December 31, 2004 we had interest rate swaps with an aggregate principal amount of $800.0 million.
The changes in their mark-to-market values are derived from changes in market interest rates, the
decrease in their time to maturity and the creditworthiness of the counterparties. As a result of
the quarterly mark-to-market valuation of these interest rate swaps, we recorded a gain on
derivatives amounting to $16.1 million for the year ended December 31, 2004, as compared to a gain
on derivatives of $9.1 million for the year ended December 31, 2003. Gain (loss) on Sale of Assets and Investments, net We had a net gain on sale of assets and investments amounting to $5.9 million for the year
ended December 31, 2004 as compared to a loss of $1.8 million for the year ended December 31, 2003.
The net gain was principally due to the sale of a cable system in May 2004, serving approximately
3,450 subscribers, for gross proceeds of about $10.1 million. Other Expense Other expense was $12.1 million and $11.5 million for the years ended December 31, 2004 and
2003, respectively. Other expense primarily represents amortization of deferred financing costs
and fees on unused credit commitments. Provision for Income Taxes Provision for income taxes was approximately $76,000 and $424,000 for the years ended December
31, 2004 and 2003, respectively. The provision for income taxes relates to state income tax
liabilities. Net income (loss) As a result of the factors described above, we generated net income for the year ended
December 31, 2004 of $13.6 million, as compared to a net loss of $62.5 million for the year ended
December 31, 2003. 40




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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 and percentage changes that are not meaningful are
marked NM): 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
    
    
    
    7.1
    %Selling, general and administrative expenses
    
    
    196,826
    
    
    
    173,970
    
    
    
    22,856
    
    
    
    13.1
    %Corporate 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
    
    
    
    155.5
    %Interest expense, net
    
    
    (190,199
    )
    
    
    (188,304
    )
    
    
    (1,895
    )
    
    
    1.0
    %Gain (loss) on derivatives, net
    
    
    9,057
    
    
    
    (13,877
    )
    
    
    22,934
    
    
    NMLoss on sale of assets and investments, net
    
    
    (1,839
    )
    
    
    
    
    
    
    (1,839
    )
    
    NMOther expense
    
    
    (11,460
    )
    
    
    (11,093
    )
    
    
    (367
    )
    
    
    3.3
    %Net loss before provision for income taxes
    
    
    (62,051
    )
    
    
    (161,458
    )
    
    
    99,407
    
    
    NMProvision for income taxes
    
    
    424
    
    
    
    200
    
    
    
    224
    
    
    
    112.0
    %Net loss
    
    $
    (62,475
    )
    
    $
    (161,658
    )
    
    $
    99,183
    
    
    NM
 Revenues The following table sets forth revenue information for the years ended December 31, 2003 and
2002 (dollars in millions): Year Ended December 31,2003
    
    
    2002% of
    
    
    
    
    
    
    % ofAmount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    $ Change
    
    
    % ChangeVideo
    
    $
    845.9
    
    
    
    84.2
    %
    
    $
    812.8
    
    
    
    88.1
    %
    
    $
    33.1
    
    
    
    4.1
    %Data
    
    
    116.3
    
    
    
    11.6
    %
    
    
    70.7
    
    
    
    7.6
    %
    
    
    45.6
    
    
    
    64.5
    %Advertising
    
    
    42.7
    
    
    
    4.2
    %
    
    
    39.5
    
    
    
    4.3
    %
    
    
    3.2
    
    
    
    8.1
    %$
    1,004.9
    
    
    
    100.0
    %
    
    $
    923.0
    
    
    
    100.0
    %
    
    $
    81.9
    
    
    
    8.9
    %
 Revenues rose 8.9% attributable to a 46.6% increase in high-speed data customers and
basic rate increases applied on our video customers, driven in large part by our own programming
cost increases. Video revenues increased 4.1% 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. Data revenues rose 64.5% due, in large part, to a 46.6% increase in data customers from
191,000 to 280,000. Advertising revenues increased 8.1% 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. 41




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Costs and Expenses 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 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. 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. 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. Expenses relating to our call
centers, mainly customer service personnel and telecommunications, increased 9.0% as a result of
increased staffing and higher call volumes experienced during the year. 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. 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. Corporate expenses decreased 4.6%, primarily 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%, 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. 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 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. The changes in their mark-to-market values are derived from changes in market
interest rates, the decrease in their time to maturity and the creditworthiness of the
counterparties. As a result of the quarterly mark-to-market valuation of these interest rate
swaps, we recorded a gain on derivative instruments amounting to $9.1 million for the year ended
December 31, 2003, as compared to loss on derivative instruments of $13.9 million for the year
ended December 31, 2002. 42




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Loss on sale of assets and investments, net We had a loss on the sale of assets and investments amounting to $1.8 million for the year
ended December 31, 2003. The loss was principally due to a sale of a small cable system in
September 2003 with approximately 1,500 subscribers for gross proceeds of $3.1 million. 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. Provision for Income Taxes Provision for income taxes was approximately $424,000 and $200,000 for the years ended
December 31, 2003 and 2002, respectively. The provision for income taxes relates to state income
tax liabilities. Net loss Due to the factors described above, we generated a net loss of $62.5 million and $161.7 for
the years ended December 31, 2003 and 2002, respectively. Liquidity and Capital Resources In recent years, we have made significant capital investments in our cable systems to enhance
their reliability and capacity, which allows for the introduction of new advanced broadband
services. Our capital investments are now more focused on the deployment of new products and
services, including VOD, DVRs, HSD and cable telephony. We also may continue to make strategic
acquisitions of cable systems. Given our level of indebtedness, we also have significant amounts
of interest expense to pay each year. We believe that we will meet our debt service, capital
spending and other requirements through a combination of our net cash flows from operating
activities, borrowing availability under our bank credit facilities and our ability to secure
future external financing. Operating Activities Net cash flows
provided by operating activities were $224.6 million for the year ended
December 31, 2004, as compared to $206.9 million for the prior year, and reflected primarily our
operating income before depreciation and amortization and, to a much lesser extent,
changes in accounts payable and accrued
expenses. Investing Activities Net cash flows used in investing activities were $177.4 million for the year ended December
31, 2004, as compared to $221.4 million for the prior year, and principally comprised capital
expenditures. For the year ended December 31, 2004, we made capital expenditures of $181.4
million, including $8.1 million to replace or rebuild property, plant and equipment damaged by
Hurricane Ivan and $6.6 million to fund our cable telephony initiative. This compares to $231.5
million and $408.3 million we invested in 2003 and 2002, respectively, which reflected
significantly higher levels of capital expenditures for network upgrade and rebuild activities than
in 2004. This reduction in capital expenditures resulted primarily from the completion of our
planned network upgrade program in 2003. A larger percentage of our capital spending in 2004 was
attributable to the deployment of our advanced products and services, including VOD, HDTV and HSD,
and our preparation for the launch of cable telephony. In 2004, approximately 55% of our capital
expenditures was for advanced product and service deployment and cable telephony; 17% was for
rebuild and upgrade activities, including modifications to our cable network; 15% was for
extensions of our cable network to enter new service territories; and 13% was for outlays
associated with non-network assets. This trend of spending more on the deployment of advanced
products and services as compared to network improvements is expected to continue in 2005 and
beyond. We plan to invest between $200 million and $210 million in capital expenditures in 2005. 43




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During 2004, we also acquired a small cable system for $3.4 million and received $10.6 million
in proceeds from the sale of assets and investments, including the divestiture of a small cable
system. Financing Activities Net cash flows used in financing activities were $49.1 million for the year ended December 31,
2004, as compared to $9.1 million of net cash flows provided by financing activities the prior
year. In 2004, our principal financing activities included the repayment of bank indebtedness in
the amount of $41.9 million and repurchase of shares of our Class A common stock in the amount of
$6.2 million. Description of Our Credit Facilities We own our cable systems through two principal subsidiaries, Mediacom Broadband LLC and
Mediacom LLC. In October 2004, the operating subsidiaries of Mediacom LLC refinanced their two
bank credit facilities (the two prior LLC credit facilities) with a new $1.15 billion bank credit
facility (the LLC credit facility) that expires in March 2013. The LLC credit facility consists
of a $400.0 million revolving credit commitment, a $200.0 million delayed-draw term loan and a
$550.0 million term loan, which are subject to amortization, as applicable. Approximately $658.0
million was drawn from the LLC credit facility at closing, of which approximately $652 million was
used to pay in full the outstanding indebtedness, including accrued interest, under the two prior
LLC credit facilities and the balance was used to pay fees and expenses related to this new credit
facility. The financial obligations of the operating subsidiaries under the two prior LLC credit
facilities have been satisfied, and these credit facilities have been terminated. As of December
31, 2004, $646.0 million was outstanding under the LLC credit facility. In January 2005, we
borrowed the entire amount of the $200.0 million term loan and repaid a portion of our indebtedness
under our revolving credit commitments. The operating subsidiaries of Mediacom Broadband LLC have a $1.4 billion bank credit facility
(the Broadband credit facility) that expires in September 2010 and consists of a $600.0 million
revolving credit commitment, a $300.0 million term loan and a $500.0 million term loan, which are
subject to commitment reductions and amortization, as applicable. In December 2004, these
operating subsidiaries amended their bank credit agreement to conform its definitions, financial
covenants, and other terms (including those relating to letters of credit, mandatory prepayment,
representations and warranties, negative covenants and events of default) to those of the credit
agreement of the LLC credit facility. As of December 31, 2004,
$960.5 million was outstanding under the Broadband credit facility. 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
counterparties to the agreements. However, due to the high creditworthiness of our counterparties,
which are major banking firms with investment grade ratings, we do not anticipate their
nonperformance. As of December 31, 2004, about 73.2% of the Companys outstanding indebtedness was
at fixed interest rates or subject to interest rate protection. As of December 31, 2004, our total debt was approximately $3.0 billion and we were in
compliance with all covenants under our debt arrangements. On that same date, our annualized cost
of debt was approximately 6.8%, and we had unused revolving commitments under our credit facilities
of about $908.5 million, all of which could be borrowed and used for general corporate purposes
based on the terms and conditions of our debt arrangements, including the applicable financial
measures of leverage and interest coverage. The average interest rate for borrowings under the
revolving commitments of our credit facilities is now LIBOR plus 1.25% As of December 31, 2004, approximately $14.5 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 in the past, 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 if the opportunities arise. 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.


