##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-K   Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 For the fiscal year ended December 31, 2003 Commission File Numbers:
    
    333-57285-01333-57285
 Mediacom LLC
Mediacom Capital Corporation* (Exact names of Registrants as specified in their charters)
 New York
    
    06-1433421New York
    
    06-1513997(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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 whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [  ] Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the 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 checkmark whether the registrants are accelerated filers (as
defined in Rule 12b-2 of the Act). Yes [  ] No [X] 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
2003 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PagePART IItem 1.
    
    Business
    
    4Item 2.
    
    Properties
    
    26Item 3.
    
    Legal Proceedings
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    26PART IIItem 5.
    
    Market for Registrants' Common Equity, Related Stockholder Mattersand Issuer Purchases of Equity Securities
    
    27Item 6.
    
    Selected Financial Data
    
    28Item 7.
    
    Management's Discussion and Analysis of Financial Condition andResults of Operations
    
    31Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    48Item 8.
    
    Financial Statements and Supplementary Data
    
    49Item 9.
    
    Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure
    
    68Item 9A.
    
    Controls and Procedures
    
    68PART IIIItem 10.
    
    Directors and Executive Officers of the Registrants
    
    69Item 11.
    
    Executive Compensation
    
    72Item 12.
    
    Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters
    
    72Item 13.
    
    Certain Relationships and Related Transactions
    
    72Item 14.
    
    Principal Accountant Fees and Services
    
    73PART IVItem 15.
    
    Exhibits, Financial Statement Schedule and Reports on Form 8-K
    
    74EX-14.1: CODE OF ETHICSEX-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. You should be aware that those
statements are only our predictions. Actual events or results may differ
materially. In evaluating those statements, you should specifically consider
various factors, including the risks discussed in this Annual Report and other
reports or documents that we file from time to time with the SEC. Those
factors may cause our actual results to differ materially from any of our
forward-looking statements. All forward-looking statements attributable to us
or a person acting on our behalf are expressly qualified in their entirety by
this cautionary statement. 3




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##### Table of Contents



PART I 
 ITEM 1. BUSINESS Our Manager Mediacom Communications Corporation, our parent and manager, is currently
the nations eighth largest cable television company based on customers served
and the leading cable operator focused on serving the smaller cities and towns
in the United States. Mediacom Communications provides its customers with a
wide array of broadband products and services, including traditional analog
video services, digital television, video-on-demand, high-definition television
and high-speed Internet access. As of December 31, 2003, our managers cable
systems, which are owned and operated through the operating subsidiaries of
Mediacom LLC and Mediacom Broadband LLC, passed approximately 2.76 million
homes and served approximately 1.54 million basic subscribers in 23 states. A
basic subscriber is a customer that subscribes to a package of basic cable
television services. Our manager was founded in July 1995 by Rocco B.
Commisso, its Chairman and Chief Executive Officer, and its Class A common
stock is traded on The Nasdaq National Market under the symbol MCCC. Mediacom LLC We are a wholly-owned subsidiary of our manager. As of December 31, 2003,
our cable systems passed approximately 1.3 million homes and served
approximately 723,700 basic subscribers in 22 states. Since commencement of our
operations in March 1996, we have experienced significant growth by deploying a
disciplined strategy of acquiring underperforming cable systems and improving
their operating and financial performance. As of December 31, 2003, we had
completed 24 acquisitions of cable systems for an aggregate purchase price of
approximately $1.3 billion. Many of our cable systems are located in markets
that are contiguous with, or in close proximity to, cable systems owned and
operated by Mediacom Broadband LLC, a wholly-owned subsidiary of our manager. Business Strategy We believe that our high-speed, interactive broadband network is the
superior platform for the delivery of advanced video, data and voice products
and services. Our strategy is to use the capabilities of our broadband network
to expand the products and services we offer our subscribers, attract new
customers and diversify our revenue streams. We believe that the investment in
our broadband network and facilities, together with our attractive bundled
products and services, reliable customer service and local community presence
will enable us to execute our strategy and compete effectively in our markets. Technology In 2003, we completed our network upgrade program that significantly
increased bandwidth and enabled interactivity. As of December 31, 2003,
approximately 98% of our cable network was upgraded with 550MHz to 870MHz
bandwidth capacity and about 96% of our homes passed were activated with
two-way communications capability. Expressed in megahertz, or MHz, bandwidth
represents a systems capacity to deliver telecommunications services. Our upgrade program increased our cable systems network capacity and
reliability, and the quality of the service that they deliver. This has allowed
us to introduce additional video programming and other products and services,
including digital video, video-on-demand, or VOD, high-definition television,
or HDTV, digital video recorders, or DVRs, and high-speed Internet access or
cable modem service. In addition, beginning in the fourth quarter of
2004, we plan to introduce in certain markets Internet protocol
telephony service, which is sometimes referred to as
Voice-over-Internet-Protocol, or VoIP, telephony. 4




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Bundling We plan to leverage the capacity and flexibility of our upgraded broadband
network, as we increasingly emphasize our offerings of bundled products and
services. A bundled customer is one who subscribes to two or more of our
primary services. Bundled products and services offer our subscribers key
benefits such as a single provider contact for ordering, provisioning, billing
and customer care. We currently offer video and data bundles, and when we
introduce telephony we will be able to offer a triple-play bundle of video,
data and voice. The availability of our multiple products and services in most of our
footprint has allowed us to offer bundled service to most of our subscribers.
As of December 31, 2003, our digital cable services were available to 99% of
our basic subscribers, and we served 151,400 digital customers. Our VOD and
HDTV services were available to approximately 30% and approximately 50% of our
digital customers, respectively. In addition, our high-speed Internet access
was marketed to approximately 96% of the homes passed by our cable systems, and
we served approximately 122,200 data customers. Customer Service Attaining higher levels of customer satisfaction is critical to our
success in the increasingly competitive environment we face today. We continue
to invest in our customer care personnel and call center technology to improve
our capabilities in customer service and have developed and attained internal
customer service standards that meet or exceed those standards established by
the National Cable and Telecommunications Association. In 2003, we invested in
virtual contact technology across our call centers and raised our level of
customer service and improved the productivity of our call center personnel. Community Presence When our company commenced operations in 1996, one of our key objectives
was to bridge the digital divide that had developed between the smaller
cities and towns and the large urban markets in the United States. Over the
past several years we have made significant investments in our cable systems,
and as a result, substantially all of the homes in our markets now have access
to the latest in broadband products and services. We continue our efforts to build good relationships with the communities
we serve by participating in a wide range of local educational and community
service initiatives. Our major company-wide programs include the Mediacom
Cable in the Classroom program which provides more than 1,476 schools with
free cable service and, where available, high-speed Internet access. We also
provide free cable service to government buildings, libraries, and
not-for-profit hospitals in our franchise areas. We also develop and offer
unique local programming in our communities. Corporate Address and Website Our 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. 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. Products and Services Through our one operating segment, broadband services, we offer our
customers an array of traditional analog video services, also referred to as
our core cable television services. In addition, we offer to a significant
portion of our customer base advanced broadband products and services,
including digital cable television, VOD, HDTV and high-speed Internet access.
We introduced DVRs in March 2004 and plan to launch VoIP telephony service in certain cable systems during
the fourth quarter of 2004. 5




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Traditional Analog Video Services We receive the majority of our revenues from subscription services.
Subscribers typically pay us on a monthly basis and generally may discontinue
services at any time. Monthly subscription rates and related charges vary
according to the type of service selected and the type of equipment used by
subscribers. We design both our basic channel line-up and our additional channel
offerings for each system according to demographics, programming preferences,
channel capacity, competition, price sensitivity and local regulation. Our
core cable television service offerings are presented in an analog format and
include the following most of our cable systems: Limited Basic Service.Our limited basic service includes, for a monthly
fee, local broadcast channels, network and independent stations, limited
satellite-delivered programming, and local public, government, home-shopping
and leased access channels. Expanded Basic Service. Our expanded basic service includes, for an
additional monthly fee, various satellite-delivered channels such as CNN, MTV,
USA Network, ESPN, Lifetime, Nickelodeon and TNT. Premium Service.Our premium services are satellite-delivered channels
consisting principally of feature films, original programming, live sports
events, concerts and other special entertainment features, usually presented
without commercial interruption. These services include HBO, Cinemax, Showtime,
The Movie Channel and Starz/Encore. Such premium programming services are
offered by our systems both on a per-channel basis and as part of premium
service packages designed to enhance customer value. Pay-Per-View Service.Our pay-per-view services allow customers to pay to
view a single showing of a feature film, live sporting event, concert and other
special event, on an unedited, commercial-free basis. Such pay-per-view
services are offered by us on a per-viewing basis, with subscribers only paying
for programs which they select for viewing. Digital Services Digital Cable.Digital video technology has significantly enhanced and
expanded the video and other service offerings we provide to our customers.
This technology has enabled us to improve picture quality and reliability, and
to greatly increase our channel offerings through the use of compression, which
converts one analog channel into eight to 12 digital channels. Customers who subscribe to our digital cable offerings receive up to 218
digital channels in many of our systems. We currently offer our customers
several digital cable programming packages that include digital basic channels,
multichannel premium services, pay-per-view movie and sports channels, channels
of digital music, and an interactive on-screen program guide. Subscribers typically pay us on a monthly basis for digital cable service
and generally may discontinue services at any time. A digital converter is
required to receive our digital cable service. Monthly rates vary generally
according to the level of service and the number of digital converters selected
by the subscriber. As of December 31, 2003, our digital service was available
to approximately 99% of our basic subscribers and we served 151,400 digital
customers. We have also introduced the following new digital video services to
bolster our competitive position and general additional video revenues. Video-On-Demand.Video-on-demand is an interactive television service
that provides access to movies, special events or general interest titles on
demand with the ability to pause, rewind and fast forward selected programming.
Customers can watch their selected feature repeatedly during the viewing
window, which typically runs up to 24 hours, or stop the selection before it is
completed and return to it at a later time during the viewing window. Fees are
typically charged on a per-selection basis, although certain on-demand
programming services are available free of charge (such as Mag Rack), or for a
flat monthly fee (such as premium services), also known as subscription-based 6




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video-on-demand. We currently offer VOD service to approximately 30% of our
digital customers. During 2004, we plan to make VOD service available in
additional cable systems representing another 20% of our digital customers and
increase the amount of content available to our customers via this service. High-Definition Television.High-definition television signals have twice
the color resolution and six times the picture sharpness of standard television
signals. A television set capable of receiving and displaying high-definition
signals is required to utilize this service. Our HDTV service requires the use
of an advanced digital converter for which we charge an additional monthly fee.
This service typically includes high-definition signals for certain premium
programming networks and local broadcast stations. We currently offer HDTV
service in markets serving approximately 50% of our digital customers. During
2004, we plan to make HDTV service available in additional cable systems
representing another 20% of our digital customers and to increase the amount of
HDTV content available to our customers. Digital Video Recorders.A digital video recorder, or DVR, has the ability
to store programs on a hard disk drive contained in an advanced digital
converter. DVRs provide consumers with the ability to view recorded
programming at will, and to pause and rewind live broadcasts. We began
deploying digital video recorders in certain of our cable systems in March 2004
and plan to expand to additional markets during the balance of the year. High-Speed Internet Access Our broadband cable network enables our high-speed Internet customers,
also referred to as cable modem customers, to transmit data up to 100 times
faster than traditional telephone modem technologies. Our cable modem
customers can receive and transmit large files over the Internet in a fraction
of the time required when using the traditional telephone modem. Our
high-speed Internet access service also allows much quicker response times when
surfing the Internet, providing a richer experience for the customer that
capitalizes on the significant capacity of our broadband cable network. In
addition, cable modem service eliminates the need to use a telephone line to
access the Internet. It is also always activated and as a result, the customer
does not need to dial into an Internet service provider and await
authorization. Monthly subscription rates and related charges vary according
to whether the customer leases or owns the cable modem and whether the customer
subscribes to our video services. As of December 31, 2003, our cable modem
service was marketed to about 96% of our homes passed, and we served
approximately 122,200 data customers. Commercial Data Services During 2003, we began providing commercial high-speed Internet access
services to small and medium-sized businesses. This commercial cable modem
service allows businesses with multiple users to select from various service
options to suit their needs. We are currently rolling out on a broader scale advanced customized data
services to large commercial customers. We have the flexibility to provide
enterprise network services to these customers because as part of our network
upgrade and headend consolidation programs we deployed over 6,000 route miles
of fiber optic cable and created large high-capacity regional networks with
excess capacity. These services include virtual private networks, wide area
networks and point-to-point data communication. Telecommunications Services We
are in active development of a VoIP platform, from which we
plan to launch voice services in certain cable systems in the fourth
quarter of 2004. VoIP technology converts voice signals into data packets that
are transmitted over the Internet and then reconverted into voice signals at
the destination. VoIP technology is an alternative to traditional phone
networks that use dedicated circuits for each call. We believe the ability to
offer customers a bundle of video, voice and data services from a single
provider using its own network will be unique in nearly all of our markets. Advertising We generate revenues from the sale of local advertising on
satellite-delivered channels such as CNN, MTV, USA Network, ESPN, Lifetime,
Nickelodeon and TNT. We have an advertising sales infrastructure that includes
in-house 7




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production facilities, production and administrative employees and a
locally based sales workforce. We are extending our advertising infrastructure
to our cable systems that have third-party advertising agreements that are
expiring. In addition, the increasing concentration of customers served by our
headend facilities as a result of our headend consolidation program has also
positioned us to increase our advertising sales. Description of Our Cable Systems Overview The following table provides an overview of selected and cable network
data for our cable systems for the years ended: 2003
    
    2002
    
    2001
    
    2000
    
    1999Operating Data:Core VideoHomes passed(1)
    
    
    1,282,500
    
    
    
    1,252,000
    
    
    
    1,200,000
    
    
    
    1,173,000
    
    
    
    1,071,500Basic subscribers(2)
    
    
    723,700
    
    
    
    752,000
    
    
    
    771,000
    
    
    
    779,000
    
    
    
    719,000Basic penetration(3)
    
    
    56.4
    %
    
    
    60.1
    %
    
    
    64.3
    %
    
    
    66.4
    %
    
    
    67.1
    %Digital CableDigital-ready basic subscribers(4)
    
    
    719,000
    
    
    
    702,000
    
    
    
    600,000
    
    
    
    400,000
    
    
    
    168,000Digital customers(5)
    
    
    151,400
    
    
    
    133,000
    
    
    
    88,000
    
    
    
    40,000
    
    
    
    5,300Digital penetration(6)
    
    
    21.1
    %
    
    
    18.9
    %
    
    
    14.7
    %
    
    
    10.0
    %
    
    
    3.2
    %DataData-ready homes passed(7)
    
    
    1,230,000
    
    
    
    1,190,000
    
    
    
    965,000
    
    
    
    550,000
    
    
    
    120,000Data-ready homes marketed(8)
    
    
    1,225,000
    
    
    
    1,100,000
    
    
    
    610,000
    
    
    
    486,000
    
    
    
    105,500Data customers(9)
    
    
    122,200
    
    
    
    81,000
    
    
    
    38,000
    
    
    
    15,600
    
    
    
    5,100Data penetration(10)
    
    
    10.0
    %
    
    
    7.4
    %
    
    
    6.2
    %
    
    
    3.2
    %
    
    
    4.8
    %Revenue Generating Units(11)
    
    
    997,300
    
    
    
    966,000
    
    
    
    897,000
    
    
    
    834,600
    
    
    
    729,400Customer Relationships(12)
    
    
    735,400
    
    
    
    760,000
    
    
    
    774,000
    
    
    
    N/A
    
    
    
    N/ACable Network Data:Miles of plant
    
    
    26,150
    
    
    
    25,500
    
    
    
    25,000
    
    
    
    24,500
    
    
    
    22,444Density(13)
    
    
    49
    
    
    
    49
    
    
    
    48
    
    
    
    48
    
    
    
    48Percentage of cable network at
550MHz to 870MHz
    
    
    98
    %
    
    
    98
    %
    
    
    90
    %
    
    
    74
    %
    
    
    57
    %
   (1)
    
    Represents the estimated number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
systems service area.(2)
    
    Represents a dwelling with one or more television sets that receives a
package of over-the-air broadcast stations, local access channels or
certain satellite-delivered cable television services. Accounts that are
billed on a bulk basis, which typically receive discounted rates, are
converted into full-price equivalent basic subscribers by dividing total
bulk billed basic revenues of a particular system by the most prevalent
combined limited and expanded cable rate charged to basic subscribers in
that system. Basic subscribers include connections to schools, libraries,
local government offices and employee households that may not be charged
for limited and expanded cable services, but may be charged for premium
service, pay-per-view events or high-speed Internet service. Customers
who exclusively purchase high-speed Internet service are not counted as
basic subscribers. Our methodology of calculating the number of basic
subscribers may not be identical to those used by other cable companies.(3)
    
    Represents basic subscribers as a percentage of homes passed.(4)
    
    A subscriber is digital-ready if the subscriber is in a cable system
where digital cable services are available.(5)
    
    Represents customers that received digital cable services.(6)
    
    Represents digital customers as a percentage of digital-ready basic
subscribers.(7)
    
    A home passed is data-ready if it is in a cable system with two-way
communications capability.(8)
    
    Represents data-ready homes passed where cable modem service is
available. 8




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(9)
    
    Represents residential data customers and small to medium-sized
commercial accounts billed at higher rates than residential customers.
Small to medium-sized commercial accounts generally represent customers
with bandwidth requirements less than 5MHz. These commercial accounts are
converted to equivalent residential data customers by dividing their
associated revenues by the applicable residential rate. Our data
customers excludes large commercial accounts and include a insignificant
number of dial-up customers. Our methodology of calculating data
customers may not be identical to those used by other cable companies.(10)
    
    Represents the number of total data customers as a percentage of
data-ready homes marketed.(11)
    
    Represents the sum of basic subscribers, digital customers and data
customers.(12)
    
    Represents the total number of customers that receive at least one level
of service, encompassing video and data services, without regard to which
service(s) customers purchase. This information is not available for
periods prior to 2001.(13)
    
    Represents homes passed divided by miles of plant. Technology Overview We believe in investing in advanced technology to improve our competitive
position. Since our inception we have made significant investments in our
cable network upgrade program to allow us to introduce new and enhanced
products and services to our customers. We completed our planned upgrade
program during 2003. As a result, we have transformed legacy cable plant into
a state-of-the-art broadband network. The primary features of our upgraded
broadband network are:  
    
    hybrid fiber-optic coaxial architecture;
    
    98% of bandwidth capacity is 550MHz to 870MHz;
    
    96% of homes passed have two-way communications capability; and
    
    the ability to provide advanced broadband services across virtually our entire footprint. A central feature of our cable network is the deployment of high capacity,
hybrid fiber-optic coaxial architecture. The hybrid fiber-optic coaxial
architecture combines the use of fiber optic cable, which can carry hundreds of
video, data and voice channels over extended distances, with coaxial cable,
which requires more extensive signal amplification in order to obtain the
desired levels for delivering channels. Our upgraded network design connects fiber optic cable to individual nodes
serving an average of 350 homes or commercial buildings. A node is a single
connection to a cable systems main, high-capacity fiber optic cable that is
shared by a number of customers. Coaxial cable is then connected from each
node to the individual homes or buildings. Our network design generally
provides for six strands of fiber to each node, with two strands active and
four strands reserved for future services. Our design also allows for the use
of advanced technology such as node-splitting, digital compression and
multi-plexing to increase capacity. The use of fiber optic technology in our cable network improves picture
quality and network reliability. It also gives our systems the flexibility to
run multiple separate channel line-ups from a single headend and transmit
advertisements to specific local communities. The following table describes the technological state of our cable network
as of December 31, 2001, 2002 and 2003 and displays the progress we made during
these periods with our network upgrade program. Percentage of Cable NetworkLess than
    
    Standard
    
    Enhanced
    
    Greater Than
    
    
   
    
    
    Two-Way550MHz
    
    550MHz
    
    550MHz
    
    550MHz
    
    
   
    
    
    CapableDecember 31, 2001
    
    
    10
    %
    
    
    31
    %
    
    
    
    
    
    
    59
    %
    
    
    
    
    
    
    80
    %December 31, 2002
    
    
    2
    %
    
    
    33
    %
    
    
    
    
    
    
    65
    %
    
    
    
    
    
    
    95
    %December 31, 2003
    
    
    2
    %
    
    
    11
    %
    
    
    20
    %
    
    
    67
    %
    
    
    
    
    
    
    96
    %
 As of December 31, 2003, our 550MHz systems consisted of standard 550MHz
and enhanced 550MHz systems. We have used fiber-to-the-node construction to
increase the capacity of our enhanced 550MHz cable systems, 9




