##### 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, 2004 Commission File Numbers:
    
    333-57285-01333-57285
 Mediacom LLC
Mediacom Capital Corporation* (Exact names of Registrants as specified in their charters)
 New York
New York(State or other jurisdiction of
incorporation or organization)
    
    06-1433421
06-1513997(I.R.S. Employer
Identification Numbers)
 100 Crystal Run Road
Middletown, New York 10941(Address of principal executive offices) (845) 695-2600(Registrants telephone number) Securities registered pursuant to Section 12(b) of the Exchange Act:
None Securities registered pursuant to Section 12(g) of the Exchange Act:
None Indicate by check mark 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
þ  No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the Registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K: Not Applicable. Indicate by checkmark whether the registrants are accelerated filers (as defined in Rule 12b-2
of the Act). Yes o No
þ State the aggregate market value of the common equity held by non-affiliates of the
Registrants: Not Applicable Indicate the number of shares outstanding of the Registrants common stock: Not Applicable *Mediacom Capital Corporation meets the conditions set forth in General Instruction I (1) (a) and
(b) of Form 10-K and is therefore filing this form with the reduced disclosure format.




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MEDIACOM LLC
2004 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PagePART IItem 1.
    
    Business
    
    
    4Item 2.
    
    Properties
    
    
    29Item 3.
    
    Legal Proceedings
    
    
    29Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    29PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    30Item 6.
    
    Selected Financial Data
    
    
    31Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    34Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    52Item 8.
    
    Financial Statements and Supplementary Data
    
    
    53Item 9
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    74Item 9A.
    
    Controls and Procedures
    
    
    74Item 9B.
    
    Other Information
    
    
    74PART IIIItem 10.
    
    Directors and Executive Officers of the Registrants
    
    
    75Item 11.
    
    Executive Compensation
    
    
    78Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    78Item 13.
    
    Certain Relationships and Related Transactions
    
    
    78Item 14.
    
    Principal Accountant Fees and Services
    
    
    79PART IVItem 15.
    
    Exhibits, Financial Statement Schedule
    
    
    80EX-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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PART I 
 ITEM 1. BUSINESS Our Manager We are a wholly-owned subsidiary of Mediacom Communications Corporation, who is also our
manager. Mediacom Communications is the nations eighth largest cable television company based on
customers served and the leading cable operator focused on serving the smaller cities and towns in
the United States. As of December 31, 2004, our managers cable systems, which are owned and
operated through our operating subsidiaries and those of Mediacom Broadband LLC, passed an
estimated 2.79 million homes and served approximately 1.46 million basic subscribers and 2.22
million revenue generating units (RGUs). Mediacom Broadband LLC is also a wholly-owned
subsidiary of our manager. A basic subscriber is a customer who subscribes to a package of cable
television services. RGUs represent the sum of basic subscribers, digital customers and high-speed
data (HSD) customers. Our manager is a publicly-owned company whose Class A common stock is
listed on the Nasdaq National Market under the symbol MCCC. Our managers principal executive offices are located at 100 Crystal Run Road, Middletown, New
York 10941 and our managers telephone number at that address is (845) 695-2600. Our managers
website is located at www.mediacomcc.com. 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. Mediacom LLC As of December 31, 2004, our cable systems passed an estimated 1.33 million homes and served
approximately 675,000 basic subscribers and 1.0 million RGUs. Through our interactive broadband
network we provide our customers with a wide array of products and services, including analog and
digital video services, advanced video services such as video-on-demand (VOD), high-definition
television (HDTV) and digital video recorders (DVR), and HSD, also known as high-speed Internet
access or cable modem service. We currently offer our customers a variety of options to bundle our
array of video services with HSD. In the second quarter of 2005, we plan to begin the rollout of
cable telephony, which will enable us to offer our customers a triple-play bundle of video, HSD and
voice services. Recent Developments At our request, on March 16, 2005, the trustee of our 81/2% Senior Notes due 2008 (the
Notes) notified the holders that we had elected to redeem all of the outstanding Notes. As of
March 16, 2005, the aggregate principal amount of the Notes outstanding was $200.0 million. The
Notes were issued pursuant to an Indenture dated April 1, 1998. Pursuant to the redemption notice
and the terms of the Indenture, we will redeem the Notes on April 15, 2005 at a redemption price
equal to 101.417% of the outstanding principal amount of the Notes plus accrued interest. Business Strategy Our strategy is to be the leading single-source provider of advanced video, data and voice
products and services in our markets, which will allow us to deepen relationships with our existing
customers, attract new customers and further diversify our revenue streams. We believe that our
interactive broadband network is the superior platform today for the delivery of these products and
services within our service areas. We have a local presence, with facilities and employees in the
communities where our customers live. We believe that offering products and services in bundles,
together with reliable customer service and our local community presence, will enable us to execute
our strategy and compete effectively. 4




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Network Technology We operate high-capacity, fiber-optic cable systems, substantially all of which are activated
with two-way communications capability. We have also interconnected approximately 58% of our
estimated homes passed with a regional fiber network. In 2005, we plan to add synchronous optical
network (SONET) technology to our regional fiber network in order to create full redundancy.
SONET is a fiber-optic transmission system for high-speed digital traffic which uses a self-healing
ring architecture to reroute traffic if a break in communications occurs. We believe that our
broadband networks extended reach and robust capabilities facilitate launches of new products such
as cable telephony. Product Development and New Applications Our network technology allows us to offer an array of advanced video, data and voice products
and services. As of December 31, 2004, our digital cable service was available to substantially
all of our basic subscribers, and we served approximately 160,000 digital customers. Our VOD and
HDTV services were available to approximately 38% and 56% of our digital customers, respectively,
and DVRs were available to our entire digital customer base. As of the same date, HSD was marketed
to substantially all of the estimated homes passed by our cable systems, and we served
approximately 162,000 data customers. We will continue to capitalize on the capabilities of our
network technology to develop new products and services that will further differentiate us from our
competitors. Bundling of Broadband Products and Services We believe that bundled products and services offer our customers the convenience of having a
single provider contact for ordering, scheduling, provisioning, billing and customer care. Our
customers can also realize greater value through bundle discounts as they obtain additional
products and services from us. We currently offer video and HSD bundles, and when we introduce
cable telephony in the second quarter of 2005, we will offer triple-play bundles of video, HSD and
voice. We also believe that, as we become more effective in bundling products and services, it
will help us to attract new customers and reduce customer churn. Customer Service Attaining higher levels of customer satisfaction is critical to our success in the
increasingly competitive environment we face today. We continue to invest in our customer care
personnel and call center technology to improve our capabilities in customer service and have
attained internal customer service measures that generally meet or exceed those standards
established by the National Cable and Telecommunications Association on a 24 hour per day, seven
day per week basis. In 2004, we completed our investment in virtual contact center technology
across our call centers and, as a result, raised our level of customer service and improved the
productivity of our call center personnel. Community Presence Historically, one of our key objectives was to bridge the digital divide, or technology gap,
that had developed between the smaller cities and towns and the large urban markets in the United
States. Today, due to the significant investments we have made in our cable systems, substantially
all of the communities we serve now have access to the latest in broadband products and services. We continue our efforts to build good relationships with the communities we serve by
participating in a wide range of local educational and community service initiatives. Our major
company-wide programs include the Mediacom Cable in the Classroom program which provides 1,461
schools with free video service and 34 schools with free high-speed Internet access. We also
provide free cable service to over 2,000 government buildings, libraries, and not-for-profit
hospitals in our franchise areas. We develop and offer exclusive local programming in our
communities in an effort to foster community awareness. For example, in many of the communities we
serve in the Florida panhandle, the Gulf Coast Network channel currently airs 15 to 20 hours of
programming per week, including high school and college sporting events and local public affairs
programs. 5




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Products and Services Video We receive a majority of our revenues from video subscription services. Subscribers typically
pay us on a monthly basis and generally may discontinue services at any time. We design our
channel line-ups for each system according to demographics, programming preferences, channel
capacity, competition, price sensitivity and local regulation. Monthly subscription rates and
related charges vary according to the type of service selected and the type of equipment used by
subscribers. Our video services include the following: Basic Service.Our basic service includes, for a monthly fee, local broadcast channels,
network and independent stations, limited satellite-delivered programming, and local public,
government, home-shopping and leased access channels. Expanded Basic Service.Our expanded basic service includes, for an additional monthly fee,
various satellite-delivered channels such as CNN, MTV, USA Network, ESPN, Lifetime, Nickelodeon and
TNT. Pay-Per-View Service.Our pay-per-view services allow customers to pay to view a single
showing of a feature film, live sporting event, concert and other special event, on an unedited,
commercial-free basis. Digital Cable Service.Customers who subscribe to our digital cable offerings receive up to
230 digital channels in many of our cable systems. We currently offer several digital cable
programming packages that include digital basic channels, multichannel premium services,
pay-per-view movie and sports channels, digital music channels, and an interactive on-screen
program guide. Our digital offerings of multichannel premium services include premium channels in
HD format and unlimited access to subscription-based VOD (SVOD). We believe that these offerings
highlight both the value of our digital cable services and our technologically advanced broadband
network, and encourage basic subscribers to upgrade to digital cable service. Customers pay a
monthly fee for digital cable service, which varies according to the level of service and the
number of digital converters selected by the subscriber. A digital converter or cable card is
required to receive our digital cable service. Video-On-Demand.Our VOD service provides on-demand access to approximately 1,200 hours of
movies, special events and general interest titles stored at our headend facilities. With this
service, our customers enjoy full functionality, including the ability to pause, rewind and fast
forward selected programming. Our VOD service is either free of charge, offered as part of an SVOD
premium package, such as Starz!, Showtime or HBO, or ordered on a pay-per-view basis. We currently
offer VOD service to approximately 38% of our digital customers. During 2005, we plan to make VOD
service available in additional cable systems representing another 14% of our digital customers and
increase the amount of available content, including additional childrens and music programming. High-Definition Television.HDTV features improved, high-resolution picture quality, improved
audio quality and a wide-screen, theater-like display. Our HDTV service includes high definition
signals for local broadcast stations that make these signals available to us, and, as part of
premium channel subscriptions, Starz! HD, Showtime HD and HBO HD. We also provide, as part of our
HD Pak tier for an additional monthly fee, certain premium HDTV programming, such as ESPNHD, HDNet,
HDNet Movies, Universal HD and Discovery HD. As of December 31,
2004, 42 local broadcast channels
in our service areas were transmitting in HDTV, and we had secured
agreements to carry 16 of them.
We currently offer HDTV service in markets serving approximately 56% of our digital customers.
During 2005, we plan to make HDTV service available in additional cable systems, representing
another 21% of our digital customers, and to increase the amount of available HDTV content
including more local broadcast channels and other HDTV content. Our HDTV service requires the use
of an advanced digital converter for which we charge a monthly fee. Digital Video Recorders.We offer our customers digital converters that have digital video
recording capability. Using the interactive program guide, our customers with DVRs can record
programming on the hard drive component of the digital converter and view the recorded programming
using the play, pause, rewind and fast forward functions. The DVR can also pause live television,
and rewind or fast-forward it, as well as record one show while watching another, or record two
shows simultaneously. The DVRs we provide our customers are HDTV-capable. We began deploying DVRs
in certain of our cable systems in March 2004 and expanded this offering to all of our cable
systems by the end of 2004. 6




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High-Speed Data We offer several packages of HSD services with differing speeds and prices. Our HSD services
are always activated, and as a result, the customer does not need to dial into an Internet service
provider and await authorization. Our HSD services include our interactive portal, which provides
multiple e-mail addresses and personal webspace for customers, as well as local content, such as
community chamber of commerce news, which we solicit and support. Commercial Data Through our network technology, we provide a range of advanced data and communications
services for the commercial market. We leverage our existing cable systems and cable modem
services to offer small and medium-sized businesses a range of high-speed data access products.
For larger enterprise customers, we capitalize on the broad reach and capabilities of our regional
fiber network, with nearly 6,000 route miles of high-capacity fiber optic cable, to build
customized solutions, which may include transparent LAN services, virtual private networks, and
high-volume, high-speed data access. Telephony In the second quarter of 2005, we plan to begin the rollout of our cable telephony service in
certain of our cable systems. Our service will use technology that makes it possible to have a
telephone conversation over a dedicated Internet Protocol (IP) network instead of dedicated voice
transmission lines. This allows the elimination of circuit switching and the associated waste of
bandwidth. Instead, packet switching is used, where IP packets with voice data are sent over the
network only when data needs to be sent, i.e. when a caller is talking. Its advantages over
traditional telephony include: lower costs per call, especially for long-distance calls; lower
infrastructure costs because once the IP infrastructure is installed, little or no additional
telephony infrastructure is needed; and new advanced features. Our telephony service will compete primarily with the phone service offered by the incumbent
local phone company. Its features will include: unlimited local and long-distance calling
throughout the U.S. and North America; the ability to keep the existing phone number where local
number portability is supported; the ability to access enhanced Emergency 911 dialing; and the
ability to use existing phones and in-home wiring. In 2004, we entered into an agreement with Sprint Corporation whereby Sprint assists us with
provisioning capabilities and provides us with switching and termination of traffic to the public
switched telephone network, delivery of enhanced emergency 911 service, local number portability
and operator and directory services. We expect to offer cable telephony service to approximately
500,000 homes in our markets within twelve months of our initial market launch. Advertising We generate revenues from the sale of advertising time on up to 36 satellite-delivered
channels such as CNN, Lifetime, Discovery, ESPN, TBS and USA. We have an advertising sales
infrastructure that includes in-house production facilities, production and administrative
employees and a locally based sales workforce. In 2004, we completed the process of extending our
advertising infrastructure to our cable systems that previously had third-party advertising
agreements. In many of our markets, we have entered into agreements with other cable operators to
jointly sell local advertising, simplifying our prospective clients purchase of local advertising
and expanding the reach of advertising they purchase. In some of these markets, we represent the
advertising sales efforts of other cable operators; in other markets, other cable operators
represent us. 7




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Description of Our Cable Systems Overview The following table provides an overview of selected operating and cable network data for our
cable systems for the years ended: 2004
    
    2003
    
    2002
    
    2001
    
    2000Operating Data:Core VideoEstimated homes passed(1)
    
    
    1,329,000
    
    
    
    1,282,500
    
    
    
    1,252,000
    
    
    
    1,200,000
    
    
    
    1,173,000Basic subscribers(2)
    
    
    675,000
    
    
    
    723,700
    
    
    
    752,000
    
    
    
    771,000
    
    
    
    779,000Basic penetration(3)
    
    
    50.8
    %
    
    
    56.4
    %
    
    
    60.1
    %
    
    
    64.3
    %
    
    
    66.4
    %Digital CableDigital customers(4)
    
    
    160,000
    
    
    
    151,400
    
    
    
    133,000
    
    
    
    88,000
    
    
    
    40,000Digital penetration(5)
    
    
    23.7
    %
    
    
    20.9
    %
    
    
    17.7
    %
    
    
    11.4
    %
    
    
    5.1
    %DataData customers(6)
    
    
    162,000
    
    
    
    122,200
    
    
    
    81,000
    
    
    
    38,000
    
    
    
    15,600Data penetration(7)
    
    
    12.2
    %
    
    
    9.5
    %
    
    
    6.5
    %
    
    
    3.2
    %
    
    
    1.3
    %Revenue Generating Units(8)
    
    
    997,000
    
    
    
    997,300
    
    
    
    966,000
    
    
    
    897,000
    
    
    
    834,600Customer Relationships(9)
    
    
    693,000
    
    
    
    735,300
    
    
    
    760,000
    
    
    
    774,000
    
    
    
    N/ACable Network Data:Miles of plant
    
    
    27,400
    
    
    
    26,150
    
    
    
    25,500
    
    
    
    25,000
    
    
    
    24,500Density(10)
    
    
    49
    
    
    
    49
    
    
    
    49
    
    
    
    48
    
    
    
    48
   (1)
    
    Represents the estimated number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable systems service area.(2)
    
    Represents a dwelling with one or more television sets that receives a package of
over-the-air broadcast stations, local access channels or certain satellite-delivered cable
television services. Accounts that are billed on a bulk basis, which typically receive
discounted rates, are converted into full-price equivalent basic subscribers by dividing total
bulk billed basic revenues of a particular system by the most prevalent combined limited and
expanded cable rate charged to basic subscribers in that system. Basic subscribers include
connections to schools, libraries, local government offices and employee households that may
not be charged for limited and expanded cable services, but may be charged for digital cable,
VOD, HDTV, DVR or high-speed Internet service. Customers who exclusively purchase high-speed
Internet service are not counted as basic subscribers. Our methodology of calculating the
number of basic subscribers may not be identical to those used by other cable companies.(3)
    
    Represents basic subscribers as a percentage of estimated homes passed.(4)
    
    Represents customers that receive digital cable services.(5)
    
    Represents digital customers as a percentage of basic subscribers.(6)
    
    Represents residential data customers and small to medium-sized commercial accounts
with modems billed at higher rates than residential customers. Small to medium-sized
commercial accounts generally represent customers with bandwidth requirements less than 5Mbps.
These commercial accounts are converted to equivalent residential data customers by dividing
their associated revenues by the applicable residential rate. Our data customers exclude large
commercial accounts and include an insignificant number of dial-up customers. Our methodology
of calculating data customers may not be identical to those used by other cable companies.(7)
    
    Represents the number of total data customers as a percentage of estimated homes passed.(8)
    
    Represents the sum of basic subscribers, digital customers and data customers.(9)
    
    Represents the total number of customers that receive at least one level of service,
encompassing video and data services, without regard to which service(s) customers purchase.
This information is not available for periods prior to 2001.(10)
    
    Represents estimated homes passed divided by miles of plant. 8




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Technology Overview We believe in investing in our broadband network, our facilities and other equipment to
improve our competitive position. During our planned network upgrade, which was completed in 2003,
we made substantial investments in our cable network. The primary features of our network are:  
    hybrid fiber-optic coaxial, or HFC, architecture;
    98% of the network miles with bandwidth capacity of 550MHz to 870MHz;
    96% of estimated homes passed with 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, HFC architecture.
The HFC architecture combines the use of fiber optic cable, which can carry hundreds of video, data
and voice channels over extended distances, with coaxial cable, which requires more extensive
signal amplification in order to obtain the desired levels for delivering channels. In most
systems, we deliver our signals via fiber optic cable to individual nodes serving an average of 350
homes or commercial buildings. A node is a single connection to a cable systems main,
high-capacity fiber optic cable. Coaxial cable is then connected from each node to the individual
homes or buildings. Our network design generally provides for six strands of fiber to each node,
with two strands active and four strands reserved for future services. We believe that our design
provides high capacity and superior signal quality, as well as providing reserve capacity for the
addition of future services. The following table describes the technological state of our cable network as of December 31,
2004: Percentage of Cable NetworkLess than
    
    Standard
    
    Enhanced
    
    Greater than
    
    
    Two-Way550MHz
    
    550MHz
    
    550MHz
    
    550MHz
    
    
    Capable2.0%
    
    
    10.6%
    
    
    
    23.0%
    
    
    
    64.4%
    
    
    
    
    96%
 As of December 31, 2004, our 550MHz systems consisted of standard 550MHz and enhanced
550MHz systems. Our enhanced 550MHz cable systems benefit from fiber-to-the-node construction to
increase their capacity, enabling them to deliver the same broadband video, data and voice services
as our systems with bandwidths greater than 550MHz. As a result, we have the ability to provide
digital cable television, VOD, HDTV, HSD access and other telecommunications services across
virtually our entire footprint. In 2005, we plan to upgrade a portion of our 550MHz cable systems. As of December 31, 2004, our cable systems were operated from 111 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, which was substantially completed in 2003, we
deployed nearly 6,000 route miles of fiber optic cable, creating a large regional fiber network
with the potential to provide advanced telecommunications services to approximately 58% of our
estimated homes passed. In 2005, we plan to add SONET technology to our regional fiber network in
order to create full redundancy. SONET is a fiber-optic transmission system for high-speed digital
traffic which uses a self-healing ring architecture to reroute traffic if a break in communications
occurs. This regional network has excess fiber optic capacity to accommodate new and expanded
products and services, such as our commercial data business. Its ability to reach more subscribers
from a single headend also makes it more efficient, in terms of capital investment, to introduce
new and advanced services. 9




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Programming Supply We have various fixed-term contracts to obtain, directly and indirectly, programming for our
cable systems from programming suppliers whose compensation is typically based on a fixed monthly
fee per customer. We negotiate programming contract renewals both directly and through a
programming cooperative of which we are a member. Most of our contracts are secured directly due
to the need to tailor contracts to our specific business concerns. We attempt to secure
longer-term programming contracts which may include marketing support and incentives from
programming suppliers. We expect our programming costs to remain our largest single expense item for the foreseeable
future. In recent years, we have experienced a substantial increase in the cost of our
programming, particularly sports programming, well in excess of the inflation rate or the change in
the consumer price index. Our programming costs will continue to rise in the future due to
increased costs to purchase programming and as we provide additional programming to our customers. We also have various retransmission consent arrangements with commercial broadcast stations,
which generally expire in December 2005. In some cases, retransmission consents have been
contingent upon our carriage of satellite delivered cable programming offered by companies
affiliated with the stations owners or the broadcast network carried by such stations. Customer Service System reliability, a motivated and productive workforce and customer satisfaction are
cornerstones of our business strategy. We expect that investments in our cable network and our
regional contact centers significantly strengthen customer service, enhance the reliability of our
cable network and allow us to introduce new services to our customers. We benefit from
locally-based customer technical support staff who are available to visit customers premises if
problems arise. We maintain three regional contact centers staffed with dedicated customer service
representatives, or CSRs, and technical service representatives, or TSRs, who are available to
respond to customer calls 24 hours a day, seven days a week. We believe our regional contact
centers allow us to effectively manage resources and reduce response times to customer inquiries.
TSRs handle our HSD customers, ensuring prompt and efficient resolution of technical inquiries or
issues. In 2004, we completed the implementation of virtual contact center technology to provide
customers with extensive self-service capabilities, such as making a payment and verifying service
appointments, and to enable us to re-route customer calls among our three regional contact centers
and other satellite offices to minimize hold times. Our virtual contact centers also give our CSRs
and TSRs instant access to the calling customers file and our products and services in the
customers market. We believe our virtual contact centers will help us ensure the most efficient
utilization of our call center personnel and the most effective customer interactions. Reinforcing
our commitment to customer service, we have attained customer service standards that meet or exceed
those standards established by the National Cable and Telecommunications Association. Also in
2004, we completed the rollout of interactive voice response, or IVR, technology, and today over
25% of all inbound calls to our customer contact centers are handled through the IVR, further
enhancing the efficiencies of our customer service operations. We continue to invest in personnel, equipment and technology to improve our customer care. In
2004, we implemented a web-based customer service platform called e-Care for bill presentment
purposes, and we are currently expanding our e-Care capabilities to include customer
self-fulfillment. Community Relations We are dedicated to fostering strong community relations in the communities served by our
cable systems. We support local charities and community causes in various ways, including staged
events and promotional campaigns to raise funds and supplies for persons in need and in-kind
donations that include production services and free airtime on cable networks. We participate in
the Cable in the Classroom program, which provides 1,461
schools with free video service and 34 schools with free high-speed Internet service. We also provide free
cable television service to over 2,100 government buildings, libraries and not-for-profit hospitals
in our franchise areas. 10




