As filed with the Securities and Exchange Commission on April 30, 2010

Registration No. 333-165615

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 1

to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

Mediacom LLC

Mediacom Capital Corporation

(Exact name of registrants as specified in their charters)

 

 

100 Crystal Run Road

Middletown, New York 10941

(845) 695-2600

(Address, including zip code, and telephone number,

including area code, of registrants’ principal executive offices)

 

Rocco B. Commisso

Mediacom LLC

100 Crystal Run Road

Middletown, New York 10941

(845) 695-2600

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 

Copies to:

 

Robert W. Murray Jr., Esq.

Lee D. Charles, Esq.

Baker Botts L.L.P.

30 Rockefeller Plaza

New York, New York 10112-4498

(202) 408-2500

 

Approximate date of commencement of proposed sale of the securities to the public:  As soon as practicable following the effectiveness of this Registration Statement.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, or smaller reporting companies. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) o

 

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) o

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

PROSPECTUS

 

 

 

 

 

Mediacom LLC

Mediacom Capital Corporation

 

Offer to Exchange
Up to $350,000,000 Principal Amount of
9.125% Senior Notes due 2019
for
a Like Principal Amount of
9.125% Senior Notes due 2019
that have been registered under the Securities Act of 1933

 

This Exchange Offer will expire at 5:00 P.M.,
New York City time, on June 1, 2010, unless extended.

 

Mediacom LLC and Mediacom Capital Corporation are offering to exchange registered 9.125% Senior Notes due 2019, or the “exchange notes,” for any and all of their unregistered 9.125% Senior Notes due 2019, or the “original notes,” that were issued in a private offering on August 25, 2009. We refer to the original notes and the exchange notes together in this prospectus as the “notes.” We refer to this exchange as the “exchange offer.” The exchange notes are substantially identical to the original notes, except the exchange notes are registered under the Securities Act of 1933, as amended, or the “Securities Act,” and the transfer restrictions and registration rights, and related special interest provisions, applicable to the original notes will not apply to the exchange notes. The exchange notes will represent the same debt as the original notes and we will issue the exchange notes under the same indenture used in issuing the original notes.

 

Terms of the exchange offer:

 

 

 

See “Risk Factors” beginning on page 12 for a discussion of risks you should consider in connection with the exchange offer and an investment in the exchange notes.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is April 30, 2010.

 

Table of contents

 

 

 

 

 

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS AND IN THE ACCOMPANYING LETTER OF TRANSMITTAL. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH ANY OTHER OR DIFFERENT INFORMATION. IF YOU RECEIVE ANY UNAUTHORIZED INFORMATION, YOU MUST NOT RELY ON IT. THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS LEGAL TO EXCHANGE THE ORIGINAL NOTES FOR THE EXCHANGE NOTES AND THIS PROSPECTUS IS NOT AN OFFER TO EXCHANGE OR A SOLICITATION TO EXCHANGE THE ORIGINAL NOTES FOR THE EXCHANGE NOTES IN ANY JURISDICTION WHERE AN OFFER OR EXCHANGE WOULD BE UNLAWFUL. YOU SHOULD ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS.

 

Each broker dealer that receives exchange notes in exchange for original notes acquired for its own account as a result of market making or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. By so acknowledging and by delivering a prospectus, a broker dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act of 1933, as amended, which we refer to in this prospectus as the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by broker dealers in connection with such resales. We have agreed that, starting on the date of the completion of this exchange offer and ending 270 days thereafter, we will make this prospectus (as it may be amended or supplemented) available to any broker dealer for such purpose. In addition, until July 29, 2010 (90 days after the date of this prospectus), all dealers effecting transactions in the exchange notes may be required to deliver a prospectus. See “Plan of Distribution.”

 

We have filed with the Securities and Exchange Commission, or SEC, a registration statement on Form S-4, including all required exhibits and schedules, under the Securities Act to register the offer and exchange of the exchange notes for the original notes. This prospectus is part of that registration statement. In this prospectus we refer to that registration statement, together with all amendments, exhibits and schedules thereto, as the “registration statement.”

 

As is permitted by the rules and regulations of the SEC, this prospectus, which is part of the registration statement, omits some information, exhibits, schedules and undertakings set forth in the registration statement. For further information with respect to us, and the securities offered by this prospectus, please refer to the registration statement. You may read and, at prescribed rates, copy the registration statement at the public reference room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the public reference room may be obtained by calling the SEC at (800) 732-0330. The SEC also maintains a website at http://www.sec.gov that contains reports and other information regarding registrants that make electronic filings with the SEC using its EDGAR system, and you may access the registration statement by means of the SEC website. You may also view a copy of the registration statement, and other filings we make with the SEC, on our website at www.mediacomcc.com by clicking through the following tabs: “About Us,” then “About Mediacom,” then “Investor Relations” and lastly “SEC Filings.” However, neither the information contained in, or that can be accessed through, our website, nor our filings on the SEC’s website, constitute a part of this prospectus.

 

Market and industry data and other statistical information used in this prospectus are based on independent industry sources, as well as from research reports prepared for other purposes. Although we believe these third-party sources are reliable, we have not independently verified the data or information obtained from these sources and we cannot assure you of the accuracy or completeness of the data. Forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this prospectus. By including such market data and information, we do not undertake a duty to provide such data or information in the future or to update such data or information when such data is updated.

 

Prospectus summary

Original notes		9.125% Senior Notes due August 15, 2019, which were issued in a private placement on August 25, 2009.

Exchange notes		9.125% Senior Notes due August 15, 2019. The terms of the exchange notes are substantially identical to the terms of the original notes, except that the exchange notes are registered under the Securities Act, and the transfer restrictions and registration rights, and related special interest provisions, applicable to the original notes will not apply to the exchange notes.

Exchange offer		Pursuant to the registration rights agreement, we are offering to exchange up to $350.0 million principal amount of our exchange notes that have been registered under the Securities Act for an equal principal amount of our original notes.
		The exchange notes will evidence the same debt as the original notes, including principal and interest, and will be issued under and be entitled to the benefits of the same indenture that governs the original notes. Holders of the original notes do not have any appraisal or dissenter’s rights in connection with the exchange offer. Because the exchange notes will be registered, the exchange notes will not be subject to transfer restrictions and holders of original notes that tender and have their original notes accepted in the exchange offer will no longer have registration rights or the right to receive the related special interest under the circumstances described in the registration rights agreement.

Expiration date		The exchange offer will expire at 5:00 p.m., New York City time, on June 1, 2010, which we refer to as the Expiration Date, unless we decide to extend it or terminate it early. We do not currently intend to extend the exchange offer. A tender of original notes pursuant to this exchange offer may be withdrawn at any time on or prior to the Expiration Date if we receive a valid written withdrawal request before the expiration of the exchange offer.

Conditions to the exchange offer		The exchange offer is subject to customary conditions, which we may, but are not required to, waive. Please see “The Exchange Offer—Conditions to the Exchange Offer” for more information regarding the conditions to the exchange offer. We reserve the right, in our sole

		discretion, to waive any and all conditions to the exchange offer on or prior to the Expiration Date.
Procedures for tendering original notes		To participate in the exchange offer, on or prior to the Expiration Date you must tender your original notes by using the book-entry transfer procedures described in “The Exchange Offer—Procedures for Tendering Original Notes—Tenders of Original Notes; Book-entry Delivery Procedure,” including transmission or delivery to the exchange agent of an agent’s message or a properly completed and duly executed letter of transmittal, with any required signature guarantee. In order for a book-entry transfer to constitute a valid tender of your original notes in the exchange offer, Law Debenture Trust Company of New York, as registrar and exchange agent, must receive a confirmation of book-entry transfer of your original notes into the exchange agent’s account at The Depository Trust Company prior to the Expiration Date.
		By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things:
		• you are acquiring exchange notes in the ordinary course of your business;
		• you have no arrangement or understanding with any person or entity to participate in a distribution of the exchange notes;
		• you are transferring good and marketable title to the original notes free and clear of all liens, security interests, encumbrances, or rights or interests of others except your own;
		• if you are a broker-dealer that will receive exchange notes for your own account in exchange for original notes that were acquired by you as a result of market-making or other trading activities, that you will deliver a prospectus, as required by law, in connection with any resale of your exchange notes; and
		• you are not our “affiliate” as defined in Rule 405 of the Securities Act.
		If you are a broker-dealer, you may not participate in the exchange offer as to any original notes you purchased directly from us.
Withdrawal; Non-acceptance		You may withdraw any original notes tendered in the exchange offer by sending the exchange agent written notice of withdrawal at any time prior to 5:00 p.m., New York City time, on the Expiration Date. If we decide for any reason not to accept any original notes tendered for exchange or to withdraw the exchange offer, the original notes will be returned promptly after the expiration or termination of the exchange offer. For further information regarding the withdrawal of

		tendered original notes, please see “The Exchange Offer—Withdrawal of Tenders.”
United States federal income tax considerations		The exchange of exchange notes for original notes in the exchange offer should not be a taxable event for U.S. federal income tax purposes. Please see “Material United States Federal Income Tax Considerations” for more information regarding the tax consequences to you of the exchange offer.
Use of proceeds		The issuance of the exchange notes will not provide us with any new proceeds. We are making this exchange offer solely to satisfy our obligations under the registration rights agreement we entered into with the initial purchasers of the original notes.
Fees and expenses		We will pay all expenses incident to the exchange offer.
Exchange agent		We have appointed Law Debenture Trust Company of New York as our exchange agent for the exchange offer. You can find the address and telephone number of the exchange agent elsewhere in this prospectus under the caption “The Exchange Offer—Exchange Agent.”
Resales of exchange notes		Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties, we believe that the exchange notes you receive in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act so long as certain conditions are met. See “The Exchange Offer—Purpose and Effects of the Exchange Offer” and “Plan of Distribution” for more information regarding resales.
Not exchanging your original notes		If you do not exchange your original notes in this exchange offer, you will continue to hold unregistered original notes and you will no longer be entitled to registration rights and or the special interest provisions related thereto, except in the limited circumstances set forth in the registration rights agreement. See “The Exchange Offer—Consequences of Failure to Exchange.” In addition, you will not be able to resell, offer to resell or otherwise transfer your original notes unless you do so in a transaction exempt from the registration requirements of the Securities Act and applicable state securities laws or unless we register the offer and resale of your original notes under the Securities Act. Following the exchange offer, we will be under no obligation to register your original notes, except under the limited circumstances set forth in the registration rights agreement.
		For information regarding the limited circumstances under which we may be required to file a registration statement after this exchange offer and the consequences of not tendering your original notes in

		this exchange offer, please see “The Exchange Offer—Consequences of Failure to Exchange” and “Description of Exchange Notes.”
Additional documentation; further information; assistance		Any questions or requests for assistance or additional documentation regarding the exchange offer may be directed to the exchange agent. Beneficial owners of original notes should contact their broker, dealer, commercial bank, trust company or other nominee for assistance in tendering their original notes in the exchange offer.

Co-Issuers		Mediacom LLC and Mediacom Capital Corporation.
Exchange notes offered		$350.0 million principal amount of 9.125% Senior Notes due 2019.
Maturity date		August 15, 2019.
Interest rate		9.125% per year (calculated using a 360-day year).
Interest payment dates		February 15 and August 15 of each year, commencing February 15, 2010.
Ranking		The exchange notes will be our general unsecured obligations and will rank senior to all of our debt that is expressly subordinated in right of payment to the notes. The exchange notes will rank equally with all of our existing and future liabilities that are not so subordinated and with the original notes and will be effectively subordinated to any secured debt we may incur (to the extent of the value of the collateral securing such debt) and to all indebtedness and other liabilities of our subsidiaries. As of December 31, 2009, we had total indebtedness of $1.510 billion (including $1.160 billion of debt of our subsidiaries, with our subsidiaries having the ability to borrow up to an additional $314.8 million in the aggregate under the subsidiary credit facility), $350.0 million of which was attributable to the original notes. As of the date of this prospectus, Mediacom LLC has no secured debt.
Optional redemption		We may redeem some or all of the notes at any time on or after August 15, 2014 at the redemption prices set forth in this prospectus. We may also redeem up to 35% of the aggregate principal amount of the notes using the proceeds of certain equity offerings completed before August 15, 2012 at the redemption price set forth herein. See “Description of Exchange Notes—Optional Redemption.”
Original issue discount		For U.S. federal income tax purposes, each exchange note should be treated as having been issued with “original issue discount” in the same amount as the original issue discount on the original note exchanged therefor. Each holder of an exchange note must include as gross income for federal income tax purposes a portion of such original issue discount for each day during each taxable year in which an exchange note is held even though there is no corresponding receipt

		of cash attributable to such income. Stated interest on an exchange note will be includable in the gross income of a holder in accordance with the holder’s regular method of accounting. See “Material United States Federal Income Tax Considerations.”
Change of control; asset sales		Upon a change of control (as defined), we will be required to make an offer to purchase the notes at a purchase price of 101% of the principal amount thereof, plus accrued but unpaid interest to the purchase date. See “Description of Exchange Notes—Repurchase at the Option of Holders—Change of Control.”
		If we or our restricted subsidiaries sell assets, under certain circumstances we will be required to make an offer to purchase notes at their face amount, plus accrued and unpaid interest to the purchase date, with proceeds from such asset sales. See “Description of Exchange Notes—Repurchase at the Option of Holders—Asset Sales.”
Certain covenants		The indenture governing the notes restricts our ability and the ability of our restricted subsidiaries to, among other things:
		• incur certain additional indebtedness and issue preferred stock;
		• make certain distributions, investments and other restricted payments;
		• sell assets;
		• agree to any restrictions on the ability of our restricted subsidiaries to make payments to us;
		• create certain liens;
		• merge, consolidate or sell substantially all of our assets; and
		• enter into certain transactions with affiliates.
		These covenants are subject to important exceptions and qualifications. See “Description of Exchange Notes—Covenants.”
Absence of established market for the exchange notes		The exchange notes will generally be freely transferable but are also new securities for which there initially will not be a market. We do not intend to apply for a listing of the exchange notes on any securities exchange or for their inclusion on any automated dealer quotation system. Accordingly, we cannot assure you as to the development or liquidity of any market for the exchange notes.
Risk factors		You should consider carefully all of the information set forth in this prospectus and, in particular, you should evaluate the specific factors under “Risk Factors” before making any decision regarding the exchange offer or an investment in the exchange notes.

		(unaudited)
		Year ended December 31.
(amounts in thousands, except per share data and operating data)		2009				2008				2007
Statement of Operations Data:
Revenues		$	637,375			$	615,859			$	565,913
Costs and expenses:
Service costs			283,167				267,321				245,968
Selling, general and administrative expenses			109,829				110,605				104,694
Management fee expense—parent			11,808				11,805				10,358
Depreciation and amortization			112,084				109,883				113,597
Operating income			120,487				116,245				91,296
Interest expense, net			(89,829	)			(99,639	)			(118,386	)
Loss on early extinguishment of debt			(5,790	)			—				—
Gain (loss) gain on derivatives, net			13,121				(23,321	)			(9,951	)
(Loss) gain on sale of cable systems, net			(377	)			(170	)			8,826
Investment income from affiliate(1)			18,000				18,000				18,000
Other expense, net			(3,794	)			(3,726	)			(4,411	)
Net income (loss)		$	51,818			$	7,389			$	(14,626	)
Balance Sheet Data (end of period):
Total assets		$	1,568,220			$	1,499,125			$	1,467,146
Total debt		$	1,510,000			$	1,520,000			$	1,505,500
Total member’s deficit		$	(190,987	)		$	(304,261	)		$	(267,650	)
Cash Flow Data:
Net cash flows provided by (used in):
Operating activities		$	134,409			$	186,383			$	103,927
Investing activities		$	(98,213	)		$	(141,695	)		$	(83,469	)
Financing activities		$	(37,388	)		$	(44,213	)		$	(22,374	)
Other Data:
Adjusted OIBDA(2)		$	233,136			$	226,557			$	205,346
Adjusted OIBDA margin(3)			36.6%				36.8%				36.3%
Ratio of earnings to fixed charges(4)			1.52				1.07				—
Operating Data: (end of period)
Estimated homes passed(5)			1,286,000				1,370,000				1,360,000
Basic subscribers(6)			548,000				601,000				604,000
Digital customers(7)			300,000				288,000				240,000
HSD customers(8)			350,000				337,000				299,000
Phone customers(9)			135,000				114,000				79,000
RGUs(10)			1,333,000				1,340,000				1,222,000

(1)		Investment income from affiliate represents the investment income on our $150.0 million preferred equity investment in Mediacom Broadband. See Note 11 in our Notes to Consolidated Financial Statements included elsewhere in this prospectus.
(2)		“Adjusted OIBDA” is not a financial measure calculated in accordance with GAAP. We define Adjusted OIBDA as operating income before depreciation and amortization and non-cash, share-based compensation charges. The foregoing definition is different than that presented in the offering memorandum, dated August 11, 2009, relating to the offer and sale of the original notes, where the presentation of Adjusted OIBDA also included investment income to the extent received in cash.

