##### Table of Contents



UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
 
 Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2005
 Commission File Numbers:
    
    333-72440333-72440-01
 Mediacom Broadband LLC
Mediacom Broadband Corporation*
 (Exact names of Registrants as specified in their charters)
 Delaware
Delaware(State or other jurisdiction of
incorporation or organization)
    
    06-1615412
06-1630167(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:
 Securities registered pursuant to Section 12(g) of the Exchange Act:
 o þ
 þ o
 þ o
   o Large accelerated filers
    
    o Accelerated filers
    
    þ Non-accelerated filers
 o þ




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##### Table of Contents



MEDIACOM BROADBAND LLC
2005 FORM 10-K ANNUAL REPORT
 TABLE OF CONTENTS
 PageItem 1.
    
    Business
    
    
    4Item 1A.
    
    Risk FactorsRisks Related to our Business
    
    
    24Risks Related to Indebtedness of us and our Operating Subsidiaries
    
    
    28Risks Related to Legislative and Regulatory Matters
    
    
    29Item 1B.
    
    Unresolved Staff Comments
    
    
    33Item 2.
    
    Properties
    
    
    34Item 3.
    
    Legal Proceedings
    
    
    34Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    34PART
IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    34Item 6.
    
    Selected Financial Data
    
    
    35Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    38Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    49Item 8.
    
    Financial Statements and Supplementary Data
    
    
    50Item 9
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    68Item 9A.
    
    Controls and Procedures
    
    
    68Item 9B.
    
    Other Information
    
    
    68PART
IIIItem 10.
    
    Directors and Executive Officers of the Registrants
    
    
    69Item 11.
    
    Executive Compensation
    
    
    72Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    72Item 13.
    
    Certain Relationships and Related Transactions
    
    
    72Item 14.
    
    Principal Accounting Fees and Services
    
    
    73PART
IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    74EX-12.1: SCHEDULE OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-23.1: CONSENT OF PRICEWATERHOUSECOOPERS LLPEX-31.1: CERTIFICATIONSEX-31.2: CERTIFICATIONSEX-32.1: CERTIFICATIONSEX-32.2: CERTIFICATIONS
 2




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Mediacom Broadband LLC was organized as a Delaware limited liability
company in 2001 and is a wholly-owned subsidiary of Mediacom Communications
Corporation, a Delaware corporation. Mediacom Broadband Corporation was
organized as a Delaware corporation in 2001 and is a wholly-owned subsidiary of
Mediacom Broadband LLC. Mediacom Broadband Corporation was formed for the sole
purpose of acting as co-issuer with Mediacom Broadband 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
Broadband LLC and its direct and indirect subsidiaries, unless the context
specifies or requires otherwise. References in this Annual Report to MCC are
to Mediacom Communications Corporation. Cautionary Statement Regarding Forward-Looking Statements You should carefully review the information contained in this Annual
Report and in other reports or documents that we file from time to time with
the Securities and Exchange Commission (the SEC). In this Annual Report, we
state our beliefs of future events and of our future financial performance. In
some cases, you can identify those so-called forward-looking statements by
words such as may, will, should, expects, plans, anticipates,
believes, estimates, predicts, potential, or continue or the negative
of those words and other comparable words. These forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from historical results or those we anticipate. Factors that could
cause actual results to differ from those contained in the forward-looking
statements include, but are not limited to: competition in our video,
high-speed Internet access and phone businesses; our ability to achieve
anticipated customer and revenue growth and to successfully introduce new
products and services; increasing programming costs; changes in laws and
regulations; our ability to generate sufficient cash flow to meet our debt
service obligations and access to capital to maintain our financial
flexibility; and the other risks and uncertainties discussed in this Annual
Report. Statements included in this Annual Report are based upon information
known to us as of the date that this Annual Report is filed with the SEC, and
we assume no obligation to update or alter our forward-looking statements made
in this Annual Report, whether as a result of new information, future events or
otherwise, except as otherwise required by applicable federal securities laws.  3




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PART I 
 ITEM 1. BUSINESS Our Manager We are a wholly-owned subsidiary of Mediacom Communications Corporation,
who is also our manager. Mediacom Communications is the nations eighth
largest cable television company based on customers served and the leading
cable operator focused on serving the smaller cities and towns in the United
States. As of December 31, 2005, our managers cable systems, which are owned
and operated through our operating subsidiaries and those of Mediacom LLC,
passed an estimated 2.81 million homes and served approximately 1.42 million
basic subscribers and 2.42 million revenue generating units (RGUs). Mediacom
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. Mediacom Broadband LLC As of December 31, 2005, we served approximately 773,000 basic
subscribers, 289,000 digital customers, 266,000 HSD customers, and 17,500 phone
customers totaling 1.35 million RGUs. Through our interactive broadband
network, we provides customers with a wide array of products and services,
including analog and digital video services, advanced video services, such as
video-on-demand (VOD), high-definition television (HDTV) and digital video
recorders (DVR), HSD, also known as high-speed Internet access or cable modem
service, and phone service. We have made available free of charge through our managers website
(follow the Corporate Info link to the Investor Relations tab to Annual
Reports/SEC Filings) our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonably practicable after such material was electronically
filed with, or furnished to, the Securities and Exchange Commission. The
information on our managers website is not part of this Annual Report. Business Strategy We operate in a highly competitive and rapidly changing environment. Our
strategy is to be the leading single-source provider of advanced video, data
and voice products and services within our market areas, which will allow us to
deepen relationships with our existing customers, attract new customers and
further diversify our revenue streams. We believe that our interactive
broadband network is the superior platform today for the delivery of these
products and services within our service areas. We have a local presence, with
facilities and employees in the communities where our customers live. Expanding Reach and Enhancing
Quality of Products and Services We continue to expand the availability, and enhance the quality, of our
advanced video services, such as VOD, which we refer to as Mediacom On Demand,
HDTV and DVRs. Over the past two years, we have more than tripled the download
speed of our HSD product, which we refer to as Mediacom Online. As of year-end
2005, and within six months of the initial launch of our phone service, which
we refer to as Mediacom Phone, we were marketing this new product to over 80%
of the homes in our markets. 4




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Bundling of Broadband Products and Services We believe that bundled products and services offer our customers the
convenience of having a single provider contact for ordering, scheduling,
provisioning, billing and customer care. Our customers can also realize greater
value through bundle discounts as they obtain additional products and services
from us. We currently offer the triple play bundle of video, voice and HSD to
over 80% of the homes that we pass. By the end of 2006, we expect that we
will be offering this multiple product bundle to approximately 1.46 million
homes, or nearly all of our estimated total homes passed. Customer Service To enhance customers experience and realize operating efficiencies, we
continue to invest in customer care personnel, call center technology and field
workforce management. Attaining higher levels of customer satisfaction through
quality service is critical to our success in the increasingly competitive
environment we face today. Community Presence Since commencement of our operations in 1996, one of our key objectives
was to bridge the digital divide, or technology gap, that had developed
between the smaller cities and towns and the large urban markets in the United
States. Today, the significant investments we have made in our cable systems
have given the communities we serve access to the latest in broadband products
and services. Moreover, we continue to build good relationships with our
communities by providing local programming and by participating in a wide range
of local educational and community service initiatives. Products and Services Video We receive a majority of our revenues from video subscription services.
Subscribers typically pay us on a monthly basis and generally may discontinue
services at any time. We design our channel line-ups for each system according
to demographics, programming preferences, channel capacity, competition, price
sensitivity and local regulation. Monthly subscription rates and related
charges vary according to the type of service selected and the type of
equipment used by subscribers. Our video services include the following: Basic Service.Our basic service includes, for a monthly fee, local
broadcast channels, network and independent stations, limited
satellite-delivered programming, and local public, government, home-shopping
and leased access channels. Expanded Basic Service.Our expanded basic service includes, for an
additional monthly fee, various satellite-delivered channels such as CNN, MTV,
USA Network, ESPN, Lifetime, Nickelodeon and TNT. Digital Cable Service.Customers who subscribe to our digital cable
service receive up to 230 digital channels. We currently offer several
programming packages that include digital basic channels, multichannel premium
services, sports channels, digital music channels, an interactive on-screen
program guide and VOD. Customers pay a monthly fee for digital cable service,
which varies according to the level of service and the number of digital
converters in the home. A digital converter or cable card is required to
receive our digital cable service. Pay-Per-View Service.Our pay-per-view services allow customers to pay to
view a single showing of a feature film, live sporting event, concert and other
special event, on an unedited, commercial-free basis. Video-On-Demand.Mediacom On Demand provides on-demand access to
approximately 1,300 hours of movies, special events and general interest
titles. Our customers enjoy full functionality, including the ability to pause,
rewind and fast forward selected programming. Mediacom On Demand service offers
free special interest programming, subscription-based VOD (SVOD) premium
packages, such as Starz!, Showtime or HBO, and movies and other programming
that can be ordered on a pay-per-view basis. We currently offer this service to
approximately 91% of our digital customers. 5




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High-Definition Television.HDTV features high-resolution picture quality,
digital sound quality and a wide-screen, theater-like display. This service
offers programming available in high-definition from local broadcast stations
and from premium services such as Starz!, Showtime, HBO, ESPN, Discovery,
HDNet, INHD and Universal. Our HDTV service is available in most of our markets
where we offer up to 16 HDTV channels. This service requires the use of an
advanced digital converter for which we charge a monthly fee. Digital Video Recorders.We provide our customers with HDTV-capable
digital converters that have digital video recording capability. Using the
interactive program guide, our customers with DVRs can record programming on
the hard drive component of the digital converter and view the recorded
programming using the play, pause, rewind and fast forward functions. The DVRs
can also pause live television, and rewind or fast-forward it, as well as
record one show while watching another, or record two shows simultaneously. Mediacom Online Mediacom Online offers several packages of HSD service with differing
speeds and prices. These services include our interactive portal, which
provides multiple e-mail addresses, personal webspace for customers, and local
community content. We continue to enhance Mediacom Online by increasing its
download speeds, including the introduction of a premier Internet service with
maximum download speeds of 10Mbps. Through our network technology, we also provide a range of advanced data
and communications services for the commercial market. We offer small and
medium-sized businesses a wide range of high-speed data access products. Using
our fiber-rich regional networks, we also build customized solutions for larger
enterprise customers which may include local area and virtual private networks,
and high-volume data transmission. Mediacom Phone Mediacom Phone offers our customers unlimited local, regional and
long-distance calling within the United States, Puerto Rico, the U.S. Virgin
Islands and Canada, any time of the day or night, for a flat monthly rate.
Discount pricing is available when Mediacom Phone is combined with our other
services. International calling is also available at competitive rates.
Mediacom Phone includes popular calling features, such as voice mail, caller ID
name and number, call waiting and three-way calling, and provides enhanced
Emergency 911 dialing. Our phone customers can keep their existing phone number
where local number portability is supported and use existing phones, jacks,
outlets and in-home wiring. In June 2005, we first launched Mediacom Phone in one of our smaller
markets, and by year-end 2005, our phone service was marketed to approximately
1.2 million of our total estimated 1.46 million homes and served 17,500
customers. We expect to market Mediacom Phone to nearly all of our homes by
year-end 2006. Mediacom Phone competes primarily with the phone service offered by the
incumbent local telephone company. We use technology that carries a telephone
conversation over a voice-over-Internet Protocol (VoIP) network instead of
the traditional telephone companys circuit-switched dedicated voice
transmission network. The advantages of VoIP over traditional circuit-switched
telephony include: (i) lower costs because once the VoIP infrastructure is
installed, little or no further investment is required; and (ii) the
development of new advanced features. Advertising We generate revenues from the sale of advertising time on up to 44
satellite-delivered channels such as CNN, Lifetime, Discovery, ESPN, TBS and
USA. We have an advertising sales infrastructure that includes in-house
production facilities, production and administrative employees and a
locally-based sales workforce. In many of our markets, we have entered into
agreements with other cable operators to jointly sell local advertising,
simplifying our prospective clients purchase of local advertising and
expanding the reach of advertising they purchase. In some of these markets, we
represent the advertising sales efforts of other cable operators; in other
markets, other cable operators represent us. Additionally, national and
regional interconnect agreements have been negotiated with other cable system
operators to simplify the purchase of advertising time of our clients. 6




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Description of Our Cable Systems Overview The following table provides an overview of selected operating and cable
network data for our cable systems for the years ended: 2005
    
2004
    
2003
    
2002
    
2001Operating Data:Core VideoEstimated
homes
passed (1)
    
    
    1,460,000
    
    
    
    1,456,000
    
    
    
    1,472,500
    
    
    
    1,463,000
    
    
    
    1,430,000Basic
subscribers (2)
    
    
    773,000
    
    
    
    783,000
    
    
    
    819,300
    
    
    
    840,000
    
    
    
    824,000Basic
penetration (3)
    
    
    52.9
    %
    
    
    53.8
    %
    
    
    55.6
    %
    
    
    57.4
    %
    
    
    57.6
    %Digital CableDigital
customers (4)
    
    
    289,000
    
    
    
    236,000
    
    
    
    231,600
    
    
    
    238,000
    
    
    
    233,000Digital
penetration (5)
    
    
    37.4
    %
    
    
    30.1
    %
    
    
    28.3
    %
    
    
    28.3
    %
    
    
    28.3
    %High Speed DataHSD
customers (6)
    
    
    266,000
    
    
    
    205,000
    
    
    
    157,800
    
    
    
    110,000
    
    
    
    77,000HSD
penetration (7)
    
    
    18.2
    %
    
    
    14.1
    %
    
    
    10.7
    %
    
    
    7.5
    %
    
    
    5.4
    %PhoneEstimated
marketable phone homes (8)
    
    
    1,200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


Phone
customers (9)
    
    
    17,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


Revenue Generating Units (10)
    
    
    1,345,500
    
    
    
    1,224,000
    
    
    
    1,208,700
    
    
    
    1,188,000
    
    
    
    1,134,000Cable Network Data:Miles of plant
    
    
    19,700
    
    
    
    19,500
    
    
    
    19,750
    
    
    
    19,500
    
    
    
    19,100Density (11)
    
    
    74
    
    
    
    75
    
    
    
    75
    
    
    
    75
    
    
    
    75 
 (1)
    
    Represents the estimated number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
systems service area.(2)
    
    Represents a dwelling with one or more television sets that receives a
package of over-the-air broadcast stations, local access channels or
certain satellite-delivered cable television services. Accounts that are
billed on a bulk basis, which typically receive discounted rates, are
converted into full-price equivalent basic subscribers by dividing total
bulk billed basic revenues of a particular system by average cable rate
charged to basic subscribers in that system. Basic subscribers include
connections to schools, libraries, local government offices and employee
households that may not be charged for limited and expanded cable
services, but may be charged for digital cable, VOD, HDTV, DVR or HSD
service. Customers who exclusively purchase high-speed Internet or phone
service are not counted as basic subscribers. Our methodology of
calculating the number of basic subscribers may not be identical to those
used by other companies offering similar services.(3)
    
    Represents basic subscribers as a percentage of estimated homes passed.(4)
    
    Represents customers receiving digital cable services.(5)
    
    Represents digital customers as a percentage of basic subscribers.(6)
    
    Represents residential HSD customers and small to medium-sized commercial
cable modem accounts billed at higher rates than residential customers.
Small to medium-sized commercial accounts generally represent customers
with bandwidth requirements of up to 5Mbps, and are converted to
equivalent residential HSD customers by dividing their associated revenues
by the applicable residential rate. Our HSD customers exclude 7




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large
commercial accounts and include an insignificant number of dial-up
customers. Our methodology of calculating HSD customers may not be
identical to those used by other companies offering similar services.(7)
    
    Represents the number of total HSD customers as a percentage of estimated
homes passed.(8)
    
    Represents estimated number of homes to which the Company is currently
marketing phone service.(9)
    
    Represents customers receiving phone service.(10)
    
    Represents the sum of basic subscribers, digital customers, HSD customers
and phone customers.(11)
    
    Represents estimated homes passed divided by miles of plant. Technology Overview A central feature of our cable network is its high capacity, hybrid
fiber-optic coaxial (HFC) architecture. This architecture combines the use of
fiber optic cable, which can carry hundreds of video, data and voice channels
over extended distances, with coaxial cable for the last mile, which requires
more extensive signal amplification to reach the desired levels for delivering
channels. In most systems, we deliver our signals via fiber optic cable to
individual nodes serving an average of 350 homes or commercial buildings.
Coaxial cable is then connected from each node to the individual homes or
buildings. Our network design generally provides for six strands of fiber to
each node, with two strands active and four strands currently inactive. We
believe that our HFC architecture provides high capacity and reliability, as
well as providing reserve capacity for the addition of future services. As of December 31, 2005, substantially all of our cable network was built
with greater than 550 megahertz (MHz) capacity, and all of it was two-way
capable. MHz is a measure used to quantify bandwidth or the capacity
to convey telecommunication services. We have deployed nearly 3,000 route miles of fiber optic cable into two
regional fiber networks. As of December 31, 2005, our cable systems were
operated from 19 headend facilities. In 2005, we installed SONET technology to
our regional fiber networks to create full redundancy. SONET is a fiber-optic
transmission system for high-speed digital traffic which uses a self-healing
ring architecture to reroute traffic if a break in communications occurs. These
regional networks also have excess fiber optic capacity to accommodate more
capacity usage by our existing products and services and the launch of new
products and services, such as our Mediacom Phone and commercial data for large
enterprise customers. Our ability to reach a greater number of our markets from
a central location also makes it more efficient, in terms of capital
investment, to introduce new and advanced services. In 2005, we overlaid on our
regional networks the first segments of a video transport system which permits
us to more efficiently manage video services from fewer locations. This system
will serve as the foundation for our planned launch of digital simulcast in
2006 and our ultimate transition to an all-digital network. Programming Supply We have various fixed-term contracts to obtain, directly and indirectly,
programming for our cable systems from programming suppliers whose compensation
is typically based on a fixed monthly fee per customer. We negotiate
programming contract renewals both directly and through a programming
cooperative of which we are a member. 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. 8




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We also have various retransmission consent arrangements with commercial
broadcast stations, which generally expire in December 2008. In some cases,
retransmission consents have been contingent upon our carriage of satellite
delivered cable programming offered by companies affiliated with the stations
owners or the broadcast network carried by such stations. Customer Service Customer satisfaction is important in an increasingly competitive
environment. We continue to invest in personnel, equipment and technology to
improve our customer care. We benefit from a well-trained, locally-based
technical workforce. We maintain a regional virtual contact center staffed with
dedicated customer service representatives and technical support
representatives (TSRs) who are available to respond to customer calls 24
hours a day, seven days a week. TSRs respond to technical inquiries of our HSD
and phone customers. We believe our regional contact center allows us to
effectively manage resources and reduce response times to customer inquiries. In 2005, we further developed virtual contact center technology to provide
customers with extensive self-service capabilities, such as making a payment
and verifying service appointments, and to enable us to re-route customer calls
among our contact centers to minimize hold times. We implemented a web-based
customer service platform called e-Care for bill presentment purposes, and we
are currently expanding our e-Care capabilities to include customer
self-fulfillment. Community Relations We are dedicated to fostering strong relations with the communities we
serve. We support local charities and community causes in various ways,
including events and campaigns to raise funds and supplies for persons in need
and in-kind donations that include production services and free airtime on
cable networks. We participate in the Cable in the Classroom program, which
provides more than 1,300 schools with free video service and more than 200
schools with free high-speed Internet service. We also provide free cable
television service to over 1,100 government buildings, libraries and
not-for-profit hospitals in our franchise areas. We also develop and provide exclusive local programming to our
communities, a service not offered by direct broadcast satellite providers, our
primary competition in the video business. Several of our cable systems have
production facilities to create local programming, which includes local school
sports events, fund-raising telethons by local chapters of national charitable
organizations, local concerts and other entertainment. In the Iowa communities
we serve, the Mediacom Connections channel airs 60 to 70 hours of programming
per week, including high school and college sporting events and statewide
public affairs programs. 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, 2005, we held 393 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. 9




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Substantially all of our cable systems require a franchise to operate. The
table below groups the franchises of our cable systems by year of expiration
and presents the approximate number and percentage of basic subscribers for
each group as of December 31, 2005. Percentage of
    
    
    Number of
    
    
    Percentage ofNumber of
    
    
    Total
    
    
    Basic
    
    
    Total BasicYear of Franchise Expiration
    
    Franchises
    
    
    Franchises
    
    
    Subscribers
    
    
    Subscribers2006 through 2009
    
    
    208
    
    
    
    52.9
    %
    
    
    448,486
    
    
    
    58.0
    %2010 and thereafter
    
    
    185
    
    
    
    47.1
    %
    
    
    324,514
    
    
    
    42.0
    %Total
    
    
    393
    
    
    
    100.0
    %
    
    
    773,000
    
    
    
    100.0
    % We have never had a franchise revoked or failed to have a franchise
renewed. In addition, substantially all of our franchises eligible for renewal
have been renewed or extended prior to their stated expirations, and no
franchise community has refused to consent to a franchise transfer to us. The
1984 Cable Act provides, among other things, for an orderly franchise renewal
process in which franchise renewal will not be unreasonably withheld or, if
renewal is denied and the franchising authority acquires ownership of the cable
system or effects a transfer of the cable system to another person, the cable
operator generally is entitled to the fair market value for the cable system
covered by such franchise. In addition, the 1984 Cable Act established
comprehensive renewal procedures, which require that an incumbent franchisees
renewal application be assessed on its own merits and not as part of a
comparative process with competing applications. We believe that we have
satisfactory relationships with our franchising communities. Competition We face intense competition from various communications and entertainment
providers, many of whom have greater resources than us. We operate in an
industry that is subject to rapid and significant changes and developments in
the marketplace, in technology and in the regulatory and legislative
environment. We are unable to predict the effects, if any, of such future
changes or developments on our business. Video Direct Broadcast Satellite Providers Direct broadcast satellite (DBS) providers, principally DIRECTV, Inc.
and Echostar Communications Corporation, are the cable industrys most
significant video competitors, having grown their customer base rapidly over
the past several years. They now serve more than 27 million customers
nationwide, according to recent government and research reports. In 2003, the
News Corporation Limited, one of the worlds largest media companies, acquired
a controlling interest in DirecTV, strengthening this DBS providers
competitive positioning. Our ability to compete with DBS service depends, in part, on the
programming available to us and them for distribution. DirecTV and Echostar now
offer more than 300 video channels of programming, much of it substantially
similar to our video offerings. Federal laws passed in 1999 permit DBS
providers to retransmit local broadcast channels to their customers,
eliminating a significant advantage we had over DBS service. DirecTV also has
exclusive arrangements with the National Football League to offer programming
we cannot offer. In late 2005, DBS providers began to offer local high-definition (HD)
broadcast signals of the four primary broadcast networks in certain major
metropolitan markets across the U.S. They have stated their plans to expand
this offering of local HD signals in markets representing up to 75% of U.S. TV
households by year-end 2006. DirecTV has also stated that it will be able to
provide significantly more HD channels of national programming in 2007. DBS service has technological limitations because of its limited two-way
interactivity, restricting DBS providers ability to compete in interactive
video, HSD and voice services. In contrast, our broadband network has full
two-way interactivity, giving us a single platform that is capable of
delivering true VOD and SVOD services, as well as HSD and phone services. 10