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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, and high-speed Internet
access and other telecommunications services across virtually our entire
footprint. Two-way communications capability permits our customers to send and
receive signals over the cable network so that interactive services, such as
VOD, are accessible and high-speed Internet access does not require a separate
telephone line. Our two-way communications capability, together with hybrid
fiber-optic coaxial architecture, enhances our cable networks ability to
provide advanced telecommunications services, such as the VoIP telephony
service. A headend facility is the location where signals are received and
processed for distribution over a cable system. As of December 31, 2003, our
cable systems were operated from 112 headend facilities. Fiber optics and
advanced transmission technologies make it cost effective to consolidate our
headend facilities, allowing us to realize operating efficiencies and resulting
in lower fixed capital costs on a per home basis as we introduce new products
and services. As part of our headend consolidation program, we deployed over 6,000 route
miles of fiber optic cable, creating large regional fiber optic networks with
the potential to provide advanced telecommunications services. These regional
networks have excess fiber optic capacity to accommodate new and expended
products and services, such as our commercial data business. With our upgrade from the traditional coaxial network design to hybrid
fiber-optic coaxial architecture, our broadband network now provides higher
capacity, superior signal quality, greater network reliability, reduced
operating costs and more reserve capacity for the addition of future services.
We also believe that the combination of reserve fiber strands and continued
advancements in bandwidth management techniques such as compression and
multi-plexing technology will preclude the need for additional widespread cable
network upgrades in the foreseeable future. Programming Supply We have various contracts to obtain basic and premium programming for our
cable systems from program suppliers whose compensation is typically based on a
fixed monthly fee per customer. Our programming contracts are generally for a
fixed period of time. We are a member of the National Cable Television Cooperative, Inc., a
programming cooperative primarily consisting of small to medium-sized multiple
system operators serving, in the aggregate, over 14 million cable subscribers.
The cooperative may help create efficiencies in the areas of obtaining and
administering programming contracts, as well as securing, in some cases, more
favorable programming rates and contract terms for small to medium-sized cable
operators. Our manager negotiates programming contract renewals both directly
and through the cooperative. From time to time, the contracts covering the
programming services carried on our cable systems expire, and we generally
provide such services to our customers without written contracts with the
respective program suppliers as our manager negotiates contract renewals. Our programming costs are expected to rise in the future due to increased
costs to purchase programming, particularly sports programming, additional
programming being provided to our customers, and other factors affecting the
cable television industry. Although we are legally able to pass through
expected increases in our programming costs to customers, there can be no
assurance that competitive conditions or other factors in the marketplace will
allow us to do so. We also have various retransmission consent arrangements with commercial
broadcast stations, which generally expire in December 2005. In some cases,
retransmission consents have been contingent upon our carriage of satellite
delivered cable programming offered by companies affiliated with the stations
owners or the broadcast network carried by such stations. 10




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Customer Service System reliability and customer satisfaction represent a cornerstone of
our business strategy. We expect that investments in our cable network and our
regional contact centers significantly strengthen customer service, enhance the
reliability of our cable network and allow us to introduce new services to our
customers. We maintain regional contact centers staffed with dedicated
customer service representatives, or CSRs, who are available to respond to
customer calls 24 hours a day, seven days a week, on a toll-free basis. We
believe our regional contact centers allow us to effectively coordinate
installation appointments and reduce response times to customer inquiries. During 2003, we implemented virtual contact center technology which
provides customers with extensive self-service capabilities, such as making a
payment and verifying service appointments, and enables us to re-route customer
calls among our regional contact centers to minimize hold times. Our virtual
contact centers also give our CSRs instant access to the calling customers
file and our products and services in the customers market. We believe our
virtual contact centers will help us ensure the most efficient utilization of
our CSRs and the most effective customer interactions. Reinforcing our
commitment to customer service, we have developed and attained customer service
standards that meet or exceed those standards established by the National Cable
and Telecommunications Association. We continue to invest in both personnel and equipment and technology to
improve our customer care. Our newest initiatives include e-Care, a web-based
customer service platform, and field workforce management programs designed to
increase the productivity and sales performance of our technical field
employees. Community Relations We are dedicated to fostering strong community relations in the
communities served by our cable systems. We support local charities and
community causes in various ways, including staged events and promotional
campaigns to raise funds and supplies for persons in need and in-kind donations
that include production services and free airtime on cable networks. We
participate in the Cable in the Classroom program, which provides more than
1,476 schools with free cable service and, where available, high-speed Internet
service. We also provide free cable television service to government
buildings, libraries and not-for-profit hospitals in our franchise areas. We also develop and offer local programming to our communities, a
capability not available to direct broadcast satellite service providers, our
primary competition in our video business. Several of our systems have
production facilities to create local content. These locally produced programs
include local school sports events, fund-raising telethons by local chapters of
national charitable organizations, local concerts and other entertainment. We
also have the exclusive right to carry many of these events. 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. As of December 31, 2003, we held 1,029 cable television franchises. These
franchises provide for the payment of fees to the issuing authority. In most
of the cable systems, such franchise fees are passed through directly to the
customers. The Cable Communications Policy Act of 1984, or 1984 Cable Act,
prohibits franchising authorities from imposing franchise fees in excess of 5%
of gross revenues from specified cable services and also permits the cable
operator to seek renegotiation and modification of franchise requirements if
warranted by changed circumstances. Substantially all of the basic subscribers of our cable systems are in
service areas that require a franchise. The table below groups the franchises
of our cable systems by year of expiration and presents the approximate number
and percentage of basic subscribers for each group as of December 31, 2003. 11




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Percentage of
    
    Number of
    
    Percentage ofNumber of
    
    Total
    
    Basic
    
    Total BasicYear of Franchise Expiration
    
    Franchises
    
    Franchises
    
    Subscribers
    
    Subscribers2004 through 2007
    
    
    329
    
    
    
    32.0
    %
    
    
    237,800
    
    
    
    32.9
    %2008 and thereafter
    
    
    700
    
    
    
    68.0
    
    
    
    485,900
    
    
    
    67.1Total
    
    
    1,029
    
    
    
    100.0
    %
    
    
    723,700
    
    
    
    100.0
    %
 We have never had a franchise revoked or failed to have a franchise
renewed. In addition, substantially all of our franchises eligible for renewal
have been renewed or extended prior to their stated expirations, and no
franchise community has refused to consent to a franchise transfer to us. The
1984 Cable Act provides, among other things, for an orderly franchise renewal
process in which franchise renewal will not be unreasonably withheld or, if
renewal is denied and the franchising authority acquires ownership of the cable
system or effects a transfer of the cable system to another person, the cable
operator generally is entitled to the fair market value for the cable system
covered by such franchise. In addition, the 1984 Cable Act established
comprehensive renewal procedures, which require that an incumbent franchisees
renewal application be assessed on its own merits and not as part of a
comparative process with competing applications. We believe that we have
satisfactory relationships with our franchising communities. Competition We, like most operators of cable systems, compete on the basis of several
factors, including price and the quality and variety of products and services
offered. We face competition from various communications and entertainment
providers, the number and type of which we expect will increase as we expand
the products and services offered over our broadband network. In recent years,
Congress has passed legislation and the Federal Communications Commission, or
FCC, has adopted policies authorizing new technologies and a more favorable
operating environment for certain existing technologies that provide, or may
provide, substantial additional competition for cable systems. The extent to
which a cable system operator is competitive depends in significant part upon
the operators ability to provide a greater variety of programming, superior
technical performance, the variety of services offered, including digital
cable, VOD, HDTV and DVRs, and superior customer service than are available
with over-the-air broadcasting or other competitive alternative delivery
sources. We believe our ability to package multiple services in a bundle, such
as combining our video products and services with our high speed Internet
access services, is a unique advantage in our competitive business environment. Providers of Broadcast Television and Other Entertainment The extent to which a cable system competes with over-the-air
broadcasting, which provides signals that a viewer is able to receive directly,
depends upon the quality and quantity of the broadcast signals available by
direct antenna reception compared to the quality and quantity of such signals
and alternative services offered by a cable system. As local over-the-air
broadcasters continue their federally-mandated transition to digital-only
signal formats, the extent to which those local broadcasters offer digital
feeds of their analog programming, additional programming on other digital
channels and/or HDTV signals may increase competition for customers with
digital or HDTV receivers where such signals are not carried on the cable
system. Cable systems also face competition from other sources of
entertainment such as live sporting events, movie theaters and home video
products, including videotape recorders and videodisc players. Direct Broadcast Satellite Providers Direct broadcast satellite service, or DBS service, is the cable
industrys most significant competitor. DBS customers have grown rapidly over
the past several years, far exceeding the basic subscriber growth rate of the
cable industry. According to recent industry reports, DBS service providers
currently deliver video programming services to over 21 million individual
households, condominiums, apartments and office complexes in the United States.
The two largest DBS companies, DIRECTV, Inc. and EchoStar Communications
Corporation, provide service to substantially all of these DBS customers and
are each among the four largest providers of multichannel video programming
services based on reported customers. The News Corporation Limited, or News
Corporation, recently acquired a significant interest in DIRECTV. Affiliation
with News Corporation could strengthen DIRECTVs competitive positioning, as
News Corporation also owns Fox Television Network and several cable programming
services. A recently launched direct broadcast service, VOOM, has begun
offering primarily HDTV services on a national basis. 12




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DBS service can be received virtually anywhere in the continental United
States through the installation of a small rooftop or side-mounted antenna. DBS
service providers use video compression technology to increase channel capacity
and digital technology to improve the quality of the signals transmitted to
their customers, and typically offer more than 300 channels of programming,
including local television broadcast stations and other programming services
substantially similar to those provided by our cable systems. A change in legislation in 1999 allowed DBS service providers to deliver
local broadcast signals, eliminating a significant competitive advantage which
we and other cable system operators had over DBS service providers. As of
December 31, 2003, DBS service providers delivered local broadcast stations in
markets representing an estimated 48% of our basic subscribers. Based on
announced new markets, this figure could increase to an estimated 88% of our
basic subscribers. However, unlike our locally-based cable systems, DBS
service providers have limited ability to offer locally-produced programming in
each community where service is offered and do not have a meaningful local
presence in those communities. In addition, for the foreseeable future, there
may be technological and other limitations as to the capability of DBS service
providers to deliver most local broadcast signals in all markets, particularly
as these signals are delivered in the HDTV format. Overall, we believe our
digital cable service, recent launch of DVRs, unique ability to offer VOD,
greater quantities of HDTV programming and locally produced content make us
competitive with the video products and services delivered by DBS service
providers. DBS service providers also are currently offering two alternatives of
satellite-delivered high-speed Internet access service. One alternative is a
one-way service that utilizes a telephone return path, in contrast to our
two-way, high-speed service, which does not require a telephone line. The other
alternative is a two-way, high-speed service, which requires additional
equipment purchases by the customer and is offered at higher prices than our
own equivalent service. DBS service providers and certain phone companies are now jointly offering
bundled services that include video, voice and high-speed Internet access. We
believe our comparable bundled services are competitive with those offered by
the DBS and phone company alliances, particularly as we roll out our planned
voice telephony services over our cable systems. Multichannel Multipoint Distribution Multichannel multipoint distribution systems, also known as MMDS, or
wireless cable systems, deliver programming services over microwave channels
licensed by the FCC and received by subscribers with special antennas. These
wireless cable systems are less capital intensive and subject to fewer
regulatory requirements than cable systems, and are not required to obtain
local franchises or pay franchise fees. Although relatively few wireless cable
systems in the United States are currently in operation or under construction,
virtually all markets have been licensed or tentatively licensed. The use of
digital compression technology, and the FCCs recent amendment to its rules to
permit reverse path or two-way transmission over wireless facilities, enable
multichannel multipoint distribution systems to deliver more channels and
additional services, including Internet related services. Digital compression
technology refers to the conversion of the standard video signal into a digital
signal and the compression of that signal to facilitate multiple channel
transmissions through a single channels signal. Generally, wireless cable
operators are now concentrated on data transmission services rather than
video-service. We have very limited competition from MMDS operators. Private Cable Television Systems Private cable television systems known as satellite master antenna
television, or SMATV systems, compete with conventional cable television
systems for the right to service condominiums, apartment complexes and other
multiple dwelling unit facilities. SMATV systems typically use a single
satellite dish for an entire building or complex to provide improved reception
of local television stations and many of the same satellite-delivered
programming services offered by franchised cable systems. SMATV systems
typically are not subject to regulation like local franchised cable operators. 13




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Under the Telecommunications Act of 1996, or 1996 Telecom Act, SMATV
systems can interconnect non-commonly owned buildings without having to comply
with local, state and federal regulatory requirements that are imposed upon
cable systems providing similar services, as long as they do not use public
rights of way. The FCC has held that the latter provision is not violated so
long as interconnection across public rights of way is provided by a third
party. SMATV system operators often enter into exclusive agreements with
apartment building owners or homeowners associations that preclude franchised
cable television operators from serving residents of such private complexes.
However, the 1984 Cable Act gives franchised cable operators the right to use
existing compatible easements within their franchise areas on nondiscriminatory
terms and conditions. Accordingly, where there are preexisting dedicated
compatible easements, cable operators may not be unfairly denied access or
discriminated against with respect to access to the premises served by those
easements. Conflicting judicial decisions have been issued interpreting the
scope of the access right granted by the 1984 Cable Act, with respect to
easements located entirely on private property. Traditional Overbuilds Cable television systems are operated under non-exclusive franchises
granted by local authorities. More than one cable system may legally be built
in the same area by another cable operator, a municipal-owned utility or
another service provider. Some of these competitors may be granted franchises
on more favorable terms or conditions or enjoy other advantages such as
exemptions from taxes or regulatory requirements to which we are subject. Well
financed businesses from outside the cable industry, such as public utilities
which already possess or are developing fiber optic and other transmission
facilities in the areas they serve, may over time become competitors. We
believe that various entities are currently offering cable service to an
estimated 6.9% of the homes passed in the service areas of our franchises. Internet Access We offer high-speed Internet access, or cable modem service, in many of
our cable systems. Our cable modem service competes with the high-speed
Internet access services offered by existing Internet service providers,
commonly known as ISPs, DBS providers, and local and long distance telephone
companies. Many of these competitors have substantial resources. Digital subscriber line technology, known as DSL, provides Internet access
to subscribers at data transmission speeds equal to or greater than that of
standard telephone line modems, putting DSL service in direct competition with
cable modem service. Numerous companies, including telephone companies, have
introduced DSL services. DBS providers currently offer satellite-delivered
high-speed Internet access with a telephone return path through a one-way
service or a two-way interactive high-speed service. Certain telecommunications companies are seeking to provide high-speed
broadband services, including interactive online services, using wireless
technologies that may transcend present service boundaries and avoid certain
regulatory restrictions. Moreover, some electric utilities have announced plans
to deliver broadband services over their electrical distribution networks. The
FCC has an on-going rulemaking which, to date, appears limited to basic
regulations to avoid technical interference with existing services. If
electric utilities provide broadband services over their existing electrical
distribution networks, depending upon the variety, quality and pricing of such
services, it could have a detrimental impact on us. A number of ISPs have asked local authorities and the FCC to give them
rights of access to cable systems broadband infrastructure so that they can
deliver their services directly to cable systems customers. This kind of
access is often called open access. Many local franchising authorities have
examined the issue of open access and a few have required cable operators to
provide such access. Several Federal courts have ruled that localities are not
authorized to require open access. The FCC has classified cable modem service
as an information service, not as a telecommunications service. As an
information service, the FCC has held that cable systems are not required to
open their networks for use by others to provide ISP services. The 9th Circuit
Court of Appeals has issued a contrary decision that finds cable modem services
to include both telecommunications service and information service
components. If the 9th Circuits decision (which is on appeal) prevails, it
could result in an open access requirement. If we were required to provide
open access to ISPs as a result of FCC action or court decisions, other
companies could use our cable system infrastructure to offer Internet services
competitive with our own. 14




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Telephony We plan to offer VoIP telephony service to subscribers in
certain markets beginning in the fourth quarter of 2004 and expanding to
additional markets in subsequent years. Our planned telephony service will
provide both local and long distance calling. As such, it will directly compete
with the incumbent local phone company and long-distance service providers.
Other competitors include competitive local exchange carriers, which are
non-incumbent local phone companies that provide local services and access to
long distance services over their own networks or over leased networks, and
wireless telephone carriers. Other companies offering VoIP telephony will also
compete with our telephony service. We believe the addition of VoIP service
will help us compete with bundled service providers of voice, video and data,
including telephone/DBS bundled marketing arrangements. Other Competition Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. The FCC has authorized a new interactive television service which
permits non-video transmission of information between an individuals home and
entertainment and information service providers. This service, which can be
used by direct broadcast satellite systems, television stations and other video
programming distributors, including cable television systems, is an alternative
technology for the delivery of interactive video services. It does not appear
at the present time that this service will have a material impact on the
operations of cable television systems. The FCC has allocated spectrum in the 28GHz range for a new multichannel
wireless service that can be used to provide video and telecommunications
services. The FCC completed the process of awarding licenses to use this
spectrum via a market-by-market auction. We do not know whether such a service
would have a material impact on the operations of cable television systems. The 1996 Telecom Act eliminated many restrictions on the ability of local
telephone companies to offer video programming. Our markets are served by a
number of local telephone companies that may become competitors to our video
service if they decide to offer video services to homes. Local telephone
companies have a number of different ways to enter the video programming
business, some of which do not require obtaining a local franchise. Local
telephone companies and other potential competitors have the ability to certify
their competing video service as an open video system. Open video system
operators are not subject to certain requirements imposed by the Cable Act upon
more traditional cable operators. The 1996 Telecom Act directed the FCC to establish, and the FCC has
adopted, regulations and policies for the issuance of licenses for digital
television to incumbent television broadcast licensees. Digital television can
deliver high-definition television pictures and multiple digital-quality
program streams, as well as CD-quality audio programming and advanced digital
services, such as data transfer or subscription video. The FCC also has
authorized television broadcast stations to transmit text and graphic
information that may be useful to both consumers and businesses. The FCC also
permits commercial and non-commercial FM stations to use their subcarrier
frequencies to provide non-broadcast services, including data transmission. Employees As of December 31, 2003, we employed 1,586 full-time employees and 102
part-time employees. None of our employees are represented by a labor union.
We consider our relations with our employees to be satisfactory. 15




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Legislation and Regulation General Federal, state and local laws regulate the development and operation of
cable communications systems. In the following paragraphs, we summarize the
federal laws and regulations materially affecting the growth and operation of
the cable industry. We also provide a brief description of certain state and
local laws. Currently few laws or regulations apply to Internet services.
Existing federal, state and local laws and regulations and state and local
franchise requirements are currently the subject of judicial proceedings,
legislative hearings and administrative proceedings that could change, in
varying degrees, the manner in which cable systems operate. Neither the
outcome of these proceedings nor their impact upon the cable industry or our
business or operations can be predicted at this time. Federal Regulation The principal federal statutes governing the cable industry, the
Communications Act of 1934, as amended by the Cable Communications Policy Act
of 1984, the Cable Television Consumer Protection and Competition Act of 1992
and the Telecommunications Act of 1996, collectively the Cable Act, establish
the federal regulatory framework for the industry. The Cable Act allocates
principal responsibility for enforcing the federal policies among the Federal
Communications Commission, or FCC and state and local governmental authorities. The Cable Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:  
    
    subscriber rates;
    
    the content of the programming we offer to subscribers, as well as
the way we sell our program packages to subscribers;
    
    the use of our cable systems by the local franchising authorities,
the public and other unrelated companies;
    
    our franchise agreements with local governmental authorities;
    
    cable system ownership limitations and prohibitions; and
    
    our use of utility poles and conduit. The FCC and some state regulatory agencies regularly conduct
administrative proceedings to adopt or amend regulations implementing the
statutory mandate of the Cable Act. At various times, interested parties to
these administrative proceedings challenge the new or amended regulations and
policies in the courts with varying levels of success. Further court actions
and regulatory proceedings may occur that might affect the rights and
obligations of various parties under the Cable Act. The results of these
judicial and administrative proceedings may materially affect the cable
industry and our business and operations. Subscriber Rates The Cable Act and the FCCs regulations and policies limit the ability of
cable systems to raise rates for basic services and customer equipment. No
other rates are subject to regulation. Federal law exempts cable systems from
all rate regulation in communities that are subject to effective competition,
as defined by federal law and where affirmatively declared by the FCC. Where there is no effective competition to the cable operators services,
federal law gives local franchising authorities the responsibility to regulate
the rates charged by the operator for:  
    
    the lowest level of programming service offered by cable operator,
typically called basic service, which includes, at a minimum, the local
broadcast channels and any public access or governmental channels that
are required by the operators franchise; 16




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
    
    the installation of cable service and related service calls; and
    
    the installation, sale and lease of equipment used by subscribers
to receive basic service, such as converter boxes and remote control
units. Local franchising authorities who wish to regulate basic service rates and
related equipment rates must first obtain FCC certification to regulate by
following a simplified FCC certification process and agreeing to follow
established FCC rules and policies when regulating the cable operators rates. Several years ago, the FCC adopted detailed rate regulations, guidelines
and rate forms that a cable operator and the local franchising authority must
use in connection with the regulation of basic service and equipment rates.
The FCC adopted a benchmark methodology as the principal method of regulating
rates. However, if this methodology produces unacceptable rates, the operator
may also justify rates using a detailed cost-of-service methodology. The Cable
Act and FCC rules also allow franchising authorities to regulate equipment
rates on the basis of actual cost plus a reasonable profit, as defined by the
FCC. If the local franchising authority concludes that a cable operators rates
are too high under the FCCs rate rules, the local franchising authority may
require the cable operator to reduce rates and to refund overcharges to
subscribers, with interest. The cable operator may appeal adverse local rate
decisions to the FCC. The FCCs regulations allow a cable operator to modify regulated rates on
a quarterly or annual basis to account for changes in:  
    
    the number of regulated channels;
    
    inflation; and
    
    certain external costs, such as franchise and other governmental
fees, copyright and retransmission consent fees, taxes, programming
fees and franchise-imposed obligations. The Cable Act and/or the FCCs regulations also:  
    
    require cable operators to charge uniform rates throughout each
franchise area that is not subject to effective competition;
    
    prohibit regulation of non-predatory bulk discount rates offered by
cable operators to subscribers in multiple dwelling units; and
    
    permit regulated equipment rates to be computed by aggregating
costs of broad categories of equipment at the franchise, system,
regional or company level. Content Requirements Must Carry and Retransmission Consent The FCCs regulations contain broadcast signal carriage requirements that
allow local commercial television broadcast stations to elect once every three
years whether to require a cable system:  
    
    to carry the station, subject to certain exceptions; or
    
    to negotiate the terms by which the cable system may carry the
station on its cable systems, commonly called retransmission consent. 17




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The Cable Act and the FCCs regulations require a cable operator to devote
up to one-third of its activated channel capacity for the carriage of local
commercial television stations. The Cable Act and the FCCs rules also give
certain local non-commercial, educational television stations mandatory
carriage rights, but not the option to negotiate retransmission consent.
Additionally, cable systems must obtain retransmission consent for carriage of:  
    
    all distant commercial television stations, except for certain
commercial satellite-delivered independent superstations such as WGN;
    
    commercial radio stations; and
    
    certain low-power television stations. Must-carry obligations may decrease the attractiveness of the cable
operators overall programming offerings by including less popular programming
on the channel line-up, while cable operators may need to provide some form of
consideration to broadcasters to obtain retransmission consent to carry more
popular programming. We carry both broadcast stations based on must-carry
obligations and others that have granted retransmission consent. The FCC has issued a decision that effectively requires mandatory carriage
of local television stations that broadcast only digital signals. These
stations are entitled to request carriage in their choice of digital or
converted analog format. Stations transmitting in both digital and analog
formats (Dual Format Broadcast Stations), which is permitted during the
current several-year transition period, have no carriage rights for the digital
format during the transition unless and until they turn in their analog
channel. The FCC has an ongoing proceeding to determine whether cable
operators will be required to carry the digital signal of Dual Format Broadcast
Stations that currently have must-carry rights for their analog signals. The
FCC had tentatively concluded that it will not adopt the dual carriage
requirement during the transition, and had also concluded that a cable operator
need only carry a broadcasters primary video service (rather than all of the
digital multi-cast services) but those conclusions may change as a result of
the FCCs current proceeding. If the dual carriage rule is adopted, or the
FCC concludes that cable operators must carry all of the multi-cast services in
a broadcasters digital feed, this would have a negative impact on us because
it would reduce available channel capacity and thereby could require us to
either discontinue other channels of programming or restrict us from carrying
new channels of programming that are more desired by our customers. Tier Buy Through The Cable Act and the FCCs regulations require our cable systems, other
than those systems which are subject to effective competition, to permit
subscribers to purchase video programming we offer on a per channel or a per
program basis without the necessity of subscribing to any tier of service other
than the basic service tier. Program Access To increase competition between cable operators and other video program
distributors, the Cable Act and the FCCs regulations:  
    
    preclude any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly
to its subscribers, from favoring an affiliated company over
competitors;
    
    require such programmers to sell their programming to other
unaffiliated video program distributors; and
    
    limit the ability of such programmers to offer exclusive
programming arrangements to their related parties. Other Programming Federal law actively regulates other aspects of our programming, involving
such areas as:  
    
    our use of syndicated and network programs and local sports broadcast programming;
    
    advertising in childrens programming; 18




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##### Table of Contents




    
    political advertising;
    
    origination cablecasting;
    
    adult programming;
    
    sponsorship identification; and
    
    closed captioning of video programming. Use of Our Cable Systems by the Government and Unrelated Third Parties The Cable Act allows local franchising authorities and unrelated third
parties to have access to our cable systems channel capacity for their own
use. For example, the Cable Act:  
    
    permits franchising authorities to require cable operators to set
aside channels for public, educational and governmental access
programming; and
    
    requires a cable system with 36 or more activated channels to
designate a significant portion of its channel capacity for commercial
leased access by third parties to provide programming that may compete
with services offered by the cable operator. The
FCC regulates various aspects of third-party commercial use of channel
capacity on our cable systems, including:  
    
    the maximum reasonable rate a cable operator may charge for
third-party commercial use of the designated channel capacity;
    
    the terms and conditions for commercial use of such channels; and
    
    the procedures for the expedited resolution of disputes concerning
rates or commercial use of the designated channel capacity. Franchise Matters We have non-exclusive franchises in virtually every community in which we
operate that authorize us to construct, operate and maintain our cable systems.
Although franchising matters are normally regulated at the local level through
a franchise agreement and/or a local ordinance, the Cable Act provides
oversight and guidelines to govern our relationship with local franchising
authorities. For example, the Cable Act and/or FCC regulations and determinations: Provide guidelines for the exercise of local regulatory authority that:  
    
    affirm the right of franchising authorities, which may be
state or local, depending on the practice in individual states, to
award one or more franchises within their jurisdictions;
    
    generally prohibit us from operating in communities without a
franchise;
    
    permit local authorities, when granting or renewing our
franchises, to establish requirements for cable-related facilities
and equipment, but prohibit franchising authorities from
establishing requirements for specific video programming or
information services other than in broad categories; and
    
    permit us to obtain modification of our franchise
requirements from the franchise authority or by judicial
action if warranted by commercial impracticability. 19




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Generally prohibit franchising authorities from:  
    
    imposing requirements during the initial cable franchising
process or during franchise renewal that require, prohibit or
restrict us from providing telecommunications services,
    
    imposing franchise fees on revenues we derive from providing
telecommunications or information services over our cable systems,
    
    restricting our use of any type of subscriber equipment or
transmission technology, and
    
    requiring payment of franchise fees to the local franchising
authority in excess of 5.0% of our gross revenues derived from
providing cable services over our cable system. Encourage competition with existing cable systems by:  
    
    allowing municipalities to operate their own cable systems
without franchises, and
    
    preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable systems service area. Provide renewal procedures:  
    
    The Cable Act contains renewal procedures designed to protect
us against arbitrary denials of renewal of our franchises although,
under certain circumstances, the franchising authority could deny us
a franchise renewal. Moreover, even if our franchise is renewed,
the franchising authority may seek to impose upon us new and more
onerous requirements, such as significant upgrades in facilities and
services or increased franchise fees as a condition of renewal to
the extent permitted by law. Similarly, if a franchising
authoritys consent is required for the purchase or sale of our
cable system or franchise, the franchising authority may attempt to
impose more burdensome or onerous franchise requirements on the
purchaser in connection with a request for such consent.
Historically, cable operators providing satisfactory services to
their subscribers and complying with the terms of their franchises
have almost always obtained franchise renewals. We believe that we
have generally met the terms of our franchises and have provided
quality levels of service. We anticipate that our future franchise
renewal prospects generally will be favorable.
    
    Various courts have considered whether franchising
authorities have the legal right to limit the number of franchises
awarded within a community and to impose substantive franchise
requirements. These decisions have been inconsistent and, until the
U.S. Supreme Court rules definitively on the scope of cable
operators First Amendment protections, the legality of the
franchising process generally and of various specific franchise
requirements is likely to be in a state of flux. Ownership Limitations The Cable Act generally prohibits us from owning or operating a satellite
master antenna television system or multichannel multipoint distribution system
in any area where we provide franchised cable service and do not have effective
competition, as defined by federal law. We may, however, acquire and operate a
satellite master antenna television system in our existing franchise service
areas if the programming and other services provided to the satellite master
antenna television system subscribers are offered according to the terms and
conditions of our local franchise agreement. The Cable Act also authorizes the FCC to adopt nationwide limits on the
number of subscribers under the control of a cable operator and to impose
limits on the number of channels which can be occupied on a cable system by a
video programmer in which a cable operator has an interest. The U.S. Court of
Appeals for the District of Columbia Circuit overturned the FCCs rules
implementing these statutory provisions and remanded the case to the FCC for
further proceedings. 20




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The 1996 amendments to the Cable Act eliminated the statutory prohibition
on the common ownership, operation or control of a cable system and a
television broadcast station in the same service area. The identical FCC
regulation has been invalidated by a federal appellate court. The FCC has
eliminated its regulatory restriction on cross-ownership of cable systems and
national broadcasting networks. The 1996 amendments to the Cable Act also made far-reaching changes in the
relationship between local telephone companies and cable service providers.
These amendments:  
    
    eliminated federal legal barriers to competition in the local
telephone and cable communications businesses, including allowing local
telephone companies to offer video services in their local telephone
service areas;
    
    preempted legal barriers to telecommunications competition that
previously existed in state and local laws and regulations;
    
    set basic standards for relationships between telecommunications
providers; and
    
    generally limited acquisitions and prohibited joint ventures
between local telephone companies and cable operators in the same
market. Pursuant to these changes in federal law, local telephone companies may
now provide service as traditional cable operators with local franchises or
they may opt to provide their programming over open video systems, subject to
certain conditions, including, but not limited to, setting aside a portion of
their channel capacity for use by unaffiliated program distributors on a
non-discriminatory basis. The decision as to whether an operator of an open
video system must obtain a local franchise is left to each community. Pole Attachment Regulation The Cable Act requires certain public utilities, defined to include all
local telephone companies and electric utilities except those owned by
municipalities and co-operatives, to provide cable operators and
telecommunications carriers with nondiscriminatory access to poles, ducts,
conduit and rights-of-way at just and reasonable rates. This right to access
is beneficial to us. Federal law also requires the FCC to regulate the rates,
terms and conditions imposed by such public utilities for cable systems use of
utility pole and conduit space unless state authorities have demonstrated to
the FCC that they adequately regulate pole attachment rates, as is the case in
certain states in which we operate. In the absence of state regulation, the
FCC administers pole attachment rates on a formula basis. The FCC adopted a
new rate formula that became effective in 2001 which governs the maximum rate
certain utilities may charge for attachments to their poles and conduit by
companies providing telecommunications services, including cable operators. Increases in attachment rates due to the FCCs new rate formula are phased
in over a five-year period in equal annual increments, beginning in February
2001. This new formula will result in higher attachment rates than at present,
but they will apply only to cable television systems which elect to offer
telecommunications services. The FCC ruled that the provision of Internet
services will not, in and of itself, trigger use of the new formula. The
Supreme Court affirmed this decision and also held that the FCCs authority to
regulate rates for attachments to utility poles extended to attachments by
cable operators and telecommunications carriers that are used to provide
Internet service or for wireless telecommunications service. This development
benefits our business and will place a constraint on the prices that most
utilities can charge with regard to the cable facilities over which we also
provide Internet service so long as we do not offer other telecommunications
services over the cable system. Other Regulatory Requirements of the Communications 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. 21




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The Cable Act and/or FCC rules include provisions, among others,
regulating other parts of our cable operations, involving such areas as:  
    
    equal employment opportunity;
    
    consumer protection and customer service;
    
    technical standards and testing of cable facilities;
    
    consumer electronics equipment compatibility;
    
    registration of cable systems;
    
    maintenance of various records and public inspection files;
    
    microwave frequency usage; and
    
    antenna structure notification, marking and lighting. The FCC may enforce its regulations through the imposition of fines, the
issuance of cease and desist orders or the imposition of other administrative
sanctions, such as the revocation of FCC licenses needed to operate
transmission facilities often used in connection with cable operations. The
FCC has ongoing rulemaking proceedings that may change its existing rules or
lead to new regulations. We are unable to predict the impact that any further
FCC rule changes may have on our business and operations. Copyright Our cable systems typically include in their channel line-ups local and
distant television and radio broadcast signals, which are protected by the
copyright laws. We generally do not obtain a license to use this programming
directly from the owners of the programming, but instead comply with an
alternative federal compulsory copyright licensing process. In exchange for
filing certain reports and contributing a percentage of our revenues to a
federal copyright royalty pool, we obtain blanket permission to retransmit the
copyrighted material carried on these broadcast signals. The nature and amount
of future copyright payments for broadcast signal carriage cannot be predicted
at this time. In a report to Congress, the U.S. Copyright Office recommended that
Congress make major revisions to both the cable television and satellite
compulsory licenses. In 1999, Congress modified the satellite compulsory
license in a manner that permits DBS providers to become more competitive with
cable operators. While this authority is due to expire on December 31, 2004,
extension legislation has been introduced in Congress. The possible
simplification, modification or elimination of the cable communications
compulsory copyright license is the subject of continuing legislative review.
The elimination or substantial modification of the cable compulsory license
could adversely affect our ability to obtain suitable programming and could
substantially increase the cost of programming that remains available for
distribution to our subscribers. We are unable to predict the outcome of this
legislative activity related to either the cable compulsory license or the
right of direct broadcast satellite providers to deliver local broadcast
signals. Copyrighted material in programming supplied to cable television systems
by pay cable networks and basic cable networks is licensed by the networks
through private agreements with the copyright owners. These entities generally
offer through to-the-viewer licenses to the cable networks that cover the
retransmission of the cable networks programming by cable television systems
to their customers. Our cable systems also utilize music in other programming and advertising
that we provide to subscribers. The rights to use this music are controlled by
various music performing rights organizations from which performance licenses
must be obtained. Cable industry representatives recently negotiated standard
license agreements with the three largest music performing rights organizations
covering locally originated programming, including advertising inserted by the
cable operator in programming produced by other parties. These standard
agreements require the payment of music license fees for earlier time periods,
but such license fees have not had a significant impact on our business and
operations. 22




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Interactive Television The FCC has issued a Notice of Inquiry covering a wide range of issues
relating to interactive television, or ITV. Examples of ITV services are
interactive electronic program guides and access to a graphic interface that
provides supplementary information related to the video display. In the near
term, cable systems are likely to be the platform of choice for the
distribution of ITV services. The FCC posed a series of questions including
the definition of ITV, the potential for discrimination by cable systems in
favor of affiliated ITV providers, enforcement mechanisms, and the proper
regulatory classification of ITV service. Privacy The Cable Act imposes a number of restrictions on the manner in which
cable television operators can collect, disclose and retain data about
individual system customers, as well as requiring cable operators to take such
actions as necessary to prevent unauthorized access to such information. The
statute also requires that the system operator periodically provide all
customers with written information about its policies including the types of
information collected; the use of such information; the nature, frequency and
purpose of any disclosures; the period of retention; the times and places where
a customer may have access to such information; the limitations placed on the
cable operator by the Cable Act; and a customers enforcement rights. In the
event that a cable television operator is found to have violated the customer
privacy provision of the Cable Act, it could be required to pay damages,
attorneys fees and other costs. Certain of these Cable Act requirements have
been modified by certain more recent federal laws. In addition, some states in
which we operate have also enacted customer privacy statutes that are in some
cases more restrictive than those in federal law. Voice-Over-Internet Protocol Numerous cable operators are either exploring or have commenced offering
VoIP as a competitive alternative to traditional circuit-switched telephone
service. Various states, including states where we operate, have adopted or
are considering differing regulatory treatment, ranging from minimal or no
regulation to full-blown common carrier status. The FCC has announced a
proceeding to determine any appropriate regulatory obligations for VoIP. While
the outcome of this proceeding cannot be predicted, it is generally believed
that the FCC favors a light touch regulatory approach for VoIP, which might
include preemption of certain state or local regulation. Cable Modem Service There are currently few laws or regulations that specifically regulate
communications or commerce over the Internet. Section 230 of the
Communications Act declares it to be the policy of the United States to promote
the continued development of the Internet and other interactive computer
services and interactive media, and to preserve the vibrant and competitive
free market that presently exists for the Internet and other interactive
computer services, unfettered by federal or state regulation. One area in
which Congress did attempt to regulate content over the Internet involved the
dissemination of obscene or indecent materials. The Digital
Millennium Copyright Act is intended to reduce the liability
of online service providers for listing or linking to third-party websites that
include materials that infringe copyrights or other rights or if customers use
the service to publish or disseminate infringing materials. The Childrens
Online Protection Act and the Childrens Online Privacy Protection Act are
intended to restrict the distribution of certain materials deemed harmful to
children and impose additional restrictions on the ability of online services
to collect user information from minors. In addition, the Protection of
Children From Sexual Predators Act of 1998 requires online service providers to
report evidence of violations of federal child pornography laws under certain
circumstances. A number of ISPs have asked local authorities and the FCC to give them
rights of access to cable systems broadband infrastructure so that they can
deliver their services directly to cable systems customers, which is often
called open access. Many local franchising authorities have examined the
issue of open access and a few have required cable operators to provide such
access. Several federal courts have ruled that localities are not authorized
to require open access. 23




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In March of 2002, the FCC announced that it was classifying Internet
access service provided through cable modems as an interstate information
service. At the same time, the FCC initiated a rulemaking proceeding designed
to address a number of issues resulting from this regulatory classification,
including the following:  
    
    the FCC confirmed that there is no current legal requirement for
cable operators to grant open access now that cable modem service is
classified as an information service. The FCC is considering, however,
whether it has the authority to impose open access requirements and, if
so, whether it should do so, or whether to permit local authorities to
impose such a requirement.
    
    the FCC found that cable modem service is an information service,
not a cable service, which has resulted in several court rulings that
local franchise authorities may not collect franchise fees on cable
modem service revenues under existing law and regulations.
    
    the FCC concluded that federal law does not permit local franchise
authorities to impose additional franchise requirements on cable modem
service. It is considering, however, whether local franchise
authorities nonetheless have the authority to impose restrictions,
requirements or fees because cable modem service is delivered over
cable using public rights of way.
    
    the FCC is considering whether cable operators providing cable
modem service should be required to contribute to a universal service
fund designed to support making service available to all consumers,
including those in low income, rural and high-cost areas at rates that
are reasonably comparable to those charged in urban areas.
    
    the FCC is considering whether it should take steps to ensure that
the regulatory burdens on cable systems providing cable modem service
are comparable to those of other providers of Internet access service,
such as telephone companies. One method of achieving comparability
would be to make cable operators subject to some of the regulations
that do not now apply to them, but are applicable to telephone
companies. Challenges to the FCCs classification of cable Internet access service as
an information service and not a cable service or a telecommunications
service have been filed in federal court. Based on a finding that it was
bound by an earlier decision, the Ninth Circuit Court of Appeals overturned the
FCCs classification and found cable Internet service to include both
information service and telecommunications service components. The Ninth
Circuits decision is under appeal. In other previous actions over the
regulatory classification of cable modem service, the courts have issued
conflicting decisions. These conflicting rulings and the new court proceedings
increase the possibility that the classification of cable Internet service
could be decided by the Supreme Court. State and Local Regulation Our cable systems use local streets and rights-of-way. Consequently, we
must comply with state and local regulation, which is typically imposed through
the franchising process. Our cable systems generally are operated in
accordance with non-exclusive franchises, permits or licenses granted by a
municipality or other state or local government entity. Our franchises
generally are granted for fixed terms and in many cases are terminable if we
fail to comply with material provisions. The terms and conditions of our
franchises vary materially from jurisdiction to jurisdiction. Each franchise
generally contains provisions governing:  
    
    franchise fees;
    
    franchise term;
    
    system construction and maintenance obligations;
    
    system channel capacity;
    
    design and technical performance; 24




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
    
    customer service standards;
    
    sale or transfer of the franchise;
    
    territory of the franchise;
    
    indemnification of the franchising authority;
    
    use and occupancy of public streets; and
    
    types of cable services provided. In the process of renewing franchises, a franchising authority may seek to
impose new and more onerous requirements, such as upgraded facilities,
increased channel capacity or enhanced services, although protections available
under the Cable Act require the municipality to take into account the cost of
meeting such requirements. The Cable Act also contains renewal procedures and
criteria designed to protect incumbent franchisees against arbitrary denials of
renewal. A number of states subject cable systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Attempts in other states to
regulate cable systems are continuing and can be expected to increase. To
date, other than Delaware, no state in which we operate has enacted such
state-level regulation. State and local franchising jurisdiction is not
unlimited; it must be exercised consistent with federal law. The Cable Act
immunizes franchising authorities from most monetary damage awards arising from
regulation of cable systems or decisions made on franchise grants, renewals,
transfers and amendments. 25




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ITEM 2. PROPERTIES Our principal physical assets consist of cable television operating plant
and equipment, including signal receiving, encoding and decoding devices,
headend facilities and distribution systems and equipment at or near customers
homes for each of the systems. The signal receiving apparatus typically
includes a tower, antenna, ancillary electronic equipment and earth stations
for reception of satellite signals. Headend facilities are located near the
receiving devices. Our distribution system consists primarily of coaxial and
fiber optic cables and related electronic equipment. Customer premise
equipment consists of decoding converters and cable modems. Our cable television plant and related equipment generally are attached to
utility poles under pole rental agreements with local public utilities,
although in some areas the distribution cable is buried in underground ducts or
trenches. The physical components of the cable systems require maintenance and
periodic upgrading to improve system performance and capacity. We own and lease the real property housing our regional call centers,
business offices and warehouses throughout our operating regions. Our headend
facilities, signal reception sites and microwave facilities are located on
owned and leased parcels of land, and we generally own the towers on which
certain of our equipment is located. We own most of our service vehicles. We
believe that our properties both owned and leased, are in good condition and
are suitable and adequate for our operations. 
 ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which we are a party or
to which any of our properties are subject. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2003. 26




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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. 27




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ITEM 6. SELECTED FINANCIAL DATA Mediacom LLC was formed as a New York limited liability company in July
1995 and since that time our taxable income or loss has been included in the
federal and certain state income tax returns of our members. In the table below, we provide you with selected historical consolidated
financial and operating data for the years ended December 31, 1999 through 2003
and balance sheet data as of December 31, 1999 through 2003, which are derived
from our audited consolidated financial statements. We have significantly
expanded our business through acquisitions. In 2000, we acquired cable systems
serving approximately 53,000 basic subscribers for an aggregate purchase price
of $109.2 million. In 1999, we acquired cable systems serving approximately
358,000 basic subscribers for an aggregate purchase price of $759.6 million. See Managements Discussion and Analysis of Financial Condition and
Results of Operations. Year Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(dollars in thousands)(unaudited)Statement
of Operations Data:Revenues
    
    $
    452,548
    
    
    $
    410,241
    
    
    $
    369,275
    
    
    $
    328,258
    
    
    $
    174,961Costs and expenses:Service costs
    
    
    169,818
    
    
    
    152,684
    
    
    
    130,473
    
    
    
    110,442
    
    
    
    56,967Selling, general and
administrative expenses
    
    
    77,908
    
    
    
    68,563
    
    
    