		The investment income so included was, in each case, the investment income from our $150 million preferred equity investment in Mediacom Broadband. For purposes of determining our compliance with the covenants in our debt arrangements, Adjusted OIBDA includes investment income to the extent received in cash.
		Adjusted OIBDA is one of the primary measures used by management to evaluate our performance and to forecast future results. It is also a significant performance measure in our annual incentive compensation programs. We believe Adjusted OIBDA is useful for investors because it enables them to assess our performance in a manner similar to the methods used by management, and provides a measure that can be used to analyze, value and compare us with other companies in the cable television industry, which may have different depreciation and amortization policies, as well as different non-cash, share-based compensation programs. Other cable companies may calculate their Adjusted OIBDA or similar measures differently, so such measures may not be directly comparable. We use similar measures in calculating compliance with the financial covenants of our debt arrangements. A limitation of Adjusted OIBDA 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. Adjusted OIBDA also has the limitation of not reflecting the effect of our non-cash, share-based compensation charges.
		Adjusted 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 a substitute for financial measures prepared in accordance with GAAP. We believe that operating income is the most directly comparable GAAP financial measure to Adjusted OIBDA.
		The following represents a reconciliation of Adjusted OIBDA to operating income (dollars in thousands):

		Year ended December 31,
		2009				2008				2007
Adjusted OIBDA		$	233,136			$	226,557			$	205,346
Non-cash, share-based compensation and other share-based awards(A)			(565	)			(429	)			(453	)
Depreciation and amortization			(112,084	)			(109,883	)			(113,597	)
Operating income		$	120,487			$	116,245			$	91,296

(A)		Includes approximately $9, $9 and $10 for the years ended December 31, 2009, 2008 and 2007, respectively, related to the issuance of other share-based awards.

(3)		Represents Adjusted OIBDA as a percentage of revenues.
(4)		The ratio of earnings to fixed charges was 1.52 and 1.07 for the year ended December 31, 2009 and 2008 respectively. Earnings were insufficient to cover fixed charges by $14.4 million for the year ended December 31, 2007.
(5)		Represents the estimated number of single residence homes, apartments and condominium units passed by our cable distribution network. Estimated homes passed are based on what we believe to be the best information reasonably available.
(6)		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 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. This conversion method is generally consistent with the methodology used in determining payments made to programmers. 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, HSD, phone or other services. Our methodology of calculating the number of basic subscribers may differ from those used by other companies offering similar services.
(7)		Represents customers receiving digital video services.
(8)		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 are converted to equivalent residential HSD customers by dividing their associated revenues by the applicable residential rate. Customers who take our scalable, fiber-based enterprise network products and services are not counted as HSD customers. Our methodology of calculating HSD customers may not be identical to those used by other companies offering similar services.
(9)		Represents customers receiving phone service. Small to medium sized commercial accounts are converted to equivalent residential phone customers by dividing their associated revenues by the applicable residential rate. Our methodology of calculating phone customers may not be identical to those used by other companies offering similar services.
(10)		Represents the sum of basic subscribers and digital, HSD and phone customers.

 

An investment in the exchange notes involves a high degree of risk. You should carefully consider the specific risk factors set forth below, as well as the other information set forth elsewhere in this prospectus, before deciding to participate in the exchange offer or make an investment in the exchange notes.

 

Risks related to the exchange offer

 

If you do not properly tender your original notes, you will continue to hold unregistered notes and your ability to transfer those original notes may be adversely affected.

 

If you do not exchange your original notes for exchange notes in the exchange offer, you will continue to be subject to the restrictions on transfer of your original notes described in the offering memorandum distributed in connection with the private placement of the original notes. In general, you may only offer or sell the original notes if they are registered under the Securities Act and applicable state securities laws or if they are offered and sold under an exemption from those requirements. We do not plan to register the offer and resale of the original notes under the Securities Act, unless required to do so under the limited circumstances set forth in the registration rights agreement. A sale of the original notes pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities law may require the delivery of an opinion of counsel to us and the registrar or co-registrar for the original notes. In addition, the issuance of the exchange notes may adversely affect the liquidity of the trading market for untendered, or tendered but unaccepted, original notes. For further information regarding the consequences of not tendering your original notes in the exchange offer, see “The Exchange Offer—Consequences of Failure to Exchange.”

 

We will only issue exchange notes in exchange for original notes that you timely and properly tender into the exchange offer. Therefore, you should allow sufficient time to ensure timely delivery of your original notes and other required documents to the exchange agent and you should carefully follow the instructions on how to tender your original notes. Neither we nor the exchange agent are required to tell you of any defects or irregularities with respect to your tender of original notes. We may waive any defects or irregularities with respect to your tender of original notes, but we are not required to do so and may not do so. We are not offering guaranteed delivery procedures in connection with the exchange offer. See “The Exchange Offer—Procedures for Tendering Original Notes.”

 

You may find it difficult to sell your exchange notes as there is no established market for them. If a market does develop, it may be highly volatile.

 

Because there is no public market for the exchange notes, you may not be able to resell them. The offer and sale of the exchange notes for original notes will be registered under the Securities Act but the exchange notes will constitute a new issue of securities with no established trading market. We do not intend to have the exchange notes listed on a national securities exchange. There can be no assurance that an active trading market for the exchange notes will develop, or if one does develop, that it will be sustained.

 

Historically, the market for non-investment grade debt has been highly volatile in terms of price. It is possible that the market for the exchange notes will also be volatile. This volatility in price

may affect your ability to resell your exchange notes, the timing of their sale and any amount you receive for them. The trading market for the exchange notes may be adversely affected by:

 

 

Prospective investors in the exchange notes should be aware that they may be required to bear the financial risk of their investment for an indefinite period of time.

 

Some holders who exchange their original notes may be deemed to be underwriters and hence subject to subsequent transfer restrictions.

 

If you exchange your original notes in the exchange offer for the purpose of participating in a distribution of the exchange notes, you may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction involving the exchange notes. See “The Exchange Offer—Purpose and Effects of the Exchange Offer” and “Plan of Distribution.”

 

The exchange notes will be treated as having been issued with an original issue discount for U.S. federal income tax purposes, resulting in taxable income with no corresponding receipt of cash.

 

For U.S. federal income tax purposes, each exchange note should be treated as having been issued with “original issue discount” in the same amount as the original issue discount on the original note exchanged therefor. Each holder of an exchange note must include as gross income for federal income tax purposes a portion of such original issue discount for each day during each taxable year in which an exchange note is held even though there is no corresponding receipt of cash attributable to such income. See “Material United States Federal Income Tax Considerations.”

 

Risks relating to the notes

 

Our holding company structure results in our being dependent on our operating subsidiaries for the cash necessary to meet our payment obligations on the notes, and we cannot assure you that our subsidiaries will distribute such cash to us.

 

We are a holding company, meaning we do not have any operations or hold any assets other than our investments in, and our advances to, our wholly-owned subsidiaries. Our various operating subsidiaries conduct all of our consolidated operations and own virtually all of our operating assets. Our operating subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to make funds available to us.

 

The only source of cash that we have to fund our obligations under the notes (including, without limitation, the payment of interest on, and the repayment of principal of, the notes) is the cash that our operating subsidiaries generate from their operations and from borrowings under the subsidiary credit facility. The ability of our operating subsidiaries to make funds available to us in the form of dividends, loans, advances or other payments depends upon the operating results of those subsidiaries, applicable laws and contractual restrictions, including covenants under the subsidiary credit agreement (or any successor facility) that restrict the ability of our subsidiaries (the obligors thereunder) to make funds available to us. If our operating subsidiaries were unable to make funds available to us, then we may not be able to make payments of principal or interest due under the notes, or to repurchase notes upon the occurrence of a change of control or in connection with certain asset sales. If such an event occurred, we may be required to seek one or more alternatives, such as a refinancing of the notes or the debt of our operating subsidiaries at or before maturity, or raise additional capital through debt or equity issuance or both. If we were not able to successfully accomplish those tasks, then we may have to cancel or scale back future capital spending programs, or sell assets. There can be no assurance that any of the foregoing actions would be successful. Any inability to meet our debt service obligations on the notes or our other indebtedness, or to refinance such indebtedness, would materially adversely affect our business, financial condition, results of operations and liquidity.

 

We may not be able to generate enough cash to meet our payment obligations under the notes.

 

Our ability to make payments on and to refinance our consolidated debt, including the notes, and to fund planned capital expenditures depends on our ability to generate cash. This is subject, in part, to general economic, financial, competitive, legislative, regulatory and other factors, many of which are beyond our control. Accordingly, we cannot assure you that our businesses will generate sufficient cash flows from operations, or that future distributions from our operating subsidiaries will be available to us, in amounts sufficient to enable us to pay our consolidated indebtedness, including the notes, or to fund our other liquidity needs.

 

We may need to refinance all or a portion of our indebtedness, including the notes, at or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

 

You are not entitled to look to our parent Mediacom for payment of the notes in the event of an event of default by us.

 

Our parent and manager, Mediacom, is not a co-issuer of the notes and has not guaranteed the performance of our obligations under the notes. As a result, Mediacom does not have any obligations under the notes or the related indenture. Hence, in the event we default in our obligations under the notes and the indenture, holders of the notes will not have any recourse against Mediacom for repayment.

 

The notes are effectively subordinated to all debt and other liabilities of our subsidiaries.

 

The notes are not guaranteed by any of our subsidiaries. As a result, the notes are effectively subordinated to all existing and future liabilities of our subsidiaries, including the debt under our subsidiary credit facility. If the maturity of the loans under our subsidiary credit facility were accelerated, our subsidiaries would have to repay all debt outstanding under that credit facility before they could distribute any assets or cash to us. Remedies to the lenders under our subsidiary credit facility could constitute events of default under the indenture governing the notes. If these remedies were exercised, the maturity of the notes could be accelerated, and our subsidiaries’ obligations under our subsidiary credit facility could be accelerated also. In such circumstances, there can be no assurance that our subsidiaries’ assets would be sufficient to repay all of their debt and to permit our subsidiaries then to make distributions to us to enable us to repay the notes. Claims of creditors of our subsidiaries, including general trade creditors, will except in limited circumstances have priority over holders of the notes as to the assets of our subsidiaries. Additionally, any right we may have to receive assets of any of our subsidiaries upon such subsidiary’s liquidation or reorganization will be effectively subordinated to the claims of the subsidiary’s creditors, except to the extent, if any, that we ourselves are recognized as a creditor of such subsidiary, in which case our claims would still be subordinate to the claims of such creditors who hold security in the assets of such subsidiary to the extent of the value of such assets and to the claims of such creditors who hold indebtedness of such subsidiary senior to that held by us. As of December 31, 2009, the aggregate amount of the debt and other liabilities of our subsidiaries reflected on our consolidated balance sheet as to which holders of the notes were effectively subordinated was approximately $1,398.0 million, and our subsidiaries had an additional $314.8 million of unused credit commitments under the revolving credit portion of the subsidiary credit facility. We amended our subsidiary credit facility on April 23, 2010 to, among other things, reduce the revolving credit commitments of our banks from $400 million to $304.2 million. As of the date of this prospectus, $293.9 million of revolving credit commitments was unused and available to be borrowed and used for general corporate purposes based on the terms and conditions of our amended subsidiary credit facility. Our subsidiaries may incur additional debt or other obligations in the future and the notes will be effectively subordinated to such debt or other obligations as well.

 

As a holding company our assets consist almost entirely of our ownership interests in our subsidiaries. As those ownership interests are pledged as collateral under our subsidiary credit facility, we cannot assure you of recourse to those assets following any event of default under the notes.

 

As a holding company our assets consist almost entirely of the ownership interests in our subsidiaries. All of our ownership interests in our subsidiaries are pledged as collateral under our subsidiary credit facility. Therefore, if we were unable to pay principal or interest on the

notes, the ability of the holders of the notes to proceed against the ownership interests in our subsidiaries to satisfy such amounts would be subject to the prior satisfaction in full of all amounts owing under our subsidiary credit facility. Any action to proceed against such interests by or on behalf of the holders of notes would constitute an event of default under our subsidiary credit facility entitling the lenders thereunder to declare all amounts owing thereunder to be immediately due and payable. In addition, as secured creditors, the lenders under our subsidiary credit facility would control the disposition and sale of our ownership interests in our subsidiaries after an event of default under our subsidiary credit facility and would not be legally required to take into account the interests of our unsecured creditors, such as the holders of the notes, with respect to any such disposition or sale. There can be no assurance that our assets after the satisfaction of the claims of the secured creditors of our subsidiaries would be sufficient to satisfy any amounts owing with respect to the notes.

 

Under certain circumstances, federal and state laws may allow courts to void or subordinate claims with respect to the notes or to modify the contractual or structural relationship between different classes of creditors.

 

Under the federal Bankruptcy Code and comparable provisions of state fraudulent transfer laws, a court could void claims with respect to the notes or subordinate them if, among other things, we, at the time the original notes were initially issued:

 

 

The measures of insolvency for purposes of these fraudulent or preferential transfer laws vary depending upon the law applied in any proceeding to determine whether a fraudulent or preferential transfer has occurred. Generally, however, we would be considered insolvent if:

 

 

Based upon information available to us at the time we issued the original notes, we believe that the notes were incurred for fair value and in good faith.

 

In addition, if there were to be a bankruptcy of our parent and/or its other subsidiaries, creditors of our parent may attempt to make claims against us and our subsidiaries, including seeking substantive consolidation of our and our subsidiaries’ assets and liabilities with the liabilities of our parent, which (if successful) could have an adverse effect on holders of the notes and their recoveries in any bankruptcy proceeding.

We may not be able to fund a change of control offer.

 

In the event of a change of control (as defined in the indenture), we will be required, subject to certain conditions, to offer to purchase all outstanding notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase. If a change of control were to occur as of the date of this prospectus, we would not have sufficient funds available to purchase all of the outstanding notes were they to all be tendered in response to an offer made as a result of a change of control. We cannot assure you that we will have sufficient funds available or that we will be permitted by our other debt instruments to fulfill these obligations upon a change of control in the future. Furthermore, certain change of control events would constitute an event of default under our subsidiary credit facility. See “Description of Exchange Notes—Repurchase at the Option of Holders—Change of Control.”

 

If we fail to repurchase the notes upon a change of control, we will be in default under the indenture governing the notes. Any future debt that we incur may also contain restrictions on the repurchase of notes by us in the event of a change of control or similar event.

 

The change of control provisions of the indenture may not protect you in the event of a reorganization or merger in which we incur a large amount of debt.