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DBS providers are seeking to expand their services to include, among other
things, a competitive high-speed data service, and have active marketing
agreements under which major telephone companies sell DBS service bundled with
their phone and high-speed data services. However, we believe that our delivery
of multiple services from a single broadband platform is more cost effective
than the DBS providers, giving us a long-term competitive advantage. We also
believe our subscribers continue to prefer our meaningful presence in their
communities and the proprietary local content we produce and broadcast in
several of our systems. DBS providers are not locally-based and do not have the
ability to offer locally-produced programming. Traditional Overbuilds Cable television systems are operated under non-exclusive franchises
granted by local authorities. More than one cable system may legally be built
in the same area by another cable operator, a local utility or another service
provider. Some of these competitors, such as municipally-owned entities, may be
granted franchises on more favorable terms or conditions or enjoy other
advantages such as exemptions from taxes or regulatory requirements to which we
are subject. A number of cities have constructed their own cable systems, in a
manner similar to city-provided utility services. In certain communities in
Iowa, competition from municipally-owned entities may increase because of
recently passed local legislation that allows these communities to form
entities to compete with us. We believe that various entities are currently
offering cable service to an estimated 15.9% of the estimated homes passed in
our markets. Telephone Companies In addition to their joint-marketing alliances with DBS providers, Verizon
Communications Inc. and AT&T Inc. are now constructing, and Verizon is
beginning to operate, new fiber networks that replace their existing networks
and allow them to offer video services, in addition to improved voice and high
speed data services. These telephone companies have substantial resources.
Legislation was recently passed in three states, and similar legislation is
pending, or has been proposed, in certain other states and in Congress, to
allow local telephone companies to deliver services in competition with our
cable service without obtaining equivalent local franchises. While the video
competition we face from telephone companies is currently limited, if they
decide to rebuild their networks in our markets and began to offer video
services, they could present a significant competitive challenge to us. Other We also have other actual or potential video competitors, including
broadcast television stations, private home dish earth stations, multichannel
multipoint distribution services, known as MMDS (which deliver programming
services over microwave channels licensed by the FCC), satellite master antenna
television systems (which use technology similar to MMDS and generally serve
condominiums, apartment complexes and other multiple dwelling units), new
services such as wireless local multipoint distribution service, and
potentially new services, such as multichannel video distribution and data
service. We currently have limited competition from these competitors. High Speed Data Our HSD service competes primarily with digital subscriber line (DSL)
services offered by telephone companies. Many of these competitors have
substantial resources. DSL technology provides Internet access at data transmission speeds
greater than that of standard telephone line or dial-up modems, putting DSL
service in direct competition with our cable modem service. As discussed above,
certain major telephone companies are currently constructing and beginning to
operate new fiber networks, allowing them to offer significantly faster
high-speed data services compared to DSL technology. We expect the
competitiveness of telephone companies to increase in high-speed data, as they
respond to our entry into their phone business. DBS providers have attempted to compete with our HSD service, but their
satellite-delivered service has had limited success given its technical
constraints. DBS providers continue to explore other options for the provision
of high-speed data services. Industry reports suggest that they will soon
announce some form of affiliation with other companies to provide high-speed
Internet access through a delivery system that combines satellite
communications with terrestrial wireless networks. 11




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Other potential competitors include companies seeking to provide
high-speed Internet services using wireless technologies. Certain electric
utilities also have announced plans to deliver broadband services over their
electrical distribution networks, and if they are able to do so, they could
become formidable competitors given their resources. Phone Mediacom Phone principally competes with the phone services offered by
incumbent telephone companies. The incumbent telephone companies have
substantial capital and other resources, longstanding customer relationships,
extensive existing facilities and network rights-of-way. In addition, it
competes with services offered by other VoIP providers, such as Vonage, that do
not have their own network but provide their service through a consumers
high-speed Internet connection. Other Competition The FCC has adopted regulations and policies for the issuance of licenses
for digital television (DTV) to incumbent television broadcast licensees. DTV
television can deliver HD television pictures and multiple digital-quality
program streams, as well as CD-quality audio programming and advanced digital
services, such as data transfer or subscription video. Over-the-air DTV
subscription service is now available in a few cities in the United States. The quality of real-time or streaming of video over the Internet and into
homes and businesses continues to improve. These services are also becoming
more available as the use of high speed Internet access becomes more
widespread. In the future, it is possible that video streaming will compete
with the video services offered by cable operators and other providers of video
services. For instance, certain programming suppliers have begun to market
their content directly to consumers through video streaming over the Internet,
bypassing cable operators or DBS providers as video distributors, although the
cable operators may remain as the providers of high-speed Internet access
service. Employees As of December 31, 2005, we employed 2,186 full-time employees and 37
part-time employees. Approximately 30 of our employees have organized but are
not covered by a collective bargaining agreement. We consider our relations
with our employees to be satisfactory. Legislation and Regulation General Federal, state and local laws regulate the development and operation of
cable communications systems. In the following paragraphs, we summarize the
federal laws and regulations materially affecting us and other cable operators.
We also provide a brief description of certain relevant state and local laws.
Currently few laws or regulations apply to Internet services. Existing federal,
state and local laws and regulations and state and local franchise requirements
are currently the subject of judicial proceedings, legislative hearings and
administrative proceedings that could change, in varying degrees, the manner in
which cable systems operate. Neither the outcome of these proceedings nor their
impact upon the cable industry, our business or our operations can be predicted
at this time. Federal Regulation The principal federal statutes governing the cable industry, the
Communications Act of 1934, as amended by the Cable Communications Policy Act
of 1984, the Cable Television Consumer Protection and Competition Act of 1992 12




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and the Telecommunications Act of 1996 (collectively, the Cable Act),
establish the federal regulatory framework for the industry. The Cable Act
allocates principal responsibility for enforcing the federal policies among the
Federal Communications Commission (FCC) and state and local governmental
authorities. The Cable Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:  
    
    subscriber rates;
    
    the content of the programming we offer to subscribers, as well as
the way we sell our program packages to subscribers;
    
    the use of our cable systems by the local franchising authorities, the public and other unrelated companies;
    
    our franchise agreements with local governmental authorities;
    
    cable system ownership limitations and prohibitions; and
    
    our use of utility poles and conduit. The FCC and some state regulatory agencies regularly conduct
administrative proceedings to adopt or amend regulations implementing the
statutory mandate of the Cable Act. At various times, interested parties to
these administrative proceedings challenge the new or amended regulations and
policies in the courts with varying levels of success. Further court actions
and regulatory proceedings may occur that might affect the rights and
obligations of various parties under the Cable Act. The results of these
judicial and administrative proceedings may materially affect the cable
industry and our business and operations. Subscriber Rates The Cable Act and the FCCs regulations and policies limit the ability of
cable systems to raise rates for basic services and customer equipment. No
other rates are subject to regulation. Federal law exempts cable systems from
all rate regulation in communities that are subject to effective competition,
as defined by federal law and where affirmatively declared by the FCC. Federal
law defines effective competition as existing in a variety of circumstances
that historically were rarely satisfied but are increasingly likely to be
satisfied with the increases in DBS penetration and the announced plans of some
local phone companies to offer comparable video service. Although the FCC is
conducting a proceeding that may streamline the process for obtaining effective
competition determinations, neither the outcome of this proceeding nor its
impact upon the cable industry or our business or operations can be predicted
at this time. 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. 13




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Several years ago, the FCC adopted detailed rate regulations, guidelines
and rate forms that a cable operator and the local franchising authority must
use in connection with the regulation of basic service and equipment rates. The
FCC adopted a benchmark methodology as the principal method of regulating
rates. However, if this methodology produces unacceptable rates, the operator
may also justify rates using either a detailed cost-of-service methodology or
an add-on to the benchmark rate based on the additional capital cost and
certain operating expenses resulting from qualifying upgrades to the cable
plant. The Cable Act and FCC rules also allow franchising authorities to
regulate equipment rates on the basis of actual cost plus a reasonable profit,
as defined by the FCC. If the local franchising authority concludes that a cable operators rates
exceed what is permitted under the FCCs rate rules, the local franchising
authority may require the cable operator to reduce rates and to refund
overcharges to subscribers, with interest. The cable operator may appeal
adverse local rate decisions to the FCC. The FCCs regulations allow a cable operator to modify regulated rates on
a quarterly or annual basis to account for changes in:  
    
    the number of regulated channels;
    
    inflation; and
    
    certain external costs, such as franchise and other governmental
fees, copyright and retransmission consent fees, taxes, programming fees
and franchise-imposed obligations. The Cable Act and/or the FCCs regulations also:  
    
    require cable operators to charge uniform rates throughout each
franchise area that is not subject to effective competition;
    
    prohibit regulation of non-predatory bulk discount rates offered by
cable operators to subscribers in multiple dwelling units; and
    
    permit regulated equipment rates to be computed by aggregating costs
of broad categories of equipment at the franchise, system, regional or
company level. Reversing the findings of a November 2004 report, the FCC released a
report in February 2006 finding that consumers could benefit under certain a la
carte models for delivery of video programming. This report did not
specifically recommend or propose the adoption of any specific rules by the FCC
and it did not endorse a pure a la carte model where subscribers could purchase
specific channels without restriction. Instead, it favored tiers plus
individual channels or smaller theme-based tiers. Shortly after release of the
report, the FCC voted to seek additional information as to whether cable
systems with at least 36 channels are available to at least 70 percent of U.S.
homes and whether 70 percent of households served by those systems subscribe.
If so, the FCC may have additional discretion under the Cable Act to promulgate
additional rules necessary to promote diversity of information sources. The FCC
did not specify what rules it would seek to promulgate; however, the Chairman
of the FCC has expressed support for family-friendly tiers of programming and
availability of programming on an a la carte basis. Certain cable operators
have responded by announcing that they will launch family-friendly
programming tiers. It is not certain whether those efforts will ultimately be
regarded as a sufficient response. Congress may also consider legislation
regarding programming packaging, bundling or a-la-carte delivery of
programming. Any such requirements could fundamentally change the way in which
we package and price our services. We cannot predict the outcome of any current
or future FCC proceedings or legislation in this area, or the impact of such
proceedings on our business at this time. Content requirements Must carry and retransmission consent The FCCs regulations contain broadcast signal carriage requirements that
allow local commercial television broadcast stations to elect once every three
years whether to require a cable system: 14




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
    
    to carry the station, subject to certain exceptions; or
    
    to negotiate the terms by which the cable system may carry the
station on its cable systems, commonly called retransmission consent. The Cable Act and the FCCs regulations require a cable operator to devote
up to one-third of its activated channel capacity for the carriage of local
commercial television stations. The Cable Act and the FCCs rules also give
certain local non-commercial educational television stations mandatory carriage
rights, but not the option to negotiate retransmission consent. Additionally,
cable systems must obtain retransmission consent for carriage of:  
    
    all distant commercial television stations, except for certain
commercial satellite-delivered independent superstations such as WGN;
    
    commercial radio stations; and
    
    certain low-power television stations. Under legislation enacted in 1999, Congress barred broadcasters from
entering into exclusive retransmission consent agreements (through 2006) and
required that broadcasters negotiate retransmission consent agreements in good
faith; in 2004, Congress extended this good faith requirement to cover all
multi-channel video programming distributors, including cable operators. Must-carry obligations may decrease the attractiveness of the cable
operators overall programming offerings by including less popular programming
on the channel line-up, while cable operators may need to provide some form of
consideration to broadcasters to obtain retransmission consent to carry more
popular programming. We carry both broadcast stations based on must-carry
obligations and others that have granted retransmission consent. No later than February 18, 2009, all television broadcasts must be solely
in digital format. After February 17, 2009, broadcasters must return their
analog spectrum. The FCC has issued a decision that effectively requires
mandatory carriage of local television stations that surrender their analog
channel and broadcast only digital signals. These stations are entitled to
request carriage in their choice of digital or converted analog format.
Stations transmitting in both digital and analog formats (Dual Format
Broadcast Stations), which is permitted during the transition period, have no
carriage rights for the digital format during the transition unless and until
they turn in their analog channel. The FCC has recently reaffirmed that cable
operators are not required to carry the digital signal of Dual Format Broadcast
Stations that currently have must-carry rights for their analog signals,
however, changes in the composition of the Commission as well as proposals
currently under consideration could result in an obligation to carry both the
analog and digital version of local broadcast stations or to carry multiple
digital program streams. In addition to rejecting a dual carriage requirement
during the transition, the FCC also confirmed that a cable operator need only
carry a broadcasters primary video service (rather than all of the digital
multi-cast services), both during and after the transition. The adoption, by
legislation or FCC regulation, of additional must-carry requirements would have
a negative impact on us because it would reduce available channel capacity and
thereby could require us to either discontinue other channels of programming or
restrict our ability to carry new channels of programming or other services
that may be more desirable to our customers. In the Satellite Home Viewer Extension and Reauthorization Act of 2004
(SHVERA), Congress directed the FCC to conduct an inquiry and submit a report
to Congress regarding the impact on competition in the multichannel video
programming distribution market of the Cable Acts provisions and the FCCs
rules on retransmission consent, network-non-duplication, syndicated
exclusivity, and sports blackouts. The FCC completed this inquiry and submitted
the required report to Congress in September 2005. While generally recommending
that Congress continue its efforts to harmonize the rules applicable to
cable, DBS and other multichannel video programming distributors to the extent
feasible in light of technological differences, the FCC found that it was
unnecessary to recommend any specific statutory amendments at this time.
Rather, the FCC concluded that specific suggestions for change should await the
results of a pair of companion studies to be conducted by the Copyright Office
pursuant to SHVERA, the results of which are discussed below in the Copyright
section. 15




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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. The FCC is reviewing a complaint with respect to another cable operator to
determine whether certain charges routinely assessed by many cable operators,
including us, to obtain access to digital services, violate this
anti-buy-through provision. Any decision that requires us to restructure or
eliminate such charges would have an adverse effect on our business. Program Access To increase competition between cable operators and other video program
distributors, the Cable Act and the FCCs regulations:  
    
    preclude any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly
to its subscribers, from favoring an affiliated company over
competitors;
    
    require such programmers to sell their programming to other unaffiliated video program distributors; and
    
    limit the ability of such programmers to offer exclusive programming arrangements to cable operators. Other Programming Federal law actively regulates other aspects of our programming, involving such areas as:  
    
    our use of syndicated and network programs and local sports broadcast programming;
    
    advertising in childrens programming;
    
    political advertising;
    
    origination cablecasting;
    
    adult programming;
    
    sponsorship identification; and
    
    closed captioning of video programming. Use of Our Cable Systems by the Government and Unrelated Third Parties The Cable Act allows local franchising authorities and unrelated third
parties to obtain access to a portion of our cable systems channel capacity
for their own use. For example, the Cable Act:  
    
    permits franchising authorities to require cable operators to set
aside channels for public, educational and governmental access
programming; and
    
    requires a cable system with 36 or more activated channels to
designate a significant portion of its channel capacity for commercial
leased access by third parties to provide programming that may compete
with services offered by the cable operator. The FCC regulates various aspects of third party commercial use of channel
capacity on our cable systems, including: 16




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
    
    the maximum reasonable rate a cable operator may charge for third
party commercial use of the designated channel capacity;
    
    the terms and conditions for commercial use of such channels; and
    
    the procedures for the expedited resolution of disputes concerning
rates or commercial use of the designated channel capacity. Franchise Matters We have non-exclusive franchises in virtually every community in which we
operate that authorize us to construct, operate and maintain our cable systems.
Although franchising matters are normally regulated at the local level through
a franchise agreement and/or a local ordinance, the Cable Act provides
oversight and guidelines to govern our relationship with local franchising
authorities. For example, the Cable Act and/or FCC regulations and determinations: Provide guidelines for the exercise of local regulatory authority that:  
    
    affirm the right of franchising authorities, which may be state or
local, depending on the practice in individual states, to award one or
more franchises within their jurisdictions;
    
    generally prohibit us from operating in communities without a
franchise;
    
    permit local authorities, when granting or renewing our franchises,
to establish requirements for cable-related facilities and equipment,
but prohibit franchising authorities from establishing requirements for
specific video programming or information services other than in broad
categories; and
    
    permit us to obtain modification of our franchise requirements from
the franchise authority or by judicial action if warranted by commercial
impracticability. Generally prohibit franchising authorities from:  
    
    imposing requirements during the initial cable franchising process or
during franchise renewal that require, prohibit or restrict us from
providing telecommunications services;
    
    imposing franchise fees on revenues we derive from providing
telecommunications or information services over our cable systems;
    
    restricting our use of any type of subscriber equipment or
transmission technology; and
    
    requiring payment of franchise fees to the local franchising
authority in excess of 5.0% of our gross revenues derived from providing
cable services over our cable system. Encourage competition with existing cable systems by:  
    
    allowing municipalities to operate their own cable systems without
franchises; and
    
    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 17




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more onerous
requirements, such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal to the extent
permitted by law. Similarly, if a franchising authoritys consent is
required for the purchase or sale of our cable system or franchise, the
franchising authority may attempt to impose more burdensome or onerous
franchise requirements on the purchaser in connection with a request for
such consent. Historically, cable operators providing satisfactory
services to their subscribers and
complying with the terms of their franchises have almost always obtained
franchise renewals. We believe that we have generally met the terms of our
franchises and have provided quality levels of service. We anticipate that
our future franchise renewal prospects generally will be favorable.
    
    Various courts have considered whether franchising authorities have
the legal right to limit the number of franchises awarded within a
community and to impose substantive franchise requirements. These
decisions have been inconsistent and, until the U.S. Supreme Court rules
definitively on the scope of cable operators First Amendment
protections, the legality of the franchising process generally and of
various specific franchise requirements is likely to be in a state of
flux. Furthermore, the FCC recently issued a Notice of Proposed
Rulemaking seeking comment on whether the current local franchising
process constitutes an impediment to widespread issuance of franchises
to competitive cable providers in terms of the sheer number of
franchising authorities, the impact of state-level franchising
authorities, the burdens some local franchising authorities seek to
impose as conditions of granting franchises and whether state
level-playing field statutes also create barriers to entry. We cannot
determine the outcome of any potential new rules on our business;
however, any change that would lessen the local franchising burdens and
requirements imposed on our competitors relative to those that are or
have been imposed on us could harm our business. The Cable Act and the FCC allow cable operators to pass franchise fees on
to subscribers and to separately itemize them on subscriber bills. In 2003, an
appellate court affirmed an FCC ruling that franchise fees paid by cable
operators on non-subscriber related revenue (such as cable advertising revenue
and home shopping commissions) may be passed through to subscribers and
itemized on subscriber bills regardless of the source of the revenues on which
they were assessed. In connection with its decision in 2002 classifying high-speed Internet
services provided over a cable system as interstate information services, the
FCC stated that revenues derived from cable operators Internet services should
not be included in the revenue base from which franchise fees are calculated.
Although the United States Supreme Court recently held that cable modem service
was properly classified by the FCC as an information service, freeing it from
regulation as a telecommunications service, it recognized that the FCC has
jurisdiction to impose regulatory obligations on facilities based Internet
Service Providers. The FCC has an ongoing rulemaking to determine whether to
impose regulatory obligations on such providers, including us. Because of the
FCCs decision, we are no longer collecting and remitting franchise fees on our
high-speed Internet service revenues. We are unable to predict the ultimate
resolution of these matters but do not expect that any additional franchise
fees we may be required to pay will be material to our business and operations. Ownership Limitations The FCC previously adopted nationwide limits on the number of subscribers
under the control of a cable operator and on the number of channels which can
be occupied on a cable system by video programming in which the cable operator
has an interest. The U.S. Court of Appeals for the District of Columbia Circuit
reversed the FCCs decisions implementing these statutory provisions and
remanded the case to the FCC for further proceedings. The 1996 amendments to the Cable Act eliminated the statutory prohibition
on the common ownership, operation or control of a cable system and a
television broadcast station in the same service area. The identical FCC
regulation subsequently has been invalidated by a federal appellate court. The 1996 amendments to the Cable Act made far-reaching changes in the
relationship between local telephone companies and cable service providers.
These amendments:  
    
    eliminated federal legal barriers to competition in the local
telephone and cable communications businesses, including allowing local
telephone companies to offer video services in their local telephone
service areas; 18




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
    
    preempted legal barriers to telecommunications competition that
previously existed in state and local laws and regulations;
    
    set basic standards for relationships between telecommunications
providers; and
    
    generally limited acquisitions and prohibited joint ventures between
local telephone companies and cable operators in the same market. Pursuant to these changes in federal law, local telephone companies may
now provide service as traditional cable operators with local franchises or
they may opt to provide their programming over open video systems, subject to
certain conditions, including, but not limited to, setting aside a portion of
their channel capacity for use by unaffiliated program distributors on a
non-discriminatory basis. Open video systems are exempt from certain regulatory
obligations that currently apply to cable operators. The decision as to whether
an operator of an open video system must obtain a local franchise is left to
each community. The 1996 amendments to the Cable Act allow registered utility holding
companies and subsidiaries to provide telecommunications services, including
cable television, notwithstanding the Public Utilities Holding Company Act of
1935, as amended. In 2004, the FCC adopted rules: (i) that affirmed the ability
of electric service providers to provide broadband Internet access services
over their distribution systems; and (ii) that seek to avoid interference with
existing services. Electric utilities could be formidable competitors to cable
system operators. Legislation was recently passed in three states and similar legislation is
pending, or has been proposed, in certain other states and in Congress, to
allow local telephone companies to deliver services in competition with our
cable service without obtaining equivalent local franchises. Such a
legislatively granted advantage to our competitors could adversely affect our
business. The effect of such initiatives, if any, on our obligation to obtain
local franchises in the future or on any of our existing franchises, many of
which have years remaining in their terms, cannot be predicted. The Cable Act generally prohibits us from owning or operating a satellite
master antenna television system or multichannel multipoint distribution system
in any area where we provide franchised cable service and do not have effective
competition, as defined by federal law. We may, however, acquire and operate a
satellite master antenna television system in our existing franchise service
areas if the programming and other services provided to the satellite master
antenna television system subscribers are offered according to the terms and
conditions of our local franchise agreement. Cable Equipment The Cable Act and FCC regulations seek to promote competition in the
delivery of cable equipment by giving consumers the right to purchase set-top
converters from third parties as long as the equipment does not harm the
network, does not interfere with services purchased by other customers and is
not used to receive unauthorized services. Over a multi-year phase-in period,
the rules also require multichannel video programming distributors, other than
direct broadcast satellite operators, to separate security from non-security
functions in set-top converters to allow third party vendors to provide
set-tops with basic converter functions. Beginning July 1, 2007, cable
operators will be prohibited from leasing digital set-top terminals that
integrate security and basic navigation functions. To promote compatibility of cable television systems and consumer
electronics equipment, the FCC recently adopted rules implementing plug and
play specifications for one-way digital televisions. The rules require cable
operators to provide CableCard security modules and support for digital
televisions equipped with built-in set-top functionality. The FCC continues to
push the cable television and consumer electronics industries to develop
two-way plug and play specifications. Pole Attachment Regulation The Cable Act requires certain public utilities, defined to include all
local telephone companies and electric utilities, except those owned by
municipalities and co-operatives, to provide cable operators and
telecommunications 19




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carriers with nondiscriminatory access to poles, ducts,
conduit and rights-of-way at just and reasonable rates. This right to access is
beneficial to us. Federal law also requires the FCC to regulate the rates,
terms and conditions imposed by such public utilities for cable systems use of
utility pole and conduit space unless state authorities have demonstrated to
the FCC that they adequately regulate pole attachment rates, as is the case in
certain states in which we operate. In the absence of state regulation, the FCC
will regulate pole attachment rates, terms and conditions only
in response to a formal complaint. The FCC adopted a new rate formula that
became effective in 2001 which governs the maximum rate certain utilities may
charge for attachments to their poles and conduit by companies providing
telecommunications services, including cable operators. Increases in attachment rates due to the FCCs new rate formula are phased
in over a five-year period in equal annual increments, beginning in February
2001. This new formula will result in higher attachment rates than at present,
but they will apply only to cable television systems which elect to offer
telecommunications services. The FCC ruled that the provision of Internet
services will not, in and of itself, trigger use of the new formula. The
Supreme Court affirmed this decision and also held that the FCCs authority to
regulate rates for attachments to utility poles extended to attachments by
cable operators and telecommunications carriers that are used to provide
Internet service or for wireless telecommunications service. The recent Supreme
Court decision upholding the FCCs classification of cable modem service as an
information service, should strengthen our ability to resist such rate
increases based solely on the delivery of cable modem services over our cable
systems. As we continue our deployment of cable telephony and certain other
advanced services, utilities may continue to seek to invoke the higher rates. At present there is a formal hearing before the FCC in which Alabama Power
is attempting to demonstrate that pole attachment rates above its marginal
costs meet the just compensation test approved by the United States Court of
Appeals for the 11th Circuit. As a result of the Supreme Court case upholding
the FCCs classification of cable modem service as an information service, the
11th Circuit has considered whether there are circumstances in which a utility
can ask for and receive rates from cable operators over and above the rates set
by FCC regulation. If successful, Alabama Power and perhaps all utilities in
areas served by us may have a similar claim thereby increasing their ability to
raise rates. It is not known at this time what, if any, financial impact could
occur. 20




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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. Copyright Our cable systems typically include in their channel line-ups local and
distant television and radio broadcast signals, which are protected by the
copyright laws. We generally do not obtain a license to use this programming
directly from the owners of the programming, but instead comply with an
alternative federal compulsory copyright licensing process. In exchange for
filing certain reports and contributing a percentage of our revenues to a
federal copyright royalty pool, we obtain blanket permission to retransmit the
copyrighted material carried on these broadcast signals. The nature and amount
of future copyright payments for broadcast signal carriage cannot be predicted
at this time. In a report to Congress, the U.S. Copyright Office recommended major
revisions to both the cable television and satellite compulsory licenses. In
1999, Congress modified the satellite compulsory license in a manner that
permits DBS providers to become more competitive with cable operators. Congress
recently adopted legislation extending this authority through 2009. The
possible simplification, modification or elimination of the cable compulsory
copyright license is the subject of continuing legislative review. The
elimination or substantial modification of the cable compulsory license could
adversely affect our ability to obtain suitable programming and could
substantially increase the cost of programming that remains available for
distribution to our subscribers. We are unable to predict the outcome of this
legislative activity related to either the cable compulsory license or the
right of direct broadcast satellite providers to deliver local broadcast
signals. Filed petitions for rulemaking with the United States Copyright Office
propose revisions to certain compulsory copyright license reporting
requirements and seek clarification of certain issues relating to the
application of the compulsory license to the carriage of digital broadcast
stations. The petitions seek, among other things: (i) clarification of the
inclusion in gross revenues of digital converter fees, additional set fees for
digital service and revenue from required buy throughs to obtain digital
service; (ii) reporting of dual carriage and multicast signals; (iii)
revisions to the Copyright Offices rules and Statement of Account forms,
including increased detail regarding services, rates and subscribers,
additional information regarding non-broadcast tiers of service, cable headend
location information, community definition clarification and identification of
the county in which the cable community is located and the effect of interest
payments on potential liability for late filing; and (iv) payment for 21




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certain distant signals in communities where the signal is not carried,
dubbed phantom signals. The Copyright Office may open one or more rulemakings
in response to these petitions. We cannot predict the outcome of any such
rulemakings; however, it is possible that certain changes in the rules or
copyright compulsory license fee computations could have an adverse affect on
our business by increasing our copyright compulsory license fee costs or by
causing us to reduce or discontinue carriage of certain broadcast signals that
we currently carry on a discretionary basis. In February 2006, the Copyright Office reported to Congress as required by
SHVERA. The Copyright Office concluded that: (i) the current DBS compulsory
license royalty fee for distant signals did not reflect fair market value; (ii)
copyright owners should have the right to audit the statements of account
submitted by DBS providers; and (iii) the cost of administering the compulsory
license system be paid by those using the copyrighted material. A second report
is due by June 30, 2008. Neither the outcome of those proceedings, their impact
on cable television operators, nor their impact on subsequent legislation,
regulations, the cable industry, or our business and operations can be
predicted at this time. Copyrighted material in programming supplied to cable television systems
by pay cable networks and basic cable networks is licensed by the networks
through private agreements with the copyright owners. These entities generally
offer through to-the-viewer licenses to the cable networks that cover the
retransmission of the cable networks programming by cable television systems
to their customers. Our cable systems also utilize music in other programming and advertising
that we provide to subscribers. The rights to use this music are controlled by
various music performing rights organizations from which performance licenses
must be obtained. Cable industry representatives negotiated standard license
agreements with the largest music performing rights organizations covering
locally originated programming, including advertising inserted by the cable
operator in programming produced by other parties. These standard agreements
require the payment of music license fees for earlier time periods, but such
license fees have not had a significant impact on our business and operations. Interactive Television The FCC has issued a Notice of Inquiry covering a wide range of issues
relating to interactive television (ITV). Examples of ITV services are
interactive electronic program guides and access to a graphic interface that
provides supplementary information related to the video display. In the near
term, cable systems are likely to be the platform of choice for the
distribution of ITV services. The FCC posed a series of questions including the
definition of ITV, the potential for discrimination by cable systems in favor
of affiliated ITV providers, enforcement mechanisms, and the proper regulatory
classification of ITV service. Privacy The Cable Act imposes a number of restrictions on the manner in which
cable television operators can collect, disclose and retain data about
individual system customers and requires cable operators to take such actions
as necessary to prevent unauthorized access to such information. The statute
also requires that the system operator periodically provide all customers with
written information about its policies including the types of information
collected; the use of such information; the nature, frequency and purpose of
any disclosures; the period of retention; the times and places where a customer
may have access to such information; the limitations placed on the cable
operator by the Cable Act; and a customers enforcement rights. In the event
that a cable television operator is found to have violated the customer privacy
provisions of the Cable Act, it could be required to pay damages, attorneys
fees and other costs. Certain of these Cable Act requirements have been
modified by certain more recent federal laws. Other federal laws currently
impact the circumstances and the manner in which we disclose certain customer
information and future federal legislation may further impact our obligations.
In addition, some states in which we operate have also enacted customer privacy
statutes, including obligations to notify customers where certain customer
information is accessed or believed to have been accessed without
authorization. These state provisions are in some cases more restrictive than
those in federal law. Cable Modem Service There are currently few laws or regulations that specifically regulate
communications or commerce over the Internet. Section 230 of the Communications
Act declares it to be the policy of the United States to promote the 22




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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. The FCC, in connection with its review of the AOL-Time
Warner merger, imposed, together with the Federal Trade Commission, limited
multiple access and other requirements related to the merged companys Internet
and Instant Messaging platforms. In 2002, the FCC announced that it was classifying Internet access service
provided through cable modems as an interstate information service. Although
the United States Supreme Court recently held that cable modem service was
properly classified by the FCC as an information service, freeing it from
regulation as a telecommunications service, it recognized that the FCC has
jurisdiction to impose regulatory obligations on facilities based Internet
Service Providers. The FCC has an ongoing rulemaking to determine whether to
impose regulatory obligations on such providers, including us. The adoption of
new rules by the FCC could impose additional costs and regulatory burdens on
us, reduce our anticipated revenues or increase our anticipated costs for this
service, complicate the franchise renewal process, result in greater
competition or otherwise adversely affect our business. While we cannot predict
the outcome of this proceeding, we do note that the FCC recently removed the
requirement that telecommunications carriers provide access to competitors to
resell their DSL Internet access service citing the need for competitive parity
with cable modem service which has no similar access requirement. Any such
requirements could adversely affect our results of operations. Voice-Over-Internet Protocol Telephony The 1996 amendments to the Cable Act created a more favorable regulatory
environment for cable operators to enter the phone business. Currently,
numerous cable operators have commenced offering VoIP telephony as a
competitive alternative to traditional circuit-switched telephone service.
Various states, including states where we operate, have adopted or are
considering differing regulatory treatment, ranging from minimal or no
regulation to full-blown common carrier status. As part of the proceeding to
determine any appropriate regulatory obligations for VoIP telephony, the FCC
recently decided that alternative voice technologies, like certain types of
VoIP telephony, should be regulated only at the federal level, rather than by
individual states. Many implementation details remain unresolved, and there are
substantial regulatory changes being considered that could either benefit or
harm VoIP telephony as a business operation. While the final outcome of the FCC
proceedings cannot be predicted, it is generally believed that the FCC favors a
light touch regulatory approach for VoIP telephony, which might include
preemption of certain state or local regulation. In February 2006, the FCC
commenced a proceeding to determine whether additional security measures are
required to protect certain customer information including call records. It is
unknown what conclusions or actions the FCC may take or whether it will apply
such requirements to all providers of voice services. State and Local Regulation Our cable systems use local streets and rights-of-way. Consequently, we
must comply with state and local regulation, which is typically imposed through
the franchising process. Our cable systems generally are operated in accordance
with non-exclusive franchises, permits or licenses granted by a municipality or
other state or local government entity. Our franchises generally are granted
for fixed terms and in many cases are terminable if we fail to comply with
material provisions. The terms and conditions of our franchises vary materially
from jurisdiction to jurisdiction. Each franchise generally contains provisions
governing: 23




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
    
    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; and
    
    territory of the franchise. 
 ITEM 1A. RISK FACTORS 
 Risks Related to our Business We have a history of net losses. We have a history of net losses. Although we reported net income of $11.0
million, $34.9 million and $10.1 million for the years ended December 31, 2005,
2004 and 2003 respectively, we reported a net loss of $27.2 million and $50.6
million for the year ended December 31, 2002 and for the period from April 5,
2001 through December 31, 2001, respectively. The principal reasons for our
prior net losses include the depreciation and amortization expenses associated
with our acquisitions and capital expenditures related to expanding and
upgrading our cable systems, and interest costs on borrowed money. If we are
unsuccessful in implementing our growth strategy, our business and results of operations could be adversely affected. We currently expect that a substantial portion of our future growth in
revenues will come from the expansion of relatively new services, the
introduction of additional new services, and, possibly, acquisitions.
Relatively new services include HSD, VOD, DVRs, HDTV and phone service. We may
not be able to successfully expand existing services due to unpredictable
technical, operational or regulatory challenges. It is also possible that these
services will not generate significant revenue growth. Our programming costs are increasing, and our business and results of
operations will be adversely affected if we cannot pass through a sufficient
part of the additional costs to video subscribers. In recent years, the cable and satellite video industries have experienced
a rapid increase in the cost of programming, particularly sports programming.
Increases in programming costs, our largest single expense item, are expected
to continue, and we may not be able to pass on all of these cost increases to
our video subscribers. In addition, as we add programming, we may not be able
to pass on all of the costs of this additional programming without the
potential loss of video subscribers. To the extent that we may not be able to
pass on increased programming costs, our business, financial condition and
results of operations could be adversely affected. We also expect to be subject to increasing financial and other demands by
broadcasters to obtain the required consents for the transmission of their
programming to our subscribers. We cannot predict the impact of these
negotiations on our business and results of operations or the effect on our
subscribers should we be required to suspend the carriage of this programming. 24




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We operate in a highly competitive business environment, which affects our
ability to attract and retain customers and can adversely affect our business
and operations. We have lost a significant number of video subscribers to
direct broadcast satellite competition, and further loss of video subscribers
could have a material negative impact on our business. The industry in which we operate is highly competitive and is often
subject to rapid and significant changes and developments in the marketplace
and in the regulatory and legislative environment. In some instances, we
compete against companies with fewer regulatory burdens, easier access to
financing, greater resources and operating capabilities, greater brand name
recognition and long-standing relationships with regulatory authorities and
customers. Our video business faces competition primarily from DBS providers. The two
largest DBS companies, DIRECTV, Inc. and EchoStar Communications, are each
among the four largest providers of multichannel video programming services
based on reported customers. In addition, DIRECTVs affiliation with News
Corporation could strengthen that companys competitive positioning, as News
Corporation also owns Fox Television Network and several cable programming
services. DBS has grown rapidly over the past several years and continues to do
so. We have lost a significant number of video subscribers to DBS competition,
and will continue to face significant challenges from DBS providers. Local telephone companies are capable of offering video and other services
in competition with us and they may increasingly do so in the future. Certain
telephone companies have begun to deploy fiber more extensively in their
networks, and some have begun to deploy broadband services, including video
services, and in certain cases avoiding the regulatory burdens imposed on us.
These deployments enable them to provide enhanced video, telephone and Internet
access services to consumers. New laws or regulations at the federal or state
level may clarify, modify or enhance the ability of the local telephone
companies to provide their services either without obtaining state or local
cable franchises or to obtain such franchises under terms and conditions more
favorable than those imposed on us. If local telephone companies are not
required to obtain comparable local franchises, our business, financial
condition and results of operations could be adversely affected. Certain telephone companies, together with DBS providers, have launched
bundled offerings of satellite delivered video service with phone, Internet and
wireless service delivered by the telephone companies. We face growing competition from municipal entities that construct
facilities and provide cable television, HSD, telephony and/or other related
services. In addition to hard-wired facilities, some municipal entities are
exploring building wireless networks to deliver these services. In Iowa, our
largest market, an organization named Opportunity Iowa began in early 2004 to
actively encourage Iowa municipalities to construct facilities that could be
used to provide services that compete with the services we offer. Referenda
were on the November 2005 ballot in thirty-two municipalities to authorize the
formation of a communications utility, a prerequisite to funding and
construction of facilities that may compete with ours. Referenda were
successfully passed in seventeen of those communities. In many of the
communities that passed a referendum, proponents and officials publicly stated
that a second vote would be taken prior to any actual construction or funding
of a competitive system, and only after a preliminary cost benefit analysis is
undertaken. Other Iowa communities may also hold elections to authorize the
creation of a telecommunications utility in their communities. Proponents or
officials in those communities may not take the same approach with regard to a
second vote before construction or funding or a cost-benefit analysis. 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 also have a material adverse effect on our business, financial
condition and results of operations. Competition in our HSD business primarily comes from telephone companies
and other providers of dial-up and DSL which already have telephone lines
into the household. DSL service is competitive with HSD service over cable
systems. In addition, certain DBS providers are currently offering two-way
broadband data access services, which compete with our ability to offer bundled
services to our customers. 25




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Our HSD business may also face competition in the future from registered
utility holding companies and subsidiaries. In 2004, the Federal Communications
Commission (FCC) adopted rules: (i) that affirmed the ability of electric
service providers to provide broadband Internet access services over their
distribution systems; and (ii) that seek to avoid interference with existing
services. Electric utilities could be formidable competitors to us. Some of our competitors, including franchised, wireless or private cable
operators, DBS providers and local exchange carriers, may benefit from
permanent or temporary business combinations such as mergers, joint ventures
and alliances and the potential repeal of certain ownership rules, either
through access to financing, resources or efficiencies of scale, or the ability
to provide multiple services in direct competition with us. Some of our present
or future competitors may have greater financial resources or, through their
affiliates, greater access to programming or other services, than we do. If we are unable to keep pace with technological change, our business and
results of operations could be adversely affected. Our industry is characterized by rapid technological change and the
introduction of new products and services. We cannot assure you that we will be
able to fund the capital expenditures necessary to keep pace with future
technological developments. We also cannot assure you that we will successfully
anticipate the demand of our customers for products and services requiring new
technology. This type of rapid technological change could adversely affect our
ability to maintain, expand or upgrade our systems and respond to competitive
pressures. An inability to keep pace with technological change and provide
advanced services in a timely manner, or to anticipate the demands of the
market place, could adversely affect our ability to compete and business,
financial condition and results of operations. Our phone service was launched in 2005, and consequently, we face new
risks and uncertainties as we began to scale this business. In June 2005, we launched Mediacom Phone in one of our smaller markets,
and by year-end 2005, our phone service was marketed to approximately 1.2
million of our total estimated 1.46 million homes. We have limited operating
experience with our phone service, and managing its growth may present
significant challenges for us. We may encounter difficulties introducing
Mediacom Phone in new markets or increasing the scale of markets already
launched. If our phone service is not sufficiently reliable or we otherwise
fail to meet customer expectations, our business could be adversely affected.
We face intense competition in offering phone service, primarily from local
telephone companies. We also depend on third parties for interconnection, call
switching, and other related services to operate Mediacom Phone. As a result,
the quality of our service may suffer if these third parties are not capable of
handling their responsibilities. We also expect to see changes in technology,
competition, and the regulatory and legislative environment that may affect our
phone business. Consequently, we are unable to predict the effect that current
or future developments in these areas might have on our phone business If our manager were to lose key personnel, our business would be adversely
effected. 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 maintain key man life insurance on Mr. Commisso or
other key personnel. We depend on our manager for the provision of essential management
functions. We do not have separate senior management and are dependent on our manager
for the operation of our business. Our manager also manages Mediacom LLCs
operating subsidiaries. Following our acquisitions of the AT&T cable systems,
the number of customers served by the cable systems managed by our manager
increased significantly and our manager continues to devote a significant
portion of its personnel and other resources to the management of Mediacom
LLCs cable systems. As a result, the attention of our managers senior
executive officers 26




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may be diverted from the management of our cable systems and the
allocation of resources between our cable systems and Mediacom LLCs cable
systems could give rise to conflicts of interest. The successful execution of our business strategy depends on the ability
of our manager to efficiently manage our cable systems. If our manager were to
experience any material adverse change in its business, the risks described in
this risk factor could intensify and our business, financial condition and
results of operations could be materially adversely affected. In addition, we
are also dependent on our manager to operate Mediacom LLCs cable systems
effectively in order to enable us to achieve operating synergies, such as the
joint purchasing of programming. Mediacom LLCs operating subsidiaries have
substantial indebtedness that, among other things, could make our manager more
vulnerable to economic downturns and to adverse developments in its business.
Although our manager charged management fees to our operating subsidiaries in
an amount equal to 2.0% of our gross operating revenues for the year ended
December 31, 2005, we cannot assure you that it will not exercise its right
under its management agreements with our operating subsidiaries to increase the
management fees, which under such agreements may not exceed 4.0% of each
subsidiarys gross operating revenues. The Chairman and Chief Executive Officer of our manager has the ability to
control all major decisions, and a sale of his stock in our manager could
result in a change of control that would have unpredictable effects. Rocco B. Commisso, the Chairman and Chief Executive Officer of our
manager, beneficially owned common stock of our manager representing
approximately 76.4% of the combined voting power of all of its common stock as
of December 31, 2005. As a result, Mr. Commisso generally has the ability to
control the outcome of all matters requiring approval by stockholders of our
manager, including the election of its entire board of directors, and Mr.
Commisso may be deemed to control our company. We cannot assure you that Mr. Commisso will maintain all or any portion of
his ownership in our manager or that he would continue as an officer or
director of our manager if he sold a significant part of his stock. The
disposition by Mr. Commisso of a sufficient number of his shares of our
managers stock could result in a change in control of our manager and of us,
and we cannot assure you that a change of control would not adversely affect
our business, financial condition or results of operations. In
addition, a change of control (as defined in our bank credit
facility) would result in a default under our bank credit facility. We may not be able to obtain critical items at a reasonable cost or when
required, which could adversely affect business, financial condition and
results of operations. We depend on third-party suppliers for equipment, software, services and
other items that are critical for the operation of our cable systems and the
provision of advanced services, including digital set-top converter boxes,
digital video recorders and routers, fiber-optic cable, telephone circuits,
software, the backbone telecommunications network for our high-speed data
service and construction services for expansion and upgrades of our cable
systems. In certain cases, these items are available from a limited number of
suppliers. Demand for these items has increased with the general growth in
demand for Internet and telecommunications services. We typically do not carry
significant inventories of equipment. Moreover, if there are no suppliers that
are able to provide set-top converter boxes that comply with evolving Internet
and telecommunications standards or that are compatible with other equipment
and software that we use, our business, financial condition and results of
operations could be materially adversely affected. If we are unable to obtain
critical equipment, software, communications or other services on a timely
basis and at an acceptable cost, our ability to offer our products and services
and roll out advanced services may be impaired, and our business, financial
condition and results of operations could be materially adversely affected. 27




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Risks Related to our Indebtedness and the Indebtedness of our Operating
Subsidiaries We are a holding company with no operations and we depend on our operating
subsidiaries for cash to fund our obligations. As a holding company, we do not have any operations or hold any assets
other than our investments in and our advances to our operating subsidiaries.
Consequently, our subsidiaries conduct all of our consolidated operations and
own substantially all of our consolidated assets. The only source of cash we
have to pay interest on, and repay the principal of, our indebtedness and to
meet our other obligations is the cash that our subsidiaries generate from
their operations and their borrowings. Our subsidiaries are not obligated to
make funds available to us. Our subsidiaries ability to make payments to us
will depend upon their operating results and will be subject to applicable laws
and contractual restrictions, including the agreements governing our subsidiary
credit facilities and other indebtedness. Those agreements permit our
subsidiaries to distribute cash to us under certain circumstances, but only so
long as there is no default under any of such agreements. We have substantial existing debt and have significant interest payment
requirements, which could adversely affect our ability to obtain financing in
the future and require our operating subsidiaries to apply a substantial
portion of their cash flow to debt service. Our total debt as of December 31, 2005 was approximately $1.42 billion.
Our interest expense for the year ended December 31, 2005 was $97.3 million.
We cannot assure you that our business will generate sufficient cash flows to
permit us, or our subsidiaries, to repay indebtedness or that refinancing of
that indebtedness will be possible on commercially reasonable terms or at all. This high level of debt and our debt service obligations could have
material consequences, including that:  
    
    our ability to access new sources of financing for working capital,
capital expenditures, acquisitions or other purposes may be limited;
    
    we may need to use a large portion of our revenues to pay interest
on borrowings under our subsidiary credit facilities and our senior
notes, which will reduce the amount of money available to finance our
operations, capital expenditures and other activities;
    
    some of our debt has a variable rate of interest, which may expose
us to the risk of increased interest rates;
    
    we may be more vulnerable to economic downturns and adverse
developments in our business;
    
    we may be less flexible in responding to changing business and
economic conditions, including increased competition and demand for new
products and services;
    
    we may be at a disadvantage when compared to those of our competitors that have less debt; and
    
    we may not be able to fully implement our business strategy. A default under our indenture or our subsidiary credit facilities could
result in an acceleration of our indebtedness and other material adverse
effects. The agreements and instruments governing our own and our subsidiaries
indebtedness contain numerous financial and operating covenants. The breach of
any of these covenants could cause a default, which could result in the
indebtedness becoming immediately due and payable. If this were to occur, we
would be unable to adequately finance our operations. In addition, a default
could result in a default or acceleration of our other indebtedness subject to
cross-default provisions. If this occurs, we may not be able to pay our debts
or borrow sufficient funds to refinance them. Even if new financing is
available, it may not be on terms that are acceptable to us. The membership
interests of our operating subsidiaries are pledged as collateral under our
subsidiary credit facility. A default under one of our subsidiary credit
facilities could result in a foreclosure by the lenders on the membership 28




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interests pledged under that facility. Because we are dependent upon our
operating subsidiaries for all of our revenues, a foreclosure would have a
material adverse effect on our business, financial condition and results of
operations. The terms of our indebtedness could materially limit our financial and
operating flexibility. Several of the covenants contained in the agreements and instruments
governing our own and our subsidiaries indebtedness could materially limit our
financial and operating flexibility by restricting, among other things, our
ability and the ability of our operating subsidiaries to:  
    
    incur additional indebtedness;
    
    create liens and other encumbrances;
    
    pay dividends and make other payments, investments, loans and guarantees;
    
    enter into transactions with related parties;
    
    sell or otherwise dispose of assets and merge or consolidate with another entity;
    
    repurchase or redeem capital stock, other equity interests or debt;
    
    pledge assets; and
    
    issue capital stock or other equity interests. Complying with these covenants could cause us to take actions that we
otherwise would not take or cause us not to take actions that we otherwise
would take. We may not be able to obtain additional capital to continue the
development of our business. We have invested substantial capital for the upgrade, expansion and
maintenance of our cable systems and the launch and expansion of new or
additional products and services. While we have completed our planned system
upgrades, if there is accelerated growth in our video, HSD and voice products
and services, or we decide to introduce other new advanced products and
services, or the cost to provide these products and services increases, we may
need to make unplanned additional capital expenditures. We may not be able to
obtain the funds necessary to finance additional capital requirements through
internally generated funds, additional borrowings or other sources. If we are
unable to obtain these funds, we would not be able to implement our business
strategy and our results of operations would be adversely affected. 
 Risks Related to Legislative and Regulatory Matters Changes in cable television regulations could adversely impact our business. The cable television industry is subject to extensive legislation and
regulation at the federal and local levels, and, in some instances, at the
state level. Many aspects of such regulation are currently the subject of
judicial and administrative proceedings and legislative and administrative
proposals, and lobbying efforts by us and our competitors. We expect that court
actions and regulatory proceedings will continue to refine our rights and
obligations under applicable federal, state and local laws. The results of
these judicial and administrative proceedings and legislative activities may
materially affect our business operations. Local authorities grant us non-exclusive franchises that permit us to
operate our cable systems. We renew or renegotiate these franchises from time
to time. Local franchising authorities may demand concessions, or other
commitments, as a condition to renewal, and these concessions or other
commitments could be costly. The Cable Communications Policy Act of 1984
(Communications Act) contains renewal procedures and criteria designed to 29




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protect incumbent franchisees against arbitrary denials of renewal, and
although such Act requires the local franchising authorities to take into
account the costs of meeting such concessions or commitments, there is no
assurance that we will not be compelled to meet their demands in order to
obtain renewals. We cannot predict whether any of the markets in which we
operate will expand the regulation of our cable systems in the future or the
impact that any such expanded regulation may have upon our business. Similarly, due to the increasing popularity and use of commercial online
services and the Internet, certain aspects have become subject to regulation at
the federal and state level such as collection of information online from
children, disclosure of certain subscriber information to governmental
agencies, commercial emails or spam, privacy, security and distribution of
material in violation of copyrights. In addition to the possibility that
additional federal laws and regulations may be adopted with respect to
commercial online services and the Internet, several individual states have
imposed such restrictions and others may also impose similar restrictions,
potentially creating an intricate patchwork of laws and regulations. Future
federal and/or state laws may cover such issues as privacy, access to some
types of content by minors, pricing, encryption standards, consumer protection,
electronic commerce, taxation of e-commerce, copyright infringement and other
intellectual property matters. Recently, many states in which we operate have
enacted laws requiring us to notify customers in the event that certain
customer information is accessed or believed to have been accessed without
authorization. The adoption of such laws or regulations in the future may
decrease the growth of such services and the Internet, which could in turn
decrease the demand for our cable modem service, increase our costs of
providing such service or have other adverse effects on our business, financial
condition and results of operations. Such laws or regulations may also require
disclosure of failures of our procedures or breaches to our system by third
parties, which can increase the likelihood of claims against us by affected
subscribers. Changes in channel carriage regulations could impose significant additional
costs on us. Cable operators face significant regulation of their channel carriage.
Currently, they can be required to devote substantial capacity to the carriage
of programming that they might not carry voluntarily, including certain local
broadcast signals, local public, educational and government access programming,
and unaffiliated commercial leased access programming. If the FCC or Congress
were to require cable systems to carry both the analog and digital versions of
local broadcast signals or to carry multiple program streams included with a
single digital broadcast transmission, this carriage burden would increase
substantially. Recently, the FCC reaffirmed that cable operators need only
carry one programming service of each television broadcaster to fulfill its
must-carry obligation, however, changes in the composition of the FCC as well
as proposals currently under consideration could result in an obligation to
carry both the analog and digital version of local broadcast stations and/or to
carry multiple digital program streams. Further, this decision has been
appealed to the D.C. Circuit Court of Appeals. Reversing the findings of a November 2004 report, the FCC released a
report in February 2006, finding that consumers could benefit under certain a
la carte models for delivery of video programming. The report did not
specifically recommend or propose the adoption of any specific rules by the FCC
and it did not endorse a pure a la carte model where subscribers could purchase
specific channels without restriction. Instead, it favored tiers plus
individual channels or smaller theme-based tiers. Shortly after release of the
report, the FCC voted to seek additional information as to whether cable
systems with at least 36 channels are available to at least 70 percent of U.S.
Homes and whether 70 percent of households served by those systems subscribe.
If so, the FCC may have discretion under the Cable Act to promulgate additional
rules necessary to promote diversity of information sources. The FCC did not
specify what rules it would seek to promulgate, however, the Chairman of the
FCC has expressed support for family-friendly tiers of programming and
availability of programming on an a la carte basis. Certain cable operators
have responded by creating family-friendly programming tiers. It is not
certain whether those efforts will ultimately be regarded as a sufficient
response. Congress may also consider legislation regarding programming
packaging, bundling or a-la-carte delivery of programming. Any such
requirements could fundamentally change the way in which we package and price
our services. We cannot predict the outcome of any current or future FCC
proceedings or legislation in this area, or the impact of such proceedings on
our business at this time. Recently, the FCC imposed reciprocal good faith retransmission consent
negotiation obligations on cable operators and broadcasters. These rules
identify seven types of conduct that would constitute per seviolations of
the new requirements. Thus, even though we may have no interest in carrying a
particular broadcasters programming, we may be required under the new rules to
engage in negotiations within the parameters of the FCCs 30




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rules. While noting that the parties in retransmission consent
negotiations were now subject to a heightened duty of negotiation, the FCC
emphasized that failure to ultimately reach an agreement is not a violation of
the rules. The impact of these rules on our business cannot be determined at
this time. Our franchises are non-exclusive and local franchising authorities may
grant competing franchises in our markets, which could adversely affect our
business. Our cable systems are operated under non-exclusive franchises granted by
local franchising authorities. As a result, competing operators of cable
systems and other potential competitors, such as municipal utility providers,
may be granted franchises and may build cable systems in markets where we hold
franchises. Some may not require local franchises at all, such as certain
municipal utility providers. Any such competition could adversely affect our
business. The existence of multiple cable systems in the same geographic area
is generally referred to as an overbuild. As of December 31, 2005,
approximately 15.9% of the estimated homes passed by our cable systems were
overbuilt by other cable operators. We cannot assure you that competition from
overbuilders will not develop in other markets that we now serve or will serve
after any future acquisitions. Legislation was recently passed in three states and similar legislation is
pending, or has been proposed in certain other states and in Congress, to allow
local telephone companies to deliver services in competition with our cable
service without obtaining equivalent local franchises. Such a legislatively
granted advantage to our competitors could adversely affect our business. The
effect of such initiatives, if any, on our obligation to obtain local
franchises in the future or on any of our existing franchises, many of which
have years remaining in their terms, cannot be predicted. The FCC recently issued a Notice of Proposed Rulemaking seeking comment on
whether the current local franchising process constitutes an impediment to
widespread issuance of franchises to competitive cable providers in terms of
the sheer number of franchising authorities, the impact of state-level
franchising authorities, the burdens some local franchising authorities seek to
impose as conditions of granting franchises and whether state level-playing
field statutes also create barriers to entry. We cannot determine the outcome
of any potential new rules on our business; however, any change that would
lessen the local franchising burdens and requirements imposed on our
competitors relative to those that are or have been imposed on us could harm
our business. Pending FCC
and court proceedings could adversely affect our HSD service. The legal and regulatory status of providing high-speed Internet access
service by cable television companies is uncertain. Although the United States
Supreme Court recently held that cable modem service was properly classified by
the FCC as an information service, freeing it from regulation as a
telecommunications service, it recognized that the FCC has jurisdiction to
impose regulatory obligations on facilities based Internet Service Providers.
The FCC has an ongoing rulemaking to determine whether to impose regulatory
obligations on such providers, including us. The FCC has issued a declaratory
ruling that cable modem service, as it is currently offered, is properly
classified as an interstate information service that is not subject to common
carrier regulation. However, the FCC is still considering the following:
whether to require cable companies to provide capacity on their systems to
other entities to deliver high-speed Internet directly to customers, also known
as open access; whether certain other regulatory requirements do or should
apply to cable modem service; and whether and to what extent cable modem
service should be subject to local franchise authorities regulatory
requirements or franchise fees. The adoption of new rules by the FCC could
place additional costs and regulatory burdens on us, reduce our anticipated
revenues or increase our anticipated costs for this service, complicate the
franchise renewal process, result in greater competition or otherwise adversely
affect our business. While we cannot predict the outcome of this proceeding, we
do note that the FCC recently removed the requirement that telecommunications
carriers provide access to competitors to resell their DSL Internet access
service citing the need for competitive parity with cable modem service which
has no similar access requirement. We may be subject to legal liability because of the acts of our HSD
customers or because of our own negligence. Our HSD service enables individuals to access the Internet and to exchange
information, generate content, conduct business and engage in various online
activities on an international basis. The law relating to the liability of 31




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providers of these online services for activities of their users is
currently unsettled both within the United States and abroad. Potentially,
third parties could seek to hold us liable for the actions and omissions of our
cable modem service customers, such as defamation, negligence, copyright or
trademark infringement, fraud or other theories based on the nature and content
of information that our customers use our service to post, download or
distribute. We also could be subject to similar claims based on the content of
other Websites to which we provide links or third-party products, services or
content that we may offer through our Internet service. Due to the global
nature of the Web, it is possible that the governments of other states and
foreign countries might attempt to regulate its transmissions or prosecute us
for violations of their laws. It is also possible that information provided directly by us will contain
errors or otherwise be negligently provided to users, resulting in third
parties making claims against us. For example, we offer Web-based email
services, which expose us to potential risks, such as liabilities or claims
resulting from unsolicited email, lost or misdirected messages, illegal or
fraudulent use of email, or interruptions or delays in email service.
Additionally, we host website portal pages designed for use as a home page
by, but not limited to, our HSD customers. These portal pages offer a wide
variety of content from us and third parties which could contain errors or
other material that could give rise to liability. To date, we have not been served notice that such a claim has been filed
against us. However, in the future someone may serve such a claim on us in
either a domestic or international jurisdiction and may succeed in imposing
liability on us. Our defense of any such actions could be costly and involve
significant distraction of our management and other resources. If we are held
or threatened with significant liability, we may decide to take actions to
reduce our exposure to this type of liability. This may require us to spend
significant amounts of money for new equipment and may also require us to
discontinue offering some features or our cable modem service. Since we launched our proprietary Mediacom Online service in February
2002, from time to time, we receive notices of claimed infringements by our
cable modem service users. The owners of copyrights and trademarks have been
increasingly active in seeking to prevent use of the Internet to violate their
rights. In many cases, their claims of infringement are based on the acts of
customers of an Internet service providerfor example, a customers use of an
Internet service or the resources it provides to post, download or disseminate
copyrighted music, movies, software or other content without the consent of the
copyright owner or to seek to profit from the use of the goodwill associated
with another persons trademark. In some cases, copyright and trademark owners
have sought to recover damages from the Internet service provider, as well as
or instead of the customer. The law relating to the potential liability of
Internet service providers in these circumstances is unsettled. In 1996,
Congress adopted the Digital Millennium Copyright Act, which is intended to
grant ISPs protection against certain claims of copyright infringement
resulting from the actions of customers, provided that the ISP complies with
certain requirements. So far, Congress has not adopted similar protections for
trademark infringement claims. We may be required to provide access to our networks to other Internet
service providers, which could significantly increase our competition and
adversely affect our ability to provide new products and services. Local authorities and the FCC have been asked to require cable operators
to provide nondiscriminatory access over their cable systems to other Internet
service providers. The recent decision by the United State Supreme Court
upholding the FCCs classification of cable modem service as an information
service may effectively forestall efforts by competitors to obtain access to
the networks of cable operators to provide Internet access services. As noted
above, however, the FCC continues to have jurisdiction over this issue and a
rulemaking initiated prior to the Supreme Courts decision remains ongoing.
While we cannot predict the outcome of this proceeding, we do note that the FCC
recently removed the requirement that telecommunications carriers provide
access to competitors to resell their DSL internet access service citing the
need for competitive parity with cable modem service which has no similar
access requirement. If we are required to provide access in this manner, it
could have a significant adverse impact on our business, financial condition
and results of operations, including by: (i) increasing competition; (ii)
increasing the expenses we incur to maintain our systems; and/or (iii)
increasing the expense of upgrading and/or expanding our systems. 32




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We may become subject to additional regulatory burdens when we offer cable
telephony service. The regulatory treatment of VoIP services like those we and others offer
remains uncertain. The FCC, Congress, the courts and the states continue to
look at issues surrounding the provision of VoIP, including whether this
service is properly classified as a telecommunications service or an
information service. The FCCs decision to classify VoIP as an information
service should eliminate much if not all local regulation of the service and
should limit federal regulation to consumer protection, as opposed to economic
issues. For example, on the federal level, the FCC recently required providers
of interconnected VoIP services, such as ours, to file a letter with the FCC
certifying compliance with certain E-911 functionality. Disputes have also
arisen with respect to the rights of VoIP providers and their
telecommunications provider partners to obtain interconnection and other rights
under the Act from incumbent telephone companies. We cannot predict how these
issues will be resolved, but uncertainties in the existing law as it applies to
VoIP or any determination that results in greater or different regulatory
obligations than competing services would result in increased costs, reduce
anticipated revenues and impede our ability to effectively compete or otherwise
adversely affect our ability to successfully roll-out and conduct our telephony
business. Actions by pole owners might subject us to significantly increased pole
attachment costs. Our cable facilities are often attached to or use public utility poles,
ducts or conduits. Historically, cable system attachments to public utility
poles have been regulated at the federal or state level. Generally this
regulation resulted in favorable pole attachment rates for cable operators. The
FCC clarified that the provision of Internet access does not endanger a cable
operators favorable pole rates; this approach ultimately was upheld by the
Supreme Court of the United States. That ruling, coupled with the recent
Supreme Court decision upholding the FCCs classification of cable modem
service as an information service, should strengthen our ability to resist such
rate increases based solely on the delivery of cable modem services over our
cable systems. As we continue our deployment of cable telephony and certain
other advanced services, utilities may continue to invoke higher rates. A
formal hearing is currently before the FCC in which Alabama Power is attempting
to demonstrate that pole attachment rates above its marginal costs meet the
just compensation test approved by the United States Court of Appeals for the
11th Circuit which would allow it to ask for and receive rates from cable
operators over and above the rates set by FCC regulation. If successful,
Alabama Power and perhaps all utilities in areas served by us may have a
similar claim thereby increasing their ability to raise rates. Our business, financial condition and results of operations could suffer a
material adverse impact from any significant increased costs, and such
increased pole attachment costs could discourage system upgrades and the
introduction of new products and services. Changes in compulsory copyright regulations might significantly increase our
license fees. Filed petitions for rulemaking with the United States Copyright Office
propose revisions to certain compulsory copyright license reporting
requirements and seek clarification of certain issues relating to the
application of the compulsory license to the carriage of digital broadcast
stations. The petitions seek, among other things: (i) clarification of the
inclusion in gross revenues of digital converter fees, additional set fees for
digital service and revenue from required buy throughs to obtain digital
service; (ii) reporting of dual carriage and multicast signals; (iii)
revisions to the Copyright Offices rules and Statement of Account forms,
including increased detail regarding services, rates and subscribers,
additional information regarding non-broadcast tiers of service, cable headend
location information, community definition clarification and identification of
the county in which the cable community is located and the effect of interest
payments on potential liability for late filing; and (iv) payment for certain
distant signals in communicates where the signal is not carried, dubbed
phantom signals. The Copyright Office may open one or more rulemakings in
response to these petitions. We cannot predict the outcome of any such
rulemakings; however, it is possible that certain changes in the rules or
copyright compulsory license fee computations could have an adverse affect on
our business, financial condition and results of operations by increasing our
copyright compulsory license fee costs or by causing us to reduce or
discontinue carriage of certain broadcast signals that we currently carry on a
discretionary basis. 
 ITEM 1B. UNRESOLVED STAFF COMMENTS None. 33




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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 We are involved in various legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on our consolidated financial
position, operations or cash flows. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2005. 
 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. 34




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA We were organized for the purpose of acquiring cable systems from AT&T
Broadband, LLC in 2001. In the table below, we provide you with:  
    
    selected historical financial data for the period
January 1, 2001
through July 18, 2001,
which are derived from the audited financial statements of Mediacom
Systems (Predecessor Company) (except operational data); and
    
    selected historical consolidated financial and operating data for
the period from our inception on April 5, 2001 through December 31,
2005 and balance sheet data as of December 31, 2001 through 2005, which
are derived from our audited consolidated financial statements (except
operational data).See Managements Discussion and Analysis of Financial Condition and Results of
Operations. PredecessorMediacom Broadband LLC
    
    
    
    CompanyInception (April
    
    

    Period from5, 2001)
    
    

    January 1Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    through
    
    

    throughDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,
    
    

    July 18,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    

    2001(dollars in thousands)(unaudited)Statement of Operations Data:Revenues
    
    $
    613,116
    
    
    $
    585,039
    
    
    $
    552,342
    
    
    $
    512,792
    
    
    $
    215,900
    
    

    $
    249,238Costs and expenses:Service costs
    
    
    239,199
    
    
    
    225,764
    
    
    
    215,310
    
    
    
    207,053
    
    
    
    89,006
    
    

    
    117,205Selling, general and administrative
expenses
    
    
    138,201
    
    
    
    126,575
    
    
    
    118,918
    
    
    
    105,407
    
    
    
    42,442
    
    

    
    42,449Management
fee
expense (1)
    
    
    12,239
    
    
    
    10,585
    
    
    
    9,322
    
    
    
    6,967
    
    
    
    2,875
    
    

    
    18,625Depreciation and
amortization
    
    
    115,314
    
    
    
    107,592
    
    
    
    113,007
    
    
    
    123,704
    
    
    
    88,463
    
    

    
    83,610Restructuring charge (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    570Operating income (loss)
    
    
    108,163
    
    
    
    114,523
    
    
    
    95,785
    
    
    
    69,661
    
    
    
    (6,886
    )
    

    
    (13,221
    )Interest expense, net (3)
    
    
    (97,282
    )
    
    
    (86,125
    )
    
    
    (82,536
    )
    
    
    (76,790
    )
    
    
    (41,430
    )
    

    
    Gain (loss) on derivative
instruments, net
    
    
    6,638
    
    
    
    10,929
    
    
    
    2,807
    
    
    
    (15,049
    )
    
    
    
    
    

    
    Other expense
    
    
    (6,516
    )
    
    
    (4,475
    )
    
    
    (5,974
    )
    
    
    (5,066
    )
    
    
    (2,270
    )
    

    
    Gain on disposition of assets (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    5,183Net income (loss) before
income taxes
    
    
    11,003
    
    
    
    34,852
    
    
    
    10,082
    
    
    
    (27,244
    )
    
    
    (50,586
    )
    

    
    (8,038
    )Provision
(benefit) for income
taxes (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    (3,546
    )Net income (loss)
    
    $
    11,003
    
    
    $
    34,852
    
    
    $
    10,082
    
    
    $
    (27,244
    )
    
    $
    (50,586
    )
    

    $
    (4,492
    )Balance Sheet Data (end of period):Total assets
    
    $
    2,285,055
    
    
    $
    2,258,245
    
    
    $
    2,287,784
    
    
    $
    2,281,948
    
    
    $
    2,234,091
    
    

    
    Total debt
    
    
    1,418,370
    
    
    
    1,363,955
    
    
    
    1,354,668
    
    
    
    1,298,000
    
    
    
    1,200,000
    
    

    
    Total members equity
    
    
    564,614
    
    
    
    595,157
    
    
    
    589,016
    
    
    
    610,522
    
    
    
    666,294
    
    

    
     (continued on next
page) 35




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PredecessorMediacom Broadband LLC
    
    
    
    
    
    
    CompanyInception (April 5,
    
    
    
    
    
    
    Period from2001)
    
    
    
    
    
    
    January 1Year Ended
    
    
    
    
    
    
    Year Ended
    
    
    Year Ended
    
    
    
    
    
    
    Year Ended
    
    
    
    
    
    
    through
    
    
    
    
    
    
    ThroughDecember 31,
    
    
    
    
    
    
    December 31,
    
    
    December 31,
    
    
    
    
    
    
    December 31,
    
    
    
    
    
    
    December 31,
    
    
    
    
    
    
    July 18,2005
    
    
    
    
    
    
    2004
    
    
    2003
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    2001
    
    
    
    
    
    
    2001(dollars in thousands)(unaudited)Other Data:Operating income before depreciation and amortization (6)
    
    $
    223,477
    
    
    
    
    
    
    $
    222,115
    
    
    $
    208,792
    
    
    
    
    
    
    $
    193,365
    
    
    
    
    
    
    $
    81,577
    
    
    
    
    
    
    $
    70,389OIBDA
margin (7)
    
    
    36.4
    %
    
    
    
    
    
    
    38.0
    %
    
    
    37.8
    %
    
    
    
    
    
    
    37.7
    %
    
    
    
    
    
    
    37.8
    %
    
    
    
    
    
    
    28.2
    %Ratio of earnings to fixed charges
    
    
    
    (8
    )
    
    
    
    
    
    1.15
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )
    
    
    
    
    NAand preferred dividendsNet cash flows provided by (used in):Operating activities
    
    $
    105,038
    
    
    
    
    
    
    $
    106,304
    
    
    $
    96,627
    
    
    
    
    
    
    $
    125,059
    
    
    
    
    
    
    $
    161,651
    
    
    
    
    
    
    $
    (34,278
    )Investing activities
    
    
    (108,100
    )
    
    
    
    
    
    
    (85,394
    )
    
    
    (116,613
    )
    
    
    
    
    
    
    (239,310
    )
    
    
    
    
    
    
    (2,151,583
    )
    
    
    
    
    
    
    (34,682
    )Financing activities
    
    
    1,074
    
    
    
    
    
    
    
    (21,159
    )
    
    
    19,058
    
    
    
    
    
    
    
    68,980
    
    
    
    
    
    
    
    2,045,510
    
    
    
    
    
    
    
    47,806Operating Data (end of period):Estimated
homes
passed (9)
    
    
    1,460,000
    
    
    
    
    
    
    
    1,456,000
    
    
    
    1,472,500
    
    
    
    
    
    
    
    1,463,000
    
    
    
    
    
    
    
    1,430,000
    
    
    
    
    
    
    
    Basic
subscribers (10)
    
    
    773,000
    
    
    
    
    
    
    
    783,000
    
    
    
    819,300
    
    
    
    
    
    
    
    840,000
    
    
    
    
    
    
    
    824,000
    
    
    
    
    
    
    
    Digital
customers (11)
    
    
    289,000
    
    
    
    
    
    
    
    236,000
    
    
    
    231,600
    
    
    
    
    
    
    
    238,000
    
    
    
    
    
    
    
    233,000
    
    
    
    
    
    
    
    Data
customers (12)
    
    
    266,000
    
    
    
    
    
    
    
    205,000
    
    
    
    157,800
    
    
    
    
    
    
    
    110,000
    
    
    
    
    
    
    
    77,000
    
    
    
    
    
    
    
    Phone
customers (13)
    
    
    17,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
       (1)
    
    For all periods presented prior to our inception on April 5, 2001,
management fees were paid to AT&T Broadband, LLC. Upon our acquisition of
our cable systems, in June and July of 2001, from AT&T Broadband, LLC,
Mediacom Communications Corporation replaced AT&T Broadband as manager and
AT&T Broadband was no longer entitled to receive management fees from our
cable systems.(2)
    
    As part of a cost reduction plan undertaken by our predecessor company in
2001, approximately 63 employees were terminated, resulting in a
restructuring charge of approximately $570,000. The entire charge was
paid in cash by our Predecessor Company.(3)
    
    For all periods presented prior to our inception on April 5, 2001, our
cable systems operated as fully integrated businesses of AT&T Broadband
and no debt or interest expense was allocated to these operations.(4)
    
    Represents the gain on disposition from the sale of the Missouri systems
to Mediacom Broadband LLC on June 29, 2001 for cash proceeds of
approximately $308.1 million, before final closing adjustments.(5)
    
    Provision (benefit) for income taxes in Predecessor Company combined
financial statements were based upon the AT&T cable systems contribution
to the overall tax liability or benefit of AT&T Corp. and its affiliates.
Under our ownership, these cable systems are organized as limited
liability companies and are subject to minimum income taxes.(6)
    
    Operating income before depreciation and amortization (OIBDA) is not a
financial measure calculated in accordance with generally accepted
accounting principles (GAAP) in the United States of America. However,
OIBDA is one of the primary measures used by management to evaluate our
performance and to forecast future results. We believe OIBDA is useful for
investors because it enables them to assess our
performance in a manner similar to the method used by management, and
provides a measure that can be used to analyze, value and compare the
companies in the cable television industry, which may have different
depreciation and amortization policies. A limitation of this measure,
however, is that it excludes depreciation and amortization, which represents
the periodic costs of certain capitalized tangible and intangible assets
used in generating revenues in our business. Management utilizes a separate
process to budget, measure and evaluate capital expenditures. 36




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##### Table of Contents



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 OIBDA to operating income
(loss), which is the most directly comparable GAAP measure (dollars in
thousands): PredecessorMediacom Broadband LLC
    
    
    
    CompanyInception(April 5,2001)
    
    
    
    Period fromYear Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    through
    
    
    
    January 1December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December
    
    
    
    Through2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    31, 2001
    
    
    
    July 18, 2001(unaudited)OIBDA
    
    $
    223,477
    
    
    $
    222,115
    
    
    $
    208,792
    
    
    $
    193,365
    
    
    $
    81,577
    
    
    
    $
    70,389Depreciation and amortization
    
    
    (115,314
    )
    
    
    (107,592
    )
    
    
    (113,007
    )
    
    
    (123,704
    )
    
    
    (88,463
    )
    
    
    
    (83,610
    )Operating income (loss)
    
    $
    108,163
    
    
    $
    114,523
    
    
    $
    95,785
    
    
    $
    69,661
    
    
    $
    (6,886
    )
    
    
    $
    (13,221
    )
   (7)
    
    Represents OIBDA as a percentage of revenue. See Note 6 above.(8)
    
    Earnings were insufficient to cover fixed charges by $7.7 million, $10.8
million, $49.2 million and $59.0 million for the years ended December 31,
2005, 2003, 2002 and interception through December 31, 2001, respectively.
Refer to exhibit 12.1.(9)
    
    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.(10)
    
    Represents a dwelling with one or more television sets that receives a
package of over-the-air broadcast stations, local access channels or
certain satellite-delivered cable television services. Accounts that are
billed on a bulk basis, which typically receive discounted rates, are
converted into full-price equivalent basic subscribers by dividing total
bulk billed basic revenues of a particular system by the average cable
rate charged to basic subscribers in that system. Basic subscribers
include connections to schools, libraries, local government offices and
employee households that may not be charged for limited and expanded cable
services, but may be charged for digital cable, VOD, HDTV, DVR or
high-speed Internet service. Customers who exclusively purchase high-speed
Internet or phone service are not counted as basic subscribers. Our
methodology of calculating the number of basic subscribers may not be
identical to those used by other companies offering similar services.(11)
    
    Represents customers that receive digital cable services.(12)
    
    Represents residential HSD customers and small to medium-sized commercial
cable modem accounts billed at higher rates than residential customers.
Small to medium-sized commercial accounts generally represent customers
with bandwidth requirements of up to 5Mbps. These commercial accounts are
converted to equivalent residential data customers by dividing their
associated revenues by the applicable residential rate. Our data customers
exclude large commercial accounts and include an insignificant number of
dial-up customers. Our
methodology of calculating data customers may not be identical to those used
by other companies offering similar services.(13)
    
    Represents customers that receive phone service. 37




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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, 2005, 2004, and
2003. Overview We are a wholly-owned subsidiary of Mediacom Communications Corporation
(MCC). Through our interactive broadband network, we provide our customers
with a wide array of broadband products and services, including analog and
digital video services, such as VOD, HDTV and DVRs, HSD and phone service.
Where our phone service is available, we offer triple-play bundles of video,
HSD and voice. Bundled products and services offer our customers a single
provider contact for ordering, provisioning, billing and customer care. As of December 31, 2005, our cable systems passed an estimated 1.46
million homes and served 773,000 basic subscribers. We provide digital video
services to 289,000 digital customers and HSD service to 266,000 customers,
representing a digital penetration of 37.4% of our basic subscribers and a data
penetration of 18.2% of our estimated homes passed respectively. We introduced
phone service during the second quarter of 2005 and provided service to 17,500
customers as of December 31, 2005. We have faced increasing levels of competition for our video programming
services over the past few years, mostly from DBS providers. Since they have
been permitted to deliver local television broadcast signals beginning in 1999,
DIRECTV, Inc. and Echostar Communications Corporation, the two largest DBS
providers, have been increasing the number of markets in which they deliver
these local television signals. These local-into-local launches have been the
primary cause of our loss of basic subscribers in recent years. As of December
31, 2005, competitive local-into-local services in our markets covered an
estimated 92% of our basic subscribers. 38




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##### Table of Contents



Results of Operations Year Ended December 31, 2005 Compared to Year Ended December 31, 2004 The following table sets forth the consolidated statement of operations
for the years ended December 31, 2005 and 2004 (dollars in thousands and
percentage changes that are not meaningful are marked NM): Year Ended December 31,2005
    
    
    2004
    
    
    $ Change
    
    
    % ChangeRevenues
    
    $
    613,116
    
    
    $
    585,039
    
    
    $
    28,077
    
    
    
    4.8
    %Costs and expenses:Service costs
    
    
    239,199
    
    
    
    222,752
    
    
    
    16,447
    
    
    
    7.4
    %Selling, general and administrative
expenses
    
    
    138,201
    
    
    
    129,587
    
    
    
    8,614
    
    
    
    6.6
    %Management fee expense
    
    
    12,239
    
    
    
    10,585
    
    
    
    1,654
    
    
    
    15.6
    %Depreciation and amortization
    
    
    115,314
    
    
    
    107,592
    
    
    
    7,722
    
    
    
    7.2
    %Operating income
    
    
    108,163
    
    
    
    114,523
    
    
    
    (6,360
    )
    
    
    (5.6
    %)Interest expense, net
    
    
    (97,282
    )
    
    
    (86,125
    )
    
    
    (11,157
    )
    
    
    13.0
    %Gain on derivatives, net
    
    
    6,638
    
    
    
    10,929
    
    
    
    (4,291
    )
    
    NMOther expense
    
    
    (6,516
    )
    
    
    (4,475
    )
    
    
    (2,041
    )
    
    
    45.6
    %Net income
    
    $
    11,003
    
    
    $
    34,852
    
    
    $
    (23,849
    )
    
    
    (68.4
    %)Revenues

     The following table sets forth revenue, subscriber and monthly average
revenue statistics for the years ended December 31, 2005 and 2004 (dollars in
thousands, except per subscriber data):Year Ended December 31,2005
    
    
    2004
    
    
    $ Change
    
    
    % ChangeVideo
    
    $
    465,636
    
    
    $
    457,513
    
    
    $
    8,123
    
    
    
    1.8
    %Data
    
    
    108,260
    
    
    
    88,060
    
    
    
    20,200
    
    
    
    22.9
    %Advertising
    
    
    38,446
    
    
    
    39,466
    
    
    
    (1,020
    )
    
    
    (2.6
    %)Telephone
    
    
    774
    
    
    
    
    
    
    
    774
    
    
    NM$
    613,116
    
    
    $
    585,039
    
    
    $
    28,077
    
    
    
    4.8
    %Year
Ended December 31,2005
    
    
    2004
    
    
    Increase/(Decrease)Basic subscribers
    
    
    773,000
    
    
    
    783,000
    
    
    
    (10,000
    )
    
    
    (1.3
    %)Data customers
    
    
    266,000
    
    
    
    205,000
    
    
    
    61,000
    
    
    
    29.8
    %Phone customers
    
    
    17,500
    
    
    
    
    
    
    
    17,500
    
    
    NMAverage
monthly video revenue per basic subscriber
(1)
    
    $
    49.76
    
    
    $
    48.09
    
    
    $
    1.67
    
    
    
    3.5
    %Average
monthly data revenue per data subscriber (2)
    
    $
    37.30
    
    
    $
    39.55
    
    
    $
    (2.25
    )
    
    
    (5.7
    %) 
 (1)
    
    Average monthly video revenue per basic subscriber is calculated based on
monthly revenue divided by the average number of basic subscribers for each of
the twelve months.(2)
    
    Average monthly date revenue per data subscriber is calculated based on
monthly data revenue divided by the average number of data subscribers for each
of the twelve months. 39




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##### Table of Contents



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 fees. Franchise fees charged to customers for
payment to local franchising authorities are included in their corresponding
revenue category. Revenues rose 4.8%, largely attributable to an increase in data revenues
and video revenues. To strengthen our competitiveness, we increased our
emphasis on product bundling and on enhancing and differentiating our video
products and services with new digital packages, VOD, HDTV, DVRs and more local
programming. During 2005, we also extended the discount periods of our
promotional campaigns for digital and data services from three to six months to
six and twelve months. This impacted the growth of our video and data
revenues. Video revenues increased 1.8% as a result of higher fees from our advanced
video products and services and the impact of basic rate increases, offset in
part by a decline in basic subscribers. Our loss of basic subscribers
decreased significantly during 2005, with a loss of 10,000, compared to a loss
of 36,000 in 2004. The loss of basic subscribers resulted primarily from
continuing competitive pressures by other video providers. The average monthly
video revenue per basic subscriber increased 3.5% year over year. Digital
customers increased 22.5% to 289,000 from 236,000 a year ago. Data revenues rose 22.9%, primarily due to the 29.8% year-over-year
increase in data customers. Average monthly data revenue per data customer
decreased 5.7% as a result of promotional offers during 2005. Advertising revenues decreased 2.6%, and reflected the anticipated decline
in political advertising revenues compared to the 2004 election year. In June 2005, we launched Mediacom Phone in one of our smaller markets,
and as of December 31, 2005, our phone service was marketed to 1.2 million of
our total estimated 1.4 million homes and served 17,500 customers. We expect
to market Mediacom Phone to nearly all our homes by year-end 2006. Costs and Expenses Service costs include: fees paid to programming suppliers; expenses
related to wages and salaries of technical personnel who maintain our cable
network and perform customer installation activities; broadband data access
costs, including costs of bandwidth connectivity, customer provisioning and
technical support and plant operating costs, such as utilities and pole rental
expense. Programming costs, which are payments to programmers for content and
are generally paid on a per subscriber basis, have historically increased due
to both increases in the rates charged for existing programming services and
the introduction of new programming services to our basic subscribers. Service costs increased 7.4%, primarily due to programming, plant
operating and employee costs. The largest component of service costs is
programming expense which increased 5.5%, as a result of reduced launch support
from our programming suppliers in return for our carriage of their services,
and higher unit costs charged by them, offset in part by a lower base of basic
subscribers. Plant operating costs rose 22.9%, primarily due to greater use of
outside contractors for customer installation activity and, to a lesser extent,
higher vehicle fuel costs. Employee costs grew 5.2%, primarily as a result of
increased headcount and overtime of our technical workforce for network phone
readiness and customer installation activity, offset in part by higher labor
and overhead capitalization. Service costs as a percentage of revenues were
39.0% for the year ended December 31, 2005, as compared with 38.1% for the year
ended December 31, 2004. 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 6.6%, principally
due higher employee, professional fees and office expenses, offset in part by a
decrease in bad debt expense. Employee costs rose 8.2%, as a result of 40




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increased direct sales personnel, sales commissions and costs associated with
third-party call center contractors. Professional fees increased 49.6%, as a
result of higher consulting expenses and other fees. This increase in selling,
general and administrative expenses was partly offset by a 20.4% decrease in
bad debt expense as a result of improved customer credit and collection
policies and better collection experience in our advertising business.
Selling, general and administrative expenses as a percentage of revenues were
22.5% for the year ended December 31, 2005, as compared with 22.2% for the year
ended December 31, 2004. We expect continued revenue growth in advanced services, which include
digital video, HDTV, DVRs, HSD and phone service. As a result, we expect our
service costs and selling, general and administrative expenses to increase. Management fee expense reflects charges incurred under our management
arrangements with our parent, Mediacom Communications Corporation (MCC).
Management fee expense increased 15.6%. As a percentage of revenues,
management fee expense was 2.0% for the year ended December 31, 2005, as
compared with 1.8% for the year ended December 31, 2004. Depreciation and amortization increased primarily due to the retirement of
assets and disposals. Interest Expense, net Interest expense, net, increased by 13.0%, primarily due to higher market
interest rates on variable rate debt and the issuance of our 8
1/2% Senior
Notes in April 2005. Gain on Derivatives, net We
enter into interest rate exchange agreements, or interest rate swaps,
with counterparties to fix the interest rate on a portion of our variable rate
debt to reduce the potential volatility in our interest expense that would
otherwise result from changes in market interest rates. As of December 31,
2005 we had interest rate swaps with an aggregate principal amount of $400.0
million. The changes in their mark-to-market values are derived from changes
in market interest rates, the decrease in their time to maturity and the
creditworthiness of the counterparties. As a result of the quarterly
mark-to-market valuation of these interest rate swaps, we recorded a gain on
derivatives amounting to $6.6 million for the year ended December 31, 2005, as
compared to a gain on derivatives of $10.9 million for the year ended December
31, 2004. Other Expense Other expense was $6.5 million and $4.5 million for the years ended
December 31, 2005 and 2004, respectively. Other expense primarily represents
amortization of deferred financing costs and fees on unused credit commitments. Net Income As a result of the factors described above, we generated net income for
the years ended December 31, 2005 and 2004 of $11.0 million and $34.9 million,
respectively. 41




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##### Table of Contents



Year Ended
December 31, 2004 Compared to Year Ended December 31,
2003 The following table sets forth the consolidated statement 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
    
    $
    585,039
    
    
    $
    552,342
    
    
    $
    32,697
    
    
    
    5.9
    %Costs and expenses:Service costs
    
    
    222,752
    
    
    
    214,091
    
    
    
    8,661
    
    
    
    4.0
    %Selling, general and administrative
expenses
    
    
    129,587
    
    
    
    120,137
    
    
    
    9,450
    
    
    
    7.9
    %Corporate expenses
    
    
    10,585
    
    
    
    9,322
    
    
    
    1,263
    
    
    
    13.5
    %Depreciation and amortization
    
    
    107,592
    
    
    
    113,007
    
    
    
    (5,415
    )
    
    
    (4.8
    %)Operating income
    
    114,523
    
    
    
    95,785
    
    
    
    18,738
    
    
    
    19.6
    %Interest expense, net
    
    (86,125
    )
    
    
    (82,536
    )
    
    
    (3,589
    )
    
    
    4.3
    %Gain (loss) on derivatives, net
    
    10,929
    
    
    
    2,807
    
    
    
    8,122
    
    
    NMOther expense
    
    (4,475
    )
    
    
    (5,974
    )
    
    
    1,499
    
    
    
    (25.1
    %)Net income (loss)
    $
    34,852
    
    
    $
    10,082
    
    
    $
    24,770
    
    
    
    245.7
    %
 Revenues The following table sets forth revenue, subscriber and monthly average
revenue statistics for the years ended December 31, 2004 and 2003 (dollars in
thousands, except per subscriber data): Year Ended December 31,2004
    
    
    2003
    
    
    $ Change
    
    
    % ChangeVideo
    
    $
    457,513
    
    
    $
    450,831
    
    
    $
    6,682
    
    
    
    1.5
    %Data
    
    
    88,060
    
    
    
    66,667
    
    
    
    21,393
    
    
    
    32.1
    %Advertising
    
    
    39,466
    
    
    
    34,844
    
    
    
    4,622
    
    
    
    13.3
    %$
    585,039
    
    
    $
    552,342
    
    
    $
    32,697
    
    
    
    5.9
    % Year Ended
December 31,2004
    
    
    2003
    
    
    Increase/(Decrease)Basic subscribers
    
    
    783,000
    
    
    
    819,300
    
    
    
    (36,300
    )
    
    
    (4.4
    %)Data customers
    
    
    205,000
    
    
    
    157,800
    
    
    
    47,200
    
    
    
    29.9
    %Average
monthly video revenue per basic subscriber (1)
    
    $
    48.09
    
    
    $
    45.66
    
    
    $
    2.43
    
    
    
    5.3
    %Average
monthly data revenue per data subscriber (2)
    
    $
    39.55
    
    
    $
    39.68
    
    
    $
    (0.13
    )
    
    
    (0.3
    %)
 
 (1)
    
    Average monthly video revenue per basic subscriber is calculated based on
monthly revenue divided by the average number of basic subscribers for each of
the twelve months.(2)
    
    Average monthly date revenue per data subscriber is calculated based on
monthly data revenue divided by the average number of data subscribers for each
of the twelve months. 42




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##### Table of Contents



Revenues rose 5.9%, 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 4.4%
reduction in basic subscribers during the period. Video revenues rose 1.5% as a result of the aforementioned basic rate
increases, substantially offset by a decline in basic subscribers. Digital
customers increased 1.9% to 236,000 as compared to 231,600 a year ago. Our
loss in basic subscribers resulted primarily from increased competitive
pressures by DBS service providers, particularly in those markets where we
experienced their local-into-local launches and, to a lesser extent, from our
tighter customer credit policies. In an effort to reverse this video
subscriber trend, we have been increasing our customer retention efforts and
our emphasis on product bundling, enhancing and differentiating our video
products and services with new digital packages, VOD, HDTV, DVR and more local
programming. Data revenues rose 32.1%, due primarily to a 29.9% growth in data
customers and an increased contribution from our relatively new commercial
enterprise business. Advertising revenues increased 13.2%, primarily as a result of political
advertising and stronger local advertising. Political advertising accounted
for 82.6% of the growth. Costs and Expenses Service costs grew 4.0%, primarily due to increases in employee and plant
operating costs and programming expenses. Employee and plant operating costs
rose 3.5%, 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 higher operational insurance claims and
employee benefits. Programming related expense, the largest component of
service costs, rose 1.3%, 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. Service costs as a percentage of revenues were
38.1% for the year ended December 31, 2004, as compared with 38.8% for the year
ended December 31, 2003. Selling, general and administrative expenses increased 7.9%, principally
due to higher marketing, advertising and employee costs, taxes and fees,
partially offset by a decrease in bad debt expense. Marketing costs rose
25.1%, as a result of mass media campaigns to support the rollout of new
advanced services, and to promote customer retention and acquisition
initiatives. Advertising costs grew 13.2%, primarily as a result of employee
commissions on increased revenues. Employee costs increased 9.9%, as a result
of higher employee compensation, benefit costs and customer service overtime,
driven by greater activity related to the rollout of new products. Taxes and
fees increased 5.1% due to higher state property taxes. This increase in
selling, general and administrative expenses was partly offset by a 4.1%
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 22.2% for the year ended December 31, 2004, as
compared with 21.8% for the year ended December 31, 2003. Management fee expense reflects charges incurred under our management
arrangements with our parent, MCC. Management fee expense increased 13.5%. As a percentage of revenues,
management fee expense 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 4.8%, 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 including VOD, HDTV, DVRs and HSD. Interest Expense, net Interest expense, net, increased by 4.3%, primarily due to lower interest
expense capitalization associated with the substantial reduction of
upgrade/rebuild capital expenditures and slightly higher market interest rates
on variable rate debt. 43




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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 $500.0
million. The changes in their mark-to-market values are derived from changes
in market interest rates, the decrease in their time to maturity and the
creditworthiness of the counterparties. As a result of the quarterly
mark-to-market valuation of these interest rate swaps, we recorded a gain on
derivatives amounting to $10.9 million for the year ended December 31, 2004, as
compared to a gain on derivatives of $2.8 million for the year ended December
31, 2003. Other Expense Other expense was $4.5 million and $6.0 million for the years ended
December 31, 2004 and 2003, respectively. Other expense primarily represents
amortization of deferred financing costs and fees on unused credit commitments. Net Income As a result of the factors described above, we generated net income for
the years ended December 31, 2004 and 2003 of $34.9 million and $10.1 million,
respectively. Liquidity and Capital Resources We have invested, and will continue to invest, in our network to enhance
its reliability and capacity, and in the further deployment of advanced
broadband services. Our capital spending has recently shifted away from network
upgrade investments to the deployment of VOD, HDTV, DVRs, HSD and phone
services. We also may continue to make strategic acquisitions of cable systems.
We have a high level of indebtedness and incur significant amounts of interest
expense each year. We believe that we will meet our debt service, capital
spending and other requirements through a combination of our net cash flows
from operating activities, borrowing availability under our bank credit
facilities and our ability to secure future external financing. As of December 31, 2005, our total debt was $1.42 billion. Of this amount,
$43.9 million matures within the twelve months ending December 31, 2006. During
the twelve months ended December 31, 2005, we paid cash interest of $92.2
million. Description of Our Credit
Facilities Our operating subsidiaries have a $1.4 billion bank credit facility (the
Credit Facility) expiring in 2014, of which $816.3 million was
outstanding as of December 31, 2005. The Credit Facility consists of
a revolving credit commitment (the revolver), a
$300.0 million term loan (the term loan A) and a
$500.0 million term loan (the term loan B). In October 2005, the Credit
Facility was amended: (i) to increase the revolver portion
from approximately $543.0 million to approximately $650.5 million, of which
approximately $430.3 million is not subject to scheduled reductions prior to
the termination date; and (ii) to extend the termination date of the
commitments not subject to reductions from March 2010 to December
2012. As of December 31, 2005, we had unused credit commitments
of $578.6 million under the Credit Facility, all of which could
be borrowed and used for general corporate purposes based on the
terms of our debt arrangements. During
the year ended December 31, 2006, the maximum commitment amount; the
portion of the Broadband revolver subject to
reduction will be reduced by $30.4 million or 12.5% of the original
amount; the term loan A will be reduced by $37.5 million or 12.5% of the
original amount; and the term loan B will be reduced by $5.0 million 1.0% of
the original amount. For all periods through December 31, 2005, we were in compliance with all
of the covenants under our debt arrangements. Continued access to our credit
facilities is subject to our remaining in compliance with the covenants of
these credit facilities, including covenants tied to our operating performance.
We believe that we will not have any difficulty in the foreseeable future
complying with these covenants and that we will meet our current and long-term
debt service, capital spending and other cash requirements through a
combination of our net cash flows from 44




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operating activities, borrowing
availability under our bank credit facilities and our ability to secure future
external financing. However, there can be no assurance that we will be able to
obtain sufficient future financing, or, if we were able to do so, that the
terms would be favorable to us. We expect that we will continue to be able to
generate funds and obtain financing sufficient to service our long-term
business plan, service our debt obligations and complete any future
acquisitions if the opportunities arise. We have entered into interest rate exchange agreements, which expire from
July 2006 through March 2007, to hedge $400.0 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, 2005, about
70.7% of our
outstanding indebtedness was at fixed interest rates or subject to interest
rate protection and the average interest rate for borrowings under the
revolving commitments of our credit facilities was LIBOR plus 1.50%. As of December 31, 2005, approximately $9.8 million of letters of credit
were issued to various parties to secure our performance relating to insurance
and franchise requirements. In January 2005, we borrowed $88.0 million from Mediacom LLC and repaid a
portion of our indebtedness under our revolving credit commitments. The loan
was funded with borrowings under Mediacom LLCs 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. We repaid this note and accrued interest in April 2005. Although we have not generated earnings sufficient to cover fixed charges
in the past, we have generated cash and obtained financing sufficient to meet
our short-term requirements, including our debt service, working capital and
capital expenditures. We expect that we will continue to be able to generate
funds and obtain financing sufficient to service our long-term business plan,
service our debt obligations and complete any future acquisitions if the
opportunities arise. However, there can be no assurance that we will be able
to obtain sufficient financing, or, if we were able to do so, that the terms
would be favorable to us. Operating Activities Net cash flows provided by operating activities were $105.0 million for
the year ended December 31, 2005, as compared to $106.3 million for the prior
year. The change of $1.3 million is primarily due to a net decrease in
operating assets and liabilities, offset in part by an increase in cash paid
for interest and higher operating income before depreciation and amortization. The change in operating assets and liabilities was lower by $7.8 million
due to the timing of our cash payments and cash receipts. We made cash
interest payments of $92.2 million and $86.4 million in 2005 and 2004,
respectively. This increase was a result of higher interest rates on our
variable rate debt. Operating income before depreciation and amortization rose
$1.3 million, mainly from higher costs offset in part by an increase in
revenues. Investing Activities Net cash flows used in investing activities were $108.1 million for the
year ended December 31, 2005, as compared to $85.4 million for the prior year,
and principally comprised capital expenditures. Capital expenditures increased
$24.4 million to $108.1 million mainly due to greater levels of customer
connection activities. Purchases
of customer premise equipment, including greater quantities of higher cost HDTV
and DVR set-tops, and installation costs, were the principal components of our
capital investment related to customer connection activities. Financing Activities Net cash flows provided by financing activities was $1.1 million for the
year ended December 31, 2005, as compared to cash flows used in financing
activities of $21.1 million from the prior year. In 2005, our principal
financing activities included the following: 45




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
    
    In January 2005, we borrowed $88.0 million in the form of a demand
note from Mediacom LLC, a wholly-owned subsidiary of MCC. We repaid
the demand note in April 2005.
    
    In August 2005, we issued $200.0 million aggregate principal amount
of
81/2% senior notes due October 2015
(the 81/2% Senior Notes).
The 81/2% Senior Notes are unsecured obligations of Mediacom
Broadband, and the indenture governing 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 Broadband.
The proceeds from this offering were used to reduce outstanding
balances under our revolving credit commitment.
    
    During the year ended December 31, 2005, we paid dividends of $23.5
million to MCC and dividends on preferred members interest of $18.0
million to Mediacom LLC. Contractual Obligations and Commercial Commitments The following table summarizes our contractual obligations and commercial
commitments, and the effect they are expected to have on our liquidity and cash
flow, for the five years subsequent to December 31, 2005 and thereafter
(dollars in thousands)*: Capital
    
    Operating
    
    InterestDebt
    
    Leases
    
    Leases
    
    Expense
(1)
    
    Total2006
    
    
    42,500
    
    
    $
    1,358
    
    
    $
    1,800
    
    
    $
    105,714
    
    
    $
    151,3722007
    
    
    65,000
    
    
    
    723
    
    
    
    1,516
    
    
    
    104,520
    
    
    
    171,7592008
    
    
    65,000
    
    
    
    39
    
    
    
    1,254
    
    
    
    100,914
    
    
    
    167,2072009
    
    
    87,500
    
    
    
    
    
    
    
    1,143
    
    
    
    95,488
    
    
    
    184,1312010
    
    
    29,000
    
    
    
    
    
    
    
    952
    
    
    
    93,690
    
    
    
    123,642Thereafter
    
    
    1,127,250
    
    
    
    
    
    
    
    2,135
    
    
    
    283,973
    
    
    
    1,413,358Total cash obligations
    
    $
    1,416,250
    
    
    $
    2,120
    
    
    $
    8,800
    
    
    $
    784,299
    
    
    $
    2,211,469   (1)
    
    Interest payments on floating rate debt and interest rate swaps are
estimated using amounts outstanding as of December 31, 2005 and the average
interest rates applicable under such debt obligations.*
    
    Refer to Note 5 to our consolidated financial statements for a discussion of
our long-term debt, and to Note 11 for a discussion of our operating leases and
other commitments and contingencies. Critical Accounting Policies The preparation of our financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. Periodically, we evaluate our estimates, including those related
to doubtful accounts, long-lived assets, capitalized costs and accruals. We
base our estimates on historical experience and on various other assumptions
that we believe are reasonable. Actual results may differ from these estimates
under different assumptions or conditions. We believe that the application of
the critical accounting policies discussed below requires significant judgments
and estimates on the part of management. For a summary of our accounting
policies, see Note 2 of our consolidated financial statements. Property, Plant and Equipment We capitalize the costs of new construction and replacement of our cable
transmission and distribution facilities and new cable service installations.
Capitalized costs include all direct labor and materials as well as certain
indirect costs. Capitalized costs are recorded as additions to property, plant
and equipment and depreciate over the life of the related asset. We perform
periodic evaluations of the estimates used to determine the amount of costs
that are capitalized. Any changes to these estimates, which may be significant,
are applied in the period in which the evaluations were completed. 46




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Indefinite-lived Intangibles Our cable systems operate under non-exclusive franchises granted by state
and local governmental authorities for varying lengths of time. We acquired
these cable franchises through acquisitions of cable systems and were accounted
for using the purchase method of accounting. We have concluded that our cable
franchise rights have an indefinite useful life since, among other things,
there are no legal, regulatory, contractual, competitive, economic or other
factors limiting the period over which these cable franchise rights contribute
to our revenues. Accordingly, with our adoption of SFAS No. 142, Goodwill and
Other Intangible Assets, we no longer amortize the cable franchise rights and
other indefinite-lived assets. Instead, such assets are tested annually for
impairment or more frequently if impairment indicators arise. Based on the guidance outlined in EITF No. 02-7, Unit of Accounting for
Testing Impairment of Indefinite-Lived Intangible Assets,we determined that
the unit of accounting for testing franchise value for impairment resides at a
cable system cluster level. Such level reflects the financial reporting level
managed and reviewed by the corporate office (i.e., chief operating decision
maker) as well as how we allocated capital resources and utilize the assets.
Lastly, the unit reporting level reflects the level at which the purchase
method of accounting for our acquisitions was originally recorded. We have one
cable system cluster, or reporting unit, for the purpose of applying SFAS No.
142. We follow the provisions of SFAS No. 142 to test our goodwill and certain
other intangible assets for impairment. We assess fair values primarily using
discounted cash flow methodology. Goodwill impairment is determined using a two-step process. The first step
compares the fair value of a reporting unit with its carrying amount, including
goodwill. If the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is considered not impaired and the second step
is unnecessary. If the carrying amount of a reporting unit exceeds its fair
value, the second step is performed to measure the amount of impairment loss,
if any. The second step compares the implied fair value of the reporting units
goodwill, calculated using the residual method, with the carrying amount of
that goodwill. If the carrying amount of the goodwill exceeds the implied fair
value, the excess is recognized as an impairment loss. The impairment test for other intangible assets not subject to
amortization consists of a comparison of the fair value of the intangible asset
with its carrying value. If the carrying value of the intangible asset exceeds
its fair value, the excess is recognized as an impairment loss. We completed our most recent impairment test as of October 1, 2005, which
reflected no impairment of our franchise rights and goodwill. Our use of
discounted cash flow analyses in determining the fair value of each cable
system cluster involves certain assumptions and estimates, which are consistent
with the expectations of buyers and sellers of cable systems in determining
fair value. Significant impairment in value resulting in impairment charges
may result if these estimates and assumptions used in the fair value
determination change in the future. Such impairments could potentially be
material. Derivatives We account for derivative instruments in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging
Activities-an amendment of FASB Statement No. 133,and SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities.
Our primary objective for holding derivative financial instruments is to manage
interest rate risk. Our derivative instruments are recorded at fair value and
are included in other current assets, other assets and other liabilities. Our
accounting policies for these instruments are based on whether they meet our
criteria for designation as hedging transactions, which include the
instruments effectiveness in risk reduction and, in most cases, a one-to-one
matching of the derivative instrument to its underlying transaction. We have no
derivative financial instruments designated as hedges. Gains and losses from
changes in the mark-to-market values are currently recognized in the
consolidated statement of operations. Short-term valuation changes 47




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derived from
changes in market interest rates, time to maturity and the creditworthiness of
the counterparties may increase the volatility of earnings. Programming Costs We have various fixed-term carriage contracts to obtain programming for
our cable systems from content suppliers whose compensation is generally based
on a fixed monthly fee per customer. These programming contracts are subject to
negotiated renewal. We recognize programming costs when we distribute the
related programming. These programming costs are usually payable each month
based on calculations performed by us and are subject to adjustments based on
the results of periodic audits by the content suppliers. Historically, these
audit adjustments have been immaterial to our total programming costs; however,
there can be no assurance that such adjustments will be immaterial in the
future. Recent Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123R, Amendment of Statement
123 on Share-Based Payment.SFAS No. 123R is supplemented by SEC Staff
Accounting Bulletin (SAB) No. 107, Share-Based Payment. SAB No. 107
expresses the SEC staffs views regarding the interaction between SFAS No. 123R
and certain SEC rules and regulations including the valuation of share-based
payment arrangements. SFAS No. 123R requires companies to expense the value of
employee stock options, stock granted through the employee stock purchase
program and similar awards. Pro forma disclosure is no longer an alternative.
We will adopt SFAS No. 123R using the modified prospective method effective
January 1, 2006. On the effective date of SFAS 123R, compensation costs will
be recognized; (i) for all share-based payments granted after the effective
date and; (ii) for all awards granted prior to the effective date that remain
unvested. We expect that the adoption of SFAS No. 123R will have a material
impact on our consolidated results of operations and earnings per share. In March 2005, the FASB issued FIN 47 as an interpretation of SFAS No.
143, Accounting for Asset Retirement Obligations. This interpretation
clarifies that the term conditional asset retirement obligation as used in SFAS
143, refers to a legal obligation to perform an asset retirement activity in
which the timing and/or method of settlement are conditional on a future event
that may or may not be within the control of the entity. The obligation to
perform the asset retirement activity is unconditional even though uncertainty
exists about the timing and/or method of settlement. Accordingly, an entity is
required to recognize a liability for the fair value of a conditional asset
retirement obligation if the fair value of the liability can be reasonably
estimated. This interpretation also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective no later than the end of fiscal
years ending after December 15, 2005. The adoption of this standard has not
had a material impact on our financial position or results of operation. In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections, which replaces APB Opinion No. 20, Accounting Changes and SFAS
No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS
No. 154 is effective no later than the end of fiscal years ending after
December 15, 2005 and requires retrospective application to prior period
financial statements of voluntary changes in accounting principle, unless it is
impractical to determine either the period-specific effects or the cumulative
effect of the
change. Our consolidated financial position, results of operations or cash
flows will only be impacted by SFAS No. 154 if it implements a voluntary change
in accounting principle or correct accounting errors in future periods. Inflation and Changing Prices Our systems costs and expenses are subject to inflation and price
fluctuations. Such changes in costs and expenses can generally be passed
through to subscribers. Programming costs have historically increased at rates
in excess of inflation and are expected to continue to do so. We believe that
under the FCCs existing cable rate regulations we may increase rates for cable
television services to more than cover any increases in programming. However,
competitive conditions and other factors in the marketplace may limit our
ability to increase our rates. 48




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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, 2005, we had
$400.0 million of interest rate swaps with various banks with a weighted
average fixed rate of approximately 3.4%. 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, 2005, based on the mark-to-market valuation,
we would have received approximately $5.2 million, including accrued interest,
if we terminated these agreements. Our interest rate exchange agreements are
scheduled to expire in the amounts of $250 million and $150 million during the
years ended December 31, 2006, and 2007, respectively. The table below provides the expected maturity and estimated fair value of
our debt as of December 31, 2005 (all dollars in thousands). See Note 6 to our
consolidated financial statements. Bank Credit
    
    Capital LeaseSenior Notes
    
    Facilities
    
    Obligations
    
    TotalExpected Maturity:January 1, 2006 to December 31, 2006
    
    $
    
    
    
    $
    42,500
    
    
    $
    1,358
    
    
    $
    43,858January 1, 2007 to December 31, 2007
    
    
    
    
    
    
    65,000
    
    
    
    723
    
    
    
    65,723January 1, 2008 to December 31, 2008
    
    
    
    
    
    
    65,000
    
    
    
    39
    
    
    
    65,039January 1, 2009 to December 31, 2009
    
    
    
    
    
    
    87,500
    
    
    
    
    
    
    
    87,500January 1, 2010 to December 31, 2010
    
    
    
    
    
    
    29,000
    
    
    
    
    
    
    
    29,000Thereafter
    
    
    600,000
    
    
    
    527,250
    
    
    
    
    
    
    
    1,127,250Total
    
    $
    600,000
    
    
    $
    816,250
    
    
    $
    2,120
    
    
    $
    1,418,370Fair
Value
    
    $
    616,750
    
    
    $
    816,250
    
    
    $
    2,120
    
    
    $
    1,435,120Weighted Average Interest Rate
    
    
    10.2
    %
    
    
    6.2
    %
    
    
    3.1
    %
    
    
    7.9
    % 49




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MEDIACOM BROADBAND LLC AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Contents
    

PageReport of Independent Registered Public Accounting Firm
    
    
    51Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    52Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003
    
    
    53Consolidated Statements of Changes in Members Equity for the Years Ended December 31, 2005, 2004 and 2003
    
    
    54Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003
    
    
    55Notes to Consolidated Financial Statements
    
    
    56Financial
Statement Schedule: Schedule II-Valuation and Qualifying
Accounts
    
    
    67
 50




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Report of Independent
Registered Public Accounting Firm To the Member of Mediacom Broadband LLC: In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Mediacom Broadband LLC and its subsidiaries at December 31, 2005
and December 31, 2004, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2005 in
conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule
listed in the accompanying index presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion. /s/ PricewaterhouseCoopers LLP
New York, New York
March 15, 2006 51




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
(All dollar amounts in thousands) December 31,2005
    
    
    2004ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    7,142
    
    
    $
    9,130Accounts receivable, net of allowance for doubtful
accounts of $1,842 and $2,803, respectively
    
    
    36,205
    
    
    
    31,287Prepaid expenses and other assets
    
    
    26,613
    
    
    
    2,787Total current assets
    
    
    69,960
    
    
    
    43,204Investment in cable television systems:Property, plant and equipment, net of accumulated depreciation of
$405,316 and $306,894, respectively
    
    
    718,210
    
    
    
    723,248Franchise rights, net of accumulated amortization of $38,752
    
    
    1,251,361
    
    
    
    1,251,361Goodwill
    
    
    204,582
    
    
    
    204,582Subscriber lists net of accumulated of $19,251 and $17,182, respectively
    
    
    13,774
    
    
    
    15,941Total investment in cable television systems
    
    
    2,187,927
    
    
    
    2,195,132Other assets, net of accumulated amortization of $7,090 and
$7,026, respectively
    
    
    27,168
    
    
    
    19,909Total assets
    
    $
    2,285,055
    
    
    $
    2,258,245LIABILITIES AND MEMBERS EQUITYCURRENT LIABILITIESAccrued liabilities
    
    $
    120,975
    
    
    $
    115,379Deferred revenue
    
    
    22,474
    
    
    
    20,831Current portion of long-term debt
    
    
    43,858
    
    
    
    36,316Total current liabilities
    
    
    187,307
    
    
    
    172,526Long-term debt, less current portion
    
    
    1,374,512
    
    
    
    1,327,639Other non-current liabilities
    
    
    8,622
    
    
    
    12,923Total liabilities
    
    
    1,570,441
    
    
    
    1,513,088Commitments and contingencies (Note 12)PREFERRED
MEMBERS INTEREST (Note 6)
    
    
    150,000
    
    
    
    150,000MEMBERS EQUITYCapital contributions
    
    
    725,000
    
    
    
    725,000Accumulated deficit
    
    
    (160,386
    )
    
    
    (129,843
)Total members equity
    
    
    564,614
    
    
    
    595,157Total liabilities, preferred members interest and members equity
    
    $
    2,285,055
    
    
    $
    2,258,245 The accompanying notes are an integral part of these statements. 52




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES 
 CONSOLIDATED STATEMENT OF OPERATIONS
(All dollar amounts in thousands) Years ended December 31,2005
    
    
    2004
    
    
    2003Revenues
    
    $
    613,116
    
    
    $
    585,039
    
    
    $
    552,342Costs and expenses:Service costs (exclusive of depreciation and amortization
of $115,314, $107,592, and $113,007, respectively,
shown separately below)
    
    
    239,199
    
    
    
    222,752
    
    
    
    214,091Selling, general and administrative expenses
    
    
    138,201
    
    
    
    129,587
    
    
    
    120,137Management fee expense
    
    
    12,239
    
    
    
    10,585
    
    
    
    9,322Depreciation and amortization
    
    
    115,314
    
    
    
    107,592
    
    
    
    113,007Operating income
    
    
    108,163
    
    
    
    114,523
    
    
    
    95,785Interest expense, net
    
    
    (97,282
    )
    
    
    (86,125
    )
    
    
    (82,536
    )Gain on derivatives, net
    
    
    6,638
    
    
    
    10,929
    
    
    
    2,807Other expense
    
    
    (6,516
    )
    
    
    (4,475
    )
    
    
    (5,974
    )Net income
    
    
    11,003
    
    
    
    34,852
    
    
    
    10,082Dividend
to preferred member (Note 6)
    
    
    18,000
    
    
    
    18,000
    
    
    
    18,000Net (loss) income applicable to member
    
    $
    (6,997
    )
    
    $
    16,852
    
    
    $
    (7,918
    ) The accompanying notes are an integral part of these statements. 53




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES 
 CONSOLIDATED STATEMENT OF CHANGES IN
MEMBERS EQUITY
(All dollar amounts in thousands) Capital
    
    
    AccumulatedComtributions
    
    
    Deficit
    
    
    TotalBalance, December 31, 2002
    
    $
    725,000
    
    
    $
    (114,478
    )
    
    $
    610,522Net income
    
    
    
    
    
    
    10,082
    
    
    
    10,082Dividend payments to related party
on Preferred Members Interest
    
    
    
    
    
    
    (18,000
    )
    
    
    (18,000
    )Dividend payments to MCC
    
    
    
    
    
    
    (13,588
    )
    
    
    (13,588
    )Balance, December 31, 2003
    
    $
    725,000
    
    
    $
    (135,984
    )
    
    $
    589,016Net income
    
    
    
    
    
    
    34,852
    
    
    
    34,852Dividend payments to related party
on Preferred Members Interest
    
    
    
    
    
    
    (18,000
    )
    
    
    (18,000
    )Dividend payments to MCC
    
    
    
    
    
    
    (10,711
    )
    
    
    (10,711
    )Balance, December 31, 2004
    
    $
    725,000
    
    
    $
    (129,843
    )
    
    $
    595,157Net income
    
    
    
    
    
    
    11,003
    
    
    
    11,003Dividend payments to related party
on Preferred Members Interest
    
    
    
    
    
    
    (18,000
    )
    
    
    (18,000
    )Dividend payments to MCC
    
    
    
    
    
    
    (23,546
    )
    
    
    (23,546
    )Balance, December 31, 2005
    
    $
    725,000
    
    
    $
    (160,386
    )
    
    $
    564,614 The accompanying notes are an integral part of these statements. 54




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES 
 CONSOLIDATED STATEMENT OF CASH FLOWS
(All dollar amounts in thousands) Years ended December 31,2005
    
    
    2004
    
    
    2003CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:Net income
    
    $
    11,003
    
    
    $
    34,852
    
    
    $
    10,082Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    115,314
    
    
    
    107,592
    
    
    
    113,007Gain loss on derivatives, net
    
    
    (6,638
    )
    
    
    (10,929
    )
    
    
    (2,807
    )Amortization of deferred financing costs
    
    
    4,600
    
    
    
    2,099
    
    
    
    2,365Amortization of deferred compensation costs
    
    
    217
    
    
    
    
    
    
    
    Changes in assets and liabilities, net of effects from acquisitions:Accounts receivable, net
    
    
    (4,918
    )
    
    
    3,235
    
    
    
    927Prepaid expenses and other assets
    
    
    (20,791
    )
    
    
    6,491
    
    
    
    (955
    )Accrued expenses
    
    
    5,848
    
    
    
    (33,590
    )
    
    
    (29,134
    )Deferred revenue
    
    
    1,643
    
    
    
    629
    
    
    
    1,831Other non-current liabilities
    
    
    (1,240
    )
    
    
    (4,075
    )
    
    
    1,311Net cash flows provided by operating activities
    
    
    105,038
    
    
    
    106,304
    
    
    
    96,627CASH FLOWS USED IN INVESTING ACTIVITIES:Capital expenditures
    
    
    (108,100
    )
    
    
    (83,656
    )
    
    
    (118,039
    )Acquisitions of cable television systems
    
    
    
    
    
    
    
    
    
    
    (5,047
    )Proceeds from sale of cable television systems
    
    
    
    
    
    
    
    
    
    
    11,989Other investing activities
    
    
    
    
    
    
    (1,738
    )
    
    
    (5,516
    )Net cash flows used in investing activities
    
    
    (108,100
    )
    
    
    (85,394
    )
    
    
    (116,613
    )CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:New borrowings
    
    
    333,750
    
    
    
    126,750
    
    
    
    144,554Repayment of debt
    
    
    (479,335
    )
    
    
    (117,463
    )
    
    
    (93,659
    )Issuance of senior notes
    
    
    200,000
    
    
    
    
    
    
    
    Dividend payments on preferred members interests
    
    
    (18,000
    )
    
    
    (18,000
    )
    
    
    (18,000
    )Dividend payment to parent
    
    
    (23,546
    )
    
    
    (10,711
    )
    
    
    (13,588
    )Financing costs
    
    
    (11,795
    )
    
    
    (1,735
    )
    
    
    (249
    )Net cash flows provided by (used in) financing activities
    
    
    1,074
    
    
    
    (21,159
    )
    
    
    19,058Net decrease in cash and cash equivalents
    
    
    (1,988
    )
    
    
    (249
    )
    
    
    (928
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    9,130
    
    
    
    9,379
    
    
    
    10,307CASH AND CASH EQUIVALENTS, end of period
    
    $
    7,142
    
    
    $
    9,130
    
    
    $
    9,379SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the period for interest, net of amounts capitalized
    
    $
    92,151
    
    
    $
    86,388
    
    
    $
    83,673SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:Capital expenditures financed through capital leases
    
    $
    
    
    
    $
    
    
    
    $
    5,773 The accompanying notes are an integral part of these statements. 55




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (1) Organization Mediacom Broadband LLC (Mediacom Broadband, and collectively with its
subsidiaries, the Company), a Delaware limited liability company wholly-owned
by Mediacom Communications Corporation (MCC), was organized for the purpose
of acquiring cable systems from AT&T Broadband, LLC in 2001. As of December
31, 2005, the Company was operating cable systems in the states of Georgia,
Illinois, Iowa and Missouri. Mediacom Broadband 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 Broadband could differ from those that
would have resulted had Mediacom Broadband operated autonomously or as an
entity independent of MCC. See Notes 6, 7 and 8. Mediacom Broadband Corporation, a Delaware corporation wholly-owned by
Mediacom Broadband, co-issued, jointly and severally, with Mediacom Broadband
$400.0 million aggregate principal amount of the 11% senior notes due July 15,
2013. Mediacom Broadband 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
Broadband and its subsidiaries. All significant intercompany transactions and
balances have been eliminated. The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
accounting estimates that require managements most difficult and subjective
judgments include assessment and valuation of intangibles, useful lives of
property, plant and equipment and the valuation of programming liabilities.
Actual results could differ from those and other estimates. Revenue Recognition Revenues from video, data and phone services are recognized when the
services are provided to the customers. Credit risk is managed by disconnecting
services to customers who are deemed to be delinquent. Installation revenues
are recognized as customer connections are completed because installation
revenues are less than direct installation costs. Advertising sales are
recognized in the period that the advertisements are exhibited. Under the terms
of its franchise agreements, the Company is required to pay local franchising
authorities up to 5% of its gross revenues derived from providing cable
services. The Company normally passes these fees through to its customers.
Franchise fees are reported in their respective revenue categories and included
in selling, general and administrative expenses. Allowance for Doubtful Accounts The allowance for doubtful accounts represents the Companys best estimate
of probable losses in the accounts receivable balance. The allowance is based
on the number of days outstanding, customer balances, historical experience and
other currently available information. During the year ended December 31, 2005, the Company revised its estimate
of probable losses in the accounts receivable of its advertising business to
better reflect historical experience. The change in the estimate of probable
losses resulted in a benefit to the consolidated statement of operations of
$0.9 million for year ended December 31, 2005. 56




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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, write-offs,
sales or other dispositions of property, the original cost and related
accumulated depreciation are removed from the respective accounts and the gains
or losses are included in depreciation and amortization expense in the
consolidated statement of operations. Effective July 1, 2003, the Company changed the estimated useful lives of
its cable systems and equipment. The changes in estimated useful lives were
made to reflect managements evaluation of the longer economic lives of the
Companys upgraded and rebuilt network. The new asset lives are consistent with
those used by companies in the cable television industry. The weighted average
useful lives of such fixed assets changed from approximately 7 years to
approximately 12 years. The Company capitalizes the costs associated with the construction of
cable transmission and distribution facilities, new customer installations and
indirect costs associated with our telephony product. Costs include direct
labor and material, as well as certain indirect costs including interest. The
Company performs periodic evaluations of certain estimates used to determine
the amount and extent that such costs that are capitalized. Any changes to
these estimates, which may be significant, are applied in the period in which
the evaluations were completed. The costs of disconnecting service at a
customers dwelling or reconnecting to a previously installed dwelling are
charged as expense in the period incurred. Costs associated with subsequent
installations of additional services not previously installed at a customers
dwelling are capitalized to the extent such costs are incremental and directly
attributable to the installation of such additional services. Capitalized Software Costs The Company accounts for internal-use software development and related
costs in accordance with AICPA Statement of Position No. 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use.
Software development and other related costs consist of external and internal
costs incurred in the application development stage to purchase and implement
the software that will be used in the Companys telephony business. Costs
incurred in the development of application and infrastructure of the software
is capitalized and will be amortized over its respective estimated useful life
of 10 years. During the years ended December 31, 2005 and
2004, the Company capitalized approximately $1.1 million and $0.7 million,
respectively of software development costs. 57




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Marketing and Promotional Costs Marketing and promotional costs are expensed as incurred and were $15.1
million, $14.3 million and $11.6 million for the years ended December 31, 2005,
2004 and 2003, respectively. Intangible Assets In accordance with FASB No. 142, Goodwill and Other Intangible Assets,
the amortization of goodwill and indefinite-lived intangible assets is
prohibited and requires such assets to be tested annually for impairment, or
more frequently if impairment indicators arise. The Company has determined
that its cable franchise rights and goodwill are indefinite-lived assets and
therefore not amortizable. Other finite-lived intangible assets, which consist primarily of
subscriber lists and covenants not to compete, continue to be amortized over
their useful lives of 5 to 10 years and 5 years, respectively. Amortization
expense for the years ended December 31, 2005, 2004 and 2003 was approximately
$2.1 million, $2.6 million and $3.4 million, respectively. The Companys
estimated aggregate amortization expense for the year of 2006 through 2009 and
beyond are $2.1 million, $2.1 million, $2.1 million, $2.1 million and $5.5
million, respectively. The Company operates its cable systems under non-exclusive cable
franchises that are granted by state or local government authorities for
varying lengths of time. As of December 31, 2005, the company held 377
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. The Company has assessed the value of franchise rights for impairment
under SFAS No. 142 by utilizing a discounted cash flow methodology. In
performing an impairment test in accordance with SFAS No. 142, the Company
considers the guidance contained in EITF Issue No. 02-7, Unit of Accounting
for Testing Impairment of Indefinite-Lived Intangible Assets,whereby the
Company considers assumptions, such as future cash flow expectations and other
future benefits related to the intangible assets, when measuring the fair value
of each cable systems other net assets. If the determined fair value of the
Companys franchise rights is less than the carrying amount on the financial
statements, an impairment charge would be recognized for the difference between
the fair value and the carrying value of the assets. Goodwill impairment is determined using a two-step process. The first step
compares the fair value of a reporting unit with its carrying amount, including
goodwill. If the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is considered not impaired and the second step
is unnecessary. If the carrying amount of a reporting unit exceeds its fair
value, the second step is performed to measure the amount of impairment loss. The second step compares the implied fair value of the reporting units
goodwill, calculated using the residual method, with the carrying amount of
that goodwill. If the carrying amount of the goodwill exceeds the implied fair
value, the excess is recognized as an impairment loss. The Company completed
its annual impairment test as of October 1, 2005, which reflected no impairment
of franchise rights and goodwill. Other Assets Other assets, net, primarily include financing costs and original issue
discount incurred to raise debt. Financing costs are deferred and amortized as
other expense and original issue discounts are deferred and amortized as
interest expense over the expected term of such financings. Segment Reporting SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, requires the disclosure of factors used to identify an
enterprises reportable segments. The Companys operations are organized and
managed on the basis of cable system clusters that represent operating segments
responsible for certain geographical 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 58




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS under SFAS No. 131 and believes the Company meets each of the
respective criteria set forth. Accordingly, management has identified broadband
services as the Companys one reportable segment. Accounting for Derivative Instruments The Company accounts for derivative instruments in accordance with SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities-an amendment of FASB Statement No. 133,and
SFAS No. 149, Amendment
of Statement 133 on Derivative Instruments and Hedging Activities.These
pronouncements require that all derivative instruments be recognized on the
balance sheet at fair value. The Company enters into interest rate exchange
agreements to fix the interest rate on a portion of its variable interest rate
debt to reduce the potential volatility in its interest expense that would
otherwise result from changes in market interest rates. The Companys
derivative instruments are recorded at fair value and are included in other
current assets, other assets and other liabilities of its consolidated balance
sheet. The Companys accounting policies for these instruments are based on
whether they meet its criteria for designation as hedging transactions, which
include the instruments effectiveness, risk reduction and, in most cases, a
one-to-one matching of the derivative instrument to its underlying transaction.
Gains and losses from changes in fair values of derivatives that are not
designated as hedges for accounting purposes are recognized in the consolidated
statement of operations. The Company has no derivative financial instruments
designated as hedges. Therefore, changes in fair value for the respective
periods were recognized in the consolidated statement of operations. Accounting for Asset Retirement The Company adopted SFAS No. 143, Accounting for Asset Retirement
Obligations, on January 1, 2003. SFAS No. 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company
reviewed its asset retirement obligations to determine the fair value of such
liabilities and if a reasonable estimate of fair value could be made. This
entailed the review of leases covering tangible long-lived assets as well as
the Companys rights-of-way under franchise agreements. Certain of the
Companys franchise agreements and leases contain provisions that require
restoration or removal of equipment if the franchises or leases are not
renewed. Based on historical experience, the Company expects to renew its
franchise agreements. In the unlikely event that any franchise agreement is not
expected to be renewed, the Company would record an estimated liability.
However, in determining the fair value of the Companys asset retirement
obligation, consideration will be given to the Cable Communications Policy Act
of 1984, which generally entitles the cable operator to the fair market value
for the cable system covered by a franchise, if renewal is denied and the
franchising authority acquires ownership of the cable system or effects a
transfer of the cable system to another person. Changes in these assumptions
based on future information could result in adjustments to estimated
liabilities. Upon adoption of SFAS No. 143, the Company determined that in certain
instances, it is obligated by contractual terms or regulatory requirements to
remove facilities or perform other remediation activities upon the retirement
of its assets. The Company initially recorded a $1.8 million asset in property,
plant and equipment and a corresponding liability of $1.8 million. Accounting for Long-Lived Assets In accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets,the Company periodically evaluates the
recoverability and estimated lives of its long-lived assets, including property
and equipment and intangible assets subject to amortization, whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable or the useful life has changed. The measurement for such impairment
loss is based on the fair value of the asset, typically based upon the future
cash flows discounted at a rate commensurate with the risk involved. Unless
presented separately, the loss is included as a component of either
depreciation expense or amortization expense, as appropriate. Comprehensive Income SFAS No. 130, Reporting Comprehensive Income,requires companies to
classify items of other comprehensive income by their nature in the financial
statements and display the accumulated balance of other 59




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS comprehensive income
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 items to report. Programming Costs The Company has various fixed-term carriage contracts to obtain
programming for its cable systems from content suppliers whose compensation is
generally based on a fixed monthly fee per customer. These programming
contracts are subject to negotiated renewal. Programming costs are recognized
when the Company distributes the related programming. These programming costs
are usually payable each month based on calculations performed by the Company
and are subject to adjustments based on the results of periodic audits by the
content suppliers. Historically, such audit adjustments have been immaterial to
the Companys total programming costs. Some content suppliers offer financial
incentives to support the launch of a channel and ongoing marketing support.
When such financial incentives are received, the Company defers them within
non-current liabilities in its consolidated balance sheets and recognizes such
amounts as a reduction of programming costs (which are a component of service
costs in the consolidated statement of operations) over the carriage term of
the programming contract. Income Taxes Since the Company is a limited liability company, it is not subject to
federal or state income taxes and no provision for income taxes relating to its
operations has been reflected in the accompanying consolidated financial
statements. Income or loss of the limited liability company is reported in
MCCs income tax returns. Reclassifications Certain reclassifications have been made to prior years amounts to
conform to the current years presentation. Recent Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123R, Amendment of Statement
123 on Share-Based Payment.SFAS No. 123R is supplemented by SEC Staff
Accounting Bulletin (SAB) No. 107, Share-Based Payment. SAB No. 107
expresses the SEC staffs views regarding the interaction between SFAS No. 123R
and certain SEC rules and regulations including the valuation of share-based
payment arrangements. SFAS No. 123R requires companies to expense the value of
employee stock options, stock granted through the employee stock purchase
program and similar awards. Pro forma disclosure is no longer an alternative.
We will adopt SFAS No. 123R using the modified prospective method effective
January 1, 2006. On the effective date of SFAS 123R, compensation costs will be
recognized (i) for all share-based payments granted after the effective date
and (ii) for all awards granted prior to the effective date that remain
unvested. We expect that the adoption of SFAS No. 123R will have a material
impact on the Companys consolidated results of operations and earnings per
share. In March 2005, the FASB issued FIN 47 as an interpretation of SFAS No.
143, Accounting for Conditional Asset Retirement Obligations. This
interpretation clarifies that the term conditional asset retirement obligation
as used in SFAS No. 143, refers to a legal obligation to perform an asset
retirement activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within the control of the
entity. The obligation to perform the asset retirement activity is
unconditional even though uncertainty exists about the timing and/or method of
settlement. Accordingly, an entity is required to recognize a liability for the
fair value of a conditional asset retirement obligation if the fair value of
the liability can be reasonably estimated. This interpretation also clarifies
when an entity would have sufficient information to reasonably estimate the
fair value of an asset retirement obligation. FIN 47 is effective no later than
the end of fiscal years ending after December 15, 2005. The adoption of this
standard has not had a material impact on the Companys financial position or
results of operations. In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections, which replaces APB Opinion No. 20, Accounting Changes, and SFAS
No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No.
154 is effective no later than the end of fiscal years ending after December
15, 2005 and requires retrospective application to prior period financial
statements of voluntary changes in accounting principle, unless it is
impractical to determine either the period-specific effects or the cumulative
effect of the 60




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS change. The Companys consolidated financial position, results of
operations or cash flows will only be impacted by SFAS No. 154 if it implements
a voluntary change in accounting principle or correct accounting errors in
future periods. (3)  Property, Plant and Equipment As of December 31, 2005 and 2004, property, plant and equipment consisted
of (dollars in thousands): 2005
    
    2004Land and land improvements
    
    $
    4,577
    
    
    $
    4,577Buildings and leasehold improvements
    
    
    24,487
    
    
    
    24,026Cable systems, equipment and subscriber devices
    
    
    1,047,978
    
    
    
    959,096Vehicles
    
    
    33,908
    
    
    
    31,662Furniture, fixtures and office equipment
    
    
    12,576
    
    
    
    10,7811,123,526
    
    
    
    1,030,142Accumulated depreciation
    
    
    (405,316
    )
    
    
    (306,894
    )Property, plant and equipment, net
    
    $
    718,210
    
    
    $
    723,248 Depreciation expense for the years ended December 31, 2005, 2004 and 2003
was approximately $113.2 million, $105.0 million and $109.6 million,
respectively. As of December 31, 2005 and 2004, the Company had property under
capitalized leases of $5.5 million before accumulated depreciation, and $2.3
million and $3.7 million, respectively, net of accumulated depreciation.
During the years ended December 31, 2005, 2004 and 2003 the Company incurred
gross interest expense of $98.8 million, $87.4 million and $86.0 million,
respectively, of which $1.6 million, $1.3 million and $3.4 million was
capitalized. (4) Accrued Expenses Accrued expenses consist of the following as of December 31, 2005 and 2004
(dollars in thousands): December 31,
    
    December 31,2005
    
    2004Accrued interest
    
    $
    29,732
    
    
    $
    24,342Accrued payroll and benefits
    
    
    11,917
    
    
    
    10,477Accrued programming costs
    
    
    32,486
    
    
    
    36,356Accrued property, plant and equipment
    
    
    6,869
    
    
    
    5,822Accrued
service costs
    
    
    6,543
    
    
    
    4,609Accrued taxes and fees
    
    
    16,005
    
    
    
    12,804Accrued telecommunications
    
    
    5,447
    
    
    
    9,160Subscriber
advance payments
    
    
    4,907
    
    
    
    4,557Other accrued expenses
    
    
    7,069
    
    
    
    7,252$
    120,975
    
    
    $
    115,379 61




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (5) Debt As of December 31, 2005 and 2004, debt consisted of (dollars in
thousands): 2005
    
    2004Bank credit
facilities
    
    $
    816,250

    
    $
    960,5008 1/2% senior
notes
    
    
    200,000

    
    
    11% senior
notes
    
    
    400,000

    
    
     400,000Capital lease
obligations
    
    
    2,120

    
    
    3,455$
    1,418,370

    
    $
    1,363,955Less: Current
portion
    
    
    43,858

    
    
    36,316Total long-term
debt
    
    $
    1,374,512

    
    $
    1,327,639 Bank Credit Facility The Company maintains a $1.4 billion senior secured credit facility (the
credit facility), consisting of a revolving credit facility (the
revolver), a $300 million term loan A (the term loan A)
and a $500 million term loan B (the term loan B). In October 2005,
the Company amended the revolver: (i) to increase the revolving credit commitment from approximately
$543.0 million to approximately $650.5 million, of which approximately $430.3
million is not subject to scheduled reductions prior to the termination date;
and (ii) to extend the of the termination date of the commitments not subject
to reductions from March 31, 2010 to December 31, 2012. The term
loan A matures on February 1, 2014 and, beginning on September 30, 2004, has
been subject to quarterly reductions ranging from 1.00% to 8.00% of the
original amount. In May 2005, the
operating subsidiaries of Mediacom Broadband LLC refinanced the term loan B. The new term loan B matures on February 1, 2014 and
is subject to quarterly reductions of 0.25% from June 30, 2005 to December 31,
2013, and 91.25% on maturity of the original amount.
As of December 31, 2005, the maximum commitment available under the revolver was $644.4 million and the revolver had an outstanding balance of
$56.0 million, the term loan A and B had outstanding balances of
$264.0 million and $496.3 million. The
credit agreement of the credit facility (the credit
agreement) provides for interest at varying rates
based upon various borrowing options and certain financial ratios, and for
commitment fees of
3/8%
to 5/8% per annum on the unused portion of the available
revolving credit commitment. Interest on outstanding revolver and
term loan A balances are payable at either the Eurodollar rate plus a
floating percentage ranging from 1.00% to 2.50% or the base rate plus a
floating percentage ranging from 0.25% to 1.50%. Interest on the term loan B is payable at either the Eurodollar rate plus 2.00% or the base
rate plus 1.00%. For the year ending December 31, 2006, the maximum commitment amount under
the revolver will be reduced by $30.4 million or 12.5% of the
original commitment amount, the outstanding debt under the term loan
A will be reduced by $37.5 million or 12.5% of the original amount, and the
term loan B will be reduced by $5.0 million or 1.0% of the original
amount. The credit agreement requires compliance with certain financial
covenants including, but not limited to, leverage, interest coverage and debt
service coverage ratios, as defined therein. The credit agreement
also requires compliance with other covenants including, but not limited to,
limitations on mergers and acquisitions, consolidations and sales of certain
assets, liens, the incurrence of additional indebtedness, certain restricted
payments, and certain transactions with affiliates. The Company was in
compliance with all covenants of the credit agreement as of and for
all periods in the year ended December 31, 2005. The credit agreement is collateralized by Mediacom Broadbands
pledge of all its ownership interests in its operating subsidiaries and is
guaranteed by Mediacom Broadband on a limited recourse basis to the extent of
such ownership interests. 62




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The average interest rate on debt outstanding under the credit
agreement was 7.9% and 4.3% for the year ended December 31, 2005 and 2004,
respectively, before giving effect to the interest rate exchange agreements
discussed below. As of December 31, 2005, the Company had approximately $578.6
million of unused bank commitments under the Broadband credit agreement. Interest Rate Exchange Agreements The Company uses interest rate exchange agreements in order to fix the
interest rate on its floating rate debt. As of December 31, 2005, the Company
had interest rate exchange agreements with various banks pursuant to which the
interest rate on $400.0 million is fixed at a weighted average rate of
approximately 3.4%, 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, the Company is exposed to credit loss in the
event of nonperformance by the other parties. However, due to high
creditworthiness of its counterparties, which are major banking firms with
investment grade ratings, the Company does not anticipate their nonperformance.
The Companys interest rate exchange agreements are scheduled to expire, in
the amounts of $250 million and $150 million during the years ended December
31, 2006 and 2007. 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 interest rates, the remaining time to maturities and the
creditworthiness of the Companys counterparties. At December 31, 2005, based
on the mark-to-market valuation, the Company recorded an investment in
derivatives of $5.5 million, offset by a $0.1 million derivative liability. As
a result of the quarterly mark-to-market valuation of these interest rate
swaps, the Company recorded a gain on derivative instruments amounting to $6.6
million and $10.9 million for the years ended December 31, 2005 and 2004,
respectively. Senior Notes On June 29, 2001, Mediacom Broadband and Mediacom Broadband Corporation
(the Issuers) jointly issued $400.0 million in aggregate principal amount of
11% senior notes due July 2013 (the 11% Senior Notes). The 11% Senior Notes
are unsecured obligations of the Issuers, and the indenture for the 11% 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 the Issuers. Interest accrues at 11% per
annum, beginning from the date of issuance and is payable semi-annually on
January 15 and July 15 of each year, which commenced on January 15, 2002. On August 30, 2005, Mediacom Broadband and Mediacom Broadband Corporation,
issued $200.0 million aggregate principal amount of8 1/2% senior notes due
October 2015 (the 8 1/2% Senior Notes due 2015). The 8 1/2% Senior Notes
due 2015 are unsecured obligations of Mediacom Broadband LLC, and the indenture
for the 8 1/2% Senior Notes due 2015 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
Broadband LLC. The Company incurred approximately $7.1 million of financing
costs associated with the issuance of the 8 1/2% Senior Notes due 2015, which
included $3.3 million of original issue discount. The Issuers were in compliance with the indentures governing their Senior
Notes as of and for all periods in the year ended December 31, 2005. Fair Value and Debt Maturities The fair value of the Companys bank credit facility approximates the
carrying value. The fair values at December 31, 2005 of the 11% Senior Notes
and 8 1/2% Senior Notes was approximately $430.5 million and $186.3 million,
respectively. 63




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The stated maturities of all debt outstanding as of December 31, 2005 are
as follows (dollars in thousands): 2006
    
    $
    43,8582007
    
    
    65,7232008
    
    
    65,0392009
    
    
    87,5002010
    
    
    29,000Thereafter
    
    
    1,127,250$
    1,418,370 (6) Preferred Members Interests On July 18, 2001, the Company received a $150.0 million preferred equity
investment from Mediacom LLC. The preferred equity investment has a 12% annual
dividend, payable quarterly in cash. During each of the years ended December
31, 2005 and 2004, the Company paid in aggregate $18.0 million in cash
dividends on the preferred equity. (7) Members Equity As a wholly-owned subsidiary of MCC, the Companys business affairs,
including its financing decisions, are directed by MCC. For the years ended
December 31, 2005, 2004 and 2003, the Company paid cash dividends to MCC of
approximately $23.5 million, $10.7 million and $13.6 million, respectively, as
permitted under the Companys debt arrangements. (8) Related Party Transactions MCC manages the Company pursuant to a management agreement with each
operating subsidiary. Under such 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 construction, development, operation, maintenance, repair, and
ownership of its systems. Management fees for the years ended December 31,
2005, 2004 and 2003 amounted to approximately $12.2 million, $10.6 million and
$9.3 million, respectively. As compensation for the performance of its services, subject to certain
restrictions, MCC is entitled under each management agreement to receive
management fees in an amount not to exceed 4.0% 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. Mediacom LLC, a wholly-owned subsidiary of MCC, is a preferred equity
investor in the Company. See Note 7 for a discussion on the transactions
between these two parties. (9) 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 $1.2 million for the year ended December
31, 2005 and 2004 and $1.1 million for the year ended December 31, 2003. 64




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (10) MCC Stock
Options, Employee Stock Purchase Plan and Other Stock-based
Compensation Under MCCs 2003 Incentive Plan, certain employees of the Company received
grants of MCC stock options. The following table summarizes information concerning stock option
activity for the years ended December 31, 2005, 2004 and 2003: Weighted AverageShares
    
    Exercise PriceOutstanding at December 31, 2002
    
    
    455,936
    
    
    $
    11.96Granted
    
    
    112,000
    
    
    
    6.96Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (43,438
    )
    
    
    11.27Outstanding at December 31, 2003
    
    
    524,498
    
    
    $
    10.95Granted
    
    
    2,000
    
    
    
    8.82Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (24,513
    )
    
    
    11.96Outstanding at December 31, 2004
    
    
    501,985
    
    
    $
    10.89Granted
    
    
    36,000
    
    
    
    5.42Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (33,750
    )
    
    
    10.77Outstanding at December 31, 2005
    
    
    504,235
    
    
    $
    10.51 The Companys employees had options exercisable on underlying MCC shares
amounting to 270,441, 184,094 and 83,700, with average prices of $11.05, $11.24
and $11.96 at December 31, 2005, 2004 and 2003, respectively. The weighted average fair value
of options granted was $2.63, $4.25 and $3.37 per share for the years ended
December 31, 2005, 2004 and 2003, respectively. The following table summarizes information concerning stock options
outstanding as of December 31, 2005: Options Outstanding
    
    Options ExercisableWeightedNumber
    
    Average
    
    
    
    
    
    NumberRange of
    
    Outstanding at
    
    Remaining
    
    Weighted
    
    Exercisable at
    
    WeightedExercise
    
    December 31,
    
    Contractual
    
    Average
    
    December 31,
    
    AveragePrices
    
    2005
    
    Life
    
    Exercise Price
    
    2005
    
    Exercise Price$5.00 to
$11.96
    
    
    
    504,235
    
    
    
    6.75
    
    
    
    $10.51
    
    
    
    270,441
    
    
    
    $11.05 The Company accounts for the stock option plan 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 on the date of grant. SFAS No. 148 requires that information be
determined as if the Company had accounted for employee stock options under the
fair value method of this statement, including disclosing pro forma information
regarding net loss and loss per share. The weighted average fair value of all
of the employee options was estimated on the date of grant using the
Black-Scholes model with the following weighted average assumptions: (i) risk
free average interest rate of 3.9%, 3.7%, and 3.8% for the years ended December
31, 2005, 2004 and 2003, respectively; (ii) expected dividend yields of 0%;
(iii) expected lives of 6 years; and (iv) expected volatility of 45%. Had
compensation expense been recorded for the employee options under SFAS No. 148,
the compensation expense would have been $555,000, $575,000 and $549,000 for
the years ended December 31, 2005, 2004 and 2003, respectively. Employee Stock Purchase Plan MCC maintains an employee stock purchase plan (ESPP). Under the plan,
all of the Companys employees are allowed to participate in the purchase of
MCCs Class A Common Stock at a 15% discount on the date of the 65




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MEDIACOM BROADBAND LLC AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS allocation. MCC
shares purchased by the Companys employees amounted to 120,872, 117,279 and
131,367 in 2005, 2004 and 2003 respectively. The net proceeds to MCC were
approximately $784,000, $784,000, and $793,000 in 2005, 2004 and 2003
respectively. Compensation expense was not recorded on the distribution of
these shares in accordance with APB No. 25. The weighted average fair value of
all of the stock issued under the ESPP was estimated on the purchase date using
the Black-Scholes model with the following assumptions: (i) discount rate equal
to the six year bond rate on the stock purchase date; (ii) expected dividend
yields of 0%; (iii) expected lives of six months; and (iv) expected volatility
of 45%. Had compensation expense been recorded for the stock issued for the
ESPP under SFAS No. 148, the compensation costs would have been approximately
$221,000, $221,000 and $223,000 respectively, for the years ended December 31,
2005, 2004 and 2003, respectively. Other Stock-based Compensation During
the year ended December 31, 2005, certain employees received
187,600 restricted stock units on underlying MCC shares. The
restricted stock units were issued at a weighted average price of
$5.48 per share, with a weighted
average vesting period of 3.7 years. The Company recorded $217,000 of compensation
expense in its consolidated statements of operations related to
the grants of restricted stock units. During the
year ended December 31, 2005, 2,500 restricted stock units were forfeited. Had the Company applied the fair value recognition provisions of SFAS No.
123 to stock-based compensation, the Companys net income (loss) would have
been changed from the as reported amounts to the pro forma amounts as
follows (dollars in thousands): 2005
    
    
    2004
    
    
    2003Net income, as reported
    
    $
    11,003
    
    
    $
    34,852
    
    
    $
    10,082Add: Total stock-based compensation expense included in
net income as reported above
    
    
    217
    
    
    
    
    
    
    
    Deduct: Total stock based compensation expense determined
under fair value based method of all awards
    
    
    (993
    )
    
    
    (821
    )
    
    
    (723
    )Pro forma, net income
    
    $
    10,227
    
    
    $
    34,031
    
    
    $
    9,359 (11) Commitments and Contingencies Under various lease and rental agreements for offices, warehouses and
computer terminals, the Company had rental expense of approximately $2.5
million, $2.2 million and $2.2 million for the years ended December 31, 2005,
2004 and 2003, respectively. Future minimum annual rental payments are as
follows (dollars in thousands): 2006
    
    $
    1,8002007
    
    
    1,5162008
    
    
    1,2542009
    
    
    1,1432010
    
    
    953Thereafter
    
    
    2,135$
    8,801 In addition, the Company rents utility poles in its operations generally
under short-term arrangements, but the Company expects these arrangements to
recur. Total rental expense for utility poles was approximately $4.4 million,
$4.3 million and $4.0 million for the years ended December 31, 2005, 2004 and
2003 respectively. As of December 31, 2005, approximately $9.8 million of letters of credit
were issued in favor of various parties to secure the Companys performance
relating to franchise and lease requirements. The fair value of such letters
of credit were not material. Legal Proceedings 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. 66




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SCHEDULE II MEDIACOM BROADBAND LLC AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
(All dollar amounts in thousands) Additions
    
    
    DeductionsBalance at
    
    
    Charged to
    
    
    Charged to
    
    
    Charged to
    
    
    Charged to
    
    
    Balance atbeginning of
    
    
    costs
    
    
    other
    
    
    costs
    
    
    other
    
    
    end ofperiod
    
    
    and expenses
    
    
    accounts
    
    
    and expenses
    
    
    accounts
    
    
    periodDecember 31, 2003Allowance for doubtful accountsCurrent receivables
    
    $
    2,683
    
    
    $
    4,534
    
    
    $
    
    
    
    $
    4,762
    
    
    $
    
    
    
    
    
    
    
    $
    2,455December 31, 2004Allowance for doubtful accountsCurrent receivables
    
    $
    2,455
    
    
    $
    1,323
    
    
    $
    347
    
    
    $
    1,322
    
    
    $
    
    
    
    
    
    
    
    $
    2,803December 31, 2005Allowance for doubtful accountsCurrent
receivables
    
    $
    2,803
    
    
    $
    886
    
    
    $
    
    
    
    $
    1,384
    
    
    $
    
    
    
    463
    
    
    
    $
    1,842     67




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ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 9A. CONTROLS AND PROCEDURES Mediacom Broadband LLC The management of Mediacom Broadband LLC (Mediacom Broadband) carried
out an evaluation, with the participation of Mediacom Broadbands Chief
Executive Officer and Chief Financial Officer, of the effectiveness of Mediacom
Broadbands disclosure controls and procedures as of December 31, 2005. Based
upon that evaluation, Mediacom Broadbands Chief Executive Officer and Chief
Financial Officer concluded that Mediacom Broadband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 Broadbands internal control
over financial reporting in connection with the evaluation required by Rule
15d-15(d) under the Exchange Act that occurred during the quarter ended
December 31, 2005 that has materially affected, or is reasonably likely to
materially affect, Mediacom Broadbands internal control over financial
reporting. Mediacom Broadband Corporation The management of Mediacom Broadband Corporation (Mediacom Broadband)
carried out an evaluation, with the participation of Mediacom Broadbands Chief
Executive Officer and Chief Financial Officer, of the effectiveness of Mediacom
Broadbands disclosure controls and procedures as of December 31, 2005. Based
upon that evaluation, Mediacom Broadbands Chief Executive Officer and Chief
Financial Officer concluded that Mediacom Broadbands disclosure controls and
procedures were effective to ensure that information required to be disclosed
by Mediacom Broadband 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 Broadbands internal control
over financial reporting in connection with the evaluation required by Rule
15d-15(d) under the Exchange Act that occurred during the quarter ended
December 31, 2005 that has materially affected, or is reasonably likely to
materially affect, Mediacom Broadbands internal control over financial
reporting. 
 ITEM 9B. OTHER INFORMATION None. 68




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PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS MCC is our sole voting member and manager. MCC serves as manager of our
operating subsidiaries. The executive officers of Mediacom Broadband LLC and
the directors and executive officers of MCC and Mediacom Broadband Corporation
are: Name
    
    Age
    
    
    PositionRocco B. Commisso
    
    
    56
    
    
    Chairman and Chief Executive Officer of MCC; Manager,
Chairman and Chief Executive Officer of Mediacom Broadband
LLC; and President, Chief Executive Officer and Director
of Mediacom Broadband CorporationMark E. Stephan
    
    
    49
    
    
    Executive Vice President, Chief Financial Officer and
Director of MCC; Executive Vice President, Chief
Financial Officer and Treasurer of Mediacom Broadband LLC;
and Treasurer and Secretary of Mediacom Broadband
CorporationJohn G. Pascarelli
    
    
    44
    
    
    Executive Vice President, Operations of MCCItalia Commisso Weinand
    
    
    52
    
    
    Senior Vice President, Programming and Human Resources of
MCCJoseph E. Young
    
    
    57
    
    
    Senior Vice President, General Counsel and Secretary of MCCCharles J. Bartolotta
    
    
    51
    
    
    Senior Vice President, Customer Operations of MCCCalvin G. Craib
    
    
    51
    
    
    Senior Vice President, Business Development of MCCBrian Walsh
    
    
    40
    
    
    Senior Vice President and Corporate Controller of MCCCraig S. Mitchell
    
    
    47
    
    
    Director of MCCWilliam S. Morris III
    
    
    71
    
    
    Director of MCCThomas V. Reifenheiser
    
    
    70
    
    
    Director of MCCNatale S. Ricciardi
    
    
    57
    
    
    Director of MCCRobert L. Winikoff
    
    
    59
    
    
    Director of MCC Rocco B. Commissohas 27 years of experience with the cable television
industry and has served as our Chairman and Chief Executive Officer since
founding our predecessor company in July 1995. From 1986 to 1995, he served as
Executive Vice President, Chief Financial Officer and a director of Cablevision
Industries Corporation. Prior to that time, Mr. Commisso served as Senior Vice
President of Royal Bank of Canadas affiliate in the United States from 1981,
where he founded and directed a specialized lending group to media and
communications companies. Mr. Commisso began his association with the cable
industry in 1978 at The Chase Manhattan Bank, where he managed the banks
lending activities to communications firms including the cable industry. He
serves on the board of directors and executive committees of the National Cable
Television Association and Cable Television Laboratories, Inc., and on the
board of directors of C-SPAN and the National Italian American Foundation. Mr.
Commisso holds a Bachelor of Science in Industrial Engineering and a Master of
Business Administration from Columbia University. 69




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Mark E. Stephanhas 19 years of experience with the cable television
industry and has served as our Executive Vice President, Chief Financial
Officer and Treasurer since November 2003. Prior to that he was Senior Vice
President, Chief Financial Officer and Treasurer since the commencement of our
operations in March 1996. Before joining us, Mr. Stephan served as Vice
President, Finance for Cablevision Industries from July 1993. Prior to that
time, Mr. Stephan served as Manager of the telecommunications and media lending
group of Royal Bank of Canada. John G. Pascarellihas 25 years of experience in the cable television
industry and has served as our managers Executive Vice President, Operations
since November 2003. Prior to that he was our managers Senior Vice President,
Marketing and Consumer Services from June 2000 and our managers Vice President
of Marketing from March 1998. Before joining our manger in March 1998, Mr.
Pascarelli served as Vice President, Marketing for Helicon Communications
Corporation from January 1996 to February 1998 and as Corporate Director of
Marketing for Cablevision Industries from 1988 to 1995. Prior to that time,
Mr. Pascarelli served in various marketing and system management capacities for
Continental Cablevision, Inc., Cablevision Systems and Storer Communications.
Mr. Pascarelli is a member of the board of directors of the Cable and
Telecommunications Association for Marketing. Italia Commisso Weinandhas 29 years of experience in the cable television
industry. Before joining our manager in April 1996, Ms. Weinand served as
Regional Manager for Comcast Corporation from July 1985. Prior to that time,
Ms. Weinand held various management positions with Tele-Communications, Inc.,
Times Mirror Cable and Time Warner, Inc. Ms. Weinand is the sister of Mr.
Commisso. Joseph E. Younghas 21 years of experience with the cable television
industry. Before joining our manager in November 2001 as Senior Vice
President, General Counsel, Mr. Young served as Executive Vice President, Legal
and Business Affairs, for LinkShare Corporation, an Internet-based provider of
marketing services, from September 1999 to October 2001. Prior to that time,
he practiced corporate law with Baker & Botts, LLP from January 1995 to
September 1999. Previously, Mr. Young was a partner with the Law Offices of
Jerome H. Kern and a partner with Shea & Gould. Charles J. Bartolottahas 23 years of experience in the cable television
industry. Before joining our manager in October 2000, Mr. Bartolotta served as
Division President for AT&T Broadband, LLC from July 1998, where he was
responsible for managing an operating division serving nearly three million
customers. Prior to that time, he served as Regional Vice President of
Tele-Communications, Inc. from January 1997 and as Vice President and General
Manager for TKR Cable Company from 1989. Prior to that time, Mr. Bartolotta
held various management positions with Cablevision Systems Corporation. Calvin G. Craibhas 24 years of experience in the cable television
industry and has served as our managers Senior Vice President, Business
Development since August 2001. Prior to that he was our managers Vice
President, Business Development since April 1999. Before joining our manager
in April 1999, Mr. Craib served as Vice President, Finance and Administration
for Interactive Marketing Group from June 1997 to December 1998 and as Senior
Vice President, Operations, and Chief Financial Officer for Douglas
Communications from January 1990 to May 1997. Prior to that time, Mr. Craib
served in various financial management capacities at Warner Amex Cable and
Tribune Cable. Brian M. Walshhas 18 years of experience in the cable television industry
and has served as our managers Senior Vice President and Corporate Controller
since February 2005. Prior to that he was our managers Senior Vice President,
Financial Operations from November 2003, our managers Vice President, Finance
and Assistant to the Chairman from November 2001, our managers Vice President
and Corporate Controller from February 1998 and our managers Director of
Accounting from November 1996. Before joining us in April 1996, Mr. Walsh held
various management positions with Cablevision Industries from 1988 to 1995. Craig S. Mitchellhas held various management positions with Morris
Communications Company LLC for more than the past six years. He currently
serves as its Senior Vice President of Finance, Treasurer and Secretary and is
also a member of its board of directors. William S. Morris IIIhas served as the Chairman and Chief Executive
Officer of Morris Communications for more than the past six years. He was the
Chairman of the board of directors of the Newspapers Association of America for
1999-2000. 70




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Thomas V. Reifenheiserserved for more than six years as a Managing
Director and Group Executive of the Global Media and Telecom Group of Chase
Securities Inc. until his retirement in September 2000. He joined Chase in
1963 and had been the Global Media and Telecom Group Executive since 1977. He
also had been a member of the Management Committee of The Chase Manhattan Bank.
Mr. Reifenheiser is also a member of the board of directors of Cablevision
Systems Corporation and Lamar Advertising Company. Natale S. Ricciardihas held various management positions with Pfizer Inc.
for more than the past six years. Mr. Ricciardi joined Pfizer in 1972 and
currently serves as its President, Global Manufacturing, with responsibility
for all of Pfizers manufacturing facilities. Robert L. Winikoffhas been a partner of the law firm of Sonnenschein Nath
& Rosenthal, LLP since August 2000. Prior thereto, he was a partner of the law
firm of Cooperman Levitt Winikoff Lester & Newman, P.C. for more than five
years. Sonnenschein Nath & Rosenthal, LLP currently serves as our outside
general counsel, and prior to such representation, Cooperman Levitt Winikoff
Lester & Newman, P.C. served as our outside general counsel from 1995. The board of directors of our manager has adopted a code of ethics
applicable to all of our employees, including our chief executive officer,
chief financial officer and chief accounting officer. This code of ethics was
filed as an exhibit to our annual report on Form 10-K for the year ended
December 31, 2003. 71




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ITEM 11. EXECUTIVE COMPENSATION The executive officers and directors of MCC are compensated exclusively by
MCC and do not receive any separate compensation from Mediacom Broadband LLC or
Mediacom Broadband Corporation. 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 Broadband Corporation is a wholly-owned subsidiary of Mediacom
Broadband LLC. MCC is the sole voting member of Mediacom Broadband. 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 4.0% of our gross operating revenues. For the year ended December
31, 2005, MCC received $12.2 million of such management fees, approximately
2.0% of our gross operating revenues. Other Relationships In July 2001, we received a $150.0 million preferred equity investment
from Mediacom LLC. The preferred equity investment has a 12% annual dividend,
payable quarterly in cash. For the year ended December 31, 2005, we paid in
aggregate $18.0 million in cash dividends on the preferred equity. In January 2005, we borrowed $88.0 million from Mediacom LLC. The loan
was funded with borrowings under Mediacom LLCs 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. In April 2005, we repaid this demand note and accrued
interest of $1.5 million. 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 subsidiary credit facility. The Bank of New York, an affiliate of BNY
Capital Markets, Inc., acts as trustee for certain of our senior
notes. Deutsche Bank Trust Company Americas, an affiliate of Deutsche
Bank Securities Inc., acts as registrar and paying agent for certain
of our senior notes. 72




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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2005
    
    
2004Audit fees
    
    
    414
    
    
    
    225Audit-related fees
    
    
    306
    
    
    
    658Tax fees
    
    
    8
    
    
    
    All other fees
    
    
    95
    
    
    
    11Total
    
    $
    823
    
    
    $
    893   73




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PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) Financial Statements Our financial statements as set forth in the Index to Consolidated
Financial Statements under Part II, Item 8 of this Form 10-K are hereby
incorporated by reference. (b) Exhibits The following exhibits, which are numbered in accordance with Item 601 of
Regulation S-K, are filed herewith or, as noted, incorporated by reference
herein: ExhibitNumber
    
    Exhibit Description3.1
    
    Certificate of Formation of Mediacom Broadband LLC
(1)3.2
    
    Amended and Restated Limited Liability Company Operating Agreement
of Mediacom Broadband LLC
(1)3.3
    
    Certificate of Incorporation of Mediacom Broadband Corporation
(1)3.4
    
    By-Laws of Mediacom Broadband Corporation
(1)4.1(a)
    
    Indenture relating to 11% senior notes due 2013 of Mediacom
Broadband LLC and Mediacom Broadband Corporation
(1)4.1(b)
    
    Indenture Supplement No. 1, dated as of August 6, 2002, to the
Indenture relating to 11% senior notes due 2013 of Mediacom
Broadband LLC and Mediacom Broadband Corporation
(2)4.2
    
    Indenture relating to 8 1/2%
senior notes due 2015 of Mediacom Broadband LLC and
Mediacom Broadband Corporation
(3)10.1(a)
    
    Amendment and Restatement, dated as of
December 16, 2004, of Credit Agreement dated as of July 18,
2001, among the operating subsidiaries of Mediacom
Broadband LLC, the lenders thereto and JPMorgan Chase Bank, as
administrative agent for the
lenders (4)10.2(b)
    
    Amendment No. 1, dated as of October 11, 2005, to the
Amendment and Restatement, dated as of December 16, 2004, of
Credit Agreement, dated as of July 18,
2001, among the operating subsidiaries of Mediacom
Broadband LLC, the lenders thereto and JPMorgan Chase Bank, as
administrative agent for the lenders. (5)12.1
    
    Schedule of Computation of Ratio of Earnings to Fixed Charges and
Preferred Dividends14.1
    
    Code of Ethics (6)21.1
    
    Subsidiaries of Mediacom Broadband LLC
(1)23.1
    
    Consent of PricewaterhouseCoopers LLP 74




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##### Table of Contents



ExhibitNumber
    
    Exhibit Description31.1
    
    Rule 15d-14(a) Certifications of Mediacom Broadband LLC31.2
    
    Rule 15d-14(a) Certifications of Mediacom Broadband Corporation32.1
    
    Section 1350 Certifications of Mediacom Broadband LLC32.2
    
    Section 1350 Certifications of Mediacom Broadband Corporation (c) Financial Statement Schedule The following financial statement schedule  Schedule II  Valuation of
Qualifying Accounts  is part of this Form 10-K and is on

page 67.   (1)
    
    Filed as an exhibit to the Registration Statement on Form S-4 (File No.
333-72440) of Mediacom Broadband LLC and Mediacom Broadband Corporation
and incorporated herein by reference.(2)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002 of Mediacom Communications Corporation and
incorporated herein by reference.(3)
    
    Filed as an exhibit to the Current Report on
Form 8-K, dated August 30, 2005, of Mediacom Broadband LLC
and Mediacom Broadband 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, 2004 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, 2005 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 Broadband LLC and incorporated herein
by reference. 75




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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 Broadband LLCMarch 30, 2006
    
    
    By:
/s/ Rocco B.
CommissoRocco
B. Commisso
     Manager, Chairman and
     Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Rocco B. Commisso
    
    Manager, Chairman and
Chief Executive
    
    March 30, 2006Rocco B. Commisso
    
Officer (principal
executive
officer)/s/ Mark E. Stephan
    
Executive
Vice President,Chief Financial
    
March 30, 2006Mark E. Stephan
    
Officer
and Treasurer
(principal
financialofficer and
principal accounting officer)
 76




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. Mediacom Broadband CorporationMarch 30, 2006
    
    
    By:
/s/
Rocco B. CommissoRocco
B. Commisso
     President, Chief Executive
     Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Rocco B. Commisso
    

President, Chief Executive Officer and Director (principal
    
    March 30, 2006Rocco B. Commisso
    
executive officer)/s/ Mark E. Stephan
    
Treasurer and Secretary
(principal financial
officer and principal
    
March 30, 2006Mark E. Stephan
    
accounting officer)
 77