    63,846
    
    
    
    55,820
    
    
    
    32,949Management fee expense(1)
    
    
    7,915
    
    
    
    11,108
    
    
    
    8,734
    
    
    
    34,283
    
    
    
    22,396Depreciation and amortization
    
    
    158,718
    
    
    
    194,862
    
    
    
    221,645
    
    
    
    177,928
    
    
    
    101,065Operating income (loss)
    
    
    38,189
    
    
    
    (16,976
    )
    
    
    (55,423
    )
    
    
    (50,215
    )
    
    
    (38,416
    )Interest expense, net
    
    
    (98,596
    )
    
    
    (102,458
    )
    
    
    (93,823
    )
    
    
    (68,973
    )
    
    
    (37,817
    )Gain (loss) on derivative instruments, net
    
    
    4,410
    
    
    
    1,172
    
    
    
    (8,441
    )
    
    
    
    
    
    
    Investment income from affiliate(2)
    
    
    18,000
    
    
    
    18,000
    
    
    
    8,120
    
    
    
    
    
    
    
    Other (expenses) income
    
    
    (4,493
    )
    
    
    (4,845
    )
    
    
    23,885
    
    
    
    (30,036
    )
    
    
    (5,087
    )Net loss before cumulative effect of
accounting change
    
    
    (42,490
    )
    
    
    (105,107
    )
    
    
    (125,682
    )
    
    
    (149,224
    )
    
    
    (81,320
    )Cumulative effect of accounting change(3)
    
    
    
    
    
    
    
    
    
    
    (1,642
    )
    
    
    
    
    
    
    Net loss
    
    $
    (42,490
    )
    
    $
    (105,107
    )
    
    $
    (127,324
    )
    
    $
    (149,224
    )
    
    $
    (81,320
    )Balance Sheet Data (end of period):Total assets
    
    $
    1,515,366
    
    
    $
    1,567,240
    
    
    $
    1,566,045
    
    
    $
    1,375,772
    
    
    $
    1,272,881Total debt
    
    
    1,524,324
    
    
    
    1,548,711
    
    
    
    1,425,500
    
    
    
    987,000
    
    
    
    1,139,000Total members (deficit) equity
    
    
    (128,283
    )
    
    
    (85,793
    )
    
    
    13,991
    
    
    
    262,997
    
    
    
    54,615
 (continued on next page) 28




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Year Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(dollars in thousands)(unaudited)Other Data:Operating income before
depreciation and amortization(4)
    
    $
    196,907
    
    
    $
    177,886
    
    
    $
    166,222
    
    
    $
    127,713
    
    
    $
    62,649Operating income before
depreciation and amortization margin(5)
    
    
    43.5
    %
    
    
    43.4
    %
    
    
    45.0
    %
    
    
    38.9
    %
    
    
    35.8
    %Net cash flows provided by(used in):Operating activities
    
    $
    119,686
    
    
    $
    67,433
    
    
    $
    102,191
    
    
    $
    93,218
    
    
    $
    54,216Investing activities
    
    
    (99,282
    )
    
    
    (176,599
    )
    
    
    (398,946
    )
    
    
    (295,613
    )
    
    
    (851,548
    )Financing activities
    
    
    (27,877
    )
    
    
    122,678
    
    
    
    300,040
    
    
    
    202,015
    
    
    
    799,593Operating Data
(end of period, except average):Homes passed(6)
    
    
    1,282,500
    
    
    
    1,252,000
    
    
    
    1,200,000
    
    
    
    1,173,000
    
    
    
    1,071,500Basic subscribers(7)
    
    
    723,700
    
    
    
    752,000
    
    
    
    771,000
    
    
    
    779,000
    
    
    
    719,000Basic penetration(8)
    
    
    56.4
    %
    
    
    60.1
    %
    
    
    64.3
    %
    
    
    66.4
    %
    
    
    67.1
    %Digital customers(9)
    
    
    151,400
    
    
    
    133,000
    
    
    
    88,000
    
    
    
    40,000
    
    
    
    5,300Data customers(10)
    
    
    122,200
    
    
    
    81,000
    
    
    
    38,000
    
    
    
    15,600
    
    
    
    5,100
   (1)
    
    Represents fees paid to MCC subsequent to its initial public offering and
to Mediacom Management Corporation, a Delaware corporation, prior to MCCs
initial public offering, for management services rendered to our operating
subsidiaries. The management agreements with Mediacom Management were
terminated upon the completion of MCCs initial public offering and were
replaced with new agreements between MCC and our operating subsidiaries.
See Note 6 of our consolidated financial statements. Management fee
expense includes non-cash stock charges related to management fee expense
as follows:  
    
    for the years ended December 31, 2002 and 2001, $5.3 million and
$2.9 million, respectively, resulted from the vesting of equity grants
made during 1999 to certain members of our management team;
    
    for the year ended December 31, 2000 consist of a one-time $24.5
million charge resulting from the termination of the management
agreements with Mediacom Management upon completion of MCCs initial
public offering in February 2000 and a $3.8 million charge related to
the vesting of equity grants made during 1999 to certain members of our
management team;
    
    for the year ended December 31, 1999 consist of a $0.6 million
charge relating to amendments to our management agreements with
Mediacom Management and a $14.8 million charge related to the vesting
of equity grants to certain members of our management team  (2)
    
    Investment income from affiliate represents the investment income on our
$150.0 million preferred equity investment in Mediacom Broadband. See
Note 11 of our consolidated financial statements.(3)
    
    Relates to our adoption of Statements of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities.(4)
    
    Operating income before depreciation and amortization represents a
non-GAAP measure and is one of the primary measures used by our management
to evaluate our performance and to forecast future results. We believe
operating income before depreciation and amortization is useful for
investors because it enables them to assess our performance in a manner
similar to the method used by our management, and provides a measure that
can be used to analyze, value and compare the companies in the cable
television industry, which may have different depreciation and
amortization policies. A limitation of this measure, however, is that it
excludes depreciation and amortization, which represents the period costs
of certain capitalized tangible and intangible assets. It is also not
intended to be a performance measure that should be regarded as an
alternative either to operating income (loss) or net loss as an indicator
of operating performance or to the statement of cash flows as a measure of
liquidity and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with 29




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generally accepted accounting principles. Our definitions of operating
income before depreciation and amortization may not be identical to
similarly titled measures reported by other companies.The following represents a reconciliation of operating income before
depreciation and amortization to operating income (loss), which is the most
directly comparable GAAP measure: Years Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(dollars in thousands)(unaudited)Operating income before
depreciation and amortization
    
    $
    196,907
    
    
    $
    177,886
    
    
    $
    166,222
    
    
    $
    127,713
    
    
    $
    62,649Depreciation and amortization
    
    
    (158,718
    )
    
    
    (194,862
    )
    
    
    (221,645
    )
    
    
    (177,928
    )
    
    
    (101,065
    )Operating income (loss)
    
    $
    38,189
    
    
    $
    (16,976
    )
    
    $
    (55,423
    )
    
    $
    (50,215
    )
    
    $
    (38,416
    )
  (5)
    
    Represents operating income before depreciation and amortization as a
percentage of revenues. See note 4 above.(6)
    
    Represents the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
systems service area.(7)
    
    Represents a dwelling with one or more television sets that receives a
package of over-the-air broadcast stations, local access channels or
certain satellite-delivered cable television services. Accounts that are
billed on a bulk basis, which typically receive discounted rates, are
converted into full-price equivalent basic subscribers by dividing total
bulk billed basic revenues of a particular system by the applicable
combined limited and expanded cable rate charged to basic subscribers in
that system. Basic subscribers include connections to schools, libraries,
local government offices and employee households that may not be charged
for limited and expanded cable services, but may be charged for premium
units, pay-per-view events or high-speed Internet service. Customers who
exclusively purchase high-speed Internet service are not counted as basic
subscribers. Our methodology of calculating the number of basic
subscribers may not be identical to those used by other cable companies.(8)
    
    Represents basic subscribers as a percentage of homes passed.(9)
    
    Represents customers that receive digital cable services.(10)
    
    Represents residential data customers and small to medium-sized
commercial accounts billed at higher rates than residential customers.
Small to medium-sized commercial accounts generally represent customers
with bandwidth requirements less than 5MHz. These commercial accounts are
converted to equivalent residential data customers by dividing their
associated revenues by the applicable residential rate. Our data
customers exclude large commercial accounts and include a insignificant
number of dial-up customers. Our methodology of calculating data
customers may not be identical to those used by other cable companies. 30




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##### Table of Contents



ITEM 7.     MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the Risk Factors below for a discussion of
important factors that could cause actual results to differ from expectations
and any of our forward-looking statements contained herein. The following
discussion should be read in conjunction with our audited consolidated
financial statements as of December 31, 2003 and 2002 and for the years ended
December 31, 2003, 2002 and 2001. Overview In 2003, we completed our network upgrade program that significantly
increased bandwidth and enabled interactivity. As of December 31, 2003,
approximately 98% of our cable network was upgraded with 550MHz to 870MHz
bandwidth capacity and about 96% of our homes passed were activated with
two-way communications capability. Expressed in megahertz (MHz), bandwidth
represents a systems capacity to deliver telecommunication services. Our upgraded network allows us to introduce additional programming and
other services such as digital video, high-speed Internet access,
video-on-demand and high-definition television. Beginning in the fourth
quarter of 2004, we plan to introduce in certain markets
Internet protocol telephony service, which is sometimes referred to as
Voice-over-Internet-Protocol, or VoIP telephony. We currently offer video and
data bundles. VoIP telephony will allow us to offer an attractive triple-play
bundle of video, data and voice products and services. Bundled products and
services offer our subscribers key benefits such as a single provider contact
for provisioning, billing and customer care. We face increasing competition for our video programming services, most
notably from direct broadcast satellite service, or DBS service providers. In
2003, competitive pressure from DBS service providers intensified when they
launched local television channels in additional markets representing an
estimated 18% of our basic subscriber base. Since they have been permitted to
deliver local television broadcast signals beginning in 1999, DIRECTV, Inc. and
Echostar Communications Corporation, the two largest DBS service providers,
have been increasing the number of markets in which they deliver these local
television signals. These local-into-local launches were usually accompanied
by heavy marketing and advertising and were the primary cause of our loss of
basic subscribers in 2003. As of December 31, 2003, local-to-local launches in
our markets represented an estimated 48% of our basic subscribers. 31




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Actual Results of Operations Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 The following table sets forth consolidated statements of operations for
the years ended December 31, 2003 and 2002 (dollars in thousands
and percentage changes that are not meaningful are marked NM): Year Ended December 31,2003
    
    2002
    
    $ Change
    
    % ChangeRevenues
    
    $
    452,548
    
    
    $
    410,241
    
    
    $
    42,307
    
    
    
    10.3
    %Costs and expenses:Service costs
    
    
    169,818
    
    
    
    152,684
    
    
    
    17,134
    
    
    
    11.2Selling, general and
administrative expenses
    
    
    77,908
    
    
    
    68,563
    
    
    
    9,345
    
    
    
    13.6Management fee expense
    
    
    7,915
    
    
    
    11,108
    
    
    
    (3,193
    )
    
    
    (28.7
    )Depreciation and amortization
    
    
    158,718
    
    
    
    194,862
    
    
    
    (36,144
    )
    
    
    (18.5
    )Operating income (loss)
    
    
    38,189
    
    
    
    (16,976
    )
    
    
    55,165
    
    
    NMInterest expense, net
    
    
    (98,596
    )
    
    
    (102,458
    )
    
    
    3,862
    
    
    
    (3.8
    )Gain on derivative instruments, net
    
    
    4,410
    
    
    
    1,172
    
    
    
    3,238
    
    
    NMInvestment income
    
    
    18,000
    
    
    
    18,000
    
    
    
    
    
    
    
    Other expenses
    
    
    (4,493
    )
    
    
    (4,845
    )
    
    
    352
    
    
    
    (7.3
    )Net loss
    
    $
    (42,490
    )
    
    
    (105,107
    )
    
    
    62,617
    
    
    NM
 Revenues The following table sets forth revenue information for the years ended
December 31, 2003 and 2002 (dollars in thousands): Year Ended December 31,2003
    
    2002% of
    
    
    
    
    
    % ofAmount
    
    Revenues
    
    Amount
    
    Revenues
    
    $ Change
    
    % ChangeVideo
    
    $
    395,207
    
    
    
    87.3
    %
    
    $
    379,770
    
    
    
    92.6
    %
    
    $
    15,437
    
    
    
    4.1
    %Data
    
    
    49,432
    
    
    
    10.9
    
    
    
    25,718
    
    
    
    6.3
    
    
    
    23,714
    
    
    
    92.2Advertising
    
    
    7,909
    
    
    
    1.8
    
    
    
    4,753
    
    
    
    1.1
    
    
    
    3,156
    
    
    
    66.4$
    452,548
    
    
    
    100.0
    %
    
    $
    410,241
    
    
    
    100.0
    %
    
    $
    42,307
    
    
    
    10.3
    %
 Video revenues represent monthly subscription fees charged to customers
for our core cable television products and services (including basic, expanded
basic and analog premium programming, digital cable television programming
services, wire maintenance, equipment rental and services to commercial
establishments), pay-per-view charges, installation and reconnection fees, late
payment fees, and other ancillary revenues. Data revenues primarily represent
monthly subscription fees charged to customers for our data products and
services and equipment rental fee. Franchise fees charged to customers for
payment to local franchising authorities are included in their corresponding
revenue category. Revenues rose 10.3% attributable to a 51% increase in high-speed data
customers and basic rate increases applied on our video customers, driven in
large part by our own programming cost increases. 32




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Video revenues increased 4.1% as a result of the aforementioned basic rate
increases, partially offset by a 3.8% decline in basic subscribers after
adjusting for small acquisitions and divestitures during 2003. Our loss in
basic subscribers resulted primarily from greater competitive pressures by DBS
service providers. To reverse this video customer trend, we are increasing our
video customer retention efforts and our emphasis on bundling, enhancing and
differentiating our video products and services with video-on-demand,
high-definition television and digital video recorders. Data revenues rose 92.2% due in large part to a 51% increase in data
customers from 81,000 to 122,200. We expect this customer trend in our data
business to continue and anticipate continued demand for our high-speed data
service. Advertising revenues increased 66.4% primarily as a result of bringing
in-house certain markets previously managed by third parties. Instead of
receiving advertising revenues which are net of commissions paid to the third
parties, we now record the full revenues from these markets with the related
expenses, including in-house commissions, which are recorded as selling,
general and administrative expenses. Costs and Expenses Service costs include fees paid to programming suppliers, expenses related
to wages and salaries of technical personnel, who maintain our cable network
and perform customer installation activities, high-speed Internet access costs,
including costs of bandwidth connectivity, customer provisioning and technical
support for our customers, and plant operating costs, such as utilities and
pole rental expense. Programming costs, which are payments to programmers for
content and are generally paid on a per subscriber basis, have historically
increased at rates in excess of inflation primarily due to both increases in
the rates charged for existing programming services and the introduction of new
programming services to our basic subscribers. Service costs increased 11.2% over the prior year, which included $1.3
million of incremental costs related to our transition to our Mediacom Online
high-speed Internet access service. These costs represented the excess over
the agreed-upon charges owed to our former high-speed provider and were
incurred in the first quarter of 2002. Excluding these incremental costs,
service costs would have increased 12.2% or $18.4 million. Approximately half
of this increase was due to servicing 41,200 new data customers, with the
balance primarily represented by increases in unit costs for basic programming.
The increase in total programming costs was partially offset by the
aforementioned decline in basic subscribers as well as decrease in analog
premium service units. As a percentage of revenues, service costs were 37.5%
for the year ended December 31, 2003, as compared with 37.2% for the year ended
December 31, 2002. We expect continued increases in programming costs and will continue to
pass through some portion of these increases to our customers. Under the
Federal Communication Commissions existing cable rate regulations, we are
allowed to increase our rates for cable television services to more than cover
any increases in the programming. However, competitive conditions or other
factors in the marketplace may limit our ability to increase our rates. Selling, general and administrative expenses include: wages and salaries
for our call center, customer service and support, and administrative
personnel; franchise fees and taxes; and expenses related to billing,
telecommunications, marketing, bad debt, advertising and office administration. Selling, general and administrative expenses increased 13.6%, principally
due to higher customer support, call center, bad debt, advertising and
marketing expenses. Customer support expenses increased 32.7% as a result of
higher staffing levels and employee commissions. We expect customer support
expense increases to moderate as customer support staffing is now at an
appropriate level. Call center expenses, mainly customer service personnel and
telecommunications costs, increased 14.7% as a result of increased staffing and
higher call volumes experienced during the year. We expect call center expense
increases to moderate, as recent call volumes have meaningfully decreased and
call center staffing is now at an appropriate level. Bad debt expense rose
26.5% primarily as a result of higher customer churn and the implementation
throughout the year of tighter customer credit controls. We expect bad debt
expense to moderate as we continue to improve our customer credit controls.
Advertising expenses increased significantly, from $550,000 to $2.3 million,
due to the costs associated with bringing in-house sizeable markets previously
managed by third parties. These costs rose commensurate with the 66.4%
increase in advertising revenues. Marketing expenses rose 8.2% to support the
digital television and data products and services, to cover the costs of 33




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advertising campaigns we deployed to counter competitive pressures from
DBS, and to pay commissions to our marketing personnel. We expect to maintain
this level of marketing expense going forward. As a percentage of revenues,
selling, general and administrative expenses were 17.2% for the year ended
December 31, 2003, as compared to 16.7% for the year ordered December 31, 2002. We expect continued growth in advanced services, which include digital
cable and high-speed Internet access and, in late 2004, our launch of
VoIP telephony service. As a result, we expect our cost of services 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). Our
management fee expense was $7.9 million for the year ended December 31, 2003 as
compared to $11.1 million for the year ended December 31, 2002. The decrease
was due to the recognition of $5.3 million of non-cash stock charges during the
year ended December 31, 2002, offset by greater overhead costs charged by MCC
during the year period ended December 31, 2003. These non-cash charges
represented vesting in equity interests granted to certain members of MCCs
management team. As a percentage of revenues, management fee expense was 1.7%
for the year ended December 31, 2003, as compared with 2.7% for the year ended
December 31, 2002. Depreciation and amortization decreased 18.5% to $158.7 million for the
year ended December 31, 2003, as compared to $194.9 million for the year ended
December 31, 2002. The decrease was primarily due to changes, effective July
1, 2003, in the estimated useful lives of our cable systems and equipment in
conjunction with our recently completed network upgrade and rebuild program.
These changes reduced depreciation by $41.2 million for the year ended December
31, 2003. This decrease was offset in part by increased depreciation for
investments to complete our planned network upgrade and rebuild program and
ongoing investments to continue the rollout of services such as video-on-demand
and high-definition television. We expect depreciation and amortization to
decrease in 2004 as a result of the full year impact of the changes in
estimated lives and the significant reduction in investments in the cable
system upgrade and rebuild program due to the substantial completion of this
program in 2003. See Note 2 to our consolidated financial statements. Interest expense, net Interest expense, net, decreased 3.8% to $98.6 million for the year ended
December 31, 2003, as compared to $102.5 million for the year ended December
31, 2002. This was primarily due to lower market interest rates during the
year ended December 31, 2003, as compared to the year ended December 31, 2002,
and the expiration during 2003 of certain interest rate exchange agreements
with high fixed interest rates. This was partially offset by higher average
indebtedness. Gain on derivative instruments, net Our stated strategy is to manage our interest expense using a combination
of fixed and variable interest rate debt. We enter into interest rate exchange
agreements, or interest rate swaps, to fix the interest rate on a portion of
our variable rate debt to reduce the potential volatility in our interest
expense due to changes in variable market interest rates. As of December 31,
2003 we had interest rate swaps with an aggregate principal amount of $300.0
million, compared to $390.0 million as of December 31, 2002. These interest
rate swaps are accounted for as fair value hedges of debt instruments as
prescribed by SFAS No. 133. The changes in their mark-to-market values are
derived from changes in variable market interest rates, and the decrease in
their time to maturity. The aggregate change in value is reported as either a
noncash gain or loss on derivative instruments, net. Gain on derivative
instruments, net, was $4.4 million for the year ended December 31, 2003, as
compared $1.2 million for the year ended December 31, 2002. This was primarily
due to a smaller decrease in market interest rates during the year ended
December 31, 2003, as compared to the year ended December 31, 2002. Investment income from affiliate Investment income from affiliate was $18.0 million for the years ended
December 31, 2003 and December 31, 2002. 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. 34




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Other expenses Other expenses were $4.5 million for the year ended December 31, 2003, as
compared to $4.8 million for the year ended December 31, 2002. Other expenses
primarily represent amortization of deferred financing costs and fees on unused
credit commitments and for the year ended December 31, 2003 also included a
$1.9 million loss on sales of cable television systems. Net loss Due to the factors described above, we generated a net loss of $42.5
million for the year ended December 31, 2003, as compared to a net loss of
$105.1 million for the year ended December 31, 2002. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 The following table sets forth the consolidated statements of operations
for the years ended December 31, 2002 and 2001 (dollars in
thousands and percentage changes that are not meaningful are marked NM): Year Ended December 31,2002
    
    2001
    
    $ Change
    
    % ChangeRevenues
    
    $
    410,241
    
    
    $
    369,275
    
    
    $
    40,966
    
    
    
    11.1
    %Costs and expenses:Service costs
    
    
    152,684
    
    
    
    130,473
    
    
    
    22,211
    
    
    
    17.0Selling, general and administrative
expenses
    
    
    68,563
    
    
    
    63,846
    
    
    
    4,717
    
    
    
    7.4Management fee expense
    
    
    11,108
    
    
    
    8,734
    
    
    
    2,374
    
    
    
    27.2Depreciation and amortization
    
    
    194,862
    
    
    
    221,645
    
    
    
    (26,783
    )
    
    
    (12.1
    )Operating loss
    
    
    (16,976
    )
    
    
    (55,423
    )
    
    
    38,447
    
    
    
    (69.4
    )Interest expense, net
    
    
    (102,458
    )
    
    
    (93,823
    )
    
    
    (8,635
    )
    
    
    9.2Gain (loss) on derivative instruments, net
    
    
    1,172
    
    
    
    (8,441
    )
    
    
    9,613
    
    
    NMInvestment income from affiliate
    
    
    18,000
    
    
    
    8,120
    
    
    
    9,880
    
    
    NMOther (expense) income
    
    
    (4,845
    )
    
    
    23,885
    
    
    
    (28,730
    )
    
    NMNet loss before cumulative effect of
accounting change
    
    
    (105,107
    )
    
    
    (125,682
    )
    
    
    20,575
    
    
    
    (16.4
    )Cumulative effect of accounting change
    
    
    
    
    
    
    (1,642
    )
    
    
    1,642
    
    
    NMNet loss
    
    $
    (105,107
    )
    
    $
    (127,324
    )
    
    $
    22,217
    
    
    NM
 Revenues The following table sets forth revenue information for the years ended
December 31, 2002, and 2001 (dollars in thousands): Year Ended December 31,2002
    
    2001% of
    
    
    
    
    
    % ofAmount
    
    Revenues
    
    Amount
    
    Revenues
    
    $ Change
    
    % ChangeVideo
    
    $
    379,770
    
    
    
    92.6
    %
    
    $
    355,313
    
    
    
    96.2
    
    
    $
    24,457
    
    
    
    6.9
    %Data
    
    
    25,718
    
    
    
    6.3
    
    
    
    9,728
    
    
    
    2.7
    
    
    
    15,990
    
    
    
    164.4Advertising
    
    
    4,753
    
    
    
    1.1
    
    
    
    4,234
    
    
    
    1.1
    
    
    
    519
    
    
    
    12.3$
    410,241
    
    
    
    100.0
    %
    
    $
    369,275
    
    
    
    100.0
    %
    
    $
    40,966
    
    
    
    11.1
    %
 35




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Revenues increased 11.1% attributable to basic rate increases applied on
our video customers, driven in large part by our own programming cost increases
and a 113% increase in high-speed data customers. Video revenues increased 6.9% primarily due to the aforementioned rate
increases and to customer growth in our digital cable services, partially
offset by a 2.5% decline in basic subscribers. Data revenues increased 164.4% primarily due to a 113% increase in
customers in our high-speed Internet access service from 38,000 to 81,000. Advertising revenues increased 12.3%, primarily due to a general
improvement in local and national advertising markets. Cost and Expenses Service costs increased 17.0% due to higher programming expenses,
including rate increases by programming suppliers for existing services and
the costs of new channel additions, and greater technical employee support and
other operating costs directly related to customer growth in our high-speed
Internet access services. As a percentage of revenues, service costs were
37.2% for the year ended December 31, 2002, as compared with 35.3% for the
year ended December 31, 2001. Selling, general and administrative expenses increased 7.4% primarily as a
result of higher marketing expenses related to our digital and high-speed
Internet access services, customer service expenses and billing costs. As a
percentage of revenues, selling, general and administrative expenses were 16.7%
for the year ended December 31, 2002, as compared with 17.3% for the year ended
December 31, 2001. Our management fee expense increased 27.2%. This expense included non-cash
stock charges of $5.3 million for the year ended December 31, 2002, as compared
to $2.9 million for the year ended December 31, 2001. As a percentage of
revenues, management fee expense was 2.7% for the year ended December 31, 2002,
as compared with 2.4% for the year ended December 31, 2001. Depreciation and amortization decreased 12.1% and reflected the adoption
of SFAS No. 142, effective January 1, 2002, which reduced amortization expense by
$44.7 million during the year ended December 31, 2002, partially offset by
depreciation expense associated with our ongoing investments in our cable
systems. Interest expense, net Interest expense, net, increased 9.2% to $102.5 million for the year ended
December 31, 2002, as compared to $93.8 million for the year ended December 31,
2001. This was due to higher average borrowings under our bank credit
facilities, partially offset by lower interest rates on our variable rate debt. (Gain) loss on derivative instruments, net Gain on derivative instruments, net, was $1.2 million for the year ended
December 31, 2002, as compared to loss on derivative instruments, net, of $8.4
million for the year ended December 31, 2001. This gain was primarily due to a
shorter average time to maturity of our interest rate exchange agreements. Investment income from affiliate Investment income from affiliate was $18.0 million for the year ended
December 31, 2002, as compared to $8.1 million for the year ended December 31,
2001. 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 (income) Other
expense was $4.8 million for the year ended December 31, 2002, as
compared to other income of $23.9 million for the year ended December 31, 2001.
Other expense represents fees on unused credit commitments under our
bank credit facilities and amortization of deferred financing costs. Other income in 2001 reflected the recognition of the remaining $30.0 million
of deferred revenue resulting from the termination of our contract with SoftNet
Systems, partially offset by fees on unused credit commitments and amortization
of deferred financing costs. 36




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##### Table of Contents



Net loss Due to the factors described above, we generated a net loss of $105.1
million for the year ended December 31, 2002, as compared to a net loss of
$127.3 million for the year ended December 31, 2001. Liquidity and Capital Resources As an integral part of our business plan, we have significantly invested,
and will continue to invest, additional capital in our cable network to enhance
its reliability and capacity, which will allow for the introduction of new
advanced broadband services. We also will continue to pursue a business
strategy that includes selective acquisitions. We expect to fund our capital
requirements through a combination of internally generated funds, and amounts
available under our bank credit facilities. Operating Activities Net cash flows provided by operating activities increased 77.5%, or $52.3
million, to $119.7 million, reflecting a significant reduction in our net loss
and a $4.3 million reduction in working capital accounts, mostly attributable to
an increase in our accounts payable and accrued expenses. Investing Activities Net cash flows used in investing activities consist principally of
investments in our cable network. During 2003, net cash flows used in
investing activities decreased by $77.3 million, or 43.8% to $99.3 million.
The decrease reflected significantly lower capital expenditures in 2003 due to
the completion of our planned network upgrade and rebuild program. Our capital expenditures were $109.2 million (including $3.3 million of
capital expenditures financed through capital leases), $167.8 million and
$244.9 million for the years ended December 31, 2003, 2002 and 2001,
respectively. As of December 31, 2003, as a result of our cumulative capital
investment in our network upgrade program, approximately 98% of our cable
network was upgraded with 550MHz to 870MHz bandwidth capacity and approximately
96% of our homes passed were activated with two-way communications capability.
At year end 2003, our digital cable service was available to about 719,000 basic
subscribers, and our cable modem service was marketed to about 1.2 million
homes passed by our cable systems. With the completion of our planned network upgrade program, we expect
prospective capital expenditures to consist primarily of the costs of new
advanced service installations and equipment, new plant construction and
network replacement. We have a $150.0 million preferred equity investment in Mediacom Broadband
LLC. The preferred equity investment has a 12% annual cash dividend, payable
quarterly in cash. For each of the years ended December 31, 2003 and 2002, we
received in aggregate $18.0 million in cash dividends on the preferred equity. Financing Activities Net cash flows used in financing activities were $27.9 million as compared
to net cash flows provided by financing activities of $122.7 million for the
years ended December 31, 2003 and 2002, respectively. This reflected a
reduction in borrowings as a result of the completion of our planned network
upgrade and rebuild program noted above. We have two bank credit facilities in the aggregate amount of $1.03
billion, of which $696.5 million was outstanding as of December 31, 2003.
These bank credit facilities expire in September 2008 and December 2008, 37




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however their final maturities are subject to earlier repayment on dates
ranging from June 2007 to December 2007 if we do not refinance our $200.0
million 81/2% senior notes due April 2008 prior to March 31, 2007. We have entered into interest rate exchange agreements, which expire from
September 2006 through March 2007, to hedge $300.0 million of floating rate
debt. Under the terms of all of our interest rate exchange agreements, we are
exposed to credit loss in the event of nonperformance by the other parties to
the interest rate exchange agreements. However, due to the high credit
worthiness of our counterparties, we do not anticipate their nonperformance.
As of December 31, 2003, about 74% of our outstanding indebtedness was at fixed
interest rates or subject to interest rate protection. As of December 31, 2003, our total debt was approximately $1.52 billion,
we had unused credit commitments of about $327.5 million under our bank credit
facilities and our annualized cost of debt capital was approximately 6.4%. As
of January 1, 2004, after giving effect to scheduled stepdowns in the maximum
leverage covenants in our bank credit facilities, approximately $291.1 million
could be borrowed and used for general corporate purposes under the most
restrictive covenants in our debt arrangements.As of December 31, 2003, we
were in compliance with all covenants as of, and for all periods in the year
ended December 31, 2003. As of December 31, 2003, approximately $5.7 million of letters of credit
were issued to various parties to secure our performance relating to insurance
and franchise requirements. Although we have not generated earnings sufficient to cover fixed charges,
we have generated cash and obtained financing sufficient to meet our short-term
requirements, including our debt service, working capital and capital
expenditures. We expect that we will continue to be able to generate funds and
obtain financing sufficient to service our long-term business plan, service our
debt obligations and complete any future acquisitions. However, there can be
no assurance that we will be able to obtain sufficient financing, or, if we
were able to do so, that the terms would be favorable to us. Contractual Obligations and Commercial Commitments The table below summarizes our contractual obligations and commercial
commitments for the five years subsequent to December 31, 2003 and thereafter.
The amounts represent the maximum future contractual obligations. Capital
    
    OperatingDebt
    
    
    
    Leases
    
    
    
    Leases
    
    
    
    Total(dollars in thousands)2004
    
    $
    2,000
    
    
    $
    799
    
    
    $
    1,586
    
    
    $
    4,3852005
    
    
    10,500
    
    
    
    825
    
    
    
    1,134
    
    
    
    12,4592006
    
    
    155,250
    
    
    
    850
    
    
    
    974
    
    
    
    157,0742007
    
    
    182,000
    
    
    
    350
    
    
    
    770
    
    
    
    183,1202008
    
    
    546,750
    
    
    
    
    
    
    
    486
    
    
    
    547,236Thereafter
    
    
    625,000
    
    
    
    
    
    
    
    1,385
    
    
    
    626,385Total cash obligations
    
    $
    1,521,500
    
    
    $
    2,824
    
    
    $
    6,335
    
    
    $
    1,530,659
 38




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Critical Accounting Policies The foregoing discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. Periodically, we evaluate our estimates,
including those related to doubtful accounts, long-lived assets, capitalized
costs and accruals. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable. Actual results may
differ from these estimates under different assumptions or conditions. We
believe that the application of the critical accounting policies discussed
below requires significant judgments and estimates on the part of management.
For a summary of our accounting policies, see Note 2 of our consolidated
financial statements. Property, Plant and Equipment We capitalize the costs of new construction and replacement of our cable
transmission and distribution facilities and new cable service installations.
Capitalized costs include all direct labor and materials, as well as certain
indirect costs, and are based on historical construction and installation costs.
Capitalized costs are recorded as additions to property, plant and equipment
and depreciate over the life of the related asset. We perform periodic
evaluations of the estimates used to determine the amount of costs that are
capitalized. Any changes to these estimates, which may be significant, would
be applied during the period in which the estimates were subject to change. Intangibles Our cable systems operate under non-exclusive franchises granted by state
and local governmental authorities for varying lengths of time. We acquired
these cable franchises through acquisitions of cable systems and were accounted
for using the purchase method of accounting. We have concluded that our cable
franchise rights have an indefinite useful life since, among other things,
there are no legal, regulatory, contractual, competitive, economic or other
factors limiting the period over which these cable franchise rights contribute
to our revenues. Accordingly, with our adoption of SFAS No. 142, we no longer
amortize the cable franchise rights and other indefinite-lived assets.
Instead, such assets are tested annually for impairment, or more frequently if
impairment indicators arise. Based
on the guidance outlined in Emerging Issues Task Force, or EITF,
issue No. 02-7, we determined that the unit of accounting for testing franchise
value for impairment resides at a cable system cluster level. Such level
reflects the financial reporting level managed and reviewed by the corporate
office (i.e., chief operating decision maker), as well as how we allocated
capital resources and utilize the assets. Lastly, the unit reporting level
reflects the level at which the purchase method of accounting for our
acquisitions was originally recorded. We have three cable system clusters, or
reporting units, for the purpose of applying SFAS No. 142. We assess the fair value of our franchise costs based on a discounted cash
flow methodology. If the determined fair value of our franchise costs is less
the carrying amount on the financial statements, an impairment charge would be
recognized for the difference between the fair value and the carrying value of
the assets. To test the impairment of the goodwill carried on our financial
statements, the fair value of the cable system clusters tangible and
intangible assets (including franchise value) other than goodwill is deducted
from the cable system clusters fair value. The balance represents the fair
value of goodwill which is then compared to the carrying value of goodwill to
determine if there is any impairment. Upon adoption of SFAS No. 142, we determined that no impairment of our
franchise costs and goodwill existed as of January 1, 2002. Subsequent
impairment tests as of September 2002 and 2003 reflected no impairment of our
franchise costs and goodwill. Our use of discounted cash flow analyses in
determining the fair value of each cable system cluster involves certain
assumptions and estimates, which are consistent with the expectations of buyers
and sellers of cable systems in determining fair value. Significant impairment
in value resulting in impairment charges may result if these estimates and
assumptions used in the fair value determination change in the future. Impairment of Long-Lived Assets We follow the provisions of SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and 39




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provides guidance on classification and accounting for such assets when held
for sale or abandonment. There have been no changes in our circumstances that
would indicate that we would need to perform an impairment review. Recent Accounting Pronouncements In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. In general, SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. We adopted SFAS No. 149 on July 1, 2003, and
such adoption did not have a material impact on our financial condition or
results of operations. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 establishes standards for how an issuer classifies and measures in
its statement of financial position certain financial instruments with
characteristics of both liabilities and equity. In accordance with SFAS No.
150, certain financial instruments that embody obligations for the issuer are
required to be classified as liabilities. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise shall be effective at the beginning of the first interim period
beginning after June 15, 2003. We adopted SFAS No. 150 on July 1, 2003, and
such adoption did not have a material impact on our financial condition or
results of operations. Inflation and Changing Prices Our systems costs and expenses are subject to inflation and price
fluctuations. Such changes in costs and expenses can generally be passed
through to subscribers. Programming costs have historically increased at rates
in excess of inflation and are expected to continue to do so. We believe that
under the Federal Communications Commissions existing cable rate regulations
we may increase rates for cable television services to more than cover any
increases in programming. However, competitive conditions and other factors in
the marketplace may limit our ability to increase our rates. Risk Factors We have a history of net losses. We have a history of net losses. We reported net losses of $127.3
million, $105.1 million and $42.5 million for the years ended December 31,
2001, 2002 and 2003, respectively. The principal reasons for our prior net
losses include the depreciation and amortization expenses associated with our
acquisitions, the capital expenditures related to expanding and upgrading our
cable systems and interest costs on borrowed money. 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. 40




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We have substantial existing debt and may incur substantial additional
debt, which could adversely affect our ability to obtain financing in the
future and require our operating subsidiaries to apply a substantial portion of
their cash flow to debt service. Our total debt as of December 31, 2003 was approximately $1.5 billion.
Our interest expense for the year ended December 31, 2003 was $98.6 million.
We cannot assure you that our business will generate sufficient cash flows to
permit us, or our subsidiaries, to repay indebtedness or that refinancing of
that indebtedness will be possible on commercially reasonable terms or at all. This high level of debt and our debt service obligations could have
material consequences, including that:  
    
    our ability to access new sources of financing for working capital,
capital expenditures, acquisitions or other purposes may be limited;
    
    we may need to use a large portion of our revenues to pay interest
on borrowings under our subsidiary credit facilities and our senior
notes, which will reduce the amount of money available to finance our
operations, capital expenditures and other activities;
    
    some of our debt has a variable rate of interest, which may expose
us to the risk of increased interest rates;
    
    we may be more vulnerable to economic downturns and adverse
developments in our business;
    
    we may be less flexible in responding to changing business and
economic conditions, including increased competition and demand for new
products and services;
    
    we may be at a disadvantage when compared to those of our competitors that have less debt; and
    
    we may not be able to fully implement our business strategy. A default under our indentures or our subsidiary credit facilities could
result in an acceleration of our indebtedness and other material adverse
effects. The agreements and instruments governing our own and our subsidiaries
indebtedness contain numerous financial and operating covenants. The breach of
any of these covenants could cause a default, which could result in the
indebtedness becoming immediately due and payable. If this were to occur, we
would be unable to adequately finance our operations. In addition, a default
could result in a default or acceleration of our other indebtedness subject to
cross-default provisions. If this occurs, we may not be able to pay our debts
or borrow sufficient funds to refinance them. Even if new financing is
available, it may not be on terms that are acceptable to us. The membership
interests of our operating subsidiaries are pledged as security under the
respective subsidiary credit facilities. A default under one of our subsidiary
credit facilities could result in a foreclosure by the lenders on the
membership interests pledged under that facility. Because we are dependent
upon our operating subsidiaries for all of our revenues, a foreclosure would
have a material adverse effect on our business, financial condition and results
of operations. The terms of our indebtedness could materially limit our financial and
operating flexibility. Several of the covenants contained in the agreements and instruments
governing our own and our subsidiaries indebtedness could materially limit our
financial and operating flexibility by restricting, among other things, our
ability and the ability of our operating subsidiaries to:  
    
    incur additional indebtedness;
    
    create liens and other encumbrances;
    
    pay dividends and make other payments, investments, loans and guarantees;
    
    enter into transactions with related parties; 41




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
    
    sell or otherwise dispose of assets and merge or consolidate with another entity;
    
    repurchase or redeem capital stock, other equity interests or debt;
    
    pledge assets; and
    
    issue capital stock or other equity interests. Complying with these covenants could cause us to take actions that we
otherwise would not take or cause us not to take actions that we otherwise
would take. We may not be able to obtain additional capital to continue the
development of our business. We have invested substantial capital for the upgrade, expansion and
maintenance of our cable systems and the launch and expansion of new or
additional services. While we have completed our planned system upgrades, if
there is accelerated growth in our digital cable and data customers, or we
decide to introduce new advanced services, or the cost to provide these
services increases, we may need to make unplanned additional capital
expenditures. We may not be able to obtain the funds necessary to finance
additional capital requirements through internally generated funds, additional
borrowings or other sources. If we are unable to obtain these funds, we would
not be able to implement our business strategy and our results of operations
would be adversely affected. If we are unable to keep pace with technological change, our business and
results of operations could be adversely affected. The cable business is characterized by rapid technological change and the
introduction of new products and services. We cannot assure you that we will
be able to fund the capital expenditures necessary to keep pace with future
technological developments. We also cannot assure you that we will
successfully anticipate the demand of our customers for products and services
requiring new technology. This type of rapid technological change could
adversely affect our ability to maintain or expand our systems and respond to
competitive pressures. An inability to maintain and expand our systems and
provide advanced services in a timely manner, or to anticipate the demands of
the market place, could adversely affect our ability to compete and our results
of operations. If we are unsuccessful in implementing our growth strategy, our business
and results of operations could be adversely affected. We expect that a substantial portion of our future growth in revenues will
come from the expansion of relatively new services, the introduction of new
ones and acquisitions of additional cable systems. Relatively new services
include high-speed Internet access service, digital cable services,
video-on-demand, and HDTV. We plan to offer VoIP telephony service to our
subscribers beginning with certain markets in the fourth quarter of 2004 and
expanding to additional markets in subsequent years. We may not be able to
successfully expand existing services or introduce VoIP telephony due to
unpredictable technical, operational or regulatory challenges. It is also
possible that these services will not generate significant revenue growth. We
may not be successful in identifying attractive acquisition targets or
obtaining the financing necessary to complete future acquisitions. Among other
things, in recent years, the cable television industry has undergone dramatic
consolidation, which has reduced the number of future acquisition prospects and
may increase the purchase price for any acquisitions we pursue. Our programming costs are increasing, and our business and results of
operations will be adversely affected if we cannot pass through a sufficient
part of the additional costs to subscribers. Our programming costs have been, and are expected to continue to be, one
of our largest single expense items. In recent years, the cable and satellite
video industries have experienced a rapid increase in the cost of programming,
particularly sports programming. This increase in programming costs is
expected to continue, and we may not be able to pass all programming cost
increases on to our customers. In addition, as we add programming to our basic
and expanded basic programming tiers, we may not be able pass all of our costs
of the additional programming on to our customers without the potential loss of
basic subscribers. To the extent that we are unable to pass increased or
additional programming costs through to subscribers, our business and results
of operations will be adversely affected. 42