 

The change of control provisions may not protect you in a transaction in which we incur a large amount of debt, including a reorganization, restructuring, merger or other similar transaction, because such a transaction may not involve any shift in voting power or beneficial ownership, or may not involve a shift large enough to trigger a change of control. The change of control provisions also will not protect you in a transaction in which we incur a large amount of debt even if there is a large shift in voting power or beneficial ownership if, after consummation of the transaction: (i) Mediacom remains our manager and Mr. Rocco B. Commisso remains the chief executive officer or chairman of Mediacom; (ii) Mr. Commisso, or a company controlled by him, becomes our manager; or (iii) Mr. Commisso becomes our chief executive officer or chairman.

 

We and our subsidiaries may incur substantially more debt, which could exacerbate the risks described above and the other risks described in this prospectus.

 

We and our subsidiaries may be able to incur substantial additional debt in the future. If we or our subsidiaries do so, the risks described above and the other risks described in this prospectus could intensify. The terms of the indenture governing the notes permit us and our subsidiaries to incur additional debt provided we comply with the leverage incurrence test described under “Description of Exchange Notes—Covenants—Limitation on Indebtedness.” As of the date of this prospectus, our subsidiaries had $293.9 million of unused credit commitments under the revolving credit portion of our subsidiary credit facility, available to be borrowed and used for general corporate purposes based on the terms and conditions of the subsidiary credit facility. We expect our subsidiaries to continue to borrow under this facility in the ordinary course of their business.

 

Mediacom Capital Corporation is not an operating company and has no independent cash flow.

 

Mediacom Capital Corporation is our wholly-owned subsidiary that was incorporated to accommodate the issuance of indebtedness by us. Mediacom Capital Corporation has no operations, revenues or cash flows and has no assets, liabilities or stockholders’ equity on its balance sheet,

other than a $100 receivable from an affiliate and the same dollar amount of common stock on its consolidated balance sheets. You should not expect Mediacom Capital Corporation to participate in servicing the interest or principal obligations on the notes.

 

If a bankruptcy case were filed by or against us, the claims of holders of notes may be allowed in an amount less than such holders would have been entitled to receive under the indenture governing the notes.

 

If a bankruptcy case were filed by or against us under the U.S. Bankruptcy Code, the claim by any holder of the notes for the principal amount of the notes may be limited to an amount equal to the sum of:

 

 

Any original issue discount that was not amortized as of the date of the bankruptcy filing would constitute unmatured interest. Unsecured claims for unmatured interest are not allowed under the U.S. Bankruptcy Code. Accordingly, the claims of holders of the notes under such circumstances may be allowed in an amount less than such holders would be entitled to receive under the terms of the indenture governing the notes.

 

Risks related to our financial condition

 

We have substantial debt with restrictive financial and other covenants and we have significant interest payment requirements, which could limit our operational flexibility and have an adverse effect on our financial condition and results of operations.

 

We have a substantial amount of debt. As of December 31, 2009, our total debt was $1.510 billion. As a result, our debt service obligations require us to use a large portion of our revenues and cash flows to pay interest, thereby reducing our ability to finance our operations, capital expenditures and other activities. Our annual cash interest expense for the year ended December 31, 2009, was $104.3 million and our term loan principal payments were $31.3 million. The debt under our subsidiary credit facility has a variable rate of interest. The interest rate for borrowings under that facility is determined by the Eurodollar rate plus a margin or the base rate plus a margin, with the margin varying depending on the ratio of senior indebtedness (as defined) to annualized system cash flow (as defined) of the obligors. If additional debt were incurred under the subsidiary credit facility, the Eurodollar rate or base rate were to rise, our senior indebtedness were to rise and/or our system cash flow were to decrease, we would be required to pay additional interest expense, which would have an adverse affect on our results of operations.

 

The subsidiary credit facility requires compliance by our operating subsidiaries with certain financial and other covenants including, but not limited to, a ratio of senior indebtedness (as defined) to annualized system cash flow (as defined) of no more than 6.0 to 1.0 (which reduces to 5.5 to 1.0 commencing with the quarter ended December 31, 2011 and 5.0 to 1.0 commencing with the quarter ended December 31, 2012). Our leverage ratio, which is calculated on a quarterly basis, was 4.4 to 1.0 for the three months ended December 31, 2009. We also must maintain an interest coverage ratio of at least 2x (operating cash flow to interest expense (as defined)) as of the end of each fiscal quarter. The subsidiary credit facility 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 notes contain financial and other covenants, though they are generally less restrictive than those found in our subsidiary credit facility. Principal covenants in the indenture include a limitation on the incurrence of additional indebtedness based upon a maximum ratio of total indebtedness (as defined) to annualized operating cash flow (as defined), of 8.5 to 1.0. Our ratio, which is calculated on a quarterly basis, was 6.0 to 1.0 for the three months ended December 31, 2009. The indenture for the notes also contains limitations on dividends, investments and distributions. Complying with these covenants may cause us to take actions that we otherwise would not take or cause us not to take actions that we otherwise would take. We cannot assure you that our business will generate sufficient cash flows to permit us to satisfy our financial covenants, meet our debt service obligations and repay our debt.

 

Our highly leveraged position exposes us to significant risks in the event of downturns in our business or further downturns in the economy. Our overall leverage could:

 

 

Our business is very capital intensive, and requires significant annual outlays primarily for new digital video cable boxes and modems, and cable network and related infrastructure. In 2009, our capital expenditures were approximately $98 million. We expect these capital expenditures to continue to be significant over the next several years, as we continue to market our products and services to our customers.

 

We believe that cash generated by us or available to us will meet our anticipated capital and liquidity needs for the foreseeable future. However, in the longer term, specifically 2015 and beyond, we may not have enough cash available to satisfy our maturing term loans and the notes. Accordingly, we may have to refinance existing obligations to extend maturities, or raise additional capital through debt or equity issuances or both. There can be no assurance that we will be able to refinance our existing obligations or raise any required additional capital or to do so on favorable terms. If we do not successfully accomplish these tasks, then we may have to cancel or scale back future capital spending programs, or sell assets. Failure to make capital

investments in our business could materially and adversely affect our ability to compete effectively.

 

We are exposed to risks caused by disruptions in the capital and credit markets, which could have an adverse effect on our business, financial condition and results of operations and our ability to service our debt.

 

We rely on the capital markets for senior note offerings and on the credit markets for bank credit arrangements to meet our financial commitments and liquidity needs. The U.S. economy has fallen into a deep recession, with major downturns in financial markets and the collapse or significant weakening of many banks and other financial institutions. The capital and credit markets tightened, making it more difficult for us and many companies to obtain financing at all or on terms comparable to those available over the past several years. Future disruptions in such markets could cause our counterparty banks to be unable to fulfill their commitments to us, potentially reducing amounts available to us under our revolving credit commitments, or subjecting us to greater credit risk with respect to our interest rate exchange agreements. At this time, we are not aware of any of our counterparty banks being in a position where they would be unable to fulfill their obligations to us. However, we are unable to predict future movements in the capital and credit markets or the underlying effects on our results of operations.

 

A default under the indenture governing the notes or under our subsidiary credit facility could result in an acceleration of our indebtedness and other material adverse effects.

 

The agreements and instruments governing the notes and our subsidiaries’ indebtedness contain financial and operating covenants. See “—We have substantial debt with restrictive financial and other covenants and we have significant interest payment requirements, which could limit our operational flexibility and have an adverse effect on our financial condition and results of operations” above. The breach of any of these covenants could cause a default, which may result in the indebtedness becoming immediately due and payable. If this were to occur, we would be unable to adequately finance our operations. In addition, a default could result in a default or acceleration of our other indebtedness subject to cross-default provisions. If this occurs, we may not be able to pay our debts or borrow sufficient funds to refinance them. Even if new financing is available, it may not be on terms that are acceptable to us. The membership interests of our operating subsidiaries are pledged as collateral under the subsidiary credit facility. A default under our subsidiary credit facility could result in a foreclosure by the lenders on the membership interests pledged under that facility. Because we are dependent upon our operating subsidiaries for all of our cash flows, such a foreclosure would have a material adverse effect on our business, financial condition, results of operations and liquidity.

 

In the event of a liquidation or reorganization of any of our subsidiaries, the creditors of such subsidiaries, including trade creditors, would be entitled to a claim on the assets of such subsidiaries prior to our (or any other subsidiary of ours) claims as a stockholder, and those creditors are likely to be paid in full before any distribution is made to us (or such other subsidiary). To the extent that we, or any of our direct or indirect subsidiaries, are a creditor of a subsidiary, the claims of such creditor could be subordinated to any security interest in the assets of such subsidiary and/or any indebtedness of such subsidiary senior to that held by such creditor.

 

Our subsidiary credit facility imposes significant restrictions on our operations.

 

Our subsidiary credit facility contains covenants that restrict our operating subsidiaries’ ability to:

 

 

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.

 

The ability of our subsidiaries to comply with the covenants in the subsidiary credit agreement may be affected by events beyond our control. If they were to breach any of these covenants, they would be in default under the subsidiary credit facility and they would be prohibited from making cash distributions to us.

 

Under certain circumstances, lenders could elect to declare all amounts borrowed under our subsidiary credit facility, together with accrued interest and other fees, to be due and payable. If that occurred, our obligations under the notes could also become payable immediately. Under such circumstances, we may not be able to repay such amounts.

 

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 to the date of this prospectus, 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.

 

A lowering of the ratings assigned to our debt securities by ratings agencies may increase our future borrowing costs and reduce our access to capital.

 

Our future access to the debt markets and the terms and conditions we receive are influenced by our debt ratings. Our corporate credit ratings are B1, with a stable outlook, by Moody’s, and B+, with a stable outlook, by Standard and Poor’s. There can be no assurance that our debt ratings will not be lowered in the future by a rating agency. Any future downgrade to our credit ratings could result in higher interest rates on future debt issuance than we currently experience, or adversely impact our ability to raise additional funds.

We have a history of net losses and we may generate net losses in the future, which may limit our ability to attract financing.

 

We have a history of net losses, and may report net losses in the future. Although we reported net income of $51.8 million and $7.4 million for the years ended December 31, 2009 and 2008 on revenue of $637.4 million and $615.9 million, respectively, we reported net losses of $14.6 million, $19.4 million and $4.3 million on revenue of $565.9 million, $529.2 million, and $485.7 million, respectively, for the years ended December 31, 2007, 2006 and 2005. In general, our net losses have principally resulted from significant depreciation and amortization expenses associated with our acquisitions and capital expenditures related to expanding and upgrading our cable systems, as well as interest expense and other financing charges related to our indebtedness, and in some years losses on derivatives. Should we incur further net losses in the future, they may limit our ability to attract needed financing, and to do so on favorable terms, as such losses may prevent some investors from investing in our securities.

 

The ability of Mediacom to use net operating loss (“NOL”) carryforwards to reduce future tax payments could be negatively impacted if there is an “ownership change” as defined under Section 382 of the Internal Revenue Code, which could result in additional taxes requiring funds from us to pay.

 

As of December 31, 2009, Mediacom, our parent company, had approximately $2.4 billion of U.S. federal NOLs available to reduce taxable income in future years that expire between 2020 and 2029. Section 382 of the Internal Revenue Code (“Section 382”) imposes substantial limitations on a corporation’s ability to utilize NOLs if it experiences an “ownership change.” The determination of whether an ownership change occurs is complex and, to some extent, dependent on information that is not publicly available. In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. In the event of an ownership change, Mediacom’s utilization of its pre-ownership change NOLs would be subject to an annual limitation under Section 382.

 

As a holding company, Mediacom relies on distributions from its subsidiaries, including us, to satisfy any federal income tax liability that is not offset by NOLs. Depending on the possible resulting limitations imposed by Section 382, Mediacom’s inability to utilize its U.S. federal NOLs may potentially accelerate cash tax payments by Mediacom, which would ultimately be funded by us and/or Mediacom Broadband, and thus adversely affect our results of operations and financial condition.

 

Impairment of our goodwill and other intangible assets could cause significant losses.

 

As of December 31, 2009, we had approximately $641.8 million of unamortized intangible assets, including goodwill of $24 million and franchise rights of $617 million on our consolidated balance sheet. These intangible assets represented approximately 41% of our total assets.

 

Accounting Standards Codification No. 350—Intangibles—Goodwill and Other (“ASC 350”) requires that goodwill and other intangible assets deemed to have indefinite useful lives, such as cable franchise rights, cease to be amortized. ASC 350 also requires that goodwill and certain intangible assets be tested at least annually for impairment. If we find that the carrying value of goodwill or cable franchise rights exceeds its fair value, we will reduce the carrying value of the

goodwill or intangible asset to the fair value, and will recognize an impairment loss in our results of operations.

 

We follow the provisions of ASC 350 to test our goodwill and franchise rights for impairment. We assess the fair values of each cable system cluster using a discounted cash flow, or DCF, methodology, under which the fair value of cable franchise rights are determined in a direct manner. Our DCF analysis uses significant (Level 3) unobservable inputs, which is described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Critical Accounting Policies—Valuation and Impairment Testing of Indefinite-Lived Intangibles” elsewhere in this prospectus. This assessment involves significant judgment, including certain assumptions and estimates that determine future cash flow expectations and other future benefits, which are consistent with the expectations of buyers and sellers of cable systems in determining fair value. These assumptions and estimates include discount rates, estimated growth rates, terminal growth rates, comparable company data, revenues per customer, market penetration as a percentage of homes passed and operating margin. We also consider market transactions, market valuations, research analyst estimates and other valuations using multiples of operating income before depreciation and amortization to confirm the reasonableness of fair values determined by the DCF methodology.

 

Since a number of factors may influence determinations of fair value of intangible assets, we are unable to predict whether impairments of goodwill or other indefinite-lived intangibles will occur in the future. However, significant impairment in value resulting in impairment charges may result if the estimates and assumptions used in the fair value determination change in the future. Such impairment could be significant and could have an adverse effect on our business, financial condition and results of operations. Any such impairment would result in our recognizing a corresponding write-off, which could cause us to report a significant noncash operating loss. Our annual impairment analysis was performed as of October 1, 2009 and resulted in no impairment. We may be required to conduct an impairment analysis prior to our anniversary date to the extent certain economic or business factors are present.

 

Risks related to our operations

 

Our products and services face increasing competition that could adversely affect our business, financial condition and results of operations.

 

We operate in a highly competitive industry.  In some instances, we face competitors with fewer regulatory burdens, easier access to financing, greater resources and operating capabilities, more brand name recognition and long-standing relationships with regulatory authorities and customers. Our principal competitors are DBS providers and local telephone companies. As a result of such competition, our revenue growth rates may slow or decline if our customer base erodes or our revenue per unit suffers, and we may also see increases in the cost of gaining and retaining customers.

 

DBS providers, principally DirecTV and DISH, are our most significant video competitors. We have lost a significant number of video subscribers to DBS providers in the past, and will continue to face challenges from them. Recently, the primary DBS providers have been very aggressive in their pricing policies. If these pricing and other aggressive promotional tactics persist, we may continue to face significant losses of video customers. See “Business—Competition—Direct Broadcast Satellite Providers.”

Certain local telephone companies, including AT&T and Verizon, continue to deploy fiber more extensively in their networks, allowing them to offer video, HSD and phone services to consumers in bundled packages similar to those which we currently offer. In some cases, DBS providers have marketing agreements under which local telephone companies sell DBS service bundled with their phone and HSD services. We also face competition from municipal entities that provide video, HSD and phone services. Many of the companies that provide content have increased their offerings of video streamed over the Internet, often accessed free of charge. If this trend continues, it could negatively impact demand for our video services. See “Business—Competition—Local Telephone Companies.”

 

Our HSD service faces competition from: local telephone companies utilizing their upgraded fiber networks and/or DSL lines; Wi-Fi, Wi-Max and wireless Internet services provided by wireless service providers; broadband over power line providers; and providers of traditional dial-up Internet access. Existing and potential competitors have applied for funds under the American Recovery and Reinvestment Act of 2009 (“Recovery Act”) economic stimulus programs, and will likely be eligible to apply for more going forward. If successful, these additional funds may allow them to build or expand facilities faster, and deploy existing and new services sooner, and to more areas, than they otherwise would.