44



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##### Table of Contents



Contractual Obligations and Commercial Commitments The following table summarizes our contractual obligations and commercial commitments, and the
effects they are expected to have on our liquidity and cash flow, for the five years subsequent to
December 31, 2004 and thereafter (dollars in thousands)*: Capital
    
    
    OperatingDebt
    
    
    Leases
    
    
    Leases
    
    
    Total(2)2005
    
    $
    40,500
    
    
    $
    2,200
    
    
    $
    4,296
    
    
    $
    46,9962006
    
    
    220,500
    (1)
    
    
    2,269
    
    
    
    2,045
    
    
    
    224,8142007
    
    
    70,500
    
    
    
    1,120
    
    
    
    1,583
    
    
    
    73,2032008
    
    
    270,500
    
    
    
    43
    
    
    
    824
    
    
    
    271,3672009
    
    
    214,000
    
    
    
    
    
    
    
    583
    
    
    
    214,583Thereafter
    
    
    2,188,000
    
    
    
    
    
    
    
    1,288
    
    
    
    2,189,288Total cash obligations
    
    $
    3,004,000
    
    
    $
    5,632
    
    
    $
    10,619
    
    
    $
    3,020,251
 *  Refer to Note 7 to our consolidated financial statements for a discussion of our long-term
debt, and to Note 12 for a discussion of our operating leases and other commitments and
contingencies.   (1)
    
    Includes $172.5 million of convertible senior notes due 2006.(2)
    
    Excludes interest expense. 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 of America. 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. 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 available prudent tax planning strategies. At December 31, 2004, we
have recorded a net deferred tax asset valuation allowance of approximately $222.8 million. We
will continue to monitor the need for the deferred tax asset valuation allowance in accordance 45




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with
SFAS No. 109. Should there be a change in our ability to recover our deferred tax assets, our
valuation allowance would decrease or increase in the period in which we determined that the
recovery of our deferred tax assets were either likely or unlikely, respectively. 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. 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 performed in 2002 and 2003
reflected no impairment of our franchise costs and goodwill. We completed our most recent
impairment test as of October 1, 2004, which 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 In accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived
Assets, we periodically evaluate the recoverability and estimated lives of our long-lived assets,
including property and equipment and intangible assets subject to amortization, whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable or the useful
life has changed. The measurement for such impairment loss is based on the fair value of the
asset, typically based upon the future cash flows discounted at a rate commensurate with the risk
involved. Unless presented separately, the loss is included as a component of either depreciation
expense or amortization expense, as appropriate. Derivatives We account for derivatives instruments in accordance with SFAS
No. 133, SFAS No. 138 and SFAS No. 149. Our primary objective for holding derivative financial instruments is to manage interest rate
risk. Our derivative instruments are recorded at fair value and are included in other current
assets, other assets and other liabilities. Our accounting policies for these instruments are
based on whether they meet our criteria for designation as hedging transactions. The criteria for
designating a derivative as a hedge include the instruments effectiveness in risk reduction and,
in most cases, a one-to-one matching of the derivative instrument to its underlying transaction.
Gains and losses from changes in fair values of derivatives that are not designated as hedges for
accounting purposes are recognized currently in earnings. During 2004, 2003 and 2002, none of our
derivative financial instruments were designated as hedges. Therefore, changes in fair value for
the respective periods were recognized in earnings. 46




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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 December 2004, the FASB issued SFAS No. 123R, Amendment of Statement 123 on Share-Based
Payment.SFAS No. 123R requires companies to expense the value of employee stock options, stock
granted through the employee stock purchase program and similar awards. SFAS No. 123R is effective
for periods beginning after June 15, 2005. We plan on adopting SFAS No. 123R effective July 1,
2005 and expect that the adoption of SFAS No.
123R will have a material impact on our consolidated results of operations and earnings per
share. There are three methods of adopting SFAS No. 123R. The first method is called modified
prospective method, which allows companies to avoid recording additional compensation expense for
vested awards that are outstanding on the effective date of the SFAS No. 123R. Unvested awards
outstanding on the effective date would be charged to expense over the remaining vesting period.
The second method is similar to the modified prospective method, except it allows companies
to restate earlier interim periods in the year of adoption using the applicable SFAS 123R pro forma
amounts. The third method is the modified retrospective method, which directs companies to apply
the modified prospective method and restate prior financial statements. We are currently evaluating
these transitional methods. In March 2004, the FASB approved the consensus reached on the EITF Issue No. 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.The Issues
objective is to provide guidance for identifying other-than-temporarily impaired investments. EITF
03-1 also provides new disclosure requirements for investments that are deemed to be temporarily
impaired. In September 2004, the FASB issued a FASB Staff Position (FSP) EITF 03-1 that delays the
effective date of the measurement and recognition guidance in EITF 03-1 until further notice. The
disclosure requirements of EITF 03-1 are effective with this annual report for fiscal 2004. Once
the FASB reaches a final decision on the measurement and recognition provisions, we will evaluate
the impact of the adoption of the accounting provision of EITF 03-1. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment
of APB Opinion No. 29.The guidance in APB Opinion No. 29, Accounting for Nonmonetary
Transactions,is based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of assets exchanged. The guidance in that Opinion, however, included
certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception
for nonmonetary exchanges of similar productive assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary
exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153
is not expected to have a material impact on our financial position and 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 FCC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. 47




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Risk Factors Risks Related to our Business We have a history of net losses. We have a history of net losses. Although we reported net income of $13.6 million for the year
ended December 31, 2004, we reported net losses of $161.7 million and $62.5 million for the years
ended December 31, 2002 and 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. If we are unsuccessful in implementing our growth strategy, our business and results of
operations could be adversely affected. We currently expect that a substantial portion of our future growth in revenues will come from
the expansion of relatively new services and the introduction of additional new services.
Relatively new services include HSD, VOD, DVRs and HDTV. We plan to offer cable telephony service
to our subscribers beginning with certain markets in the second quarter of 2005 and expanding to an
additional 1.6 million homes in our markets within twelve months of our initial market launch. We
may not be able to successfully expand existing services or introduce cable telephony due to
unpredictable technical, operational or regulatory challenges. It is also possible that these
services will not generate significant revenue growth. 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 to 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 may not be able to
pass increased or additional programming costs, particularly sports programming, 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. We operate in a highly competitive business environment, which affects our ability to attract
and retain customers and can adversely affect our business and operations. We have lost a
significant number of customers to direct broadcast satellite competition, and further loss of
customers could have a material negative impact on our business. The 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 and customers. Our video business faces competition primarily from DBS service providers. Our principal
competitor in the HSD business, in markets where it is available, is telephone service, or DSL. The
two largest DBS companies, DIRECTV, Inc. and EchoStar Communications, are each among the four
largest providers of multichannel video programming services based on reported customers. In
addition, DIRECTVs affiliation with News Corporation could strengthen that companys competitive
positioning, as News Corporation also owns Fox Television Network and several cable programming
services. Competition from DBS has had an adverse effect on our
ability to retain customers. DBS has 48




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grown rapidly over the past several years and continue to do so. We have lost a significant
number of customers to DBS competition, and will continue to face significant challenges from DBS
providers. Local telephone companies, electric utilities and other municipal organizations are capable of
offering video and other services in competition with us and they may increasingly do so in the
future. Certain telephone companies have begun to deploy fiber more extensively in their networks
and some have announced plans to deploy broadband services, including video programming services,
in a manner to avoid the same regulatory burdens imposed on our business. These deployments will
enable them to begin providing video services, as well as telephone and Internet access services,
to residential and business customers. New laws or regulations at the federal or state level may
clarify the ability of the local telephone companies to provide their services without obtaining
state or local cable franchises. If local telephone companies are not required to obtain local
cable franchises comparable to ours, it would be adverse to our business. 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. Further losses of customers to DBS or other alternative
video and HSD services could have a material adverse effect on our business. In our HSD business, we face competition primarily from telephone companies and other
providers of dial-up and DSL. DSL service is competitive with HSD service over cable systems.
Telephone companies (which already have telephone lines into the household, an existing customer
base and other operational functions in place) and other companies offer DSL service. In addition,
certain DBS providers are currently offering two-way broadband data access services, which compete
with our ability to offer bundled services to our customers. Our HSD business may also face competition in the future from registered utility holding
companies and subsidiaries In 2004, the FCC adopted rules: (i) that affirmed the ability of
electric service providers to provide broadband Internet access services over their distribution
systems; and (ii) that seek to avoid interference with existing services. Electric utilities could
be formidable competitors to us. Some of our competitors, including franchised, wireless or private cable operators, satellite
television providers and local exchange carriers, may benefit from permanent or temporary business
combinations such as mergers, joint ventures and alliances and the potential repeal of certain
ownership rules, either through access to financing, resources or efficiencies of scale, or the
ability to provide multiple services in direct competition with us. If we are unable to keep pace with technological change, our business and results of
operations could be adversely affected. Our industry 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,
expand or upgrade 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. 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 a long-term 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. 49




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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
digital set-top converter boxes, digital video recorders and routers, fiber-optic cable, telephone
circuits, software, the backbone telecommunications network for our high-speed data 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. Risks Related to Indebtedness of us and our Operating Subsidiaries 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 substantial existing debt and have significant interest payment requirements, 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, 2004 was approximately $3.01 billion. Our interest expense
for the year ended December 31, 2004 was $192.7 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;
    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. 50




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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 collateral 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 products and services. While we have
completed our planned system upgrades, if there is accelerated growth in our video, HSD and voice
products and services, or we decide to introduce other new advanced products and services, or the
cost to provide these products and 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. 51




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Risks Related to Legislative and Regulatory Matters 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. 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, certain aspects have become subject to regulation at the federal and state level such as
collection of information online from children, disclosure of certain subscriber information to
governmental agencies, commercial emails or spam, privacy, security and distribution of material
in violation of copyrights. In addition to the possibility that additional federal laws and
regulations may be adopted with respect to commercial online services and the Internet, it is
possible that individual states may also impose such restrictions, potentially creating an
intricate patchwork of laws and regulations. Future federal and/or state laws may cover such
issues as privacy, access to some types of content by minors, pricing, 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. Changes in channel carriage regulations could impose significant additional costs on us. Cable operators face significant regulation of their channel carriage. Currently, they can be
required to devote substantial capacity to the carriage of programming that they would not carry
voluntarily, including certain local broadcast signals, local public, educational and government
access programming, and unaffiliated commercial leased access programming. If the FCC or Congress
were to require cable systems to carry both the analog and digital versions of local broadcast
signals or to carry multiple program streams included with a single digital broadcast transmission,
this carriage burden would increase substantially. Recently, the FCC reaffirmed that cable
operators need only carry one programming service of each television broadcaster to fulfill its
must-carry obligation. 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 12.4% of the estimated 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. 52




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Pending FCC and court proceedings could adversely affect our HSD 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. 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 addressed by a federal
appellate court. Based on a finding that it was bound by an earlier decision, the appellate court
overturned the FCCs classification and found cable Internet service to include both information
service and telecommunications service components. The United States Supreme Court has agreed to
review the appellate courts decision. If the appellate courts decision prevails, it could result
in an open access requirement and other obligations imposed on telecommunications carriers, which
would be adverse to us. We may be subject to legal liability because of the acts of our HSD customers or because of our own
negligence. Our HSD 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. Additionally, we host website portal
pages designed for use as a home page by, but not limited to, our HSD customers. These portal
pages offer a wide variety of content from third parties which could contain errors or other
material that could give rise to liability. 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. Since we launched our proprietary Mediacom Online(SM) HSD service in February 2002,
from time to time, we 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, movies,
software 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, 53




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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. We may be required to provide access to our networks to other Internet service providers,
which could significantly increase our competition and adversely affect our ability to provide new
products and services. Local authorities and the FCC have been asked to require cable operators to provide
non-discriminatory access over their cable systems to other Internet service providers. A federal
court in each of California, Virginia and Florida has struck down these open-access requirements
imposed by a variety of franchising authorities as unlawful. Each of these courts used different
legal grounds to strike down the open-access requirements. However, an appellate court has found
that cable modem service is part telecommunications service and part information service. The U.S.
Supreme Court has agreed to hear an appeal of that decision. If not overturned, the decision could
potentially result in open access being imposed on us. If we are required to provide access in this
manner, it could have a significant adverse impact on our financial results, including by: (i)
increasing competition; (ii) increasing the expenses we incur to maintain our systems; and/or (iii)
increasing the expense of upgrading and/or expanding our systems.  We may become subject to additional regulatory burdens when we offer cable telephony service. The regulatory obligations of VoIP are currently under consideration by the FCC and state
authorities. If our planned cable 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. Actions by pole owners might subject us to significantly increased pole attachment costs. Our cable facilities are often attached to or use public utility poles, ducts or conduits.
Historically, cable system attachments to public utility poles have been regulated at the federal
or state level. Generally this regulation resulted in favorable pole attachment rates for
attachments used to provide cable service. The FCC clarified that the provision of Internet access
does not endanger a cable operators favorable pole rates; this approach ultimately was upheld by
the Supreme Court of the United States. However, an appellate court has subsequently held that
cable modem service is not cable service but is part telecommunications service and part
information service, which possibly could lead to higher pole attachment rates. The U.S. Supreme
Court has agreed to hear an appeal of the lower courts decision. As a result of this uncertainty,
utility pole owners in many areas are attempting to raise pole attachment rates and impose
additional costs on cable operators and others. In addition, utility companies can increase the
favorable pole attachment rates afforded cable operators under federal law if the operator provides
telecommunications services, as well as cable service, over plant attached to utility poles. Our
financial results could suffer a material adverse impact from any significant increased costs, and
such increased pole attachment costs could discourage system upgrades and the introduction of new
products and services. Risks related to our Chairman and Chief Executive Officers Controlling Position 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 75.9% of the combined voting power as of December 31, 2004. 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 and could also trigger a variety of federal, state and local regulatory consent requirements. 54




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, we use interest rate exchange agreements (interest rate
swaps) with counterparties to fix the interest rate on a portion of our variable interest rate
debt. As of December 31, 2004, we had $800.0 million of interest rate swaps with various banks with
a weighted average fixed rate of approximately 3.3%. The fixed rates of the interest rate swaps
are offset against the applicable three-month London Interbank Offering Rate to determine the
related interest expense. 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, which are major banking
firms with investment grade ratings, we do not anticipate their nonperformance. At December 31,
2004, based on the mark-to-market valuation, we would have received approximately $0.3 million,
including accrued interest, if we terminated these agreements. The table below provides the expected maturity and estimated fair value of our debt as of
December 31, 2004 (all dollars in thousands). See Note 7 to our consolidated financial statements. Bank Credit
    
    
    Capital LeaseSenior Notes
    
    
    Facilities
    
    
    Obligations
    
    
    TotalExpected Maturity:January 1, 2005 to December 31, 2005
    
    $
    
    
    
    $
    40,500
    
    
    $
    2,200
    
    
    $
    42,700January 1, 2006 to December 31, 2006
    
    
    172,500
    (1)
    
    
    48,000
    
    
    
    2,269
    
    
    
    222,769January 1, 2007 to December 31, 2007
    
    
    
    
    
    
    70,500
    
    
    
    1,120
    
    
    
    71,620January 1, 2008 to December 31, 2008
    
    
    200,000
    
    
    
    70,500
    
    
    
    43
    
    
    
    270,543January 1, 2009 to December 31, 2009
    
    
    
    
    
    
    214,000
    
    
    
    
    
    
    
    214,000Thereafter
    
    
    1,025,000
    
    
    
    1,163,000
    
    
    
    
    
    
    
    2,188,000Total
    
    $
    1,397,500
    
    
    $
    1,606,500
    
    
    $
    5,632
    
    
    $
    3,009,632Fair Value
    
    $
    1,427,881
    
    
    $
    1,606,500
    
    
    $
    5,632
    
    
    $
    3,040,013Weighted Average Interest Rate
    
    
    9.1
    %
    
    
    4.4
    %
    
    
    3.1
    %
    
    
    6.6
    %
   (1)
    
    Represents convertible senior notes due July 2006. 55




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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 Registered Public Accounting Firm-PricewaterhouseCoopers LLP
    
    57Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    59Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002
    
    60Consolidated Statements of Changes in Stockholders Equity for the Years Ended
December 31, 2004, 2003 and 2002
    
    61Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002
    
    62Notes to Consolidated Financial Statements
    
    63Financial Statement Schedule: Schedule II-Valuation and Qualifying Accounts
    
    80
 56




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Report of Independent Registered Public Accounting Firm To the Shareholders of Mediacom Communications Corporation: We have completed an integrated audit of Mediacom Communications Corporations 2004 consolidated
financial statements and of its internal control over financial reporting as of December 31, 2004
and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Our opinions, based on our
audits, are presented below. Consolidated financial statements and financial statement schedule In our opinion, the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Mediacom Communications Corporation and
its subsidiaries (the Company) at December 31, 2004 and 2003, and the results of their operations
and their cash flows for each of the three years in the period ended December 31, 2004 in
conformity with accounting principles generally accepted in the United States of America. In
addition, in our opinion, the consolidated financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These
consolidated financial statements and consolidated
financial statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and consolidated financial statement
schedule based on our audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial
statements are free of material misstatement. An audit of
financial statements includes examining,
on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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. Internal control over financial reporting Also, in our opinion, managements assessment, included in managements report on internal control
over financial reporting, appearing in Item 9A, that the Company maintained effective internal
control over financial reporting as of December 31, 2004 based on criteria established in Internal
Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2004, based on criteria established in Internal
Control  Integrated Frameworkissued by the COSO. The Companys management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express
opinions on managements assessment and on the effectiveness of the Companys internal control over
financial reporting based on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes obtaining an understanding
of internal control over financial reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinions. A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable

assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the companys assets that could have a material effect on the financial statements. 57




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Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP
New York, New YorkMarch 15, 2005 58




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
(All dollar amounts in thousands) December 31,2004
    
    
    2003ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    23,875
    
    
    $
    25,815Investments
    
    
    1,987
    
    
    
    1,987Subscriber accounts receivable, net of allowance for doubtful accounts
of $3,659 and $3,524, respectively
    
    
    58,253
    
    
    
    56,706Prepaid expenses and other current assets
    
    
    12,757
    
    
    
    13,214Deferred tax asset
    
    
    7,024
    
    
    
    7,804Total current assets
    
    
    103,896
    
    
    
    105,526Investment in cable television systems:Property, plant and equipment, net of accumulated depreciation of
$1,040,289 and $844,519, respectively
    
    
    1,443,090
    
    
    
    1,465,362Intangible assets, net of accumulated amortization of $299,098 and
$289,906, respectively
    
    
    2,042,110
    
    
    
    2,050,095Total investment in cable television systems
    
    
    3,485,200
    
    
    
    3,515,457Other assets, net of accumulated amortization of $25,266 and
$23,823, respectively
    
    
    46,559
    
    
    
    41,780Total assets
    
    $
    3,635,655
    
    
    $
    3,662,763LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    261,223
    
    
    $
    247,728Deferred revenue
    
    
    38,707
    
    
    
    36,634Current portion of long-term debt
    
    
    42,700
    
    
    
    12,570Total current liabilities

    
    
    342,630
    
    
    
    296,932Long-term debt, less current portion
    
    
    2,966,932
    
    
    
    3,038,922Other non-current liabilities
    
    
    32,581
    
    
    
    41,795Total liabilities
    
    
    3,342,143
    
    
    
    3,377,649STOCKHOLDERS EQUITYClass A common stock, $.01 par value; 300,000,000 shares authorized;
92,978,134 shares issued and 90,399,198 shares outstanding as of
December 31, 2004 and 91,345,346 shares issued and 89,808,602
shares outstanding as of December 31, 2003
    
    
    930
    
    
    
    913Class B common stock, $.01 par value; 100,000,000 shares authorized;
27,461,939 and 28,913,145 shares issued and outstanding as of
December 31, 2004 and December 31, 2003, respectively
    
    
    274
    
    
    
    289Additional paid-in capital
    
    
    983,417
    
    
    
    982,390Accumulated deficit
    
    
    (678,963
    )
    
    
    (692,515
    )Treasury stock, at cost, 2,578,936 and 1,536,744 shares of Class A common
stock, as of December 31, 2004 and December 31, 2003, respectively
    
    
    (12,146
    )
    
    
    (5,963
    )Total stockholders equity
    
    
    293,512
    
    
    
    285,114Total liabilities and stockholders equity
    
    $
    3,635,655
    
    
    $
    3,662,763
 The accompanying notes to the consolidated financial statements are an integral part of these
statements. 59




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(All dollar amounts in thousands, except per share amounts) Year Ended December 31,2004
    
    
    2003
    
    
    2002Revenues
    
    $
    1,057,226
    
    
    $
    1,004,889
    
    
    $
    923,033Costs and expenses:Service costs (exclusive of depreciation and amortization
of $217,262, $273,307 and $319,435, respectively, shown
separately below)
    
    
    412,841
    
    
    
    385,129
    
    
    
    359,737Selling, general and administrative expenses
    
    
    211,428
    
    
    
    196,826
    
    
    
    173,970Corporate expenses
    
    
    19,276
    
    
    
    17,237
    
    
    
    18,075Depreciation and amortization
    
    
    217,262
    
    
    
    273,307
    
    
    
    319,435Operating income
    
    
    196,419
    
    
    
    132,390
    
    
    
    51,816Interest expense, net
    
    
    (192,740
    )
    
    
    (190,199
    )
    
    
    (188,304
    )Gain (loss) on derivatives, net
    
    
    16,125
    
    
    
    9,057
    
    
    
    (13,877
    )Gain (loss) on sale of assets and investments, net
    
    
    5,885
    
    
    
    (1,839
    )
    
    
    Other expense
    
    
    (12,061
    )
    
    
    (11,460
    )
    
    
    (11,093
    )Net income (loss) before provision for income taxes
    
    
    13,628
    
    
    
    (62,051
    )
    
    
    (161,458
    )Provision for income taxes
    
    
    76
    
    
    
    424
    
    
    
    200Net income (loss)
    
    $
    13,552
    
    
    $
    (62,475
    )
    
    $
    (161,658
    )Basic weighted average shares outstanding
    
    
    118,534
    
    
    
    118,627
    
    
    
    119,608Basic earnings (loss) per share
    
    $
    0.11
    
    
    $
    (0.53
    )
    
    $
    (1.35
    )Diluted weighted average shares outstanding
    
    
    118,543
    
    
    
    118,627
    
    
    
    119,608Diluted earnings (loss) per share
    
    $
    0.11
    
    
    $
    (0.53
    )
    
    $
    (1.35
    )
 The accompanying notes to the consolidated financial statements are an integral part of these
statements. 60




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY
(All dollar amounts in thousands) Class A
    
    
    Class B
    
    
    AdditionalCommon
    
    
    Common
    
    
    Paid-In
    
    
    Accumulated
    
    
    TreasuryStock
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    TotalBalance, 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
    )
    
    $
    285,114Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,552
    
    
    
    
    
    
    
    13,552Issuance of common stock in
employee stock purchase plan
    
    
    2
    
    
    
    
    
    
    
    1,027
    
    
    
    
    
    
    
    
    
    
    
    1,029Transfer of stock
    
    
    15
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury stock, at cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,183
    )
    
    
    (6,183
    )Balance, December 31, 2004
    
    $
    930
    
    
    $
    274
    
    
    $
    983,417
    
    
    $
    (678,963
    )
    
    $
    (12,146
    )
    
    $
    293,512
 The accompanying notes to the consolidated financial statements are an integral part of these
statements. 61




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in thousands) Year Ended December 31,2004
    
    
    2003
    
    
    2002CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:Net income (loss)
    
    $
    13,552
    
    
    $
    (62,475
    )
    
    $
    (161,658
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    217,262
    
    
    
    273,307
    
    
    
    319,435(Gain) loss on derivatives, net
    
    
    (16,125
    )
    
    
    (9,057
    )
    
    
    13,877Vesting of management stock
    
    
    
    
    
    
    
    
    
    
    5,323(Gain) loss on sale of assets and investments, net
    
    
    (5,885
    )
    
    
    1,839
    
    
    
    Amortization of deferred financing costs
    
    
    8,725
    
    
    
    6,696
    
    
    
    7,183Deferred income taxes
    
    
    780
    
    
    
    748
    
    
    
    (5,375
    )Changes in assets and liabilities, net of effects from acquisitions:Subscriber accounts receivable, net
    
    
    (1,043
    )
    
    
    (501
    )
    
    
    (10,601
    )Prepaid expenses and other current assets
    
    
    457
    
    
    
    (3,951
    )
    
    
    3,400Accounts payable and accrued expenses
    
    
    6,961
    
    
    
    (2,620
    )
    
    
    (4,080
    )Deferred revenue
    
    
    2,073
    
    
    
    10,372
    
    
    
    3,855Other non-current liabilities
    
    
    (2,146
    )
    
    
    (7,458
    )
    
    
    1,237Net cash flows provided by operating activities
    
    
    224,611
    
    
    
    206,900
    
    
    
    172,596CASH FLOWS USED IN INVESTING ACTIVITIES:Capital expenditures
    
    
    (181,362
    )
    
    
    (231,505
    )
    
    
    (408,314
    )Acquisition of cable television systems
    
    
    (3,372
    )
    
    
    (7,374
    )
    
    
    (6,548
    )Proceeds from sale of assets and investments
    
    
    10,556
    
    
    
    15,409
    
    
    
    Other investing activities
    
    
    (3,246
    )
    
    
    2,026
    
    
    
    (6,740
    )Net cash flows used in investing activities
    
    
    (177,424
    )
    
    
    (221,444
    )
    
    
    (421,602
    )CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:New borrowings
    
    
    247,872
    
    
    
    302,594
    
    
    
    539,750Repayment of debt
    
    
    (289,732
    )
    
    
    (279,348
    )
    
    
    (318,750
    )Repurchases of Class A common stock
    
    
    (6,183
    )
    
    
    
    
    
    
    (5,963
    )Proceeds from issuance of common stock in employee stock purchase plan
    
    
    1,029
    
    
    
    1,048
    
    
    
    1,263Financing costs
    
    
    (8,147
    )
    
    
    (520
    )
    
    
    (984
    )Other
financing activities  book overdrafts
    
    
    6,034
    
    
    
    (14,639
    )
    
    
    1,607Net cash flows (used in) provided by financing activities
    
    
    (49,127
    )
    
    
    9,135
    
    
    
    216,923Net decrease in cash and cash equivalents
    
    
    (1,940
    )
    
    
    (5,409
    )
    
    
    (32,083
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    25,815
    
    
    
    31,224
    
    
    
    63,307CASH AND CASH EQUIVALENTS, end of period
    
    $
    23,875
    
    
    $
    25,815
    
    
    $
    31,224SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the period for interest, net of amounts capitalized
    
    
    186,835
    
    
    
    196,253
    
    
    
    194,497SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:Capital expenditures financed through capital leases
    
    $
    
    
    
    $
    9,036
    
    
    $
    
 The accompanying notes to the consolidated financial statements
are an integral part of these statements. 62




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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, 2004, 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. (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. The accounting estimates that require managements most difficult and subjective
judgments include assessment and valuation of intangibles, useful lives of property, plant and
equipment, and the recognition and measurement of income tax assets and liabilities and the
valuation of programming liabilities. Actual results could differ from those and other estimates. Change in Estimate Effective July 1, 2003, the Company changed the estimated useful lives of its cable systems
and equipment. 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 an increase in net income of
approximately $130.3 million or $1.10 per share for the year ended December 31, 2004 and 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 less than direct installation costs.
Therefore, installation revenues are recognized as connects are completed. 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 as a component of selling, general and administrative. Allowance for Doubtful Accounts The allowance for doubtful accounts represents the Companys best estimate of probable losses
in the accounts receivable balance. The allowance is based on the number of days outstanding,
customer balances, historical experience and other currently available information. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months
or less to be cash equivalents. 63




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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 or losses are presented as a separate component on the statement of operations. The Company capitalizes the costs associated with the construction of cable transmission and
distribution facilities, new customer installations and indirect costs associated with our
telephony product. Costs include direct labor and material, as well as certain indirect costs
including interest. The Company performs periodic evaluations of certain estimates used to
determine the amount and extent that 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. Capitalized Software Costs The Company accounts for internal-use software development and related costs in accordance
with AICPA Statement of Position No. 98-1 Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use. Software development and other related costs consist of external and
internal costs incurred in the application development stage to purchase and implement the software
that will be used in the Companys telephony business. Costs incurred in the development of
application and infrastructure of the software is capitalized and will be amortized over its
respective estimated useful life. During the year ended December 31, 2004 and 2003, the Company
capitalized approximately $3.6 million and $0.7 million, respectively of software development
costs. Amortization will begin when the Company launches its telephony product. Intangible Assets In accordance with FASB No. 142 Goodwill and Other Intangible Assets, the amortization of
goodwill and indefinite-lived intangible assets is prohibited and requires 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 and therefore
not amortizable. 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. 64




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other Assets Other assets, net, include financing costs incurred to raise debt, which are deferred and
amortized as other expense over the expected term of such financings. 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 accounts for derivative instruments in accordance with SFAS No. 133, SFAS No. 138
and SFAS No. 149. These pronouncements require that all derivative instruments be recognized on
the balance sheet at fair value. 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. The Company's derivative instruments are recorded at fair value and are included in other current
assets, other assets and other liabilities. The Company's accounting policies for these instruments are
based on whether they meet the Company's criteria for designation as hedging transactions. The criteria for
designating a derivative as a hedge include the instruments effectiveness in risk reduction and,
in most cases, a one-to-one matching of the derivative instrument to its underlying transaction.
Gains and losses from changes in fair values of derivatives that are not designated as hedges for
accounting purposes are recognized currently in earnings. During 2004, 2003 and 2002, none of the Company's
derivative financial instruments were designated as hedges. Therefore, changes in fair value for
the respective periods were recognized in earnings. 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 could 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. Changes in these assumptions based on future
information could result in adjustments to estimated liabilities. 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 Company has recorded a $7.8 million
asset in property, plant and equipment and a corresponding liability of $7.8 million. Accounting for Long-Lived Assets In accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived
Assets,the Company periodically evaluates the recoverability and estimated lives of its
long-lived assets, including property and equipment and intangible assets subject to amortization,
whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable or the useful life has changed. The measurement for such impairment loss is based on
the fair value of the asset, typically based upon the future cash flows discounted at a rate
commensurate with the risk involved. Unless presented separately, the loss is included as a
component of either depreciation expense or amortization expense, as appropriate. 65




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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
the realization of deferred tax assets and net operating loss carryforwards by considering the
scheduled reversal of deferred tax liabilities, projected taxable income in future periods and the
evaluation of available prudent tax planning strategies. Reclassifications Certain reclassifications have been made to prior years amounts to conform to the current
years presentation. Recent Accounting Pronouncements The FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, in December 2002, which amended: (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) 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 expense recognition 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 APB 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. In December 2004, the FASB issued SFAS No. 123R, Amendment of Statement 123 on Share-Based
Payment.SFAS No. 123R requires companies to expense the value of employee stock options, stock
granted through the employee stock purchase program and similar awards. SFAS No. 123R is effective
for periods beginning after June 15, 2005. The Company plans on adopting SFAS No. 123R effective
July 1, 2005 and expects that the
adoption of SFAS No. 123R will have a material impact on its consolidated results of operations
and earnings per share. There are three methods of adopting SFAS No. 123R. The first method is called modified
prospective method, which allows companies to avoid recording additional compensation expense for
vested awards that are outstanding on the effective date of the SFAS No. 123R. Unvested awards
outstanding on the effective date would be charged to expense over the remaining vesting period.
The second method is similar to the modified prospective method, except it allows companies
to restate earlier interim periods in the year of adoption using the applicable SFAS No. 123R pro
forma amounts. The third method is the modified retrospective method, which directs companies to
apply the modified prospective method and to restate prior financial statements. The Company is
currently evaluating these transitional methods. 66




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In March 2004, the FASB approved the consensus reached on the Emerging Issues Task Force
(EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments.The Issues objective is to provide guidance for identifying
other-than-temporarily impaired investments. EITF 03-1 also provides new disclosure requirements
for investments that are deemed to be temporarily impaired. In September 2004, the FASB issued a
FASB Staff Position (FSP) EITF 03-1 that delays the effective date of the measurement and
recognition guidance in EIFT 03-1 until further notice. The disclosure requirements of EITF 03-1
are effective with this annual report for fiscal 2004. Once the FASB reaches a final decision on
the measurement and recognition provisions, the Company will evaluate the impact of the adoption of
the accounting provision of EIFT 03-1. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment
of APB Opinion No. 29.The guidance in APB Opinion No. 29, Accounting for Nonmonetary
Transactions,is based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of assets exchanged. The guidance in that Opinion, however, included
certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception
for nonmonetary exchanges of similar productive assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary
exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153
is not expected to have a material impact on the Companys financial position and results of
operations. (3) Earnings per Share The Company calculates earnings per share in accordance with SFAS No. 128, Earnings per
Share. SFAS No. 128 computes basic earnings (loss) per share by dividing the net income (loss) by
the weighted average number of shares of common stock outstanding during the period. Diluted
earnings per share is computed by dividing the net income (loss) by the weighted average number of
shares of common stock outstanding during the period plus the effects of any dilutive securities.
Diluted earnings per share considers the impact of potentially dilutive securities except in
periods in which there is a loss because the inclusion of the potential common shares would have an
anti-dilutive effect. The Companys potentially dilutive securities include common shares which
may be issued upon exercise of its stock options or conversion of convertible senior notes. Diluted earnings per share for the years ended December 31, 2004, 2003 and 2002 exclude
potential common shares of approximately 20.5 million, 19.4 million and 19.4 million, respectively,
primarily related to the Companys outstanding stock options and convertible senior notes, because
the assumed issuance of such potential common shares is antidilutive. For the year ended December
31, 2004, diluted weighted average common shares includes
approximately 9,500 potential common
shares assuming the exercise of stock options. The following table summarizes the Companys calculation of basic and diluted earnings (loss)
per share for the years ended December 31, 2004, 2003 and 2002 (amounts in thousands, except per
share amounts): 2004
    
    
    2003
    
    
    2002Net income (loss)
    
    $
    13,552
    
    
    $
    (62,475
    )
    
    $
    (161,658
    )Basic weighted average common shares outstanding
    
    
    118,534
    
    
    
    118,627
    
    
    
    119,608Basic earnings (loss) per share
    
    $
    0.11
    
    
    $
    (0.53
    )
    
    $
    (1.35
    )Diluted weighted average common shares outstanding
    
    
    118,543
    
    
    
    118,627
    
    
    
    119,608Diluted earnings (loss) per share
    
    $
    0.11
    
    
    $
    (0.53
    )
    
    $
    (1.35
    )
 67




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) Property, Plant and Equipment As of December 31, 2004 and 2003, property, plant and equipment consisted of (dollars in
thousands): 2004
    
    
    2003Land and land improvements
    
    $
    7,089
    
    
    $
    7,059Buildings and leasehold improvements
    
    
    39,898
    
    
    
    41,273Cable systems, equipment and subscriber devices
    
    
    2,342,220
    
    
    
    2,172,953Vehicles
    
    
    60,754
    
    
    
    63,023Furniture, fixtures and office equipment
    
    
    33,417
    
    
    
    25,5732,483,379
    
    
    
    2,309,881Accumulated depreciation
    
    
    (1,040,289
    )
    
    
    (844,519
    )Property, plant and equipment, net
    
    $
    1,443,090
    
    
    $
    1,465,362
 Depreciation expense for the years ended December 31, 2004, 2003 and 2002 was
approximately $206.2 million, $258.4 million and $286.4 million, respectively. As of December 31,
2004 and 2003 the Company had property under capitalized leases of $10.1 million and $10.7 million,
respectively, before accumulated depreciation, and $7.4 million and $8.9 million, respectively, net
of accumulated depreciation. During the years ended December 31, 2004 and 2003, the Company
incurred gross interest expense of $195.7 million and
$197.2 million, respectively of which $3.0
million and $7.0 million was capitalized. See Note 2 to our consolidated financial statements. (5) 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. As of December 31, 2004, the
company held 1,380 franchises in areas located throughout the United States. The Company acquired
these cable franchises through acquisitions of cable systems and were accounted for using the
purchase method of accounting. On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
which eliminates amortization of goodwill and certain intangibles that have indefinite lives but
requires that such assets be tested for impairment at least annually. 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. The Company has assessed franchise value for impairment under SFAS No. 142 by utilizing a
discounted cash flow methodology. In performing an impairment test in accordance with SFAS No.
142, the Company considers the guidance contained in EITF Issue No. 02-7, Recognition of Customer
Relationship Intangible Assets acquired in a Business Combination,whereby the Company considers
assumptions, such as future cash flow expectations and other future benefits related to the
intangible assets, when measuring the fair value of each cable systems other net assets. 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 as of October 1, 2004, which reflected no
impairment of franchise costs or goodwill. There have been no events since then that would require
an analysis to be completed before the next annual test date. 68




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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, 2004 and 2003 (dollars in thousands): Gross Asset
    
    
    Accumulated
    
    
    Net Asset2004
    
    Value
    
    
    Amortization
    
    
    ValueFranchise costs
    
    $
    1,944,918
    
    
    $
    140,947
    
    
    $
    1,803,971Goodwill
    
    
    224,614
    
    
    
    3,232
    
    
    
    221,382Subscriber Lists
    
    
    165,981
    
    
    
    149,277
    
    
    
    16,704Covenants not to compete
    
    
    5,695
    
    
    
    5,642
    
    
    
    53$
    2,341,208
    
    
    $
    299,098
    
    
    $
    2,042,110
 Gross Asset
    
    
    Accumulated
    
    
    Net Asset2003
    
    Value
    
    
    Amortization
    
    
    ValueFranchise costs
    
    $
    1,943,010
    
    
    $
    141,167
    
    
    $
    1,801,843Goodwill
    
    
    224,281
    
    
    
    3,232
    
    
    
    221,049Subscriber Lists
    
    
    167,015
    
    
    
    140,030
    
    
    
    26,985Covenants not to compete
    
    
    5,695
    
    
    
    5,477
    
    
    
    218$
    2,340,001
    
    
    $
    289,906
    
    
    $
    2,050,095
 Amortization expense for the years ended December 31, 2004, 2003 and 2002 was
approximately $11.1 million, $14.9 million and $33.0 million, respectively. The Companys
estimated aggregate amortization expense for 2005 through 2008 and beyond are $2.8 million, $2.1
million, $2.1 million, $2.1 million and $7.7 million, respectively. The net asset value as of December 31, 2004 decreased approximately $8.0 million from December
31, 2003, primarily due to the recording of amortization expense and the purchase and sale of cable
system assets during the period. (6) Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following as of December 31, 2004 and
December 31, 2003 (dollars in thousands): December 31,
    
    
    December 31,2004
    
    
    2003Accounts payable
    
    $
    14,097
    
    
    $
    2,374Book
overdrafts
    
    
    10,223
    
    
    
    4,189Accrued interest
    
    
    61,910
    
    
    
    55,053Accrued payroll and benefits
    
    
    24,314
    
    
    
    23,524Accrued programming costs
    
    
    62,049
    
    
    
    77,296Accrued property, plant and equipment
    
    
    18,261
    
    
    
    25,463Accrued taxes and fees
    
    
    27,777
    
    
    
    26,513Other accrued expenses
    
    
    42,592
    
    
    
    33,316$
    261,223
    
    
    $
    247,728
 Book
overdrafts represent outstanding checks in excess of funds on deposit
at the Companys disbursement accounts. 69




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) Debt As of December 31, 2004 and 2003, debt consisted of (dollars in thousands): 2004
    
    
    2003Bank credit facilities
    
    $
    1,606,500
    
    
    $
    1,646,50081/2% 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
    
    
    5,632
    
    
    
    7,492$
    3,009,632
    
    
    $
    3,051,492Less: Current portion
    
    
    42,700
    
    
    
    12,570Total long-term debt
    
    $
    2,966,932
    
    
    $
    3,038,922
 Bank Credit Facilities On October 21, 2004, the operating subsidiaries of Mediacom LLC, one of the Companys two
principal subsidiaries, refinanced their two credit facilities with a new $1.15 billion senior
secured credit facility (the LLC credit facility). The LLC credit facility consists of a
revolving credit facility (the LLC revolver) with a $400.0 million revolving credit commitment, a
$200.0 million delayed-draw term loan (the LLC term loan A) and a $550.0 million term loan (the
LLC term loan B). The LLC revolver expires on September 30, 2011 and its commitment amount is
not subject to scheduled reductions prior to maturity. The LLC term loan A matures on September
30, 2012 and beginning on March 31, 2008 will be subject to quarterly reductions ranging from 2.50%
to 9.00% of the original amount. The LLC term loan B matures on March 31, 2013 and will be subject
to quarterly reductions of 0.25% from March 31, 2005 to December 31, 2012, and 92.00% on maturity,
of the original amount. As of December 31, 2004, the maximum commitment available under the LLC
revolver was $400.0 million and the revolver had an outstanding balance of $96.0 million, the LLC
term loan B had an outstanding balance of $550.0 million, and the LLC term loan A had not been
drawn. The credit agreement of the LLC credit facility (the LLC credit agreement) provides for
interest at varying rates based upon various borrowing options and certain financial ratios, and
for commitment fees of 1/2% to 5/8% per annum on the unused portion of the available revolving credit
commitment. Interest on outstanding LLC revolver and LLC term loan A balances are payable at
either the Eurodollar rate plus a floating percentage ranging from 1.00% to 2.00% or the base rate
plus a floating percentage ranging from 0% to 1.00%. Interest on the LLC term loan B is payable at
either the Eurodollar rate plus 2.25% or the base rate plus 1.25%. For the year ended December 31,
2005, the LLC term loan B will be reduced by $5.5 million or 1.00% of the original amount. The operating subsidiaries of Mediacom Broadband LLC, the Companys other principal
subsidiary, maintain a $1.4 billion senior secured credit facility (the Broadband credit
facility) consisting of a revolving credit facility (the Broadband revolver) with an initial
commitment of $600 million, a $300 million term loan A (the Broadband term loan A) and a $500
million term loan B (the Broadband term loan B). On December 16, 2004, the operating
subsidiaries of Mediacom Broadband LLC amended the credit agreement of the Broadband credit
facility (the Broadband credit agreement) to conform its definitions, financial covenants and
other terms (including those relating to letters of credit, mandatory prepayment, representations
and warranties, negative covenants and events of default) to those of the LLC credit agreement.
The Broadband revolver expires on March 31, 2010 and, beginning on December 31, 2004, its
commitments were subject to quarterly reductions ranging from 2.00% to 8.00% of the original
commitment amount. The Broadband term loan A matures on March 31, 2010 and, beginning on September
30, 2004, has been subject to quarterly reductions ranging from 1.00% to 8.00% of the original
amount. The Broadband term loan B matures on September 30, 2010 and is subject to quarterly
reductions 70




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of 0.25% from September 30, 2004 to June 30, 2010, and 94.00% on maturity, of the
original amount. As of December 31, 2004, the maximum commitment available under the Broadband
revolver was $588.0 million and the revolver had an outstanding balance of $169.0 million, the Broadband term loan A had an outstanding
balance of $294.0 million, and the Broadband term loan B had an outstanding balance of $497.5
million. The Broadband credit agreement provides for interest at varying rates based upon various
borrowing options and certain financial ratios, and for commitment fees of 3/8% to 5/8% per annum on
the unused portion of the available revolving credit commitment. Interest on outstanding Broadband
revolver and Broadband term loan A balances are 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 Broadband term loan B 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%. For
the year ended December 31, 2005, the maximum commitment amount under the Broadband
revolver will be reduced by $60.0 million or 10.0% of the original commitment amount; the
outstanding debt under the Broadband term loan A will be reduced by $30.0 million or 10.0% of the
original amount, and the Broadband term loan B will be reduced by $5.0 million or 1.0% of the
original amount. The LLC and Broadband credit agreements require compliance with certain financial covenants
including, but not limited to, leverage, interest coverage and debt service coverage ratios, as
defined therein. The 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 LLC and
Broadband credit agreements as of and for all periods in the year ended December 31, 2004. The LLC credit agreement is 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 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 LLC and Broadband credit agreements
was 4.4% and 3.0% for the years ended December 31, 2004 and 2003, respectively, before giving
effect to the interest rate exchange agreements discussed below. As of December 31, 2004, the
Company had approximately $908.5 million of unused bank commitments under the LLC and Broadband
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, 2004, 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, which are major banking firms with investment grade ratings, 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 market interest
rates, the remaining time to maturities and the creditworthiness of the Companys counterparties.
At December 31, 2004, based on the mark-to-market valuation, the Company recorded an investment in
derivatives of $4.0 million, offset by a $3.7 derivative liability. As a result of the quarterly
mark-to-market valuations of these interest rate swaps, the Company recorded a gain on derivative
instruments amounting to $16.1 million and $9.1 million for
the years ended
December 31, 2004 and 2003, respectively. 71




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 81/2% senior
notes due on April 2008 (the 81/2% Senior Notes). The 81/2% Senior Notes are unsecured obligations
of Mediacom LLC, and the indenture for the 81/2% 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. The 81/2% Senior Notes are
redeemable at 102.833% of par value through April 14, 2005, 101.417% of par value from April 15,
2005 through April 14, 2006, and at par value thereafter. On February 26, 1999, Mediacom LLC and Mediacom Capital Corporation jointly issued $125.0
million aggregate principal amount of 77/8% senior notes due on February 2011 (the 77/8% Senior
Notes). The 77/8% Senior Notes are unsecured obligations of Mediacom LLC, and the indenture for the
77/8% 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. On January 24, 2001, Mediacom LLC and its wholly-owned subsidiary, Mediacom Capital
Corporation, completed an offering of $500.0 million of 91/2% senior notes due January 2013 (the 91/2%
Senior Notes). The 91/2% Senior Notes are unsecured obligations of Mediacom LLC, and the indenture
for the 91/2% 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. 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 LLC and Mediacom Broadband LLC were each in compliance with the indentures governing
their respective Senior Notes as of and for all periods in the year ended December 31, 2004. Convertible Senior Notes The
Company maintains $172.5 million aggregate principal amount of 51/4% 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. 72




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value and Debt Maturities The fair values of the Companys bank credit facilities approximated their carrying values at
December 31, 2004. On that same date, the fair values of the 81/2% Senior Notes, the 77/8% Senior
Notes, the 91/2% Senior Notes and the 11% Senior Notes were approximately $204.0 million, $122.5
million, $501.9 million and $430.0 million, respectively. The fair value on that same date of the
Convertible Senior Notes was approximately $169.5 million. The stated maturities of all debt outstanding as of December 31, 2004 are as follows (dollars
in thousands): 2005
    
    $
    42,7002006
    
    
    222,7692007
    
    
    71,6202008
    
    
    270,5432009
    
    
    214,000Thereafter
    
    
    2,188,000$
    3,009,632
 (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. During 2002, the Company repurchased approximately 1.5 million shares of its Class A common
stock for an aggregate cost of approximately $6.0 million at share prices ranging from $3.59 to
$4.29 per share. During the second half of 2004, the Company repurchased approximately 1.0 million shares of its
Class A common stock for an aggregate cost of approximately $6.2 million at share prices ranging
from $5.55 to $6.29 per share. These repurchases were completed under the $50.0 million Class A
stock repurchase program authorized by the Board of Directors in May 2000. As of the filing of
this report, approximately $37.9 million of the original $50.0 million authorized remains available
under the Class A stock repurchase program. (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): 2004
    
    
    2003
    
    
    2002Tax provision (benefit) at the United States statutory rate
    
    $
    4,770
    
    
    $
    (21,718
    )
    
    $
    (56,510
    )State taxes, net of federal tax benefit
    
    
    49
    
    
    
    276
    
    
    
    130Valuation allowance
    
    
    (4,750
    )
    
    
    21,697
    
    
    
    56,683Other
    
    
    7
    
    
    
    169
    
    
    
    (103
    )Total income tax expense
    
    $
    76
    
    
    $
    424
    
    
    $
    200
 73




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Companys net deferred tax liabilities consists of the following (dollars in thousands): 2004
    
    
    2003Current deferred tax assets:Unrealized loss on investments
    
    $
    5,600
    
    
    $
    5,600Accrued liabilities
    
    
    3,891
    
    
    
    6,858Allowance for doubtful accounts
    
    
    1,442
    
    
    
    1,386Total current deferred tax assets
    
    
    10,933
    
    
    
    13,844Less: Valuation allowance
    
    
    (3,909
    )
    
    
    (6,040
    )Current deferred tax assets, net
    
    $
    7,024
    
    
    $
    7,804Long-term deferred tax assets:Net operating loss
    
    
    595,293
    
    
    
    492,906Other assets
    
    
    16,824
    
    
    
    16,320Valuation allowance
    
    
    (218,863
    )
    
    
    (222,161
    )Long-term deferred tax assets, net
    
    $
    393,254
    
    
    $
    287,065Long-term deferred tax liabilities:Investment in cable television systems
    
    
    400,278
    
    
    
    294,869Long-term deferred tax liabilities, net
    
    $
    7,024
    
    
    $
    7,804
 At December 31, 2004, the Company had pre-tax net operating loss carryforwards of
approximately $1.5 billion for federal and state purposes, which will expire in the years 2020
through 2024. The valuation allowance used in calculating the deferred tax liabilities decreased
from 2004 to 2003 by approximately $5.4 million, primarily due
to the net increase in deferred tax liabilities as of December 31, 2004. 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 the
availability of prudent tax planning strategies. The Company will continue to monitor the need for
the deferred tax asset valuation allowance. (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, 2004, 2003 and 2002, the Company paid this law
firm approximately $0.8 million, $1.0 million and $1.3 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 $2.0 million for the year ended December 31,
2004 and $1.8 million for the years ended December 31, 2003 and 2002. 74




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) Commitments and Contingencies Under various lease and rental agreements for offices, warehouses and computer terminals, the
Company had rental expense of approximately $4.4 million, $5.4 million and $5.0 million for the
years ended December 31, 2004, 2003 and 2002, respectively. Future minimum annual rental payments
are as follows (dollars in thousands): 2005
    
    $
    4,2962006
    
    
    2,0452007
    
    
    1,5832008
    
    
    8242009
    
    
    583Thereafter
    
    
    1,288$
    10,619
 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 $9.6 million, $8.5 million and $7.0 million for the years ended
December 31, 2004, 2003 and 2002, respectively. As of December 31, 2004, approximately $14.5 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 was not material. Legal Proceedings On April 5, 2004, a lawsuit was filed against the Company, MCC Georgia LLC, an indirect
subsidiary of the Company, and other, currently unnamed potential defendants in the United States
District Court for the District of Colorado by Echostar Satellite LLC, which operates a direct
broadcast satellite business under the name Dish Network. Echostar alleges that systems operated
by MCC Georgia LLC have used, without authorization, Dish Network satellite dishes activated under
residential accounts to receive the signals of certain broadcast television stations in one or more
locations in Georgia and that it has then been redistributing those signals, through its cable
systems, to its subscribers. Among other claims, the complaint filed by Echostar alleges that
these actions violate a provision of the Communications Act of 1934 (47 U.S.C. Sec. 605) that
prohibits unauthorized interception of radio communications. The plaintiff seeks injunctive
relief, actual and statutory damages, disgorgement of profits, punitive damages and litigation
costs, including attorneys fees. On June 29, 2004, Echostar amended its complaint to also allege that this conduct amounted to
a breach of the contract between Echostar and one of the Companys employees, who allegedly acted
as an agent for the defendants, by which the Company received the Echostar satellite signal. On
September 7, 2004, the U.S. District Court granted the Companys motion to transfer the case to the
Middle District of Georgia, where venue is proper and where personal jurisdiction over the Company
exists. There have been no further proceedings since that date. The Company intends to vigorously
defend against these claims. The Company is unable to reasonably evaluate the likelihood of an
unfavorable outcome or quantify the possible damages, if any, associated with these matters, or
whether or not the those damages would be material. The Company is also involved in various other legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these matters will not have a
material adverse effect on the Companys consolidated financial position, results of operations,
cash flows or business. 75




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) Stock Options / Employee Stock Purchase Program 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 21,000,000 shares of common stock available
for issuance in settlement of awards. As of December 31, 2004, under the 2003 plan, options for
11,617,109 shares had been granted, consisting of 3,534,347 shares of Class A common stock and
8,082,762 of Class B common stock. The following table summarizes information concerning stock option activity for the years
ended December 31, 2004, 2003 and 2002: Weighted AverageShares


    
    Exercise PriceOutstanding 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
    
    
    $
    17.60Granted
    
    
    167,000
    
    
    
    8.14Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (293,206
    )
    
    
    16.94Outstanding at December 31, 2004
    
    
    11,617,109
    
    
    $
    17.54
 The Company had options exercisable on underlying shares amounting to 10,022,444,
9,437,629 and 8,934,584, with average prices of $18.44,$18.83 and $18.94 at December 31, 2004,
2003 and 2002, respectively. The weighted average fair value of options granted was $3.91, $3.82
and $6.04 per share for the years ended December 31, 2004, 2003 and 2002, respectively. 76




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes information concerning stock options outstanding as of December
31, 2004: Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted
    
    
    
    
    
    
    NumberRange of
    
    Outstanding at
    
    
    Average
    
    
    Weighted
    
    
    Exercisable at
    
    
    WeightedExercise
    
    December 31,
    
    
    Remaining
    
    
    Average
    
    
    December 31,
    
    
    AveragePrices
    
    2004
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    2004
    
    
    Exercise Price$6.94 to $12.00
    
    
    1,653,415
    
    
    8.34 years
    
    $
    9.05
    
    
    
    507,511
    
    
    $
    9.41$12.01 to $18.00
    
    
    554,624
    
    
    6.29 years
    
    
    16.87
    
    
    
    349,575
    
    
    
    16.80$18.01 to $22.00
    
    
    9,409,070
    
    
    1.31 years
    
    
    19.00
    
    
    
    9,165,358
    
    
    
    19.0011,617,109
    
    
    2.55 years
    
    $
    17.48
    
    
    
    10,022,444
    
    
    $
    18.44
 The Company accounts for its stock option plans and employee stock purchase program under APB
No. 25. Accordingly, no compensation expense 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 No. 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 income (loss) and income (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 assumptions: (i) risk free average
interest rate of 3.8%, 3.6% and 5.0% for the years ended December 31, 2004, 2003 and 2002,
respectively; (ii) expected dividend yields of 0%; (iii) expected lives of 6 years; and (iv)
expected volatility of 45%. Had compensation expense been recorded for the employee options under
SFAS No. 148, the compensation expense would have been $5.1 million, $4.6 million, and $8.0 million
for the years ended December 31, 2004, 2003 and 2002, respectively. The Company maintains an employee stock purchase plan (ESPP). Under the plan, 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 172,531, 191,335
and 176,634 in 2004, 2003 and 2002 respectively. The net proceeds to the Company were
approximately $1.0 million, $1.0 million and $1.3 million in 2004, 2003 and 2002 respectively.
Compensation expense was not recorded on the distribution of these shares in accordance with APB
No. 25. The weighted average fair value of all of the stock issued under the ESPP was estimated on
the purchase date using the Black-Scholes model with the following assumptions: (i) discount rate
equal to the six year bond rate on the stock purchase date; (ii) expected dividend yields of 0%;
(iii) expected lives of six months; and (iv) expected volatility of 45%. Had compensation expense
been recorded for the stock issued for the ESPP under SFAS No. 148, the compensation costs would
have been approximately $325,000, $325,000 and $420,000 for the years ended December 31, 2004, 2003
and 2002, respectively. 77




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 earnings (loss) per share would have
been changed from the as reported amounts to the pro forma amounts as follows (dollars in
thousands, except per share data): 2004
    
    
    2003
    
    
    2002Net income (loss), as reported
    
    $
    13,552
    
    
    $
    (62,475
    )
    
    $
    (161,658
    )Deduct: Total stock based compensation expense determined
under fair value based method of all awards
    
    
    (5,380
    )
    
    
    (4,938
    )
    
    
    (8,455
    )Pro forma, net income (loss)
    
    $
    8,172
    
    
    $
    (67,413
    )
    
    $
    (170,113
    )Basic and diluted earnings (loss) per share:As reported
    
    $
    0.11
    
    
    $
    (0.53
    )
    
    $
    (1.35
    )Pro forma
    
    $
    0.07
    
    
    $
    (0.57
    )
    
    $
    (1.42
    )
 (14) Hurricane Losses In September 2004, Hurricane Ivan impacted the Companys systems in Alabama, Florida and
Mississippi. As a result, for the year ended December 31, 2004, the Company: (i) recorded revenues
net of $2.9 million of service interruption credits issued to customers; (ii) incurred additional
service costs of approximately $0.9 million; (iii) incurred additional selling, general and
administrative costs of approximately $0.3 million; (iv) recorded an increase in depreciation
expense of $2.1 million due to the impairment of cable plant and equipment; and (v) spent
approximately $8.1 million of capital expenditures to replace or rebuild property, plant and
equipment. The Company is insured against certain losses related to the hurricane, subject to
varying deductible amounts. The Company cannot estimate at this time the amounts that will be
ultimately recoverable under its insurance policies. (15) Sale of Assets and Investments The Company had a net gain on sale of assets and investments amounting to $5.9 million for the
year ended December 31, 2004. This was principally due to the sale of a cable system in May 2004,
serving approximately 3,450 subscribers, for gross proceeds of about $10.1 million. (16) Subsequent Events On January 25, 2005, the Company borrowed the full amount of the LLC term loan A, the proceeds
of which were used to reduce outstandings under the Companys revolving credit facilities. In February 2005, the Company filed form S-8, registering 12.0 million shares of the Companys
Class A common stock. These shares are issuable in accordance with the terms of the Companys 2003
Incentive Plan. 78




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (17) Selected Quarterly Financial Data (all dollar amounts in thousands, except per share data): First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(unaudited)2004Revenues
    
    $
    263,439
    
    
    $
    267,599
    
    
    $
    261,025
    
    
    $
    265,163Operating income
    
    
    51,564
    
    
    
    52,932
    
    
    
    42,876
    
    
    
    49,047Net (loss) income
    
    
    (5,739
    )
    
    
    30,129
    
    
    
    (12,807
    )
    
    
    1,969Basic and diluted net (loss) income
per share
    
    $
    (0.05
    )
    
    $
    0.25
    
    
    $
    (0.11
    )
    
    $
    0.02Basic weighted average common
shares outstanding
    
    
    118,723
    
    
    
    118,806
    
    
    
    118,523
    
    
    
    118,088Diluted weighted average common
shares outstanding
    
    
    118,723
    
    
    
    128,065
    
    
    
    118,523
    
    
    
    118,0882003Revenues
    
    $
    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 (loss) income
per share
    
    $
    (0.28
    )
    
    $
    (0.32
    )
    
    $
    0.02
    
    
    $
    0.06Basic weighted average common
shares outstanding
    
    
    118,525
    
    
    
    118,632
    
    
    
    118,633
    
    
    
    118,717Diluted weighted average common
shares outstanding
    
    
    118,525
    
    
    
    118,632
    
    
    
    118,698
    
    
    
    118,7532002Revenues
    
    $
    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
    )Basic weighted average common
shares outstanding
    
    
    119,892
    
    
    
    119,942
    
    
    
    119,943
    
    
    
    118,662Diluted weighted average common
shares outstanding
    
    
    119,892
    
    
    
    119,942
    
    
    
    119,943
    
    
    
    118,662
 79




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Schedule II MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
(All dollar amounts in thousands) 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, 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
    
    
    $
    300December 31, 2004Allowance for doubtful accountsCurrent receivables
    
    
    
    
    
    $
    3,524
    
    
    $
    1,658
    
    
    $
    347
    
    
    $
    1,870
    
    
    $
    
    
    
    $
    3,659Acquisition reservesAccrued expenses
    
    
    
    
    
    $
    300
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    300
   (1)
    
    Additions were charged in connection with purchase accounting. 80




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ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE None. 
 ITEM 9A. CONTROLS AND PROCEDURES Our management carried out an evaluation, with the participation of our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures
as of December 31, 2004. Based upon that evaluation, our 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, 2004 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. Managements Report on Internal Control Over Financial Reporting Management of our company is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 as a process designed by, or
under the supervision of, the companys principal executive and principal financial officers and
effected by the companys board of directors, management and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:  
    pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the company;
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect
on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risks that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our companys internal control over financial
reporting as of December 31, 2004. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment, management determined that, as of December
31, 2004, our companys internal control over financial reporting was effective. Our managements assessment of the effectiveness of our internal control over financial
reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which is included herein. 
 ITEM 9B. OTHER INFORMATION None 81




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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 Item 4A of this
annual report on Form 10-K 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 2005 Annual Meeting of Stockholders (the Proxy Statement), 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 our Proxy
Statement, which information is incorporated herein by this
reference. Notwithstanding the foregoing, the information provided
under the sub-headings Report of the Compensation
Committee and the Performance Graph in the 2005
Proxy Statement is not incorporated by 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 our 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 our 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 our Proxy Statement, which information is incorporated herein by this
reference. 82




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PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE (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 Description3.1
    
    Restated Certificate of Incorporation of Mediacom Communications Corporation (1)3.2
    
    By -laws of Mediacom Communications Corporation(1)4.1
    
    Form of certificate evidencing share of Class A common stock (1)4.2
    
    Indenture relating to 81/2% senior notes due 2008 of Mediacom LLC and Mediacom Capital
Corporation(2)4.3
    
    Indenture relating to
77/8% senior notes due 2011 of Mediacom
LLC and Mediacom Capital Corporation(3)4.4
    
    Indenture relating to 91/2% senior notes due 2013 of Mediacom LLC and Mediacom Capital
Corporation(4)4.5
    
    Indenture relating to 11% senior notes due 2013 of Mediacom Broadband LLC and Mediacom
Broadband Corporation(2)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)10.1
    
    Credit Agreement, dated as of October 21, 2004, among the operating subsidiaries of
Mediacom LLC, the lenders thereto and JPMorgan Chase Bank, as administrative agent for the
lenders.(7)10.2
    
    Amendment and Restatement of Credit
Agreement, dated as of December 16, 2004, among the operating
subsidiaries of Mediacom Broadband LLC, the lenders thereto and JPMorgan
Chase Bank, as administrative agent for the lenders.10.3*
    
    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.(1)10.4
    
    Fifth Amended and Restated Operating Agreement of Mediacom LLC(8)
 83




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ExhibitNumber
    
    Exhibit Description10.5
    
    Amended and Restated Limited Liability Company Operating Agreement of Mediacom
Broadband LLC(9)10.6
    
    1999 Employee Stock Purchase Plan(1)10.7
    
    2001 Employee Stock Purchase Plan(10)10.8*
    
    2003 Incentive Plan (11)21.1
    
    Subsidiaries of Mediacom Communications Corporation (12)23.1
    
    Consent of PricewaterhouseCoopers LLP31
    
    Rule 13a -14(a) Certifications32
    
    Section 1350 Certifications
 (c) Financial Statement Schedule The financial statement schedule  Schedule II  Valuation and Qualifying Accounts 
is part of this Form 10-K and is on page 80.   * Compensatory Plan  (1)
    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.(2)
    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.(3)
    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.(4)
    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.(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, 2004 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. 84




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(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. 85




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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 15, 2005
    
    
    
    By:
    
    /s/ Rocco B. CommissoRocco B. CommissoChairman and ChiefExecutive 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
    
    Chairman and Chief Executive Officer
(principal executive officer)
    
    March 15, 2005Rocco B. Commisso/s/
Mark E.Stephan
    
    Executive Vice President, Chief Financial Officer,
    
    March 15, 2005Mark E. Stephan
    
    Treasurer and Director (principal financial officer
and principal accounting officer)/s/ WILLIAM S.MORRIS III
    
    Director
    
    March 15, 2005William S. Morris III/s/ CRAIG S.MITCHELL
    
    Director
    
    March 15, 2005Craig S. Mitchell/s/ THOMAS V. REIFENHEISER
    
    Director
    
    March 15, 2005Thomas V. Reifenheiser/s/ NATALE S. RICCIARDI
    
    Director
    
    March 15, 2005Natale S. Ricciardi/s/ ROBERT L. WINIKOFF
    
    Director
    
    March 15, 2005Robert L. Winikoff
 86