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We also expect to be subject to increasing financial and other demands by
broadcasters to obtain the required consents for the transmission of broadcast
programming to our subscribers. We cannot predict the impact of these
negotiations on our business and results of operations or the effect on our
subscribers should we be required to suspend the carriage of this
programming. Failure to renew programming contracts could adversely affect our business
and results of operations. From time to time, the contracts covering the programming services carried
on our cable systems expire, and we generally provide such services to our
customers without written contracts with the respective program suppliers as
our manager negotiates contract renewals. While we could obtain access to most
of these programming services through a national programming purchasing
cooperative or by relying on certain protective provisions of the
Communications Act, we are unable to guarantee that we will be able to provide
without interruption any programming service that is not covered by a written
contract. Prolonged loss of access to certain of these programming services
could result in our customers switching to our competitors or have other
material adverse effects on our business and results of operations. We may not be able to compete effectively in the highly competitive media
and telecommunications industries. The communications industry in which we operate is highly competitive and
is often subject to rapid and significant changes and developments in the
marketplace and in the regulatory and legislative environment. In some
instances, we compete against companies with fewer regulatory burdens, easier
access to financing, greater resources and operating capabilities, greater
brand name recognition and long-standing relationships with regulatory
authorities. Our traditional cable television business faces direct competition
from other cable companies, municipal-owned utilities, telephone companies,
and, most significantly, from DBS service providers. Our high-speed Internet
access service is subject to competition from telephone companies using digital
subscriber line technology, DBS service providers and other Internet service
providers. We also face competition from over-the-air television and radio
broadcasters and from other communications and entertainment media such as
movie theaters, live entertainment and sports events, newspapers and home video
products. We anticipate that future advances in communications technology and new
business combinations and alliances in the communications industry could lead
to the introduction of new competitors and products and services that may
compete with our businesses. We cannot assure you that our upgraded cable
systems will allow us to compete effectively. Additionally, if we expand and
introduce new and enhanced telecommunications services, we will be subject to
competition from new and established telecommunications providers. We cannot
predict the extent to which competition may affect our business and results of
operations in the future. Continued growth of DBS operators could adversely affect our business and
results of operations. DBS service providers have grown at a rate far exceeding the recent cable
television industry growth rate and have emerged as the cable industrys most
significant competitors. DBS service consists of television programming
transmitted via high-powered satellites to individual homes, each served by a
small satellite dish. According to recent industry reports, DBS service
providers currently deliver video programming services to over 21 million
individual households, condominiums, apartments and office complexes in the
United States. The two largest DBS companies, DIRECTV, Inc. and EchoStar
Communications Corporation, provide service to substantially all of these DBS
customers and are each among the four largest providers of multichannel video
programming services based on reported customers. The News Corporation
Limited, or News Corporation, recently acquired a significant interest in
DIRECTV. Affiliation with News Corporation could strengthen DIRECTVs
competitive positioning, as News Corporation also owns Fox Television Network
and several cable programming services. A recently launched direct broadcast
service, VOOM, has begun offering primarily HDTV services on a national basis. 43




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Legislation permitting DBS service providers to transmit local broadcast
signals was enacted on November 29, 1999. This eliminated a significant
competitive advantage that cable system operators had over DBS service
providers. DBS service providers deliver local broadcast signals in many
markets that we serve. They are developing ways to bring advanced
communications services to their customers. They are currently offering
satellite-delivered high-speed Internet access services. They , and certain
phone companies are also now jointly offering bundled services that include
video, voice and high-speed Internet access. We may not be able to obtain critical items at a reasonable cost or when
required, which could adversely affect our business, financial condition and
results of operations. We depend on third-party suppliers for equipment, software, services and
other items that are critical for the operation of our cable systems and the
provision of advanced services, including analog and digital set-top converter
boxes, servers and routers, fiber-optic cable, telephone circuits, software,
the backbone telecommunications network for our Internet access service and
construction services for expansion and upgrades of our cable systems. These
items are available from a limited number of suppliers. Demand for these items
has increased with the general growth in demand for Internet and
telecommunications services. We typically do not carry significant inventories
of equipment. Moreover, if there are no suppliers that are able to provide
set-top converter boxes that comply with evolving Internet and
telecommunications standards or that are compatible with other equipment and
software that we use, our business, financial condition and results of
operations could be materially adversely affected. If we are unable to obtain
critical equipment, software, services or other items on a timely basis and at
an acceptable cost, our ability to offer our products and services and roll out
advanced services may be impaired, and our business, financial condition and
results of operations could be materially adversely affected. 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 1.7% of our subsidiaries gross operating
revenues for the year ended December 31, 2003, 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. 44




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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 continued performance of our
managers key personnel, including Rocco B. Commisso, the Chairman and Chief
Executive Officer of our manager. Our manager has not entered into an
employment agreement with Mr. Commisso. Neither our manager nor we currently
maintains key man life insurance on Mr. Commisso or other key personnel. In addition, our subsidiary credit facilities provide that a default will
result if any person or group, other than Mr. Commisso and certain of his
affiliates, becomes the beneficial owner of an amount of aggregate voting power
of our managers common stock on a fully-diluted basis that equals or exceeds
the greater of: (i) 35% and (ii) the amount of aggregate voting power of our
managers common stock on a fully diluted basis owned by Mr. Commisso and such
affiliates at the time. 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 could have unpredictable effects. Rocco B. Commisso, the Chairman and Chief Executive Officer of our
manager, beneficially owned common stock of our manager representing
approximately 80.5% of the combined voting power of all of its common stock as
of December 31, 2003. 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 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 and results of operations. As noted above,
it could also result in a default under our bank credit facilities. Our cable television business is subject to extensive governmental
regulation. The cable television industry is subject to extensive legislation and
regulation at the federal and local levels, and, in some instances, at the
state level. Many aspects of such regulation are currently the subject of
judicial and administrative proceedings and legislative and administrative
proposals. We expect that court actions and regulatory proceedings will
continue to refine our rights and obligations under applicable federal, state
and local laws. The results of these judicial and administrative proceedings
and legislative activities may materially affect our business operations.
Local authorities grant us non-exclusive franchises that permit us to operate
our cable systems. We renew or renegotiate these franchises from time to time.
Local franchising authorities may demand concessions, or other commitments, as
a condition to renewal, and these concessions or other commitments could be
costly to obtain. The Communications Act contains renewal procedures and
criteria designed to protect incumbent franchisees against arbitrary denials of
renewal, and although such Act requires the local franchising authorities to
take into account the costs of meeting such concessions or commitments, there
is no assurance that we will not be compelled to meet their demands in order to
obtain renewals. We cannot predict whether any of the markets in which we
operate will expand the regulation of our cable systems in the future or the
impact that any such expanded regulation may have upon our business. Similarly, due to the increasing popularity and use of commercial online
services and the Internet, it is possible that a number of laws and regulations
may be adopted with respect to commercial online services and the Internet.
These include laws covering such issues as privacy, access to some types of
content by minors, pricing, bulk e-mail or spam, encryption standards,
consumer protection, electronic commerce, taxation of e-commerce, copyright
infringement and other intellectual property matters. The adoption of such
laws or regulations in the future may decrease the growth of such services and
the Internet, which could in turn decrease the demand for our cable modem
service, increase our costs of providing such service or have other adverse
effects on our business, financial condition and results of operations. 45




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Our franchises are non-exclusive and local franchising authorities may
grant competing franchises in our markets. Our cable systems are operated under non-exclusive franchises granted by
local franchising authorities. As a result, competing operators of cable
systems and other potential competitors, such as municipal utility providers,
may be granted franchises and may build cable systems in markets where we hold
franchises. Any such competition could adversely affect our business. The
existence of multiple cable systems in the same geographic area is generally
referred to as an overbuild. As of the filing date of this report,
approximately 6.9% of the homes passed by our cable systems were overbuilt by
other cable operators. We cannot assure you that competition from overbuilders
will not develop in other markets that we now serve or will serve after any
future acquisitions. Pending FCC and court proceedings could adversely affect our Internet
access service. The legal and regulatory status of providing high-speed Internet access
service by cable television companies is uncertain. The adoption of new rules
by the FCC or rulings in court proceedings could place additional costs and
regulatory burdens on us, reduce our anticipated revenues or increase our
anticipated costs for this service, complicate the franchise renewal process,
result in greater competition or otherwise adversely affect our business. The
FCC has issued a declaratory ruling that cable modem service, as it is
currently offered, is properly classified as an interstate information service
that is not subject to common carrier regulation. However, the FCC is still
considering the following: whether to require cable companies to provide
capacity on their systems to other entities to deliver high-speed Internet
directly to customers, also known as open access; whether certain other
regulatory requirements do or should apply to cable modem service; and whether
and to what extent cable modem service should be subject to local franchise
authorities regulatory requirements or franchise fees. There can be no
assurance that regulatory authorities will not impose open access or similar
requirements on us as part of an industry-wide requirement. Such requirements
could have a negative impact on our business and results of operations. We may become subject to additional regulatory burdens when we offer
telephony service. The regulatory obligations of Internet protocol telephony are currently
under consideration by the FCC and state authorities. If our planned VoIP
telephony service is deemed by regulators to be a telecommunications service or
a state-regulated telephone service, such service could subject us to
significant regulation as well as higher fees for pole attachments. The
additional regulatory requirements could cause us to incur additional costs and
we may not be able to meet them in a timely manner. We may be subject to legal liability because of the acts of our Internet
service customers or because of our own negligence. Our cable modem service enables individuals to access the Internet and to
exchange information, generate content, conduct business and engage in various
online activities on an international basis. The law relating to the liability
of providers of these online services for activities of their users is
currently unsettled both within the United States and abroad. Potentially,
third parties could seek to hold us liable for the actions and omissions of our
cable modem service customers, such as defamation, negligence, copyright or
trademark infringement, fraud or other theories based on the nature and content
of information that our customers use our service to post, download or
distribute. We also could be subject to similar claims based on the content of
other Websites to which we provide links or third-party products, services or
content that we may offer through our Internet service. Due to the global
nature of the Web, it is possible that the governments of other states and
foreign countries might attempt to regulate its transmissions or prosecute us
for violations of their laws. It is also possible that information provided directly by us will contain
errors or otherwise be negligently provided to users, resulting in third
parties making claims against us. For example, we offer Web-based email
services, which expose us to potential risks, such as liabilities or claims
resulting from unsolicited email, lost or misdirected messages, illegal or
fraudulent use of email, or interruptions or delays in email service. To date, no one has filed such a claim against us. However, in the future
someone may file such a claim against us in either a domestic or international
jurisdiction and may succeed in imposing liability on us. Our defense of any
such actions could be costly and involve significant distraction of our
management and other resources. If we are held 46




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or threatened with significant liability, we may decide to take actions to
reduce our exposure to this type of liability. This may require us to spend
significant amounts of money for new equipment and may also require us to
discontinue offering some features or our cable modem service. Since
we launched our proprietary Mediacom OnlineSM Internet service in
February 2002, we from time to time receive notices of claimed infringements by
our cable modem service users. The owners of copyrights and trademarks have
been increasingly active in seeking to prevent use of the Internet to violate
their rights. In many cases, their claims of infringement are based on the
acts of customers of an Internet service providerfor example, a customers
use of an Internet service or the resources it provides to post, download or
disseminate copyrighted music or other content without the consent of the
copyright owner or to seek to profit from the use of the goodwill associated
with another persons trademark. In some cases, copyright and trademark owners
have sought to recover damages from the Internet service provider, as well as
or instead of the customer. The law relating to the potential liability of
Internet service providers in these circumstances is unsettled. In 1996,
Congress adopted the Digital Millennium Copyright Act, which is intended to
grant ISPs protection against certain claims of copyright infringement
resulting from the actions of customers, provided that the ISP complies with
certain requirements. So far, Congress has not adopted similar protections for
trademark infringement claims. 47




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, we manage our interest expense using a
combination of fixed and variable interest rate debt. We enter into interest
rate exchange agreements, or interest rate swaps, to fix the interest rate on
a portion of our variable interest rate debt to reduce the potential volatility
in our interest expense that would otherwise result from changes in market
interest rates. As of December 31, 2003, we had interest rate exchange
agreements with various banks pursuant to which the interest rate on $300.0
million is fixed at a weighted average rate of approximately 3.0%, plus the
average applicable margin over the eurodollar rate option under our bank credit
agreements. Under the terms of the interest rate exchange agreements, which expire
from 2006 through 2007, we are exposed to credit loss in the event of
nonperformance by the other parties. However, due to the high creditworthiness
of our counterparties, we do not anticipate their nonperformance. At December
31, 2003, based on the mark-to-market valuation, we would have paid
approximately $3.6 million if we terminated these agreements, inclusive of
accrued interest. The change in the mark-to-market value of our interest rate exchange
agreements is reflected as either a noncash gain or loss on derivative
instruments, net, in consolidated statement of operations. For the year ended
December 31, 2003 we had a net gain of $4.4 million. We have no plans to
change our hedging strategy as outlined above. Future gains or losses on
derivative instruments are largely dependent on changes in variable market
interest rates, which we cannot predict, and the reduction in the time to
maturity of our existing interest rate exchange agreements. All else being
equal, as time elapses on our interest rate exchange agreements, the
mark-to-market gains or losses we have incurred under our interest rate
exchange agreements will reduce, resulting in corresponding losses or gains,
respectively, on derivative instruments. If we maintain these agreements to
maturity, their ultimate value will be zero, and all gains or losses on
derivative instruments, net, recognized to date will have been reversed. The table below provides the expected maturity and estimated fair value of
our debt as of December 31, 2003 (dollars in thousands). See Note 5 to our
unaudited consolidated financial statements. Bank Credit
    
    Capital LeaseSenior
Notes
    

Facilities
    

Obligations
    

TotalExpected
Maturity:January 1, 2004 to December 31, 2004
    
    $
    
    
    
    $
    2,000
    
    
    $
    799
    
    
    $
    2,799January 1, 2005 to December 31, 2005
    
    
    
    
    
    
    10,500
    
    
    
    825
    
    
    
    11,325January 1, 2006 to December 31, 2006
    
    
    
    
    
    
    155,250
    
    
    
    850
    
    
    
    156,100January 1, 2007 to December 31, 2007
    
    
    
    
    
    
    182,000
    
    
    
    350
    
    
    
    182,350January 1, 2008 to December 31, 2008
    
    
    200,000
    
    
    
    346,750
    
    
    
    
    
    
    
    546,750Thereafter
    
    
    625,000
    
    
    
    
    
    
    
    
    
    
    
    625,000Total
    
    $
    825,000
    
    
    $
    696,500
    
    
    $
    2,824
    
    
    $
    1,524,324Fair Value
    
    $
    861,376
    
    
    $
    696,500
    
    
    $
    2,824
    
    
    $
    1,560,700Weighted Average Interest Rate
    
    
    9.0
    %
    
    
    2.7
    %
    
    
    3.1
    %
    
    
    6.0
    %
 48




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MEDIACOM LLC AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Contents PageReport of Independent Auditors-PricewaterhouseCoopers LLP
    
    
    50Report of Independent Auditors on Financial Statement Schedule-PricewaterhouseCoopers LLP.
    
    
    51Report of Independent Public Accountants-Arthur Andersen LLP
    
    
    52Consolidated Balance Sheets as of December 31, 2003 and 2002
    
    
    53Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001
    
    
    54Consolidated Statements of Changes in Members (Deficit) Equity and Comprehensive Loss
for the Years Ended December 31, 2003, 2002, and 2001
    
    
    55Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001
    
    
    56Notes to Consolidated Financial Statements
    
    
    57Financial Statement Schedule: Schedule II-Valuation and Qualifying Accounts
    
    
    67
 49




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Report of Independent Auditors To the Member of Mediacom LLC: In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders equity, and
of cash flows present fairly, in all material respects, the financial position
of Mediacom LLC and its subsidiaries (the Company) at December 31, 2003 and
2002, and the results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Companys management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion. The Companys
consolidated financial statements as of December 31, 2001, and for the year
then ended, were audited by other independent accountants who have ceased
operations. Those independent accountants expressed an unqualified opinion on
those financial statements in their report dated February 13, 2002. As discussed above, the Companys consolidated financial statements as of
December 31, 2001, and for the year then ended, were audited by other
independent accountants who have ceased operations. As described in Note 4,
those financial statements have been revised to include the transitional
disclosures required by Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, which was adopted by the Company as of
January 1, 2002. We audited the transitional disclosures for 2001 included in
Note 4. In our opinion, the transitional disclosures for 2001 in Note 4 are
appropriate. However, we were not engaged to audit, review, or apply any
procedures to the 2001 financial statements of the Company other than with
respect to such disclosures and, accordingly, we do not express an opinion or
any other form or assurance on the 2001 financial statements taken as a whole. As discussed in Notes 2 and 4 to the consolidated financial statements, the
Company changed its method of accounting for goodwill effective January 1,
2002. /s/PricewaterhouseCoopers LLP
New York, New York
March 9, 2004 50




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Report of Independent Auditors
on Financial Statement Schedule To the Member of Mediacom LLC: Our audits of the consolidated financial statements referred to in our report
dated March 9, 2004 appearing in this Annual Report on Form 10-K also included
an audit of the financial statement schedule listed in Item 8 of this Form
10-K. In our opinion, this financial statement schedule for the years ended
December 31, 2003 and 2002 present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. The financial statement schedule of
Mediacom LLC and its subsidiaries for the year ended December 31, 2001, was
audited by other independent accountants who have ceased operations. Those
independent accountants expressed an unqualified opinion on that financial
statement schedule in their report dated February 13, 2002. /s/PricewaterhouseCoopers LLP
New York, New York
March 9, 2004 51




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THE FOLLOWING REPORT IS
A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Member of Mediacom LLC: We have audited the accompanying consolidated balance sheets of Mediacom LLC (a
New York limited liability company) and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, changes in
members equity and comprehensive loss and cash flows for each of the three
years in the period ended December 31, 2001. These financial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mediacom LLC and subsidiaries
as of December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States. As explained in Note 2 to the consolidated financial statements, effective
January 1, 2001, the Company changed its method of accounting for derivative
instruments. Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule IIValuation and
Qualifying Accounts is presented for purposes of complying with the Securities
and Exchange Commissions rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP
 Stamford, Connecticut
February 13, 2002 52




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MEDIACOM LLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(dollars in thousands) December 31,2003
    
    2002ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    13,417
    
    
    $
    20,890Investments
    
    
    2,288
    
    
    
    4,070Subscriber accounts receivable, net of allowance for doubtful accounts
of $1,069 and $1,106, respectively
    
    
    24,012
    
    
    
    20,709Prepaid expenses and other assets
    
    
    26,733
    
    
    
    15,256Total current assets
    
    
    66,450
    
    
    
    60,925Preferred equity investment in affiliated company
    
    
    150,000
    
    
    
    150,000Investment in cable television systems:Property, plant and equipment, net of accumulated depreciation of
$637,254 and $498,514, respectively
    
    
    708,159
    
    
    
    748,274Intangible assets, net of accumulated amortization of $235,979 and
$224,669, respectively
    
    
    570,953
    
    
    
    585,144Total investment in cable television systems
    
    
    1,279,112
    
    
    
    1,333,418Other assets, net of accumulated amortization of $15,835 and $13,044,
respectively
    
    
    19,804
    
    
    
    22,897Total assets
    
    $
    1,515,366
    
    
    $
    1,567,240LIABILITIES AND MEMBERS DEFICITCURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    93,831
    
    
    $
    80,520Deferred revenue
    
    
    16,432
    
    
    
    14,890Current portion of long-term debt
    
    
    2,799
    
    
    
    2,211Total current liabilities
    
    
    113,062
    
    
    
    97,621Long-term debt, less current portion
    
    
    1,521,525
    
    
    
    1,546,500Other non-current liabilities
    
    
    9,062
    
    
    
    8,912Total liabilities
    
    
    1,643,649
    
    
    
    1,653,033MEMBERS DEFICITCapital contributions
    
    
    548,521
    
    
    
    548,521Accumulated deficit
    
    
    (676,804
    )
    
    
    (634,314
    )Total members deficit
    
    
    (128,283
    )
    
    
    (85,793
    )Total liabilities and members deficit
    
    $
    1,515,366
    
    
    $
    1,567,240
 The accompanying notes to consolidated financial statements
are an integral part of these statements. 53




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MEDIACOM LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands) Years Ended December 31,2003
    
    2002
    
    2001Revenues
    
    $
    452,548
    
    
    $
    410,241
    
    
    $
    369,275Costs and expenses:Service costs (exclusive of depreciation and
amortization of $158,718, $194,862 and
$221,645, respectively, shown separately below)
    
    
    169,818
    
    
    
    152,684
    
    
    
    130,473Selling, general and administrative expenses
    
    
    77,908
    
    
    
    68,563
    
    
    
    63,846Management fee expense
    
    
    7,915
    
    
    
    11,108
    
    
    
    8,734Depreciation and amortization
    
    
    158,718
    
    
    
    194,862
    
    
    
    221,645Operating income (loss)
    
    
    38,189
    
    
    
    (16,976
    )
    
    
    (55,423
    )Interest expense, net
    
    
    (98,596
    )
    
    
    (102,458
    )
    
    
    (93,823
    )Gain (loss) on derivative instruments, net
    
    
    4,410
    
    
    
    1,172
    
    
    
    (8,441
    )Investment income from affiliate
    
    
    18,000
    
    
    
    18,000
    
    
    
    8,120Other (expense) income
    
    
    (4,493
    )
    
    
    (4,845
    )
    
    
    23,885Net loss before cumulative effect of accounting change
    
    
    (42,490
    )
    
    
    (105,107
    )
    
    
    (125,682
    )Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    (1,642
    )Net loss
    
    $
    (42,490
    )
    
    $
    (105,107
    )
    
    $
    (127,324
    )
 The accompanying notes to consolidated financial statements
are an integral part of these statements. 54




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MEDIACOM LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN
MEMBERS (DEFICIT) EQUITY AND COMPREHENSIVE LOSS
(dollars in thousands) AccumulatedCapital
    
    Comprehensive
    
    AccumulatedContributions
    
    Loss
    
    Deficit
    
    TotalBalance, December 31, 2000
    
    $
    540,294
    
    
    $
    (414
    )
    
    $
    (276,883
    )
    
    $
    262,997Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (127,324
    )Unrealized gain on investments
    
    
    
    
    
    
    414
    
    
    
    Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (126,910
    )Dividend payment to parent
    
    
    
    
    
    
    
    
    
    
    (125,000
    )
    
    
    (125,000
    )Vesting of equity granted to
management, net of forfeiture
    
    
    2,904
    
    
    
    
    
    
    
    
    
    
    
    2,904Balance, December 31, 2001
    
    $
    543,198
    
    
    $
    
    
    
    $
    (529,207
    )
    
    $
    13,991Net loss
    
    
    
    
    
    
    
    
    
    
    (105,107
    )
    
    
    (105,107
    )Vesting of equity granted to
management, net of forfeiture
    
    
    5,323
    
    
    
    
    
    
    
    
    
    
    
    5,323Balance, 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
    )
 The accompanying notes to consolidated financial statements
are an integral part of these statements. 55




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MEDIACOM LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands) Years Ended December 31,2003
    
    2002
    
    2001CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:Net loss
    
    $
    (42,490
    )
    
    $
    (105,107
    )
    
    $
    (127,324
    )Adjustments to reconcile net loss to net cash flows from operating activities:Depreciation and amortization
    
    
    158,718
    
    
    
    194,862
    
    
    
    221,645(Gain) loss on investments, net
    
    
    (4,194
    )
    
    
    (1,172
    )
    
    
    10,083Impairment of available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    329Vesting of management stock
    
    
    
    
    
    
    5,323
    
    
    
    2,904Amortization of SoftNet Systems revenue
    
    
    
    
    
    
    
    
    
    
    (287
    )Termination of SoftNet Systems agreement
    
    
    
    
    
    
    
    
    
    
    (29,957
    )Amortization of deferred financing costs
    
    
    3,320
    
    
    
    3,754
    
    
    
    3,984Changes in assets and liabilities, net of effects from acquisitions:Subscriber accounts receivable, net
    
    
    (3,303
    )
    
    
    (1,033
    )
    
    
    1,186Prepaid expenses and other assets
    
    
    (11,477
    )
    
    
    (8,339
    )
    
    
    (47,894
    )Accounts payable and accrued expenses
    
    
    17,420
    
    
    
    (23,512
    )
    
    
    71,761Deferred revenue
    
    
    1,542
    
    
    
    1,486
    
    
    
    (2,799
    )Other non-current liabilities
    
    
    150
    
    
    
    1,171
    
    
    
    (1,440
    )Net cash flows provided by operating activities
    
    
    119,686
    
    
    
    67,433
    
    
    
    102,191CASH FLOWS USED IN INVESTING ACTIVITIES:Capital expenditures
    
    
    (105,911
    )
    
    
    (167,789
    )
    
    
    (244,890
    )Acquisitions of cable television systems
    
    
    (2,327
    )
    
    
    (6,548
    )
    
    
    Proceeds from sale of assets
    
    
    3,420
    
    
    
    
    
    
    
    Preferred investment in affiliated company
    
    
    
    
    
    
    
    
    
    
    (150,000
    )Other investment activities
    
    
    5,536
    
    
    
    (2,262
    )
    
    
    (4,056
    )Net cash flows used in investing activities
    
    
    (99,282
    )
    
    
    (176,599
    )
    
    
    (398,946
    )CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:New borrowings
    
    
    158,038
    
    
    
    356,750
    
    
    
    941,500Repayment of debt
    
    
    (185,688
    )
    
    
    (233,750
    )
    
    
    (503,000
    )Dividend payment
    
    
    
    
    
    
    
    
    
    
    (125,000
    )Financing costs
    
    
    (227
    )
    
    
    (322
    )
    
    
    (13,460
    )Net cash flows (used in) provided by financing activities
    
    
    (27,877
    )
    
    
    122,678
    
    
    
    300,040Net (decrease) increase in cash and cash equivalents
    
    
    (7,473
    )
    
    
    13,512
    
    
    
    3,285CASH AND CASH EQUIVALENTS, beginning of year
    
    
    20,890
    
    
    
    7,378
    
    
    
    4,093CASH AND CASH EQUIVALENTS, end of year
    
    $
    13,417
    
    
    $
    20,890
    
    
    $
    7,378SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash during the year for interest, net of amounts capitalized
    
    $
    98,260
    
    
    $
    104,324
    
    
    $
    74,839SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:Capital expenditures financed through capital leases
    
    $
    3,263
    
    
    $
    
    
    
    $
    
 The accompanying notes to consolidated financial statements
are an integral part of these statements. 56




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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 7
and 12. 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 and
its subsidiaries. All significant intercompany transactions and balances have
been eliminated. The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Change in Estimate Effective July 1, 2003, the Company changed the estimated useful lives of
its cable systems and equipment in conjunction with the Companys recently
completed network upgrade and rebuild program. The changes in estimated useful
lives were made to reflect managements evaluation of the longer economic lives
of the Companys upgraded and rebuilt network. The new asset lives are
consistent with those used by companies in the cable television industry. The
weighted average useful lives of such fixed assets changed from approximately 7
years to approximately 12 years. These changes were made on a prospective
basis and resulted in a decrease in net loss of approximately $41.2 million for
the year ended December 31, 2003. Revenue Recognition Revenues include amounts billed to customers for services provided,
installations, advertising and other services. Revenues from video and data
services are recognized when the services are provided to the customers.
Installation revenues are recognized to the extent of direct installation costs
incurred. Advertising sales are recognized in the period that the
advertisements are exhibited. Franchise fees are collected on a monthly basis
and are periodically remitted to local franchise authorities. Franchise fees
collected and paid are reported as revenues and expenses. Cash and Cash Equivalents The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. 57




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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 and losses
are presented as a component of depreciation expense. The Company capitalizes the costs associated with the construction of
cable transmission and distribution facilities, and new cable installations.
Costs include direct labor and material, as well as certain indirect costs.
The Company performs periodic evaluations of certain estimates used to
determine such costs that are capitalized. Any changes to these estimates,
which may be significant, are applied in the period in which the evaluations
were completed. The costs of disconnecting service at a customers dwelling or
reconnecting to a previously installed dwelling are charged as expense in the
period incurred. Costs associated with subsequent installations of additional
services not previously installed at a customers dwelling are capitalized to
the extent such costs are incremental and directly attributable to the
installation of such additional services. Intangible Assets Indefinite-lived intangible assets include goodwill and cable franchise
costs and are accounted for in accordance with SFAS No. 142 Goodwill and Other
Intangible Assets. The provisions of SFAS No. 142, which were adopted by the
Company on January 1, 2002, prohibit the amortization of indefinite-lived
intangible assets and goodwill, but require such assets to be tested annually
for impairment, or more frequently if impairment indicators arise. The Company
has determined that its cable franchise costs and goodwill are indefinite-lived
assets. Accordingly, on January 1, 2002, the Company ceased the amortization
of its indefinite-lived intangible assets. Other finite-lived intangible
assets, which consist primarily of subscriber lists and covenants not to
compete, continue to be amortized over their useful lives of 5 years. See Note
4, Intangible Assets. Other Assets Other assets, net represent financing costs incurred to raise debt, which
are deferred and amortized as other expense over the expected term of such
financings. 58




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Segment Reporting SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, requires the disclosure of factors used to identify an
enterprises reportable segments. The Companys operations are organized and
managed on the basis of cable system clusters that represent operating segments
responsible for certain geographical regions. Each operating segment derives
its revenues from the delivery of similar products and services to a customer
base that is also similar. Each operating segment deploys similar technology
to deliver our products and services and operates within a similar regulatory
environment. In addition, each operating segment has similar economic
characteristics. Management evaluated the criteria for aggregation of the
geographic operating segments under SFAS No. 131 and believes the Company meets
each of the respective criteria set forth. Accordingly, management has
identified broadband services as the Companys one reportable segment. Accounting for Derivative Instruments The Company adopted SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, on January 1, 2001. As a result, the Company recorded
an after tax charge of approximately $1.6 million, as a change in accounting
principle, in the first quarter of 2001. The Companys stated strategy is to
manage its interest expense using a combination of fixed and variable interest
rate debt. The Company enters into interest rate exchange agreements to fix
the interest rate on a portion of its variable interest rate debt to reduce the
potential volatility in its interest expense that would otherwise result from
changes in variable market interest rates. Accounting for Asset Retirement The Company adopted SFAS No. 143, Accounting for Asset Retirement
Obligations, on January 1, 2003. SFAS No. 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company
reviewed its asset retirement obligations to determine the fair value of such
liabilities and if a reasonable estimate of fair value can be made. This
entailed the review of leases covering tangible long-lived assets, as well as
the Companys rights-of-way under franchise agreements. In determining the fair
value of the Companys asset retirement obligation, consideration was given to
the Cable Communications Policy Act of 1984, which generally entitles the cable
operator to the fair market value for the cable system covered by a
franchise, if renewal is denied and the franchising authority acquires
ownership of the cable system or effects a transfer of the cable system to
another person. Upon adoption of SFAS No. 143, the Company determined that in certain
instances it is obligated by contractual terms or regulatory requirements to
remove facilities or perform other remediation activities upon the retirement
of its assets. The aggregate fair value of this liability is
immaterial to the Companys consolidated financial statements taken as a whole. 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. Reclassifications Certain reclassifications have been made to prior years amounts to
conform to the current years presentation. 59




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS Recent Accounting Pronouncements In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. In general, SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The Company adopted SFAS No. 149 on July 1,
2003, and such adoption did not have a material impact on the Companys
financial condition or results of operations. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 establishes standards for how an issuer classifies and measures in
its statement of financial position certain financial instruments with
characteristics of both liabilities and equity. In accordance with SFAS No.
150, certain financial instruments that embody obligations for the issuer are
required to be classified as liabilities. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise shall be effective at the beginning of the first interim period
beginning after June 15, 2003. The Company adopted SFAS No. 150 on July 1,
2003, and such adoption did not have a material impact on the Companys
financial condition or results of operations. (3) Property, Plant and Equipment As of December 31, 2003 and 2002, property, plant and equipment consisted
of (dollars in thousands): 2003
    
    2002Land and land improvements
    
    $
    1,470
    
    
    $
    1,015Buildings and leasehold improvements
    
    
    18,191
    
    
    
    16,686Cable systems, equipment and subscriber devices
    
    
    1,283,345
    
    
    
    1,188,460Vehicles
    
    
    29,266
    
    
    
    28,541Furniture, fixtures and office equipment
    
    
    13,141
    
    
    
    12,0861,345,413
    
    
    
    1,246,788Accumulated depreciation
    
    
    (637,254
    )
    
    
    (498,514
    )Property, plant and equipment, net
    
    $
    708,159
    
    
    $
    748,274
 Depreciation expense for the years ended December 31, 2003, 2002 and 2001
was approximately $147.2 million, $168.1 million and $148.3 million,
respectively. As of December 31, 2003 and 2002, the Company had property under
capitalized leases of $5.4 million and $2.2 million, respectively, before
accumulated depreciation, and $4.2 million and $1.7 million, respectively, net
of accumulated depreciation. (4) Intangible Assets The Company operates its cable systems under non-exclusive cable
franchises that are granted by state or local government authorities for
varying lengths of time. The Company acquired these cable franchises through
acquisitions of cable systems and were accounted for using the purchase method
of accounting. On January 1, 2002, the Company adopted SFAS No. 142, which eliminates
amortization of goodwill and certain intangibles that have indefinite lives but
requires that such assets be tested for impairment at least annually. Prior to 60




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS adoption of SFAS No. 142 on January 1, 2002, the Company amortized cable
franchises and goodwill over 15 years. The Company evaluated the expected
useful life of its cable franchises, also referred to as franchise costs, upon
adoption of SFAS No. 142 and determined that all of its cable franchises have
an indefinite useful life. As such, the Company ceased amortizing its cable
franchises effective January 1, 2002. In determining whether its cable
franchises have an indefinite life, the Company considered that (i) there are
no legal, regulatory, contractual, competitive, economic or other factors
limiting the period over which these cable franchise rights will continue to
contribute to the Companys revenues, (ii) the Company has sufficient
experience with the local franchising authorities to conclude that franchise
renewals can and will be accomplished indefinitely, (iii) the Company has never
had a cable franchise right revoked, and has never been denied a franchise
renewal, (iv) in the Companys history of renewing franchises, minimal costs
have been incurred in the franchise renewal process, (v) the Company has
sufficiently upgraded the technological state of its cable systems, (vi) under
the 1984 Cable Act, a local franchising authority may not unreasonably withhold
the renewal of a cable system franchise, and (vii) valuations of cable
franchises by market participants presume that franchise renewals can and will
be accomplished indefinitely. The Company will continue to reevaluate the
expected life of its cable franchises periodically to determine whether events
and circumstances continue to support an indefinite life. Based on the guidance of Emerging Issues Task Force, or EITF, Issue No.
02-7, Unit for Accounting for Testing Impairment of Indefinite-Lived Intangible
Assets, the Company determined that the unit of accounting for testing cable
franchise value for impairment resides at the cable system cluster level. Such
level reflects the financial reporting level managed and reviewed by the
corporate office (i.e., chief operating decision maker) as well as how the
Company allocates capital resources and utilizes the assets. Lastly, the
financial unit level reflects the level at which the purchase method of
accounting for the Companys acquisitions were originally recorded. The
Company has three cable system clusters, or reporting units, for the purpose of
applying SFAS No. 142. The Company assesses the fair value of its franchise costs based on a
discounted cash flow methodology. If the determined fair value of the
Companys franchise costs is less 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. To test the impairment of
the goodwill carried on the Companys financial statements, the fair value of
the cable system clusters tangible and intangible assets (includes franchise
costs) other than goodwill is deducted from the cable system clusters fair
value. The balance represents the fair value of goodwill which is then
compared to the carrying value of goodwill to determine if there is any
impairment. The Company completed its last impairment test in accordance with
SFAS No. 142 in September 2003. Such test indicated no impairment of franchise
costs or goodwill. The following table provides a reconciliation of the results of operations
for the years ended December 31, 2003, 2002, 2001 to the net loss that would
have been reported had franchise cost and goodwill amortization not been
recorded as of January 1, 2001: 2003
    
    2002
    
    2001(dollars in thousands)(unaudited)Reported net loss
    
    $
    (42,490
    )
    
    $
    (105,107
    )
    
    $
    (127,324
    )Add back: goodwill and franchise
cost amortization
    
    
    
    
    
    
    
    
    
    
    44,664Adjusted pro forma net loss
    
    $
    (42,490
    )
    
    $
    (105,107
    )
    
    $
    (82,660
    )
 The following table summarizes the net asset value for each intangible
asset category as of December 31, 2003 and 2002 (dollars in thousands): 61




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Gross Asset
    
    Accumulated
    
    Net Asset2003
    
    Value
    
    Amortization
    
    ValueFranchise costs
    
    $
    653,461
    
    
    $
    102,415
    
    
    $
    551,046Goodwill
    
    
    13,884
    
    
    
    2,682
    
    
    
    11,202Subscriber lists
    
    
    133,892
    
    
    
    125,405
    
    
    
    8,487Covenants not to compete
    
    
    5,695
    
    
    
    5,477
    
    
    
    218$
    806,932
    
    
    $
    235,979
    
    
    $
    570,953
 Gross Asset
    
    Accumulated
    
    Net Asset2002
    
    Value
    
    Amortization
    
    ValueFranchise costs
    
    $
    656,268
    
    
    $
    103,026
    
    
    $
    553,242Goodwill
    
    
    13,699
    
    
    
    2,682
    
    
    
    11,017Subscriber lists
    
    
    134,151
    
    
    
    113,652
    
    
    
    20,499Covenants not to compete
    
    
    5,695
    
    
    
    5,309
    
    
    
    386$
    809,813
    
    
    $
    224,669
    
    
    $
    585,144
 Amortization expense for the years ended December 31, 2003, 2002 and 2001
was approximately $11.5 million, $26.8 million and $73.3 million, respectively.
The Companys estimated aggregate amortization expense for 2004 through 2006
is $8.6 million, $0.7 million and $11,000, respectively, after which the assets
will be fully amortized. (5) Debt As of December 31, 2003 and 2002, debt consisted of: 2003
    
    2002(dollars in thousands)Bank credit facilities
    
    $
    696,500
    
    
    $
    723,5008 1/2% senior notes
    
    
    200,000
    
    
    
    200,0007 7/8% senior notes
    
    
    125,000
    
    
    
    125,0009 1/2% senior notes
    
    
    500,000
    
    
    
    500,000Capital lease obligations
    
    
    2,824
    
    
    
    211$
    1,524,324
    
    
    $
    1,548,711Less: current portion
    
    
    2,799
    
    
    
    2,211Total long-term debt
    
    $
    1,521,525
    
    
    $
    1,546,500
 Bank Credit Facilities On September 30, 1999, operating subsidiaries of Mediacom entered into a
$550.0 million senior secured credit facility, consisting of a $450.0 million
reducing revolving credit facility and a $100.0 million term loan (the
Mediacom USA Credit Agreement). The revolving credit facility expires on
March 31, 2008, and is subject to earlier expiration on June 30, 2007 if
Mediacom does not refinance the 8 1/2% Senior Notes by March 31, 2007. The
revolving credit facility makes available a maximum commitment amount for a
period of up to eight and one-half years, which is subject to quarterly
reductions ranging from 1.25% to 17.50% of the original commitment amount. As
of December 31, 2003, the maximum commitment amount available under the
revolving credit facility was $416.3 million, and $232.0 million was
outstanding under such facility. For the year ended December 31, 2004, the
maximum commitment amount under the revolving credit facility will be reduced
by $67.5 million, or 15% of the 62




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS original commitment amount. The Mediacom USA Credit Agreement requires
mandatory reductions of the revolving credit facility from excess cash flow, as
defined therein. The term loan matures on September 30, 2008, and is subject
to repayment on September 30, 2007 if Mediacom does not refinance the 8 1/2%
Senior Notes by March 31, 2007. The term loan is payable in quarterly
installments. As of December 31, 2003, the outstanding debt under the term
loan was $98.5 million. For the year ended December 31, 2004, the term loan
will be reduced by $1.0 million, or 1% of the original amount of the term loan.
The Mediacom USA Credit Agreement provides for interest at varying rates based
upon various borrowing options and the attainment of certain financial ratios,
and for commitment fees of 1/4% to 3/8% per annum on the unused portion of
available credit under the reducing revolver credit facility. Interest on
outstanding revolver loans is payable at either a eurodollar rate plus a
floating percentage ranging from 0.75% to 2.25% or the base rate plus a
floating percentage ranging from 0% to 1.25%. Interest on the term loans is
payable at either the eurodollar rate plus a floating percentage ranging from
2.50% to 2.75% or the base rate plus a floating percentage ranging from 1.50%
to 1.75%. On November 5, 1999, operating subsidiaries of Mediacom entered into a
$550.0 million senior secured credit facility, consisting of a $450.0 million
reducing revolving credit facility and a $100.0 million term loan (the
Mediacom Midwest Credit Agreement, together with the Mediacom USA Credit
Agreement, the Bank Credit Agreements). The revolving credit facility
expires on June 30, 2008, and is subject to earlier expiration on September 30,
2007 if Mediacom does not refinance the 8 1/2% Senior Notes by March 31, 2007.
The revolving credit facility makes available a maximum commitment amount for
a period of up to eight and one-half years, which is subject to quarterly
reductions ranging from 1.25% to 8.75% of the original commitment amount. As
of December 31, 2003, the maximum commitment amount available under the
revolving credit facility was $416.3 million, and $267.3 million was
outstanding under such facility. For the year ended December 31, 2004, the
maximum commitment amount under the revolving credit facility will be reduced
by $67.5 million, or 15% of the original commitment amount. The Mediacom
Midwest Credit Agreement requires mandatory reductions of the revolver facility
from excess cash flow, as defined therein. The term loan matures on December
31, 2008, and is subject to repayment on December 31, 2007 if Mediacom does not
refinance the 8 1/2% Senior Notes by March 31, 2007. The term loan is payable
in quarterly installments. As of December 31, 2003, the outstanding debt under
the term loan was $98.8 million. For the year ended December 31, 2004, the
term loan will be reduced by $1.0 million, or 1% of the original amount of the
term loan. The Mediacom Midwest Credit Agreement provides for interest at
varying rates based upon various borrowing options and the attainment of
certain financial ratios, and for commitment fees of 1/4% to 3/8% per annum
on the unused portion of available credit under the reducing revolver credit
facility. Interest on the outstanding revolver loans is payable at either a
eurodollar rate plus a floating percentage ranging from 0.75% to 2.25% or the
base rate plus a floating percentage ranging from 0% to 1.25%. Interest on the
term loans is payable at either the eurodollar rate plus a floating percentage
ranging from 2.50% to 2.75% or the base rate plus a floating percentage ranging
from 1.50% to 1.75%. The Bank Credit Agreements require compliance with certain financial
covenants including, but not limited to, leverage, interest coverage and pro
forma debt service coverage ratios, as defined therein. The Bank Credit
Agreements also require compliance with other covenants including, but not
limited to, limitations on mergers and acquisitions, consolidations and sales
of certain assets, liens, the incurrence of additional indebtedness, certain
restricted payments, and certain transactions with affiliates. The Company was
in compliance with all covenants of the Bank Credit Agreements as of and for
all periods in the year ended December 31, 2003. The Bank Credit Agreements are 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 Bank Credit
Agreements was 2.7% and 3.7% for the years ended December 31, 2003 and December
31, 2002, respectively, before giving effect to the interest rate exchange
agreements discussed below. As of December 31, 2003, the Company had
approximately $327.5 million of unused bank commitments under the Bank Credit
Agreements. 63




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company uses interest rate exchange agreements in order to fix the
interest rate on its floating rate debt. As of December 31, 2003, the Company
had entered into interest rate exchange agreements with various banks pursuant
to which the interest rate on $300.0 million is fixed at a weighted average
rate of approximately 3.0%, plus the average applicable margin over the
eurodollar rate under option the Companys bank credit agreements. Under the
terms of the interest rate exchange agreements, which expire from 2006 through
2007, the Company is exposed to credit loss in the event of nonperformance by
the other parties. However, due to the high creditworthiness of its
counterparties, the Company does not anticipate their nonperformance. The fair value of the interest rate exchange agreements is the estimated
amount that the Company would receive or pay to terminate such agreements,
taking into account current interest rates, the remaining time to maturities
and the current creditworthiness of the Companys counterparties. At December
31, 2003, based on the mark-to-market valuation, the Company would have paid
approximately $3.6 million if it terminated these agreements, inclusive of
accrued interest. Senior Notes On April 1, 1998, Mediacom and Mediacom Capital, jointly issued $200.0
million aggregate principal amount of 8 1/2% senior notes due on April 2008
(the 8 1/2% Senior Notes). The 8 1/2% Senior Notes are unsecured
obligations of Mediacom, and the indenture for the 8 1/2% Senior Notes
stipulates, among other things, restrictions on incurrence of indebtedness,
distributions, mergers and asset sales and has cross-default provisions related
to other debt of Mediacom. Mediacom was in compliance with the indenture
governing the 8 1/2% Senior Notes as of and for all periods in the year ended
December 31, 2003. On February 26, 1999, Mediacom and Mediacom Capital jointly issued $125.0
million aggregate principal amount of 7 7/8% senior notes due on February 2011
(the 7 7/8% Senior Notes). The 7 7/8% Senior Notes are unsecured obligations
of Mediacom, and the indenture for the 7 7/8% Senior Notes stipulates, among
other things, restrictions on incurrence of indebtedness, distributions,
mergers and asset sales and has cross-default provisions related to other debt
of Mediacom. Mediacom was in compliance with the indenture governing the 7 7/8%
Senior Notes as of and for all periods in the year ended December 31, 2003. On January 24, 2001, Mediacom and Mediacom Capital jointly issued $500.0
million aggregate principal amount of 9 1/2% senior notes due January 2013
(the 9 1/2% Senior Notes). The 9 1/2% Senior Notes are unsecured
obligations of Mediacom, and the indenture for the 9 1/2% Senior Notes
stipulates, among other things, restrictions on incurrence of indebtedness,
distributions, mergers and asset sales and has cross-default provisions related
to other debt of Mediacom. Mediacom was in compliance with the indenture
governing the 9 1/2% Senior Notes as of and for all periods in the year ended
December 31, 2003. Fair Value and Debt Maturities The fair value of the Companys bank credit facilities approximate the
carrying value. The fair value at December 31, 2003 of the 8 1/2% Senior
Notes, the 7 7/8% Senior Notes and the 9 1/2% Senior Notes was approximately
$204.0 million, $125.0 million and $531.0 million, respectively. The stated maturities of all debt outstanding as of December 31, 2003 are
as follows (dollars in thousands): 2004
    
    $
    2,7992005
    
    
    11,3252006
    
    
    156,1002007
    
    
    182,3502008
    
    
    546,750Thereafter
    
    
    625,000$
    1,524,324
 64




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Related Party Transactions Prior to MCCs initial public offering in February 2000, separate
management agreements between Mediacom Management Corporation (Mediacom
Management), a Delaware corporation and each of Mediacoms operating
subsidiaries provided for Mediacom Management to be paid compensation for
management services performed for the Company. Upon MCCs initial public
offering, all management agreements with Mediacom Management were terminated
and were replaced with new agreements between MCC and the Companys operating
subsidiaries. Under such agreements, MCC is entitled to receive annual
management fees in amounts not to exceed 4.5% of the Companys gross operating
revenues. Management fees for the years ended December 31, 2003, 2002 and
2001, amounted to approximately $7.9 million, $5.8 million and $5.8 million,
respectively. Management fee expense also included $5.3 million and $2.9
million of non-cash stock charges related to management fee expense for the
years ended December 31, 2002 and 2001, respectively. Mediacom Management holds a 1% direct ownership interest in Mediacom
California LLC, which in turn holds a 1% interest in Mediacom Arizona LLC.
These ownership interests represent less than 1% of the Companys total
revenues. Mediacom Management is wholly-owned by the Chairman and CEO of MCC. (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-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 $0.6 million for
each of the years ended December 31, 2003, 2002 and 2001. (8) Commitments and Contingencies Under various lease and rental agreements for offices, warehouses and
computer terminals, the Company had rental expense of approximately $2.6
million, $2.4 million and $2.4 million for the years ended December 31, 2003,
2002 and 2001, respectively. Future minimum annual rental payments are as
follows (dollars in thousands): 2004
    
    $
    1,5862005
    
    
    1,1342006
    
    
    9742007
    
    
    7702008
    
    
    486Thereafter
    
    
    1,385
 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 $4.5 million,
$4.1 million and $3.3 million for the years ended December 31, 2003, 2002 and
2001, respectively. As of December 31, 2003, approximately $5.7 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. 65




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Legal Proceedings There are no material pending legal proceedings to which the Company is a
party or to which any of the Companys properties are subject. (9) American Independence Corp. (formerly SoftNet Systems, Inc.) As of January 31, 2001, the Company formally terminated its business
relationship with SoftNet Systems, Inc. (SoftNet) in all material respects.
As part of the termination the Company received SoftNet common stock
representing 8.7% of aggregate voting power as of January 1, 2001. These
shares are reported as investments in the Companys consolidated balance sheet.
The Company recognized SoftNet-related revenue of approximately $0.3 million
and approximately $30.0 million of other income in the consolidated statements
of operations in 2001. During 2002, SoftNet changed its name to American
Independence Corp. (AMIC). During 2003, the Company sold portions of its
investment in AMIC and recognized a gain on sale of investments of $1.7
million. (10) Members Deficit As a wholly-owned subsidiary of MCC, the Companys business affairs,
including its financing decisions, are directed by MCC. On July 17, 2001, the
Company paid a $125.0 million cash dividend to MCC that was funded with
borrowings under its bank credit facilities. (See Note 11). (11) 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,
2003 and 2002, the Company received in aggregate $18.0 million in cash
dividends on the preferred equity. 66




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Schedule II MEDIACOM LLC AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands) Balance at
    
    Additionsbeginning of
    
    charged to costs
    
    
    
    
    
    Balance atperiod
    
    and expenses
    
    Deductions
    
    end of periodDecember 31, 2001Allowance for doubtful accountsCurrent receivables
    
    $
    932
    
    
    $
    6,349
    
    
    $
    6,186
    
    
    $
    1,095Acquisition reserves(1)Accrued expenses
    
    $
    5,382
    
    
    $
    
    
    
    $
    5,382
    
    
    $
    December 31, 2002Allowance for doubtful accountsCurrent receivables
    
    $
    1,095
    
    
    $
    6,776
    
    
    $
    6,765
    
    
    $
    1,106Acquisition reserves(1)Accrued expenses
    
    $
    
    
    
    $
    127
    
    
    $
    
    
    
    $
    127December 31, 2003Allowance for doubtful accountsCurrent receivables
    
    $
    1,106
    
    
    $
    1,943
    
    
    $
    1,980
    
    
    $
    1,069Acquisition reserves(1)Accrued expenses
    
    $
    127
    
    
    $
    
    
    
    $
    127
    
    
    $
    
   (1) Additions were charged in connection with purchase accounting. 67




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE We have previously reported in a current report on Form 8-K, dated April
19, 2002, that we terminated our engagement of Arthur Andersen LLP. 
 ITEM 9A. CONTROLS AND PROCEDURES Mediacom LLC The management of Mediacom LLC (Mediacom) carried out an evaluation,
with the participation of the Mediacoms Chief Executive Officer and Chief
Financial Officer, of the effectiveness of Mediacoms disclosure controls and
procedures as of December 31, 2003. 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, 2003 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 the 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, 2003.
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, 2003 that has materially affected, or is reasonably likely to
materially affect, Mediacom Capitals internal control over financial
reporting. 68




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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
    
    
    54
    
    
    Chairman and Chief Executive Officer
of Mediacom LLC and MCC and President and
Chief Executive Officer of Mediacom
CapitalMark E. Stephan
    
    
    47
    
    
    Executive Vice President, Chief Financial
Officer and Treasurer of Mediacom LLC and
MCC, Director of MCC and Treasurer and
Secretary of Mediacom CapitalJohn G. Pascarelli
    
    
    42
    
    
    Executive Vice President, Operations of MCCItalia Commisso Weinand
    
    
    50
    
    
    Senior Vice President, Programming and
Human Resources of MCCCharles J. Bartolotta
    
    
    49
    
    
    Senior Vice President, Customer
Operations of MCCCalvin G. Craib
    
    
    49
    
    
    Senior Vice President, Business
Development of MCCWilliam I. Lees, Jr
    
    
    45
    
    
    Senior Vice President, Corporate
Controller of MCCJoseph E. Young
    
    
    55
    
    
    Senior Vice President, General Counsel
and Secretary of MCCCraig S. Mitchell
    
    
    45
    
    
    Director of MCCWilliam S. Morris III
    
    
    69
    
    
    Director of MCCThomas V. Reifenheiser
    
    
    68
    
    
    Director of MCCNatale S. Ricciardi
    
    
    55
    
    
    Director of MCCRobert L. Winikoff
    
    
    57
    
    
    Director of MCC
 Rocco B. Commissohas 26 years of experience with the cable television
industry and has served as our Chairman and Chief Executive Officer since
founding our predecessor company in July 1995. From 1986 to 1995, he served as
Executive Vice President, Chief Financial Officer and a director of Cablevision
Industries Corporation. Prior to that time, Mr. Commisso served as Senior Vice
President of Royal Bank of Canadas affiliate in the United States from 1981,
where he founded and directed a specialized lending group to media and
communications companies. Mr. Commisso began his association with the cable
industry in 1978 at The Chase Manhattan Bank, where he managed the banks
lending activities to communications firms including the cable industry. He
serves on the board of directors and executive committees of the National Cable
Television Association and Cable Television Laboratories, Inc., and on the
board of directors of C-SPAN. Mr. Commisso holds a Bachelor of Science in
Industrial Engineering and a Master of Business Administration from Columbia
University. Mark E. Stephanhas 17 years of experience with the cable television
industry and has served as our Executive Vice President, Chief Financial
Officer and Treasurer since November 2003. Prior to that, he was Senior Vice
President, Chief Financial Officer and Treasurer since the commencement of our
operations in March 1996. Before joining us, Mr. Stephan served as Vice
President, Finance for Cablevision Industries from July 1993. Prior to that
time, Mr. Stephan served as Manager of the telecommunications and media lending
group of Royal Bank of Canada. 69




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John G. Pascarellihas 23 years of experience in the cable television
industry and has served as our managers Executive Executive Vice President,
Operations since November 2003. Prior to that he was our managers Senior Vice
President, Marketing Consumer Services from June 2000 and our managers Vice
President of Marketing from 1998. Before joining our manager in March 1998,
Mr. Pascarelli served as Vice President, Marketing for Helicon 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,
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 27 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, Times
Mirror Cable and Time Warner. Ms. Weinand is the sister of Mr. Commisso. Charles J. Bartolottahas 21 years of experience in the cable television
industry. Before joining 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
Telecommunications, Inc. from January 1997 and as Vice President and General
Manager for TKR Cable Company from 1989. Prior to that time, Mr. Bartolotta
held various management positions with Cablevision Systems Corporation. Calvin G. Craibhas 22 years of experience in the cable television
industry. Before joining our manager in April 1999 as Vice President, Business
Development, Mr. Craib served as Vice President, Finance and Administration for
Interactive Marketing Group from June 1997 to December 1998 and as Senior Vice
President, Operations, and Chief Financial Officer for Douglas Communications
from January 1990 to May 1997. Prior to that time, Mr. Craib served in various
financial management capacities at Warner Amex Cable and Tribune Cable. William I. Lees, Jr.has over 2 years experience in the cable television
industry. Before joining us in October 2001 as Senior Vice President,
Corporate Controller, Mr. Lees served as Executive Vice President and Chief
Financial Officer for Regus Business Centre Corp., a multinational real estate
services company, from July 1999 to September 2001. Prior to that time, he
served as Corporate Controller and Director for Formica Corporation from
September 1998 to July 1999, and as Chief Financial Officer for Imperial
Schrade Corporation from September 1993 to September 1998. He was previously
employed for 13 years by Ernst & Young. Joseph E. Younghas 19 years of experience with the cable television
industry. Before joining our manager in November 2001 as Senior Vice President
and General Counsel, Mr. Young served as Executive Vice President, Legal and
Business Affairs, for LinkShare Corporation, an Internet-based provider of
marketing services, from September 1999 to October 2001. Prior to that time,
he practiced corporate law with Baker & Botts, LLP from January 1995 to
September 1999. Previously, Mr. Young was a partner with the Law Offices of
Jerome H. Kern and a partner with Shea & Gould. Craig S. Mitchellhas held various management positions with Morris
Communications Company LLC for more than the past five years. He currently
serves as its Senior Vice President of Finance, Treasurer and Secretary and is
also a member of its board of directors. William S. Morris IIIhas served as the Chairman and Chief Executive
Officer of Morris Communications for more than the past five years. He was the
Chairman of the board of directors of the Newspapers Association of America for
1999-2000. Thomas V. Reifenheiserserved for more than five years as a Managing
Director and Group Executive of the Global Media and Telecom Group of Chase
Securities Inc. until his retirement in September 2000. He joined Chase in 1963
and had been the Global Media and Telecom Group Executive since 1977. He also
had been a director of the Management Committee of The Chase Manhattan Bank.
Mr. Reifenheiser is a member of the board of directors of Cablevision Systems
Corporation and Lamar Advertising Company, a leading owner and operator of
outdoor advertising and logo sign displays. 70




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Natale S. Ricciardihas held various management positions with Pfizer Inc.
for more than the past five years. Mr. Ricciardi joined Pfizer in 1972 and
currently serves as its Vice President, U.S. Manufacturing, with responsibility
for all of Pfizers U.S. manufacturing facilities. Robert L. Winikoffhas been a partner of the law firm of Sonnenschein Nath
& Rosenthal, LLP since August 2000. Prior thereto, he was a partner of the law
firm of Cooperman Levitt Winikoff Lester & Newman, P.C. for more than five
years. Sonnenschein Nath & Rosenthal, LLP currently serves as MCCs outside
general counsel and prior to such representation Cooperman Levitt Winikoff
Lester & Newman, P.C. served as MCCs outside general counsel since 1995. Since we are not a listed company, we are not required to establish an
audit committee. Rather, the functions of an audit committee for our company
are performed by the audit committee of our manager. The audit committee of our
manager consists of three directors, all of whom are independent directors as
defined by the listing standards of the Nasdaq Stock Market. The current
members of the audit committee are Thomas V. Reifenheiser (Chairman), Craig S.
Mitchell, and Natale S. Ricciardi. The board of directors of our manager has
determined that Mr. Reifenheiser meets the SEC definition of an audit committee
financial expert. 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 has
been filed as an exhibit to this annual report. 71




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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, 2003, MCC received $8.4 million of such management fees. Other Relationships 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. 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, 2003, we received
in aggregate $18.0 million in cash dividends on the preferred equity. 72




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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Fees for professional services provided by our independent auditors in
each of the last two fiscal years, in each of the following categories are as
follows (dollars in thousands): 2003
    
    
    2002Audit fees
    
    
    $295
    
    
    
    $258Audit-related fees
    
    
    30
    
    
    
    Total
    
    
    $325
    
    
    
    $258 Fees for audit services include fees associated with the annual audit, the
reviews of our quarterly reports on Form 10-Q, and assistance with and review of
documents filed with the Securities and Exchange Commission.
Audit-related fees consist of a controls review and related audit consultation. 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. 73




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PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements Our financial statements as set forth in the Index to Consolidated
Financial Statements under Part II, Item 8 of this Form 10-K are hereby
incorporated by reference. (b) Exhibits The following exhibits, which are numbered in accordance with Item 601 of
Regulation S-K, are filed herewith or, as noted, incorporated by reference
herein: ExhibitNumber
    
    Exhibit Description4.1
    
    Indenture relating to 8 1/2% senior notes due 2008 of Mediacom LLC and Mediacom Capital
Corporation (1)4.2
    
    Indenture relating to 7 7/8% senior notes due 2011 of Mediacom LLC and Mediacom Capital
Corporation (2)4.3
    
    Indenture relating to 9 1/2% senior notes due 2013 of Mediacom LLC and Mediacom Capital
Corporation (3)10.1(a)
    
    Credit Agreement dated as of September 30, 1999 for the Mediacom USA Credit Facility (4)10.1(b)
    
    Amendment No. 1 dated December 17, 1999 between Mediacom Southeast LLC, Mediacom
California LLC, Mediacom Delaware LLC, Mediacom Arizona LLC and The Chase Manhattan Bank,
as administrative agent for the lenders (3)10.1(c)
    
    Amendment No. 2 dated February 4, 2000 between Mediacom Southeast LLC, Mediacom
California LLC, Mediacom Delaware LLC, Mediacom Arizona LLC and The Chase Manhattan Bank,
as administrative agent for the lenders (3)10.1(d)
    
    Amendment No. 3 dated September 12, 2002 between Mediacom Southeast LLC, Mediacom
California LLC, Mediacom Delaware LLC, Mediacom Arizona LLC and JPMorgan Chase Bank, as
administrative agent for the lenders (5)10.2(a)
    
    Credit Agreement dated as of November 5, 1999 for the Mediacom Midwest Credit Facility (4)10.2(b)
    
    Amendment No. 2 dated December 17, 1999 between Mediacom Illinois LLC, Mediacom Indiana
LLC, Mediacom Iowa LLC, Mediacom Minnesota LLC, Mediacom Wisconsin LLC, Zylstra
Communications Corporation and The Chase Manhattan Bank, as administrative agent for the
lenders (3)10.2(c)
    
    Amendment No. 2 dated February 4, 2000 between Mediacom Illinois LLC, Mediacom Indiana
LLC, Mediacom Iowa LLC, Mediacom Minnesota LLC, Mediacom Wisconsin LLC, Zylstra
Communications Corporation and The Chase Manhattan Bank, as administrative agent for the
lenders (3)10.2(d)
    
    Amendment No. 3 dated September 12, 2002 between Mediacom Illinois LLC, Mediacom Indiana
LLC, Mediacom Iowa LLC, Mediacom Minnesota LLC, Mediacom Wisconsin LLC, Zylstra
Communications Corporation and JPMorgan Chase Bank, as administrative agent for the
lenders (5)
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10.3
    
    Form of Amended and Restated Registration Rights Agreement by and among Mediacom
Communications Corporation, Rocco B. Commisso, BMO Financial, Inc., CB Capital Investors,
L.P., Chase Manhattan Capital, L.P., Morris Communications Corporation, Private Market
Fund, L.P. and U.S. Investor, Inc. (4)10.4
    
    Fifth Amended and Restated Operating Agreement of Mediacom LLC (6)14.1
    
    Code of Ethics21.1
    
    Subsidiaries of Mediacom LLC (3)23.1
    
    Consent of PricewaterhouseCoopers LLP23.2
    
    Consent of Arthur Andersen LLP (7)31.1
    
    Rule 15d-14(a) Certifications of Mediacom LLC31.2
    
    Rule 15d-14(a) Certifications of Mediacom Capital Corporation32.1
    
    Section 1350 Certifications of Mediacom LLC32.2
    
    Section 1350 Certifications of Mediacom Capital Corporation
 (c) Financial Statement Schedule The following financial statement schedule  Schedule II  Valuation and
Qualifying Accounts  is part of this Form 10-K and is on page 67. (d) Reports on Form 8-K None.   (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 Registration Statement on Form S-4 (File No.
333-85893) of Mediacom LLC and Mediacom Capital Corporation and
incorporated herein by reference.(3)
    
    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.(4)
    
    Filed as an exhibit to the Registration Statement on Form S-1 (File No.
333-90879) of Mediacom Communications Corporation and incorporated herein
by reference.(5)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002 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, 1999 of Mediacom LLC and incorporated herein by
reference.(7)
    
    The consolidated financial statements of Mediacom LLC and Mediacom
Capital Corporation (the Registrants) as of December 31, 2001 and 2000
and for the years then ended included in this Annual Report on Form 10-K
which are incorporated by reference into the Registrants Registration
Statement on Form S-3/A (File Nos. 333- 75




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82124-01 and 333-82124-04), have been audited by Arthur Andersen LLP,
independent public accountants (AA). However, after reasonable efforts,
the Registrants have been unable to obtain the written consent of AA with
respect to the incorporation by reference of such financial statements in
the Registration Statement. Therefore, the Registrants have dispensed with
the requirement to file the written consent of AA in reliance upon Rule 437a
of the Securities Act of 1933. As a result, you may not be able to recover
damages from AA under Section 11 of the Securities Act of 1933, for any
untrue statements of material fact or any omissions to state a material
fact, if any, contained in the aforementioned financial statements of the
Registrants which are incorporated in the Registration Statement by
reference. 76




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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 26, 2004
    
    By:
    
    /s/ Rocco B. CommissoRocco B. CommissoManager, Chairman and
Chief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Rocco B. Commisso
Rocco B. Commisso
    
    Manager, Chairman and Chief
Executive Officer (principal executive officer)
    
    March 26, 2004/s/ Mark E. Stephan
Mark E. Stephan
    
    Senior Vice President, Chief
Financial Officer and Treasurer (principal financial officer and
principal accounting officer)
    
    March 26, 2004
 77




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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 26, 2004
    
    By:
    
    /s/ Rocco B. CommissoRocco B. CommissoPresident, Chief Executive Officer 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
Rocco B. Commisso
    
    President, Chief Executive Officer
and Director (principal executive officer)
    
    March 26, 2004/s/ Mark E. Stephan
Mark E. Stephan
    
    Treasurer and Secretary(principal financial officer
and principal accounting officer)
    
    March 26, 2004
 78