 

Our phone service faces competition for voice customers from local telephone companies, wireless telephone service providers, VoIP services and others. Competition in phone service has intensified as more consumers are replacing their wireline service with wireless service.

 

Weak economic conditions may adversely impact our business, financial condition and results of operations.

 

Weak economic conditions persist, particularly unemployment and slack consumer demand. Most of our revenues are provided by residential customers who may downgrade their services, or discontinue some, or all of their services, if these economic conditions continue or further weaken.

 

If we are unable to keep pace with rapid technological change in our business, it could adversely affect our business and our results of operations.

 

We operate in a rapidly changing technological environment, and our success depends, in part, on our ability to enhance existing or adopt new technologies to maintain or improve our competitive positioning. It may be difficult to keep pace with future technological developments, and if we fail to choose technologies that provide products and services that are preferred by our customers and which are cost efficient to us, we may experience customer losses and our results of operations may be adversely affected.

 

The continuing increases in programming costs may have an adverse affect on our results of operations.

 

Programming costs have historically been our largest single expense category and have risen dramatically over the last several years. The largest increases have come from sports programming and, more recently, from broadcast stations in the form of retransmission consent fees. We expect programming costs to continue to grow in the coming years, largely as a result of increased unit costs charged by the satellite delivered networks we carry and increasing financial demands by local broadcast stations to obtain their retransmission consent. If we refuse to meet

the demands of these broadcast station owners, or are unable to negotiate reasonable contracts with non-broadcast networks, we may not be able to transmit these stations, which may result in the loss of existing or potential additional subscribers. A significant portion of our programming contracts are up for renewal over the next 12 months.

 

Our profit margins from video services have declined over the last several years, as the cost to secure cable programming and broadcast station retransmission consent has outpaced our video revenue growth. If we are unable to increase subscriber rates or offer additional services to fully offset such increased programming costs, our video service margins will continue to deteriorate.

 

We may be unable to secure necessary hardware, software, telecommunications and operational support, which may impair our ability to provision and service our customers and adversely affect our business.

 

Third-party firms provide some of the components used in delivering our products and services, including digital set-top converter boxes, DVRs and VOD equipment; routers and other switching equipment; provisioning and other software; network connections for our phone services; fiber optic cable and construction services for expansion and upgrades of our networks and cable systems; and our customer billing platform. Some of these companies may hold leverage over us, considering that they are the sole supplier of certain products and services, or there may be a long lead time and/or significant expense required to transition to another provider. As a result, our operations depend on a successful relationship with these companies. Any delays or disruptions in the relationship as a result of contractual disagreements, operational or financial failures on the part of the suppliers, or other adverse events, could negatively affect our ability to effectively provision and service our customers. Demand for some of these items has increased with the general growth in demand for Internet and telecommunications services. We typically do not carry significant inventories, and therefore any delays in our ability to obtain equipment could impact our operations. 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, this could negatively affect our ability to effectively provision and service our customers. We also have outsourcing arrangements with certain telephony providers in connection with our provision of HSD and telephony services to our customers. We are in the process of transitioning our telephony services to an in-house platform, and unexpected delays or disruptions in the transition process may adversely affect our customers and our business.

 

We depend on network and information systems and other technologies. A disruption or failure in such systems and technologies could have a material adverse affect on our business, financial condition and results of operations.

 

Because of the importance of network and information systems and other technologies to our business, any events affecting these systems and technologies could have a devastating impact on our business. These events could include: computer hacking, computer viruses, worms or other disruptive software, process breakdowns, denial of service attacks and other malicious activities or any combination of the foregoing; and natural disasters, power outages and man-made disasters. Such occurrences may cause service disruptions, loss of customers and revenues and negative publicity, which may result in significant expenditures to repair or replace the damaged infrastructure, or protect from similar occurrences in the future. We may also be negatively affected by the illegal acquisition and dissemination of data and information,

including customer, personnel, and vendor data, and this may require us to expend significant capital and other resources to remedy any such security breach.

 

Our business depends on certain intellectual property rights and on not infringing on the intellectual property rights of others.

 

We rely on our copyrights, trademarks and trade secrets, as well as licenses and other agreements with our vendors and other parties, to use our technologies, conduct our operations and sell our products and services. Third parties have in the past, and may in the future, assert claims or initiate litigation related to purportedly exclusive patent, copyright, trademark, and other intellectual property rights to technologies and related standards that are relevant to us. These assertions have increased over time as a result of our growth and the general increase in the pace of patent claims assertions, particularly in the United States. Because of the existence of a large number of patents in the networking field, the secrecy of some pending patents and the rapid rate of issuance of new patents, in some cases it is not economically practical or even possible to determine in advance whether a product or any of its components infringes or will infringe on the patent rights of others. Asserted claims and/or initiated litigation can include claims against us or our manufacturers, suppliers, or customers, alleging infringement of proprietary rights with respect to our existing or future products and/or services or components of those products and/or services. Regardless of the merit of these claims, defending against them can be time-consuming, result in costly litigation and diversion of technical and management personnel, or require us to develop a non-infringing technology or enter into license agreements. There can be no assurance that licenses will be available on acceptable terms and conditions, if at all, or that our indemnification by our suppliers will be adequate to cover our costs if a claim were brought directly against us or our customers. Furthermore, because of the potential for high court awards that are not necessarily predictable, it is not unusual to find even arguably unmeritorious claims settled for significant amounts. If any infringement or other intellectual property claim made against us by any third party is successful, if we are required to indemnify a customer with respect to a claim against the customer, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, results of operations, and financial condition could be materially and adversely effected.

 

Some of our cable systems operate in the Gulf Coast region, which historically has experienced severe hurricanes and tropical storms.

 

Cable systems serving approximately 19% of our subscribers are located on or near the Gulf Coast in Alabama, Florida and Mississippi. In 2004 and 2005, three hurricanes impacted these cable systems to varying degrees causing property damage, service interruption and loss of customers. If the Gulf Coast were to experience severe hurricanes in the future, this could adversely impact our results of operations in affected areas, causing us to experience higher than normal levels of expense and capital expenditures, as well as the potential loss of customers and revenues.

 

The loss of Mediacom’s key personnel could have a material adverse effect on our business.

 

Our success is substantially dependent upon the retention of, and the continued performance by, the key personnel of our manager, Mediacom, including Rocco B. Commisso, its Chairman and Chief Executive Officer. Our subsidiary credit facility provides that an event of default will

occur if Mr. Commisso no longer beneficially owns at least a majority of the voting power of our ownership interests, unless (i) Mediacom continues to be our manager and Mr. Commisso continues to be its Chief Executive Officer or Chairman, (ii) Mr. Commisso (or a company controlled by him) becomes our manager or (iii) Mr. Commisso becomes and thereafter continues to be our chief executive officer or chairman. Mediacom has not entered into a long-term employment agreement with Mr. Commisso, nor does it currently maintain key man life insurance on Mr. Commisso or other key personnel. If any of our manager’s key personnel ceases to participate in our business and operations, it could have an adverse effect on our business, financial condition and results of operations

 

Risks related to legislative and regulatory matters

 

Changes in government regulations could adversely impact our business.

 

The cable industry is subject to extensive legislation and regulation at the federal and local levels and, in some instances, at the state level. Additionally, our HSD and phone services are also subject to regulation, and additional regulation is under consideration. Many aspects of such regulation, including the National Broadband Plan, are currently, or will be, 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 current or future judicial and administrative proceedings and legislative activities cannot be predicted. Modifications to existing requirements or imposition of new requirements or limitations could have an adverse impact on our business. See “Business—Legislation and Regulation.”

 

Denials of franchise renewals or continued absence of franchise parity could adversely impact our business.

 

Where state-issued franchises are not available, local franchising authorities may demand concessions, or other commitments, as a condition to renewal, and these concessions or other commitments could be costly. Although the Cable Act affords certain protections, there is no assurance that we will not be compelled to meet the demands of local franchising authorities in order to obtain renewals.

 

Our cable systems are operated under non-exclusive franchises. As of December 31, 2009, approximately 9% of the estimated homes passed by our cable systems were served by other cable operators. Because of the Federal Communications Commission’s (“FCC”) actions to speed issuance of local competitive franchises and because many states in which we operate cable systems have adopted and other states may adopt legislation to allow others, including local telephone companies, to deliver services in competition with our cable service without obtaining equivalent local franchises, we may face not only increasing competition but we may be at a competitive disadvantage due to lack of regulatory parity. Any of these factors could adversely affect our business. See “Business—State and Local Legislation—Franchise Matters.”

 

Changes in carriage requirements could impose additional cost burdens on us.

 

Any change that increases the amount of content that we must carry on our cable systems can adversely impact our business by increasing our cost and limiting our ability to carry other programming more valued by our subscribers or limit our ability to provide other services. For

example, if we are required to carry more than the primary stream of digital broadcast signals or if the FCC regulations are put into effect that require us to provide either very low cost or no cost commercial leased access, our business would be adversely affected. See “Business—Legislation and Regulation—Cable System Operations and Cable Services—Federal Regulation—Content Regulations.”

 

Pending FCC and court proceedings could adversely affect our HSD service.

 

The regulatory status of providing HSD service by cable companies remains uncertain. If the FCC imposes additional regulatory burdens or further restricts the methods we may employ to manage the operation of our network through new “network neutrality” obligations or otherwise, our costs would increase, we may be required to make additional capital expenditures and our business could be adversely affected. Future legislative or regulatory actions resulting from the FCC’s recommendations for the National Broadband Plan to Congress may set forth obligations on broadband providers that could also have adverse impacts on our business. See “Business—Legislation and Regulation—HSD Service—Federal Regulation.”

 

Our phone service may become subject to additional regulation, which may adversely affect our ability to provide a competitive phone service.

 

The regulatory treatment of VoIP phone 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. Any changes to existing law as it applies to VoIP or any determination that results in greater or different regulatory obligations than competing services could result in increased costs, reduce anticipated revenues or impede our ability to effectively compete or otherwise adversely affect our ability to conduct our telephony business. See “Business—Legislation and Regulation—Federal Regulation—Voice-over-Internet-Protocol Telephony.”

 

Changes in pole attachment regulations or actions by pole owners could significantly increase our pole attachment costs.

 

Our cable facilities are often attached to or use public utility poles, ducts or conduits. Significant change to the FCC’s long-standing pole attachment “cable rate” formula, increases in pole attachment costs as a result of our provision of Internet, VoIP or other services could increase our pole attachment costs. 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. See “Business—Legislation and Regulation—Federal Regulation—Pole Attachment Regulation.”

 

Changes in compulsory copyright regulations could significantly increase our license fees.

 

If Congress enacts proposed revisions to the Copyright Act, it could impose oversight and conditions that could adversely affect our business. Additionally, the Copyright Office’s implementation of any such legislative changes could impose requirements on us or permit overly intrusive access to financial and operational records. Any future decision by Congress to eliminate the cable compulsory license, which would require us to obtain copyright licensing of

all broadcast material at the source, would impose significant administrative burdens and additional costs that could adversely affect our business. See “Business—Legislation and Regulation—Cable System Operations and Cable Services—Federal Regulation—Copyright.”

 

Risks related to Mediacom’s Chairman and Chief Executive Officer’s controlling position

 

Mediacom’s Chairman and Chief Executive Officer has the ability to control all major corporate decisions, and a sale of his stock could result in a change of control that would have unpredictable effects.

 

Rocco B. Commisso, Mediacom’s Chairman and Chief Executive Officer, beneficially owned shares of its common stock representing approximately 87.2% of the aggregate voting power of all of its common stock as of December 31, 2009. As a result, Mr. Commisso generally has the ability to control the outcome of all matters requiring approval of Mediacom’s stockholders, including the election of its entire board of directors, the approval of any merger or consolidation and the sale of all or substantially all of its assets. Mr. Commisso’s control over our manager could result in his taking actions that are beneficial to him but not to the holders of notes.

 

The disposition by Mr. Commisso of a sufficient number of shares of Mediacom’s stock could result in a change in control of Mediacom and us. A change in control could result in a default under our debt arrangements, could require us to offer to repurchase our notes at 101% of their principal amount in compliance with the indenture, could trigger a variety of federal, state and local regulatory consent requirements and could potentially limit Mediacom’s utilization of its NOLs for income tax purposes. Any of the foregoing results could adversely affect our results of operations and financial condition.

 

Any statements made in this prospectus that are not statements of historical fact, including statements about our beliefs of future events and of our future financial performance, are forward-looking statements and should be evaluated as such. In some cases, you can identify these forward-looking statements by words such as “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will,” or the negative of those and other comparable words. These forward-looking statements are not guarantees of future performance or results, and are subject to risks and uncertainties that could cause actual results to differ materially from historical results or those we anticipate, many of which are beyond our control. Factors that may cause such differences to occur include, but are not limited to:

 

 

Please also read the “Risk Factors” section of this prospectus beginning on page 12, for additional factors that may cause our actual results to differ materially from historical results or those which may be inferred from any forward looking statements included in this prospectus. Statements included in this prospectus are based upon information known to us as of the date of this prospectus, and we assume no obligation to update or alter our forward-looking statements made in this prospectus, whether as a result of new information, future events or otherwise, except as required by applicable federal securities laws.

 

This section of the prospectus describes the exchange offer. While we believe that the description covers the material terms of the exchange offer, this summary may not contain all of the information that is important to you. You should carefully read this entire document for a complete understanding of the exchange offer.

 

Purpose and effects of the exchange offer

 

The purpose of the exchange offer is to satisfy our obligations under the registration rights agreement that we entered into with the initial purchasers of the original notes. We originally issued and sold $350,000,000 principal amount of original notes in a private placement on August 25, 2009. We did not register the offer and sale of the original notes in reliance upon the exemption provided in Section 4(2) of the Securities Act and Rule 144A and Regulation S thereunder.

 

We are offering to exchange up to the entire $350,000,000 principal amount of original notes for a like principal amount of exchange notes.

 

Under the registration rights agreement, we are required, among other things, to:

 

 

In addition, under certain circumstances, we may be required to use our best efforts to file a shelf registration statement to cover resales of original notes.

 

If we fail to comply with the requirements of the registration rights agreement the interest rate on the original notes may increase. Specifically, in the event that:

 

 

(any event referred to in the four clauses above being a “Registration Default”), then the per annum interest rate on the original notes will increase, for the period from the occurrence of the Registration Default until such time as the Registration Default is no longer in effect (at which time the interest rate will be reduced to its initial rate), by .25% of the principal amount of the notes during the first 90-day period following the occurrence and during the continuation of such Registration Default, which rate shall increase by an additional .25% for each subsequent 90-day period during which such Registration Default continues up to a maximum of 1.0% per annum (“Additional Interest”).

 

We have not requested, and do not intend to request, an interpretation by the staff of the SEC with respect to whether the exchange notes may be offered for sale, resold or otherwise transferred by any holder without compliance with the registration and prospectus delivery provisions of the Securities Act. Based on interpretations by the staff of the SEC set forth in no-action letters issued to third parties, including Exxon Capital Holdings Corp. (available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5, 1991) and Shearman & Sterling (available July 2, 1993), we believe the exchange notes may be offered for resale, resold and otherwise transferred by any holder without compliance with the registration and prospectus delivery provisions of the Securities Act provided such holder meets the following conditions:

 

 

If you do not satisfy all of the above conditions, you cannot participate in the exchange offer. Rather, in the absence of an exemption you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale of the original notes. Any holder that complies with such registration and prospectus delivery requirements may incur liabilities under the Securities Act for which the holder will not be entitled to indemnification from us.