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We also develop and offer exclusive local programming to our communities, a capability not
available to direct broadcast satellite service providers, our primary competition in the video
business. Several of our cable systems have production facilities for the creation of local
programming, which includes local school sports events, fund-raising telethons by local chapters of
national charitable organizations, local concerts and other entertainment. In Alabama, our Gulf
Coast Network broadcasts city council meetings and local high school football games and produces
The Insider, local programming for the Santa Rosa community. 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, 2004, we held 1,003 cable television franchises. These franchises provide
for the payment of fees to the issuing authority. In most of the cable systems, such franchise
fees are passed through directly to the customers. The Cable Communications Policy Act of 1984, or
1984 Cable Act, prohibits franchising authorities from imposing franchise fees in excess of 5% of
gross revenues from specified cable services and also permits the cable operator to seek
renegotiation and modification of franchise requirements if warranted by changed circumstances. Substantially all of the basic subscribers of our cable systems are in service areas that
require a franchise. The table below groups the franchises of our cable systems by year of
expiration and presents the approximate number and percentage of basic subscribers for each group
as of December 31, 2004. Percentage of
    
    
    Number of
    
    
    Percentage ofNumber of
    
    
    Total
    
    
    Basic
    
    
    Total BasicYear of Franchise Expiration
    
    Franchises
    
    
    Franchises
    
    
    Subscribers
    
    
    Subscribers2005 through 2008
    
    
    247
    
    
    
    24.6
    %
    
    
    214,000
    
    
    
    31.7
    %2009 and thereafter
    
    
    756
    
    
    
    75.4
    %
    
    
    461,000
    
    
    
    68.3
    %Total
    
    
    1,003
    
    
    
    100.0
    %
    
    
    675,000
    
    
    
    100.0
    %
 We have never had a franchise revoked or failed to have a franchise renewed. In
addition, substantially all of our franchises eligible for renewal have been renewed or extended
prior to their stated expirations, and no franchise community has refused to consent to a franchise
transfer to us. The 1984 Cable Act provides, among other things, for an orderly franchise renewal
process in which franchise renewal will not be unreasonably withheld or, if renewal is denied and
the franchising authority acquires ownership of the cable system or effects a transfer of the cable
system to another person, the cable operator generally is entitled to the fair market value for
the cable system covered by such franchise. In addition, the 1984 Cable Act established
comprehensive renewal procedures, which require that an incumbent franchisees renewal application
be assessed on its own merits and not as part of a comparative process with competing applications.
We believe that we have satisfactory relationships with our franchising communities. 11




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Competition Our manager is the eighth largest cable television company based on subscribers and we compete
with various communications and entertainment providers. Our competitive positioning is
significantly influenced by several factors, such as changes in technology and regulation and the
corporate size and affiliations of our competitors. We operate in a constantly changing
technological environment, and new technologies may give rise to new products and services that
compete against our own. Recent regulatory policies have created a more favorable operating
environment for new and existing technologies that provide, or may provide, both opportunities and
threats. Acquisitions or combinations that significantly change a companys size, or permanent and
temporary alliances also impact competitiveness as these may provide benefits, such as improved
access to resources (including financing, content and equipment), efficiencies of scale and the
ability to provide multiple services. We expect the number and types of our competitors to
increase as the expansion of our products and services brings us into new businesses and as new
providers of alternative products and services enter our markets. We are unable to predict the
effects, if any, of such future developments on our business. In video services our principal competitors are direct broadcast satellite (DBS) services.
In high-speed data we compete with digital subscriber line (DSL) services in markets where it has
been made available by telephone companies. Telephone companies now bundle voice and data and have
recently entered into marketing alliances that allow them to add DBS video to their bundles. Major
telephone companies have also begun to carry out their announced plans to construct new fiber
networks over the next several years, which will allow them to offer video services over their
networks. These phone companies may become significant direct video competitors if they deploy new
fiber networks on a large scale in our markets. With our planned launch of cable telephony in the
second quarter of 2005, we will compete with providers of various types of telephone services,
including providers of traditional circuit switched and wireless telephony. We seek to compete effectively by using our broadband network to continue to provide a rich
variety of video programming and new products and services including VOD, HDTV, DVRs, HSD and,
beginning this year, cable telephony. We believe our ability to deliver multiple services from a
single platform and to bundle these services strengthens our competitive position. We also believe
it is important for us to continue to provide high quality customer service and foster good
community relationships through our locally-based personnel and facilities. Video Direct Broadcast Satellite Providers DBS service providers are the cable industrys most significant competitors, having grown
their customer base rapidly over the past several years, far exceeding the basic subscriber growth
rate of the cable industry. According to recent industry reports, DBS service providers currently
deliver video programming services to over 24 million customers in the United States. The two
largest DBS companies, DIRECTV, Inc., or DIRECTV and EchoStar Communications Corporation, or
Echostar, provide service to substantially all of these DBS customers and are each among the four
largest providers of multichannel video programming services based on reported customers. The News
Corporation Limited, or News Corporation, which acquired a controlling interest in DIRECTV in 2003,
owns the Fox Television Network and several cable programming services, as well as DBS operations
in Europe, Asia and Latin America. Affiliation with News Corporation could provide DIRECTV with
access to financial, programming and other resources that strengthen its competitive position. In
early 2005, Echostar entered into a definitive agreement to acquire from Cablevision Systems
Corporation the broadcast satellite and certain related assets of VOOM, a recently launched DBS
service offering primarily HDTV services on a national basis. DBS service providers have also
entered into alliances with certain telephone companies that allow the telephone companies to
bundle DBS video with their voice and data services. DBS differs from cable television in certain areas that impact competitiveness. DBS service
providers use high-powered satellites to offer their customers services with typically more than
300 channels of programming. DBS service can be received virtually anywhere in the continental
United States through the installation of a small rooftop or side-mounted antenna, with the only
requirement being an unobstructed view of the southern sky. DBS service providers do not pay the
franchise fees of up to 5% of revenues and property taxes that cable
operators are required by many localities to pay. These fundamental differences allow DBS providers to offer uniform
nationwide service, pricing and branding, giving them greater operating efficiencies overall and
allowing them to compete effectively. Furthermore, the initial investment by a DBS customer for
equipment has decreased substantially with offers by DBS service providers of discounted or free
equipment, installation and multiple units. 12




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DBS service providers have also benefited meaningfully from a change in legislation in 1999
that allowed them to deliver local broadcast signals, eliminating a significant competitive
advantage which we and other cable system operators had over them. As of December 31, 2004, DBS
service providers delivered local broadcast stations in markets representing an estimated 91% of
our basic subscribers, an increase of 43% from the prior year-end. The technological limitations of DBS give us and other cable operators certain advantages.
DBS technology has limited two-way interactivity, which restricts its ability to compete in
interactive video, HSD and voice services. In contrast, our broadband network allows full two-way
interactivity and greater varieties of advanced services. In video, we are able to offer VOD, SVOD
and DVR products and services while DBS is limited to DVRs. We also believe our cable-delivered
VOD and SVOD services are superior to DBS DVR service, as our VOD/SVOD customer can access and
independently control thousands of titles stored at a headend facility, while a DBS DVR customer is
limited to the much smaller number of titles that can be stored in the disk drive of the DVR box
sitting in the home. We are also able to deliver greater quantities of HDTV programming for the
foreseeable future, as DBS service providers currently face technological and other limitations on
their ability to deliver local HDTV broadcast signals in most of our markets. Our broadband network allows single platform delivery of video, HSD and, in the second quarter
of 2005, cable telephony. DBS service providers and certain phone companies have partnered to
provide these services in bundles. However, we believe our ability to deliver comparable bundles
from one platform is an advantage, as it allows us to provide customers a single provider contact
for ordering, provisioning, billing and customer care. We also believe our subscribers continue to prefer our meaningful presence in their
communities and the proprietary local content we produce and broadcast in several of our systems.
DBS service providers are not locally-based and do not have the ability to offer locally-produced
programming. Traditional Overbuilds Cable television systems are operated under non-exclusive franchises granted by local
authorities. More than one cable system may legally be built in the same area by another cable
operator, a local utility or another service provider. Some of these competitors, such as
municipally-owned entities, may be granted franchises on more favorable terms or conditions or
enjoy other advantages such as exemptions from taxes or regulatory requirements to which we are
subject. Well-financed businesses from outside the cable industry, such as utilities which already
possess or are developing fiber optic and other transmission facilities in the areas they serve,
are also competitors. We believe that various entities are currently offering cable service to an
estimated 8.7% of the estimated homes passed in the service areas of our franchises. Multichannel Multipoint Distribution Multichannel multipoint distribution systems (MMDS), or wireless cable systems, deliver
programming services over microwave channels licensed by the FCC and received by subscribers with
special antennas. These wireless cable systems are less capital intensive and subject to fewer
regulatory requirements than cable systems, and are not required to obtain local franchises or pay
franchise fees. Although relatively few wireless cable systems in the United States are currently
in operation or under construction, virtually all markets have been licensed or tentatively
licensed. The use of digital compression technology, and the FCCs recent amendment to its rules
to permit reverse path or two-way transmission over wireless facilities, enable multichannel
multipoint distribution systems to deliver more channels and additional services, including
Internet related services. Digital compression technology refers to the conversion of the standard
video signal into a digital signal and the compression of that signal to facilitate multiple
channel transmissions through a single channels signal. Generally, wireless cable operators are
now concentrated on data transmission services rather than video-service. We have very limited
competition from MMDS operators. 13




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Private Cable Television Systems Private cable television systems, known as satellite master antenna television (SMATV)
systems, compete with conventional cable television systems for the right to service condominiums,
apartment complexes and other multiple dwelling unit facilities. SMATV systems typically use a
single satellite dish for an entire building or complex to provide improved reception of local
television stations and many of the same satellite-delivered programming services offered by
franchised cable systems. SMATV systems typically are not subject to regulation like local
franchised cable operators. Under the Telecommunications Act of 1996, or 1996 Telecom Act, SMATV systems can interconnect
non-commonly owned buildings without having to comply with local, state and federal regulatory
requirements that are imposed upon cable systems providing similar services, as long as they do not
use public rights of way. The FCC has held that the latter provision is not violated so long as
interconnection across public rights of way is provided by a third party. SMATV system operators often enter into exclusive agreements with apartment building owners or
homeowners associations that preclude franchised cable television operators from serving residents
of such private complexes. However, the 1984 Cable Act gives franchised cable operators the right
to use existing compatible easements within their franchise areas on nondiscriminatory terms and
conditions. Accordingly, where there are preexisting dedicated compatible easements, cable
operators may not be unfairly denied access or discriminated against with respect to access to the
premises served by those easements. Conflicting judicial decisions have been issued interpreting
the scope of the access right granted by the 1984 Cable Act with respect to easements located
entirely on private property. Providers of Broadcast Television and Other Entertainment The extent to which a cable system competes with over-the-air broadcasting, which provides
signals that a viewer is able to receive directly, depends upon the quality and quantity of the
broadcast signals available by direct antenna reception compared to the quality and quantity of
such signals and alternative services offered by a cable system. As local over-the-air
broadcasters continue their federally-mandated transition to digital-only signal formats, the
extent to which those local broadcasters offer digital feeds of their analog programming,
additional programming on other digital channels and/or HDTV signals may increase competition for
customers with digital or HDTV receivers where such signals are not carried on the cable system.
The FCC has issued digital television (DTV) licenses that give traditional broadcasters the
ability to deliver HDTV and advanced digital services such as data transmission and subscription
video. Over-the-air DTV subscription service is now available in a few cities in the United
States. Cable systems also face competition from other sources of entertainment such as live sporting
events, movie theaters and home video products, including videotape recorders and videodisc
players. Telephone Companies The 1996 Telecom Act eliminated many restrictions on the ability of local telephone companies
to offer video programming. In addition to their joint-marketing alliances with DBS service
providers, certain local telephone companies have recently announced that they are now constructing
new fiber networks to replace their existing networks, which will allow them to offer video
services in addition to improved voice and high speed data services. If these and other telephone
companies decide to rebuild their networks in our markets and offer video services they will
compete with us and other video providers, which includes DBS service providers. Local telephone companies may have a number of different ways to enter the video programming
business, some of which do not require obtaining a local franchise. Local telephone companies and
other potential competitors have the ability to certify their competing video service as an open
video system. Open video system operators are not subject to certain requirements imposed by the
Cable Act upon more traditional cable operators. 14




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High Speed Data We offer HSD, or cable modem service, in many of our cable systems. Our cable modem service
competes mainly with the high-speed Internet access services offered by local and long distance
telephone companies. These competitors have substantial resources. DSL services offered by telephone companies provide Internet access at data transmission
speeds greater than that of standard telephone line or dial-up modems, putting DSL service in
direct competition with our cable modem service. Telephone companies that have made the necessary
plant investment have introduced DSL services in many of our markets, however, we believe their
serviceable areas currently do not match our network reach in those markets. The FCC has an
ongoing rulemaking proceeding that may materially reduce existing regulation of DSL service,
essentially freeing such service from traditional telecommunications regulation. Federal
legislation or judicial decisions may also reduce regulation of Internet services offered by
incumbent telephone companies. As discussed above, certain major telephone companies are currently constructing new fiber
networks. These companies have indicated that this will create a new platform that will allow them
to offer significantly faster high-speed data services compared to the offerings available under
current DSL technology. DBS service providers are currently offering two alternatives of satellite-delivered
high-speed data. The first is a one-way service that utilizes a telephone return path, in contrast
to our two-way, high-speed service, which does not require a telephone line. The other alternative
is a two-way, high-speed service, which requires additional equipment purchases by the customer and
is offered at higher prices than our own equivalent service. Due to these differences we believe
our high-speed data service is superior to the satellite-delivered service. Some Internet service providers (ISPs) offer dial-up Internet access service over standard
telephone lines in our markets. Dial-up service operates at much lower speeds than cable modem
service and is therefore not competitive with our high-speed data service. A number of these ISPs
have asked local authorities and the FCC to give them rights of access to cable systems broadband
infrastructure so that they can deliver their services directly to cable systems customers. This
kind of access is often called open access. Many local franchising authorities have examined the
issue of open access and a few have required cable operators to provide such access. Several
Federal courts have ruled that localities are not authorized to require open access. The FCC has
classified cable modem service as an information service, not as a telecommunications service.
As an information service, the FCC has held that cable systems are not required to open their
networks for use by others to provide ISP services. The 9th Circuit Court of Appeals has issued a
contrary decision that finds cable modem services to include both telecommunications service and
information service components. If the 9th Circuits decision (which is on appeal) prevails, it
could result in an open access requirement. If we were required to provide open access to ISPs as
a result of FCC action or court decisions, other companies could use our cable system
infrastructure to offer Internet services competitive with our own. Certain telecommunications companies are seeking to provide high-speed broadband services,
including interactive online services, using wireless technologies that may transcend present
service boundaries and avoid certain regulatory restrictions. Moreover, some electric utilities
have announced plans to deliver broadband services over their electrical distribution networks.
The FCC has an on-going rulemaking which, to date, appears limited to basic regulations to avoid
technical interference with existing services. If electric utilities provide broadband services
over their existing electrical distribution networks, they could become formidable competitors
given their resources. Cable Telephony We plan to roll out our cable telephony service in certain markets beginning in the second
quarter of 2005 and expanding to additional markets in subsequent years. Our planned telephony
service will provide both local and long distance calling. As such, it will directly compete with
the incumbent local phone company and long-distance service providers. Other competitors include
competitive local exchange carriers, which are non-incumbent local phone companies that provide
local services and access to long distance services over their own networks or over leased
networks, wireless telephone carriers and IP-based service providers. IP phone is becoming more
widely deployed by an increasing number of telecommunication service providers, which may result in
heightened competition for our cable telephony service. We believe the addition of cable telephony to our
video and data service bundles will help us compete with other providers of bundled services,
including telephone companies that bundle DBS video with their voice and data services, and the new
providers of IP phone service. 15




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Other Competition Advances in communications technology, as well as changes in the marketplace and the
regulatory and legislative environment, are constantly occurring. The FCC has authorized a new
interactive television service that permits non-video transmission of information between an
individuals home and entertainment and information service providers. This service, which can be
used by DBS systems, television stations and other video programming distributors, including cable
systems, is an alternative technology for the delivery of interactive video services. It does not
appear at the present time that this service will have a material impact on the operations of cable
systems. The FCC has allocated spectrum in the 28GHz range for a new multichannel wireless service
called Local Multipoint Distribution Service that can be used to provide video and
telecommunications services. The FCC completed the process of awarding licenses to use this
spectrum via a market-by-market auction. We do not know whether such a service would have a
material impact on the operations of cable systems. The 1996 Telecom Act directed the FCC to establish, and the FCC has adopted, regulations and
policies for the issuance of licenses for digital television to incumbent television broadcast
licensees. Digital television can deliver high-definition television pictures and multiple
digital-quality program streams, as well as CD-quality audio programming and advanced digital
services, such as data transfer or subscription video. The FCC also has authorized television
broadcast stations to transmit text and graphic information that may be useful to both consumers
and businesses. The FCC also permits commercial and non-commercial FM stations to use their
subcarrier frequencies to provide non-broadcast services, including data transmission. The quality of real-time or streaming of video over the Internet and into homes and businesses
continues to improve. These services are also becoming more available as the use of high speed
Internet access becomes more widespread. In the future, it is possible that video streaming will
compete with the video services offered by cable operators and other providers of video services.
For instance, programming suppliers may market their content directly to consumers through video
streaming over the Internet, bypassing cable operators or DBS providers as video distributors,
although the cable operators may remain as the providers of high speed Internet access service. Employees As of December 31, 2004, we employed 1,582 full-time employees and 77 part-time employees.
None of our employees are represented by a labor union. We consider our relations with our
employees to be satisfactory. 16




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##### Table of Contents



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




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Where there is no effective competition to the cable operators services, federal law gives
local franchising authorities the ability to regulate the rates charged by the operator for:  
    the lowest level of programming service offered by the cable operator, typically called
basic service, which includes, at a minimum, the local broadcast channels and any public
access or governmental channels that are required by the operators franchise;
    the installation of cable service and related service calls; and
    the installation, sale and lease of equipment used by subscribers to receive basic
service, such as converter boxes and remote control units. Local franchising authorities who wish to regulate basic service rates and related equipment
rates must first affirmatively seek and obtain FCC certification to regulate by following a
simplified FCC certification process and agreeing to follow established FCC rules and policies when
regulating the cable operators rates. Currently, the majority of the communities we serve have
not sought such certification to regulate our rates. Several years ago, the FCC adopted detailed rate regulations, guidelines and rate forms that a
cable operator and the local franchising authority must use in connection with the regulation of
basic service and equipment rates. The FCC adopted a benchmark methodology as the principal method
of regulating rates. However, if this methodology produces unacceptable rates, the operator may
also justify rates using either a detailed cost-of-service methodology or an add-on to the
benchmark rate based on the additional capital cost and certain operating expenses resulting from
qualifying upgrades to the cable plant. The Cable Act and FCC rules also allow franchising
authorities to regulate equipment rates on the basis of actual cost plus a reasonable profit, as
defined by the FCC. If the local franchising authority concludes that a cable operators rates are too high under
the FCCs rate rules, the local franchising authority may require the cable operator to reduce
rates and to refund overcharges to subscribers, with interest. The cable operator may appeal
adverse local rate decisions to the FCC. The FCCs regulations allow a cable operator to modify regulated rates on a quarterly or
annual basis to account for changes in:  
    the number of regulated channels;
    inflation; and
    certain external costs, such as franchise and other governmental fees, copyright and
retransmission consent fees, taxes, programming fees and franchise-imposed obligations. The Cable Act and/or the FCCs regulations also:  
    require cable operators to charge uniform rates throughout each franchise area that is
not subject to effective competition;
    prohibit regulation of non-predatory bulk discount rates offered by cable operators to
subscribers in multiple dwelling units; and
    permit regulated equipment rates to be computed by aggregating costs of broad categories
of equipment at the franchise, system, regional or company level. The FCC recently conducted an inquiry into the advisability of mandating the a la carte
offering of programming, as opposed to the cable industrys practice of packaging numerous channels
into tiers. Although the FCC recommended against an a la carte mandate, it is possible that in the future rate regulation on
the cable industry could be expanded to include new restrictions on the retail pricing or packaging
of cable programming. Such restrictions could adversely impact our business. 18




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Content Requirements Must Carry and Retransmission Consent The FCCs regulations contain broadcast signal carriage requirements that allow local
commercial television broadcast stations to elect once every three years whether to require a cable
system:  
    to carry the station, subject to certain exceptions; or
    to negotiate the terms by which the cable system may carry the station on its cable
systems, commonly called retransmission consent. The Cable Act and the FCCs regulations require a cable operator to devote up to one-third of
its activated channel capacity for the carriage of local commercial television stations. The Cable
Act and the FCCs rules also give certain local non-commercial, educational television stations
mandatory carriage rights, but not the option to negotiate retransmission consent. Additionally,
cable systems must obtain retransmission consent for carriage of:  
    all distant commercial television stations, except for certain commercial
satellite-delivered independent superstations such as WGN;
    commercial radio stations; and
    certain low-power television stations. Under legislation enacted in 1999, Congress barred broadcasters from entering into exclusive
retransmission consent agreements (through 2006) and required that broadcasters negotiate
retransmission consent agreements in good faith. In November 2004, Congress extended the ban on
exclusive retransmission consent agreements to cover all multi-channel video programming
distributors, including cable operators. The FCC has opened an inquiry into the impact on competition in the multichannel video
programming distribution market of the Cable Acts provisions and the FCCs rules on retransmission
consent, network nonduplication, syndicated exclusivity and sports blackouts. The FCCs inquiry
will form the basis for a report to Congress mandated by the Satellite Home Viewer Extension and
Reauthorization Act of 2004 (SHVERA), which is due September 8, 2005. The FCC also recently
opened a rulemaking to implement the requirement in SHVERA that extends the good faith
retransmission consent bargaining requirements from broadcasters to multichannel video programming
providers, including cable operators. Neither the outcome of these proceedings nor their impact
upon subsequent legislation, FCC regulations or the cable industry or our business or operations
can be predicted at this time. Must-carry obligations may decrease the attractiveness of the cable operators overall
programming offerings by including less popular programming on the channel line-up, while cable
operators may need to provide some form of consideration to broadcasters to obtain retransmission
consent to carry more popular programming. We carry both broadcast stations based on must-carry
obligations and others that have granted retransmission consent. The FCC has issued a decision that effectively requires mandatory carriage of local television
stations that surrender their analog channel and broadcast only digital signals. These stations
are entitled to request carriage in their choice of digital or converted analog format. Stations
transmitting in both digital and analog formats (Dual Format Broadcast Stations), which is
permitted during the current several-year transition period, have no carriage rights for the
digital format during the transition unless and until they turn in their analog channel. The FCC
has recently reaffirmed that cable operators are not required to carry the digital signal of Dual
Format Broadcast Stations that currently have must-carry rights for their analog signals. In
addition to rejecting a dual carriage requirement during the transition, the FCC also confirmed that a cable operator need only carry a broadcasters
primary video service (rather than all of the digital multi-cast services), both during and
after the transition. In addition, in November 2004, Congress passed a non-binding resolution
urging that legislation be considered in 2005 that would set a firm date for the broadcasters to
return their analog spectrum. The adoption, by legislation or FCC regulation, of additional
must-carry requirements would have a negative impact on us because it would reduce available
channel capacity and thereby could require us to either discontinue other channels of programming
or restrict our ability to carry new channels of programming that may be more desirable to our
customers. 19




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Tier Buy Through The Cable Act and the FCCs regulations require our cable systems, other than those systems
which are subject to effective competition, to permit subscribers to purchase video programming we
offer on a per channel or a per program basis without the necessity of subscribing to any tier of
service other than the basic service tier. Program Access To increase competition between cable operators and other video program distributors, the
Cable Act and the FCCs regulations:  
    preclude any satellite video programmer affiliated with a cable company, or with a
common carrier providing video programming directly to its subscribers, from favoring an
affiliated company over competitors;
    require such programmers to sell their programming to other unaffiliated video program
distributors; and
    limit the ability of such programmers to offer exclusive programming arrangements to
their related parties. Other Programming Federal law actively regulates other aspects of our programming, involving such areas as:  
    our use of syndicated and network programs and local sports broadcast programming;
    advertising in childrens programming;
    political advertising;
    origination cablecasting;
    adult programming;
    sponsorship identification; and
    closed captioning of video programming. Use of Our Cable Systems by the Government and Unrelated Third Parties The Cable Act allows local franchising authorities and unrelated third parties to obtain
access to a portion of our cable systems channel capacity for their own use. For example, the
Cable Act:  
    permits franchising authorities to require cable operators to set aside channels for
public, educational and governmental access programming; and 20




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
    requires a cable system with 36 or more activated channels to designate a significant
portion of its channel capacity for commercial leased access by third parties to provide
programming that may compete with services offered by the cable operator. The FCC regulates various aspects of third party commercial use of channel capacity on our
cable systems, including:  
    the maximum reasonable rate a cable operator may charge for third party commercial use
of the designated channel capacity;
    the terms and conditions for commercial use of such channels; and
    the procedures for the expedited resolution of disputes concerning rates or commercial
use of the designated channel capacity. Franchise Matters We have non-exclusive franchises in virtually every community in which we operate that
authorize us to construct, operate and maintain our cable systems. Although franchising matters
are normally regulated at the local level through a franchise agreement and/or a local ordinance,
the Cable Act provides oversight and guidelines to govern our relationship with local franchising
authorities. For example, the Cable Act and/or FCC regulations and determinations:  Provide guidelines for the exercise of local regulatory authority that:  
    affirm the right of franchising authorities, which may be state or local, depending on
the practice in individual states, to award one or more franchises within their
jurisdictions;
    generally prohibit us from operating in communities without a franchise;
    permit local authorities, when granting or renewing our franchises, to establish
requirements for cable-related facilities and equipment, but prohibit franchising
authorities from establishing requirements for specific video programming or information
services other than in broad categories; and
    permit us to obtain modification of our franchise requirements from the franchise
authority or by judicial action if warranted by commercial impracticability.  Generally prohibit franchising authorities from:  
    imposing requirements during the initial cable franchising process or during franchise
renewal that require, prohibit or restrict us from providing telecommunications services;
    imposing franchise fees on revenues we derive from providing telecommunications or
information services over our cable systems;
    restricting our use of any type of subscriber equipment or transmission technology; and
    requiring payment of franchise fees to the local franchising authority in excess of 5.0%
of our gross revenues derived from providing cable services over our cable system. 21




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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. The Cable Act and the FCC allow cable operators to pass franchise fees on to subscribers and
to separately itemize them on subscriber bills. In 2003 an appellate court affirmed an FCC ruling
that franchise fees paid by cable operators on non-subscriber related revenue (such as cable
advertising revenue and home shopping commissions) may be passed through to subscribers and
itemized on subscriber bills regardless of the source of the revenues on which they were assessed. In connection with its decision in March 2002 classifying high-speed Internet services
provided over a cable system as interstate information services, the FCC stated that revenues
derived from cable operators Internet services should not be included in the revenue base from
which franchise fees are calculated. In 2003 an appellate court vacated the FCCs decision
classifying cable operators Internet services as an interstate information service and not a
telecommunications service; however, the United States Supreme Court has agreed to hear the FCCs
appeal of the appellate court decision. Because of the FCCs decision, we are no longer collecting
and remitting franchise fees on our high-speed Internet service revenues. We are unable to predict
the ultimate resolution of these matters but do not expect that any additional franchise fees we
may be required to pay will be material to our business and operations. Ownership Limitations The FCC previously adopted nationwide limits on the number of subscribers under the control of
a cable operator and on the number of channels which can be occupied on a cable system by video
programming in which the cable operator has an interest. The U.S. Court of Appeals for the
District of Columbia Circuit overturned the FCCs rules implementing these statutory provisions and
remanded the case to the FCC for further proceedings. The 1996 amendments to the Cable Act eliminated the statutory prohibition on the common
ownership, operation or control of a cable system and a television broadcast station in the same
service area. The identical FCC regulation has been invalidated by a federal appellate court. The
FCC has eliminated its regulatory restriction on cross-ownership of cable systems and national
broadcasting networks. 22




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The 1996 amendments to the Cable Act made far-reaching changes in the relationship between
local telephone companies and cable service providers. These amendments:  
    eliminated federal legal barriers to competition in the local telephone and cable
communications businesses, including allowing local telephone companies to offer video
services in their local telephone service areas;
    preempted legal barriers to telecommunications competition that previously existed in
state and local laws and regulations;
    set basic standards for relationships between telecommunications providers; and
    generally limited acquisitions and prohibited joint ventures between local telephone
companies and cable operators in the same market. Pursuant to these changes in federal law, local telephone companies may now provide service as
traditional cable operators with local franchises or they may opt to provide their programming over
open video systems, subject to certain conditions, including, but not limited to, setting aside a
portion of their channel capacity for use by unaffiliated program distributors on a
non-discriminatory basis. Open video systems are exempt from certain regulatory obligations that
currently apply to cable operators. The decision as to whether an operator of an open video system
must obtain a local franchise is left to each community. The 1996 amendments to the Cable Act allow registered utility holding companies and
subsidiaries to provide telecommunications services, including cable television, notwithstanding
the Public Utilities Holding Company Act of 1935, as amended. In 2004, the FCC adopted rules: 1)
that affirmed the ability of electric service providers to provide broadband Internet access
services over their distribution systems; and 2) that seek to avoid interference with existing
services. Electric utilities could be formidable competitors to cable system operators. The Cable Act generally prohibits us from owning or operating a satellite master antenna
television system or multichannel multipoint distribution system in any area where we provide
franchised cable service and do not have effective competition, as defined by federal law. We may,
however, acquire and operate a satellite master antenna television system in our existing franchise
service areas if the programming and other services provided to the satellite master antenna
television system subscribers are offered according to the terms and conditions of our local
franchise agreement. Cable Equipment The Cable Act and FCC regulations seek to promote competition in the delivery of cable
equipment by giving consumers the right to purchase set-top converters from third parties as long
as the equipment does not harm the network, does not interfere with services purchased by other
customers and is not used to receive unauthorized services. Over a multi-year phase-in period, the
rules also require multichannel video programming distributors, other than direct broadcast
satellite operators, to separate security from non-security functions in set-top converters to
allow third party vendors to provide set-tops with basic converter functions. Beginning July 1,
2006 cable operators will be prohibited from leasing digital set-top terminals that integrate
security and basic navigation functions. To promote compatibility of cable television systems and consumer electronics equipment the
FCC recently adopted rules implementing plug and play specifications for one-way digital
televisions. The rules require cable operators to provide CableCard security modules and support
for digital televisions equipped with built-in set-top functionality. 23




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Pole Attachment Regulation The Cable Act requires certain public utilities, defined to include all local telephone
companies and electric utilities except those owned by municipalities and co-operatives, to provide
cable operators and telecommunications carriers with nondiscriminatory access to poles, ducts,
conduit and rights-of-way at just and reasonable rates. This right to access is beneficial to us.
Federal law also requires the FCC to regulate the rates, terms and conditions imposed by such
public utilities for cable systems use of utility pole and conduit space unless state authorities
have demonstrated to the FCC that they adequately regulate pole attachment rates, as is the case in
certain states in which we operate. In the absence of state regulation, the FCC will regulate pole
attachment rates, terms and conditions only in response to a formal complaint. The FCC adopted a
new rate formula that became effective in 2001 which governs the maximum rate certain utilities may
charge for attachments to their poles and conduit by companies providing telecommunications
services, including cable operators. Increases in attachment rates due to the FCCs new rate formula are phased in over a five-year
period in equal annual increments, beginning in February 2001. This new formula will result in
higher attachment rates than at present, but they will apply only to cable television systems which
elect to offer telecommunications services. The FCC ruled that the provision of Internet services
will not, in and of itself, trigger use of the new formula. The Supreme Court affirmed this
decision and also held that the FCCs authority to regulate rates for attachments to utility poles
extended to attachments by cable operators and telecommunications carriers that are used to provide
Internet service or for wireless telecommunications service. The United States Supreme Court will
review an appellate court decision classifying Internet services provided over cable systems to
include a telecommunications service component. If the Supreme Court affirms the appellate courts
decision, it may subject our pole attachments to higher rates. Other Regulatory Requirements of the Cable Act and the FCC The FCC has adopted cable inside wiring rules to provide a more specific procedure for the
disposition of residential home wiring and internal building wiring that belongs to an incumbent
cable operator that is forced by the building owner to terminate its cable services in a building
with multiple dwelling units. The Cable Act and/or FCC rules include provisions, among others, regulating other parts of our
cable operations, involving such areas as:  
    equal employment opportunity;
    consumer protection and customer service;
    technical standards and testing of cable facilities;
    consumer electronics equipment compatibility;
    registration of cable systems;
    maintenance of various records and public inspection files;
    microwave frequency usage; and
    antenna structure notification, marking and lighting. The FCC may enforce its regulations through the imposition of fines, the issuance of cease and
desist orders or the imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate transmission facilities often used in connection with cable operations.
The FCC routinely conducts rulemaking proceedings that may change its existing rules or lead to new
regulations. We are unable to predict the impact that any further FCC rule changes may have on our
business and operations. 24




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Copyright Our cable systems typically include in their channel line-ups local and distant television and
radio broadcast signals, which are protected by the copyright laws. We generally do not obtain a
license to use this programming directly from the owners of the programming, but instead comply
with an alternative federal compulsory copyright licensing process. In exchange for filing certain
reports and contributing a percentage of our revenues to a federal copyright royalty pool, we
obtain blanket permission to retransmit the copyrighted material carried on these broadcast
signals. The nature and amount of future copyright payments for broadcast signal carriage cannot
be predicted at this time. In a report to Congress, the U.S. Copyright Office recommended that Congress make major
revisions to both the cable television and satellite compulsory licenses. In 1999, Congress
modified the satellite compulsory license in a manner that permits DBS service providers to become
more competitive with cable operators. Congress recently adopted legislation extending this
authority through 2009. The possible simplification, modification or elimination of the cable
communications compulsory copyright license is the subject of continuing legislative review. The
elimination or substantial modification of the cable compulsory license could adversely affect our
ability to obtain suitable programming and could substantially increase the cost of programming
that remains available for distribution to our subscribers. We are unable to predict the outcome
of this legislative activity related to either the cable compulsory license or the right of direct
broadcast satellite providers to deliver local broadcast signals. Copyrighted material in programming supplied to cable television systems by pay cable networks
and basic cable networks is licensed by the networks through private agreements with the copyright
owners. These entities generally offer through to-the-viewer licenses to the cable networks that
cover the retransmission of the cable networks programming by cable television systems to their
customers. Our cable systems also utilize music in other programming and advertising that we provide to
subscribers. The rights to use this music are controlled by various music performing rights
organizations from which performance licenses must be obtained. Cable industry representatives
negotiated standard license agreements with the largest music performing rights organizations
covering locally originated programming, including advertising inserted by the cable operator in
programming produced by other parties. These standard agreements require the payment of music
license fees for earlier time periods, but such license fees have not had a significant impact on
our business and operations. Interactive Television The FCC has issued a Notice of Inquiry covering a wide range of issues relating to interactive
television (ITV). Examples of ITV services are interactive electronic program guides and access
to a graphic interface that provides supplementary information related to the video display. In
the near term, cable systems are likely to be the platform of choice for the distribution of ITV
services. The FCC posed a series of questions including the definition of ITV, the potential for
discrimination by cable systems in favor of affiliated ITV providers, enforcement mechanisms, and
the proper regulatory classification of ITV service. Privacy The Cable Act imposes a number of restrictions on the manner in which cable television
operators can collect, disclose and retain data about individual system customers and requires
cable operators to take such actions as necessary to prevent unauthorized access to such
information. The statute also requires that the system operator periodically provide all customers
with written information about its policies including the types of information collected; the use
of such information; the nature, frequency and purpose of any disclosures; the period of retention;
the times and places where a customer may have access to such information; the limitations placed
on the cable operator by the Cable Act; and a customers enforcement rights. In the event that a
cable television operator is found to have violated the customer privacy provisions of the Cable
Act, it could be required to pay damages, attorneys fees and other costs. Certain of these Cable
Act requirements have been modified by certain more recent federal laws. Other federal laws currently impact the circumstances and the manner in which we
disclose certain customer information and future federal legislation may further impact our
obligations. In addition, some states in which we operate have also enacted customer privacy
statutes that are in some cases more restrictive than those in federal law. 25




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Cable Modem Service There are currently few laws or regulations that specifically regulate communications or
commerce over the Internet. Section 230 of the Communications Act declares it to be the policy of
the United States to promote the continued development of the Internet and other interactive
computer services and interactive media, and to preserve the vibrant and competitive free market
that presently exists for the Internet and other interactive computer services, unfettered by
federal or state regulation. One area in which Congress did attempt to regulate content over the
Internet involved the dissemination of obscene or indecent materials. The Digital Millennium Copyright Act is intended to reduce the liability of online service
providers for listing or linking to third-party Websites that include materials that infringe
copyrights or other rights or if customers use the service to publish or disseminate infringing
materials. The Childrens Online Protection Act and the Childrens Online Privacy Protection Act
are intended to restrict the distribution of certain materials deemed harmful to children and
impose additional restrictions on the ability of online services to collect user information from
minors. In addition, the Protection of Children From Sexual Predators Act of 1998 requires online
service providers to report evidence of violations of federal child pornography laws under certain
circumstances. A number of ISPs have asked local authorities and the FCC to give them rights of access to
cable systems broadband infrastructure so that they can deliver their services directly to cable
systems customers, which is often called open access. Many local franchising authorities have
examined the issue of open access and a few have required cable operators to provide such access,
although several federal courts have ruled that localities are not authorized to require open
access. The FCC, in connection with its review of the AOL-Time Warner merger, imposed, together
with the Federal Trade Commission, limited multiple access and other requirements related to the
merged companys Internet and Instant Messaging platforms. In March of 2002, the FCC announced that it was classifying Internet access service provided
through cable modems as an interstate information service, a classification that is currently under
review by the United States Supreme Court. At the same time, the FCC initiated a rulemaking
proceeding designed to address a number of issues resulting from this regulatory classification,
including the following:  
    the FCC confirmed that there is no current legal requirement for cable operators to
grant open access now that cable modem service is classified as an information service.
The FCC is considering, however, whether it has the authority to impose open access
requirements and, if so, whether it should do so, or whether to permit local authorities to
impose such a requirement.
    the FCC found that cable modem service is an information service, not a cable service,
which has resulted in several court rulings that local franchise authorities may not
collect franchise fees on cable modem service revenues under existing laws and regulations.
    the FCC concluded that federal law does not permit local franchise authorities to impose
additional franchise requirements on cable modem service. It is considering, however,
whether local franchise authorities nonetheless have the authority to impose restrictions,
requirements or fees because cable modem service is delivered over cable using public
rights of way.
    the FCC is considering whether cable operators providing cable modem service should be
required to contribute to a universal service fund designed to support making service
available to all consumers, including those in low income, rural and high-cost areas at
rates that are reasonably comparable to those charged in urban areas. 26




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
    the FCC is considering whether it should take steps to ensure that the regulatory
burdens on cable systems providing cable modem service are comparable to those of other
providers of Internet access service, such as telephone companies. One method of achieving
comparability would be to make cable operators subject to some of the regulations that do
not now apply to them, but are applicable to telephone companies. Challenges to the FCCs classification of cable Internet access service as an information
service and not a cable service or a telecommunications service have been filed in federal court.
Based on a finding that it was bound by an earlier decision, an appellate court overturned the
FCCs classification and found cable Internet service to include both information service and
telecommunications service components. The United States Supreme Court has agreed to hear an
appeal of the appellate courts decision. If the lower courts decision prevails, it could result
in an open access requirement and other obligations imposed on telecommunications carriers. Any
such requirements could adversely affect our results of operations. Voice-Over-Internet Protocol Telephony The 1996 amendments to the Cable Act created a more favorable regulatory environment for cable
operators to enter the phone business. Currently, numerous cable operators are exploring, planning
or have commenced offering Voice-over-Internet-Protocol (VoIP) telephony as a competitive
alternative to traditional circuit-switched telephone service. Various states, including states
where we operate, have adopted or are considering differing regulatory treatment, ranging from
minimal or no regulation to full-blown common carrier status. As part of the proceeding to
determine any appropriate regulatory obligations for VoIP telephony, the FCC recently decided that
alternative voice technologies, like certain types of VoIP telephony, should be regulated only at
the federal level, rather than by individual states. Many implementation details remain
unresolved, and there are substantial regulatory changes being considered that could either benefit
or harm VoIP telephony as a business operation. While the final outcome of the FCC proceedings
cannot be predicted, it is generally believed that the FCC favors a light touch regulatory
approach for VoIP telephony, which might include preemption of certain state or local regulation. State and Local Regulation Our cable systems use local streets and rights-of-way. Consequently, we must comply with
state and local regulation, which is typically imposed through the franchising process. Our cable
systems generally are operated in accordance with non-exclusive franchises, permits or licenses
granted by a municipality or other state or local government entity. Our franchises generally are
granted for fixed terms and in many cases are terminable if we fail to comply with material
provisions. The terms and conditions of our franchises vary materially from jurisdiction to
jurisdiction. Each franchise generally contains provisions governing:  
    franchise fees;
    franchise term;
    system construction and maintenance obligations;
    system channel capacity;
    design and technical performance;
    customer service standards;
    sale or transfer of the franchise;
    territory of the franchise; 27




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
    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. 28




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ITEM 2. PROPERTIES Our principal physical assets consist of cable television operating plant and equipment,
including signal receiving, encoding and decoding devices, headend facilities and distribution
systems and equipment at or near customers homes for each of the systems. The signal receiving
apparatus typically includes a tower, antenna, ancillary electronic equipment and earth stations
for reception of satellite signals. Headend facilities are located near the receiving devices.
Our distribution system consists primarily of coaxial and fiber optic cables and related electronic
equipment. Customer premise equipment consists of set-top devices and cable modems. Our cable television plant and related equipment generally are attached to utility poles under
pole rental agreements with local public utilities, although in some areas the distribution cable
is buried in underground ducts or trenches. The physical components of the cable systems require
maintenance and periodic upgrading to improve system performance and capacity. We own and lease the real property housing our regional call centers, business offices and
warehouses throughout our operating regions. Our headend facilities, signal reception sites and
microwave facilities are located on owned and leased parcels of land, and we generally own the
towers on which certain of our equipment is located. We own most of our service vehicles. We
believe that our properties, both owned and leased, are in good condition and are suitable and
adequate for our operations. 
 ITEM 3. LEGAL PROCEEDINGS On April 5, 2004, a lawsuit was filed against our parent, MCC, MCC Georgia LLC, a subsidiary
of our sister company, Mediacom Broadband LLC, and other, currently unnamed potential defendants in
the United States District Court for the District of Colorado by Echostar Satellite LLC, which
operates a direct broadcast satellite business under the name Dish Network. Echostar alleges
that systems operated by MCC Georgia LLC have used, without authorization, Dish Network satellite
dishes activated under residential accounts to receive the signals of certain broadcast television
stations in one or more locations in Georgia and that it has then been redistributing those
signals, through its cable systems, to its subscribers. Among other claims, the complaint filed by
Echostar alleges that these actions violate a provision of the Communications Act of 1934 (47
U.S.C. Sec. 605) that prohibits unauthorized interception of radio communications. The plaintiff
seeks injunctive relief, actual and statutory damages, disgorgement of profits, punitive damages
and litigation costs, including attorneys fees. On June 29, 2004, Echostar amended its complaint to also allege that this conduct amounted to
a breach of the contract between Echostar and one of MCCs employees, who allegedly acted as an
agent for MCC, by which MCC received the Echostar satellite signal. On September 7, 2004, the U.S.
District Court granted MCCs motion to transfer the case to the Middle District of Georgia, where
venue is proper and where personal jurisdiction over MCC exists. There have been no further
proceedings since that date. MCC Georgia LLC and our parent company have advised us that they
intend to vigorously defend against these claims. They also have informed us that, at the present
time, they are unable to reasonably evaluate the likelihood of an unfavorable outcome or quantify
the possible damages, if any, associated with these matters, or whether or not those damages
would be material. We,
our parent company and its subsidiaries or other affiliated companies are also involved in
various other legal actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material adverse effect on
our consolidated financial position, results of operations, cash flows or business. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the
fiscal year ended December 31, 2004. 29




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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. 30




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ITEM 6. SELECTED FINANCIAL DATA In the table below, we provide you with selected historical consolidated financial and
operating data for the years ended December 31, 2000 through 2004 and balance sheet data as of
December 31, 2000 through 2004, which are derived from our audited consolidated financial
statements. See Managements Discussion and Analysis of Financial Condition and Results of Operations. Year Ended December 31,2004
    
    2003
    
    2002
    
    2001
    
    2000(dollars in thousands)(unaudited)Statement of Operations Data:Revenues
    
    $
    472,187
    
    
    $
    452,548
    
    
    $
    410,241
    
    
    $
    369,275
    
    
    $
    328,258Costs and expenses:Service costs
    
    
    187,077
    
    
    
    169,818
    
    
    
    152,684
    
    
    
    130,473
    
    
    
    110,442Selling, general and administrative
expenses
    
    
    84,853
    
    
    
    77,908
    
    
    
    68,563
    
    
    
    63,846
    
    
    
    55,820Management fee expense(1)
    
    
    8,691
    
    
    
    7,915
    
    
    
    11,108
    
    
    
    8,734
    
    
    
    34,283Depreciation and amortization
    
    
    107,282
    
    
    
    158,718
    
    
    
    194,862
    
    
    
    221,645
    
    
    
    177,928Operating income (loss)
    
    
    84,284
    
    
    
    38,189
    
    
    
    (16,976
    )
    
    
    (55,423
    )
    
    
    (50,215
    )Interest expense, net
    
    
    (97,790
    )
    
    
    (98,596
    )
    
    
    (102,458
    )
    
    
    (93,823
    )
    
    
    (68,973
    )Gain (loss) on derivative instruments, net
    
    
    5,196
    
    
    
    6,250
    
    
    
    1,172
    
    
    
    (8,441
    )
    
    
    Gain (loss) on sale of assets and investments, net
    
    
    5,885
    
    
    
    (1,908
    )
    
    
    
    
    
    
    
    
    
    
    Investment income from affiliate (2)
    
    
    18,000
    
    
    
    18,000
    
    
    
    18,000
    
    
    
    8,120
    
    
    
    Other income (expense)
    
    
    (6,599
    )
    
    
    (4,425
    )
    
    
    (4,845
    )
    
    
    23,885
    
    
    
    (30,036
    )Net income (loss) before cumulative effect
of accounting change
    
    
    8,976
    
    
    
    (42,490
    )
    
    
    (105,107
    )
    
    
    (125,682
    )
    
    
    (149,224
    )Cumulative effect of accounting change(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,642
    )
    
    
    Net income (loss)
    
    $
    8,976
    
    
    $
    (42,490
    )
    
    $
    (105,107
    )
    
    $
    (127,324
    )
    
    $
    (149,224
    )Balance Sheet Data (end of period):Total assets
    
    $
    1,491,900
    
    
    $
    1,515,366
    
    
    $
    1,567,240
    
    
    $
    1,566,045
    
    
    $
    1,375,772Total debt
    
    
    1,473,177
    
    
    
    1,524,324
    
    
    
    1,548,711
    
    
    
    1,425,500
    
    
    
    987,000Total members (deficit) equity
    
    
    (119,307
    )
    
    
    (128,283
    )
    
    
    (85,793
    )
    
    
    13,991
    
    
    
    262,997
 (continued on next page) 31




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Year Ended December 31,2004
    
    2003
    
    2002
    
    2001
    
    2000(dollars in thousands, except operating data)(unaudited)Other Data:Operating income before depreciation
and amortization(4)
    
    $
    191,566
    
    
    $
    196,907
    
    
    $
    177,886
    
    
    $
    166,222
    
    
    $
    127,713Operating income before depreciation
and amortization margin(5)
    
    
    40.6
    %
    
    
    43.5
    %
    
    
    43.4
    %
    
    
    45.0
    %
    
    
    38.9
    %Net cash flows provided by (used in):Operating activities
    
    $
    137,793
    
    
    $
    120,157
    
    
    $
    67,433
    
    
    $
    102,191
    
    
    $
    93,218Investing activities
    
    
    (81,520
    )
    
    
    (99,753
    )
    
    
    (176,599
    )
    
    
    (398,946
    )
    
    
    (295,613
    )Financing activities
    
    
    (57,559
    )
    
    
    (27,877
    )
    
    
    122,678
    
    
    
    300,040
    
    
    
    202,015Operating Data (end of period):Estimated homes passed(6)
    
    
    1,329,000
    
    
    
    1,282,500
    
    
    
    1,252,000
    
    
    
    1,200,000
    
    
    
    1,173,000Basic subscribers(7)
    
    
    675,000
    
    
    
    723,700
    
    
    
    752,000
    
    
    
    771,000
    
    
    
    779,000Basic penetration(8)
    
    
    50.8
    %
    
    
    56.4
    %
    
    
    60.1
    %
    
    
    64.3
    %
    
    
    66.4
    %Digital customers(9)
    
    
    160,000
    
    
    
    151,400
    
    
    
    133,000
    
    
    
    88,000
    
    
    
    40,000Data customers(10)
    
    
    162,000
    
    
    
    122,200
    
    
    
    81,000
    
    
    
    38,000
    
    
    
    15,600
   (1)
    
    Represents fees paid to MCC subsequent to its initial public offering in
February 2000 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 7 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, 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;  (2)
    
    Investment income from affiliate represents the investment income on our $150.0
million preferred equity investment in Mediacom Broadband LLC, a wholly-owned subsidiary of
MCC. See Note 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. 32




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##### Table of Contents



(4)
    
    Operating income before depreciation and amortization (OIBDA) is not a financial
measure calculated in accordance with generally accepted accounting principles (GAAP) in the
United States. However, OIBDA is one of the primary measures used by management to evaluate
our performance and to forecast future results. We believe OIBDA is useful for investors
because it enables them to assess our performance in a manner similar to the method used by
management, and provides a measure that can be used to analyze, value and compare the
companies in the cable television industry, which may have different depreciation and
amortization policies. A limitation of this measure, however, is that it excludes
depreciation and amortization, which represents the periodic costs of certain capitalized
tangible and intangible assets used in generating revenues in our business. Management
utilizes a separate process to budget, measure and evaluate capital
expenditures.
OIBDA should not be regarded as an alternative to either operating income or net income (loss)
as an indicator of operating performance nor should it be considered in isolation or as a
substitute for financial measures prepared in accordance with GAAP. We believe that operating
income is the most directly comparable GAAP financial measure to
OIBDA.



The following represents a reconciliation of operating income before depreciation and
amortization to operating income (loss), which is the most directly comparable GAAP measure: Year Ended December 31,2004
    
    2003
    
    2002
    
    2001
    
    2000OIBDA
    
    $
    191,566
    
    
    $
    196,907
    
    
    $
    177,886
    
    
    $
    166,222
    
    
    $
    127,713Depreciation and
amortization
    
    
    (107,282
    )
    
    
    (158,718
    )
    
    
    (194,862
    )
    
    
    (221,645
    )
    
    
    (177,928
    )Operating income (loss)
    
    $
    84,284
    
    
    $
    38,189
    
    
    $
    (16,976
    )
    
    $
    (55,423
    )
    
    $
    (50,215
    )
  (5)
    
    Represents operating income before depreciation and amortization as a
percentage of revenues. See note 4 above.(6)
    
    Represents an estimate of the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable systems service area.(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 digital cable,
VOD, HDTV, DVR or high-speed Internet service. Customers who exclusively purchase high-speed
Internet service are not counted as basic subscribers. Our methodology of calculating the
number of basic subscribers may not be identical to those used by other cable companies.(8)
    
    Represents basic subscribers as a percentage of estimated homes passed.(9)
    
    Represents customers that receive digital cable services.(10)
    
    Represents residential data customers and small to medium-sized commercial cable
modem accounts billed at higher rates than residential customers. Small to medium-sized
commercial accounts generally represent customers with bandwidth requirements less than 5Mbps.
These commercial accounts are converted to equivalent residential data customers by dividing
their associated revenues by the applicable residential rate. Our data customers exclude
large commercial accounts and include an insignificant number of dial-up customers. Our
methodology of calculating data customers may not be identical to those used by other cable
companies. 33




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the Risk Factors below for a discussion of important factors that could
cause actual results to differ from expectations and any of our forward-looking statements
contained herein. The following discussion should be read in conjunction with our audited
consolidated financial statements as of and for the years ended December 31, 2004, 2003 and 2002. Overview In 2003, we completed our network upgrade program that significantly increased bandwidth and
enabled interactivity. As of December 31, 2004, approximately 98% of our cable network was
upgraded with 550MHz to 870MHz bandwidth capacity and about 96% of our estimated homes passed were
activated with two-way communications capability. Expressed in megahertz, or MHz, bandwidth
represents a systems capacity to deliver telecommunication services. A headend facility is the
location where signals are received and processed for distribution over a cable system to our
customers. Our network technology allows us to offer an array of advanced video, data and voice products
and services, including VOD, DVRs, HDTV, HSD and, beginning in the second quarter of 2005, cable
telephony. We currently offer video and HSD bundles, and when we introduce cable telephony, we
will offer triple play bundles of video, HSD and voice. Bundled products and services offer our
subscribers a single provider contact for provisioning, billing and customer care. We face increasing competition for our video programming services, most notably from DBS
service providers. Since they have been permitted to deliver local television broadcast signals
beginning in 1999, DIRECTV, Inc. and Echostar Communications Corporation, the two largest DBS
service providers, have been increasing the number of markets in which they deliver these local
television signals. As of December 31, 2004, local-to-local launches in our markets represented an
estimated 91% of our basic subscribers. During 2004, competitive pressure from DBS service
providers further intensified when they launched local television channels in additional markets
representing an estimated 43% of our basic subscriber base. These local-into-local launches were
usually accompanied by heavy marketing and advertising and are the primary cause of our loss of
basic subscribers during the last two years. In September 2004, as a result of Hurricane Ivan, our cable systems in areas of Alabama,
Florida and Mississippi experienced, to varying degrees, damage to cable plant and other property
and equipment, business interruption and loss of customers. This hurricane caused a temporary loss
of 8,000 basic subscribers, 2,000 digital customers and 1,000 data customers in these three states.
While we believe many of these customers will return to our service, there can be no assurance
that they will do so. The revenue impact and the costs incurred are reflected in our consolidated
financial statements, and are detailed as follows: revenues were recorded net of $2.9 million of
service interruption credits issued to customers; service costs included $0.9 million of
incremental costs to cover the repair of our facilities, the use of outside contractors to help
repair cable plant and increased employee costs; selling, general and administrative expenses
included incremental costs of $0.3 million related to additional customer service employee costs
required to support customers needs; and depreciation expense included $2.1 million due to an
impairment of cable plant and other property and equipment. In addition, we incurred capital
expenditures of approximately $8.1 million to replace or rebuild property, plant and equipment
damaged by Hurricane Ivan. We are insured against certain losses related to the hurricane, subject
to varying deductible amounts. At this time, we cannot estimate the amounts that will be
ultimately recoverable under our insurance policies. 34




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##### Table of Contents



Actual Results of Operations Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 The following table sets forth consolidated statements of operations for the years ended
December 31, 2004 and 2003 (dollars in thousands and percentage changes that are not meaningful are
marked NM): Year Ended December 31,2004
    
    
    2003
    
    
    $ Change
    
    
    % ChangeRevenues
    
    $
    472,187
    
    
    $
    452,548
    
    
    $
    19,639
    
    
    
    4.3
    %Costs and expenses:Service costs
    
    
    187,077
    
    
    
    169,818
    
    
    
    17,259
    
    
    
    10.2
    %Selling, general and administrative
expenses
    
    
    84,853
    
    
    
    77,908
    
    
    
    6,945
    
    
    
    8.9
    %Management fee expense
    
    
    8,691
    
    
    
    7,915
    
    
    
    776
    
    
    
    9.8
    %Depreciation and amortization
    
    
    107,282
    
    
    
    158,718
    
    
    
    (51,436
    )
    
    
    (32.4
    %)Operating income
    
    
    84,284
    
    
    
    38,189
    
    
    
    46,095
    
    
    
    120.7
    %Interest expense, net
    
    
    (97,790
    )
    
    
    (98,596
    )
    
    
    806
    
    
    
    (0.8
    %)Gain on derivative instruments, net
    
    
    5,196
    
    
    
    6,250
    
    
    
    (1,054
    )
    
    
    (16.9
    %)Gain (loss) on sale of assets and investments, net
    
    
    5,885
    
    
    
    (1,908
    )
    
    
    7,793
    
    
    NMInvestment income from affiliate
    
    
    18,000
    
    
    
    18,000
    
    
    
    
    
    
    NMOther expense
    
    
    (6,599
    )
    
    
    (4,425
    )
    
    
    (2,174
    )
    
    
    49.1
    %Net income (loss)
    
    $
    8,976
    
    
    $
    (42,490
    )
    
    $
    51,466
    
    
    NM
 Revenues The following table sets forth revenue information for the years ended December 31, 2004 and
2003 (dollars in millions): Year Ended December 31,2004
    
    
    2003% of
    
    
    
    
    
    
    % ofAmount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    $ Change
    
    
    % ChangeVideo
    
    $
    391.4
    
    
    
    82.9
    %
    
    $
    395.0
    
    
    
    87.3
    %
    
    $
    (3.6
    )
    
    
    (0.9
    %)Data
    
    
    68.2
    
    
    
    14.4
    %
    
    
    49.6
    
    
    
    10.9
    %
    
    
    18.6
    
    
    
    37.5
    %Advertising
    
    
    12.6
    
    
    
    2.7
    %
    
    
    7.9
    
    
    
    1.8
    %
    
    
    4.7
    
    
    
    59.5
    %$
    472.2
    
    
    
    100.0
    %
    
    $
    452.5
    
    
    
    100.0
    %
    
    $
    19.6
    
    
    
    4.3
    %
 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 4.3%, net of service interruption credits given to customers affected by the
hurricane. Excluding such credits, revenues rose 5.0%, largely attributable to an increase in
broadband data customers and basic rate increases applied on our video customers, driven in large
part by our own video programming cost increases, offset by a reduction in basic subscribers during
the year. 35




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##### Table of Contents



Video revenues fell 0.9%, net of service interruption credits given to customers affected by
the hurricane. Excluding such credits, video revenues decreased 0.1%, as a result of a 6.8% loss
in basic subscribers from 724,000 to 675,000, partially offset by the aforementioned basic rate
increases.Digital customers increased 6.0% to 160,000 as compared to 151,000 a year ago. Our
loss in basic subscribers resulted primarily from increased competitive pressures by DBS service
providers, particularly in those markets where we experienced their local-into-local launches, and,
to a lesser extent, from our tighter customer credit policies. In an effort to reverse this video
subscriber trend, we have been increasing our customer retention efforts and our emphasis on
product bundling, enhancing and differentiating our video products and services with new digital
service packages, VOD, HDTV, DVR and more local programming. Data revenues rose 37.5%, due primarily to a 32.8% growth in data customers from 122,200 to
162,000 and an increased contribution from our relatively new commercial enterprise business. Advertising revenue increased 59.5%, primarily as a result of the completion of an
interconnect in one of our larger markets and, to a lesser extent, higher local advertising sales
and political advertising. In 2004, we completed an interconnect agreement, under which we
represent other cable operators to jointly sell local advertising, which accounted for
approximately 63.4% of this increase. Political advertising contributed 8.1% of the increase. We
do not expect growth in advertising revenues to continue at the same rate in 2005 because we do
not currently expect to enter into any new material interconnect agreements. Costs and Expenses Service costs include: fees paid to programming suppliers; expenses related to wages and
salaries of technical personnel who maintain our cable network and perform customer installation
activities; broadband data access costs, including costs of bandwidth connectivity, customer
provisioning and technical support; and plant operating costs, such as utilities and pole rental
expense. Programming costs, which are payments to programmers for content and are generally paid
on a per subscriber basis, have historically increased due to both increases in the rates charged
for existing programming services and the introduction of new programming services to our basic
subscribers. Service costs increased 10.2%, primarily due to increases in programming expenses and employee
and plant operating costs. The largest component of service costs is programming related expense,
which increased 6.4%, as a result of rate increases on basic and premium services, significantly
offset by a reduction in basic subscribers and an increase in launch support received from
programmers in return for our carriage of their programming services. Employee and plant operating
costs increased 26.0%, primarily due to greater expensing of such operational costs resulting from
the continued transition from upgrade construction in 2003 to maintenance activities in 2004, and
increases in employee benefits and operational insurance claims. Service costs as a percentage of
revenues were 39.6% for the year ended December 31, 2004, as compared with 37.5% for the year ended
December 31, 2003. Selling, general and administrative expenses include: wages and salaries for our call center,
customer service and support and administrative personnel; franchise fees and taxes; and expenses
related to billing, telecommunications, marketing, bad debt, advertising and office administration. Selling, general and administrative expenses increased 8.9%, principally due to higher
employee, advertising and office costs, and higher taxes and fees, partially offset by a decrease
in bad debt expense. Employee costs increased 8.1%, as a result of increases in employee
compensation, customer service overtime and benefit costs, driven by increased activity related to
the rollout of new products and the hurricane. Advertising costs increased significantly from $2.2
million to $4.2 million, primarily due to higher employee commissions paid on increased revenues.
Office expenses increased 17.9%, as a result of an increase in telephone costs. Taxes and fees
increased 4.4% due to higher state property taxes. This increase in selling, general and
administrative expenses was partly offset by an 8.5% decrease in bad debt expense as a result of
improved customer credit and collection policies. Selling, general and administrative expenses as a
percentage of revenues were 18.0% for the year ended December 31, 2004, as compared with 17.2% for
the year ended December 31, 2003. We expect continued revenue growth in advanced services, which include digital video, HDTV and
broadband data access and, in the second quarter of 2005, the launch of cable telephony service.
As a result, we expect our service costs and selling, general and administrative expenses to
increase. 36




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##### Table of Contents



Management fee expense reflects charges incurred under our management agreements with our
parent, Mediacom Communications Corporation (MCC).
Management fee expense increased 9.8% due to greater overhead costs
charged by MCC.
Management fee expense as a percentage of revenues was 1.8% for the year ended December 31, 2004,
as compared with 1.7% for the year ended December 31, 2003. Depreciation and amortization decreased 32.4%, primarily due to changes, effective July 1,
2003, in the estimated useful lives of our cable systems and equipment in conjunction with the
completion of our network upgrade and rebuild program, offset in part by increased depreciation for
investments in our cable network and ongoing investments to continue the rollout of products and
services such as video-on-demand, high-definition television, digital video recorders and broadband
data access. See Note 2 to our consolidated financial statements. Interest Expense, net Interest expense, net, decreased 0.8%, primarily due to lower indebtedness, partially offset
by higher market interest rates on variable rate debt and lower interest expense capitalization
associated with the substantial reduction of upgrade/rebuild capital expenditures. Gain on Derivatives, net We enter into interest rate exchange agreements, or interest rate swaps, with counterparties
to fix the interest rate on a portion of our variable rate debt to reduce the potential volatility
in our interest expense that would otherwise result from changes in market interest rates. As of
December 31, 2004, we had interest rate swaps with an aggregate principal amount of $300.0 million.
The changes in their mark-to-market values are derived from changes in market interest rates, the
decrease in their time to maturity and the creditworthiness of the counterparties. As a result of
the quarterly mark-to-market valuations of these interest rate swaps, we recorded a gain on
derivatives amounting to $5.2 million for the year ended December 31, 2004, as compared to a gain
on derivatives amounting to $6.3 million for the year ended December 31, 2003. Gain (loss) on Sale of Assets and Investments, net We had a net gain on the sale of assets and investments amounting to $5.9 million for the year
ended December 31, 2004. The gain was principally due to a sale of a cable system in May 2004,
serving approximately 3,450 subscribers, for gross proceeds of $10.1 million. Investment Income from Affiliate Investment income from affiliate was $18.0 million for the years ended December 31, 2004 and
December 31, 2003. This amount represents the investment income on our $150.0 million preferred
equity investment in Mediacom Broadband LLC. See Liquidity and Capital Resources  Investing
Activities. Other Expense Other expense was $6.6 million and $4.4 million for the year ended December 31, 2004 and 2003,
respectively. Other expense primarily represents amortization of deferred financing costs and fees
on unused credit commitments. Net Income (loss) As a result of the factors described above, we generated net income for the year ended
December 31, 2004 of $9.0 million, as compared to a net loss of $42.5 million for the year ended
December 31, 2003. 37




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##### Table of Contents



Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 The following table sets forth the consolidated statements of operations for the years ended
December 31, 2003 and 2002 (dollars in thousands and percentage changes that are not meaningful are
marked NM): Year Ended December 31,2003
    
    
    2002
    
    
    $ Change
    
    
    % ChangeRevenues
    
    $
    452,548
    
    
    $
    410,241
    
    
    $
    42,307
    
    
    
    10.3
    %Costs and expenses:Service costs
    
    
    169,818
    
    
    
    152,684
    
    
    
    17,134
    
    
    
    11.2
    %Selling, general and administrative
expenses
    
    
    77,908
    
    
    
    68,563
    
    
    
    9,345
    
    
    
    13.6
    %Management 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
    
    
    
    (325.0
    %)Interest expense, net
    
    
    (98,596
    )
    
    
    (102,458
    )
    
    
    3,862
    
    
    
    (3.8
    %)Gain on derivatives, net
    
    
    6,250
    
    
    
    1,172
    
    
    
    5,078
    
    
    NMLoss on sale of assets and investments, net
    
    
    (1,908
    )
    
    
    
    
    
    
    (1,908
    )
    
    NMInvestment income from affiliate
    
    
    18,000
    
    
    
    18,000
    
    
    
    
    
    
    
    Other expense
    
    
    (4,425
    )
    
    
    (4,845
    )
    
    
    420
    
    
    
    (8.7
    %)Net income (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 millions): Year Ended December 31,2003
    
    
    2002% of
    
    
    
    
    
    
    % ofAmount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    $ Change
    
    
    % ChangeVideo
    
    $
    395.0
    
    
    
    87.3
    %
    
    $
    379.8
    
    
    
    92.6
    %
    
    $
    15.2
    
    
    
    4.0
    %Data
    
    
    49.6
    
    
    
    10.9
    %
    
    
    25.7
    
    
    
    6.3
    %
    
    
    23.9
    
    
    
    93.0
    %Advertising
    
    
    7.9
    
    
    
    1.8
    %
    
    
    4.7
    
    
    
    1.1
    %
    
    
    3.2
    
    
    
    68.1
    %$
    452.5
    
    
    
    100.0
    %
    
    $
    410.2
    
    
    
    100.0
    %
    
    $
    42.3
    
    
    
    10.3
    %
 Revenues rose 10.3% attributable to a 51% increase in broadband data customers and basic
rate increases applied on our video customers, driven in large part by our own programming cost
increases. Video revenues increased 4.0% 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, particularly in those markets where we experience
their local-into-local launches. Data revenues rose 93.0% due in large part to a 50.6% increase in broadband data customers
from 81,000 to 122,200. Advertising revenues increased 68.1% primarily as a result of bringing in-house certain
markets previously managed by third parties. Instead of receiving advertising revenues which are
net of commissions paid to 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. 38




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##### Table of Contents



Costs and Expenses 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
that 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 the growth in our data customers of 41,200, with the balance primarily represented by
increases in unit costs for basic programming. The increase in total programming costs, however,
was partially offset by the aforementioned decline in basic subscribers as well as a decrease in
analog premium service units. As a percentage of revenues, service costs were 37.5% for the year
ended December 31, 2003, as compared with 37.2% for the year ended December 31, 2002. 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. 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. 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. 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 advertising campaigns we deployed to counter
competitive pressures from DBS, and to pay commissions to our marketing personnel. 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. Management fee expense decreased 28.7% 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%, primarily due to changes, effective July 1,
2003, in the estimated useful lives of our cable systems and equipment in conjunction with our
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 in our cable network and ongoing investments to continue the rollout of products and
services including VOD, HDTV, DVRs and HSD. See Note 2 to our consolidated financial statements. Interest Expense, net Interest expense, net, decreased 3.8%, 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 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. As a result of the quarterly
mark-to-market valuation of these interest rate swaps, we recorded a gain on derivative instruments
amounting to $6.3 million for the year ended December 31, 2003, as compared to $1.2 million for the
year ended December 31, 2002. 39




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Loss on Sale of Assets and Investments, net We had a loss on the sale of assets and investments amounting to $1.9 million for the year
ended December 31, 2003. The loss was principally due to a sale of a small cable system in
September 2003 with approximately 1,500 subscribers for gross proceeds of $3.1 million. 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. Other Expense Other expense was $4.4 million for the year ended December 31, 2003, as compared to $4.8
million for the year ended December 31, 2002. Other expense primarily represents amortization of
deferred financing costs and fees on unused credit commitments. 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. Liquidity and Capital Resources In recent years, we have made significant capital investments in our cable systems to enhance
their reliability and capacity, which allows for the introduction of new advanced broadband
services. Our capital investments are now more focused on the deployment of new products and
services, including VOD, DVRs, HSD and cable telephony. We also may continue to make strategic
acquisitions of cable systems. Given our level of indebtedness, we also have significant amounts
of interest expense to pay each year. We believe that we will meet our debt service, capital
spending and other requirements through a combination of our net cash flows from operating
activities, dividends from our $150.0 million preferred equity investment in Mediacom Broadband LLC
that has a 12% annual cash dividend payable quarterly, borrowing availability under our bank credit
facilities and our ability to secure future external financing. Operating Activities Net cash flows provided by operating activities were $137.8 million for the year ended
December 31, 2004, as compared to $120.2 million for the prior year, and reflected cash sourced
from changes in working capital accounts, partly offset by a decrease in operating income before
depreciation and amortization. Investing Activities Net cash flows used in investing activities were $81.5 million for the year ended December 31,
2004, as compared to $99.8 million for the prior year, and principally comprised capital
expenditures. For the year ended December 31, 2004, we made capital expenditures of $87.9 million,
including $8.1 million to replace or rebuild property, plant and equipment damaged by Hurricane
Ivan and $1.9 million to fund our cable telephony initiative. This compares to $105.9 million and
$167.8 million we invested in 2003 and 2002, respectively, which reflected significantly higher
levels of capital expenditures for network upgrade and rebuild activities than in 2004. This
reduction in capital expenditures resulted primarily from the completion of our planned network
upgrade program in 2003. A larger percentage of our capital spending in 2004 was attributable to
the deployment of our advanced products and services, including VOD, HDTV and HSD, and our
preparation for the launch of cable telephony. In 2004, approximately 52% of our capital
expenditures was for advanced product and service deployment and cable telephony; 12% was for
rebuild and upgrade activities, including modifications to our cable network and hurricane repair;
29% was for extensions of our cable network to enter new service territories; and 7% was for
outlays associated with non-network assets. This trend of spending more on the deployment of advanced
products and services as compared to network improvements is expected to continue in 2005 and
beyond. 40




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During 2004, we also acquired a small cable system for $3.4 million and received $10.6 million
in proceeds from the sale of assets and investments, including the divestiture of a small cable
system. Financing Activities Net cash flows used in financing activities were $57.6 million for the year ended December 31,
2004, as compared to $27.9 million for the prior year. In 2004, our principal financing activities
included the net repayment of bank indebtedness in the amount of $51.1 million. Description of Our Credit Facilities In October 2004, our operating subsidiaries refinanced their two bank credit facilities (the
two prior LLC credit facilities) with a new $1.15 billion bank credit facility (the LLC credit
facility) that expires in March 2013. The LLC credit facility consists of a $400.0 million
revolving credit commitment, a $200.0 million delayed-draw term loan and a $550.0 million term
loan, which are subject to amortization, as applicable. Approximately $658.0 million was drawn
from the LLC credit facility at closing, of which approximately $652 million was used to pay in
full the outstanding indebtedness, including accrued interest, under the two prior LLC credit
facilities and the balance was used to pay fees and expenses related to this new credit facility.
The financial obligations of the operating subsidiaries under the two prior LLC credit facilities
have been satisfied, and these credit facilities have been terminated. As of December 31, 2004,
$646.0 million was outstanding under the LLC credit facility. In January 2005, we borrowed the
entire amount of the $200.0 million delay-draw term loan, repaid $112.0 million of indebtedness under our
revolving credit facility and loaned $88.0 million to Mediacom Broadband LLC. The loan to
Mediacom Broadband LLC is in the form of a demand note, which has a 6.7% annual interest rate,
payable semi-annually in cash. 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 counterparties to the agreements. However, due to the high creditworthiness of our
counterparties, which are major banking firms with investment grade ratings, we do not anticipate
their nonperformance. As of December 31, 2004, about 76.5% of our outstanding indebtedness was at
fixed interest rates or subject to interest rate protection. As of December 31, 2004, our total debt was approximately $1.47 billion, and we were in
compliance with all covenants under our debt arrangements. On the same date, our annualized cost
of debt was approximately 7.2%, and we had unused credit commitments of about $497.6 million, all
of which could be borrowed and used for general corporate purposes based on the terms and
conditions of their debt arrangements, including the applicable financial measures of leverage and
interest coverage. The average interest rate for borrowings under the revolving commitments of our
credit facilities is now LIBOR plus 1.0%. As of December 31, 2004, approximately $6.4 million of letters of credit were issued to
various parties to secure our performance relating to insurance and franchise requirements. Although we have not generated earnings sufficient to cover fixed charges in the past, we have
generated cash and obtained financing sufficient to meet our short-term requirements, including our
debt service, working capital and capital expenditures. We expect that we will continue to be able
to generate funds and obtain financing sufficient to service our long-term business plan, service
our debt obligations and complete any future acquisitions if the opportunities arise. However,
there can be no assurance that we will be able to obtain sufficient financing, or, if we were able
to do so, that the terms would be favorable to us. 41




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Contractual Obligations and Commercial Commitments The table below summarizes our contractual obligations and commercial commitments for the five
years subsequent to December 31, 2004 and thereafter (dollar amounts in thousands)*: Capital
    
    
    OperatingDebt
    
    
    Leases
    
    
    Leases
    
    
    Total (1)2005
    
    $
    5,500
    
    
    $
    884
    
    
    $
    2,067
    
    
    $
    8,4512006
    
    
    5,500
    
    
    
    911
    
    
    
    881
    
    
    
    7,2922007
    
    
    5,500
    
    
    
    381
    
    
    
    684
    
    
    
    6,5652008
    
    
    205,500
    
    
    
    1
    
    
    
    498
    
    
    
    205,9992009
    
    
    5,500
    
    
    
    
    
    
    
    349
    
    
    
    5,849Thereafter
    
    
    1,243,500
    
    
    
    
    
    
    
    855
    
    
    
    1,244,355Total cash obligations
    
    $
    1,471,000
    
    
    $
    2,177
    
    
    $
    5,334
    
    
    $
    1,478,511
 * Refer to Note 6 to our consolidated financial statements for a discussion of our long-term
debt, and to Note 10 for a discussion of our operating leases and other commitments and
contingencies.   (1)
    
    Excludes interest expense. At our request, on March 16, 2005, the trustee of our 81/2% Senior Notes due 2008 (the
Notes) notified the holders that we had elected to redeem all of the outstanding Notes. As of
March 16, 2005, the aggregate principal amount of the Notes outstanding was $200.0 million. The
Notes were issued pursuant to an Indenture dated April 1, 1998. Pursuant to the redemption notice
and the terms of the Indenture, we will redeem the Notes on April 15, 2005 at a redemption price
equal to 101.417% of the outstanding principal amount of the Notes plus accrued interest. 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 judgment 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. 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 accounted for them 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. 42




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Based on the guidance outlined in Emerging Issues Task Force (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 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 our
financial statements, the fair value of the cable system clusters tangible and intangible assets
(including franchise value) other than goodwill is deducted from the cable system clusters fair
value. The balance represents the fair value of goodwill which is then compared to the carrying
value of goodwill to determine if there is any impairment. Upon adoption of SFAS No. 142, we determined that no impairment of our franchise costs and
goodwill existed as of January 1, 2002. Subsequent impairment tests performed in 2002 and 2003
reflected no impairment of our franchise costs and goodwill. We completed our most recent
impairment test as of October 1, 2004, which reflected no impairment of our franchise costs and
goodwill. Our use of discounted cash flow analyses in determining the fair value of each cable
system cluster involves certain assumptions and estimates, which are consistent with the
expectations of buyers and sellers of cable systems in determining fair value. Significant
impairment in value resulting in impairment charges may result if these estimates and assumptions
used in the fair value determination change in the future. Impairment of Long-Lived Assets In accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived
Assets,we periodically evaluate the recoverability and estimated lives of our long-lived assets,
including property and equipment and intangible assets subject to amortization, whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable or the useful
life has changed. The measurement for such impairment loss is based on the fair value of the
asset, typically based upon the future cash flows discounted at a rate commensurate with the risk
involved. Unless presented separately, the loss is included as a component of either depreciation
expense or amortization expense, as appropriate. Derivatives We account for derivative instruments in accordance with SFAS No. 133, SFAS No. 138 and SFAS
No. 149. Our primary objective for holding derivative financial instruments is to manage interest
rate risk. Our derivative instruments are recorded at fair value and are included in other current
assets, other assets and other liabilities. Our accounting policies for these instruments are
based on whether they meet our criteria for designation as hedging transactions. The criteria for
designating a derivative as a hedge include the instruments effectiveness in risk reduction and,
in most cases, a one-to-one matching of the derivative instrument to its underlying transaction.
Gains and losses from changes in fair values of derivatives that are not designated as hedges for
accounting purposes are recognized currently in earnings. During 2004, 2003 and 2002, none of our
derivative financial instruments were designated as hedges. Therefore, changes in fair value for
the respective periods were recognized in earnings. 43




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Recent Accounting Pronouncements The FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure,in December 2002, which amends: (i) SFAS No. 123, Accounting for Stock-Based
Compensation,to provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee compensation; (ii) the
disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported
net income of an entitys accounting policy decisions with respect to stock-based employee
compensation; and (iii) Accounting Principles Board (APB) Opinion No. 28, Interim Financial
Reporting,to require disclosure about those effects in interim financial information. We adopted
SFAS No. 148 on January 1, 2003. We did not change to the fair value based method of accounting
for stock-based employee compensation. Accordingly, the adoption of SFAS No. 148 did not affect
our financial condition or results of operations. In December 2004, the FASB issued SFAS No. 123R, Amendment of Statement 123 on Share-Based
Payment.SFAS No. 123R requires companies to expense the value of employee stock options, stock
granted through the employee stock purchase program and similar awards. SFAS No. 123R is effective
for periods beginning after June 15, 2005. We plan on adopting SFAS No. 123R effective July 1,
2005 and expect that the adoption of SFAS No. 123R will have a material impact on our consolidated
results of operations. There are three methods of adopting SFAS No. 123R. The first method is called modified
prospective method, which allows companies to avoid recording additional compensation expense for
vested awards that are outstanding on the effective date of the SFAS No. 123R. Unvested awards
outstanding on the effective date would be charged to expense over the remaining vesting period.
The second method is similar to the modified prospective method, except it allows companies to
restate earlier interim periods in the year of adoption using the applicable SFAS No. 123R pro
forma amounts. The third method is the modified retrospective method, which directs companies to
apply the modified prospective method and to restate prior financial statements. We are currently
evaluating these transitional methods. In March 2004, the FASB approved the consensus reached on the EITF Issue No. 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.The
Issues objective is to provide guidance for identifying other-than-temporarily impaired
investments. EITF 03-1 also provides new disclosure requirements for investments that are deemed
to be temporarily impaired. In September 2004, the FASB issued a FASB Staff Position (FSP) EITF
03-1 that delays the effective date of the measurement and recognition guidance in EITF 03-1 until
further notice. The disclosure requirements of EITF 03-1 are effective with this annual report for
fiscal 2004. Once the FASB reaches a final decision on the measurement and recognition provisions,
we will evaluate the impact of the adoption of the accounting provision of EITF 03-1. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment
of APB Opinion No. 29.The guidance in APB Opinion No. 29, Accounting for Nonmonetary
Transactions,is based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of assets exchanged. The guidance in that Opinion, however, included
certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception
for nonmonetary exchanges of similar productive assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary
exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153
is not expected to have a material impact on our financial position and results of operations. Inflation and Changing Prices Our systems costs and expenses are subject to inflation and price fluctuations. Such changes
in costs and expenses can generally be passed through to subscribers. Programming costs have
historically increased at rates in excess of inflation and are expected to continue to do so. We
believe that under the FCCs existing cable rate regulations we may increase rates for cable
television services to more than cover any increases in programming. However, competitive
conditions and other factors in the marketplace may limit our ability to increase our rates. 44




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Risk Factors Risks Related to our Business We have a history of net losses. We have a history of net losses. Although we reported net income of $9.0 million for the year
ended December 31, 2004, we reported net losses of $105.1 million and $42.5 million for the years
ended December 31, 2002 and 2003, respectively. The principal reasons for our prior net losses
include the depreciation and amortization expenses associated with our acquisitions, the capital
expenditures related to expanding and upgrading our cable systems and interest costs on borrowed
money. If we are unsuccessful in implementing our growth strategy, our business and results of operations could be adversely affected. We currently expect that a substantial portion of our future growth in revenues will come from
the expansion of relatively new services and the introduction of additional new services.
Relatively new services include HSD, VOD, DVRs and HDTV. We plan to offer cable telephony service
to our subscribers beginning with certain markets in the second quarter of 2005 and expanding to an
additional 500,000 homes in our markets within twelve months of our initial market launch. We may
not be able to successfully expand existing services or introduce cable telephony due to
unpredictable technical, operational or regulatory challenges. It is also possible that these
services will not generate significant revenue growth. Our programming costs are increasing, and our business and results of operations will be adversely affected if we cannot pass through a sufficient part of the additional costs to subscribers. Our programming costs have been, and are expected to continue to be, one of our largest single
expense items. In recent years, the cable and satellite video industries have experienced a rapid
increase in the cost of programming, particularly sports programming. This increase in programming
costs is expected to continue, and we may not be able to pass all programming cost increases on to
our customers. In addition, as we add programming to our basic and expanded basic programming
tiers, we may not be able to pass all of our costs of the additional programming on to our
customers without the potential loss of basic subscribers. To the extent that we may not be able
to pass increased or additional programming costs, particularly sports programming, through to
subscribers, our business and results of operations will be adversely affected. We also expect to be subject to increasing financial and other demands by broadcasters to
obtain the required consents for the transmission of broadcast programming to our subscribers. We
cannot predict the impact of these negotiations on our business and results of operations or the
effect on our subscribers should we be required to suspend the carriage of this programming. We operate in a highly competitive business environment, which affects our ability to attract
and retain customers and can adversely affect our business and operations. We have lost a
significant number of customers to direct broadcast satellite competition, and further loss of
customers could have a material negative impact on our business. The industry in which we operate is highly competitive and is often subject to rapid and
significant changes and developments in the marketplace and in the regulatory and legislative
environment. In some instances, we compete against companies with fewer regulatory burdens, easier
access to financing, greater resources and operating capabilities, greater brand name recognition
and long-standing relationships with regulatory authorities and customers. Our video business faces competition primarily from DBS service providers. Our principal
competitor in the HSD business, in markets where it is available, is telephone service, or DSL.
The two largest DBS companies, DIRECTV, Inc. and EchoStar Communications, are each among the four
largest providers of multichannel video programming services based on reported customers. In
addition, DIRECTVs affiliation with News Corporation could strengthen that companys competitive positioning, as News Corporation also owns Fox
Television Network and several cable programming services. Competition from DBS has had an adverse
effect on our ability to retain customers. DBS has grown rapidly over the past several years and
continue to do so. We have lost a significant number of customers to DBS competition, and will
continue to face significant challenges from DBS providers. 45




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Local telephone companies, electric utilities and other municipal organizations are capable of
offering video and other services in competition with us and they may increasingly do so in the
future. Certain telephone companies have begun to deploy fiber more extensively in their networks
and some have announced plans to deploy broadband services, including video programming services,
in a manner to avoid the same regulatory burdens imposed on our business. These deployments will
enable them to begin providing video services, as well as telephone and Internet access services,
to residential and business customers. New laws or regulations at the federal or state level may
clarify the ability of the local telephone companies to provide their services without obtaining
state or local cable franchises. If local telephone companies are not required to obtain local
cable franchises comparable to ours, it would be adverse to our business. We also face competition from over-the-air television and radio broadcasters and from other
communications and entertainment media such as movie theaters, live entertainment and sports
events, newspapers and home video products. Further losses of customers to DBS or other
alternative video and HSD services could have a material adverse effect on our business. In our HSD business, we face competition primarily from telephone companies and other
providers of dial-up and DSL. DSL service is competitive with HSD service over cable systems.
Telephone companies (which already have telephone lines into the household, an existing customer
base and other operational functions in place) and other companies offer DSL service. In addition,
certain DBS providers are currently offering two-way broadband data access services, which compete
with our ability to offer bundled services to our customers. Our HSD business may also face competition in the future from registered utility holding
companies and subsidiaries In 2004, the FCC adopted rules: (i) that affirmed the ability of
electric service providers to provide broadband Internet access services over their distribution
systems; and (ii) that seek to avoid interference with existing services. Electric utilities could
be formidable competitors to us. Some of our competitors, including franchised, wireless or private cable operators, satellite
television providers and local exchange carriers, may benefit from permanent or temporary business
combinations such as mergers, joint ventures and alliances and the potential repeal of certain
ownership rules, either through access to financing, resources or efficiencies of scale, or the
ability to provide multiple services in direct competition with us. If we are unable to keep pace with technological change, our business and results of
operations could be adversely affected. Our industry is characterized by rapid technological change and the introduction of new
products and services. We cannot assure you that we will be able to fund the capital expenditures
necessary to keep pace with future technological developments. We also cannot assure you that we
will successfully anticipate the demand of our customers for products and services requiring new
technology. This type of rapid technological change could adversely affect our ability to
maintain, expand or upgrade our systems and respond to competitive pressures. An inability to
maintain and expand our systems and provide advanced services in a timely manner, or to anticipate
the demands of the market place, could adversely affect our ability to compete and our results of
operations. The loss of key personnel could have a material adverse effect on our business. If any of our managers key personnel ceases to participate in our business and operations,
our profitability could suffer. Our success is substantially dependent upon the retention of, and
the continued performance by, our managers key personnel, including Rocco B. Commisso, the
Chairman and Chief Executive Officer of our manager. Our manager has not entered into a long-term
employment agreement with Mr. Commisso. Neither our manager nor we currently maintains key man
life insurance on Mr. Commisso or other key personnel. 46




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We may not be able to obtain critical items at a reasonable cost or when required, which could
adversely affect business, financial condition and results of operations. We depend on third-party suppliers for equipment, software, services and other items that are
critical for the operation of our cable systems and the provision of advanced services, including
digital set-top converter boxes, digital video recorders and routers, fiber-optic cable, telephone
circuits, software, the backbone telecommunications network for our high-speed data service and
construction services for expansion and upgrades of our cable systems. These items are available
from a limited number of suppliers. Demand for these items has increased with the general growth
in demand for Internet and telecommunications services. We typically do not carry significant
inventories of equipment. Moreover, if there are no suppliers that are able to provide set-top
converter boxes that comply with evolving Internet and telecommunications standards or that are
compatible with other equipment and software that we use, our business, financial condition and
results of operations could be materially adversely affected. If we are unable to obtain critical
equipment, software, services or other items on a timely basis and at an acceptable cost, our
ability to offer our products and services and roll out advanced services may be impaired, and our
business, financial condition and results of operations could be materially adversely affected. Risks Related to our Indebtedness and the Indebtedness of our Operating Subsidiaries We are a holding company with no operations and we depend on our operating subsidiaries for
cash to fund our obligations. As a holding company, we do not have any operations or hold any assets other than our
investments in and our advances to our operating subsidiaries. Consequently, our subsidiaries
conduct all of our consolidated operations and own substantially all of our consolidated assets.
The only source of cash we have to pay interest on, and repay the principal of, our indebtedness
and to meet our other obligations is the cash that our subsidiaries generate from their operations
and their borrowings. Our subsidiaries are not obligated to make funds available to us. Our
subsidiaries ability to make payments to us will depend upon their operating results and will be
subject to applicable laws and contractual restrictions, including the agreements governing our
subsidiary credit facilities and other indebtedness. Those agreements permit our subsidiaries to
distribute cash to us under certain circumstances, but only so long as there is no default under
any of such agreements. We have substantial existing debt and have significant interest payment requirements, which
could adversely affect our ability to obtain financing in the future and require our operating
subsidiaries to apply a substantial portion of their cash flow to debt service. Our total debt as of December 31, 2004 was approximately $1.47 billion. Our interest expense
for the year ended December 31, 2004 was $97.8 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; 47




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
    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 facility could result in an
acceleration of our indebtedness and other material adverse effects. The agreements and instruments governing our own and our subsidiaries indebtedness contain
numerous financial and operating covenants. The breach of any of these covenants could cause a
default, which could result in the indebtedness becoming immediately due and payable. If this were
to occur, we would be unable to adequately finance our operations. In addition, a default could
result in a default or acceleration of our other indebtedness subject to cross-default provisions.
If this occurs, we may not be able to pay our debts or borrow sufficient funds to refinance them.
Even if new financing is available, it may not be on terms that are acceptable to us. The
membership interests of our operating subsidiaries are pledged as collateral under our subsidiary
credit facility. A default under our subsidiary credit facility could result in a foreclosure by
the lenders on the membership interests pledged under that facility. Because we are dependent upon
our operating subsidiaries for all of our revenues, a foreclosure would have a material adverse
effect on our business, financial condition and results of operations. The terms of our indebtedness could materially limit our financial and operating flexibility. Several of the covenants contained in the agreements and instruments governing our own and our
subsidiaries indebtedness could materially limit our financial and operating flexibility by
restricting, among other things, our ability and the ability of our operating subsidiaries to:  
    incur additional indebtedness;
    create liens and other encumbrances;
    pay dividends and make other payments, investments, loans and guarantees;
    enter into transactions with related parties;
    sell or otherwise dispose of assets and merge or consolidate with another entity;
    repurchase or redeem capital stock, other equity interests or debt;
    pledge assets; and
    issue capital stock or other equity interests. Complying with these covenants could cause us to take actions that we otherwise would not take
or cause us not to take actions that we otherwise would take. We may not be able to obtain additional capital to continue the development of our business. We have invested substantial capital for the upgrade, expansion and maintenance of our cable
systems and the launch and expansion of new or additional products and services. While we have
completed our planned system upgrades, if there is accelerated growth in our video, HSD and voice
products and services, or we decide to introduce other new advanced products and services, or the
cost to provide these products and services increases, we may need to make unplanned additional
capital expenditures. We may not be able to obtain the funds necessary to finance additional
capital requirements through internally generated funds, additional borrowings or other sources. 48




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If we are unable to obtain these funds, we would not be able to implement our business strategy and
our results of operations would be adversely affected. Risks Related to Legislative and Regulatory Matters  Our cable television business is subject to extensive governmental regulation. The cable television industry is subject to extensive legislation and regulation at the
federal and local levels, and, in some instances, at the state level. Many aspects of such
regulation are currently the subject of judicial and administrative proceedings and legislative and
administrative proposals. We expect that court actions and regulatory proceedings will continue to
refine our rights and obligations under applicable federal, state and local laws. The results of
these judicial and administrative proceedings and legislative activities may materially affect our
business operations. Local authorities grant us non-exclusive franchises that permit us to operate
our cable systems. We renew or renegotiate these franchises from time to time. Local franchising
authorities may demand concessions, or other commitments, as a condition to renewal, and these
concessions or other commitments could be costly. The Communications Act contains renewal
procedures and criteria designed to protect incumbent franchisees against arbitrary denials of
renewal, and although such Act requires the local franchising authorities to take into account the
costs of meeting such concessions or commitments, there is no assurance that we will not be
compelled to meet their demands in order to obtain renewals. We cannot predict whether any of the
markets in which we operate will expand the regulation of our cable systems in the future or the
impact that any such expanded regulation may have upon our business. Similarly, due to the increasing popularity and use of commercial online services and the
Internet, certain aspects have become subject to regulation at the federal and state level such as
collection of information online from children, disclosure of certain subscriber information to
governmental agencies, commercial emails or spam, privacy, security and distribution of material
in violation of copyrights. In addition to the possibility that additional federal laws and
regulations may be adopted with respect to commercial online services and the Internet, it is
possible that individual states may also impose such restrictions, potentially creating an
intricate patchwork of laws and regulations. Future federal and/or state laws may cover such
issues as privacy, access to some types of content by minors, pricing, encryption standards,
consumer protection, electronic commerce, taxation of e-commerce, copyright infringement and other
intellectual property matters. The adoption of such laws or regulations in the future may decrease
the growth of such services and the Internet, which could in turn decrease the demand for our cable
modem service, increase our costs of providing such service or have other adverse effects on our
business, financial condition and results of operations.  Changes in channel carriage regulations could impose significant additional costs on us. Cable operators face significant regulation of their channel carriage. Currently, they can be
required to devote substantial capacity to the carriage of programming that they would not carry
voluntarily, including certain local broadcast signals, local public, educational and government
access programming, and unaffiliated commercial leased access programming. If the FCC or Congress
were to require cable systems to carry both the analog and digital versions of local broadcast
signals or to carry multiple program streams included with a single digital broadcast transmission,
this carriage burden would increase substantially. Recently, the FCC reaffirmed that cable
operators need only carry one programming service of each television broadcaster to fulfill its
must-carry obligation.  Our franchises are non-exclusive and local franchising authorities may grant competing franchises in our markets. Our cable systems are operated under non-exclusive franchises granted by local franchising
authorities. As a result, competing operators of cable systems and other potential competitors,
such as municipal utility providers, may be granted franchises and may build cable systems in
markets where we hold franchises. Any such competition could adversely affect our business. The
existence of multiple cable systems in the same geographic area is generally referred to as an
overbuild. As of the filing date of this report, approximately 8.7% of the estimated homes
passed by our cable systems were overbuilt by other cable operators. We cannot assure you that
competition from overbuilders will not develop in other markets that we now serve or will serve
after any future acquisitions. 49




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Pending FCC and court proceedings could adversely affect our HSD service. The legal and regulatory status of providing high-speed Internet access service by cable
television companies is uncertain. The adoption of new rules by the FCC or rulings in court
proceedings could place additional costs and regulatory burdens on us, reduce our anticipated
revenues or increase our anticipated costs for this service, complicate the franchise renewal
process, result in greater competition or otherwise adversely affect our business. The FCC has
issued a declaratory ruling that cable modem service, as it is currently offered, is properly
classified as an interstate information service that is not subject to common carrier regulation.
However, the FCC is still considering the following: whether to require cable companies to provide
capacity on their systems to other entities to deliver high-speed Internet directly to customers,
also known as open access; whether certain other regulatory requirements do or should apply to
cable modem service; and whether and to what extent cable modem service should be subject to local
franchise authorities regulatory requirements or franchise fees. There can be no assurance that
regulatory authorities will not impose open access or similar requirements on us as part of an
industry-wide requirement. Such requirements could have a negative impact on our business and
results of operations. Challenges to the FCCs classification of cable Internet access service as an information
service and not a cable service or a telecommunications service have been addressed by a federal
appellate court. Based on a finding that it was bound by an earlier decision, the appellate court
overturned the FCCs classification and found cable Internet service to include both information
service and telecommunications service components. The United States Supreme Court has agreed to
review the appellate courts decision. If the appellate courts decision prevails, it could result
in an open access requirement and other obligations imposed on telecommunications carriers, which
would be adverse to us.  We may be subject to legal liability because of the acts of our HSD customers or because of our own negligence. Our HSD service enables individuals to access the Internet and to exchange information,
generate content, conduct business and engage in various online activities on an international
basis. The law relating to the liability of providers of these online services for activities of
their users is currently unsettled both within the United States and abroad. Potentially, third
parties could seek to hold us liable for the actions and omissions of our cable modem service
customers, such as defamation, negligence, copyright or trademark infringement, fraud or other
theories based on the nature and content of information that our customers use our service to post,
download or distribute. We also could be subject to similar claims based on the content of other
Websites to which we provide links or third-party products, services or content that we may offer
through our Internet service. Due to the global nature of the Web, it is possible that the
governments of other states and foreign countries might attempt to regulate its transmissions or
prosecute us for violations of their laws. It is also possible that information provided directly by us will contain errors or otherwise
be negligently provided to users, resulting in third parties making claims against us. For
example, we offer Web-based email services, which expose us to potential risks, such as liabilities
or claims resulting from unsolicited email, lost or misdirected messages, illegal or fraudulent use
of email, or interruptions or delays in email service. Additionally, we host website portal
pages designed for use as a home page by, but not limited to, our HSD customers. These portal
pages offer a wide variety of content from third parties which could contain errors or other
material that could give rise to liability. To date, no one has filed such a claim against us. However, in the future someone may file
such a claim against us in either a domestic or international jurisdiction and may succeed in
imposing liability on us. Our defense of any such actions could be costly and involve significant
distraction of our management and other resources. If we are held or threatened with significant
liability, we may decide to take actions to reduce our exposure to this type of liability. This
may require us to spend significant amounts of money for new equipment and may also require us to
discontinue offering some features or our cable modem service. Since we launched our proprietary Mediacom Online(SM) HSD service in February 2002,
from time to time, we receive notices of claimed infringements by our cable modem service users.
The owners of copyrights and trademarks have been increasingly active in seeking to prevent use of
the Internet to violate their rights. In many cases, their claims of infringement are based on the acts of customers of an Internet service
provider-for example, a customers use of an Internet service or the resources it provides to post,
download or disseminate copyrighted music, movies, software or other content without the consent of
the copyright owner or to seek to profit from the use of the goodwill associated with another
persons trademark. In some cases, copyright and trademark owners have sought to recover damages
from the Internet service provider, as well as or instead of the customer. The law relating to the
potential liability of Internet service providers in these circumstances is unsettled. In 1996,
Congress adopted the Digital Millennium Copyright Act, which is intended to grant ISPs protection
against certain claims of copyright infringement resulting from the actions of customers, provided
that the ISP complies with certain requirements. So far, Congress has not adopted similar
protections for trademark infringement claims. 50




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We may be required to provide access to our networks to other Internet service providers,
which could significantly increase our competition and adversely affect our ability to provide new
products and services. Local authorities and the FCC have been asked to require cable operators to provide
non-discriminatory access over their cable systems to other Internet service providers. A federal
court in each of California, Virginia and Florida has struck down these open-access requirements
imposed by a variety of franchising authorities as unlawful. Each of these courts used different
legal grounds to strike down the open-access requirements. However, an appellate court has found
that cable modem service is part telecommunications service and part information service. The U.S.
Supreme Court has agreed to hear an appeal of that decision. If not overturned, the decision could
potentially result in open access being imposed on us. If we are required to provide access in
this manner, it could have a significant adverse impact on our financial results, including by: (i)
increasing competition; (ii) increasing the expenses we incur to maintain our systems; and/or (iii)
increasing the expense of upgrading and/or expanding our systems.  We may become subject to additional regulatory burdens when we offer cable telephony service. The regulatory obligations of VoIP are currently under consideration by the FCC and state
authorities. If our planned cable telephony service is deemed by regulators to be a
telecommunications service or a state-regulated telephone service, such service could subject us to
significant regulation as well as higher fees for pole attachments. The additional regulatory
requirements could cause us to incur additional costs and we may not be able to meet them in a
timely manner. Actions by pole owners might subject us to significantly increased pole attachment costs. Our cable facilities are often attached to or use public utility poles, ducts or conduits.
Historically, cable system attachments to public utility poles have been regulated at the federal
or state level. Generally this regulation resulted in favorable pole attachment rates for
attachments used to provide cable service. The FCC clarified that the provision of Internet access
does not endanger a cable operators favorable pole rates; this approach ultimately was upheld by
the Supreme Court of the United States. However, an appellate court has subsequently held that
cable modem service is not cable service but is part telecommunications service and part
information service, which possibly could lead to higher pole attachment rates. The U.S. Supreme
Court has agreed to hear an appeal of the lower courts decision. As a result of this uncertainty,
utility pole owners in many areas are attempting to raise pole attachment rates and impose
additional costs on cable operators and others. In addition, utility companies can increase the
favorable pole attachment rates afforded cable operators under federal law if the operator provides
telecommunications services, as well as cable service, over plant attached to utility poles. Our
financial results could suffer a material adverse impact from any significant increased costs, and
such increased pole attachment costs could discourage system upgrades and the introduction of new
products and services. 51




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, we use interest rate exchange agreements (interest rate
swaps) with counterparties to fix the interest rate on a portion of our variable interest rate
debt. As of December 31, 2004, we had $300.0 million of interest rate swaps with various banks
with a weighted average fixed rate of approximately 3.0%. The fixed rates of the interest rate
swaps are offset against the applicable three-month London Interbank Offering Rate to determine the
related interest expense. Under the terms of the interest rate exchange agreements, which expire from 2006 through 2007,
we are exposed to credit loss in the event of nonperformance by the other parties. However, due to
the high creditworthiness of our counterparties, which are major banking firms with
investment-grade ratings, we do not anticipate their nonperformance. At December 31, 2004, based
on the mark-to-market valuation, we would have received approximately $1.6 million, including
accrued interest, if we terminated these agreements. The table below provides the expected maturity and estimated fair value of our debt as of
December 31, 2004 (dollars in thousands). See Note 6 to our consolidated financial statements. Bank Credit
    
    
    Capital LeaseSenior Notes
    
    
    Facilities
    
    
    Obligations
    
    
    TotalExpected Maturity:January 1, 2005 to December 31, 2005
    
    $
    
    
    
    $
    5,500
    
    
    $
    884
    
    
    $
    6,384January 1, 2006 to December 31, 2006
    
    
    
    
    
    
    5,500
    
    
    
    911
    
    
    
    6,411January 1, 2007 to December 31, 2007
    
    
    
    
    
    
    5,500
    
    
    
    381
    
    
    
    5,881January 1, 2008 to December 31, 2008
    
    
    200,000
    
    
    
    5,500
    
    
    
    1
    
    
    
    205,501January 1, 2009 to December 31, 2009
    
    
    
    
    
    
    5,500
    
    
    
    
    
    
    
    5,500Thereafter
    
    
    625,000
    
    
    
    618,500
    
    
    
    
    
    
    
    1,243,500Total
    
    $
    825,000
    
    
    $
    646,000
    
    
    $
    2,177
    
    
    $
    1,473,177Fair Value
    
    $
    828,400
    
    
    $
    646,000
    
    
    $
    2,177
    
    
    $
    1,476,577Weighted Average Interest Rate
    
    
    9.0
    %
    
    
    4.5
    %
    
    
    3.1
    %
    
    
    7.0
    %
 52




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MEDIACOM LLC AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Contents
    
    PageReport of Independent Registered Public Accounting Firm-PricewaterhouseCoopers LLP
    
    
    54Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    
    55Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002
    
    
    56Consolidated Statements of Changes in Members (Deficit) Equity for the Years Ended December 31, 2004, 2003 and 2002
    
    
    57Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002
    
    
    58Notes to Consolidated Financial Statements
    
    
    59Financial Statement Schedule: Schedule II-Valuation and Qualifying Accounts
    
    
    73
 53




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Report of Independent Registered Public Accounting Firm To the Member of Mediacom LLC: In our opinion, the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Mediacom LLC and its subsidiaries at
December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America. In addition, in
our opinion, the consolidated financial
statement schedule listed in the accompanying index present fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial
statements. These consolidated financial statements and consolidated financial statement schedules
are the responsibility of the Companys management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP
New York, New York
March 16, 2005 54




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MEDIACOM LLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(All dollar amounts in thousands) December 31,2004
    
    
    2003ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    12,131
    
    
    $
    13,417Investments
    
    
    1,987
    
    
    
    1,987Subscriber accounts receivable, net of allowance for doubtful accounts
of $856 and $1,069, respectively
    
    
    26,929
    
    
    
    24,012Prepaid expenses and other assets
    
    
    14,216
    
    
    
    26,262current assets
    
    
    55,263
    
    
    
    65,678Preferred equity investment in affiliated company
    
    
    150,000
    
    
    
    150,000Investment in cable television systems:Property, plant and equipment, net of accumulated depreciation of
$728,048 and $637,254, respectively
    
    
    698,363
    
    
    
    708,159Intangible assets, net of accumulated amortization of $242,615 and
$235,979, respectively
    
    
    564,862
    
    
    
    570,953Total investment in cable television systems
    
    
    1,263,225
    
    
    
    1,279,112Other assets, net of accumulated amortization of $14,443 and
$15,835, respectively
    
    
    23,412
    
    
    
    20,576Total assets
    
    $
    1,491,900
    
    
    $
    1,515,366LIABILITIES AND MEMBERS DEFICITCURRENT LIABILITIESAccrued liabilities
    
    $
    107,520
    
    
    $
    93,831Deferred revenue
    
    
    17,876
    
    
    
    16,432Current portion of long-term debt
    
    
    6,384
    
    
    
    2,799Total current liabilities
    
    
    131,780
    
    
    
    113,062Long-term debt, less current portion
    
    
    1,466,793
    
    
    
    1,521,525Other non-current liabilities
    
    
    12,634
    
    
    
    9,062Total liabilities
    
    
    1,611,207
    
    
    
    1,643,649MEMBERS DEFICITCapital contributions
    
    
    548,521
    
    
    
    548,521Accumulated deficit
    
    
    (667,828
    )
    
    
    (676,804
    )Total members deficit
    
    
    (119,307
    )
    
    
    (128,283
    )Total liabilities and members deficit
    
    $
    1,491,900
    
    
    $
    1,515,366
 The accompanying notes to the consolidated financial statements
are an integral part of these statements. 55




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MEDIACOM LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(All dollar amounts in thousands) Year Ended December 31,2004
    
    
    2003
    
    
    2002Revenues
    
    $
    472,187
    
    
    $
    452,548
    
    
    $
    410,241Costs and expenses:Service costs (exclusive of depreciation and amortization of
$107,282,$158,718 and $194,862, respectively, shown
separately below)
    
    
    187,077
    
    
    
    169,818
    
    
    
    152,684Selling, general and administrative expenses
    
    
    84,853
    
    
    
    77,908
    
    
    
    68,563Management fee expense
    
    
    8,691
    
    
    
    7,915
    
    
    
    11,108Depreciation and amortization
    
    
    107,282
    
    
    
    158,718
    
    
    
    194,862Operating income (loss)
    
    
    84,284
    
    
    
    38,189
    
    
    
    (16,976
    )Interest expense, net
    
    
    (97,790
    )
    
    
    (98,596
    )
    
    
    (102,458
    )Gain on derivatives, net
    
    
    5,196
    
    
    
    6,250
    
    
    
    1,172Gain (loss) on sale of assets and investments, net
    
    
    5,885
    
    
    
    (1,908
    )
    
    
    Investment income from affiliate
    
    
    18,000
    
    
    
    18,000
    
    
    
    18,000Other expense
    
    
    (6,599
    )
    
    
    (4,425
    )
    
    
    (4,845
    )Net income (loss)
    
    $
    8,976
    
    
    $
    (42,490
    )
    
    $
    (105,107
    )
 The accompanying notes to the consolidated financial statements
are an integral part of these statements. 56




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MEDIACOM LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN
MEMBERS (DEFICIT) EQUITY
(All dollar amounts in thousands) Capital
    
    
    AccumulatedContributions
    
    
    Deficit
    
    
    TotalBalance, 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
    )Net income
    
    
    
    
    
    
    8,976
    
    
    
    8,976Balance, December 31, 2004
    
    $
    548,521
    
    
    $
    (667,828
    )
    
    $
    (119,307
    )
 The accompanying notes to the consolidated financial statements
are an integral part of these statements. 57




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MEDIACOM LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in thousands) Years Ended December 31,2004
    
    
    2003
    
    
    2002CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:Net income (loss)
    
    $
    8,976
    
    
    $
    (42,490
    )
    
    $
    (105,107
    )Adjustments to reconcile net income (loss) to net cash provided
by operating activities:Depreciation and amortization
    
    
    107,282
    
    
    
    158,718
    
    
    
    194,862Gain on derivatives, net
    
    
    (5,196
    )
    
    
    (6,250
    )
    
    
    (1,172
    )(Gain) loss on investments, net
    
    
    (5,885
    )
    
    
    1,908
    
    
    
    Vesting of management stock
    
    
    
    
    
    
    
    
    
    
    5,323Amortization of deferred financing costs
    
    
    5,642
    
    
    
    3,320
    
    
    
    3,754Changes in assets and liabilities,net of effects from acquisitions:Subscriber accounts receivable, net
    
    
    (2,413
    )
    
    
    (3,303
    )
    
    
    (1,033
    )Prepaid expenses and other assets
    
    
    12,046
    
    
    
    (11,006
    )
    
    
    (8,339
    )Accounts payable and accrued expenses
    
    
    13,189
    
    
    
    17,420
    
    
    
    (23,512
    )Deferred revenue
    
    
    1,444
    
    
    
    1,542
    
    
    
    1,486Other non-current liabilities
    
    
    2,708
    
    
    
    298
    
    
    
    1,171Net cash flows provided by operating activities
    
    
    137,793
    
    
    
    120,157
    
    
    
    67,433CASH FLOWS USED IN INVESTING ACTIVITIES:Capital expenditures
    
    
    (87,922
    )
    
    
    (105,911
    )
    
    
    (167,789
    )Acquisition of cable television system
    
    
    (3,372
    )
    
    
    (2,327
    )
    
    
    (6,548
    )Proceeds from sale of assets and investments
    
    
    10,556
    
    
    
    3,420
    
    
    
    Other investing activities
    
    
    (782
    )
    
    
    5,065
    
    
    
    (2,262
    )Net cash flows used in investing activities
    
    
    (81,520
    )
    
    
    (99,753
    )
    
    
    (176,599
    )CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:New borrowings
    
    
    121,122
    
    
    
    158,038
    
    
    
    356,750Repayment of debt
    
    
    (172,269
    )
    
    
    (185,688
    )
    
    
    (233,750
    )Financing costs
    
    
    (6,412
    )
    
    
    (227
    )
    
    
    (322
    )Net cash flows (used in) provided by financing activities
    
    
    (57,559
    )
    
    
    (27,877
    )
    
    
    122,678Net (decrease) increase in cash and cash equivalents
    
    
    (1,286
    )
    
    
    (7,473
    )
    
    
    13,512CASH AND CASH EQUIVALENTS, beginning of year
    
    
    13,417
    
    
    
    20,890
    
    
    
    7,378CASH AND CASH EQUIVALENTS, end of year
    
    $
    12,131
    
    
    $
    13,417
    
    
    $
    20,890SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the year for interest, net of amounts capitalized
    
    $
    96,116
    
    
    $
    98,984
    
    
    $
    104,324SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:Capital expenditures financed through capital leases
    
    $
    
    
    
    $
    3,263
    
    
    $
    
 The accompanying notes to the consolidated financial statements
are an integral part of these statements. 58




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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 11. Mediacom Capital Corporation, a New York corporation wholly-owned by Mediacom, co-issued
public debt securities, jointly and severally, with Mediacom. Mediacom Capital Corporation has no
assets (other than a $100 receivable from affiliate), operations, revenues or cash flows.
Therefore, separate financial statements have not been presented for this entity. (2) Summary of Significant Accounting Policies Basis of Preparation of Consolidated Financial Statements The consolidated financial statements include the accounts of Mediacom LLC and its
subsidiaries. All significant intercompany transactions and balances have been eliminated. The
preparation of the consolidated financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The accounting estimates that require managements most
difficult and subjective judgments include assessment and valuation of intangibles, useful lives of
property, plant and equipment and the valuation of programming liabilities. Actual results could
differ from those and other estimates. Change in Estimate Effective July 1, 2003, the Company changed the estimated useful lives of its cable systems
and equipment. The changes in estimated useful lives were made to reflect managements evaluation
of the longer economic lives of the Companys upgraded and rebuilt network. The new asset lives
are consistent with those used by companies in the cable television industry. The weighted average
useful lives of such fixed assets changed from approximately 7 years to approximately 12 years.
These changes were made on a prospective basis and resulted in an increase in net income of
approximately $83.9 million for the year ended December 31, 2004 and a decrease in net loss of
approximately $41.2 for the year ended December 31, 2003. Revenue Recognition Revenues include amounts billed to customers for services provided, installations, advertising
and other services. Revenues from video and data services are recognized when the services are
provided to the customers. Installation revenues are less than direct installation costs.
Therefore, installation revenues are recognized as connects are completed. Advertising sales are
recognized in the period that the advertisements are exhibited. Franchise fees are collected on a
monthly basis and are periodically remitted to local franchise authorities. Franchise fees
collected and paid are reported as revenues and expenses as a component of selling, general and
administrative. 59




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Allowance for Doubtful Accounts The allowance for doubtful accounts represents the Companys best estimate of probable losses
in the accounts receivable balance. The allowance is based on the number of days outstanding,
customer balances, historical experience and other currently available information. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months
or less to be cash equivalents. 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 separate component on the statement of operations. The Company capitalizes the costs associated with the construction of cable transmission and
distribution facilities, new customer installations and indirect costs associated with our
telephony product. Costs include direct labor and material, as well as certain indirect costs
including interest. The Company performs periodic evaluations of certain estimates used to
determine the amount and extent of such costs that are capitalized. Any changes to these
estimates, which may be significant, are applied in the period in which the evaluations were
completed. The costs of disconnecting service at a customers dwelling or reconnecting to a
previously installed dwelling are charged as expense in the period incurred. Costs associated with
subsequent installations of additional services not previously installed at a customers dwelling
are capitalized to the extent such costs are incremental and directly attributable to the
installation of such additional services. Capitalized Software Costs The Company accounts for internal-use software development and related costs in accordance
with AICPA Statement of Position No. 98-1 Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use. Software development and other related costs consist of external
and internal costs incurred in the application development stage to purchase and implement the software that will be used in the Companys
telephony business. Costs incurred in the development of application and infrastructure of the
software is capitalized and will be amortized over its respective estimated useful life. During the year ended December 31, 2004 and
2003, the Company capitalized approximately $0.6 million and $0.3 million, respectively of software
development costs. Amortization will begin when the Company launches its telephony product. 60




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Intangible Assets In accordance with FASB No. 142 Goodwill and Other Intangible Assets, the amortization of
goodwill and indefinite-lived intangible assets is prohibited and requires such assets to be tested
annually for impairment, or more frequently if impairment indicators arise. The Company has
determined that its cable franchise costs and goodwill are indefinite-lived assets and therefore
not amortizable. Other finite-lived intangible assets, which consist primarily of subscriber lists
and covenants not to compete, continue to be amortized over their useful lives of 5 to 10 years and
5 years, respectively. Other Assets Other assets, net represent debt financing costs incurred to raise debt, which are deferred
and amortized as other expense over the expected term of such financings. Segment Reporting SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, requires
the disclosure of factors used to identify an enterprises reportable segments. The Companys
operations are organized and managed on the basis of cable system clusters that represent operating
segments responsible for certain geographical regions. Each operating segment derives its revenues
from the delivery of similar products and services to a customer base that is also similar. Each
operating segment deploys similar technology to deliver our products and services and operates
within a similar regulatory environment. In addition, each operating segment has similar economic
characteristics. Management evaluated the criteria for aggregation of the geographic operating
segments under SFAS No. 131 and believes the Company meets each of the respective criteria set
forth. Accordingly, management has identified broadband services as the Companys one reportable
segment. Accounting for Derivative Instruments The Company accounts for derivative instruments in accordance with SFAS No. 133, SFAS No. 138
and SFAS No. 149. These pronouncements require that all derivative instruments be recognized on
the balance sheet at fair value. The Companys stated strategy is to manage its interest expense
using a combination of fixed and variable interest rate debt. The Company enters into interest
rate exchange agreements to fix the interest rate on a portion of its variable interest rate debt
to reduce the potential volatility in its interest expense that would otherwise result from changes
in market interest rates. The Companys derivative instruments are recorded at fair value and are
included in other current assets, other assets and other liabilities. The Companys accounting
policies for these instruments are based on whether they meet the Companys criteria for
designation as hedging transactions. The criteria for designating a derivative as a hedge include
the instruments effectiveness in risk reduction and, in most cases, a one-to-one matching of the
derivative instrument to its underlying transaction. Gains and losses from changes in fair values
of derivatives that are not designated as hedges for accounting purposes are recognized currently
in earnings. During 2004, 2003 and 2002, none of the Companys derivative financial instruments
were designated as hedges. Therefore, changes in fair value for the respective periods were
recognized in earnings. Accounting for Asset Retirement The Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations, on January 1,
2003. SFAS No. 143 addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement costs. The
Company reviewed its asset retirement obligations to determine the fair value of such liabilities and if a reasonable estimate of fair
value could be made. This entailed the review of leases covering tangible long-lived assets as
well as the Companys rights-of-way under franchise agreements. In determining the fair value of
the Companys asset retirement obligation, consideration was given to the Cable Communications
Policy Act of 1984, which generally entitles the cable operator to the fair market value for the
cable system covered by a franchise, if renewal is denied and the franchising authority acquires
ownership of the cable system or effects a transfer of the cable system to another person. Changes
in these assumptions based on future information could result in adjustments to estimated
liabilities. 61




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Upon adoption of SFAS No. 143, the Company determined that in certain instances, it is
obligated by contractual terms or regulatory requirements to remove facilities or perform other
remediation activities upon the retirement of its assets. The Company has recorded a $6.0 million
asset in property, plant and equipment and a corresponding liability of $6.0 million. Accounting for Long-Lived Assets In accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived
Assets,the Company periodically evaluates the recoverability and estimated lives of its
long-lived assets, including property and equipment and intangible assets subject to amortization,
whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable or the useful life has changed. The measurement for such impairment loss is based on
the fair value of the asset, typically based upon the future cash flows discounted at a rate
commensurate with the risk involved. Unless presented separately, the loss is included as a
component of either depreciation expense or amortization expense, as appropriate. Comprehensive Income/Loss In June 1997, the FASB issued SFAS No. 130,  Reporting Comprehensive Income. This statement
requires companies to classify items of other comprehensive income/loss by their nature in the
financial statements and display the accumulated balance of other comprehensive income/loss
separately from retained earnings and additional paid-in capital in the equity section of a
statement of financial position. The Company has had no other comprehensive income/loss to report. 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 years amounts to conform to the current
years presentation. Recent Accounting Pronouncements The FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, in December 2002, which amended: (i) SFAS No. 123, Accounting for Stock-Based
Compensation,to provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee compensation; (ii) the
disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported
net income of an entitys accounting policy decisions with respect to stock-based employee
compensation; and (iii) APB Opinion No. 28, Interim Financial Reporting,to require disclosure
about those effects in interim financial information. The Company adopted SFAS No. 148 on January
1, 2003. 62




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company did not change to the fair value-based expense recognition method of accounting
for stock-based employees compensation. Accordingly, the adoption of SFAS No. 148 did not affect
the Companys financial condition or results of operations. However, SFAS No. 148 requires that
information be provided as if the Company had accounted for employee stock options under the fair
value method of this statement, including disclosing pro forma information regarding net income
(loss) and net income (loss) per share beginning with the first quarter of 2003. The Company
accounts for stock-based compensation in accordance with APB Opinion No. 25, Accounting for Stock
Issued to Employees,as permitted by SFAS No. 123. Compensation expense for stock options is
measured as the excess, if any, of the quoted market price of MCCs stock at the date of the grant
over the amount the employee must pay to acquire the stock. In December 2004, the FASB issued SFAS No. 123R, Amendment of Statement 123 on Share-Based
Payment.SFAS No. 123R requires companies to expense the value of employee stock options, stock
granted through the employee stock purchase program and similar awards. SFAS No. 123R is effective
for periods beginning after June 15, 2005. The Company plans on adopting SFAS No. 123R effective
July 1, 2005 and expects that the adoption of SFAS No. 123R will have a material impact on its
consolidated results of operations. There are three methods of adopting SFAS No. 123R. The first method is called modified
prospective method, which allows companies to avoid recording additional compensation expense for
vested awards that are outstanding on the effective date of the SFAS No. 123R. Unvested awards
outstanding on the effective date would be charged to expense over the remaining vesting period.
The second method is similar to the modified prospective method, except it allows companies to
restate earlier interim periods in the year of adoption using the applicable SFAS No. 123R pro
forma amounts. The third method is the modified retrospective method, which directs companies to
apply the modified prospective method and to restate prior financial statements. The Company is
currently evaluating these transitional methods. In March 2004, the FASB approved the consensus reached on the Emerging Issues Task Force
(EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments.The Issues objective is to provide guidance for identifying
other-than-temporarily impaired investments. EITF 03-1 also provides new disclosure requirements
for investments that are deemed to be temporarily impaired. In September 2004, the FASB issued a
FASB Staff Position (FSP) EITF 03-1 that delays the effective date of the measurement and
recognition guidance in EITF 03-1 until further notice. The disclosure requirements of EITF 03-1
are effective with this annual report for fiscal 2004. Once the FASB reaches a final decision on
the measurement and recognition provisions, the Company will evaluate the impact of the adoption of
the accounting provision of EITF 03-1. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment
of APB Opinion No. 29.The guidance in APB Opinion No. 29, Accounting for Nonmonetary
Transactions,is based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of assets exchanged. The guidance in that Opinion, however, included
certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception
for nonmonetary exchanges of similar productive assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary
exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153
is not expected to have a material impact on the Companys financial position and results of
operations. 63




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) Property, Plant and Equipment As of December 31, 2004 and 2003, property, plant and equipment consisted of (dollars in
thousands): 2004
    
    
    2003Land and land improvements
    
    $
    1,428
    
    
    $
    1,470Buildings and leasehold improvements
    
    
    15,606
    
    
    
    18,191Cable systems, equipment and subscriber devices
    
    
    1,365,701
    
    
    
    1,283,345Vehicles
    
    
    28,347
    
    
    
    29,266Furniture, fixtures and office equipment
    
    
    15,329
    
    
    
    13,1411,426,411
    
    
    
    1,345,413Accumulated depreciation
    
    
    (728,048
    )
    
    
    (637,254
    )Property, plant and equipment, net
    
    $
    698,363
    
    
    $
    708,159
 Depreciation expense for the years ended December 31, 2004, 2003 and 2002 was
approximately $98.7 million, $147.2 million and $168.1 million, respectively. As of December 31,
2004 and 2003, the Company had property under capitalized leases of $4.7 million and $5.4 million,
respectively, before accumulated depreciation, and $3.7 million and $4.2 million, respectively, net
of accumulated depreciation. During the years ended December 31,
2004, 2003 and 2002, the Company
incurred gross interest expense of $99.3 million,
$102.1 million and $105.2 million, respectively of which
$1.5 million, $3.5 million and $2.7 million was capitalized. See Note 2 to our consolidated financial statements. (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. As of December 31, 2004, the
company held 1,003 franchises in areas located throughout the United States. The Company acquired
these cable franchises through acquisitions of cable systems and they were accounted for using the
purchase method of accounting. On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets",
which eliminates amortization of goodwill and certain intangibles that have indefinite lives but
requires that such assets be tested for impairment at least annually. The Company evaluated the
expected useful life of its cable franchises, also referred to as franchise costs, upon adoption of
SFAS No. 142 and determined that all of its cable franchises have an indefinite useful life. As
such, the Company ceased amortizing its cable franchises effective January 1, 2002. The Company has assessed franchise value for impairment under SFAS No. 142 by utilizing a
discounted cash flow methodology. In performing an impairment test in accordance with SFAS No.
142, the Company considers the guidance contained in EITF Issue No. 02-7, Recognition of Customer
Relationship Intangible Assets acquired in a Business Combination,whereby the Company considers
assumptions, such as future cash flow expectations and other future benefits related to the
intangible assets, when measuring the fair value of each cable systems other net assets. If the
determined fair value of the Companys franchise costs is less the carrying amount on the financial
statements, an impairment charge would be recognized for the difference between the fair value and
the carrying value of the assets. To test the impairment of the goodwill carried on the Companys
financial statements, the fair value of the cable system clusters tangible and intangible assets
(includes franchise costs) other than goodwill is deducted from the cable system clusters fair
value. The balance represents the fair value of goodwill which is then compared to the carrying
value of goodwill to determine if there is any impairment. The Company completed its last
impairment test in accordance with SFAS No. 142 as of October 1, 2004, which reflected no
impairment of franchise costs or goodwill. There have been no events since then that would require
an analysis to be completed before the next annual test date. 64




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the net asset value for each intangible asset category as of
December 31, 2004 and 2003 (dollars in thousands): Gross Asset
    
    
    Accumulated
    
    
    Net Asset2004
    
    Value
    
    
    Amortization
    
    
    ValueFranchise costs
    
    $
    654,708
    
    
    $
    102,195
    
    
    $
    552,513Goodwill
    
    
    14,217
    
    
    
    2,682
    
    
    
    11,535Subscriber lists
    
    
    132,857
    
    
    
    132,095
    
    
    
    762Covenants not to compete
    
    
    5,695
    
    
    
    5,643
    
    
    
    52$
    807,477
    
    
    $
    242,615
    
    
    $
    564,862
 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
 Amortization expense for the years ended December 31, 2004, 2003 and 2002 was
approximately $8.6 million, $11.5 million and $26.8 million, respectively. The Companys estimated
aggregate amortization expense for 2005 is $0.8 million, after which the assets will be fully
amortized. The net asset value as of December 31, 2004 decreased approximately $6.1 million from December
31, 2003, primarily due to the recording of amortization expense and the purchase and sale of cable
system assets during the period. (5) Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following as of December 31, 2004 and
December 31, 2003 (dollars in thousands): 2004
    
    
    2003Accrued interest
    
    $
    33,041
    
    
    $
    31,040Accrued payroll and benefits
    
    
    7,724
    
    
    
    9,728Accrued programming costs
    
    
    25,693
    
    
    
    14,144Accrued property, plant and equipment
    
    
    8,394
    
    
    
    12,182Accrued service costs
    
    
    5,738
    
    
    
    3,137Accrued taxes and fees
    
    
    13,667
    
    
    
    10,057Accrued telecommunications
    
    
    4,436
    
    
    
    5,612Subscriber advance payments
    
    
    4,747
    
    
    
    3,967Other accrued expenses
    
    
    4,080
    
    
    
    3,964$
    107,520
    
    
    $
    93,831
 65




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Debt As of December 31, 2004 and 2003, debt consisted of (dollars in thousands): 2004
    
    
    2003Bank credit facilities
    
    $
    646,000
    
    
    $
    696,50081/2% senior notes
    
    
    200,000
    
    
    
    200,00077/8% senior notes
    
    
    125,000
    
    
    
    125,00091/2% senior notes
    
    
    500,000
    
    
    
    500,000Capital lease obligations
    
    
    2,177
    
    
    
    2,824$
    1,473,177
    
    
    $
    1,524,324Less: Current portion
    
    
    6,384
    
    
    
    2,799Total long-term debt
    
    $
    1,466,793
    
    
    $
    1,521,525
 Bank Credit Facilities On October 21, 2004, the operating subsidiaries of the Company refinanced their two credit
facilities with a new $1.15 billion senior secured credit facility (the LLC credit facility).
The LLC credit facility consists of a revolving credit facility (the LLC revolver) with a $400.0
million revolving credit commitment, a $200.0 million delayed-draw term loan (the LLC term loan
A) and a $550.0 million term loan (the LLC term loan B). The LLC revolver expires on September
30, 2011 and its commitment amount is not subject to scheduled reductions prior to maturity. The
LLC term loan A matures on September 30, 2012 and beginning on March 31, 2008 will be subject to
quarterly reductions ranging from 2.50% to 9.00% of the original amount. The LLC term loan B
matures on March 31, 2013 and will be subject to quarterly reductions of 0.25% from March 31, 2005
to December 31, 2012, and 92.00% on maturity, of the original amount. As of December 31, 2004, the
maximum commitment available under the LLC revolver was $400.0 million and the revolver had an
outstanding balance of $96.0 million, the LLC term loan B had an outstanding balance of $550.0
million, and the LLC term loan A had not been drawn. The credit agreement of the LLC credit facility (the LLC credit agreement) provides for
interest at varying rates based upon various borrowing options and certain financial ratios, and
for commitment fees of
1/2%
to 5/8% per annum on the unused portion of the available revolving credit
commitment. Interest on outstanding LLC revolver and LLC term loan A balances are payable at
either the Eurodollar rate plus a floating percentage ranging from 1.00% to 2.00% or the base rate
plus a floating percentage ranging from 0% to 1.00%. Interest on the LLC term loan B is payable at
either the Eurodollar rate plus 2.25% or the base rate plus 1.25%. For the year ended December 31,
2005, the LLC term loan B will be reduced by $5.5 million or 1.00% of the original amount. The LLC credit agreement requires compliance with certain financial covenants including, but
not limited to, leverage, interest coverage and debt service coverage ratios, as defined therein.
The LLC credit agreement also requires compliance with other covenants including, but not limited
to, limitations on mergers and acquisitions, consolidations and sales of certain assets, liens, the
incurrence of additional indebtedness, certain restricted payments, and certain transactions with
affiliates. The Company was in compliance with all covenants of the LLC credit agreement as of and
for all periods in the year ended December 31, 2004. The LLC credit agreement is collateralized by Mediacoms pledge of all its ownership interests
in its operating subsidiaries and is guaranteed by Mediacom on a limited recourse basis to the
extent of such ownership interests. The average interest rate on debt outstanding under the LLC credit agreement was 4.5% and 2.7%
for the years ended December 31, 2004 and December 31, 2003, respectively, before giving effect to
the interest rate exchange agreements discussed below. As of December 31, 2004, the Company had
approximately $497.6 million of unused bank commitments under the LLC credit agreement. 66




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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, 2004, the Company 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 the Companys bank credit agreements. Under the terms of the interest rate exchange
agreements, which expire from September 2006 through March 2007, the Company is exposed to credit
loss in the event of nonperformance by the other parties. However, due to the high
creditworthiness of its counterparties, which are major banking firms with investment grade
ratings, the Company does not anticipate their nonperformance. The fair value of the interest rate exchange agreements is the estimated amount that the
Company would receive or pay to terminate such agreements, taking into account market interest
rates, the remaining time to maturities and the creditworthiness of the Companys counterparties.
At December 31, 2004, based on the mark-to-market valuation, the Company recorded an investment in
derivatives of $1.6 million. Principally as a result of the quarterly mark-to-market valuation of
these interest rate swaps, we recorded a gain on derivatives amounting to $5.2 million for the year
ended December 31, 2004, as compared to $4.4 million for the year ended December 31, 2003. Senior Notes On April 1, 1998, Mediacom LLC and Mediacom Capital Corporation (the Issuers) jointly issued
$200.0 million aggregate principal amount of 81/2% senior notes due on April 2008 (the 81/2% Senior
Notes). The 81/2% Senior Notes are unsecured obligations of Mediacom LLC, and the indenture for the
81/2% Senior Notes stipulates, among other things, restrictions on incurrence of indebtedness,
distributions, mergers and asset sales and has cross-default provisions related to other debt of
Mediacom LLC. The 81/2% Senior Notes are currently redeemable at 102.833% of par value through April
14, 2005, 101.417% of par value from April 15, 2005 through April 14, 2006, and at par value
thereafter. See Note 13 to our consolidated financial statements. On February 26, 1999, the Issuers jointly issued $125.0 million aggregate principal amount of
77/8% senior notes due on February 2011 (the 77/8%
Senior Notes). The 77/8% Senior Notes are unsecured
obligations of Mediacom LLC, and the indenture for the 77/8% Senior Notes stipulates, among other
things, restrictions on incurrence of indebtedness, distributions, mergers and asset sales and has
cross-default provisions related to other debt of Mediacom LLC. On January 24, 2001, the Issuers completed an offering of $500.0 million of 91/2% senior notes
due January 2013 (the 91/2% Senior Notes). The 91/2% Senior Notes are unsecured obligations of
Mediacom LLC, and the indenture for the 91/2% Senior Notes stipulates, among other things,
restrictions on incurrence of indebtedness, distributions, mergers, and asset sales and has
cross-default provisions related to other debt of Mediacom LLC. The Issuers were in compliance with the indentures governing their Senior Notes as of and for
all periods in the year ended December 31, 2004. 67




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2004 of the
81/2%
Senior Notes, the 77/8% Senior Notes and the 91/2% Senior
Notes was approximately $204.0 million, $122.5 million and $501.9 million, respectively. The stated maturities of all debt outstanding as of December 31, 2004 are as follows (dollars
in thousands): 2005
    
    $
    6,3842006
    
    
    6,4112007
    
    
    5,8812008
    
    
    205,5012009
    
    
    5,500Thereafter
    
    
    1,243,500$
    1,473,177
 (7) Related Party Transactions MCC manages the Company pursuant to a management agreement with each operating subsidiary.
Under the management agreements, MCC has full and exclusive authority to manage the day-to-day
operations and conduct the business of the Company. The Company remains responsible for all
expenses and liabilities relating to the construction, development, operation, maintenance, repair, and
ownership of its systems. Management fees for the years ended December 31, 2004, 2003 and 2002
amounted to approximately $8.7 million, $7.9 million and $5.8 million, respectively. Management fee
expense also included $5.3 million of non-cash stock charges related to management fee expense for
the year ended December 31, 2002. As compensation for the performance of its services, subject to certain restrictions, MCC is
entitled under each management agreement to receive management fees in an amount not to exceed 4.5%
of the annual gross operating revenues of each of the operating subsidiaries. MCC is also entitled
to the reimbursement of all expenses necessarily incurred in its capacity as manager. The
Company is a preferred equity investor in Mediacom Broadband LLC, a
wholly-owned subsidiary of MCC. See Note 11 to our consolidated financial statements for a discussion of the transactions between those two parties. 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. (8) 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 $0.7 million for the year ended December 31, 2004 and $0.6 million for the years
ended December 31, 2003 and 2002. 68




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) MCC Stock Options and Employee Stock Purchase Program Under MCCs 2003 Incentive Plan, certain employees of the Company received grants of MCC stock
options. The following table summarizes information concerning stock option activity for the years
ended December 31, 2004, 2003 and 2002: Weighted AverageShares
    
    
    Exercise PriceOutstanding at December 31, 2001
    
    
    1,385,070
    
    
    $
    18.56Granted
    
    
    69,600
    
    
    
    11.99Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (118,725
    )
    
    
    18.01Outstanding at December 31, 2002
    
    
    1,335,945
    
    
    $
    18.26Granted
    
    
    65,000
    
    
    
    6.98Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (102,321
    )
    
    
    16.28Outstanding at December 31, 2003
    
    
    1,298,624
    
    
    $
    17.85Granted
    
    
    6,000
    
    
    
    8.82Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (114,152
    )
    
    
    17.79Outstanding at December 31, 2004
    
    
    1,190,472
    
    
    $
    17.81
 The Companys employees had options exercisable on underlying MCC shares amounting to
840,902, 660,654 and 434,534, with average prices of $18.34,$18.62 and $18.75 at December 31,
2004, 2003 and 2002, respectively. The weighted average fair value of options granted was $4.25,
$3.24 and $6.05 per share for the years ended December 31, 2004, 2003 and 2002, respectively. The following table summarizes information concerning stock options outstanding as of December
31, 2004: Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted
    
    
    
    
    
    
    NumberRange of
    
    Outstanding at
    
    
    Average
    
    
    Weighted
    
    
    Exercisable at
    
    
    WeightedExercise
    
    December 31,
    
    
    Remaining
    
    
    Average
    
    
    December 31,
    
    
    AveragePrices
    
    2004
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    2004
    
    
    Exercise Price$6.94 to $12.00
    
    
    99,350
    
    
    8.18 years
    
    $
    8.83
    
    
    
    28,565
    
    
    $
    9.40$12.01 to $18.00
    
    
    296,554
    
    
    6.16 years
    
    
    17.39
    
    
    
    177,932
    
    
    
    17.39$18.01 to $22.00
    
    
    794,568
    
    
    5.10 years
    
    
    19.01
    
    
    
    634,404
    
    
    
    19.011,190,472
    
    
    5.62 years
    
    $
    17.76
    
    
    
    840,901
    
    
    $
    18.34
 The Company accounts for the stock option plans and employee stock purchase program under
APB No. 25. Accordingly, no compensation expense has been recognized for any option grants in the
accompanying consolidated statements of operations since the price of the options was at their fair
market value at the date of grant. SFAS No. 148 requires that information be determined as if the
Company had accounted for employee stock options under the fair value method of this statement,
including disclosing pro forma information regarding net loss and loss per share. The weighted
average fair value of all of the employee options was estimated on the date of grant using the
Black-Scholes model with the following weighted average assumptions: (i) risk free average
interest rate of 3.8%, 3.6% and 5.0% for the years ended December 31, 69




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2004, 2003 and 2002, respectively; (ii) expected dividend
yields of 0%; (iii) expected lives of 6 years; and (iv) expected volatility of 45%. Had
compensation expense been recorded for the employee options under SFAS No. 148, the compensation
expense would have been $2.3 million, $2.5 million, and $4.8 million for the years ended December
31, 2004, 2003 and 2002, respectively. MCC maintains an employee stock purchase plan (ESPP). Under the plan, all of the Companys
employees are allowed to participate in the purchase of MCCs Class A Common Stock at a 15%
discount on the date of the allocation. MCC shares purchased by the Companys employees amounted
to 38,912, 39,370 and 42,734 in 2004, 2003 and 2002 respectively. The net proceeds to MCC were
approximately $200,000, $200,000 and $400,000 in 2004, 2003 and 2002 respectively. Compensation
expense was not recorded on the distribution of these shares in accordance with APB No. 25. The
weighted average fair value of all of the stock issued under the ESPP was estimated on the purchase
date using the Black-Scholes model with the following assumptions: (i) discount rate equal to the
six year bond rate on the stock purchase date; (ii) expected dividend yields of 0%; (iii) expected
lives of six months; and (iv) expected volatility of 45%. Had compensation expense been recorded
for the stock issued for the ESPP under SFAS No. 148, the compensation costs would have been
approximately $73,000, $67,000 and $118,000 for the years ended December 31, 2004, 2003 and 2002,
respectively. Had the Company applied the fair value recognition provisions of SFAS No. 123 to stock-based
compensation, the Companys net income (loss) would have been changed from the as reported
amounts to the pro forma amounts as follows (dollars in thousands): 2004
    
    
    2003
    
    
    2002Net income (loss), as reported
    
    $
    8,976
    
    
    $
    (42,490
    )
    
    $
    (105,107
    )Deduct: Total stock based compensation expense determined
under fair value based method of all awards
    
    
    (2,332
    )
    
    
    (2,521
    )
    
    
    (4,959
    )Pro forma net income (loss)
    
    $
    6,644
    
    
    $
    (45,011
    )
    
    $
    (110,066
    )
 (10) Commitments and Contingencies Under various lease and rental agreements for offices, warehouses and computer terminals, the
Company had rental expense of approximately $2.2 million, $2.6 million and $2.4 million for the
years ended December 31, 2004, 2003 and 2002, respectively. Future minimum annual rental payments
are as follows (dollars in thousands): 2005
    
    $
    2,0672006
    
    
    8812007
    
    
    6842008
    
    
    4982009
    
    
    349Thereafter
    
    
    855$
    5,334
 In addition, the Company rents utility poles in its operations generally under short-term
arrangements, but the Company expects these arrangements to recur. Total rental expense for
utility poles was approximately $5.3 million, $4.5 million and $4.1 million for the years ended
December 31, 2004, 2003 and 2002, respectively. As of December 31, 2004, approximately $6.4 million of letters of credit were issued in favor
of various parties to secure the Companys performance relating to insurance and franchise
requirements and pole rentals. The fair value of such letters of credit was not material. 70




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Legal Proceedings On April 5, 2004, a lawsuit was filed against the Companys parent, MCC, MCC Georgia LLC, a
subsidiary of the Companys sister company, Mediacom Broadband LLC, and other, currently unnamed
potential defendants in the United States District Court for the District of Colorado by Echostar
Satellite LLC, which operates a direct broadcast satellite business under the name Dish Network.
Echostar alleges that systems operated by MCC Georgia LLC have used, without authorization, Dish
Network satellite dishes activated under residential accounts to receive the signals of certain
broadcast television stations in one or more locations in Georgia and that it has then been
redistributing those signals, through its cable systems, to its subscribers. Among other claims,
the complaint filed by Echostar alleges that these actions violate a provision of the
Communications Act of 1934 (47 U.S.C. Sec. 605) that prohibits unauthorized interception of radio
communications. The plaintiff seeks injunctive relief, actual and statutory damages, disgorgement
of profits, punitive damages and litigation costs, including attorneys fees. On June 29, 2004, Echostar amended its complaint to also allege that this conduct amounted to
a breach of the contract between Echostar and one of MCCs employees, who allegedly acted as an
agent for MCC, by which MCC received the Echostar satellite signal. On September 7, 2004, the U.S.
District Court granted MCCs motion to transfer the case to the Middle District of Georgia, where
venue is proper and where personal jurisdiction over MCC exists. There have been no further
proceedings since that date. MCC Georgia LLC and the Companys parent company have advised the
Company that they intend to vigorously defend against these claims. They also have informed the
Company that they are unable to reasonably evaluate the likelihood of an unfavorable outcome or
quantify the possible damages, if any, associated with these matters, or whether or not the those
damages would be material. The Company, its parent company and its subsidiaries or other affiliated companies are also
involved in various other legal actions arising in the ordinary course of business. In the opinion
of management, the ultimate disposition of these matters will not have a material adverse effect on
the Companys consolidated financial position, results of operations, cash flows or business. (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, 2004,
2003 and 2002, the Company received in aggregate $18.0 million in cash dividends on the preferred
equity. (12) Hurricane Losses In September 2004, Hurricane Ivan impacted the Companys systems in Alabama, Florida and
Mississippi. As a result, for the year ended December 31, 2004, the Company: (i) recorded revenues
net of $2.9 million of service interruption credits issued to customers; (ii) incurred additional
service costs of approximately $0.9 million; (iii) incurred additional selling, general and
administrative costs of approximately $0.3 million; (iv) recorded an increase in depreciation
expense of $2.1 million due to the impairment of cable plant and equipment; and (v) spent
approximately $8.1 million of capital expenditures to replace or rebuild property, plant and
equipment. The Company is insured against certain losses related to the hurricane, subject to
varying deductible amounts. The Company cannot estimate at this time the amounts that will be
ultimately recoverable under its insurance policies. 71




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) Sale of Assets and Investments The Company had a net gain on sale of assets and investments amounting to $5.9 million for the
year ended December 31, 2004. This was principally due to the sale of a cable system in May 2004,
serving approximately 3,450 subscribers, for gross proceeds of about $10.1 million. (14) Subsequent Event In
January 2005, the  Company borrowed the entire amount of the
$200.0 million delay-draw term loan, repaid $112.0 million
of its indebtedness under its revolving credit facility and loaned
$88.0 million to Mediacom Broadband LLC. The loan to Mediacom
Broadband LLC is in the form of a
demand note, which has a 6.7% annual interest rate, payable semi-annually in cash. At the request of the Issuers, on March 16,
2005, The Bank of New York, as trustee, notified by mail the registered holders of the 81/2%
Senior Notes that the Issuers had elected to redeem all of the outstanding 81/2% Senior Notes. As
of March 16, 2005, the aggregate principal amount of the 81/2% Senior Notes outstanding was $200.0
million. The 81/2% Senior Notes were issued pursuant to an Indenture, dated as of April 1, 1998,
between the Issuers and The Bank of New York, as successor to the Bank of Montreal Trust Company,
as trustee. Pursuant to the redemption notice and the terms of the
Indenture, the 81/2% Senior
Notes will be redeemed by the Issuers on April 15, 2005 at a redemption price equal to 101.417% of
the outstanding principal amount of the 81/2% Senior Notes plus accrued interest. 72




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Schedule II MEDIACOM LLC AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
(All dollar amounts in thousands) Balance at
    
    
    Additions
    
    
    Deductionsbeginning
    
    
    charged to costs
    
    
    charged to costs
    
    
    Balance atof period
    
    
    and expenses
    
    
    and expenses
    
    
    end of periodDecember 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 reservesAccrued expenses
    
    $
    127
    
    
    $
    
    
    
    $
    127
    
    
    $
    December 31, 2004Allowance for doubtful accountsCurrent receivables
    
    $
    1,069
    
    
    $
    407
    
    
    $
    620
    
    
    $
    856
   (1)
    
    Additions were charged in connection with purchase accounting. 73




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ITEM
9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 9A. CONTROLS AND PROCEDURES Mediacom LLC The management of Mediacom LLC (Mediacom) carried out an evaluation, with the participation
of Mediacoms Chief Executive Officer and Chief Financial Officer, of the effectiveness of
Mediacoms disclosure controls and procedures as of December 31, 2004. 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, 2004 that has materially affected, or is reasonably likely to
materially affect, Mediacoms internal control over financial reporting. Mediacom Capital Corporation The management of Mediacom Capital Corporation (Mediacom Capital) carried out an evaluation,
with the participation of Mediacom Capitals Chief Executive Officer and Chief Financial Officer,
of the effectiveness of Mediacom Capitals disclosure controls and procedures as of December 31,
2004. 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, 2004 that has materially affected, or is reasonably likely to
materially affect, Mediacom Capitals internal control over financial reporting. 
 ITEM 9B. OTHER INFORMATION None. 74




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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
    
    
    55
    
    
    Chairman and Chief Executive Officer of MCC; Manager,
Chairman and Chief Executive Officer of Mediacom LLC; and President, Chief Executive Officer and Director of
Mediacom CapitalMark E. Stephan
    
    
    48
    
    
    Executive Vice President, Chief Financial Officer, Treasurer
and Director of MCC; Executive Vice President, Chief
Financial Officer and Treasurer of Mediacom LLC; and
Treasurer and Secretary of Mediacom CapitalJohn G. Pascarelli
    
    
    43
    
    
    Executive Vice President, Operations of MCCItalia Commisso Weinand
    
    
    51
    
    
    Senior Vice President, Programming and Human Resources
of MCCJoseph E. Young
    
    
    56
    
    
    Senior Vice President, General Counsel and Secretary of
MCCCharles J. Bartolotta
    
    
    50
    
    
    Senior Vice President, Customer Operations of MCCCalvin G. Craib
    
    
    50
    
    
    Senior Vice President, Business Development of MCCBrian Walsh
    
    
    39
    
    
    Senior Vice President and Corporate Controller of MCCCraig S. Mitchell
    
    
    46
    
    
    Director of MCCWilliam S. Morris III
    
    
    70
    
    
    Director of MCCThomas V. Reifenheiser
    
    
    69
    
    
    Director of MCCNatale S. Ricciardi
    
    
    56
    
    
    Director of MCCRobert L. Winikoff
    
    
    58
    
    
    Director of MCC
 Rocco B. Commissohas 27 years of experience with the cable television industry and has
served as our Manager, 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 18 years of experience with the cable television industry and has served
as our Executive Vice President, Chief Financial Officer and Treasurer since November 2003. Prior
to that, he was Senior Vice President, Chief Financial Officer and Treasurer since the commencement
of our operations in March 1996. Before joining us, Mr. Stephan served as Vice President, Finance
for Cablevision Industries from July 1993. Prior to that time, Mr. Stephan served as Manager of
the telecommunications and media lending group of Royal Bank of Canada. John G. Pascarellihas 24 years of experience in the cable television industry and has served
as our managers Executive Vice President, Operations since November 2003. Prior to that he was
our managers Senior Vice President, Marketing 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. 75




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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 28 years of experience in the cable television industry. Before
joining our manager in April 1996, Ms. Weinand served as Regional Manager for Comcast Corporation
from July 1985. Prior to that time, Ms. Weinand held various management positions with
Tele-Communications, Inc., Times Mirror Cable and Time Warner, Inc. Ms. Weinand is the sister of
Mr. Commisso. Joseph E. Younghas 20 years of experience with the cable television industry. Before joining
us in November 2001 as Senior Vice President, General Counsel, Mr. Young served as Executive Vice
President, Legal and Business Affairs, for LinkShare Corporation, an Internet-based provider of
marketing services, from September 1999 to October 2001. Prior to that time, he practiced
corporate law with Baker & Botts, LLP from January 1995 to September 1999. Previously, Mr. Young
was a partner with the Law Offices of Jerome H. Kern and a partner with Shea & Gould. Charles J. Bartolottahas 22 years of experience in the cable television industry. Before
joining our manager in October 2000, Mr. Bartolotta served as Division President for AT&T
Broadband, LLC from July 1998, where he was responsible for managing an operating division serving
nearly three million customers. Prior to that time, he served as Regional Vice President of
Tele-Communications, Inc. from January 1997 and as Vice President and General Manager for TKR Cable
Company from 1989. Prior to that time, Mr. Bartolotta held various management positions with
Cablevision Systems Corporation. Calvin G. Craibhas 23 years of experience in the cable television industry and has served as
our managers Senior Vice President, Business Development since August 2001. Prior to that he was
our managers Vice President, Business Development since April 1999. Before joining us in April
1999, Mr. Craib served as Vice President, Finance and Administration for Interactive Marketing
Group from June 1997 to December 1998 and as Senior Vice President, Operations, and Chief Financial
Officer for Douglas Communications from January 1990 to May 1997. Prior to that time, Mr. Craib
served in various financial management capacities at Warner Amex Cable and Tribune Cable. Brian M. Walshhas 16 years of experience in the cable television industry and has served as
our managers Senior Vice President and Corporate Controller since February 2005. Prior to that he
was our managers Senior Vice President, Financial Operations from November 2003, our managers
Vice President, Finance and Assistant to the Chairman from November 2001, our managers Vice
President and Corporate Controller from February 1998 and our managers Director of Accounting from
April 1996. Before joining us in April 1996, Mr. Walsh held various management positions with
Cablevision Industries from 1988 to 1995. Craig S. Mitchellhas held various management positions with Morris Communications Company LLC
for more than the past 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 also a member of the board of directors of Cablevision Systems Corporation and
Lamar Advertising Company. 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 President/Team
Leader, Global Manufacturing, with responsibility for all of Pfizers manufacturing facilities. 76




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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 from 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
Securities and Exchange Commission 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 was filed as an exhibit to our annual report on Form 10-K for the
year ended December 31, 2003. 77




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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, 2004, MCC received $8.7 million of such management fees. Other Relationships On July 18, 2001, we made a $150.0 million preferred equity investment in Mediacom Broadband
LLC that was funded with borrowings under our bank credit facilities. The preferred equity
investment has a 12% annual cash dividend, payable quarterly in cash. For the year ended December
31, 2004, we received in aggregate $18.0 million in cash dividends on the preferred equity. On January 25, 2005, we loaned $88.0 million to Mediacom Broadband LLC. The loan was funded
with borrowings under our bank credit facility. The loan is in the form of a demand note, which
has a 6.7% annual interest rate, payable semi-annually in cash. 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. 78




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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): 2004
    
    2003Audit fees
    
    $
    225
    
    
$
    295Audit-related fees
    
    
    658
    
    
    
    30Tax fees
    
    
    
    
    
    
    All other fees
    
    
    11
    
    
    
    Total
    
    $
    894
    
    
    $
    325
 Fees for audit services include fees associated with the annual audit, the reviews of our
quarterly reports on Form 10-Q and annual reports on Form 10-K. Audit-related fees consist of the
Sarbanes-Oxley Section 404 readiness project fees and related audit consultation. All other fees
include fees associated with the review of documents filed with the Securities and Exchange Commission. The audit committee of our manager has adopted a policy that requires advance approval of all
audit, audit-related, tax services, and other services performed by our independent auditor. The
policy provides for pre-approval by the audit committee of specifically defined audit and non-audit
services. Unless the specific service has been previously pre-approved with respect to that year,
the audit committee must approve the permitted service before the independent auditor is engaged to
perform it. 79




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PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE (a) Financial Statements Our financial statements as set forth in the Index to Consolidated Financial Statements under
Part II, Item 8 of this Form 10-K are hereby incorporated by reference. (b) Exhibits The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are
filed herewith or, as noted, incorporated by reference herein: ExhibitNumber
    
    Exhibit Description3.1(a)
    
    Articles of Organization of
Mediacom LLC filed July 17, 1995 (1)3.1(b)
    
    Certificate of Amendment of the
Articles of Organization of Mediacom LLC filed December 8,
1995 (1)3.2
    
    Fifth Amended and Restated
Operating Agreement of Mediacom LLC (2)3.3
    
    Certificate of Incorporation of
Mediacom Capital Corporation filed March 9, 1998 (1)3.4
    
    By-Laws of Mediacom Capital Corporation (1)4.1
    
    Indenture relating to 81/2% senior notes due 2008 of Mediacom LLC and Mediacom Capital
Corporation (1)4.2
    
    Indenture relating
to 77/8% senior notes due 2011 of Mediacom LLC and Mediacom Capital
Corporation (3)4.3
    
    Indenture relating to 91/2% senior notes due 2013 of Mediacom LLC and Mediacom Capital
Corporation (4)10.1
    
    Credit Agreement, dated as of October 21, 2004, among the operating subsidiaries of Mediacom LLC, the lenders
thereto and JPMorgan Chase Bank, as administrative agent for the lenders (5)14.1
    
    Code of
Ethics(6)21.1
    
    Subsidiaries of Mediacom LLC (4)23.1
    
    Consent of PricewaterhouseCoopers LLP31.1
    
    Rule 15(d) -14(a) Certifications of Mediacom LLC31.2
    
    Rule 15(d) -14(a) Certifications of Mediacom Capital Corporation32.1
    
    Section 1350 Certifications of Mediacom LLC32.2
    
    Section 1350 Certifications of Mediacom Capital Corporation
 80




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(c) Financial Statement Schedule The financial statement schedule  Schedule II  Valuation and Qualifying Accounts  is part
of this Form 10-K and is on page 73.   (1)
    
    Filed as an exhibit to the Registration Statement on Form S-4 (File No. 333-57285) of Mediacom LLC and Mediacom Capital Corporation and incorporated herein by reference.(2)
    
    Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 1999 of Mediacom LLC and incorporated herein by reference.(3)
    
    Filed as an exhibit to the Registration Statement on Form S-4 (File No. 333-85893) of Mediacom LLC and Mediacom Capital Corporation and incorporated herein by reference.(4)
    
    Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2000 of Mediacom Communications Corporation and incorporated herein by reference.(5)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 of Mediacom Communications Corporation and incorporated herein by reference.(6)
    
    Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 of Mediacom LLC and incorporated herein by reference. 81




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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 30, 2005
    
    
    
    By:
    
    /s/ Rocco B. CommissoRocco B. CommissoManager, Chairman and ChiefExecutive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated. Signature
    
    Title
    
    Date/s/ ROCCO B. COMMISSO
    
    Manager, Chairman and
    
    March 30, 2005Rocco B. Commisso
    
    Chief
Executive Officer (principalexecutive officer)/s/ MARK E. STEPHAN
    
   Executive Vice President,
    
    March 30, 2005Mark E. Stephan
    
    Chief Financial Officer and Treasurer
(principal
financial officer and principalaccounting officer)
 82




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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 30, 2005
    
    
    
    By:
    
    /s/ Rocco B. CommissoRocco B. CommissoPresident,
Chief ExecutiveOfficer and Director
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated. Signature
    
    Title
    
    Date/s/ ROCCO B. COMMISSO
    

President, Chief Executive Officer
    
    March 30, 2005Rocco B. Commisso
    
    and Director (principal executive officer)/s/ MARK E. STEPHAN
    
    Treasurer and Secretary
    
    March 30, 2005Mark E. Stephan
    
    (principal financial officerand principal accounting officer)
 83