##### Table of Contents



UNITED STATES
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, 2005 Commission
File Numbers: 333-57285-01333-57285
 Mediacom LLC
Mediacom Capital Corporation* (Exact names of Registrants as specified in their charters)
 New York
New York(State or other jurisdiction of
incorporation or organization)
    
    06-1433421
06-1513997(I.R.S. Employer
Identification Numbers)
 100 Crystal Run Road
Middletown, New York 10941(Address of principal executive offices) (845) 695-2600(Registrants telephone number) Securities registered pursuant to Section 12(b) of the Exchange Act:
None Securities registered pursuant to Section 12(g) of the Exchange Act:
None Indicate by check mark if the Registrants are well-known seasoned issuers, as defined in Rule
405 of the Securities Act   Yes
o  No þ Indicate by check mark if the Registrants are not required to file pursuant to Section 13 or
Section 15(d) of the Exchange Act.  Yes þ
 No o Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period
that the Registrants were required to file such reports), and (2) have 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 Registrants 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. Not Applicable. Indicate by check mark whether the Registrants are large accelerated filers, accelerated filers, or
non-accelerated filers. See definition of accelerated filer in Rule 12b-2 of the Exchange Act.
(Check one): o
Large accelerated filers      o Accelerated filers
      þ Non-accelerated filers Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the
Exchange Act).  Yes
o  No þ State the aggregate market value of the common equity held by non-affiliates of the Registrants:
Not Applicable Indicate the number of shares outstanding of the Registrants common stock: Not Applicable *Mediacom Capital Corporation meets the conditions set forth in General Instruction I (1) (a) and
(b) of Form 10-K and is therefore filing this form with the reduced disclosure format.




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MEDIACOM LLC
2005 FORM 10-K ANNUAL REPORT
 TABLE OF CONTENTS PageItem 1.
    
    Business
    
    
    4Item 1A.
    
    Risk FactorsRisks
Related to our Business
    
    
    25Risks
Related to Indebtedness of us and our Operating Subsidiaries
    
    
    28Risks
Related to Legislative and Regulatory Matters
    
    
    30Item 1B.
    
    Unresolved Staff Comments
    
    
    34Item 2.
    
    Properties
    
    
    34Item 3.
    
    Legal Proceedings
    
    
    35Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    35PART IIItem 5.
    
    Market for
Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    36Item 6.
    
    Selected Financial Data
    
    
    36Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    39Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    50Item 8.
    
    Financial Statements and Supplementary Data
    
    
    52Item 9
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    72Item 9A.
    
    Controls and Procedures
    
    
    72Item 9B.
    
    Other Information
    
    
    72PART IIIItem 10.
    
    Directors and Executive Officers of the Registrants
    
    
    73Item 11.
    
    Executive Compensation
    
    
    75Item 12.
    
    Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    75Item 13.
    
    Certain Relationships and Related Transactions
    
    
    75Item 14.
    
    Principal Accounting Fees and Services
    
    
    76PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    77EX-12.1: SCHEDULE OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-23.1: CONSENT OF PRICEWATERHOUSECOOPERS LLPEX-31.1: CERTIFICATIONSEX-31.2: CERTIFICATIONSEX-32.1: CERTIFICATIONSEX-32.2: CERTIFICATIONS
 2




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Mediacom LLC was organized as a New York limited liability company in 1995 and is a
wholly-owned subsidiary of Mediacom Communications Corporation, a Delaware Corporation. Mediacom
Capital Corporation was organized as a New York corporation in 1998 and is a wholly-owned
subsidiary of Mediacom LLC. Mediacom Capital was formed for the sole purpose of acting as
co-issuer with Mediacom LLC of debt securities and does not conduct operations of its own. References in this Annual Report to we, us, or our are to Mediacom LLC and its direct
and indirect subsidiaries, unless the context specifies or requires otherwise. References in this
Annual Report to MCC are to Mediacom Communications Corporation. 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. These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from historical results or those we
anticipate. Factors that could cause actual results to differ from those contained in the
forward-looking statements include, but are not limited to: competition in our video, high-speed
Internet access and phone businesses; our ability to achieve anticipated customer and revenue
growth and to successfully introduce new products and services; increasing programming costs;
changes in laws and regulations; our ability to generate sufficient cash flow to meet our debt
service obligations and access to capital to maintain our financial flexibility; and the other
risks and uncertainties discussed in this Annual Report. Statements included in this Annual Report
are based upon information known to us as of the date that this Annual Report is filed with the
SEC, and we assume no obligation to update or alter our forward-looking statements made in this
Annual Report, whether as a result of new information, future events or otherwise, except as
otherwise required by applicable federal securities laws. 3




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PART I 
 ITEM 1. BUSINESS Our Manager We are a wholly-owned subsidiary of Mediacom Communications Corporation, who is also our
manager. Mediacom Communications is 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. As of December 31, 2005, our managers cable systems, which are owned and
operated through our operating subsidiaries and those of Mediacom Broadband LLC, passed an
estimated 2.81 million homes and served approximately 1.42 million basic subscribers and 2.42
million revenue generating units (RGUs). Mediacom Broadband is also a wholly-owned subsidiary of
our manager. A basic subscriber is a customer who subscribes to a package of cable television
services. RGUs represent the sum of basic subscribers, digital customers, high-speed data (HSD)
customers and phone customers. Our manager is a publicly-owned company whose Class A common stock
is listed on the Nasdaq National Market under the symbol MCCC. Our managers principal executive offices are located at 100 Crystal Run Road, Middletown, New
York 10941 and our managers telephone number at that address is (845) 695-2600. Our managers
website is located at www.mediacomcc.com. Mediacom LLC As of December 31, 2005, we served approximately 650,000 basic subscribers, 205,000 digital
customers, 212,000 HSD customers, and 4,500 telephone customers, totaling 1.07 million RGUs.
Through our interactive broadband network, we provide 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),
HSD, also known as high-speed Internet access or cable modem service, and phone service. We have made available free of charge through our managers website (follow the Corporate Info
link to the Investor Relations tab to Annual Reports/SEC Filings) our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
reasonably practicable after such material was electronically filed with, or furnished to, the
Securities and Exchange Commission. The information on our managers website is not part of this
Annual Report. Business Strategy We operate in a highly competitive and rapidly changing environment. Our strategy is to be the
leading single-source provider of advanced video, data and voice products and services within our
market areas, 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. Expanding Reach and Enhancing Quality of Products and Services We continue to expand the availability, and enhance the quality, of our advanced video
services, such as VOD, which we refer to as Mediacom On Demand, HDTV and DVRs. Over the past two
years, we have more than tripled the download speed of our HSD product, which we refer to as
Mediacom Online. As of year-end 2005, and within six months of the initial launch of our phone
service, which we refer to as Mediacom Phone, we were marketing this new product to nearly 20% of
the homes in our markets. 4




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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 also realize greater value through bundle discounts as they obtain additional
products and services from us. We currently offer the triple play bundle of video, voice and HSD to
almost 20% of the homes that we pass. By the end of 2006, we expect that we will be offering
this multiple product bundle to approximately 1.0 million homes, or nearly 80% of our estimated
total homes passed. Customer Service To enhance customers experience and realize operating efficiencies, we continue to invest in
customer care personnel, call center technology and field workforce management. Attaining higher
levels of customer satisfaction through quality service is critical to our success in the
increasingly competitive environment we face today. Community Presence Since commencement of our operations in 1996, 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, the significant investments we have made in
our cable systems have given the communities we serve access to the latest in broadband products
and services. Moreover, we continue to build good relationships with our communities by providing
local programming and by participating in a wide range of local educational and community service
initiatives. 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. Digital Cable Service.Customers
who subscribe to our digital cable service receive more than 200 digital channels. We currently offer several programming packages that include digital basic
channels, multichannel premium services, sports channels, digital music channels, an interactive
on-screen program guide and VOD. Customers pay a monthly fee for digital cable service, which
varies according to the level of service and the number of digital converters in the home. A
digital converter or cable card is required to receive our digital cable service. 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. Video-On-Demand.Mediacom On Demand provides on-demand access to approximately 1,300 hours of
movies, special events and general interest titles. Our customers enjoy full functionality,
including the ability to pause, rewind and fast forward selected programming. Mediacom On Demand
service offers free special interest programming, subscription-based VOD (SVOD) premium packages,
such as Starz!, Showtime or HBO, and movies and other programming that can be ordered on a
pay-per-view basis. We currently offer this service to approximately 54% of our digital customers. 5




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High-Definition Television.HDTV features high-resolution picture quality, digital sound
quality and a wide-screen, theater-like display. This service offers programming available in
high-definition from local broadcast stations and from premium services such as Starz!, Showtime,
HBO, ESPN, Discovery, HDNet, INHD and Universal. Our HDTV service is available in most of our
markets where we offer up to 16 HDTV channels. This service requires the use of an advanced digital
converter for which we charge a monthly fee. Digital Video Recorders.We provide our customers with HDTV-capable 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 DVRs 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. Mediacom Online Mediacom Online offers several packages of HSD service with differing speeds and prices. These
services include our interactive portal, which provides multiple e-mail addresses, personal
webspace for customers, and local community content. We continue to enhance Mediacom Online by
increasing its download speeds, including the introduction of a premier Internet service with
maximum download speeds of 10Mbps. Through our network technology, we also provide a range of advanced data and communications
services for the commercial market. We offer small and medium-sized businesses a wide range of
high-speed data access products. Using our fiber-rich regional networks, we also build customized
solutions for larger enterprise customers which may include local area and virtual private
networks, and high-volume data transmission. Mediacom Phone Mediacom Phone offers our customers unlimited local, regional and long-distance calling within
the United States, Puerto Rico, the U.S. Virgin Islands and Canada, any time of the day or night,
for a flat monthly rate. Discount pricing is available when Mediacom Phone is combined with our
other services. International calling is also available at competitive rates. Mediacom Phone
includes popular calling features, such as voice mail, caller ID name and number, call waiting and
three-way calling, and provides enhanced Emergency 911 dialing. Our phone customers can keep their
existing phone number where local number portability is supported and use existing phones, jacks,
outlets and in-home wiring. In June 2005, we first launched Mediacom Phone in one of our smaller markets, and by year-end
2005, our phone service was marketed to approximately 250,000 of our total estimated 1.35 million
homes and served 4,500 customers. We expect to market Mediacom Phone to approximately 1.0 million
homes by year-end 2006. Mediacom Phone competes primarily with the phone service offered by the incumbent local
telephone company. We use technology that carries a telephone conversation over a
voice-over-Internet Protocol (VoIP) network instead of the traditional telephone companys
circuit-switched dedicated voice transmission network. The advantages of VoIP over traditional
circuit-switched telephony include: (i) lower costs because once the VoIP infrastructure is
installed, little or no further investment is required; and (ii) the development of new advanced
features. Advertising We generate revenues from the sale of advertising time on up to 44 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 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. Additionally, national and
regional interconnect agreements have been negotiated with other cable system operators to simplify
the purchase of advertising time of our clients. 6




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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: 2005
    
    2004
    
    2003
    
    2002
    
    2001Operating Data:Core VideoEstimated homes passed(1)
    
    
    1,347,000
    
    
    
    1,329,000
    
    
    
    1,282,500
    
    
    
    1,252,000
    
    
    
    1,200,000Basic subscribers(2)
    
    
    650,000
    
    
    
    675,000
    
    
    
    723,700
    
    
    
    752,000
    
    
    
    771,000Basic penetration(3)
    
    
    48.3
    %
    
    
    50.8
    %
    
    
    56.4
    %
    
    
    60.1
    %
    
    
    64.3
    %Digital CableDigital customers(4)
    
    
    205,000
    
    
    
    160,000
    
    
    
    151,400
    
    
    
    133,000
    
    
    
    88,000Digital penetration(5)
    
    
    31.5
    %
    
    
    23.7
    %
    
    
    20.9
    %
    
    
    17.7
    %
    
    
    11.4
    %High Speed DataHSD customers(6)
    
    
    212,000
    
    
    
    162,000
    
    
    
    122,200
    
    
    
    81,000
    
    
    
    38,000HSD penetration(7)
    
    
    15.7
    %
    
    
    12.2
    %
    
    
    9.5
    %
    
    
    6.5
    %
    
    
    3.2
    %PhoneEstimated marketable phone homes(8)
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Phone customers(9)
    
    
    4,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Revenue Generating Units(10)
    
    
    1,071,500
    
    
    
    997,000
    
    
    
    997,300
    
    
    
    966,000
    
    
    
    897,000Cable Network Data:Miles of plant
    
    
    27,600
    
    
    
    27,400
    
    
    
    26,150
    
    
    
    25,500
    
    
    
    25,000Density(11)
    
    
    49
    
    
    
    49
    
    
    
    49
    
    
    
    49
    
    
    
    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 average 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 HSD service. Customers
who exclusively purchase high-speed Internet or phone 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 companies offering similar services.(3)
    
    Represents basic subscribers as a percentage of estimated homes passed.(4)
    
    Represents customers receiving digital cable services.(5)
    
    Represents digital customers as a percentage of basic subscribers.(6)
    
    Represents residential HSD 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 of up to 5Mbps, and are converted to equivalent
residential HSD customers by dividing their associated revenues by the applicable residential
rate. Our HSD customers exclude 7




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large commercial accounts and include an insignificant number of
dial-up customers. Our methodology of calculating HSD customers may not be identical to those
used by other companies offering similar services.(7)
    
    Represents the number of total HSD customers as a percentage of estimated homes
passed.(8)
    
    Represents estimated number of homes to which the Company is currently
marketing phone service(9)
    
    Represents customers receiving phone service.(10)
    
    Represents the sum of basic subscribers, digital customers, HSD customers and
phone customers.(11)
    
    Represents estimated homes passed divided by miles of plant. Technology Overview A central feature of our cable network is its high capacity, hybrid fiber-optic coaxial
(HFC) architecture. This architecture combines the use of fiber optic cable, which can carry
hundreds of video, data and voice channels over extended distances, with coaxial cable for the
last mile, which requires more extensive signal amplification to reach 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. 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 currently inactive. We
believe that our HFC architecture provides high capacity and reliability, 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,
2005: Percentage of Cable NetworkLess than
    
    Standard
    
    Enhanced
    
    Greater than
    
    
    Two-Way550MHz
    
    550MHz
    
    550MHz
    
    550MHz
    
    
    Capable2.0%
    
    
    7.7
    %
    
    
    12.6
    %
    
    
    77.7
    %
    
    
    
    97
    %
 As of December 31, 2005, most of our cable network was built with greater than 550 megahertz
(MHz) capacity, and substantially all of it was two-way capable. As of the same date, our 550MHz
systems comprised standard 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, phone and other
telecommunications services across virtually our entire footprint. In 2006, we plan to upgrade a
portion of our remaining 550MHz cable systems to 870MHz. MHz is a measure used to quantify
bandwidth or the capacity to convey telecommunication services. We have deployed nearly 6,000 route miles of fiber optic cable into two regional fiber
networks. As of December 31, 2005, our cable systems were operated from 103 headend facilities.
In 2005, we installed SONET technology to our regional fiber networks 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. These regional networks
also have excess fiber optic capacity to accommodate more capacity usage by our existing products
and services and the launch of new products and services, such as our Mediacom Phone and commercial
data for large enterprise customers. Our ability to reach a greater number of our markets from a
central location also makes it more efficient, in terms of capital investment, to introduce new and
advanced services. In 2005, we overlaid on our regional networks the first segments of a video
transport system which permits us to more efficiently manage video services from fewer locations.
This system will serve as the foundation for our planned launch of digital simulcast in 2006 and
our ultimate transition to an all-digital network. 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. 8




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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. We also have various retransmission consent arrangements with commercial broadcast stations,
which generally expire in December 2008. 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 Customer satisfaction is important in an increasingly competitive environment. We continue to
invest in personnel, equipment and technology to improve our customer care. We benefit from a
well-trained, locally-based technical workforce. We maintain two regional virtual contact centers
staffed with dedicated customer service representatives and technical support representatives
(TSRs) who are available to respond to customer calls 24 hours a day, seven days a week. TSRs
respond to technical inquiries of our HSD and phone customers. We believe our regional contact
centers allow us to effectively manage resources and reduce response times to customer inquiries. In 2005, we further developed 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 contact centers to minimize hold times. 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 relations with the communities we serve. We support local
charities and community causes in various ways, including events and 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 1,400 schools with free video service and more than 40 with free high-speed Internet
service. We provide free cable television service to over 2,200 government buildings, libraries and
not-for-profit hospitals in our franchise areas. We also develop and provide exclusive local programming to our communities, a service not
offered by direct broadcast satellite 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. We believe increasing our emphasis on local
programming builds customer loyalty. 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. 9




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As of December 31, 2005, we held 988 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 our cable systems require a franchise to operate. 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, 2005. Percentage of
    
    
    Number of
    
    
    Percentage ofNumber of
    
    
    Total
    
    
    Basic
    
    
    Total BasicYear of Franchise Expiration
    
    Franchises
    
    
    Franchises
    
    
    Subscribers
    
    
    Subscribers2006 through 2009
    
    
    261
    
    
    
    26.4
    %
    
    
    228,459
    
    
    
    35.1
    %2010 and thereafter
    
    
    727
    
    
    
    73.6
    %
    
    
    421,541
    
    
    
    64.9
    %Total
    
    
    988
    
    
    
    100.0
    %
    
    
    650,000
    
    
    
    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, many of
whom have greater resources than us. We operate in an industry that is subject to rapid and
significant changes and developments in the marketplace, in technology and in the regulatory and
legislative environment. We are unable to predict the effects, if any, of such future changes or
developments on our business. Video Direct Broadcast Satellite Providers Direct broadcast satellite (DBS) providers, principally DIRECTV, Inc. and Echostar
Communications Corporation, are the cable industrys most significant video competitors, having
grown their customer base rapidly over the past several years. They now serve more than 27 million
customers nationwide, according to recent government and research reports. In 2003, the News
Corporation Limited, one of the worlds largest media companies, acquired a controlling interest in
DirecTV, strengthening this DBS providers competitive positioning. Our ability to compete with DBS service depends, in part, on the programming available to us
and them for distribution. DirecTV and Echostar now offer more than 300 video channels of
programming, much of it substantially similar to our video offerings. Federal laws passed in 1999
permit DBS providers to retransmit local broadcast channels to their customers, eliminating a
significant advantage we had over DBS service. DirecTV also has exclusive arrangements with the
National Football League to offer programming we cannot offer. In late 2005, DBS providers began to offer local high-definition (HD) broadcast signals of
the four primary broadcast networks in certain major metropolitan markets across the U.S. They have
stated their plans to expand this offering of local HD signals in markets representing up to 75% of
U.S. TV households by year-end 2006. DirecTV has also stated that it will be able to provide
significantly more HD channels of national programming in 2007. 10




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DBS service has technological limitations because of its limited two-way interactivity,
restricting DBS providers ability to compete in interactive video, HSD and voice services. In
contrast, our broadband network has full two-way interactivity, giving us a single platform that is
capable of delivering true VOD and SVOD services, as well as HSD and phone services. DBS providers are seeking to expand their services to include, among other things, a
competitive high-speed data service, and have active marketing agreements under which major
telephone companies sell DBS service bundled with their phone and high-speed data services.
However, we believe that our delivery of multiple services from a single broadband platform is more
cost effective than the DBS providers, giving us a long-term competitive advantage. 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 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. A number of cities have constructed their own cable systems, in a manner similar to
city-provided utility services. In certain communities in Iowa, competition from municipally-owned
entities may increase because of recently passed local legislation that allows these communities to
form entities to compete with us. We believe that various entities are currently offering cable
service to an estimated 8.9% of the estimated homes passed in our markets. Telephone Companies In addition to their joint-marketing alliances with DBS providers, Verizon Communications Inc.
and AT&T Inc. are now constructing, and Verizon is beginning to operate, new fiber networks that
replace their existing networks and allow them to offer video services, in addition to improved
voice and high speed data services. These telephone companies have substantial resources.
Legislation was recently passed in three states (including one in which we operate cable systems),
and similar legislation is pending, or has been proposed, in certain other states and in Congress,
to allow local telephone companies to deliver services in competition with our cable service
without obtaining equivalent local franchises. While the video competition we face from telephone
companies is currently limited, if they decide to rebuild their networks in our markets and began
to offer video services, they could present a significant competitive challenge to us. Other We also have other actual or potential video competitors, including broadcast television
stations, private home dish earth stations, multichannel multipoint distribution services, known as
MMDS (which deliver programming services over microwave channels licensed by the FCC), satellite
master antenna television systems (which use technology similar to MMDS and generally serve
condominiums, apartment complexes and other multiple dwelling units), new services such as wireless
local multipoint distribution service, and potentially new services, such as multichannel video
distribution and data service. We currently have limited competition from these competitors. High Speed Data Our HSD service competes primarily with digital subscriber line (DSL) services offered by
telephone companies. Many of these competitors have substantial resources. DSL technology provides 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. As discussed above, certain major telephone companies are currently
constructing and beginning to operate new fiber networks, allowing them to offer significantly
faster high-speed data services compared to DSL technology. We expect the competitiveness of
telephone companies to increase in high-speed data, as they respond to our entry into their phone
business. 11




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DBS providers have attempted to compete with our HSD service, but their satellite-delivered
service has had limited success given its technical constraints. DBS providers continue to explore
other options for the provision of high-speed data services. Industry reports suggest that they
will soon announce some form of affiliation with other companies to provide high-speed Internet
access through a delivery system that combines satellite communications with terrestrial wireless
networks. Other potential competitors include companies seeking to provide high-speed Internet services
using wireless technologies. Certain electric utilities also have announced plans to deliver
broadband services over their electrical distribution networks, and if they are able to do so, they
could become formidable competitors given their resources. Phone Mediacom Phone principally competes with the phone services offered by incumbent telephone
companies. The incumbent telephone companies have substantial capital and other resources,
longstanding customer relationships, extensive existing facilities and network rights-of-way. In
addition, it competes with services offered by other VoIP providers, such as Vonage, that do not
have their own network but provide their service through a consumers high-speed Internet
connection. Other Competition The FCC has adopted regulations and policies for the issuance of licenses for digital
television (DTV) to incumbent television broadcast licensees. DTV television can deliver HD
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.
Over-the-air DTV subscription service is now available in a few cities in the United States. 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, certain programming suppliers have begun to 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, 2005, we employed 1,748 full-time employees and 87 part-time employees.
None of our employees are represented by a labor union. We consider our relations with our
employees to be satisfactory. 12




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Legislation and Regulation General Federal, state and local laws regulate the development and operation of cable communications
systems. In the following paragraphs, we summarize the federal laws and regulations materially
affecting us and other cable operators. 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, our business or our
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
(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 increases
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. 13
    Table of Contents  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 exceed what is
permitted 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.
 Reversing the findings of a November 2004 report, the FCC released a report in February 2006
finding that consumers could benefit under certain a la carte models for delivery of video
programming. This report did not specifically recommend or propose the adoption of any specific
rules by the FCC and it did not endorse a pure a la carte model where subscribers could purchase
specific channels without restriction. Instead, it favored tiers plus individual channels or
smaller theme-based tiers. Shortly after release of the report, the FCC voted to seek additional
information as to whether cable systems with at least 36 channels are available to at least 70
percent of U.S. homes 14
    Table of Contents  and whether 70 percent of households served by those systems subscribe. If
so, the FCC may have additional discretion under the Cable Act to promulgate additional rules
necessary to promote diversity of information sources. The FCC did not specify what rules it would
seek to promulgate; however, the Chairman of the FCC has expressed support for family-friendly
tiers of programming and availability of programming on an a la carte basis. Certain cable
operators have responded by announcing that they will launch family-friendly programming tiers.
It is not certain whether those efforts will ultimately be regarded as a sufficient response.
Congress may also consider legislation regarding programming packaging, bundling or a-la-carte
delivery of programming. Any such requirements could fundamentally change the way in which we
package and price our services. We cannot predict the outcome of any current or future FCC
proceedings or legislation in this area, or the impact of such proceedings on our business at this
time. 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 2004, Congress extended this good faith
requirement to cover all multi-channel video programming distributors, including cable operators. 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. No later than February 18, 2009, all television broadcasts must be solely in digital format.
After February 17, 2009, broadcasters must return their analog spectrum. 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
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, however, changes in the composition of the Commission
as well as proposals currently under consideration could result in an obligation to carry both the
analog and digital version of local broadcast stations or to carry multiple digital program
streams. In addition to rejecting a dual carriage requirement during the transition, the FCC also
confirmed that a cable 15
    Table of Contents  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. 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 or other services that may be more desirable to our customers. In the Satellite Home Viewer Extension and Reauthorization Act of 2004 (SHVERA), Congress
directed the FCC to conduct an inquiry and submit a report to Congress regarding 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-non-duplication, syndicated exclusivity, and
sports blackouts. The FCC completed this inquiry and submitted the required report to Congress in
September 2005. While generally recommending that Congress continue its efforts to harmonize the
rules applicable to cable, DBS and other multichannel video programming distributors to the extent
feasible in light of technological differences, the FCC found that it was unnecessary to recommend
any specific statutory amendments at this time. Rather, the FCC concluded that specific
suggestions for change should await the results of a pair of companion studies to be conducted by
the Copyright Office pursuant to SHVERA, the results of which are discussed below in the Copyright
section. 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. The FCC is reviewing a complaint with respect to another cable operator to determine whether
certain charges routinely assessed by many cable operators, including us, to obtain access to
digital services, violate this anti-buy-through provision. Any decision that requires us to
restructure or eliminate such charges would have an adverse effect on our business. 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 cable operators.
 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
 16
    Table of Contents  
    
    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
    
    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;
 17
    Table of Contents  
    
    restricting our use of any type of subscriber equipment or transmission technology; and
    
    requiring payment of franchise fees to the local franchising authority in excess of
5.0% of our gross revenues derived from providing cable services over our cable system.
 Encourage competition with existing cable systems by: 
    
    allowing municipalities to operate their own cable systems without franchises; and
    
    preventing franchising authorities from granting exclusive franchises or from
unreasonably refusing to award additional franchises covering an existing cable systems
service area.
 Provide renewal procedures: 
    
    The Cable Act contains renewal procedures designed to protect us against arbitrary
denials of renewal of our franchises although, under certain circumstances, the franchising
authority could deny us a franchise renewal. Moreover, even if our franchise is renewed,
the franchising authority may seek to impose upon us new and more onerous requirements,
such as significant upgrades in facilities and services or increased franchise fees as a
condition of renewal to the extent permitted by law. Similarly, if a franchising
authoritys consent is required for the purchase or sale of our cable system or franchise,
the franchising authority may attempt to impose more burdensome or onerous franchise
requirements on the purchaser in connection with a request for such consent. Historically,
cable operators providing satisfactory services to their subscribers and complying with the
terms of their franchises have almost always obtained franchise renewals. We believe that
we have generally met the terms of our franchises and have provided quality levels of
service. We anticipate that our future franchise renewal prospects generally will be
favorable.
    
    Various courts have considered whether franchising authorities have the legal right to
limit the number of franchises awarded within a community and to impose substantive
franchise requirements. These decisions have been inconsistent and, until the U.S. Supreme
Court rules definitively on the scope of cable operators First Amendment protections, the
legality of the franchising process generally and of various specific franchise
requirements is likely to be in a state of flux. Furthermore, the FCC recently issued a
Notice of Proposed Rulemaking seeking comment on whether the current local franchising
process constitutes an impediment to widespread issuance of franchises to competitive cable
providers in terms of the sheer number of franchising authorities, the impact of
state-level franchising authorities, the burdens some local franchising authorities seek to
impose as conditions of granting franchises and whether state level-playing field
statutes also create barriers to entry. We cannot determine the outcome of any potential
new rules on our business; however, any change that would lessen the local franchising
burdens and requirements imposed on our competitors relative to those that are or have been
imposed on us could harm our business.
 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 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. Although the United States Supreme Court recently held that cable modem service was
properly classified by the FCC as an information service, freeing it from regulation as a
telecommunications service, it recognized that the FCC has jurisdiction to impose regulatory
obligations on facilities based Internet Service Providers. The FCC has an ongoing rulemaking to
determine whether to impose regulatory obligations on such providers, including us. 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. 18
    Table of Contents  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 reversed the FCCs decisions 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 subsequently has been invalidated by a federal appellate
court. 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: (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 cable system operators. Legislation was recently passed in three states (including one in which we operate cable
systems) and similar legislation is pending, or has been proposed, in certain other states and in
Congress, to allow local telephone companies to deliver services in competition with our cable
service without obtaining equivalent local franchises. Such a legislatively granted advantage to
our competitors could adversely affect our business. The effect of such initiatives, if any, on our
obligation to obtain local franchises in the future or on any of our existing franchises, many of
which have years remaining in their terms, cannot be predicted. 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 19
    Table of Contents  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,
2007, 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. The FCC continues to push the
cable television and consumer electronics industries to develop two-way plug and play
specifications. Pole Attachment Regulation The Cable Act requires certain public utilities, defined to include all local telephone
companies and electric utilities, except those owned by municipalities and co-operatives, to
provide cable operators and telecommunications carriers with nondiscriminatory access to poles,
ducts, conduit and rights-of-way at just and reasonable rates. This right to access is beneficial
to us. Federal law also requires the FCC to regulate the rates, terms and conditions imposed by
such public utilities for cable systems use of utility pole and conduit space unless state
authorities have demonstrated to the FCC that they adequately regulate pole attachment rates, as is
the case in certain states in which we operate. In the absence of state regulation, the FCC 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 recent Supreme Court decision
upholding the FCCs classification of cable modem service as an information service, should
strengthen our ability to resist such rate increases based solely on the delivery of cable modem
services over our cable systems. As we continue our deployment of cable telephony and certain other
advanced services, utilities may continue to seek to invoke the higher rates. At present there is a formal hearing before the FCC in which Alabama Power is attempting to
demonstrate that pole attachment rates above its marginal costs meet the just compensation test
approved by the United States Court of Appeals for the 11th Circuit. As a result of the Supreme
Court case upholding the FCCs classification of cable modem service as an information service, the
11th Circuit has considered whether there are circumstances in which a utility can ask for and
receive rates from cable operators over and above the rates set by FCC regulation. If
successful, Alabama Power and perhaps all utilities in areas served by us may have a similar
claim thereby increasing their ability to raise rates. It is not known at this time what, if any,
financial impact could occur. 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;
 20
    Table of Contents  
    
    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. 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 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 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 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. Filed petitions for rulemaking with the United States Copyright Office propose revisions to
certain compulsory copyright license reporting requirements and seek clarification of certain
issues relating to the application of the compulsory license to the carriage of digital broadcast
stations. The petitions seek, among other things: (i) clarification of the inclusion in gross
revenues of digital converter fees, additional set fees for digital service and revenue from
required buy throughs to obtain digital service; (ii) reporting of dual carriage and multicast
signals; (iii) revisions to the Copyright Offices rules and Statement of Account forms, including
increased detail
regarding services, rates and subscribers, additional information regarding non-broadcast
tiers of service, cable headend location information, community definition clarification and
identification of the county in which the cable community is located and the effect of interest
payments on potential liability for late filing; and (iv) payment for certain distant signals in
communities where the signal is not carried, dubbed phantom signals. The Copyright Office may
open one or more rulemakings in response to these petitions. We cannot predict the outcome of any
such rulemakings; however, it is possible that certain changes in the rules or copyright compulsory
license fee computations could have an adverse affect on our business by increasing our copyright
compulsory license fee costs or by causing us to reduce or discontinue carriage of certain
broadcast signals that we currently carry on a discretionary basis. In February 2006, the Copyright Office reported to Congress as required by SHVERA. The
Copyright Office concluded that: (i) the current DBS compulsory license royalty fee for distant
signals did not reflect fair market value; (ii) copyright owners should have the right to audit the
statements of account submitted by DBS providers; 21
    Table of Contents  and (iii) the cost of administering the
compulsory license system be paid by those using the copyrighted material. A second report is due
by June 30, 2008. Neither the outcome of those proceedings, their impact on cable television
operators, nor their impact on subsequent legislation, regulations, the cable industry, or our
business and operations can be predicted at this time. 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 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, including obligations to notify
customers where certain customer information is accessed or believed to have been accessed without
authorization. These state provisions 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. 22
    Table of Contents  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. 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 2002, the FCC announced that it was classifying Internet access service provided through
cable modems as an interstate information service. Although the United States Supreme Court
recently held that cable modem service was properly classified by the FCC as an information
service, freeing it from regulation as a telecommunications service, it recognized that the FCC
has jurisdiction to impose regulatory obligations on facilities based Internet Service Providers.
The FCC has an ongoing rulemaking to determine whether to impose regulatory obligations on such
providers, including us. The adoption of new rules by the FCC could impose 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. While we cannot predict the outcome of this proceeding, we do note
that the FCC recently removed the requirement that telecommunications carriers provide access to
competitors to resell their DSL Internet access service citing the need for competitive parity with
cable modem service which has no similar access requirement. 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 have commenced offering
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 unresolved, 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. In February 2006, the FCC commenced a proceeding to determine
whether additional security measures are required to protect certain customer information including
call records. It is unknown what conclusions or actions the FCC may take or whether it will apply
such requirements to all providers of voice services. 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;
 23
    Table of Contents  
    
    customer service standards;
    
    sale or transfer of the franchise; and
    
    territory of the franchise.
 24
    Table of Contents  ITEM 1A. 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 $9.0 million for the year
ended December 31, 2004, we reported net losses of $4.3 million and $42.5 million for the years
ended December 31, 2005 and 2003, respectively. The principal reasons for our prior net losses
include the depreciation and amortization expenses associated with our acquisitions and 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, the introduction of additional new services, and,
possibly, acquisitions. Relatively new services include HSD, VOD, DVRs, HDTV and phone service. We
may not be able to successfully expand existing services 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 video
subscribers. In recent years, the cable and satellite video industries have experienced a rapid increase in
the cost of programming, particularly sports programming. Increases in programming costs, our
largest single expense item, are expected to continue, and we may not be able to pass on all of
these cost increases to our video subscribers. In addition, as we add programming, we may not be
able to pass on all of the costs of this additional programming without the potential loss of video
subscribers. To the extent that we may not be able to pass on increased programming costs, our
business, financial condition and results of operations could 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 their 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 video subscribers to direct broadcast satellite competition, and further loss
of video subscribers 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 providers. 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. DBS has grown
rapidly over the past several years and continues to do so. We have lost a significant number of
video subscribers to DBS competition, and will continue to face significant challenges from DBS
providers. 25
    Table of Contents  Local telephone companies 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 begun to deploy broadband services,
including video services, and in certain cases avoiding the regulatory burdens imposed on us. These
deployments enable them to provide enhanced video, telephone and Internet access services to
consumers. New laws or regulations at the federal or state level may clarify, modify or enhance the
ability of the local telephone companies to provide their services either without obtaining state
or local cable franchises or to obtain such franchises under terms and conditions more favorable
than those imposed on us. If local telephone companies are not required to obtain comparable local
franchises, our business, financial condition and results of operations could be adversely
affected. Certain telephone companies, together with DBS providers, have launched bundled offerings of
satellite delivered video service with phone, Internet and wireless service delivered by the
telephone companies. We also face growing competition from municipal entities that construct facilities and provide
cable television, HSD, telephony and/or other related services. In addition to hard-wired
facilities, some municipal entities are exploring building wireless networks to deliver these
services. We 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 also have a material adverse effect on our business, financial
condition and results of operations. Competition in our HSD business primarily comes from telephone companies and other providers
of dial-up and DSL which already have telephone lines into the household. DSL service is
competitive with HSD service over cable systems. 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 Federal Communications Commission (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, DBS
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. Some of our present or future
competitors may have greater financial resources or, through their affiliates, greater access to
programming or other services, than we do. 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 keep pace with
technological change 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 business, financial
condition and results of operations. Our phone service was launched in 2005, and consequently, we face new risks and uncertainties
as we began to scale this business. In June 2005, we launched Mediacom Phone in one of our smaller markets, and by year-end 2005,
our phone service was marketed to approximately 250,000 of our total estimated 1.35 million homes.
We have limited 26
    Table of Contents  operating experience with our phone service, and managing its growth may present significant
challenges for us. We may encounter difficulties introducing Mediacom Phone in new markets or
increasing the scale of markets already launched. If our phone service is not sufficiently reliable
or we otherwise fail to meet customer expectations, our business could be adversely affected. We
face intense competition in offering phone service, primarily from local telephone companies. We
also depend on third parties for interconnection, call switching, and other related services to
operate Mediacom Phone. As a result, the quality of our service may suffer if these third parties
are not capable of handling their responsibilities. We also expect to see changes in technology,
competition, and the regulatory and legislative environment that may affect our phone business.
Consequently, we are unable to predict the effect that current or future developments in these
areas might have on our phone business. If our manager were to lose key personnel, our business could be adversely affected. If any of our managers key personnel ceases to participate in our business and operations,
our profitability could suffer. Our success is substantially dependent upon the retention of, and
the continued performance by, our managers key personnel, including Rocco B. Commisso, the
Chairman and Chief Executive Officer of our manager. Our manager has not entered into a long-term
employment agreement with Mr. Commisso. Neither our manager nor we currently maintains key man
life insurance on Mr. Commisso or other key personnel. We depend on our manager for the provision of essential management functions. We do not have separate senior management and are dependent on our manager for the operation
of our business. Our manager also manages Mediacom Broadbands operating subsidiaries. Following
the completion of Mediacom Broadbands acquisitions of cable systems from AT&T Broadband in June
and July 2001, the number of customers served by our managers cable systems increased
significantly and our manager devotes a significant portion of its personnel and other resources to
the management of Mediacom Broadbands cable systems. As a result, the attention of our managers
senior executive officers may be diverted from the management of our cable systems and the
allocation of resources between our cable systems and Mediacom Broadbands cable systems could give
rise to conflicts of interest. The successful execution of our business strategy depends on the ability of our manager to
efficiently manage our cable systems. If our manager were to experience any material adverse change
in its business, the risks described in this risk factor could intensify and our business,
financial condition and results of operations could be materially adversely affected. In addition,
we are also dependent on our manager to operate Mediacom Broadbands cable systems effectively in
order to enable us to achieve operating synergies, such as the joint purchasing of programming.
Mediacom Broadbands operating subsidiaries have substantial indebtedness that, among other things,
could make our manager more vulnerable to economic downturns and to adverse developments in its
business. Although our manager charged management fees to our operating subsidiaries in an amount
equal to 2.1% of our subsidiaries gross operating revenues for the year ended December 31, 2005,
we cannot assure you that it will not exercise its right under its management agreements with our
operating subsidiaries to increase the management fees, which under such agreements may not exceed
4.5% of each subsidiarys gross operating revenues. The Chairman and Chief Executive Officer of our manager has the ability to control all major
decisions, and a sale of his stock in our manager could result in a change of control that would
have unpredictable effects. Rocco B. Commisso, the Chairman and Chief Executive Officer of our manager, beneficially owned
common stock of our manager representing approximately 76.4% of the combined voting power of all of
its common stock as of December 31, 2005. As a result, Mr. Commisso generally has the ability to
control the outcome of all matters requiring approval by stockholders of our manager, including the
election of its entire board of directors, and Mr. Commisso may be deemed to control our company. We cannot assure you that Mr. Commisso will maintain all or any portion of his ownership in
our manager or that he would continue as an officer or director of our manager if he sold a
significant part of his stock. The disposition by Mr. Commisso of a sufficient number of his shares
of our managers stock could result in a change in 27
    Table of Contents  control of our manager and of us, and we cannot assure you that a change of control would not
adversely affect our business, financial condition or results of
operations. In addition, a change of control (as defined in our bank
credit facility) would result in a default under our bank credit facility. 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. In certain cases, 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, communications or other services 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. Some of our cable systems operate in the Gulf Coast region, which is likely to continue to
experience severe hurricanes and tropical storms. Cable systems serving approximately 8% of our subscribers are located on or near the Gulf
Coast in Alabama, Florida and Mississippi. In 2004 and 2005, three hurricanes impacted these cable
systems, to varying degrees, causing property damage, service interruption and loss of customers.
Current predictions suggest that the Gulf Coast could experience severe hurricanes in the future.
Severe weather could impact our operations in affected areas, causing us to experience higher than
normal levels of expense and capital expenditures, as well as the potential loss of customers and
revenues. 
 Risks Related to our Indebtedness and the Indebtedness of 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, 2005 was approximately $1.47 billion. Our interest expense
for the year ended December 31, 2005 was $102.0 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: 28
    Table of Contents  
    
    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.
 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 our 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.
 29
    Table of Contents  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. 
 Risks Related to Legislative and Regulatory Matters Changes in cable television regulations could adversely impact our business. 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, and lobbying efforts by us and our competitors. 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 Cable Communications Policy Act of 1984 (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, several
individual states have imposed such restrictions and others may also impose similar 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. Recently, many states in which we operate
have enacted laws requiring us to notify customers in the event that certain customer information
is accessed or believed to have been accessed without authorization. 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. Such
laws or regulations may also require disclosure of failures of our procedures or breaches to our
system by third parties, which can increase the likelihood of claims against us by affected
subscribers. 30
    Table of Contents  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 might 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, however, changes in the composition of the FCC as well as proposals
currently under consideration could result in an obligation to carry both the analog and digital
version of local broadcast stations and/or to carry multiple digital program streams. Further, this
decision has been appealed to the D.C. Circuit Court of Appeals. Reversing the findings of a November 2004 report, the FCC released a report in February 2006,
finding that consumers could benefit under certain a la carte models for delivery of video
programming. The report did not specifically recommend or propose the adoption of any specific
rules by the FCC and it did not endorse a pure a la carte model where subscribers could purchase
specific channels without restriction. Instead, it favored tiers plus individual channels or
smaller theme-based tiers. Shortly after release of the report, the FCC voted to seek additional
information as to whether cable systems with at least 36 channels are available to at least 70
percent of U.S. Homes and whether 70 percent of households served by those systems subscribe. If
so, the FCC may have discretion under the Cable Act to promulgate additional rules necessary to
promote diversity of information sources. The FCC did not specify what rules it would seek to
promulgate, however, the Chairman of the FCC has expressed support for family-friendly tiers of
programming and availability of programming on an a la carte basis. Certain cable operators have
responded by creating family-friendly programming tiers. It is not certain whether those efforts
will ultimately be regarded as a sufficient response. Congress may also consider legislation
regarding programming packaging, bundling or a-la-carte delivery of programming. Any such
requirements could fundamentally change the way in which we package and price our services. We
cannot predict the outcome of any current or future FCC proceedings or legislation in this area, or
the impact of such proceedings on our business at this time. Recently, the FCC imposed reciprocal good faith retransmission consent negotiation
obligations on cable operators and broadcasters. These rules identify seven types of conduct that
would constitute per seviolations of the new requirements. Thus, even though we may have no
interest in carrying a particular broadcasters programming, we may be required under the new rules
to engage in negotiations within the parameters of the FCCs rules. While noting that the parties
in retransmission consent negotiations were now subject to a heightened duty of negotiation, the
FCC emphasized that failure to ultimately reach an agreement is not a violation of the rules. The
impact of these rules on our business cannot be determined at this time. Our franchises are non-exclusive and local franchising authorities may grant competing
franchises in our markets, which could adversely affect our business. 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. Some may not require local franchises at all, such as certain
municipal utility providers. 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 December 31, 2005, approximately 8.9% 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. Legislation was recently passed in three states (including one in which we operate cable
systems) and similar legislation is pending, or has been proposed in certain other states and in
Congress, to allow local telephone companies to deliver services in competition with our cable
service without obtaining equivalent local franchises. Such a legislatively granted advantage to
our competitors could adversely affect our business. The effect of such initiatives, if any, on our
obligation to obtain local franchises in the future or on any of our existing franchises, many of
which have years remaining in their terms, cannot be predicted. 31
    Table of Contents  The FCC recently issued a Notice of Proposed Rulemaking seeking comment on whether the current
local franchising process constitutes an impediment to widespread issuance of franchises to
competitive cable providers in terms of the sheer number of franchising authorities, the impact of
state-level franchising authorities, the burdens some local franchising authorities seek to impose
as conditions of granting franchises and whether state level-playing field statutes also create
barriers to entry. We cannot determine the outcome of any potential new rules on our business;
however, any change that would lessen the local franchising burdens and requirements imposed on our
competitors relative to those that are or have been imposed on us could harm our business. 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. Although the United States Supreme Court recently held that
cable modem service was properly classified by the FCC as an information service, freeing it from
regulation as a telecommunications service, it recognized that the FCC has jurisdiction to impose
regulatory obligations on facilities based Internet Service Providers. The FCC has an ongoing
rulemaking to determine whether to impose regulatory obligations on such providers, including us.
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. The adoption of new
rules by the FCC 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. While we cannot
predict the outcome of this proceeding, we do note that the FCC recently removed the requirement
that telecommunications carriers provide access to competitors to resell their DSL Internet access
service citing the need for competitive parity with cable modem service which has no similar access
requirement. 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 us and third parties which could contain errors or other material
that could give rise to liability. To date, we have not been served notice that such a claim has been filed against us. However,
in the future someone may serve such a claim on 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. 32
    Table of Contents  Since we launched our proprietary Mediacom Online 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, 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
nondiscriminatory access over their cable systems to other Internet service providers. The recent
decision by the United State Supreme Court upholding the FCCs classification of cable modem
service as an information service may effectively forestall efforts by competitors to obtain
access to the networks of cable operators to provide Internet access services. As noted above,
however, the FCC continues to have jurisdiction over this issue and a rulemaking initiated prior to
the Supreme Courts decision remains ongoing. While we cannot predict the outcome of this
proceeding, we do note that the FCC recently removed the requirement that telecommunications
carriers provide access to competitors to resell their DSL internet access service citing the need
for competitive parity with cable modem service which has no similar access requirement. If we are
required to provide access in this manner, it could have a significant adverse impact on our
business, financial condition and results of operations, 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 treatment of VoIP services like those we and others offer remains uncertain.
The FCC, Congress, the courts and the states continue to look at issues surrounding the provision
of VoIP, including whether this service is properly classified as a telecommunications service or
an information service. The FCCs decision to classify VoIP as an information service should
eliminate much if not all local regulation of the service and should limit federal regulation to
consumer protection, as opposed to economic issues. For example, on the federal level, the FCC
recently required providers of interconnected VoIP services, such as ours, to file a letter with
the FCC certifying compliance with certain E-911 functionality. Disputes have also arisen with
respect to the rights of VoIP providers and their telecommunications provider partners to obtain
interconnection and other rights under the Act from incumbent telephone companies. We cannot
predict how these issues will be resolved, but uncertainties in the existing law as it applies to
VoIP or any determination that results in greater or different regulatory obligations than
competing services would result in increased costs, reduce anticipated revenues and impede our
ability to effectively compete or otherwise adversely affect our ability to successfully roll-out
and conduct our telephony business. 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 cable
operators. 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. That ruling, coupled with the recent Supreme Court decision upholding the FCCs
classification of cable modem service as an information service, should strengthen our ability to
resist such rate increases based solely on the delivery of cable modem services over our cable
systems. As we continue our deployment of cable telephony and certain other advanced services,
utilities may continue to invoke higher rates. A formal hearing is currently before the FCC in
which Alabama Power is attempting to demonstrate that pole attachment rates above its 33
    Table of Contents  marginal costs meet the just compensation test approved by the United States Court of Appeals
for the 11th Circuit which would allow it to ask for and receive rates from cable operators over
and above the rates set by FCC regulation. If successful, Alabama Power and perhaps all utilities
in areas served by us may have a similar claim thereby increasing their ability to raise rates. Our business, financial condition and results of operations 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. Changes in compulsory copyright regulations might significantly increase our license fees. Filed petitions for rulemaking with the United States Copyright Office propose revisions to
certain compulsory copyright license reporting requirements and seek clarification of certain
issues relating to the application of the compulsory license to the carriage of digital broadcast
stations. The petitions seek, among other things: (i) clarification of the inclusion in gross
revenues of digital converter fees, additional set fees for digital service and revenue from
required buy throughs to obtain digital service; (ii) reporting of dual carriage and multicast
signals; (iii) revisions to the Copyright Offices rules and Statement of Account forms, including
increased detail regarding services, rates and subscribers, additional information regarding
non-broadcast tiers of service, cable headend location information, community definition
clarification and identification of the county in which the cable community is located and the
effect of interest payments on potential liability for late filing; and (iv) payment for certain
distant signals in communicates where the signal is not carried, dubbed phantom signals. The
Copyright Office may open one or more rulemakings in response to these petitions. We cannot predict
the outcome of any such rulemakings; however, it is possible that certain changes in the rules or
copyright compulsory license fee computations could have an adverse affect on our business,
financial condition and results of operations by increasing our copyright compulsory license fee
costs or by causing us to reduce or discontinue carriage of certain broadcast signals that we
currently carry on a discretionary basis. 
 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
 
 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. 34
    Table of Contents  ITEM 3. LEGAL PROCEEDINGS We are involved in various 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, operations or cash flows. 
 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, 2005. 35
    Table of Contents  PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES There is no public trading market for our equity, all of which is held by MCC. 
 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, 2001 through 2005 and balance sheet data as of
December 31, 2001 through 2005, which are derived from our audited consolidated financial
statements (except operating data). See Managements Discussion and Analysis of Financial Condition and Results of Operations. Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(dollars in thousands)(unaudited)Statement of Operations Data:Revenues
    
    $
    485,705
    
    
    $
    472,187
    
    
    $
    452,548
    
    
    $
    410,241
    
    
    $
    369,275Costs and expenses:Service costs
    
    
    199,568
    
    
    
    185,123
    
    
    
    169,818
    
    
    
    152,684
    
    
    
    130,473Selling, general and administrative
expenses
    
    
    94,313
    
    
    
    86,807
    
    
    
    77,908
    
    
    
    68,563
    
    
    
    63,846Management fee expense (1)
    
    
    10,048
    
    
    
    8,691
    
    
    
    7,915
    
    
    
    11,108
    
    
    
    8,734Depreciation and amortization
    
    
    101,467
    
    
    
    107,282
    
    
    
    158,718
    
    
    
    194,862
    
    
    
    221,645Operating income (loss)
    
    
    80,309
    
    
    
    84,284
    
    
    
    38,189
    
    
    
    (16,976
    )
    
    
    (55,423
    )Interest expense, net
    
    
    (102,000
    )
    
    
    (97,790
    )
    
    
    (98,596
    )
    
    
    (102,458
    )
    
    
    (93,823
    )Loss on early extinguishment of debt (2)
    
    
    (4,742
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain (loss) on derivative instruments, net
    
    
    5,917
    
    
    
    5,196
    
    
    
    6,250
    
    
    
    1,172
    
    
    
    (8,441
    )Gain (loss) on sale of assets and investments, net
    
    
    2,628
    
    
    
    5,885
    
    
    
    (1,908
    )
    
    
    
    
    
    
    Investment income from affiliate (3)
    
    
    18,000
    
    
    
    18,000
    
    
    
    18,000
    
    
    
    18,000
    
    
    
    8,120Other (expense) income
    
    
    (4,406
    )
    
    
    (6,599
    )
    
    
    (4,425
    )
    
    
    (4,845
    )
    
    
    23,885Net (loss) income before cumulative effect
of accounting change
    
    
    (4,294
    )
    
    
    8,976
    
    
    
    (42,490
    )
    
    
    (105,107
    )
    
    
    (125,682
    )Cumulative effect of accounting change (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,642
    )Net (loss) income
    
    $
    (4,294
    )
    
    $
    8,976
    
    
    $
    (42,490
    )
    
    $
    (105,107
    )
    
    $
    (127,324
    )Balance Sheet Data (end of period):Total assets
    
    $
    1,492,010
    
    
    $
    1,491,900
    
    
    $
    1,515,366
    
    
    $
    1,567,240
    
    
    $
    1,566,045Total debt
    
    
    1,468,781
    
    
    
    1,473,177
    
    
    
    1,524,324
    
    
    
    1,548,711
    
    
    
    1,425,500Total members (deficit) equity
    
    
    (123,601
    )
    
    
    (119,307
    )
    
    
    (128,283
    )
    
    
    (85,793
    )
    
    
    13,991
 (continued on next page) 36
    Table of Contents  Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(dollars in thousands, except operating data)(unaudited)Other Data:Operating income before depreciation
and amortization (5)
    
    $
    181,776
    
    
    $
    191,566
    
    
    $
    196,907
    
    
    $
    177,886
    
    
    $
    166,222OIBDA margin (6)
    
    
    37.4
    %
    
    
    40.6
    %
    
    
    43.5
    %
    
    
    43.4
    %
    
    
    45.0
    %Ratio of earnings to fixed charges
    
    
    
    (7)
    
    
    1.08
    
    
    
    
    (7)
    
    
    
    (7)
    
    
    
    (7)Net cash flows provided by (used in):Operating activities
    
    $
    111,333
    
    
    $
    137,793
    
    
    $
    120,157
    
    
    $
    67,433
    
    
    $
    102,191Investing activities
    
    
    (109,718
    )
    
    
    (81,520
    )
    
    
    (99,753
    )
    
    
    (176,599
    )
    
    
    (398,946
    )Financing activities
    
    
    (7,280
    )
    
    
    (57,559
    )
    
    
    (27,877
    )
    
    
    122,678
    
    
    
    300,040Operating Data (end of period):Estimated homes passed (8)
    
    
    1,347,000
    
    
    
    1,329,000
    
    
    
    1,282,500
    
    
    
    1,252,000
    
    
    
    1,200,000Basic subscribers (9)
    
    
    650,000
    
    
    
    675,000
    
    
    
    723,700
    
    
    
    752,000
    
    
    
    771,000Digital customers (10)
    
    
    205,000
    
    
    
    160,000
    
    
    
    151,400
    
    
    
    133,000
    
    
    
    88,000Data customers (11)
    
    
    212,000
    
    
    
    162,000
    
    
    
    122,200
    
    
    
    81,000
    
    
    
    38,000Phone customers (12)
    
    
    4,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   (1)
    
    Represents fees paid to MCC for management services rendered to our operating
subsidiaries. See Note 7 of our consolidated financial statements. Management fee expense
includes non-cash stock charges related to the vesting of equity grants made during 1999 to
certain members of our management team. Such amounts were $5.3 million and $2.9 million,
respectively, for the years ended December 31, 2002 and 2001.(2)
    
    Relates to the redemption of our outstanding 81/2% senior notes due 2008. The
redemption price was equal to 101.417% of the outstanding principal amount. As such, we
recorded a loss on extinguishment of debt representing $2.8 million of call premium and the
write-off of $1.9 million of unamortized original issue discount and deferred financing costs.(3)
    
    Investment income from affiliate represents the investment income on our $150.0
million preferred equity investment in Mediacom Broadband LLC, a wholly-owned subsidiary of
MCC. See Note 10 of our consolidated financial statements.(4)
    
    Relates to our adoption of Statements of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities.(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. 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.
 37
    Table of Contents  (4)
    
    The following represents a reconciliation of operating income before depreciation and amortization to operating income (loss), which is the most directly comparable GAAP measure
(dollars in thousands):
 Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(unaudited)OIBDA
    
    $
    181,776
    
    
    $
    191,566
    
    
    $
    196,907
    
    
    $
    177,886
    
    
    $
    166,222Depreciation and amortization
    
    
    (101,467
    )
    
    
    (107,282
    )
    
    
    (158,718
    )
    
    
    (194,862
    )
    
    
    (221,645
    )Operating income (loss)
    
    $
    80,309
    
    
    $
    84,284
    
    
    $
    38,189
    
    
    $
    (16,976
    )
    
    $
    (55,423
    )
 (6)
    
    Represents OIBDA as a percentage of revenues. See note 5 above.(7)
    
    Earnings were insufficient to cover fixed charges by $5.6 million, $44.4 million,
$107.3 million and $128.2 million for the years ended December 31, 2005, 2003, 2002 and 2001,
respectively. Refer to Exhibit 12.1.(8)
    
    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.(9)
    
    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 average 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 or phone 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 companies offering similar services.(10)
    
    Represents customers that receive digital cable services.(11)
    
    Represents residential HSD 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 of up to 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 companies offering
similar services.(12)
    
    Represents customers that receive phone service.
 38
    Table of Contents  ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS Reference is made to the Risk Factors 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, 2005, 2004 and 2003. Overview We are a wholly-owned subsidiary of Mediacom Communications Corporation (MCC). Through our
interactive broadband network, we provide our customers with a wide array of broadband products and
services, including analog and digital video services, such as VOD, HDTV and DVRs, HSD and phone
service. Where our phone service is available, we offer triple-play bundles of video, HSD and
voice. Bundled products and services offer our customers a single provider contact for ordering,
provisioning, billing and customer care. As of December 31, 2005, our cable systems passed an estimated 1.35 million homes and served
650,000 basic subscribers. We provide digital video services to 205,000 digital customers and HSD
service to 212,000 customers, representing a digital penetration of 31.5% of our basic subscribers
and a data penetration of 15.7% of our estimated homes passed, respectively. We introduced
telephone service during the second quarter of 2005 and provided service to 4,500 customers as of
December 31, 2005. We have faced increasing levels of competition for our video programming services over the
past few years, mostly from DBS 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 providers, have been increasing the number of markets in which
they deliver these local television signals. These local-into-local launches have been the
primary cause of our loss of basic subscribers in recent years. As of December 31, 2005,
competitive local-into-local services in our markets covered an estimated 92% of our basic
subscribers. Hurricane Losses in 2004 and 2005 In July and August 2005, as a result of Hurricanes Dennis and Katrina, our cable systems in
areas of Alabama, Florida, and Mississippi experienced, to varying degrees, damage to their cable
plant and other property and equipment, service interruption and loss of customers. Some of our
customers homes in these areas also sustained varying levels of damage, including certain homes in
the Mississippi area that were totally destroyed. Hurricanes Dennis and Katrina initially disrupted
cable service to about 45,000 and 55,000 of our basic subscribers, respectively, in these states.
We estimate that the hurricanes initially caused losses of approximately 9,000 basic subscribers,
2,000 digital customers and 1,000 data customers. We are currently capable of providing service to
substantially all of the surviving households in the affected communities, and we expect to recover
a portion of these lost customers as they return to the region to rebuild or repair their homes. We
anticipate that some customers will move back into their homes or into temporary housing on their
properties while repairs or rebuilding are under way, and potentially reconnect or reactivate our
service at that time. As of December 31, 2005, we have not recovered a significant number of these
subscribers. Our results of operations for the year ended December 31, 2005, take into account service
interruption credits, lost revenues and incremental costs caused by these hurricanes. Revenues for
year ended December 31, 2005 reflected approximately $0.6 million of service interruption credits
issued to customers, $2.1 million of lost revenues from customers whose homes were destroyed or
otherwise rendered uninhabitable and $0.4 million of lost revenue in the advertising sales
business. We also incurred additional service costs of approximately $0.9 million to cover the
repair of our facilities, including increased employee and outside contractor costs; additional
selling, general and administrative costs of approximately $0.3 million related to additional
customer service employee costs required to support customers needs; and $1.3 million of
additional depreciation expense due to the impairment of the cable plant and other property and
equipment. Capital expenditures to rebuild our cable plant and facilities and restore our service
were approximately $5.3 million for the year ended December 31, 2005. 39
    Table of Contents  In September 2004, as a result of Hurricane Ivan, our cable systems in areas of Alabama and
Florida experienced, to varying degrees, damage to cable plant and other property and equipment,
service interruption and loss of customers. The hurricane initially disrupted cable service to over
100,000 of our basic subscribers in these two states. The hurricane caused losses of 9,000 basic
subscribers, 2,000 digital customers and 1,000 data customers, which were reflected in our
subscriber and customer counts as of December 31, 2004. Our results of operations for the year ended December 31, 2004, take into account service
interruption credits, lost revenues and incremental costs caused by the hurricane. Revenues for the
year ended December 31, 2004 reflected approximately $2.9 million of service interruption credits
issued to customers. We also incurred additional service costs of approximately $0.8 million to
cover the repair of our facilities, including increased employee and outside contractor costs;
additional selling, general and administrative costs of approximately $0.2 million related to
additional customer service employee costs required to support customers needs; and $2.1 million
in additional depreciation expense due to the impairment of the cable plant and other property.
Capital expenditures to rebuild our cable plant and facilities and restore our service were
approximately $8.1 million and $1.0 million for 2004 and 2005, respectively, for Hurricane Ivan. We estimate that after December 31, 2005, we may spend more than $2.2 million to rebuild the
remainder of our damaged cable plant and other property assuming the complete recovery of the
affected communities, although we cannot be certain about the timing of such spending. We are insured against certain hurricane related losses, principally damage to our facilities,
subject to varying deductible amounts. We cannot estimate at this time the amounts that will be
ultimately recoverable under our insurance policies. During the fourth quarter of 2005, we received
$400,000 of insurance proceeds related to Hurricane Ivan. Actual Results of Operations Year Ended December 31, 2005 Compared to Year Ended December 31, 2004 The following table sets forth consolidated statements of operations for the years ended
December 31, 2005 and 2004 (dollars in thousands and percentage changes that are not meaningful are
marked NM): Year Ended December 31,2005
    
    
    2004
    
    
    $ Change
    
    
    % ChangeRevenues
    
    $
    485,705
    
    
    $
    472,187
    
    
    $
    13,518
    
    
    
    2.9
    %Costs and expenses:Service costs
    
    
    199,568
    
    
    
    185,123
    
    
    
    14,445
    
    
    
    7.8
    %Selling,
general and administrative
expenses
    
    
    94,313
    
    
    
    86,807
    
    
    
    7,506
    
    
    
    8.6
    %Management
fee expense
    
    
    10,048
    
    
    
    8,691
    
    
    
    1,357
    
    
    
    15.6
    %Depreciation
and amortization
    
    
    101,467
    
    
    
    107,282
    
    
    
    (5,815
    )
    
    
    (5.4
    %)Operating income
    
    
    80,309
    
    
    
    84,284
    
    
    
    (3,975
    )
    
    
    (4.7
    %)Interest expense, net
    
    
    (102,000
    )
    
    
    (97,790
    )
    
    
    (4,210
    )
    
    
    4.3
    %Loss on early extinguishment of debt
    
    
    (4,742
    )
    
    
    
    
    
    
    (4,742
    )
    
    NMGain on derivative instruments, net
    
    
    5,917
    
    
    
    5,196
    
    
    
    721
    
    
    NMGain on sale of assets and investments, net
    
    
    2,628
    
    
    
    5,885
    
    
    
    (3,257
    )
    
    NMInvestment income from affiliate
    
    
    18,000
    
    
    
    18,000
    
    
    
    
    
    
    NMOther expense
    
    
    (4,406
    )
    
    
    (6,599
    )
    
    
    2,193
    
    
    
    (33.2
    %)Net (loss) income
    
    $
    (4,294
    )
    
    $
    8,976
    
    
    $
    (13,270
    )
    
    NM
 40
    Table of Contents  Revenues The following table sets forth revenue, subscriber and monthly average revenue statistics for
the years ended December 31, 2005 and 2004 (dollars in thousands): Year EndedDecember 31,2005
    
    
    2004
    
    
    $ Change
    
    
    % ChangeVideo
    
    $
    384,124
    
    
    $
    391,351
    
    
    $
    (7,227
    )
    
    
    (1.8
    %)Data
    
    
    86,574
    
    
    
    68,224
    
    
    
    18,350
    
    
    
    26.9
    %Advertising
    
    
    14,672
    
    
    
    12,612
    
    
    
    2,060
    
    
    
    16.3
    %Telephone
    
    
    335
    
    
    
    
    
    
    
    335
    
    
    NM$
    485,705
    
    
    $
    472,187
    
    
    $
    13,518
    
    
    
    2.9
    %
 Year EndedDecember 31,2005
    
    
    2004
    
    
    Increase/(Decrease)Basic subscribers
    
    
    650,000
    
    
    
    675,000
    
    
    
    (25,000
    )
    
    
    (3.7
    %)Data customers
    
    
    212,000
    
    
    
    162,000
    
    
    
    50,000
    
    
    
    30.9
    %Phone customers
    
    
    4,500
    
    
    
    
    
    
    
    4,500
    
    
    NMAverage
monthly video revenue per basic subscriber (1)
    
    $
    48.12
    
    
    $
    46.97
    
    
    $
    1.15
    
    
    
    2.4
    %Average
monthly data revenue per data subscriber (2)
    
    $
    37.04
    
    
    $
    39.09
    
    
    $
    (2.05
    )
    
    
    (5.2
    %)
   (1)
    
    Average monthly video revenue per basic subscriber is calculated based on
monthly revenue divided by the average number of basic subscribers for each of the twelve months.(2)
    
    Average monthly date revenue per data subscriber is calculated based on monthly data
revenue divided by the average number of data subscribers for each of the twelve months.
 Video revenues represent monthly subscription fees charged to customers for our core
cable television products and services (including basic, expanded basic and digital cable
programming services, wire maintenance, equipment rental and services to commercial
establishments), pay-per-view charges, installation, reconnection and late payment fees, and other
ancillary revenues. Data revenues primarily represent monthly subscription fees charged to
customers, including commercial establishments, for our data products and services and equipment
rental fees. Revenues rose 2.9%, largely attributable to an increase in data revenues offset in part by
decrease in video revenues. To strengthen our competitiveness, we increased our emphasis on
product bundling and on enhancing and differentiating our video products and services with new
digital packages, VOD, HDTV, DVRs and more local programming. During 2005, we also extended the
discount periods of our promotional campaigns for digital and data services from three and six
months to six and twelve months. This impacted the growth of our video and data revenues. Video revenues declined 1.8%, primarily due to a decrease in basic subscribers and the impact
of promotional activity, offset in part by rate increases applied on our subscribers and higher
fees from our advanced video products and services. Our loss of basic subscribers decreased
significantly during 2005, with a loss of 25,000, compared to a loss of 49,000
in 2004. Our loss of basic subscribers in 2005 resulted from continuing competitive pressures by
other video providers and, to a lesser extent, the impact of Hurricanes Dennis and Katrina. The
average monthly video revenue per basic subscriber grew by 2.4% year over year. Digital customers
increased 28.1% to 205,000 from 160,000 a year ago. 41
    Table of Contents  Data revenues rose 26.9%, primarily due to the 30.9% year-over-year increase in data
customers, and to a lesser extent, the growth of our commercial service and enterprise network
businesses. Average monthly data revenue per data customer decreased 5.2% as a result of
promotional offers during 2005. Advertising revenues increased 16.3% as a result of stronger regional and national advertising
and a larger base of homes available to our advertising sales, which came from the interconnection
of additional cable systems in 2004. In June 2005, we launched Mediacom Phone in one of our smaller markets, and as of December 31,
2005, our phone service was marketed to approximately 250,000 of our total estimated 1.35 million
homes and served 4,500 customers. We expect to market Mediacom Phone to approximately 1.0 million
homes by year-end 2006. Costs and Expenses Service costs include: programming expenses; employee expenses related to wages and salaries
of technical personnel who maintain our cable network, perform customer installation activities,
and provide customer support; data costs, including costs of bandwidth connectivity, customer
provisioning; and field operating costs, including outside contractors, vehicle, utilities and pole
rental expenses. Programming expenses, which 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 customers. Service costs rose 7.8%, primarily due to increases in plant operating, programming and
employee expenses. Plant operating costs rose 44.3%, primarily due to greater use of outside
contractors for customer installation activity and, to a lesser extent, higher vehicle fuel costs.
The largest component of service costs is programming related expense, which increased 3.7%, as a
result of reduced higher unit costs charged by programming suppliers, offset in part by a lower
base of basic subscribers. Employee costs grew by 5.2%, primarily as a result of increased
headcount and overtime of our technical workforce for network phone readiness, customer
installation activity and hurricane-related repair, offset in part by reduced employee insurance
and other related expenses. Service costs as a percentage of revenues were 41.1% for the year
ended December 31, 2005, as compared with 39.2% for the year ended December 31, 2004. Selling, general and administrative expenses include: wages and salaries for our call centers,
customer service and support and administrative personnel; franchise fees and taxes; and office
costs related to billing, telecommunications, marketing, bad debt, advertising and office
administration. Selling, general and administrative expenses increased 8.6%, principally due to higher
employee expenses and marketing costs, offset in part by reduced telecommunications costs and bad
debt expense. Employee costs grew 15.2%, as a result of increased call center and direct sales
personnel, sales commissions and costs associated with third-party call center contractors.
Marketing costs rose 26.7%, due to higher costs associated with contracted direct sales personnel
and advertising campaigns to support sales of our products and services. This increase in selling,
general and administrative expenses was partly offset by a 10.9% decline in telecommunications
costs and a reduction of 12.6% 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
19.4% for the year ended December 31, 2005, as compared with 18.4% for the year ended December 31,
2004. 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. Management fee expense reflects charges incurred under our management agreements with our
parent, Mediacom Communications Corporation (MCC). Management fee expense increased 15.6% due to
greater overhead costs charged by MCC. Management fee expense as a percentage of revenues was 2.1%
for the year ended December 31, 2005, as compared with 1.8% for the year ended December 31, 2004. Depreciation and amortization decreased 5.4%, primarily due to asset retirements and the
disposal of a cable system in 2004. 42
    Table of Contents  Interest Expense, net Interest expense, net, rose 4.3%, primarily due to higher market interest rates on variable
rate debt, offset in part by the redemption of our 81/2% Senior Notes due 2008 (81/2% Senior Notes)
in April 2005, which was funded by lower cost bank borrowings. 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, 2005, we had interest rate swaps with an aggregate principal amount of $400.0 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 valuations of these interest rate swaps, we recorded a gain on
derivatives amounting to $5.9 million and $5.2 million for the years ended December 31, 2005 and
2004, respectively. Gain (Loss) on Sale of Assets and Investments, net We recorded a net gain on sale of assets and investments of $2.6 million for the year ended
December 31, 2005, as a result of the sale of our investment in American Independence Corporation
common stock. We had a net gain on the sale of assets and investments amounting to $5.9 million
for the year ended December 31, 2004, principally due to the sale of a cable system, serving
approximately 3,450 subscribers, for gross proceeds of about $10.6 million. Investment Income from Affiliate Investment income from affiliate was $18.0 million for the years ended December 31, 2005 and
December 31, 2004. This amount represents the investment income on our $150.0 million preferred
equity investment in Mediacom Broadband LLC. See Liquidity and Capital Resources  Investing
Activities. Other Expense Other expense was $4.4 million and $6.6 million for the years ended December 31, 2005 and
2004, respectively. Other expense primarily represents amortization of deferred financing costs
and fees on unused credit commitments. Net (Loss) Income As a result of the factors described above, we generated a net loss for the year ended
December 31, 2005 of $4.3 million, as compared to a net income of $9.0 million for the year ended
December 31, 2004. 43
    Table of Contents  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 EndedDecember 31,2004
    
    
    2003
    
    
    $ Change
    
    
    % ChangeRevenues
    
    $
    472,187
    
    
    $
    452,548
    
    
    $
    19,639
    
    
    
    4.3
    %Costs and expenses:Service costs
    
    
    185,123
    
    
    
    168,920
    
    
    
    16,203
    
    
    
    9.6
    %Selling, general and administrative
expenses
    
    
    86,807
    
    
    
    78,806
    
    
    
    8,001
    
    
    
    10.2
    %Management fee expense
    
    
    8,691
    
    
    
    7,915
    
    
    
    776
    
    
    
    9.8
    %Depreciation and amortization
    
    
    107,282
    
    
    
    158,718
    
    
    
    (51,436
    )
    
    
    (32.4
    %)Operating income
    
    
    84,284
    
    
    
    38,189
    
    
    
    46,095
    
    
    
    120.7
    %Interest expense, net
    
    
    (97,790
    )
    
    
    (98,596
    )
    
    
    806
    
    
    
    (0.8
    %)Gain on derivatives, net
    
    
    5,196
    
    
    
    6,250
    
    
    
    (1,054
    )
    
    NMGain (loss) on sale of assets and investments, net
    
    
    5,885
    
    
    
    (1,908
    )
    
    
    7,793
    
    
    NMInvestment income from affiliate
    
    
    18,000
    
    
    
    18,000
    
    
    
    
    
    
    
    Other expense
    
    
    (6,599
    )
    
    
    (4,425
    )
    
    
    (2,174
    )
    
    
    49.1
    %Net income (loss)
    
    $
    8,976
    
    
    $
    (42,490
    )
    
    $
    51,466
    
    
    NM
 Revenues The following table sets forth revenue subscriber and monthly average revenue statistics for
the years ended December 31, 2004 and 2003 (dollars in thousands): Year EndedDecember 31,2004
    
    
    2003
    
    
    $ Change
    
    
    % ChangeVideo
    
    $
    391,351
    
    
    $
    395,067
    
    
    $
    (3,716
    )
    
    
    (0.9
    %)Data
    
    
    68,224
    
    
    
    49,572
    
    
    
    18,652
    
    
    
    37.6
    %Advertising
    
    
    12,612
    
    
    
    7,909
    
    
    
    4,703
    
    
    
    59.5
    %$
    472,187
    
    
    $
    452,548
    
    
    $
    19,639
    
    
    
    4.3
    %
 Year EndedDecember 31,2004
    
    
    2003
    
    
    Increase/(Decrease)Basic subscribers
    
    
    650,000
    
    
    
    675,000
    
    
    
    (25,000
    )
    
    
    (3.7
    %)Data customers
    
    
    212,000
    
    
    
    162,000
    
    
    
    50,000
    
    
    
    30.9
    %Average
monthly video revenue per basic subscriber
(1)
    
    $
    46.97
    
    
    $
    44.71
    
    
    $
    2.26
    
    
    
    5.1
    %Average
monthly data revenue per data subscriber
(2)
    
    $
    39.09
    
    
    $
    38.35
    
    
    $
    0.74
    
    
    
    1.9
    %
   (1)
    
    Average monthly video revenue per basic subscriber is calculated based on monthly
revenue divided by the average number of basic subscribers for each of the twelve months.(2)
    
    Average monthly date revenue per data subscriber is calculated based on monthly data
revenue divided by the average number of data subscribers for each of the twelve months.
 44
    Table of Contents  Revenues rose 4.3% largely attributable to an increase in broadband data customers and
basic rate increases applied on our video subscribers, driven in large part by our own video
programming cost increases, offset by a reduction in basic subscribers during the period, including
those lost as a result of Hurricane Ivan. Video revenues fell 0.9%, net of service interruption credits given to customers affected by
the hurricane. Excluding such credits, video revenues decreased 0.1%, as a result of a 6.8% loss
in basic subscribers from 724,000 to 675,000, partially offset by the aforementioned basic rate
increases.Digital customers increased 6.0% to 160,000 as compared to 151,000 a year ago. Our
loss in basic subscribers resulted primarily from continued 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. Data revenues rose 37.5%, due primarily to a 32.8% growth in data customers from 122,200 to
162,000 and an increased contribution from our relatively new commercial enterprise business. Advertising revenue increased 59.5%, primarily as a result of the completion of an
interconnect in one of our larger markets and, to a lesser extent, higher local advertising sales
and political advertising. In 2004, we completed an interconnect agreement, under which we
represent other cable operators to jointly sell local advertising, which accounted for
approximately 63.4% of this increase. Political advertising contributed 8.1% of the increase. Costs and Expenses Service costs rose 9.6%, primarily due to increases in programming expenses, employee costs
and plant operating costs. The largest component of service costs is programming related expense,
which grew 6.4%, 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 17.2%, primarily due to higher employee benefit costs, insurance claims and the expensing
of employee and other operational costs attributed to the continued transition away from network
upgrade construction to network maintenance activities. Service costs as a percentage of revenues
were 39.2% for the year ended December 31, 2004, as compared with 37.3% for the year ended December
31, 2003. Selling, general and administrative expenses increased 10.2%, principally due to higher
employee, advertising, office costs, taxes and fees, partially offset by a decrease in bad debt
expense. Employee costs rose 15.7%, as a result of increases in employee compensation, customer
service overtime and benefit costs, driven by greater activity related to the rollout of new
products and the hurricane. Advertising costs grew significantly from $2.2 million to $4.2 million,
primarily due to higher employee commissions paid on advertising revenues. Office expenses
increased 17.9%, as a result of higher telecommunication costs. Taxes and fees increased 4.4% due
to higher state property taxes. This increase in selling, general and administrative expenses was
partly offset by an 8.5% 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
18.4% for the year ended December 31, 2004, as compared with 17.4% for the year ended December 31,
2003. Management fee expense increased 9.8% due to greater overhead costs charged by MCC.
Management fee expense as a percentage of revenues was 1.8% for the year ended December 31, 2004,
as compared with 1.7% for the year ended December 31, 2003. Depreciation and amortization decreased 32.4%, 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, 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, digital video recorders and broadband
data access. Interest Expense, net Interest expense, net, decreased 0.8%, primarily due to lower indebtedness, partially offset
by higher market interest rates on variable rate debt and lower interest expense capitalization
associated with the substantial reduction of upgrade/rebuild capital expenditures. 45
    Table of Contents  Gain on Derivatives, net As of December 31, 2004, we had interest rate swaps with an aggregate principal amount of
$300.0 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 valuations of these interest rate
swaps, we recorded a gain on derivatives amounting to $5.2 million for the year ended December 31,
2004, as compared to a gain on derivatives amounting to $6.3 million for the year ended December
31, 2003. Gain (loss) on Sale of Assets and Investments, net We had a net gain on the sale of assets and investments amounting to $5.9 million for the year
ended December 31, 2004. The gain was principally due to a sale of a cable system in May 2004,
serving approximately 3,450 subscribers, for gross proceeds of $10.6 million. Investment Income from Affiliate Investment income from affiliate was $18.0 million for the years ended December 31, 2004 and
December 31, 2003. This amount represents the investment income on our $150.0 million preferred
equity investment in Mediacom Broadband LLC. Other Expense Other expense was $6.6 million and $4.4 million for the year ended December 31, 2004 and 2003,
respectively. Other expense primarily represents amortization of deferred financing costs and fees
on unused credit commitments. Net Income (loss) As a result of the factors described above, we generated net income for the year ended
December 31, 2004 of $9.0 million, as compared to a net loss of $42.5 million for the year ended
December 31, 2003. Liquidity and Capital Resources We have invested, and will continue to invest, in our network to enhance its reliability and
capacity, and in the further deployment of advanced broadband services. Our capital spending has
recently shifted away from network upgrade investments to the deployment of VOD, HDTV, DVRs, HSD
and phone services. We also may continue to make strategic acquisitions of cable systems. We have a
high level of indebtedness and incur significant amounts of interest expense 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, dividends from our preferred equity investment in
Mediacom Broadband LLC, borrowing availability under our bank credit facilities and our ability to
secure future external financing. As of December 31, 2005, our total debt was $1.47 billion. Of this amount, $6.4 million
matures within the twelve months ending December 31, 2006. During the twelve months ended December
31, 2005, we paid cash interest of $105.8 million. Description of Our Credit Facilities Our
operating subsidiaries have a $1.15 billion bank credit
facility (the Credit Facility) expiring in 2013, of which $842.5 million was outstanding as
of December 31, 2005. The 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. As of December 31, 2005, we had
unused credit commitments of $292.6 million under the Credit
Facility, all of which could be borrowed and used for general
corporate purposes based on the terms and conditions of our debt
arrangements. During the
year ended December 31, 2006, the term loan will be reduced by
$5.5 million or 1.00% of the
original amount. 46
    Table of Contents  For all periods through December 31, 2005, we were in compliance with all of the covenants
under our debt arrangements. Continued access to our credit facilities is subject to our remaining
in compliance with the covenants of these credit facilities, including covenants tied to our
operating performance. We believe that we will not have any difficulty in the foreseeable future
complying with these covenants and that we will meet our current and long-term debt service,
capital spending and other cash 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. However, there can be no assurance that we will be able to obtain
sufficient future financing, or, if we were able to do so, that the terms would be favorable to us.
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. We have entered into interest rate exchange agreements, which expire from September 2006
through June 2009, to fix the interest rate on $400.0 million of floating rate debt. In 2006,
$250.0 million of these interest rate exchange agreements are scheduled to expire. 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, 2005, about 69.9% of our outstanding
indebtedness was at fixed interest rates or subject to interest rate protection and the average
interest rate for borrowings under the revolving commitments of our credit facilities was LIBOR
plus 1.50%. As of December 31, 2005, approximately $9.4 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. Operating Activities Net cash flows provided by operating activities were $111.3 million for the year ended
December 31, 2005, as compared to $137.8 million for the prior year. The change of $26.5 million
is primarily due to a net decrease in operating assets and liabilities, an increase in cash paid
for interest and lower operating income before depreciation and amortization. The change in operating assets and liabilities was lower by $12.2 million due to the timing of
our cash payments and cash receipts. We made cash interest payments of $105.8 million and $96.1
million in 2005 and 2004, respectively. This increase was a result of higher interest rates on our
variable rate debt. Operating income before depreciation and
amortization decreased $9.8 million, mainly from higher costs offset in part by an increase in revenues. Investing Activities Net cash flows used in investing activities were $109.7 million for the year ended December
31, 2005, as compared to $81.5 million for the prior year, and principally comprised capital
expenditures. Capital expenditures increased $26.4 million to $114.3 million mainly due to greater
levels of customer connection activities. Purchases of customer premise equipment, including
greater quantities of higher cost HDTV and DVR set-tops, and installation costs, were the principal
components of our capital investment related to customer connection activities. In January 2005,
we loaned $88.0 million to Mediacom Broadband in the form of a demand note, with an annual interest
rate of 6.7%, payable semi-annually in cash. This demand note, including accrued interest, was
repaid by Mediacom Broadband in April 2005. Financing Activities Net cash flows used in financing activities were $7.3 million for the year ended December 31,
2005, as compared to net cash flows used in financing activities of $57.6 million for prior year.
In 2005, our principal financing activities included the following: 
    
    In January 2005, we borrowed the full amount of our $200.0 million delayed-draw term
loan facility and used the proceeds to reduce outstanding balances under our revolving
credit facilities.
 47
    Table of Contents  
    
    In April 2005, we redeemed all of our 8 1/2% Senior Notes due April 2008. The
redemption price was equal to 101.417% of the outstanding principal amount of the
Notes, plus accrued interest. We funded the redemption with a combination of cash on
hand and borrowings under our revolving credit facilities.
 Contractual Obligations and Commercial Commitments The table below summarizes our contractual obligations and commercial commitments for the five
years subsequent to December 31, 2005 and thereafter (dollar amounts in thousands)*: Capital
    
    
    Operating
    
    
    InterestDebt
    
    
    Leases
    
    
    Leases
    
    
    Expense
(1)
    
    
    Total2006
    
    
    5,500
    
    
    $
    912
    
    
    $
    1,528
    
    
    $
    106,202
    
    
    $
    114,1422007
    
    
    5,500
    
    
    
    368
    
    
    
    1,261
    
    
    
    109,140
    
    
    
    116,2692008
    
    
    25,500
    
    
    
    1
    
    
    
    989
    
    
    
    107,753
    
    
    
    134,2432009
    
    
    29,500
    
    
    
    
    
    
    
    631
    
    
    
    106,154
    
    
    
    136,2852010
    
    
    55,500
    
    
    
    
    
    
    
    490
    
    
    
    102,911
    
    
    
    158,901Thereafter
    
    
    1,346,000
    
    
    
    
    
    
    
    1,820
    
    
    
    165,928
    
    
    
    1,513,748Total cash obligations
    
    $
    1,467,500
    
    
    $
    1,281
    
    
    $
    6,719
    
    
    $
    698,088
    
    
    $
    2,173,588
   (1)
    
    Interest payments on floating rate debt and interest rate swaps are estimated using
amounts outstanding as of December 31, 2005 and the average interest rates applicable under such
debt obligations.*
    
    Refer to Note 5 to our consolidated financial statements for a discussion of our long-term debt,
and to Note 9 for a discussion of our operating leases and other commitments and contingencies.
 Critical Accounting Policies The preparation of our 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. Capitalized costs are recorded as additions
to property, plant and equipment and depreciate over the life of the related asset. We perform
periodic evaluations of the estimates used to determine the amount of costs that are capitalized.
Any changes to these estimates, which may be significant, are applied in the period in which the
evaluations were completed. Indefinite-lived 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, 48
    Table of Contents  with our adoption of SFAS No. 142, Goodwill and Other Intangible Assets, 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 EITF No. 02-7, Unit of Accounting for Testing Impairment of
Indefinite-Lived Intangible Assets,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 two cable system clusters, or reporting units, for
the purpose of applying SFAS No. 142. We follow the provisions of SFAS No. 142 to test our goodwill and certain other intangible
assets for impairment. We assess fair values primarily using discounted cash flow methodology. Goodwill impairment is determined using a two-step process. The first step compares the fair
value of a reporting unit with its carrying amount, including goodwill. If the fair value of a
reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not
impaired and the second step is unnecessary. If the carrying amount of a reporting unit exceeds its
fair value, the second step is performed to measure the amount of impairment loss, if any. The
second step compares the implied fair value of the reporting units goodwill, calculated using the
residual method, with the carrying amount of that goodwill. If the carrying amount of the goodwill
exceeds the implied fair value, the excess is recognized as an impairment loss. The impairment test for other intangible assets not subject to amortization consists of a
comparison of the fair value of the intangible asset with its carrying value. If the carrying value
of the intangible asset exceeds its fair value, the excess is recognized as an impairment loss. We completed our most recent impairment test as of October 1, 2005, which reflected no
impairment of our franchise rights 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. Such
impairments could potentially be material. Derivatives We account for derivative instruments in accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities  an amendment of FASB Statement No. 133,and SFAS No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.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, which 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. We have no derivative financial instruments designated as
hedges. Gains and losses from changes in the mark-to-market values are currently recognized in the
consolidated statement of operations. Short-term valuation changes derived from changes in market
interest rates, time to maturity and the creditworthiness of the counterparties may increase the
volatility of earnings. Programming Costs We have various fixed-term carriage contracts to obtain programming for our cable systems from
content suppliers whose compensation is generally based on a fixed monthly fee per customer. These
programming contracts are subject to negotiated renewal. We recognize programming costs when we
distribute the related programming. These programming costs are usually payable each month based on
calculations performed by us and are subject to adjustments based on the results of periodic audits
by the content suppliers. Historically, these audit 49
    Table of Contents  adjustments have been immaterial to our total
programming costs; however, there can be no assurance that such adjustments will be immaterial in
the future. Recent Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123R, Amendment of Statement 123 on Share-Based
Payment.SFAS No. 123R is supplemented by SEC Staff Accounting Bulletin (SAB) No. 107,
Share-Based Payment. SAB No. 107 expresses the SEC staffs views regarding the interaction
between SFAS No. 123R and certain SEC rules and regulations including the valuation of share-based
payment arrangements. SFAS No. 123R requires companies to expense the value of employee stock
options, stock granted through the employee stock purchase program and similar awards. Pro forma
disclosure is no longer an alternative. We will adopt SFAS No. 123R using the modified prospective
method effective January 1, 2006. On the effective date of SFAS 123R, compensation costs will be
recognized; (i) for all share-based payments granted after the effective date and; (ii) for all
awards granted prior to the effective date that remain unvested. We expect that the adoption of
SFAS No. 123R will have a material impact on our consolidated results of operations and earnings
per share. In March 2005, the FASB issued FIN 47 as an interpretation of SFAS No. 143, Accounting for
Asset Retirement Obligations. This interpretation clarifies that the term conditional asset
retirement obligation as used in SFAS 143, refers to a legal obligation to perform an asset
retirement activity in which the timing and/or method of settlement are conditional on a future
event that may or may not be within the control of the entity. The obligation to perform the asset
retirement activity is unconditional even though uncertainty exists about the timing and/or method
of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a
conditional asset retirement obligation if the fair value of the liability can be reasonably
estimated. This interpretation also clarifies when an entity would have sufficient information to
reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later
than the end of fiscal years ending after December 15, 2005. The adoption of this standard has not
had a material impact on our financial position or results of operation. In
May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which
replaces APB Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements. SFAS No. 154 is effective no later than the end of fiscal years
ending after December 15, 2005 and requires retrospective application to prior period financial
statements of voluntary changes in accounting principle, unless it is impractical to determine
either the period-specific effects or the cumulative effect of the change. Our consolidated
financial position, results of operations or cash flows will only be impacted by SFAS No. 154 if it
implements a voluntary change in accounting principle or correct accounting errors in future
periods. 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. 
 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, 2005, we had $400.0 million of interest rate swaps with various banks
with a weighted average fixed rate of approximately 3.2%. 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 2006 through 2009, 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, 2005, based on the mark-to-market valuation, we would have received approximately $7.5
million, including accrued interest, if we terminated 50
    Table of Contents  these agreements. Our interest rate exchange
agreements are scheduled to expire in the amounts of $250.0 million, $50.0 million and $100.0
million during the years ended December 31, 2006, 2007, and 2009 respectively. The table below provides the expected maturity and estimated fair value of our debt as of
December 31, 2005 (dollars in thousands). See Note 5 to our consolidated financial statements. Bank Credit
    
    
    Capital LeaseSenior Notes
    
    
    Facilities
    
    
    Obligations
    
    
    TotalExpected Maturity:January 1, 2006 to December 31, 2006
    
    
    
    
    
    
    5,500
    
    
    
    912
    
    
    
    6,412January 1, 2007 to December 31, 2007
    
    
    
    
    
    
    5,500
    
    
    
    368
    
    
    
    5,868January 1, 2008 to December 31, 2008
    
    
    
    
    
    
    25,500
    
    
    
    1
    
    
    
    25,501January 1, 2009 to December 31, 2009
    
    
    
    
    
    
    29,500
    
    
    
    
    
    
    
    29,500January 1, 2010 to December 31, 2010
    
    
    
    
    
    
    55,500
    
    
    
    
    
    
    
    55,500Thereafter
    
    
    625,000
    
    
    
    721,000
    
    
    
    
    
    
    
    1,346,000Total
    
    $
    625,000
    
    
    $
    842,500
    
    
    $
    1,281
    
    
    $
    1,468,781Fair Value
    
    $
    602,188
    
    
    $
    842,500
    
    
    $
    1,281
    
    
    $
    1,445,969Weighted Average Interest Rate
    
    
    9.2
    %
    
    
    6.3
    %
    
    
    3.1
    %
    
    
    7.5
    %
 51
    Table of Contents  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MEDIACOM LLC AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Contents
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    53Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    54Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003
    
    
    55Consolidated Statements of Changes in Members (Deficit) Equity for the Years Ended
December 31, 2005, 2004 and 2003
    
    
    56Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003
    
    
    57Notes to Consolidated Financial Statements
    
    
    58Financial Statement Schedule: Schedule II-Valuation and Qualifying Accounts
    
    
    71
 52
    Table of Contents  Report of Independent Registered Public Accounting Firm To the Member of Mediacom LLC: In our opinion, the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Mediacom LLC and its subsidiaries at
December 31, 2005 and December 31, 2004, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2005 in conformity with accounting
principles generally accepted in the United States of America. In addition, in our opinion, the
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 financial statements and financial statement schedule
are the responsibility of the Companys management. Our responsibility is to express an opinion
on these financial statements and 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP
New York, New York
March 15, 2006 53
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
(All dollar amounts in thousands) December 31,2005
    
    
    2004ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    6,466
    
    
    $
    12,131Investments
    
    
    
    
    
    
    1,987Accounts receivable, net of allowance for doubtful accounts
of $1,235 and $856, respectively
    
    
    27,617
    
    
    
    26,929Prepaid expenses and other assets
    
    
    6,064
    
    
    
    8,905Total current assets
    
    
    40,147
    
    
    
    49,952Preferred equity investment in affiliated company
    
    
    150,000
    
    
    
    150,000Investment in cable television systems:Property, plant and equipment, net of accumulated depreciation of
$815,387 and $728,048, respectively
    
    
    711,804
    
    
    
    698,363Franchise rights, net of accumulated amortization of $102,195
    
    
    552,610
    
    
    
    552,610Goodwill, net of accumulated amortization of $3,231
    
    
    16,800
    
    
    
    16,800Subscriber lists and other intangible assets, net of accumulated amortization
of $138,504 and $137,738, respectively
    
    
    49
    
    
    
    763Total investment in cable television systems
    
    
    1,281,263
    
    
    
    1,268,536Other assets, net of accumulated amortization of $12,759 and
$14,443, respectively
    
    
    20,600
    
    
    
    23,412Total assets
    
    $
    1,492,010
    
    
    $
    1,491,900LIABILITIES AND MEMBERS DEFICITCURRENT LIABILITIESAccrued liabilities
    
    $
    117,411
    
    
    $
    107,520Deferred revenue
    
    
    18,600
    
    
    
    17,876Current portion of long-term debt
    
    
    6,412
    
    
    
    6,384Total current liabilities
    
    
    142,423
    
    
    
    131,780Long-term debt, less current portion
    
    
    1,462,369
    
    
    
    1,466,793Other non-current liabilities
    
    
    10,819
    
    
    
    12,634Total liabilities
    
    
    1,615,611
    
    
    
    1,611,207Commitments and contingencies (Note 9)MEMBERS DEFICITCapital contributions
    
    
    548,521
    
    
    
    548,521Accumulated deficit
    
    
    (672,122
    )
    
    
    (667,828
    )Total members deficit
    
    
    (123,601
    )
    
    
    (119,307
    )Total liabilities and members deficit
    
    $
    1,492,010
    
    
    $
    1,491,900
 The accompanying notes are an integral part of these statements. 54
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(All dollar amounts in thousands) Year Ended December 31,2005
    
    
    2004
    
    
    2003Revenues
    
    $
    485,705
    
    
    $
    472,187
    
    
    $
    452,548Costs and expenses:Service costs (exclusive of depreciation and amortization of
$101,467, $107,282, and $158,718, respectively, shown
separately below)
    
    
    199,568
    
    
    
    185,123
    
    
    
    168,920Selling, general and administrative expenses
    
    
    94,313
    
    
    
    86,807
    
    
    
    78,806Management fee expense
    
    
    10,048
    
    
    
    8,691
    
    
    
    7,915Depreciation and amortization
    
    
    101,467
    
    
    
    107,282
    
    
    
    158,718Operating income
    
    
    80,309
    
    
    
    84,284
    
    
    
    38,189Interest expense, net
    
    
    (102,000
    )
    
    
    (97,790
    )
    
    
    (98,596
    )Loss on early extinguishment of debt
    
    
    (4,742
    )
    
    
    
    
    
    
    Gain on derivatives, net
    
    
    5,917
    
    
    
    5,196
    
    
    
    6,250Gain on sale of assets and investments, net
    
    
    2,628
    
    
    
    5,885
    
    
    
    (1,908
    )Investment income from affiliate
    
    
    18,000
    
    
    
    18,000
    
    
    
    18,000Other expense
    
    
    (4,406
    )
    
    
    (6,599
    )
    
    
    (4,425
    )Net (loss) income
    
    $
    (4,294
    )
    
    $
    8,976
    
    
    $
    (42,490
    )
 The accompanying notes are an integral part of these statements. 55
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CHANGES IN
MEMBERS DEFICIT
(All dollar amounts in thousands) Capital
    
  
    AccumulatedContributions
    
    
    Deficit
    
    
    TotalBalance, December 31, 2002
    
    $
    548,521
    
    
    $
    (634,314
    )
    
    $
    (85,793
    )Net loss
    
    
    
    
    
    
    (42,490
    )
    
    
    (42,490
    )Balance, December 31, 2003
    
    
    548,521
    
    
    
    (676,804
    )
    
    
    (128,283
    )Net income
    
    
    
    
    
    
    8,976
    
    
    
    8,976Balance, December 31, 2004
    
    
    548,521
    
    
    
    (667,828
    )
    
    
    (119,307
    )Net loss
    
    
    
    
    
    
    (4,294
    )
    
    
    (4,294
    )Balance, December 31, 2005
    
    $
    548,521
    
    
    $
    (672,122
    )
    
    $
    (123,601
    )
 The accompanying notes are an integral part of these statements. 56
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in thousands) Years Ended December 31,2005
    
    
    2004
    
    
    2003CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:Net (loss) income
    
    $
    (4,294
    )
    
    $
    8,976
    
    
    $
    (42,490
    )Adjustments to reconcile net (loss) income to net cash provided
by operating activities:Depreciation and amortization
    
    
    101,467
    
    
    
    107,282
    
    
    
    158,718Gain on derivatives, net
    
    
    (5,917
    )
    
    
    (5,196
    )
    
    
    (6,250
    )(Gain) loss on investments, net
    
    
    (2,628
    )
    
    
    (5,885
    )
    
    
    1,908Amortization of deferred compensation
    
    
    118
    
    
    
    
    
    
    
    Amortization of deferred financing costs
    
    
    3,109
    
    
    
    5,642
    
    
    
    3,320Loss on early extinguishment of debt
    
    
    4,742
    
    
    
    
    
    
    
    Changes in assets and liabilities, net of effects from acquisitions:Accounts receivable, net
    
    
    (688
    )
    
    
    (2,413
    )
    
    
    (3,303
    )Prepaid expenses and other assets
    
    
    6,742
    
    
    
    12,046
    
    
    
    (11,006
    )Accrued
liabilities
    
    
    9,773
    
    
    
    13,189
    
    
    
    17,420Deferred revenue
    
    
    724
    
    
    
    1,444
    
    
    
    1,542Other non-current liabilities
    
    
    (1,815
    )
    
    
    2,708
    
    
    
    298Net cash flows provided by operating activities
    
    
    111,333
    
    
    
    137,793
    
    
    
    120,157CASH FLOWS USED IN INVESTING ACTIVITIES:Capital expenditures
    
    
    (114,334
    )
    
    
    (87,922
    )
    
    
    (105,911
    )Acquisition of cable television system
    
    
    
    
    
    
    (3,372
    )
    
    
    (2,327
    )Proceeds from sale of assets and investments
    
    
    4,616
    
    
    
    10,556
    
    
    
    3,420Loan to
affiliated company - note receivable
    
    
    (88,000
    )
    
    

    
    
    
    
    Repayment of
note receivable to affiliated company
    
    
    88,000
    
    
    
    
    
    
    
    Other investing activities
    
    
    
    
    
    
    (782
    )
    
    
    5,065Net cash flows used in investing activities
    
    
    (109,718
    )
    
    
    (81,520
    )
    
    
    (99,753
    )CASH FLOWS USED IN FINANCING ACTIVITIES:New borrowings
    
    
    516,000
    
    
    
    121,122
    
    
    
    158,038Repayment of debt
    
    
    (323,230
    )
    
    
    (172,269
    )
    
    
    (185,688
    )Redemption of senior notes
    
    
    (200,000
    )Financing costs
    
    
    (50
    )
    
    
    (6,412
    )
    
    
    (227
    )Net cash flows used in financing activities
    
    
    (7,280
    )
    
    
    (57,559
    )
    
    
    (27,877
    )Net decrease in cash and cash equivalents
    
    
    (5,665
    )
    
    
    (1,286
    )
    
    
    (7,473
    )CASH AND CASH EQUIVALENTS, beginning of year
    
    
    12,131
    
    
    
    13,417
    
    
    
    20,890CASH AND CASH EQUIVALENTS, end of year
    
    $
    6,466
    
    
    $
    12,131
    
    
    $
    13,417SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the year for interest, net of amounts capitalized
    
    $
    105,766
    
    
    $
    96,116
    
    
    $
    98,984SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:Capital expenditures financed through capital leases
    
    $
    
    
    
    $
    
    
    
    $
    3,263
 The accompanying notes are an integral part of these statements. 57
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Organization Mediacom LLC (Mediacom, and collectively with its subsidiaries, the Company), a New York
limited liability company wholly-owned by Mediacom Communications Corporation (MCC), is involved
in the acquisition and operation of cable systems serving smaller cities and towns in the United
States. Mediacom relies on its parent, MCC, for various services such as corporate and administrative
support. The financial position, results of operations and cash flows of Mediacom could differ
from those that would have resulted had Mediacom operated autonomously or as an entity independent
of MCC. See Notes 6 and 10. Mediacom Capital Corporation, a New York corporation wholly-owned by Mediacom, co-issued
public debt securities, jointly and severally, with Mediacom. Mediacom Capital Corporation has no
assets (other than a $100 receivable from affiliate), operations, revenues or cash flows.
Therefore, separate financial statements have not been presented for this entity. (2) Summary of Significant Accounting Policies Basis of Preparation of Consolidated Financial Statements The consolidated financial statements include the accounts of Mediacom LLC 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 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 valuation of programming liabilities. Actual results could
differ from those and other estimates. Revenue Recognition Revenues from video, data and phone services are recognized when the services are provided to
the customers. Credit risk is managed by disconnecting services to customers who are deemed to be
delinquent. Installation revenues are recognized as customer connections are completed because
installation revenues are less than direct installation costs. Advertising sales are recognized in
the period that the advertisements are exhibited. Under the terms of its franchise agreements, the
Company is required to pay local franchising authorities up to 5% of its gross revenues derived
from providing cable services. The Company normally passes these fees through to its customers.
Franchise fees are reported in their respective revenue categories and included in selling, general
and administrative expenses. 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. 58
    Table of Contents  MEDIACOM LLC 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 included in depreciation and amortization expense in the consolidated statement
of operations. 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. 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 of 10 years. During the years ended December 31, 2005 and 2004,
the Company capitalized approximately $0.9 million and $0.6 million, respectively of software
development costs. 59
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Marketing and Promotional Costs Marketing and promotional costs are expensed as incurred and were $11.8 million, $9.3
million and $8.8 million for the years ended December 31, 2005, 2004 and 2003, respectively. 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 rights 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. Amortization expense for the years ended December 31, 2005, 2004 and 2003 was
approximately $0.8 million, $8.6 million, and $11.5 million, respectively. The Companys estimated
aggregate amortization expense for 2006 is approximately $0.1 million, after which the assets will
be fully amortized. 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, 2005, the
company held 988 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. The Company has assessed the value of franchise rights 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, Unit of
Accounting for Testing Impairment of Indefinite-Lived Intangible Assets,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 rights is less than 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. Goodwill impairment is determined using a two-step process. The first step compares the fair
value of a reporting unit with its carrying amount, including goodwill. If the fair value of a
reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not
impaired and the second step is unnecessary. If the carrying amount of a reporting unit exceeds its
fair value, the second step is performed to measure the amount of impairment loss. The
second step compares the implied fair value of the reporting units goodwill, calculated using the
residual method, with the carrying amount of that goodwill. If the carrying amount of the goodwill
exceeds the implied fair value, the excess is recognized as an impairment loss. The Company
completed its annual impairment test as of October 1, 2005, which reflected no impairment of
franchise rights and goodwill. Other Assets Other assets, net, primarily include financing costs and original issue discount incurred to
raise debt. Financing costs are deferred and amortized as other expense and original issue
discounts are deferred and amortized as interest 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 60
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, Accounting
for Derivative Instruments and Hedging Activities, SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities-an amendment of FASB Statement No. 133,and
SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.These
pronouncements require that all derivative instruments be recognized on the balance sheet at fair
value. 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 of its consolidated balance sheet. The Companys accounting policies for these
instruments are based on whether they meet its criteria for designation as hedging transactions,
which include the instruments effectiveness, 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 in the consolidated statement of operations. The Company has no derivative financial
instruments designated as hedges. Therefore, changes in fair value for the respective periods were
recognized in the consolidated statement of operations. 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.
Certain of the Companys franchise agreements and leases contain provisions that require
restoration or removal of equipment if the franchises or leases are not renewed. Based on
historical experience, the Company expects to renew its franchise agreements. In the unlikely event
that any franchise agreement is not expected to be renewed, the Company would record an estimated
liability. However, in determining the fair value of the Companys asset retirement obligation,
consideration will be 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 initially recorded a $6.0 million asset
in property, plant and equipment and a corresponding liability of $6.0 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 61
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Programming Costs The Company has various fixed-term carriage contracts to obtain programming for its cable
systems from content suppliers whose compensation is generally based on a fixed monthly fee per
customer. These programming contracts are subject to negotiated renewal. Programming costs are
recognized when the Company distributes the related programming. These programming costs are
usually payable each month based on calculations performed by the Company and are subject to
adjustments based on the results of periodic audits by the content suppliers. Historically, such
audit adjustments have been immaterial to the Companys total programming costs. Some content
suppliers offer financial incentives to support the launch of a channel and ongoing marketing
support. When such financial incentives are received, the Company defers them within non-current
liabilities in its consolidated balance sheets and recognizes such amounts as a reduction of
programming costs (which are a component of service costs in the consolidated statement of
operations) over the carriage term of the programming contract. Income Taxes Since the Company is a limited liability company, it is not subject to federal or state income
taxes and no provision for income taxes relating to its operations has been reflected in the
accompanying consolidated financial statements. Income or loss of the limited liability company is
reported in MCCs income tax returns. Comprehensive Income/Loss In
June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. This statement
requires companies to classify items of other comprehensive income/loss by their nature in the
financial statements and display the accumulated balance of other comprehensive income/loss
separately from retained earnings and additional paid-in capital in the equity section of a
statement of financial position. The Company has had no other comprehensive income/loss to report. Reclassifications Certain reclassifications have been made to prior years amounts to conform to the current
years presentation. Recent Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123R, Amendment of Statement 123 on Share-Based
Payment.SFAS No. 123R is supplemented by SEC Staff Accounting Bulletin (SAB) No. 107,
Share-Based Payment. SAB No. 107 expresses the SEC staffs views regarding the interaction
between SFAS No. 123R and certain SEC rules and regulations including the valuation of share-based
payment arrangements. SFAS No. 123R requires companies to expense the value of employee stock
options, stock granted through the employee stock purchase program and similar awards. Pro forma
disclosure is no longer an alternative. We will adopt SFAS No. 123R using the modified prospective
method effective January 1, 2006. On the effective date of SFAS 123R, compensation costs will be
recognized (i) for all share-based payments granted after the effective date and (ii) for all
awards granted prior to the effective date that remain unvested. We expect that the adoption of
SFAS No. 123R will have a material impact on the Companys consolidated results of operations and
earnings per share. In
March 2005, the FASB issued FIN 47 as an interpretation of SFAS
No. 143, Accounting for
Conditional Asset Retirement Obligations. This interpretation clarifies that the term conditional
asset retirement obligation as used in SFAS No. 143, refers to a legal obligation to perform an
asset retirement activity in which the timing and/or method of settlement are conditional on a
future event that may or may not be within the control of the entity. The 62
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS obligation to perform the asset retirement activity is unconditional even though uncertainty
exists about the timing and/or method of settlement. Accordingly, an entity is required to
recognize a liability for the fair value of a conditional asset retirement obligation if the fair
value of the liability can be reasonably estimated. This interpretation also clarifies when an
entity would have sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after
December 15, 2005. The adoption of this standard has not had a material impact on the Companys
financial position or results of operations. In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which
replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements. SFAS No. 154 is effective no later than the end of fiscal years
ending after December 15, 2005 and requires retrospective application to prior period financial
statements of voluntary changes in accounting principle, unless it is impractical to determine
either the period-specific effects or the cumulative effect of the change. The Companys
consolidated financial position, results of operations or cash flows will only be impacted by SFAS
No. 154 if it implements a voluntary change in accounting principle or correct accounting errors in
future periods. (3) Property, Plant and Equipment As of December 31, 2005 and 2004, property, plant and equipment consisted of (dollars in
thousands): 2005
    
    
    2004Land and land improvements
    
    $
    1,490
    
    
    $
    1,428Buildings and leasehold improvements
    
    
    15,877
    
    
    
    15,606Cable systems, equipment and subscriber devices
    
    
    1,462,189
    
    
    
    1,365,701Vehicles
    
    
    30,040
    
    
    
    28,347Furniture, fixtures and office equipment
    
    
    17,594
    
    
    
    15,3291,527,190
    
    
    
    1,426,411Accumulated depreciation
    
    
    (815,386
    )
    
    
    (728,048
    )Property, plant and equipment, net
    
    $
    711,804
    
    
    $
    698,363
 Depreciation expense for the years ended December 31, 2005, 2004 and 2003 was approximately
$100.7 million, $98.7 million, and $147.2 million, respectively. As of December 31, 2005 and 2004,
the Company had property under capitalized leases of $4.7 million before accumulated depreciation,
and $3.0 million and $3.7 million, respectively, net of accumulated depreciation. During the years
ended December 31, 2005, 2004 and 2003, the Company incurred gross interest expense of $105.7
million, $99.3 million, and $102.1 million, respectively of which $2.1 million, $1.5 million, and
$3.5 million was capitalized. 63
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) Accrued Expenses Accrued expenses consist of the following as of December 31, 2005 and December 31, 2004
(dollars in thousands): 2005
    
    
    2004Accrued interest
    
    $
    31,022
    
    
    $
    33,041Accrued payroll and benefits
    
    
    8,762
    
    
    
    7,724Accrued programming costs
    
    
    20,320
    
    
    
    25,693Accrued property, plant and equipment
    
    
    7,851
    
    
    
    8,394Accrued service costs
    
    
    6,214
    
    
    
    5,738Accrued taxes and fees
    
    
    14,572
    
    
    
    13,667Accrued telecommunications
    
    
    4,432
    
    
    
    4,436Subscriber advance payments
    
    
    5,189
    
    
    
    4,747Other accrued expenses
    
    
    19,049
    
    
    
    4,080$
    117,411
    
    
    $
    107,520
 (5) Debt As of December 31, 2005 and 2004, debt consisted of (dollars in thousands): 2005
    
    
    2004Bank credit
facilities
    
    $
    842,500
    
    
    $
    646,00081/2% senior notes due 2008
    
    
    
    
    
    
    200,00077/8% senior notes due 2011
    
    
    125,000
    
    
    
    125,00091/2% senior notes due 2013
    
    
    500,000
    
    
    
    500,000Capital lease obligations
    
    
    1,281
    
    
    
    2,177$
    1,468,781
    
    
    $
    1,473,177Less: Current portion
    
    
    6,412
    
    
    
    6,384Total long-term debt
    
    $
    1,462,369
    
    
    $
    1,466,793
 Bank Credit Facilities On October 21, 2004, the operating subsidiaries of the Company refinanced their two credit
facilities with a new $1.15 billion senior secured credit facility (the credit facility).
The credit facility consists of a revolving credit facility (the revolver) with a $400.0
million revolving credit commitment, a $200.0 million
delayed-draw term loan (the term loan
A) and a $550.0 million term loan (the term loan B). The revolver expires on September
30, 2011 and its commitment amount is not subject to scheduled reductions prior to maturity. The
 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 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, 2005, the
maximum commitment available under the revolver was $400.0 million and the revolver had an
outstanding balance of $98.0 million, the term loan B had an outstanding balance of $544.5 million, and
the term loan A had an outstanding balance of $200.0 million. The credit agreement of the credit facility (the 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 revolver and 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 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,
2006, the Term Loan B will be reduced by $5.5 million or 1.00% of the original amount. 64
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The credit agreement requires compliance with certain financial covenants including, but
not limited to, leverage, interest coverage and debt service coverage ratios, as defined therein.
The credit agreement also requires 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 credit agreement as of and
for all periods in the year ended December 31, 2005. The credit agreement is collateralized by Mediacoms pledge of all its ownership interests
in its operating subsidiaries and is guaranteed by Mediacom on a limited recourse basis to the
extent of such ownership interests. The average interest rate on debt outstanding under the credit agreement was 6.2% and 4.5%
for the years ended December 31, 2005 and December 31, 2004, respectively, before giving effect to
the interest rate exchange agreements discussed below. As of December 31, 2005, the Company had
approximately $292.6 million of unused bank commitments under the credit agreement. Interest Rate Exchange Agreements The Company uses interest rate exchange agreements in order to fix the interest rate on its
floating rate debt. As of December 31, 2005, the Company had interest rate exchange agreements
with various banks pursuant to which the interest rate on $400.0 million is fixed at a weighted
average rate of approximately 3.2%, 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 September 2006 through June 2009, 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 companys interest rate
exchange agreements are scheduled to expire in the amounts of $250.0 million, $50.0 million and
$100.0 million during the years ended December 31, 2006, 2007 and 2009, respectively. 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, 2005, based on the mark-to-market valuation, the Company recorded an investment in
derivatives of $7.5 million. Principally as a result of the quarterly mark-to-market valuation of
these interest rate swaps, we recorded a gain on derivatives amounting to $5.9 million, $5.2
million and $6.3 million for the years ended December 31, 2005, 2004 and 2003, respectively. Senior Notes On April 1, 1998, Mediacom LLC and Mediacom Capital Corporation (the Issuers) 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 currently 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. See Note 13 to our consolidated financial statements. On February 26, 1999, the Issuers 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. 65
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On January 24, 2001, the Issuers 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 April 15, 2005, the Company redeemed all of its outstanding 81/2% Senior Notes due to 2008
(the Notes). The redemption price was equal to 101.417% of the outstanding principal amount of
the Notes plus accrued interest. The Company funded the redemption with a combination of cash on
hand and borrowings under the revolving credit portion of the Companys credit facilities. The
Company has recorded on its consolidated statement of operations a loss on early extinguishment of
debt of $4.7 million, representing $2.8 million of call premium and the write-off of $1.9 million
of original issue discount and deferred financing costs. The Issuers were in compliance with the indentures governing their Senior Notes as of and for
all periods in the year ended December 31, 2005. Fair Value and Debt Maturities The fair value of the Companys bank credit facilities approximate the carrying value. The
fair value at December 31, 2005 of the
77/8% Senior Notes and the 91/2% Senior Notes was approximately
$119.7 million and $482.5 million, respectively. The stated maturities of all debt outstanding as of December 31, 2005 are as follows (dollars
in thousands): 2006
    
    $
    6,4122007
    
    
    5,8682008
    
    
    25,5012009
    
    
    29,5002010
    
    
    55,500Thereafter
    
    
    1,346,000$
    1,468,781
 (6) Related Party Transactions MCC manages the Company pursuant to a management agreement with each operating subsidiary.
Under the management agreements, MCC has full and exclusive authority to manage the day-to-day
operations and conduct the business of the Company. The Company remains responsible for all
expenses and liabilities relating to the construction, development, operation, maintenance, repair,
and ownership of its systems. Management fees for the years ended December 31, 2005, 2004 and 2003
amounted to approximately $10.0 million, $7.9 million and $5.8 million, respectively. As compensation for the performance of its services, subject to certain restrictions, MCC is
entitled under each management agreement to receive management fees in an amount not to exceed 4.5%
of the annual gross operating revenues of each of the operating subsidiaries. MCC is also entitled
to the reimbursement of all expenses necessarily incurred in its capacity as manager. (7) 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 pretax compensation. The Plan
permits, but does not require, matching contributions and non- 66
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 $0.8 million for the year ended December 31,
2005 and $0.7 million for the years ended December 31, 2004 and 2003. (8) MCC Stock
Options, Employee Stock Purchase Program and Other Stock-based Compensation Under MCCs 2003 Incentive Plan, certain employees of the Company received grants of MCC stock
options. The following table summarizes information concerning stock option activity for the years
ended December 31, 2005, 2004 and 2003: WeightedAverageShares
    
    
    Exercise PriceOutstanding at December 31, 2002
    
    
    1,323,189
    
    
    $
    18.31Granted
    
    
    65,000
    
    
    
    6.98Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (83,810
    )
    
    
    17.40Outstanding at December 31, 2003
    
    
    1,304,379
    
    
    $
    17.81Granted
    
    
    6,000
    
    
    
    8.82Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (127,135
    )
    
    
    17.69Outstanding at December 31, 2004
    
    
    1,183,244
    
    
    $
    17.77Granted
    
    
    18,000
    
    
    
    5.42Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (61,025
    )
    
    
    16.39Outstanding at December 31, 2005
    
    
    1,140,219
    
    
    $
    17.65
 The Companys employees had options exercisable on underlying MCC shares amounting to
1,026,978, 835,469 and 659,366, with average prices of $18.21, $18.34 and $18.59 at December 31,
2005, 2004 and 2003, respectively. The weighted average fair value of options granted was $2.63,
$4.25 and $3.39 per share for the years ended December 31, 2005, 2004 and 2003, respectively. The following table summarizes information concerning stock options outstanding as of December
31, 2005: Options Outstanding
    
    Options ExercisableRange of
    
    Number Outstanding
    
    Weighted Average
    
    
    
    
    
    Number ExercisableExercise
    
    at December 31,
    
    Remaining
    
    Weighted Average
    
    at December 31,
    
    Weighted AveragePrices
    
    2005
    
    Contractual Life
    
    Exercise Price
    
    2005
    
    Exercise Price$5.00 to
$12.00
    
    
    
    103,375
    
    6.81 years
    
    $
    
    8.11
    
    
    
    45,625
    
    $
    
    8.89$12.01 to $18.00
    
    
    
    271,205
    
    5.16 years
    
    
    
    17.36
    
    
    
    216,964
    
    
    
    17.36$18.01 to $22.00
    
    
    
    765,639
    
    4.10 years
    
    
    
    19.01
    
    
    
    764,389
    
    
    
    19.011,140,219
    
    4.60 years
    
    $
    
    17.63
    
    
    
    1,026,978
    
    $
    
    18.21
 67
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company accounts for the 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 loss and loss per share. The weighted
average fair value of all of the employee options was estimated on the date of grant using the
Black-Scholes model with the following weighted average assumptions: (i) risk free average
interest rate of 3.9%, 3.7% and 3.8% for the years ended December 31, 2005, 2004 and 2003,
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 $0.6 million, $2.3 million and $2.5 million
for the years ended December 31, 2005, 2004 and 2003, respectively. Employee Stock Purchase Plan MCC maintains an employee stock purchase plan (ESPP). Under the plan, all of the Companys
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. MCC shares purchased by the Companys employees amounted
to 36,016, 38,912 and 39,370 in 2005, 2004 and 2003, respectively. The net proceeds to MCC were
approximately $234,000, $260,000 and $238,000 in 2005, 2004 and 2003 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 $66,000, $73,000 and $67,000 for the years ended December 31, 2005, 2004 and 2003,
respectively. Other Stock-based Compensation During the year ended December 31, 2005, certain employees received 100,800 restricted stock
units on underlying MCC shares. The restricted stock units were issued at a weighted average price
of $5.49 per share, with a weighted average vesting period of 3.6 years. The Company recorded
$118,000 of compensation expense in its consolidated statements of operations related to the grants
of restricted stock units. During the year ended December 31, 2005, 300 restricted stock units
were forfeited. Had the Company applied the fair value recognition provisions of SFAS No. 123 to stock-based
compensation, the Companys net income (loss) would have been changed from the as reported
amounts to the pro forma amounts as follows (dollars in thousands): 2005
    
    
    2004
    
    
    2003Net (loss) income, as reported
    
    $
    (4,294
    )
    
    $
    8,976
    
    
    $
    (42,490
    )Add: Total stock-based compensation expense included in
net loss (income) as reported above
    
    
    118
    
    
    $
    
    
    
    $
    Deduct: Total stock based compensation expense determined
under fair value based method of all
awards
    
    
    (827
    )
    
    
    (2,332
    )
    
    
    (2,521
    )Pro forma net (loss) income
    
    $
    (5,003
    )
    
    $
    6,644
    
    
    $
    (45,011
    )
 68
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) Commitments and Contingencies Lease and Rental Agreements Under various lease and rental agreements for offices, warehouses and computer terminals, the
Company had rental expense of approximately $2.8 million, $2.6 million and $2.6 million for the
years ended December 31, 2005, 2004 and 2003, respectively. Future minimum annual rental payments
are as follows (dollars in thousands): 2006
    
    $
    1,5282007
    
    
    1,2612008
    
    
    9892009
    
    
    6312010
    
    
    490Thereafter
    
    
    1,820$
    6,719
 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 $5.6 million, $5.3 million and $4.5 million for the years ended
December 31, 2005, 2004 and 2003, respectively. Letters of Credit As of December 31, 2005, approximately $9.4 million of letters of credit were issued in favor
of various parties to secure the Companys performance relating to insurance and franchise
requirements and pole rentals. The fair value of such letters of credit was not material. Legal Proceedings The Company is involved in various 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. (10) Preferred Equity Investment On July 18, 2001, the Company made a $150.0 million preferred equity investment in Mediacom
Broadband LLC, a Delaware limited liability company wholly-owned by MCC, that was funded with
borrowings under the Companys bank credit facilities. The preferred equity investment has a 12%
annual cash dividend, payable quarterly in cash. For each of the years ended December 31, 2004,
2003 and 2002, the Company received in aggregate $18.0 million in cash dividends on the preferred
equity. (11) Loan
to Affiliated Company  Note Receivable In January 2005, the company loaned $88.0 million to Mediacom Broadband LLC. The loan was in
the form of a demand note, which has a 6.7% annual interest rate payable semi-annually in cash. In
April 2005, Mediacom Broadband LLC repaid the $88.0 million loan plus accrued interest to the
company. The company used the proceeds to repay outstanding amounts under its revolving credit
facility. The company recorded $1.5 million of interest income related to the demand note for the
year ended December 31, 2005. 69
    Table of Contents  MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) Hurricane Losses in 2004 and 2005 In July and August 2005, Hurricanes Dennis and Katrina impacted the Companys systems in
Alabama, Florida and Mississippi, initially affecting about 45,000 and 55,000 basic subscribers,
respectively. The Company estimated that these hurricanes resulted in the loss of approximately
9,000 basic subscribers, 2,000 digital customers and 1,000 data customers. As a result, for the
year ended December 31, 2005, the Company: (i) recorded revenues that reflected $0.6 million of
service interruption credits issued to customers, $2.1 million of lost revenues from customers
whose homes were destroyed or otherwise rendered uninhabitable and $0.4 million of lost revenues in
the advertising sales business; (ii) incurred additional service costs of approximately $0.9
million to cover the repair of the Companys facilities, including increased employee and outside
contractor costs; (iii) incurred additional selling, general and administrative costs of
approximately $0.3 million related to additional customer service employee costs required to
support customers needs; and (iv) recorded an increase in depreciation expense of $1.3 million due
to the impairment of cable plant and equipment. In addition, the Company spent $5.3 million of
capital expenditures to replace or rebuild property, plant and equipment damaged by these
hurricanes during year ended December 31, 2005. 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 and disposals of cable plant and equipment; and (v)
spent approximately $8.1 million of capital expenditures to replace or rebuild property, plant and
equipment. In addition the Company had capital expenditures of approximately $8.1 and $1.0 million
in 2004 and 2005, respectively to replace or rebuild property, plant and equipment damaged by
Hurricane Ivan. The Company estimates that after December 31, 2005 it may spend an additional $2.2 million to
rebuild the remainder of its damaged cable plant and other property and equipment, assuming the
complete recovery of the affected communities, although it cannot be certain about the timing of
such spending. 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. During the fourth quarter of 2005, the Company received
$400,000 of insurance proceeds related to claims from Hurricane Ivan. (13) Sale of Assets and Investments The Company recorded a net gain on sale of investments amounting to $2.6 million and $5.9
million for the years ended December 31, 2005 and 2004, respectively. The net gain for 2005 was
due to the sale of the Companys investment in American Independence Corporation common stock. The
net gain on sale of assets and investments for the year ended December 31, 2004 was principally due
to the sale of a cable system in May 2004, serving approximately 3,450 subscribers, for gross
proceeds of about $10.6 million. 70
    Table of Contents  Schedule II
 MEDIACOM LLC 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, 2003Allowance for doubtful accountsCurrent receivables
    
    $
    1,106
    
    
    $
    1,943
    
    
    
    
    
    
    $
    1,980
    
    
    
    
    
    
    $
    1,069December 31, 2004Allowance for doubtful accountsCurrent receivables
    
    $
    1,069
    
    
    $
    407
    
    
    
    
    
    
    $
    620
    
    
    
    
    
    
    $
    856December 31, 2005Allowance for doubtful accountsCurrent receivables
    
    $
    856
    
    
    $
    737
    
    
    $
    89
    
    
    $
    447
    
    
    
    
    
    
    $
    1,235
    71
    Table of Contents  ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 9A. CONTROLS AND PROCEDURES Mediacom LLC The management of Mediacom LLC (Mediacom) carried out an evaluation, with the participation
of Mediacoms Chief Executive Officer and Chief Financial Officer, of the effectiveness of
Mediacoms disclosure controls and procedures as of December 31, 2005. Based upon that evaluation,
Mediacoms Chief Executive Officer and Chief Financial Officer concluded that Mediacoms disclosure
controls and procedures were effective to ensure that information required to be disclosed by
Mediacom in the reports that it files or submits 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 Mediacoms internal control over financial reporting in
connection with the evaluation required by Rule 15d-15(d) under the Exchange Act that occurred
during the quarter ended December 31, 2005 that has materially affected, or is reasonably likely to
materially affect, Mediacoms internal control over financial reporting. Mediacom Capital Corporation The management of Mediacom Capital Corporation (Mediacom Capital) carried out an evaluation,
with the participation of Mediacom Capitals Chief Executive Officer and Chief Financial Officer,
of the effectiveness of Mediacom Capitals disclosure controls and procedures as of December 31,
2005. Based upon that evaluation, Mediacom Capitals Chief Executive Officer and Chief Financial
Officer concluded that Mediacom Capitals disclosure controls and procedures were effective to
ensure that information required to be disclosed by Mediacom Capital in the reports that it files
or submits 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 Mediacom Capitals internal control over financial reporting
in connection with the evaluation required by Rule 15d-15(d) under the Exchange Act that occurred
during the quarter ended December 31, 2005 that has materially affected, or is reasonably likely to
materially affect, Mediacom Capitals internal control over financial reporting. 
 ITEM 9B. OTHER INFORMATION None. 72
    Table of Contents  PART
III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS MCC is our sole member and manager. MCC serves as manager of our operating subsidiaries. The
executive officers of Mediacom LLC and the directors and executive officers of MCC and Mediacom
Capital are: Name
    
    Age
    
    PositionRocco B. Commisso
    
    
    56
    
    
    Chairman and Chief Executive Officer of MCC;
Manager,Chairman and Chief Executive Officer of
Mediacom LLC; and President, Chief Executive Officer
and Director of Mediacom CapitalMark E. Stephan
    
    
    49
    
    
    Executive Vice
President, Chief Financial Officer and
Director of MCC; Executive Vice President, Chief
Financial Officer and Treasurer of Mediacom LLC; and
Treasurer and Secretary of Mediacom CapitalJohn G. Pascarelli
    
    
    44
    
    
    Executive Vice President, Operations of MCCItalia Commisso Weinand
    
    
    52
    
    
    Senior Vice President, Programming and Human
Resources of MCCJoseph E. Young
    
    
    57
    
    
    Senior Vice President, General Counsel and Secretary
of MCCCharles J. Bartolotta
    
    
    51
    
    
    Senior Vice President, Customer Operations of MCCCalvin G. Craib
    
    
    51
    
    
    Senior Vice President, Business Development of MCCBrian Walsh
    
    
    40
    
    
    Senior Vice President and Corporate Controller of MCCCraig S. Mitchell
    
    
    47
    
    
    Director of MCCWilliam S. Morris III
    
    
    71
    
    
    Director of MCCThomas V. Reifenheiser
    
    
    70
    
    
    Director of MCCNatale S. Ricciardi
    
    
    57
    
    
    Director of MCCRobert L. Winikoff
    
    
    59
    
    
    Director of MCC
 Rocco B. Commissohas 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 and the National Italian
American Foundation. Mr. Commisso holds a Bachelor of Science in Industrial Engineering and a
Master of Business Administration from Columbia University. Mark E. Stephanhas 19 years of experience with the cable television industry and has served
as our Executive Vice President, Chief Financial Officer and Treasurer since November 2003. Prior
to that he was Senior Vice President, Chief Financial Officer and Treasurer since the commencement
of our operations in March 1996. Before
joining us, Mr. Stephan served as Vice President, Finance for Cablevision Industries from July
1993. Prior to that time, Mr. Stephan served as Manager of the telecommunications and media
lending group of Royal Bank of Canada. John G. Pascarellihas 25 years of experience in the cable television industry and has served
as our managers Executive Vice President, Operations since November 2003. Prior to that he was
our managers Senior Vice President, Marketing and Consumer Services from June 2000 and our
managers Vice President of Marketing from 73
    Table of Contents  March 1998. Before joining our manger 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 Weinandhas 29 years of experience in the cable television industry. Before
joining our manager 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. Joseph E. Younghas 21 years of experience with the cable television industry. Before joining
our manager 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. Bartolottahas 23 years of experience in the cable television industry. Before
joining our manager 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. Craibhas 24 years of experience in the cable television industry and has served as
our managers Senior Vice President, Business Development since August 2001. Prior to that he was
our managers Vice President, Business Development since April 1999. Before joining our manager 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. Walshhas 18 years of experience in the cable television industry and has served as
our managers Senior Vice President and Corporate Controller since February 2005. Prior to that he
was our managers Senior Vice President, Financial Operations from November 2003, our managers
Vice President, Finance and Assistant to the Chairman from November 2001, our managers Vice
President and Corporate Controller from February 1998 and our managers 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. Mitchellhas held various management positions with Morris Communications Company LLC
for more than the past six years. He currently serves as its Senior Vice President of Finance,
Treasurer and Secretary and is also a member of its board of directors. William S. Morris IIIhas served as the Chairman and Chief Executive Officer of Morris
Communications for more than the past six years. He was the Chairman of the board of directors of
the Newspapers Association of America for 1999-2000. Thomas V. Reifenheiserserved for more than six 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
member 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. 74
    Table of Contents  Natale S. Ricciardihas held various management positions with Pfizer Inc. for more than the
past six years. Mr. Ricciardi joined Pfizer in 1972 and currently serves as its President, Global
Manufacturing, with responsibility for all of Pfizers manufacturing facilities. Robert L. Winikoffhas been a partner of the law firm of Sonnenschein Nath & Rosenthal, LLP
since August 2000. Prior thereto, he was a partner of the law firm of Cooperman Levitt Winikoff
Lester & Newman, P.C. for more than five years. Sonnenschein Nath & Rosenthal, LLP currently
serves as our outside general counsel, and prior to such representation, Cooperman Levitt Winikoff
Lester & Newman, P.C. served as our outside general counsel from 1995. The board of directors of our manager has adopted a code of ethics applicable to all of our
employees, including our chief executive officer, chief financial officer and chief accounting
officer. This code of ethics was filed as an exhibit to our annual report on Form 10-K for the
year ended December 31, 2003. 
 ITEM 11. EXECUTIVE COMPENSATION The executive officers and directors of MCC are compensated exclusively by MCC and do not
receive any separate compensation from Mediacom LLC or Mediacom Capital. MCC acts as our manager
and in return receives a management fee. 
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 Mediacom Capital is a wholly-owned subsidiary of Mediacom LLC. MCC is the sole member of
Mediacom LLC. The address of MCC is 100 Crystal Run Road, Middletown, New York 10941. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Management Agreements Pursuant to management agreements between MCC and our operating subsidiaries, MCC is entitled
to receive annual management fees in amounts not to exceed 4.5% of our gross operating revenues.
For the year ended December 31, 2005, MCC received $10.0 million of such management fees,
approximately 2.1% of gross operating revenues. Other Relationships On July 18, 2001, we made a $150.0 million preferred equity investment in Mediacom Broadband
LLC that was funded with borrowings under our bank credit facilities. The preferred equity
investment has a 12% annual cash dividend, payable quarterly in cash. For the year ended December
31, 2005, we received in aggregate $18.0 million in cash dividends on the preferred equity. On January 25, 2005, we loaned $88.0 million to Mediacom Broadband LLC. The loan was funded
with borrowings under our bank credit facility. The loan was in the form of a demand note, which
has a 6.7% annual interest rate, payable semi-annually in cash. On April 26, 2005, Mediacom
Broadband LLC repaid this demand note including $1.5 million of accrued interest. Investment banking firms or their affiliates have in the past engaged in transactions with and
performed services for us and our affiliates in the ordinary course of business, including
commercial banking, financial advisory and investment banking services. Furthermore, these
companies or their affiliates may perform similar services for us and our affiliates in the future.
Affiliates of certain of these companies are agents and lenders under our bank credit facilities.
The Bank of New York, an affiliate of BNY Capital Markets, Inc., acts as trustee for our senior
notes. 75
    Table of Contents  ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Our
allocated portion of fees from MCC for professional services provided by our independent auditor in each of the last two
fiscal years, in each of the following categories are as follows (dollars in thousands): 2005
    
    
    2004Audit fees
    
    $
    414
    
    
    $
    225Audit-related fees
    
    
    306
    
    
    
    658Tax fees
    
    
    8
    
    
    
    All other fees
    
    
    2
    
    
    
    11Total
    
    $
    730
    
    
    $
    894
 Audit fees include fees associated with the annual audit, the reviews of our quarterly reports
on Form 10-Q and annual reports on Form 10-K. Audit-related fees consist of the Sarbanes-Oxley
Section 404 readiness project fees and related audit consultation. All other fees include fees
associated with the review of documents filed with the Securities and Exchange Commission. The audit committee of our manager has adopted a policy that requires advance approval of all
audit, audit-related, tax services, and other services performed by our independent auditor. The
policy provides for pre-approval by the audit committee of specifically defined audit and non-audit
services. Unless the specific service has been previously pre-approved with respect to that year,
the audit committee must approve the permitted service before the independent auditor is engaged to
perform it. 76
    Table of Contents  PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (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: 77
    Table of Contents  ExhibitNumber
    

    Exhibit Description3.1(a)
    
    Articles of Organization of Mediacom LLC filed July 17, 1995 (1)

3.1(b)
    
    Certificate of Amendment of the Articles of Organization of Mediacom LLC filed December 8,
1995 (1)3.2
    
    Fifth Amended and Restated Operating Agreement of Mediacom LLC (2)3.3
    
    Certificate of Incorporation of Mediacom Capital Corporation filed March 9, 1998 (1)3.4
    
    By-Laws of Mediacom Capital Corporation (1)4.1
    
    Indenture relating to 7
7/8% senior notes due 2011 of Mediacom LLC and
Mediacom Capital Corporation(3)4.2
    
    Indenture relating to 91/2% senior notes due 2013 of Mediacom LLC and Mediacom Capital
Corporation(4)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 (5)12.1
    
    Schedule of Computation of Ratio of Earnings to Fixed Charges14.1
    
    Code of Ethics (6)21.1
    
    Subsidiaries of Mediacom LLC (4)23.1
    
    Consent of PricewaterhouseCoopers LLP31.1
    
    Rule 15(d) -14(a) Certifications of Mediacom LLC31.2
    
    Rule 15(d) -14(a) Certifications of Mediacom Capital Corporation32.1
    
    Section 1350 Certifications of Mediacom LLC32.2
    
    Section 1350 Certifications of Mediacom Capital Corporation
 78
    Table of Contents  (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 71.   (1)
    
    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.(2)
    
    Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 of Mediacom LLC 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 the Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 of Mediacom Communications Corporation and incorporated herein by
reference.(6)
    
    Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended
December 31, 2003 of Mediacom LLC and incorporated herein by reference. 79
    Table of Contents  SIGNATURES
 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Mediacom LLCMarch 30, 2006
    
    By:
    
    /s/  Rocco B. CommissoRocco
B. CommissoManager, Chairman 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
    
    Manager, Chairman and Chief
Executive Officer (principal executive
    March 30, 2006Rocco B. Commisso
    
    officer)/s/  MARK E. STEPHAN
    
    Executive Vice President, Chief Financial Officer and Treasurer
    March 30, 2006Mark E. Stephan
    
    (principal financial officer and
principal accounting officer)
 80
    Table of Contents  SIGNATURES
 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Mediacom Capital CorporationMarch 30, 2006
    
    By:
    
    /s/  Rocco B. CommissoRocco B. CommissoPresident, Chief ExecutiveOfficer and Director
 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
    
    President, Chief Executive Officer and Director (principal executive
    March 30, 2006Rocco B. Commisso
    
    officer)/s/  MARK E. STEPHAN
    
    Treasurer and Secretary (principal
financial officer and principal
    March 30, 2006Mark E. Stephan
    
    accounting officer)
 81