 

A broker-dealer that has bought original notes for its own account as part of its market-making or other trading activities must deliver a prospectus in order to resell the exchange notes it receives therefor pursuant to the exchange offer. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer for such purpose, and we have agreed in the registration rights agreement to make this prospectus available to such broker dealers for a period of 270 days after the completion of the exchange offer. See “Plan of Distribution.” Each broker-dealer that receives exchange notes for its own account in the exchange offer must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of exchange notes. The accompanying letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

We are not making the exchange offer to, nor will we accept surrenders for exchange from, holders of original notes in any jurisdiction in which this exchange offer or its acceptance would not comply with applicable state securities laws or applicable laws of a foreign jurisdiction.

 

Participation in the exchange offer is voluntary and you should carefully consider whether to participate. We urge you to consult your financial and tax advisors in making your decision on whether to participate in the exchange offer.

 

Consequences of failure to exchange

 

Original notes that are not exchanged for exchange notes in the exchange offer will remain “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, and will therefore continue to be subject to restrictions on transfer. Holders of such original notes will not be able to require us to register them under the Securities Act, except in the limited circumstances set forth in the registration rights agreement. Accordingly, following completion of the exchange offer any original notes that remain outstanding may not be offered, sold, pledged or otherwise transferred except:

 

(1) to us, upon redemption thereof or otherwise,

 

(2) so long as the original notes are eligible for resale pursuant to Rule 144A, to a person whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A, purchasing for its own account or for the account of a qualified institutional buyer to whom notice is given that the resale, pledge or other transfer is being made in reliance on Rule 144A,

 

(3) in an offshore transaction in accordance with Regulation S under the Securities Act,

 

(4) pursuant to an exemption from registration in accordance with Rule 144, if available, under the Securities Act,

 

(5) in reliance on another exemption from the registration requirements of the Securities Act, or

 

(6) pursuant to an effective registration statement under the Securities Act.

 

In all of the situations discussed above, the resale must be in compliance with the Securities Act, any applicable securities laws of any state of the United States and any applicable securities laws of any foreign country. Any resale of original notes will also be subject to certain requirements of the registrar or any co-registrar being met, including receipt by the registrar or co-registrar of a certification and, in the case of (3), (4) and (5) above, an opinion of counsel reasonably acceptable to us and the registrar and any co-registrar.

 

To the extent original notes are tendered and accepted in the exchange offer, the principal amount of outstanding original notes will decrease with a resulting decrease in the liquidity in the market therefor. Accordingly, the liquidity of the market of the original notes could be adversely affected following completion of the exchange offer. See “Risk Factors—Risks Related to the Exchange Offer—If you do not properly tender your original notes, you will continue to hold unregistered notes and your ability to transfer those original notes may be adversely affected.”

Terms of the exchange offer

 

Upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, a copy of which is attached to this prospectus as Annex A, we will accept any and all original notes validly tendered (and not withdrawn) on or prior to the Expiration Date. We will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of original notes accepted in the exchange offer. The exchange notes will accrue interest on the same terms as the original notes; however, holders of the original notes accepted for exchange will not receive accrued interest thereon at the time of exchange; rather, all accrued interest on the original notes will become obligations under the exchange notes. Holders may tender some or all of their original notes pursuant to the exchange offer. However, original notes may be tendered only in denominations of $2,000 and integral multiples of $1,000 principal amount in excess thereof.

 

The form and terms of the exchange notes are the same as the form and terms of the original notes, except that:

 

 

The exchange notes will evidence the same debt as the original notes that they replace, and will be issued under, and be entitled to the benefits of, the indenture which governs the original notes, including the payment of principal and interest.

 

We are sending this prospectus and the letter of transmittal to holders of the original notes through the facilities of The Depositary Trust Company, or DTC, whose nominee, Cede & Co, is the registered holder of the original notes. The original notes are represented by permanent global notes in fully registered form, without coupons, which have been deposited with the trustee for the notes, as custodian for DTC. Ownership of beneficial interests in each global note is limited to persons who have accounts with DTC, or DTC participants, or persons who hold interests through DTC participants. The term “holder,” as used in this prospectus, means those DTC participants in whose name interests in the global notes are credited on the books of DTC, and those persons who hold interests through such DTC participants. The term “original notes,” as used in this prospectus, means such interests in the global notes. Like the original notes, the exchange notes will be deposited with the trustee for the notes as custodian for DTC, and registered in the name of Cede & Co., as nominee of DTC.

 

Holders of the original notes do not have any appraisal or dissenter’s rights under Delaware law or the indenture governing the notes in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the requirements of the Exchange Act and the SEC’s rules and regulations thereunder.

 

We will be deemed to have accepted validly tendered original notes when, as and if we have given written notice thereof to the exchange agent, which is Law Debenture Trust Company of New York. The exchange agent will act as agent for the tendering holders of the original notes for the purposes of receiving the exchange notes. The exchange notes delivered in the exchange offer will be issued promptly following our acceptance for exchange of original notes.

If any tendered original notes are not accepted for exchange because they do not comply with the procedures set forth in this prospectus and the accompanying letter of transmittal, our withdrawal of the exchange offer, the occurrence of certain other events set forth herein or otherwise, such unaccepted original notes will be returned, without expense, to the tendering holder promptly after the Expiration Date or our withdrawal of the exchange offer. Any acceptance, waiver of default or a rejection of a tender of original notes shall be at our discretion and shall be conclusive, final and binding.

 

Holders who tender original notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of the original notes in the exchange offer. We will pay all charges and expenses, other than certain taxes, in connection with the exchange offer. See “—Fees and Expenses.”

 

Expiration date; extensions; amendments

 

The term “Expiration Date” with respect to the exchange offer means 5:00 p.m., New York City time, on June 1, 2010 unless we, in our sole discretion, extend the exchange offer, in which case the term “Expiration Date” shall mean the latest date and time to which the exchange offer is extended.

 

If we extend the exchange offer, we will notify the exchange agent of any extension by written notice and will make a public announcement thereof, each prior to 9:00 a.m., New York City time, no later than on the next business day after the previously scheduled Expiration Date.

 

We reserve the right, in our sole discretion,

 

 

We may effect any such extension, waiver, termination or amendment by giving written notice thereof to the exchange agent.

 

Except as specified in the second paragraph under this heading, we will make a public announcement of any such extension, termination, amendment or waiver as promptly as practicable. If we amend or waive any condition of the exchange offer in a manner determined by us to constitute a material change to the exchange offer, we will promptly disclose such amendment or waiver in a prospectus supplement that will be distributed to the holders of the original notes. The exchange offer will then be extended for a period of five to ten business days, as required by law, depending upon the significance of the amendment or waiver and the manner of disclosure to the registered holders.

 

We will make a timely release of a public announcement of any extension, termination, amendment or waiver to the exchange offer to an appropriate news agency.

Procedures for tendering original notes

 

Tenders of Original Notes; Book-Entry Delivery Procedure.  All of the original notes are held in book-entry form, and tenders may only be made through DTC’s Book-Entry Transfer Facility.

 

The exchange agent will establish an account with respect to the original notes at DTC for purposes of the exchange offer within two business days after the date of this prospectus, and any financial institution that is a participant in DTC that wishes to participate in the exchange offer may make book-entry delivery of the original notes by causing DTC to transfer such original notes into the exchange agent’s account in accordance with DTC’s procedures for such transfer. The confirmation of a book-entry transfer into the exchange agent’s account at DTC is referred to as a “Book-Entry Confirmation.” In addition, DTC participants on or before the Expiration Date must either:

 

 

The term “Agent’s Message” means a message transmitted by DTC to, and received by, the exchange agent and forming a part of the Book-Entry Confirmation, which states that DTC has received an express acknowledgment from the participant in DTC tendering the original notes that such participant has received the letter of transmittal and agrees to be bound by the terms of the letter of transmittal, and that we may enforce such agreement against such participant

 

Although delivery of original notes is to be effected through book-entry at DTC, the letter of transmittal (or facsimile thereof), with any required signature guarantees, or an Agent’s Message in connection with a book-entry transfer, and any other required documents, must, in any case, be transmitted to and received by the exchange agent at one or more of its addresses set forth below on or prior to the Expiration Date. Delivery of the letter of transmittal or other required documents to DTC does not constitute delivery to the exchange agent.

 

The tender by a holder of original notes pursuant to the procedures set forth above will constitute the tendering holder’s acceptance of all of the terms and conditions of the exchange offer. Our acceptance for exchange of original notes tendered pursuant to the procedures described above will constitute a binding agreement between such tendering holder and us in accordance with the terms and subject to the conditions of the exchange offer. Only holders are authorized to tender their original notes.

 

The method of delivery of original notes and letters of transmittal, any required signature guarantees and all other required documents, including delivery through DTC and any acceptance or Agent’s Message transmitted through ATOP, is at the election and risk of the persons tendering original notes and delivering letters of transmittal. If you use ATOP, you must allow sufficient time for completion of the ATOP procedures during normal business hours of DTC on or prior to the Expiration Date. Tender and delivery will be deemed made only when actually received by the exchange agent. If delivery is by mail, it is suggested that the holder use properly insured, registered mail, postage prepaid, with return receipt requested, and that the

mailing be made sufficiently in advance of the Expiration Date to permit delivery to the exchange agent prior to such date.

 

Except as provided below, unless the original notes being tendered are delivered to the exchange agent on or prior to the Expiration Date (accompanied by a completed and duly executed letter of transmittal or a properly transmitted Agent’s Message), we may, at our option, reject the tender of such original notes. The exchange of exchange notes for original notes will be made only against the tendered original notes, which must be deposited with the exchange agent prior to or on the Expiration Date, and receipt by the exchange agent of all other required documents prior to or on the Expiration Date.

 

Tender of Original Notes Held Through a Nominee.  If you beneficially own original notes through a bank, depository, broker, trust company or other nominee and wish to tender your original notes, you must instruct such holder to cause your original notes to be tendered on your behalf. A letter of instruction from your bank, depository, broker, trust company or other nominee may be included in the materials provided along with this prospectus, which the beneficial owner may use to instruct its nominee to effect the tender of the original notes of the beneficial owner.

 

Signature Guarantees.  Signatures on all letters of transmittal must be guaranteed by a recognized member of the Medallion Signature Guarantee Program or by any other “eligible guarantor institution,” as that term is defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing, an “Eligible Institution”), unless the original notes tendered thereby are tendered (1) by a participant in DTC whose name appears on a DTC security position listing as the owner of such original notes who has not completed either the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal, or (2) for the account of an Eligible Institution. See Instructions 1 and 4 of the letter of transmittal. If the original notes are in the name of a person other than the signer of the letter of transmittal or if original notes not accepted for exchange or not tendered are to be returned to a person other than the holder of such original notes, then the signatures on the letter of transmittal accompanying the tendered original notes must be guaranteed by an Eligible Institution as described above. See Instructions 1 and 4 of the letter of transmittal.

 

No Guaranteed Delivery Procedures.  No guaranteed delivery procedures are being made available in connection with the exchange offer. Therefore, to participate in the exchange offer your original notes must be transferred into the exchange agent’s account at DTC, and the exchange agent must receive a properly completed and duly executed letter of transmittal (and any other required documents) or an Agent’s Message transmitted through ATOP, in each case on or prior to the Expiration Date.

 

Determination of Validity.  All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered original notes will be determined by us, which determination will be conclusive, final and binding. Alternative, conditional or contingent tenders of original notes will not be considered valid and may be rejected by us. We reserve the absolute right to reject any and all original notes not properly tendered or any original notes our acceptance of which, in the opinion of our counsel, would be unlawful.

 

We also reserve the right to waive any defects, irregularities or conditions of tender as to particular original notes. The interpretation of the terms and conditions of our exchange offer (including the instructions in the letter of transmittal) by us will be conclusive, final and binding

on all parties. Unless waived, any defects or irregularities in connection with tenders of original notes must be cured within such time as we shall determine.

 

Although we intend to notify holders of defects or irregularities with respect to tenders of original notes through the exchange agent, neither we, the exchange agent nor any other person is under any duty to give such notice, nor shall they incur any liability for failure to give such notification. Tenders of original notes will not be deemed to have been made until such defects or irregularities have been cured or waived.

 

Any original notes tendered into the exchange agent’s account at DTC that are not validly tendered and as to which the defects or irregularities have not been cured or waived within the timeframes established by us in our sole discretion, if any, or if original notes are submitted in a principal amount greater than the principal amount of original notes being tendered by such tendering holder, such unaccepted or non-exchanged original notes will be credited back to the account maintained by the applicable DTC participant with such book-entry transfer facility.

 

Withdrawal of tenders

 

Tenders of original notes in the exchange offer may be withdrawn at any time on or prior to the Expiration Date.

 

To be effective, any notice of withdrawal must specify the name and number of the account at DTC to be credited with such withdrawn original notes and must otherwise comply with DTC’s procedures.

 

If the original notes to be withdrawn have been identified to the exchange agent, a signed notice of withdrawal meeting the requirements discussed above is effective immediately upon the exchange agent’s receipt of written or facsimile notice of withdrawal even if physical release is not yet effected. A withdrawal of original notes can only be accomplished in accordance with these procedures. Any failure to follow these procedures will not result in any original notes being withdrawn. The company and the exchange agent may reject any withdrawal request not in accordance with these procedures.

 

All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by us, which determination shall be final and binding on all parties. No withdrawal of original notes will be deemed to have been properly made until all defects or irregularities have been cured or expressly waived. Neither we, the exchange agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or revocation, nor shall we or they incur any liability for failure to give any such notification. Any original notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no exchange notes will be issued with respect thereto unless the original notes so withdrawn are retendered on or prior to the Expiration Date. Properly withdrawn original notes may be retendered by following the procedures described above under “—Procedures for Tendering Original Notes” at any time on or prior to the Expiration Date.

 

Any original notes which have been tendered but which are not accepted for exchange due to the rejection of the tender due to uncured defects or the prior termination of the exchange offer, or which have been validly withdrawn, will be returned to the holder thereof unless otherwise provided in the letter of transmittal, promptly following the Expiration Date or, if so

requested in the notice of withdrawal, promptly after receipt by us of notice of withdrawal without cost to such holder.

 

Conditions to the exchange offer

 

The exchange offer will not be subject to any conditions, other than:

 

 

If we determine in our reasonable discretion that any of the conditions to the exchange offer are not satisfied, we may:

 

 

If our waiver of an unsatisfied condition constitutes a material change to the exchange offer, we will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the holders of the original notes, and will extend the exchange offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the exchange offer would otherwise expire during such five to ten business day period.

 

Exchange agent

 

Law Debenture Trust Company of New York, the trustee under the indenture governing the notes, has been appointed as exchange agent for the exchange offer. The exchange agent will

not be (i) liable for any act or omission unless such act constitutes its own gross negligence or bad faith and in no event will the exchange agent be liable to a security holder, Mediacom LLC, Mediacom Capital Corporation or any third party for special, indirect or consequential damages, or lost profits, arising in connection with the exchange offer or its duties and responsibilities related to the exchange offer; (ii) obligated to take any legal action with respect to the exchange offer which might in its judgment involve any expense or liability, unless it will be furnished with indemnity satisfactory to it; and (iii) liable or responsible for any statement contained in this prospectus.

 

Each of Mediacom LLC and Mediacom Capital Corporation will indemnify the exchange agent with respect to certain matters relating to the exchange offer.

 

You should direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for other documents to the exchange agent as follows:

 

Delivery by Registered or Certified Mail:

 

Law Debenture Trust Company of New York
400 Madison Avenue, 4th Floor
New York, New York 10017
Attention: Corporate Trust Department/Mediacom

 

Overnight Delivery or Regular Mail:

 

Law Debenture Trust Company of New York
400 Madison Avenue, 4th Floor
New York, New York 10017
Attention: Corporate Trust Department/Mediacom

 

To Confirm by Telephone or for Information:

 

(212) 750-6474

 

Facsimile Transmissions:

 

(212) 750-1361

 

Fees and expenses

 

We will bear the expenses of soliciting tenders.  The principal solicitation is being made by mail by the exchange agent; however, additional solicitation may be made by telecopy, telephone or in person by our or our affiliates’ officers and regular employees.

 

No dealer-manager has been retained in connection with the exchange offer and no payments will be made to brokers, dealers or others soliciting acceptance of the exchange offer. However, reasonable and customary fees will be paid to the exchange agent for its services and it will be reimbursed for its reasonable out-of-pocket expenses.

 

Our out-of-pocket expenses for the exchange offer will include fees and expenses of the exchange agent and the trustee under the indenture governing the notes, accounting and legal fees and printing costs, among others.

Transfer taxes

 

We will pay all transfer taxes, if any, applicable to the exchange of the original notes pursuant to the exchange offer. If, however, a transfer tax is imposed for any reason other than the exchange of the original notes pursuant to the exchange offer, then the amount of any such transfer taxes (whether imposed on the tendering holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed directly to such tendering holder.

 

Accounting treatment for the exchange offer

 

The exchange notes will be recorded at the carrying value of the original notes and no gain or loss for accounting purposes will be recognized. The expenses of the exchange offer will be amortized over the term of the exchange notes.

 

The exchange offer is intended to satisfy our obligations under the registration rights agreement relating to the original notes. We will not receive any proceeds from the issuance of the exchange notes in the exchange offer. In consideration for issuing the exchange notes as contemplated in this prospectus, we will receive, in exchange, outstanding original notes in like principal amount. We will cancel all original notes tendered in exchange for exchange notes in the exchange offer. The exchange notes will accrue interest on the same terms as the original notes, and all accrued interest on the original notes will become obligations under the exchange notes. As a result, the issuance of the exchange notes will not result in any increase or decrease in our indebtedness or in the early payment of interest.

 

The net proceeds from the sale of the original notes on August 25, 2009 were approximately $334.9 million. We used the proceeds from the original notes to fund a portion of the debt tender offers described under “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources—New Financings” and to pay related fees and expenses.

 

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2009. The issuance of the exchange notes will not result in any change in our outstanding indebtedness. This table should be read in conjunction with our consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

 

 

 

We set forth in the table below our selected historical consolidated financial and subscriber data. The selected historical balance sheet data as of December 31, 2009 and 2008 and the selected statement of operations and cash flow data for the years ended December 31, 2009, 2008 and 2007 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The other selected balance sheet, statement of operations and cash flow data set forth in the table below have been derived from other consolidated financial statements that are not included in this prospectus.

 

The following information should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto included elsewhere in this prospectus.

 

 

 

 

 

The following discussion includes forward-looking statements that are based on our current expectations. Actual results in future periods may differ materially from those expressed or implied by our forward looking statements because of a number of risks and uncertainties. For a discussion of risk factors affecting our business and prospects, see “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” The following discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this prospectus.

 

Overview

 

Mediacom LLC

 

We own and operate cable systems serving smaller cities and towns in the United States. We offer a compelling variety of advanced products and services to our customers, made possible by investments in our interactive fiber networks which have boosted their capacity, capability and reliability. Through our interactive broadband network, we provide our customers with a wide variety of advanced products and services, including video services, such as video-on-demand, HDTV, DVRs, HSD and phone service. We offer our bundle of video, HSD and phone over a single communications platform, a significant advantage over most competitors in our service areas.

 

As of December 31, 2009, we served approximately 548,000 basic subscribers, 300,000 digital video customers or digital customers, 350,000 HSD customers and 135,000 phone customers, aggregating 1.33 million RGUs. As of the same date, we offered our bundle of primary services consisting of video, HSD and phone service to about 87% of the estimated homes that our network passes.

 

Our manager

 

We are a wholly-owned subsidiary of Mediacom Communications Corporation, who is also our manager. Mediacom is the nation’s seventh largest cable company based on the number of customers who purchase one or more video services, also known as basic subscribers. Mediacom is among the leading cable operators focused on serving the smaller cities in the United States, such as Des Moines, Iowa and Springfield, Missouri, with a significant customer concentration in the Midwestern and Southeastern regions.

 

As of December 31, 2009, Mediacom’s cable systems, which are owned and operated through our operating subsidiaries and those of Mediacom Broadband, passed an estimated 2.80 million homes in 22 states. Mediacom Broadband is also a wholly-owned subsidiary of our manager. As of the same date, Mediacom served approximately 1.24 million basic subscribers, 678,000 digital video customers, 778,000 HSD customers and 287,000 phone customers, aggregating 2.98 million RGUs. Mediacom also provides communications services to commercial and large enterprise customers, and sell advertising time they receive under their programming license agreements to local, regional and national advertisers.

 

Mediacom is a publicly-owned company, and its Class A common stock is listed on The Nasdaq Global Select Market under the symbol “MCCC.” Mediacom was founded by Rocco B. Commisso, its Chairman and Chief Executive Officer, who beneficially owned shares representing the

majority of the aggregate voting power of Mediacom common stock outstanding as of the date of this prospectus. Mediacom is not an obligor on, or a guarantor of, the notes and has no obligations under the indenture with respect to the notes.

 

Mediacom Capital Corporation

 

Mediacom Capital Corporation is our wholly-owned subsidiary that was incorporated to accommodate the issuance of indebtedness by us. Mediacom Capital Corporation has no operations, revenues or cash flows and has no assets, liabilities or stockholders’ equity on its balance sheet, other than a $100 receivable from an affiliate and the same dollar amount of common stock on its consolidated balance sheets. Therefore, no separate financial data, or discussion, is presented for this entity.

 

Recent developments

 

Mediacom exchange transaction; transfer agreement

 

On September 7, 2008, Mediacom entered into the Exchange Agreement with Shivers and STOC, both affiliates of Morris Communications. On February 13, 2009, Mediacom completed the Exchange Agreement pursuant to which it exchanged 100% of the shares of stock of a wholly-owned subsidiary, which held approximately $110 million of cash and non-strategic cable systems serving approximately 25,000 basic subscribers contributed to Mediacom by us, for 28,309,674 shares of Mediacom Class A common stock held by Shivers.

 

On February 11, 2009, certain of our operating subsidiaries executed the Transfer Agreement with Mediacom and the operating subsidiaries of Mediacom Broadband, a wholly owned subsidiary of Mediacom, pursuant to which certain of our cable systems located in Florida, Illinois, Iowa, Kansas, Missouri and Wisconsin would be exchanged for certain of Mediacom Broadband’s cable systems located in Illinois and a cash payment of $8.2 million, which we refer to as the Asset Transfer. The Asset Transfer was completed on February 13, 2009, which we refer to as the transfer date. The net effect of the Asset Transfer on our subscriber and customer base was the reduction of 3,700 basic subscribers and the addition of 1,000 digital customers, 1,000 HSD customers and 600 phone customers. We believe the Asset Transfer better aligned our customer base geographically, making our cable systems more clustered and allowing for more effective management, administration, controls and reporting of our field operations.

 

As part of the Transfer Agreement, we contributed to Mediacom cable systems located in Western North Carolina, which we refer to as the WNC Systems. The WNC Systems served approximately 25,000 basic subscribers, 10,000 digital customers, 13,000 HSD customers and 3,000 phone customers, or an aggregate 51,000 RGUs. During the year ended December 31, 2008, the WNC Systems recognized $22.5 million of total revenues, $11.4 million of service costs, $4.2 million of selling, general and administrative expenses and $4.6 million of depreciation and amortization, or $2.2 million of operating income. These cable systems were part of the Exchange Agreement referred to above. In connection therewith, we received a $74 million cash contribution on February 12, 2009 from Mediacom, with such funds having been contributed to Mediacom by Mediacom Broadband on the same date.

 

In total, we received $82.2 million under the Transfer Agreement, which we refer to as the Transfer Proceeds, which were used by us to repay a portion of the outstanding balance under the revolving commitments of our subsidiary credit facility.

On February 12, 2009, after giving effect to the debt repayment funded by the Transfer Proceeds, our operating subsidiaries borrowed approximately $110 million under the revolving commitments of our subsidiary credit facility. This represented net new borrowings of approximately $28 million after taking into account the Transfer Proceeds. On February 12, 2009, we contributed approximately $110 million to Mediacom to fund its cash obligation under the Exchange Agreement with Shivers and STOC.

 

Year-over-year comparisons of revenues and expenses for the year ended December 31, 2009 are generally understated in the case of increases, and overstated in the case of decreases, than would have occurred if the WNC Systems Transfer did not take place. All 2009 comparisons to prior year results are on an actual basis, and instances where the inclusion of the WNC Systems in the results of operations in the prior year had an offsetting impact are noted as the “impact of the WNC Systems Transfer.”

 

The results of operations of the cable systems transferred under the Asset Transfer were substantially similar during 2008, and thus did not have a meaningful offsetting impact on 2009 comparisons to prior year periods. The net effects of the Transfer Agreement were the reduction of 28,700 basic subscribers, 9,000 digital customers, 12,000 HSD customers and 2,400 phone customers. Such effects are not included in discussions of annual subscriber and customer gains and losses, and are referred to as the “effect of the Transfer Agreement.”

 

In addition, we recognized an additional $5.5 million in revenues and $1.7 million of net income, for the period January 1, 2009 through the transfer date, because we recorded the results of operations we received as part of the Asset Transfer, as if the transfer date was January 1, 2009. For purposes of this discussion, additional revenues and expenses resulting from the accounting treatment of the Asset Transfer are referred to as “related to the Asset Transfer.” See Note 7 in our Notes to Consolidated Financial Statements included elsewhere in this prospectus.

 

New financings

 

On August 25, 2009, we entered into an incremental facility agreement providing for a new term loan D under our subsidiary credit facility in the principal amount of $300.0 million. On the same date, we issued the original notes in the aggregate principal amount of $350.0 million. Net proceeds from of the original notes and borrowings under term loan D were an aggregate of $626.1 million, after giving effect to original issue discount and financing costs, were used to fund tender offers for, and the redemption of, our 77/8% notes and 91/2% notes. See Note 5 in our Notes to Consolidated Financial Statements included elsewhere in this prospectus.

 

On April 23, 2010, we entered into an incremental facility agreement providing for a new term loan E under our subsidiary credit facility in the principal amount of $250.0 million. Net proceeds from the borrowings under term loan E were an aggregate of $243.4 million, after giving effect to the original issue discount of $1.3 million and financing and other costs of $5.3 million, which we used to repay term loan A under our subsidiary credit facility in the principal amount of $143.5 million and borrowings outstanding under the revolver portion of our subsidiary credit facility in the principal amount of $82.1 million. On the same date, we entered into an amendment to our subsidiary credit facility which, among other things, reduced the revolving loan portion of our subsidiary credit facility from $400 million to $304.2 million, and extended the expiration date for $225.2 million in revolving credit commitments from September 30, 2011 to December 31, 2014 (subject to an earlier expiration date of June 30,

2014, if our term loan C is not repaid before then). The remaining revolving credit commitments will expire on September 30, 2011.

 

Revenues, costs and expenses

 

Video revenues primarily represent monthly subscription fees charged to customers for our core cable products and services (including basic and digital cable programming services, wire maintenance, equipment rental and services to commercial establishments), pay-per-view charges, installation, reconnection and late payment fees, franchise fees and other ancillary revenues. HSD revenues primarily represent monthly fees charged to customers, including small to medium sized commercial establishments, for our HSD products and services and equipment rental fees, as well as fees charged to large-sized businesses for our scalable, fiber- based enterprise network products and services. Phone revenues primarily represent monthly fees charged to customers, including small to medium sized commercial establishments, for our phone service. Advertising revenues represent the sale of advertising placed on our video services.

 

Although we may continue to lose video customers as a result of greater competition and weak economic conditions, we believe we will grow video revenues for the foreseeable future through increased gains in penetration of our advanced video services as well as rate increases. We expect further growth in HSD and phone revenues, as we believe we will continue to expand our penetration of our HSD and phone services. However, future growth in HSD and phone customers may be adversely affected by intensifying competition, weakened economic conditions and, specific to phone, wireless substitution by consumers. Advertising revenues may stabilize in 2010, given the potential for an economic recovery and the upcoming national election.

 

Service costs consist primarily of video programming costs and other direct costs related to providing and maintaining services to our customers. Significant service costs include: programming expenses; wages and salaries of technical personnel who maintain our cable network, perform customer installation activities and provide customer support; HSD costs, including costs of bandwidth connectivity and customer provisioning; phone service costs, including delivery and other expenses; and field operating costs, including outside contractors, vehicle, utilities and pole rental expenses. These costs generally rise because of customer growth, contractual increases in video programming rates and inflationary cost increases for personnel, outside vendors and other expenses. Costs relating to personnel and their support may increase as the percentage of our expenses that we can capitalize declines due to lower levels of new service installations. Cable network related costs also fluctuate with the level of investment we make, including the use of our own personnel, in the cable network. We anticipate that our service costs will continue to grow, but should remain fairly consistent as a percentage of our revenues, with the exception of programming costs, which we discuss below.

 

Video programming expenses, which are generally paid on a per subscriber basis, have historically been our largest single expense item. In recent years, we have experienced a substantial increase in the cost of our programming, particularly sports and local broadcast programming, well in excess of the inflation rate or the change in the consumer price index. We believe that these expenses will continue to grow, principally due to contractual unit rate increases and the increasing demands of sports programmers and television broadcast station owners for retransmission consent fees. While such growth in programming expenses can be partially offset by

rate increases, it is expected that our video gross margins will decline as increases in programming costs outpace growth in video revenues.

 

Significant selling, general and administrative expenses include: wages and salaries for our call centers, customer service and support and administrative personnel; franchise fees and taxes; marketing; bad debt; billing; advertising; and office costs related to telecommunications and office administration. These costs typically rise because of customer growth and inflationary cost increases for employees and other expenses, but we expect such costs should remain fairly consistent as a percentage of revenues.

 

Management fee expenses reflect compensation of corporate employees and other corporate overhead.

 

Adjusted OIBDA

 

We define Adjusted OIBDA as operating income before depreciation and amortization and non-cash, share-based compensation charges. Adjusted OIBDA is one of the primary measures used by management to evaluate our performance and to forecast future results but is not a financial measure calculated in accordance with GAAP. It is also a significant performance measure in our annual incentive compensation programs. We believe Adjusted OIBDA is useful for investors because it enables them to assess our performance in a manner similar to the methods used by management, and provides a measure that can be used to analyze, value and compare the companies in the cable industry, which may have different depreciation and amortization policies, as well as different non-cash, share-based compensation programs. We use similar measures in calculating compliance with the covenants of our debt arrangements. A limitation of Adjusted OIBDA, 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. In addition, Adjusted OIBDA has the limitation of not reflecting the effect of the non-cash, share-based compensation charges.

 

Adjusted 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 Adjusted OIBDA.

Actual results of operations

 

Year ended December 31, 2009 compared to year ended December 31, 2008

 

The following table sets forth unaudited consolidated statements of operations data for the years ended December 31, 2009 and 2008 (dollars in thousands; percentage changes that are not meaningful are marked NM):

 

 

The following represents a reconciliation of Adjusted OIBDA to operating income, which we believe is the most directly comparable GAAP measure (dollars in thousands):

 

 

 

Revenues

 

The following table sets forth revenue and selected subscriber, customer and average monthly revenue statistics for the years ended December 31, 2009 and 2008 (dollars in thousands, except per subscriber data):

 

 

 

 

Revenues increased $21.5 million, or 3.5%, of which $16.0 million was primarily due to growth in our HSD, phone and digital customers, offset in part by the impact of the WNC Systems Transfer and, to a much lesser extent, lower advertising revenues, with the remaining $5.5 million increase related to the Asset Transfer. Average total monthly revenue per basic subscriber increased $7.27, or 8.5%, primarily as a result of higher penetration levels of our advanced video, HSD and phone services, offset by a lower number of basic subscribers. About $0.80 of the increase in average total monthly revenue per basic subscriber was related to the Asset Transfer.

 

Video revenues fell $1.4 million, or 0.3%, principally due to a lower number of basic subscribers, including the impact of the WNC Systems Transfer, mostly offset by continued growth in digital customers and customers taking our DVR and HDTV services and rate increases and, to a lesser extent, $3.6 million of video revenues related to the Asset Transfer. During the year ended December 31, 2009, we lost 24,300 basic subscribers and gained 21,000 digital customers, excluding the effect of the Transfer Agreement, as compared to a loss of 3,800 basic subscribers and a gain of 46,200 digital customers in the prior year. Excluding the effects of the Transfer Agreement, our basic subscriber losses mainly represented video-only customers, which were largely caused by aggressive video price discounts by direct broadcast satellite providers. As of December 31, 2009, we served 548,000 basic subscribers, representing a penetration of 42.6% of our estimated homes passed, and 300,000 digital customers, representing a penetration of

54.7% of our basic subscribers. As of December 31, 2009, 37.4% of our digital customers received DVR and/or HDTV services, as compared to 31.9% as of the same date in the prior year.

 

HSD revenues rose $15.0 million, or 10.2%, of which $13.5 million was primarily due to a 3.9% increase in HSD customers and higher unit pricing, offset in part by the impact of the WNC Systems Transfer. The remaining increase of $1.5 million was related to the Asset Transfer. During the year ended December 31, 2009, we gained 25,000 HSD customers, excluding the effect of the Transfer Agreement, as compared to a gain of 36,100 in the prior year. As of December 31, 2009, we served 350,000 HSD customers, representing a penetration of 27.2% of our estimated homes passed.

 

Phone revenues grew $12.2 million, or 30.2%, mainly due to a 18.4% increase in phone customers and, to a lesser extent, higher unit pricing. During the year ended December 31, 2009, we gained 23,400 phone customers, excluding the effect of the Transfer Agreement, as compared to a gain of 32,900 in the prior year. As of December 31, 2009, we served 135,000 phone customers, representing a penetration of 11.4% of our estimated marketable phone homes.

 

Advertising revenues fell $4.3 million, or 21.3%, principally due to sharp declines in advertising revenues in local markets, particularly in the automotive segment.

 

Costs and expenses

 

Service costs rose $15.8 million, or 5.9%, principally due to higher programming expenses and, to a lesser extent, increased employee and phone service costs, as well $2.5 million of service costs related to the Asset Transfer, offset in part by the impact of the WNC Systems Transfer. The following analysis of service cost components excludes the effects of the Asset Transfer. Programming expenses increased 5.2%, largely as a result of higher contractual rates charged by our programming vendors and, to a lesser extent, greater retransmission consent fees, offset in part by a lower number of basic subscribers, including the effect of the Transfer Agreement. Employee expenses grew 13.0%, principally due to reduced customer installation activity resulting in lower labor capitalization, offset in part by the impact of the WNC Systems Transfer. Phone service costs were 10.0% higher, mostly due to the increase in phone customers, offset in part by the impact of the WNC Systems Transfer. Service costs as a percentage of revenues were 44.4% and 43.4% for the years ended December 31, 2009 and 2008, respectively.

 

Selling, general and administrative expenses decreased $0.8 million, or 0.7%, primarily due to the impact of the WNC Systems Transfer and, to a lesser extent, reduced customer service employee costs and lower advertising and office expenses, offset in part by higher bad debt expenses and $0.8 million of selling, general and administrative expenses related to the Asset Transfer. The following analysis of selling, general and administrative expenses excludes the effects of the Asset Transfer. Customer service employee costs fell 6.2%, largely due to greater productivity in our call centers and the impact of the WNC Systems Transfer. Advertising expenses fell 19.6%, largely as a result of lower employee costs directly related to sales activity. Office expenses dropped 8.4%, principally due to lower telecommunications costs as a result of more efficient call routing and internal network use and the impact of the WNC Systems Transfer. Bad debt expense rose 18.8%, principally due to higher average balances of uncollectable accounts, offset in part by an adjustment made to our accrual allowance for uncollectable accounts. Selling, general and administrative expenses as a percentage of revenues were 17.2% and 18.0% for the years ended December 31, 2009 and 2008, respectively.

Management fee expense paid to Mediacom was virtually unchanged from the prior year, reflecting substantially similar overhead charges at Mediacom. Management fee expense as a percentage of revenues were 1.9% for each of the years ended December 31, 2009 and 2008.

 

Depreciation and amortization increased $2.2 million, or 2.0%, largely as a result of greater deployment of shorter-lived customer premise equipment and, to a lesser extent, write-offs related to ice storms in certain of our service areas and $0.5 million of depreciation and amortization related to the Asset Transfer, offset in part by an increase in the useful lives of certain fixed assets and the impact of the WNC Systems Transfer.

 

Adjusted OIBDA

 

Adjusted OIBDA increased $6.6 million, or 2.9%, mainly due to growth in HSD and phone revenues and, to a much lesser extent, $2.2 million of Adjusted OIBDA related to the Asset Transfer, offset in part by higher service costs and, to a lesser extent, the impact of the WNC Systems Transfer.

 

Operating income

 

Operating income grew $4.2 million, or 3.6%, principally due to the increase in Adjusted OIBDA, offset in part by the increase in depreciation and amortization.

 

Interest expense, net

 

Interest expense, net, decreased $9.8 million, or 9.8%, primarily due to lower market interest rates on variable rate debt, offset in part by higher average indebtedness.

 

Loss on early extinguishment of debt

 

Loss on early extinguishment of debt totaled $5.8 million for the year ended December 31, 2009. This amount included fees and premium paid relating to the tender offers of the 77/8% Notes and 91/2% Notes, as well as the write-off of deferred financing costs associated with such notes.

 

Gain (loss) on derivatives, net

 

As a result of changes to the mark-to-market valuation of our interest rate exchange agreements, we recorded a net gain on derivatives of $13.1 million and a net loss on derivatives of $23.3 million, based in part upon information provided by our counterparties, for the years ended December 31, 2009 and 2008, respectively.

 

Loss on sale of cable systems, net

 

For the year ended December 31, 2009, we recognized a loss on sale of cable systems, net, of approximately $0.4 million related to minor transactions. During the year ended December 31, 2008, we recognized a loss on sale of cable systems, net, of approximately $0.2 million, which reflects adjustments made to a prior transaction.

 

Other expense, net

 

Other expense, net, was $3.8 million and $3.7 million for the year ended December 31, 2009 and 2008, respectively. During the year ended December 31, 2009, other expense, net, consisted of $2.4 million of commitment fees, which included $0.4 million of commitment fees related to the delayed funding of term loan D and $1.4 million of deferred financing costs and other fees. During the year ended December 31, 2008, other expense, net, consisted of $2.5 million of commitment fees and $1.9 million of deferred financing costs and other fees.

 

Investment income from affiliate

 

Investment income from affiliate was $18.0 million for each of the years ended December 31, 2009 and 2008. This amount represents the investment income on our $150.0 million preferred equity investment in Mediacom Broadband.

 

Net income

 

As a result of the factors described above, we recognized net income of $51.8 million for the year ended December 31, 2009, as compared to net income of $7.4 million for the year ended December 31, 2008.

 

Year ended December 31, 2008 compared to year ended December 31, 2007

 

The following table sets forth unaudited consolidated statements of operations data for the years ended December 31, 2008 and 2007 (dollars in thousands and percentage changes that are not meaningful are marked NM):

 

 

The following represents a reconciliation of Adjusted OIBDA to operating income, which is the most directly comparable GAAP measure (dollars in thousands):

 

 

 

Revenues

 

The following table sets forth revenue and selected subscriber, customer and average monthly revenue statistics for the years ended December 31, 2008 and 2007 (dollars in thousands, except per subscriber data):

 

Note: Certain reclassifications have been made to the prior year’s amounts to conform to the current year’s presentation.

 

 

 

Revenues rose 8.8%, largely attributable to the growth in our HSD and phone customers, as well as basic video price increases. RGUs grew 9.7% and average total monthly revenue per basic subscriber was 11.4% higher than the prior year. Video revenues increased 2.5%, primarily due to basic video rate increases and customer growth in our advanced video products and services, offset in part by a lower number of basic subscribers. During the year ended December 31, 2008, we lost 3,000 basic subscribers, compared to a reduction of 25,000 basic subscribers in the prior year. which includes a significant number of basic subscribers lost in connection with the

retransmission consent dispute with an owner of a major television broadcast group and the sale during the period of cable systems serving on a net basis 4,100 basic subscribers. Digital customers grew by 48,000, as compared to an increase of 16,000 in the prior year. We ended the year with 288,000 digital customers, which represents a 47.9% penetration of basic subscribers. As of December 31, 2008, 31.6% of digital customers received DVR and/or HDTV services, as compared to 30.7% in the prior year.

 

HSD revenues rose 16.7%, principally due to a 12.7% increase in HSD customers and, to a lesser extent, growth in our enterprise network products and services. HSD customers grew by 38,000, as compared to a gain of 41,000 in the prior year. We ended the year with 337,000 customers, or a 24.6% penetration of estimated homes passed.

 

Phone revenues grew 85.7%, primarily due to a 44.3% increase in phone customers and, to a lesser extent, a reduction in discounted pricing. Phone customers grew by 35,000, as compared to a gain of 45,000 in the prior year. We ended the year with 114,000 customers, which represents a 9.5% penetration of our estimated marketable phone homes. As of December 31, 2008, our phone service was marketed to 87% of our 1.37 million estimated homes passed.

 

Advertising revenues increased 1.1%, largely as a result of greater national advertising in our service areas, mostly offset by a sharp decrease in automotive advertising.

 

Costs and expenses

 

Service costs rose 8.7%, primarily due to higher programming, phone service and field operating expenses, offset in part by lower HSD service costs. Programming expenses grew 8.5%, principally as a result of higher contractual rates charged by our programming vendors. Phone service costs rose 67.4%, mainly due to the growth in phone customers. Field operating expenses grew 13.0%, primarily due to greater vehicle fuel and repair expenses, higher pole rental charges and lower capitalization of overhead costs, offset in part by lower insurance costs. HSD expenses decreased 18.9% due to a reduction in product delivery costs, offset in part by HSD customer growth. Service costs as a percentage of revenues were 43.4% and 43.5% for the years ended December 31, 2008 and 2007, respectively.

 

Selling, general and administrative expenses rose 5.6%, principally due to higher customer service employee costs and marketing expenses, offset in part by a decrease in billing expenses. Customer service employee costs rose 13.4% as a result of higher staffing levels at our call centers. Marketing expenses grew 11.5%, primarily due to higher staffing levels, more frequent direct mailing campaigns, a greater use of third-party sales support and greater expenses tied to sales activity, offset in part by a reduction in other advertising. Billing expenses fell 10.5%, primarily due to more favorable rates charged by our billing service provider. Selling, general and administrative expenses as a percentage of revenues were 18.0% and 18.5% for the years ended December 31, 2008 and 2007, respectively.

 

Management fee expense paid to Mediacom rose 14.0%, reflecting higher overhead charges by Mediacom. As a percentage of revenues, management fee expense was 1.9% and 1.8% for the years ended December 31, 2008 and 2007, respectively.

 

Depreciation and amortization decreased 3.3%, largely as a result of an increase in the useful lives of certain fixed assets, offset in part by increased deployment of shorter-lived customer premise equipment.

Adjusted OIBDA

 

Adjusted OIBDA rose 10.3%, due to growth in HSD, phone and video revenues, offset in part by higher service costs and, to a lesser extent, selling, general and administrative expenses.

 

Operating income

 

Operating income grew 27.3%, primarily due to the increase in Adjusted OIBDA.

 

Interest expense, net

 

Interest expense, net, decreased 15.8%, primarily due to lower market interest rates on variable rate debt, offset in part by higher average indebtedness.

 

Loss on derivatives, net

 

As a result of the quarterly mark-to-market valuation of our interest rate exchange agreements, we recorded losses on derivatives amounting to $23.3 million and $10.0 million, based upon information provided by our counterparties, for the years ended December 31, 2008 and 2007, respectively.

 

(Loss) gain on sale of cable systems, net

 

During the year ended December 31, 2007, we sold a cable system for $24.7 million and recorded a net gain on sale of $8.8 million.

 

Other expense, net

 

Other expense, net was $3.7 million and $4.4 million for the years ended December 31, 2008 and 2007, respectively. During the year ended December 31, 2008 and 2007, other expense, net, included revolving credit facility commitment fees and deferred financing costs.

 

Investment income from affiliate

 

Investment income from affiliate was $18.0 million for the years ended December 31, 2008 and 2007, respectively. This amount represents the investment income on our $150.0 million preferred equity investment in Mediacom Broadband.

 

Net income (loss)

 

As a result of the factors described above, we reported net income for the year ended December 31, 2008 of $7.4 million, as compared to a net loss of $14.6 million for the year ended December 31, 2007.

 

Liquidity and capital resources

 

Overview

 

Our net cash flows provided by operating and financing activities are used primarily to fund network investments to accommodate customer growth and the further deployment of our advanced products and services, as well as scheduled repayments of our external financing,

contributions to Mediacom and other investments. We expect that cash generated by us or available to us will meet our anticipated capital and liquidity needs for the foreseeable future, including scheduled term loan debt maturities of $10.75 million and $12 million during 2010 and 2011, respectively. As of December 31, 2009, our sources of cash included $8.9 million of cash and cash equivalents on hand and unused and available commitments under the revolver of our subsidiary credit facility. On April 23, 2010, we amended our subsidiary credit facility to reduce available commitments from $400 million to $304.2 million and extend $225.2 million in commitments which now expire on December 31, 2014 (subject to an earlier expiration date of June 30, 2014 if we do not repay our term loan C before that date).

 

In the longer term, specifically 2015 and beyond, we may not have enough cash available to satisfy our maturing term loans and senior notes. If we are unable to obtain sufficient future financing or, if we not able to do so on similar terms as we currently experience, we may need to take other actions to conserve or raise capital that we would not take otherwise. However, we have accessed the debt markets for significant amounts of capital in the past, and expect to continue to be able to access these markets in the future as necessary.

 

Recent developments in the credit markets

 

We have assessed, and will continue to assess, the impact, if any, of the recent distress and volatility in the capital and credit markets on our financial position. Further disruptions in such markets could cause our counterparty banks to be unable to fulfill their commitments to us, potentially reducing amounts available to us under our revolving credit commitments or subjecting us to greater credit risk with respect to our interest rate exchange agreements. At this time, we are not aware of any of our counterparty banks being in a position where they would be unable to fulfill their obligations to us. Although we may be exposed to future consequences in the event of such counterparties’ non-performance, we do not expect any such outcomes to be material.

 

Net cash flows provided by operating activities

 

Net cash flows provided by operating activities were $134.4 million for the year ended December 31, 2009, primarily due to Adjusted OIBDA of $233.1 million, offset in part by interest expense of $89.8 million and, to a much lesser extent, the $23.0 million net change in our operating assets and liabilities. The net change in our operating assets and liabilities was largely as a result of a decrease in accounts payable and accrued expenses of $23.2 million.

 

Net cash flows provided by operating activities were $186.4 million for the year ended December 31, 2008, primarily due to Adjusted OIBDA of $226.6 million and, to a much lesser extent, the $43.2 million net change in our operating assets and liabilities, offset in part by interest expense of $99.6 million and, to a lesser extent. The net change in our operating assets and liabilities was principally due to an increase in accounts payable and accrued expenses of $45.5 million.

 

Net cash flows used in investing activities

 

Capital expenditures continue to be our primary use of capital resources and the entirety of our net cash flows used in investing activities. Net cash flows used in investing activities were $98.2 million for the year ended December 31, 2009, as compared to $141.7 million for the prior year. The $43.5 million decrease in capital expenditures was primarily due to higher spending in

the prior year on rebuild and upgrade activity and, to a lesser extent, customer premise equipment, service area expansion and non-recurring investments in scalable infrastructure for digital transition deployment.

 

Net cash flows used in (provided by) financing activities

 

Net cash flows used in financing activities were $37.4 million for the year ended December 31, 2009, principally due to cash distributions to parent of $191.7 million and $23.9 million of financing costs and net borrowings of $10.0 million, largely funded by capital contributions from parent of $189.9 million. The $191.7 million of capital contributions to parent included a $110.0 million capital contribution made in February 2009 to fund Mediacom’s cash obligation under the Exchange Agreement. At the same time, we received an $82.2 million capital contribution from parent under the Transfer Agreement, comprising an $8.2 million payment related to the Transfer Agreement, and a $74.0 million payment for our contribution of the WNC Systems to Mediacom. See Note 7 in our Notes to Consolidated Financial Statements included elsewhere in this prospectus.

 

Net cash flows used in financing activities were $44.2 million for the year ended December 31, 2008, principally due to capital distributions to parent of $104.0 million and other financing activities, including book overdrafts, of $14.7 million, which were funded in part by capital contributions from parent of $60.0 million and net bank financing of $14.5 million.

 

Capital structure

 

As of December 31, 2009, our outstanding total indebtedness was $1.510 billion, of which approximately 70% was at fixed interest rates or subject to interest rate protection. During the year ended December 31, 2009, we paid cash interest of $104.3 million, net of capitalized interest.

 

We have a $1.482 billion bank credit facility, which we refer to as the subsidiary credit facility, of which $1.160 billion was outstanding as of December 31, 2009. The subsidiary credit agreement governing the subsidiary credit facility contains various covenants that, among other things, impose certain 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 principal financial covenant of our subsidiary credit facility requires compliance with a ratio (the “total leverage ratio”) of total senior indebtedness (as defined) to annualized system cash flow (as defined) of no more than 6.0 to 1.0. Our ratio, which is calculated on a quarterly basis, was 4.4 to 1.0 for the three months ended December 31, 2009. See Note 5 in our Notes to Consolidated Financial Statements included elsewhere in this prospectus. Pursuant to an amendment to our subsidiary credit agreement, dated April 23, 2010, the total leverage ratio will reduce to 5.5 to 1.0 commencing with the quarter ending December 31, 2011 and to 5.0 to 1.0 commencing with the quarter ending December 31, 2012.

 

As of December 31, 2009, we had revolving credit commitments of $400.0 million under the subsidiary credit facility, of which $314.8 million was unused and available to be borrowed and used for general corporate purposes based on the terms and conditions of our debt arrangements. As of December 31, 2009, $10.9 million of letters of credit were issued under the subsidiary credit facility to various parties as collateral for our performance relating to insurance and franchise requirements, thus restricting the unused portion of our revolving credit commitments by such amount.

 

The April 23, 2010 amendment to our subsidiary credit facility reduced the revolving credit commitments of our banks from $400 million to $304.2 million, and extended the expiration date for $225.2 million in revolving credit commitments from September 30, 2011 to December 31, 2014 (subject to an earlier expiration date of June 30, 2014, if our term loan C is not repaid before then). The remaining revolving credit commitments will expire on September 30, 2011. See “Description of Subsidiary Credit Facility.”

 

We use interest rate exchange agreements, or interest rate swaps, in order to fix the rate of the applicable Eurodollar portion of debt under the subsidiary credit facility to reduce the potential volatility in our interest expense that would otherwise result from changes in market interest rates. As of December 31, 2009, we had current interest rate swaps with various banks pursuant to which the interest rate on $700 million of floating rate debt was fixed at a weighted average rate of 3.4%. We also had $400 million of forward starting interest rate swaps with a weighted average fixed rate of approximately 2.9%, all of which commence during the year ending December 31, 2010. Including the effects of such interest rate swaps, the average interest rates on outstanding debt under the subsidiary credit facility as of December 31, 2009 and 2008 were 4.7% and 3.5%, respectively.

 

As of December 31, 2009, we had $350.0 million of notes outstanding. The indenture governing our notes also contains various covenants, though they are generally less restrictive than those found in the subsidiary credit facility. Such covenants restrict our ability, among other things, make certain distributions, investments and other restricted payments, sell certain assets, to make restricted payments, create certain liens, merge, consolidate or sell substantially all of our assets and enter into certain transactions with affiliates. The principal financial covenant of these senior notes has a limitation on the incurrence of additional indebtedness based upon a maximum ratio of total indebtedness to cash flow (as defined) of 8.5 to 1.0. Our ratio of total indebtedness to cash flow, which is calculated on a quarterly basis, was 6.0 to 1.0 for the three months ended December 31, 2009. See “Description of the Exchange Notes” and Note 5 in our Notes to Consolidated Financial Statements included elsewhere in this prospectus.

 

New financings

 

On August 25, 2009, we entered into an incremental facility agreement that provides for term loan D under our subsidiary credit facility in the principal amount of $300.0 million. Term loan D matures on March 31, 2017 and, beginning on December 31, 2009, is subject to quarterly reductions of 0.25%, with a final payment at maturity representing 92.75% of the original principal amount. On September 24, 2009, the full amount of the $300.0 million term loan D was borrowed by us. Net proceeds from term loan D were $291.2 million, after giving effect to the original issue discount of $4.5 million and financing costs of $4.3 million. The proceeds were used to fund the redemption of our 77/8% notes and 91/2% notes, with the balance used to pay down, in part, outstanding debt under the revolving credit portion of our subsidiary credit facility, without any reduction in the revolving credit commitments. Our obligations under term loan D are governed by the terms of our subsidiary credit facility. See Note 5 in our Notes to Consolidated Financial Statements included elsewhere in this prospectus.

 

On August 25, 2009, we issued $350.0 million aggregate principal amount of original notes. Net proceeds from the issuance of the original notes were $334.9 million, after giving effect to the original issue discount of $8.3 million and financing costs of $6.8 million. On August 11, 2009, we commenced cash tender offers for our outstanding 91/2% notes and 77/8% notes. Pursuant to the tender offers, we repurchased an aggregate of $390.2 million principal amount of

91/2% notes and an aggregate of $71.1 million principal amount of 77/8% notes. The accrued interest paid on the repurchased 91/2% notes and 77/8% notes was $4.1 million and $0.2 million, respectively. The tender offers were funded with proceeds from the issuance of the original notes and borrowings under our subsidiary credit facility. On August 25, 2009, we announced the redemption of any 91/2% notes and 77/8% notes remaining outstanding following the expiration of the tender offers. On September 24, 2009, we redeemed the balance of the principal amounts of such notes. The accrued interest paid on the redeemed 91/2% notes and 77/8% notes was $2.0 million and $0.5 million, respectively. The redemption was funded with proceeds from term loan D mentioned above. See Note 5 in our Notes to Consolidated Financial Statements included elsewhere in this prospectus.

 

On April 23, 2010, we entered into an incremental facility agreement providing for a new term loan E under our subsidiary credit facility in the principal amount of $250.0 million. Term loan E matures on October 23, 2017, and is subject to quarterly reductions of 0.25% of the original principal amount, with a final payment at maturity representing 92.75% of the original principal amount. Net proceeds from term loan E were an aggregate of $243.4 million, after giving effect to the original issue discount of $1.3 million and financing and other costs of $5.3 million. The proceeds were used to repay term loan A under our subsidiary credit facility in the principal amount of $143.5 million and borrowings outstanding under the revolver portion of our subsidiary credit facility in the principal amount of $82.1 million. Our obligations under term loan E are governed by the terms of our subsidiary credit facility. Also on April 23, 2010, we entered into an amendment to our subsidiary credit facility to, among other things, reduce the revolving loan portion of our subsidiary credit facility from $400 million to $304.2 million, and extend the expiration date for $225.2 million in revolving credit commitments from September 30, 2011 to December 31, 2014 (subject to an earlier expiration date of June 30, 2014, if our term loan C is not repaid before then). The remaining revolving credit commitments will expire on September 30, 2011. See “Description of Subsidiary Credit Facility.”

 

Covenant compliance and debt ratings

 

For all periods through December 31, 2009, we were in compliance with all of the covenants under our subsidiary credit facility and senior note arrangements. There are no covenants, events of default, borrowing conditions or other terms in our subsidiary credit facility or senior note arrangements that are based on changes in our credit rating assigned by any rating agency. We do not believe that we will have any difficulty complying with any of the applicable covenants in the foreseeable future.

Contractual obligations and commercial commitments

 

The following table, which is as of December 31, 2009, summarizes our contractual obligations and commercial commitments, and the effects they are expected to have on our liquidity and cash flow, for the five years subsequent to December 31, 2009 and thereafter (dollars in thousands)*:

 

 

 

 

Subsequent to December 31, 2009, our operating subsidiaries entered into an incremental facility agreement under our subsidiary credit facility that provides for a new term loan E in the principal amount of $250.0 million. The proceeds from term loan E were used to were used to repay in full term loan A under our subsidiary credit agreement, in the principal amount of $143.5 million, as well as to pay down borrowings outstanding under the revolver portion of our subsidiary credit facility. The following table sets forth the effect of the repayment of term loan A and the establishment of term loan E on the “Debt” and “Interest expense” columns in the foregoing table, assuming those transactions had been effected as of December 31, 2009:

 

 

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 in our Notes to 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 service installation in accordance with ASC No. 922—Entertainment—Cable Television (formerly SFAS No. 51, “Financial Reporting by Cable Television Companies”). 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 costs included all direct labor and materials as well as certain indirect costs. Capitalized costs are recorded as additions to property, plant and equipment and depreciated over the average life of the related assets. We use standard costing models, developed from actual historical costs and relevant operational data, to determine our capitalized amounts. These models include labor rates, overhead rates and standard time inputs to perform various installation and construction activities. The development of these standards involves significant judgment by management, especially in the development of standards for our newer, advanced products and services in which historical data is limited. Changes to the estimates or assumptions used in establishing these standards could be material. 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.

 

Valuation and impairment testing of indefinite-lived intangibles

 

As of December 31, 2009, we had approximately $641.8 million of unamortized intangible assets, including goodwill of $24 million and franchise rights of $616.8 million on our consolidated balance sheets. These intangible assets represented approximately 41% of our total assets.

 

Our cable systems operate under non-exclusive cable franchises, or franchise rights, granted by state and local governmental authorities for varying lengths of time. We acquired these franchise rights through acquisitions of cable systems over the past several years. These acquisitions were accounted for using the purchase method of accounting. The value of a franchise is derived from the economic benefits we receive from the right to solicit new subscribers and to market new products and services, such as advanced digital television, HSD and phone, in a specific market territory. We concluded that our 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 franchise rights contribute to our revenues and cash flows. Goodwill is the excess of the acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired. In accordance with ASC No. 350—Intangibles—Goodwill and Other (“ASC 350”) (formerly SFAS No. 142, “Goodwill and Other Intangible Assets”) we do not amortize franchise rights and goodwill. Instead, such assets are tested annually for impairment or more frequently if impairment indicators arise.

 

We follow the provisions of ASC 350 to test our goodwill and franchise rights for impairment. We assess the fair values of each cable system cluster using a discounted cash flow (“DCF”)

methodology, under which the fair value of cable franchise rights are determined in a direct manner. Our DCF analysis uses significant (Level 3) unobservable inputs. This assessment involves significant judgment, including certain assumptions and estimates that determine future cash flow expectations and other future benefits, which are consistent with the expectations of buyers and sellers of cable systems in determining fair value. These assumptions and estimates include discount rates, estimated growth rates, terminal growth rates, comparable company data, revenues per customer, market penetration as a percentage of homes passed and operating margin. We also consider market transactions, market valuations, research analyst estimates and other valuations using multiples of operating income before depreciation and amortization to confirm the reasonableness of fair values determined by the DCF methodology. Significant impairment in value resulting in impairment charges may result if the estimates and assumptions used in the fair value determination change in the future. Such impairments, if recognized, could potentially be material.

 

Based on the guidance outlined in ASC 350 (formerly EITF No. 02-7, “Unit of Accounting for Testing Impairment of Indefinite-Lived Intangible Assets,”) we determined that the unit of accounting, or reporting unit, for testing goodwill and franchise rights 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 reporting unit level reflects the level at which the purchase method of accounting for our acquisitions was originally recorded. We have one reporting unit for the purpose of applying ASC 350.

 

In accordance with ASC 350, we are required to determine goodwill impairment using a two-step process. The first step compares the fair value of a reporting unit with our carrying amount, including goodwill. If the fair value of the reporting unit exceeds our 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 our 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 our franchise rights and 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.

 

Since our adoption of ASC 350 in 2002, we have not recorded any impairments as a result of our impairment testing. We completed our most recent impairment test as of October 1, 2009, which reflected no impairment of our franchise rights, goodwill or other intangible assets.

 

Because there has not been a change in the fundamentals of our business, we do not believe that Mediacom’s stock price is the sole indicator of the underlying value of the assets in our reporting units. We have therefore determined that the short-term volatility in Mediacom’s stock price does not qualify as a triggering event under ASC 350, and as such, no interim impairment test is required as of December 31, 2009.

 

We could record impairments in the future if there are changes in the long-term fundamentals of our business, in general market conditions or in the regulatory landscape that could prevent us from recovering the carrying value of our long-lived intangible assets. In the near term, the

economic conditions currently affecting the U.S. economy and how that may impact the fundamentals of our business, together with the recent volatility in our stock price, may have a negative impact on the fair values of the assets in our reporting unit.

 

For illustrative purposes, a hypothetical decline of 20% in the fair values determined for goodwill, cable franchise rights and other finite-lived intangible assets at our reporting unit would not result in any impairment loss as of October 1, 2009.

 

Share-based compensation

 

We estimate the fair value of stock options granted using the Black-Scholes option-pricing model. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. This option-pricing model requires the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the periods the estimates are revised. Actual results, and future changes in estimates, may differ substantially from our current estimates.

 

Recent accounting pronouncements

 

In June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 168, The “FASB Accounting Standards Codification^tm” and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162. Statement 168 establishes the FASB Accounting Standards Codification^tm (“Codification” or “ASC”) as the single source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities for interim or annual periods ending after September 30, 2009. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will be considered non-authoritative.

 

Following the Codification, FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, FASB will issue Accounting Standards Updates, which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification.

 

GAAP is not intended to be changed as a result of FASB’s Codification project. However, it will change the way in which accounting guidance is organized and presented. As a result, we will change the way we reference GAAP in our financial statements. We have begun the process of implementing the Codification by providing references to the Codification topics alongside references to the previously existing accounting standards.

 

Other pronouncements

 

In September 2006, FASB issued ASC 820—Fair Value Measurements and Disclosures (“ASC 820”) (formerly SFAS No. 157, “Fair Value Measurements”). ASC 820 establishes a single authoritative

definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. On January 1, 2009, we completed our adoption of the relevant guidance in ASC 820 which did not have a material effect on our consolidated financial statements.

 

In April 2009, the FASB issued ASC 820-10-65-4—Fair Value Measurements and Disclosures (“ASC 820”) (formerly FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or the Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”). ASC 820-10-65-4 provides additional guidance on (i) estimating fair value when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability, and (ii) circumstances that may indicate that a transaction is not orderly. ASC 820-10-65-4 also requires additional disclosures about fair value measurements in interim and annual reporting periods. ASC 820-10-65-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. We have completed our evaluation of ASC 820-10-65-4 and determined that the adoption did not have a material effect on our consolidated financial condition or results of operations. The following sets forth our financial assets and liabilities measured at fair value on a recurring basis at December 31, 2009. These assets and liabilities have been categorized according to the three-level fair value hierarchy established by ASC 820, which prioritizes the inputs used in measuring fair value.

 

The following sets forth our financial assets and liabilities measured at fair value on a recurring basis at December 31, 2009. These assets and liabilities have been categorized according to the three-level fair value hierarchy established by ASC 820, which prioritizes the inputs used in measuring fair value.

 

 

As of December 31, 2009, our interest rate exchange agreement liabilities, net, were valued at $19.7 million using Level 2 inputs, as follows: