##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
  FORM 10-Q   Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 For the quarterly period ended September 30, 2004 Commission File Numbers: 333-57285-01
333-57285 Mediacom LLC
Mediacom Capital Corporation* (Exact names of Registrants as specified in their charters)
 New York
    
    06-1433421New York
    
    06-1513997(State or other
jurisdiction of
incorporation or
organization)
    
    (I.R.S. Employer
Identification
Numbers)
 100 Crystal Run Road
Middletown, New York 10941(Address of principal executive offices) (845) 695-2600(Registrants telephone number) Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes þ No o Indicate by checkmark whether the registrants are accelerated filers (as
defined in Rule 12b-2 of the Exchange Act). Yes o No þ Indicate the number of shares outstanding of the Registrants common
stock: Not Applicable *Mediacom Capital Corporation meets the conditions set forth in General
Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this form
with the reduced disclosure format.




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MEDIACOM LLC AND SUBSIDIARIES FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2004 TABLE OF CONTENTS PagePART IItem 1.
    
    Financial StatementsConsolidated Balance Sheets (unaudited) September 30, 2004 and December 31, 2003
    
    
    1Consolidated Statements of Operations (unaudited) Three Months Ended September 30, 2004 and 2003
    
    
    2Consolidated Statements of Operations (unaudited) Nine Months Ended September 30, 2004 and 2003
    
    
    3Consolidated Statements of Cash Flows (unaudited) Nine Months Ended September 30, 2004 and 2003
    
    
    4Notes to Consolidated Financial Statements (unaudited)
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    23PART IIItem 1.
    
    Legal Proceedings
    
    
    24Item 6.
    
    Exhibits
    
    
    24EX-31.1: CERTIFICATIONSEX-31.2: CERTIFICATIONSEX-32.1: CERTIFICATIONEX-32.1: CERTIFICATION
    You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with
the Securities and Exchange Commission (the SEC). In this Quarterly Report,
we state our beliefs of future events and of our future financial performance.
In some cases, you can identify those so-called forward-looking statements by
words such as may, will, should, expects, plans, anticipates,
believes, estimates, predicts, potential, or continue or the negative
of those words and other comparable words. You should be aware that those
statements are only our predictions. Actual events or results may differ
materially. In evaluating those statements, you should specifically consider
various factors, including the risks discussed in our Annual Report on Form
10-K for the year ended December 31, 2003 and other reports or documents that
we file from time to time with the SEC. Those factors may cause our actual
results to differ materially from any of our forward-looking statements. All
forward-looking statements attributable to us or a person acting on our behalf
are expressly qualified in their entirety by this cautionary statement.




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##### Table of Contents



PART I 
 ITEM 1. FINANCIAL STATEMENTS MEDIACOM LLC AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
(Dollar amounts in 000s)
(Unaudited) September 30,
    
    December 31,2004
    
    2003ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    7,488
    
    
    $
    13,417Investments
    
    
    1,987
    
    
    
    2,288Subscriber accounts receivable, net of allowance for doubtful accounts
of $949 and $1,069, respectively
    
    
    23,166
    
    
    
    24,012Prepaid expenses and other assets
    
    
    21,788
    
    
    
    26,733Total current assets
    
    
    54,429
    
    
    
    66,450Preferred equity investment in affiliated company
    
    
    150,000
    
    
    
    150,000Investment in cable television systems:Property, plant and equipment, net of accumulated depreciation of
$704,730 and $637,254, respectively
    
    
    695,267
    
    
    
    708,159Intangible assets, net of accumulated amortization of $240,473 and
$235,979, respectively
    
    
    566,997
    
    
    
    570,953Total investment in cable television systems
    
    
    1,262,264
    
    
    
    1,279,112Other assets, net of accumulated amortization of $18,184 and
$15,835, respectively
    
    
    17,329
    
    
    
    19,804Total assets
    
    $
    1,484,022
    
    
    $
    1,515,366LIABILITIES AND MEMBERS DEFICITCURRENT LIABILITIESAccrued liabilities
    
    $
    95,372
    
    
    $
    93,831Deferred revenue
    
    
    18,148
    
    
    
    16,432Current portion of long-term debt
    
    
    5,002
    
    
    
    2,799Total current liabilities
    
    
    118,522
    
    
    
    113,062Long-term debt, less current portion
    
    
    1,470,274
    
    
    
    1,521,525Other non-current liabilities
    
    
    13,457
    
    
    
    9,062Total liabilities
    
    
    1,602,253
    
    
    
    1,643,649MEMBERS DEFICITCapital contributions
    
    
    548,521
    
    
    
    548,521Accumulated deficit
    
    
    (666,752
    )
    
    
    (676,804
    )Total members deficit
    
    
    (118,231
    )
    
    
    (128,283
    )Total liabilities and members deficit
    
    $
    1,484,022
    
    
    $
    1,515,366
 The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements. 1




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MEDIACOM LLC AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000s, except per share data)
(Unaudited) Three Months EndedSeptember 30,2004
    
    2003Revenues
    
    $
    116,048
    
    
    $
    113,900Costs and expenses:Service costs (exclusive of depreciation and amortization of
$28,074 and $31,599, respectively, shown separately below)
    
    
    47,225
    
    
    
    42,886Selling, general and administrative expenses
    
    
    21,937
    
    
    
    19,561Management fee expense
    
    
    2,297
    
    
    
    2,289Depreciation and amortization
    
    
    28,074
    
    
    
    31,599Operating income
    
    
    16,515
    
    
    
    17,565Interest expense, net
    
    
    (24,656
    )
    
    
    (23,355
    )(Loss) gain on derivatives, net
    
    
    (2,072
    )
    
    
    3,551Loss on sale of assets and investments, net
    
    
    
    
    
    
    (1,563
    )Investment income from affiliate
    
    
    4,500
    
    
    
    4,500Other expense
    
    
    (1,027
    )
    
    
    (1,113
    )Net loss
    
    $
    (6,740
    )
    
    $
    (415
    )
 The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements. 2




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MEDIACOM LLC AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000s, except per share data)
(Unaudited) Nine Months EndedSeptember 30,2004
    
    2003Revenues
    
    $
    355,962
    
    
    $
    336,602Costs and expenses:Service costs (exclusive of depreciation and amortization of
$81,823 and $129,319, respectively, shown separately below)
    
    
    139,854
    
    
    
    125,492Selling, general and administrative expenses
    
    
    64,121
    
    
    
    58,137Management fee expense
    
    
    6,737
    
    
    
    5,711Depreciation and amortization
    
    
    81,823
    
    
    
    129,319Operating income
    
    
    63,427
    
    
    
    17,943Interest expense, net
    
    
    (72,455
    )
    
    
    (74,956
    )Gain on derivatives, net
    
    
    2,798
    
    
    
    1,238Gain (loss) on sale of assets and investments, net
    
    
    5,885
    
    
    
    (888
    )Investment income from affiliate
    
    
    13,500
    
    
    
    13,500Other expense
    
    
    (3,103
    )
    
    
    (3,215
    )Net income (loss)
    
    $
    10,052
    
    
    $
    (46,378
    )
 The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements. 3




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MEDIACOM LLC AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in 000s)
(Unaudited) Nine Months EndedSeptember 30,2004
    
    2003CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:Net income (loss)
    
    $
    10,052
    
    
    $
    (46,378
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    81,823
    
    
    
    129,319Gain on derivatives, net
    
    
    (2,798
    )
    
    
    (1,238
    )(Gain) loss on sale of assets and investments, net
    
    
    (5,885
    )
    
    
    888Amortization of deferred financing costs
    
    
    2,475
    
    
    
    2,410Changes in assets and liabilities, net of effects from acquisitions:Subscriber accounts receivable, net
    
    
    1,350
    
    
    
    (4,646
    )Prepaid expenses and other assets
    
    
    4,946
    
    
    
    (3,456
    )Accrued liabilities
    
    
    1,041
    
    
    
    10,564Deferred revenue
    
    
    1,716
    
    
    
    1,373Other non-current liabilities
    
    
    2,747
    
    
    
    3,331Net cash flows provided by operating activities
    
    
    97,467
    
    
    
    92,167CASH FLOWS USED IN INVESTING ACTIVITIES:Capital expenditures
    
    
    (61,509
    )
    
    
    (82,668
    )Acquisition of cable television system
    
    
    (3,372
    )
    
    
    Proceeds from sale of assets and investments
    
    
    10,556
    
    
    
    4,818Other investing activities
    
    
    (23
    )
    
    
    (1,694
    )Net cash flows used in investing activities
    
    
    (54,348
    )
    
    
    (79,544
    )CASH FLOWS USED IN FINANCING ACTIVITIES:New borrowings
    
    
    85,000
    
    
    
    134,750Repayment of debt
    
    
    (134,048
    )
    
    
    (163,187
    )Net cash flows used in financing activities
    
    
    (49,048
    )
    
    
    (28,437
    )Net decrease in cash and cash equivalents
    
    
    (5,929
    )
    
    
    (15,814
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    13,417
    
    
    
    20,890CASH AND CASH EQUIVALENTS, end of period
    
    $
    7,488
    
    
    $
    5,076SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the period for interest, net of amounts capitalized
    
    $
    83,332
    
    
    $
    85,731SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES:Capital expenditures financed through capital leases
    
    $
    
    
    
    $
    3,263
 The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements. 4




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MEDIACOM LLC AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (1) Organization Mediacom LLC (Mediacom, and collectively with its subsidiaries, the
Company), a New York limited liability company wholly-owned by Mediacom
Communications Corporation (MCC), is involved in the acquisition and
operation of cable systems serving smaller cities and towns in the United
States. Mediacom relies on its parent, MCC, for various services such as corporate
and administrative support. The financial position, results of operations and
cash flows of Mediacom could differ from those that would have resulted had
Mediacom operated autonomously or as an entity independent of MCC. Mediacom Capital Corporation (Mediacom Capital), a New York corporation
wholly-owned by Mediacom, co-issued, jointly and severally with Mediacom,
public debt securities. Mediacom Capital has no operations, revenues or cash
flows. Mediacom Capital maintains a one-hundred dollar receivable from an
affiliate and common stock on its balance sheet. Therefore, separate financial
statements have not been presented for this entity. (2) Statement of Accounting Presentation and Other Information Basis of Preparation of Unaudited Consolidated Financial Statements Mediacom has prepared these unaudited consolidated financial statements as
of September 30, 2004 and 2003. In the opinion of management, such statements
include all adjustments, consisting of normal recurring accruals and
adjustments, necessary for a fair presentation of the Companys consolidated
results of operations and financial position for the interim periods presented.
The accounting policies followed during such interim periods reported are in
conformity with generally accepted accounting principles in the United States
of America and are consistent with those applied during annual periods. For
additional disclosures, including a summary of the Companys accounting
policies, the interim unaudited consolidated financial statements should be
read in conjunction with the Companys Annual Report on Form 10-K for the year
ended December 31, 2003 (File Nos. 333-57285-01 and 333-57285). The results of
operations for the interim periods are not necessarily indicative of the
results that might be expected for future interim periods or for the full year
ending December 31, 2004. Change in Estimate Effective July 1, 2003, the Company changed the estimated useful lives of
certain plant and equipment of its cable systems in conjunction with the
Companys completed network upgrade and rebuild program. The changes in
estimated useful lives were made to reflect managements evaluation of the
longer economic lives of the Companys upgraded and rebuilt network. The
weighted average useful lives of such plant and equipment changed
from approximately 7 years to approximately 12 years. These changes were made on a prospective
basis effective July 1, 2003 and resulted in a reduction of depreciation
expense and a corresponding increase in net income of approximately $41.8
million and $20.5 million for the nine months ended September 30, 2004 and
2003, respectively. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Additions to
property, plant and equipment generally include material, labor and indirect
costs. Depreciation is calculated on a straight-line basis over the following
useful lives: Buildings
    
    40 yearsLeasehold improvements
    
    Life of respective leaseCable systems and equipments and subscriber devices
    
    4 to 20 yearsVehicles
    
    5 yearsFurniture, fixtures and office equipment
    
    5 years
 5




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) The Company capitalizes improvements that extend asset lives and expenses
repairs and maintenance as incurred. At the time of retirements, or other
dispositions of property, the original cost and related accumulated
depreciation are removed from the respective accounts and the losses are
presented as a component of depreciation expense. The Company capitalizes the costs associated with the construction of
cable transmission and distribution facilities, and new cable installations.
Costs include direct labor and material, as well as certain indirect costs.
The Company performs periodic evaluations of certain estimates used to
determine such costs that are capitalized. Any changes to these estimates,
which may be significant, are applied in the period in which the evaluations
were completed. The costs of disconnecting service at a customers dwelling or
reconnecting to a previously installed dwelling are charged as expense in the
period incurred. Costs associated with subsequent installations of additional
services not previously installed at a customers dwelling are capitalized to
the extent such costs are incremental and directly attributable to the
installation of such additional services. Comprehensive Income SFAS No. 130, Reporting Comprehensive Income (SFAS 130) requires
companies to classify items of other comprehensive income by their nature in
the financial statements and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. The
Company has had no other comprehensive income items to report. Reclassifications Certain reclassifications have been made to the prior years amounts to
conform to the current years presentation. (3) Property, Plant and Equipment As of September 30, 2004 and December 31, 2003, property, plant and
equipment consisted of (dollars in thousands): September 30,
    
    December
31,2004
    
    2003Land and land improvements
    
    $
    1,446
    
    
    $
    1,470Buildings and leasehold improvements
    
    
    15,565
    
    
    
    18,191Cable systems, equipment and subscriber devices
    
    
    1,339,292
    
    
    
    1,283,345Vehicles
    
    
    28,794
    
    
    
    29,266Furniture, fixtures and office equipment
    
    
    14,900
    
    
    
    13,1411,399,997
    
    
    
    1,345,413Accumulated depreciation
    
    
    (704,730
    )
    
    
    (637,254
    )Property, plant and equipment, net
    
    $
    695,267
    
    
    $
    708,159
 Depreciation expense for the three and nine months ended September 30,
2004 was approximately $26.0 million and $75.4 million, respectively and $29.2
million and $120.0 million for the respective periods in 2003. 6




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (4) Intangible Assets The Company operates its cable systems under non-exclusive cable
franchises that are granted by state or local government authorities for
varying lengths of time. The Company acquired these cable franchises through
acquisitions of cable systems and accounted for them using the purchase method
of accounting. In accordance with FASB No. 142 Goodwill and Other Intangible Assets,
indefinite-lived intangible assets include goodwill and cable franchise costs.
The provisions of SFAS No. 142 prohibit the amortization of indefinite-lived
intangible assets and goodwill, but require such assets to be tested annually
for impairment, or more frequently if impairment indicators arise. Other
finite-lived intangible assets, which consist primarily of subscriber lists and
covenants not to compete, continue to be amortized over their useful lives of 5
to 10 years and 5 years, respectively. The following table summarizes the net
asset value for each intangible asset category as of September 30, 2004 and
December 31, 2003 (dollars in thousands): Gross Asset
    
    Accumulated
    
    Net AssetSeptember 30, 2004
    
    Value
    
    Amortization
    
    ValueFranchise costs
    
    $
    654,701
    
    
    $
    102,195
    
    
    $
    552,506Goodwill
    
    
    14,217
    
    
    
    2,682
    
    
    
    11,535Subscriber Lists
    
    
    132,857
    
    
    
    129,994
    
    
    
    2,863Covenants not to compete
    
    
    5,695
    
    
    
    5,602
    
    
    
    93$
    807,470
    
    
    $
    240,473
    
    
    $
    566,997Gross Asset
    
    Accumulated
    
    Net AssetDecember 31, 2003
    
    Value
    
    Amortization
    
    ValueFranchise costs
    
    $
    653,461
    
    
    $
    102,415
    
    
    $
    551,046Goodwill
    
    
    13,884
    
    
    
    2,682
    
    
    
    11,202Subscriber Lists
    
    
    133,892
    
    
    
    125,405
    
    
    
    8,487Covenants not to compete
    
    
    5,695
    
    
    
    5,477
    
    
    
    218$
    806,932
    
    
    $
    235,979
    
    
    $
    570,953
 Amortization expense for the three and nine months ended September 30,
2004 was approximately $2.1 million and $6.4 million, respectively, and $2.4
million and $9.3 million for the respective periods in 2003. The Companys
future estimated aggregate amortization expense for 2004 through 2005 are $2.2
million and $0.8 million, respectively. 7




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (5) Accrued Liabilities Accrued liabilities consist of the following as of September 30, 2004 and
December 31, 2003 (dollars in thousands): September
30,
    

December
31,2004
    
    2003Accrued interest
    
    $
    20,381
    
    
    $
    31,040Accrued payroll and benefits
    
    
    7,960
    
    
    
    9,728Accrued programming costs
    
    
    23,927
    
    
    
    14,144Accrued property, plant and equipment
    
    
    9,204
    
    
    
    12,182Accrued service costs
    
    
    5,508
    
    
    
    3,137Accrued taxes and fees
    
    
    12,949
    
    
    
    10,057Accrued telecommunications
    
    
    3,871
    
    
    
    5,612Other accrued expenses
    
    
    7,350
    
    
    
    3,964Subscriber advance payments
    
    
    4,222
    
    
    
    3,967$
    95,372
    
    

$
    93,831
 (6) Debt As of September 30, 2004 and December 31, 2003, debt consisted of (dollars
in thousands): See Note 11 to our unaudited consolidated financial statements. September 30,
    
    December 31,2004
    
    2003Bank credit facilities
    
    $
    647,877
    
    
    $
    696,50081/2% senior notes
    
    
    200,000
    
    
    
    200,00077/8% senior notes
    
    
    125,000
    
    
    
    125,00091/2% senior notes
    
    
    500,000
    
    
    
    500,000Capital
lease
obligations
    
    
    2,399
    
    
    
    2,824$
    1,475,276
    
    
    $
    1,524,324Less: Current portion
    
    
    5,002
    
    
    
    2,799Total long-term debt
    
    $
    1,470,274
    
    
    $
    1,521,525
 The average interest rates on debt outstanding under the bank credit
facilities were 3.1% and 2.7% for the three and nine months ended September 30,
2004, respectively, before giving effect to the interest rate exchange
agreements discussed below. As of September 30, 2004, the Company had unused
credit commitments of approximately $269.9 million under its bank credit
facilities, all of which could be borrowed and used for general corporate
purposes based on the terms and conditions of the Companys debt arrangements.
The Company was in compliance with all covenants under its debt arrangements
for all periods through September 30, 2004. The Company uses interest rate exchange agreements, or swaps, with
counterparties to fix the interest rate on a portion of its floating rate debt.
As of September 30, 2004, the Company had interest rate exchange agreements
with various banks pursuant to which the interest rate on $300.0 million is
fixed at a weighted average rate of approximately 3.0%. The fixed rates of the
swap agreements are offset against the applicable three-month London Interbank
Offering Rate, or LIBOR, to determine the interest expense related to these
agreements. At the end of each quarterly reporting period the carrying values
of these swap agreements are marked-to-market. The fair values of these
agreements 8




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) are driven by market interest rates, their remaining time to
maturity and the creditworthiness of the counterparties. The aggregate fair
value of the agreements is the estimated amount that the Company would receive
or pay to terminate them. At September 30, 2004, based on the mark-to-market
valuation, the Company would have received approximately $0.8 million,
including accrued interest, if these agreements were terminated. Changes in the aggregate mark-to-market values of these swap agreements
result in short-term gains or losses and may increase the volatility of the
Companys earnings. The Company had a net loss of $2.1 million and a net gain
of $2.8 million for the three and nine months, respectively, ended September
30, 2004, as compared to net gains of $3.6 million and $1.2 million for the
three and nine months, respectively, ended September 30, 2003. Under the terms of the interest rate exchange agreements, which expire
from 2006 through 2007, the Company is exposed to credit loss in the event of
nonperformance by the other parties. However, due to the creditworthiness of
the Companys counterparties, which are major banking firms rated investment
grade, the Company does not anticipate their nonperformance. (7) Preferred Equity Investment in Affiliated Company The Company has a $150.0 million preferred equity investment in Mediacom
Broadband LLC, a Delaware limited liability company wholly-owned by Mediacom
Communications Corporation. The preferred equity investment has a 12% annual
cash dividend, payable quarterly in cash. During the nine months ended
September 30, 2004, the Company received in aggregate $13.5 million in cash
dividends on the preferred equity. (8) Sale of Assets and Investments The Company had a net gain on sale of assets and investments amounting to
$5.9 million for the nine months ended September 30, 2004. The net gain was
principally due to the sale of a cable system in May 2004, serving
approximately 3,450 subscribers, for gross proceeds of about $10.1 million. (9) Contingency On April 5, 2004, a lawsuit was filed against the Companys parent, MCC,
MCC Georgia LLC, a subsidiary of the Companys sister company, Mediacom
Broadband LLC, and other, currently unnamed potential defendants in the United
States District Court for the District of Colorado by Echostar Satellite LLC,
which operates a direct broadcast satellite business under the name Dish
Network. Echostar alleges that systems operated by MCC Georgia LLC have used,
without authorization, Dish Network satellite dishes activated under
residential accounts to receive the signals of certain broadcast television
stations in one or more locations in Georgia and that it has then been
redistributing those signals, through its cable systems, to its subscribers.
Among other claims, the complaint filed by Echostar alleges that these actions
violate a provision of the Communications Act of 1934 (47 U.S.C. Sec. 605) that
prohibits unauthorized interception of radio communications. The plaintiff
seeks injunctive relief, actual and statutory damages, disgorgement of profits,
punitive damages and litigation costs, including attorneys fees. On June 29, 2004, Echostar amended its complaint to also allege that this
conduct amounted to a breach of the contract between Echostar and one of MCCs
employees, who allegedly acted as an agent for MCC, by which MCC received the
Echostar satellite signal. On September 7, 2004, the U.S. District Court
granted MCCs motion to transfer the case to the Middle District of Georgia,
where venue is proper and where personal jurisdiction over MCC exists. There
have been no further proceedings since that date. MCC Georgia LLC and the
Companys parent company have advised the Company that they intend to
vigorously defend against these claims. They also have informed the Company
that they are unable to reasonably evaluate the likelihood of an unfavorable
outcome or quantify the possible damages, if any,
associated with these
matters, or whether or not the those damages would be material. 9




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MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) The Company, its parent company and its subsidiaries or other affiliated
companies are also involved in various other legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Companys consolidated financial position, results of operations, cash flows or
business. (10) Hurricane Losses On September 16, 2004, Hurricane Ivan impacted the Companys systems in
Alabama, Florida and Mississippi. As a result, for the three month period ended September 30, 2004,
the Company: (i) incurred additional service costs of approximately $0.8
million; (ii) incurred additional selling, general and administrative costs of
approximately $0.2 million, and (iii) recorded an increase in depreciation
expense of $2.1 million due to the impairment of cable plant and equipment.
The Company is insured against certain losses related to the hurricane, subject
to varying deductible amounts. The Company cannot estimate at this time the
amounts that will be ultimately recoverable under its insurance policies. (11) Subsequent Event On October 21, 2004, the Companys operating subsidiaries refinanced their
two credit facilities (the two prior credit facilities) with a new $1.15
billion senior secured credit facility. This new credit facility, which
consists of a $400 million revolving credit loan, a $200 million delayed-draw
term loan, and a $550 million term loan, has a final maturity of March 31,
2013. The terms and conditions, as well as interest rates, of the new credit
facilities are substantially similar to those of the two prior credit
facilities. The Company incurred $5.7 million of financing costs associated
with this refinancing which will be amortized over the term of the credit
facility. The two prior credit facilities were scheduled to expire in 2008, or in
2007 under certain circumstances. These facilities had current commitments of
$924.0 million, of which approximately $651 million was outstanding as of
October 21, 2004. Proceeds from the new credit facility were drawn down at
closing to pay in full the outstanding indebtedness, including accrued
interest, of the two prior credit facilities. 10




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##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Companys
unaudited consolidated financial statements as of and for the three and nine
months ended September 30, 2004 and 2003 and with the Companys annual report
on Form 10-K for the year ended December 31, 2003. Overview We are a wholly-owned subsidiary of Mediacom Communications Corporation.
As of September 30, 2004, our cable systems passed 1.33 million homes and
served 681,000 basic subscribers in 22 states. Since commencement of our
operations in March 1996, we have experienced significant growth by pursuing a
disciplined strategy of acquiring underperforming cable systems and improving
their operating and financial performance. Many of our cable systems are
located in markets that are in close proximity to, cable
systems owned and operated by Mediacom Broadband LLC, a wholly-owned subsidiary
of our manager. In mid-2003, we completed our network upgrade program that significantly
increased bandwidth and enabled interactivity. Our upgraded network allows us
to introduce additional programming and other products and services such as
digital video, video-on-demand, high-definition television, digital video
recorders and broadband data access. We currently provide digital video
services to 154,000 subscribers, representing a penetration of 22.6% of our
basic subscribers. We also currently provide broadband data services to
153,000 subscribers, representing a penetration of 11.5% of our homes passed.
Beginning in the first half of 2005, we plan to launch in certain of our
markets Internet protocol telephony service, which is sometimes referred to as
Voice-over-Internet-Protocol, or VoIP telephony. VoIP telephony will allow us
to offer an attractive triple-play bundle of video, data and voice products and
services. Bundled products and services offer our subscribers key benefits
such as a single provider contact for provisioning, billing and customer care. We face increasing competition for our video programming services, most
notably from direct broadcast satellite service, or DBS service providers.
During the first nine months of 2004, competitive pressure from DBS service
providers further intensified when they launched local television channels in
additional markets representing an estimated 41% of our basic subscriber base.
Since they have been permitted to deliver local television broadcast signals
beginning in 1999, DIRECTV, Inc. and Echostar Communications Corporation, the
two largest DBS service providers, have been increasing the number of markets
in which they deliver these local television signals. These local-into-local
launches are usually accompanied by heavy marketing and advertising and are the
primary cause of our loss of basic subscribers in recent periods. As of
September 30, 2004, competitive local-into-local services in our markets
covered an estimated 89% of our basic subscribers. Use of Operating Income Before Depreciation and Amortization Operating income before depreciation and amortization, or OIBDA, is not a
financial measure calculated in accordance with generally accepted accounting
principles (GAAP) in the United States. However, OIBDA is one of the primary
measures used by management to evaluate our performance and to forecast future
results. We believe OIBDA is useful for investors because it enables them to
assess our performance in a manner similar to the method used by management,
and provides a measure that can be used to analyze, value and compare the
companies in the cable television industry, which may have different
depreciation and amortization policies. A limitation of this measure, however,
is that it excludes depreciation and amortization, which represents the
periodic costs of certain capitalized tangible and intangible assets used in
generating revenues in our business. Management utilizes a separate process to
budget, measure and evaluate capital expenditures. OIBDA should not be regarded as an alternative to either operating income
or net income (loss) as an indicator of operating performance nor should it be
considered in isolation or as a substitute for financial measures prepared in
accordance with GAAP. We believe that operating income is the most directly
comparable GAAP financial measure to OIBDA. 11




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The following table sets forth the reconciliation of OIBDA to operating
income for the three and nine months ended September 30, 2004 and 2003 (dollars
in thousands and unaudited): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003OIBDA
    
    $
    44,589
    
    
    $
    49,164
    
    
    $
    145,250
    
    
    $
    147,262Depreciation and amortization
    
    
    (28,074
    )
    
    
    (31,599
    )
    
    
    (81,823
    )
    
    
    (129,319
    )Operating income
    
    $
    16,515
    
    
    $
    17,565
    
    
    $
    63,427
    
    
    $
    17,943
 Hurricane Losses On September 16, 2004, as a result of Hurricane Ivan, our cable systems in
areas of Alabama, Florida and Mississippi experienced, to varying degrees,
damage to cable plant and other property and equipment, business interruption
and loss of customers. The hurricane initially disrupted cable service to over
100,000 of our basic subscribers in these three states. Our results of
operations for the three and nine months ended September 30, 2004 take into
account lost revenues and incremental costs caused by the hurricane. In
addition, we estimate that, as of September 30, 2004, the hurricane caused
losses of 8,000 basic subscribers, 2,000 digital customers and 1,000 data
customers. These losses are reflected in our subscriber and customer counts as
of September 30, 2004. The revenue impact and the costs incurred during the third quarter are
reflected in our consolidated financial statements, and are detailed as
follows: (a) revenues were recorded net of $2.9 million of service interruption
credits issued to customers; (b) service costs included $0.8 million of
incremental costs to cover the repair of our facilities, the use of outside
contractors to help repair cable plant and increased employee costs; (c)
selling, general and administrative expenses included incremental costs of $0.2
million related to additional customer service employee costs required to
support customers needs; and (d) depreciation expense included $2.1 million
due to an impairment of cable plant and other property and equipment. In
addition, we estimate that we will spend about $6.0 million of capital
expenditures to replace or rebuild property, plant and equipment damaged by
Hurricane Ivan. We are insured against certain losses related to the hurricane, subject to
varying deductible amounts. We cannot estimate at this time the amounts that
will be ultimately recoverable under our insurance policies. 12




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Actual Results of Operations Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003 The following table sets forth our unaudited consolidated statements of
operations for the three months ended September 30, 2004 and 2003 (dollars in
thousands and percentage changes that are not meaningful are marked NM): Three Months EndedSeptember 30,2004
    
    2003
    
    $ Change
    
    % ChangeRevenues
    
    $
    116,048
    
    
    $
    113,900
    
    
    $
    2,148
    
    
    
    1.9
    %Costs and expenses:Service costs
    
    
    47,225
    
    
    
    42,886
    
    
    
    4,339
    
    
    
    10.1
    %Selling, general and administrative expenses
    
    
    21,937
    
    
    
    19,561
    
    
    
    2,376
    
    
    
    12.1
    %Management fee expense
    
    
    2,297
    
    
    
    2,289
    
    
    
    8
    
    
    
    0.4
    %Depreciation and amortization
    
    
    28,074
    
    
    
    31,599
    
    
    
    (3,525
    )
    
    
    (11.2
    %)Operating income
    
    
    16,515
    
    
    
    17,565
    
    
    
    (1,050
    )
    
    
    (6.0
    %)Interest expense, net
    
    
    (24,656
    )
    
    
    (23,355
    )
    
    
    (1,301
    )
    
    
    5.6
    %(Loss) gain on derivatives, net
    
    
    (2,072
    )
    
    
    3,551
    
    
    
    (5,623
    )
    
    NMLoss on sale of assets and investments, net
    
    
    
    
    
    
    (1,563
    )
    
    
    1,563
    
    
    NMInvestment income
    
    
    4,500
    
    
    
    4,500
    
    
    
    
    
    
    
    Other expense
    
    
    (1,027
    )
    
    
    (1,113
    )
    
    
    86
    
    
    
    (7.7
    %)Net loss
    
    $
    (6,740
    )
    
    $
    (415
    )
    
    $
    (6,325
    )
    
    NMOIBDA
    
    $
    44,589
    
    
    $
    49,164
    
    
    $
    (4,575
    )
    
    
    (9.3
    %)
 Revenues The following table sets forth revenue information for the three months
ended September 30, 2004 and 2003 (dollars in millions): Three Months Ended September 30,2004
    
    2003% of
    
    
    
    
    
    % ofAmount
    
    Revenues
    
    Amount
    
    Revenues
    
    $ Change
    
    % ChangeVideo
    
    $
    95.8
    
    
    
    82.5
    %
    
    $
    98.5
    
    
    
    86.5
    %
    
    $
    (2.7
    )
    
    
    (2.7
    %)Data
    
    
    17.0
    
    
    
    14.7
    %
    
    
    13.2
    
    
    
    11.6
    %
    
    
    3.8
    
    
    
    28.8
    %Advertising
    
    
    3.2
    
    
    
    2.8
    %
    
    
    2.2
    
    
    
    1.9
    %
    
    
    1.0
    
    
    
    45.5
    %$
    116.0
    
    
    
    100.0
    %
    
    $
    113.9
    
    
    
    100.0
    %
    
    $
    2.1
    
    
    
    1.9
    %
 Video revenues represent monthly subscription fees charged to customers
for our core cable television products and services (including basic, expanded
basic and analog premium programming, digital cable television programming
services, wire maintenance, equipment rental and services to commercial
establishments), pay-per-view charges, installation and reconnection fees, late
payment fees, and other ancillary revenues. Data revenues primarily represent
monthly subscription fees charged to customers for our data products and
services and equipment rental fees. Franchise fees charged to customers for
payment to local franchising authorities are included in their corresponding
revenue category. 13




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Revenues rose 1.9%, net of service interruption credits related to the
hurricane. Excluding such credits, revenues rose 4.4%, largely attributable to
an increase in broadband data customers and basic rate increases applied to our
video customers, driven in large part by our own video programming cost
increases, offset by a reduction in basic subscribers in the period. Video revenues decreased 2.7%, net of service interruption credits related
to the hurricane. Excluding such credits, video revenues decreased 0.4% as a
result of a decrease in basic subscribers from 731,000 to 681,000, which is net
of an estimated 8,000 basic subscribers lost due to the hurricane. Digital
customers, at 154,000, which is net of an estimated 2,000 digital customers
lost due to the hurricane, were unchanged compared to a year ago. Our loss in
video subscribers resulted primarily from increased competitive pressures by
DBS service providers, particularly in those markets where we experienced their
local-into-local launches, and, to a lesser extent, from our tighter customer
credit policies. To reverse this video subscriber trend, we have been
increasing our customer retention efforts and our emphasis on bundling,
enhancing and differentiating our video products and services with new digital
service packages, video-on-demand, high-definition television, digital video
recorders and more local programming. Data revenues rose 28.8%, net of service interruption credits related to
the hurricane. Excluding such credits, data revenues rose 32.1%, due primarily
to an increase in data customers from 113,000 to 153,000, which is net of an
estimated 1,000 data customers lost due to the hurricane. Average monthly data
revenue per data customer decreased 7.5% from $41.12 to $38.02 due to the
growth of lower-priced, slower speed data customers, as well as to discounting
associated with our bundling of digital and data services. We expect the
customer growth in our data business to continue. Advertising revenue increased 45.5%, primarily as a result of the
completion of an interconnect in one of our larger markets and, to a lesser
extent, due to higher local advertising sales and bringing in-house certain
markets previously managed by third parties. With respect to our in-house
advertising activities, instead of receiving advertising revenues net of
commissions paid to third parties, we now record the full revenues from these
markets as earned, with the related expenses, including in-house salaries and
commissions, recorded as selling, general and administrative expenses. We do
not expect growth in advertising revenues to continue at the current rate in
2005, as we have completed bringing in-house most of our larger markets. Costs and Expenses Service costs include: fees paid to programming suppliers; expenses
related to wages and salaries of technical personnel who maintain our cable
network and perform customer installation activities; broadband data access
costs, including costs of bandwidth connectivity, customer provisioning and
technical support; and plant operating costs, such as utilities and pole rental
expense. Programming costs, which are payments to programmers for content and
are generally paid on a per subscriber basis, have historically increased due
to both increases in the rates charged for existing programming services and
the introduction of new programming services to our basic subscribers. Service costs increased to 10.1% and included incremental costs related to
the hurricane. Excluding such incremental costs, excluding such credits,
service costs increased 8.3% over the prior year. Of this increase, 47.9% was
due to higher programming costs related to rate increases on basic and, to a
lesser extent, premium services, offset in part by a decline in basic
subscribers, 13.9% was due to servicing the growth in our data customers, 9.4%
was due to greater expensing of labor and overhead resulting from the
transition from upgrade construction to maintenance activities, and 6.8% was
due to the use of outside contractors to service our customers. The balance
was due to higher utility, vehicle, and plant repair costs. Excluding the
impact of the hurricane, service costs as a percentage of revenues were 39.1%
for the three months ended September 30, 2004 and 37.7% for the same period of
the prior year. Selling, general and administrative expenses include: wages and salaries
for our call center, customer service and support and administrative personnel;
franchise fees and taxes; and expenses related to billing, telecommunications,
marketing, bad debt, advertising and office administration. Selling, general and administrative expenses increased 12.1% and included
incremental costs related to the hurricane. Excluding such incremental costs,
selling, general and administrative expenses increased 11.0%. Of this increase, 43.2% was due to greater expensing of 14




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labor and overhead costs
resulting from the transition from upgrade construction to maintenance
activities, 26.2% was due to an increase in general office expenses, and 25.2%
was due to higher advertising expense as we now record in-house advertising
costs that were previously managed by third parties as discussed above, offset
in part by a decrease in bad debt expense. Excluding the impact of the
hurricane, selling, general and administrative expenses as a percentage of
revenues were 18.3% for the three months ended September 30, 2004, as compared
with 17.2% for the three months ended September 30, 2003. We expect continued revenue growth in advanced services, which include
digital cable and broadband data access and, in the first half of 2005, the
launch of VoIP telephony service. As a result, we expect our service costs and
selling, general and administrative expenses to increase. Management fee expense reflects charges incurred under our management
agreements with our parent, Mediacom Communications Corporation (MCC).
Management fee expense was $2.3 million for the three months ended September
30, 2004 and 2003. Management fee expense as a percentage of revenues, which
exclude the impact of the hurricane, was 1.9% for the three months ended
September 30, 2004, as compared with 2.0% for the three months ended September
30, 2003. Depreciation and amortization decreased 11.2% and included incremental
impairment charges related to the hurricane. Excluding such incremental costs,
depreciation and amortization decreased 18.0% to $26.0 million for the three
months ended September 30, 2004, as compared to $31.6 million for the three
months ended September 30, 2003. This decrease was principally due to higher
levels of plant disposals in 2003, as a result of the completion of our network
upgrade program, offset in part by increased depreciation for investments in
our cable network and ongoing investments to continue the rollout of products
and services such as video-on-demand, high-definition television, digital video
recorders and broadband data access. See Note 2 to our unaudited consolidated
financial statements. Interest Expense, Net Interest expense, net, increased 5.6% to $24.7 million for the three month
period ended September 30, 2004, as compared to $23.4 million for the three
months ended September 30, 2003. This increase was primarily due to lower
interest expense capitalization for the three months ended September 30, 2004
associated with the substantial reduction of upgrade/rebuild capital
expenditures, as well as higher market interest rates on variable rate
debt. This increase was offset in part by lower indebtedness for the three
months ended September 30, 2004. (Loss) Gain on Derivatives, Net We enter into interest rate exchange agreements, or interest rate swaps,
with counterparties to fix the interest rate on a portion of our variable rate
debt in order to reduce the potential volatility in our interest expense that
would otherwise result from changes in market interest rates. As of September
30, 2004 we had interest rate swaps with an aggregate principal amount of
$300.0 million. The changes in their mark-to-market values are derived from
changes in market interest rates, the decrease in their time to maturity and
the creditworthiness of the counterparties. Principally as a result of lower
market interest rates at the end of the quarter compared with the beginning, we
recorded a loss on derivatives amounting to $2.1 million for the three months
ended September 30, 2004, as compared to a gain on derivatives amounting to
$3.6 million for the three months ended September 30, 2003. Loss on Sale of Assets and Investments, Net The Company had a loss on the sale of assets and investments amounting to
$1.6 million for the three months ended September 30, 2003. The net loss was
principally due to a sale of a small cable system in September 2003 with
approximately 1,500 subscribers for gross proceeds of $3.1 million. 15




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Other expense Other expense was $1.0 million and $1.1 million for the three months ended
September 30, 2004 and 2003, respectively. Other expense primarily represents
amortization of deferred financing costs and fees on unused credit commitments. Net loss As a result of the factors described above, we generated a net loss for
the three months ended September 30, 2004 of $6.7 million, as compared to a net
loss of $0.4 million for the three months ended September 30, 2003. Operating Income Before Depreciation and Amortization OIBDA decreased 9.3% to $44.6 million, reflecting $3.9 million of service
interruption credits and incremental operating costs related to the hurricane.
Excluding such service credits and incremental costs, OIBDA decreased 1.3% to
$48.5 million due to a 4.4% increase in revenues, partially offset by an 8.3%
increase in service costs and an 11.0% increase in selling, general and
administrative expenses. Excluding the impact of the hurricane, OIBDA,
expressed as a percentage of revenues, was 40.7% for the three months ended
September 30, 2004, as compared to 43.2% for the year-ago period. Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003 The following table sets forth our unaudited consolidated statements of
operations for the nine months ended September 30, 2004 and 2003 (dollars in
thousands and percentage changes that are not meaningful are marked NM): Nine Months EndedSeptember 30,2004
    
    2003
    
    $ Change
    
    % ChangeRevenues
    
    $
    355,962
    
    
    $
    336,602
    
    
    $
    19,360
    
    
    
    5.8
    %Costs and expenses:Service costs
    
    
    139,854
    
    
    
    125,492
    
    
    
    14,362
    
    
    
    11.4
    %Selling, general and administrative expenses
    
    
    64,121
    
    
    
    58,137
    
    
    
    5,984
    
    
    
    10.3
    %Management fee expense
    
    
    6,737
    
    
    
    5,711
    
    
    
    1,026
    
    
    
    18.0
    %Depreciation and amortization
    
    
    81,823
    
    
    
    129,319
    
    
    
    (47,496
    )
    
    
    (36.7
    %)Operating income
    
    
    63,427
    
    
    
    17,943
    
    
    
    45,484
    
    
    NMInterest expense, net
    
    
    (72,455
    )
    
    
    (74,956
    )
    
    
    2,501
    
    
    
    (3.3
    %)Gain on derivatives, net
    
    
    2,798
    
    
    
    1,238
    
    
    
    1,560
    
    
    NMGain (loss) on sale of assets and investments, net
    
    
    5,885
    
    
    
    (888
    )
    
    
    6,773
    
    
    NMInvestment income
    
    
    13,500
    
    
    
    13,500
    
    
    
    
    
    
    
    Other expense
    
    
    (3,103
    )
    
    
    (3,215
    )
    
    
    112
    
    

    (3.5
    %)Net income (loss)
    
    $
    10,052
    
    
    $
    (46,378
    )
    
    $
    56,430
    
    
    NMOIBDA
    
    $
    145,250
    
    
    $
    147,262
    
    
    $
    (2,012
    )
    
    
    (1.4
    %)
 16




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Revenues The following table sets forth revenue information for the nine months
ended September 30, 2004 and 2003 (dollars in millions): Nine Months EndedSeptember 30,2004
    
    2003% of
    
    
    
    
    
    % ofAmount
    
    Revenues
    
    Amount
    
    Revenues
    
    $ Change
    
    % ChangeVideo
    
    $
    297.0
    
    
    
    83.4
    %
    
    $
    296.0
    
    
    
    87.9
    %
    
    $
    1.0
    
    
    
    0.3
    %Data
    
    
    49.7
    
    
    
    14.0
    %
    
    
    35.0
    
    
    
    10.4
    %
    
    
    14.7
    
    
    
    42.0
    %Advertising
    
    
    9.3
    
    
    
    2.6
    %
    
    
    5.6
    
    
    
    1.7
    %
    
    
    3.7
    
    
    
    66.1
    %$
    356.0
    
    
    
    100.0
    %
    
    $
    336.6
    
    
    
    100.0
    %
    
    $
    19.4
    
    
    
    5.8
    %
 Revenues rose 5.8%, net of service interruption credits related to the
hurricane. Excluding such credits, revenues rose 6.6%, largely attributable to
an increase in broadband data customers and basic rate increases applied on our
video subscribers, driven in large part by our own video programming cost
increases, offset by a reduction in basic subscribers. Video revenues rose 0.3%, net of service interruption credits related to
the hurricane. Excluding such credits, video revenues increased 1.1% as a
result of the aforementioned basic rate increases, partially offset by a
decline in basic subscribers from 731,000 to 681,000, which is net of an
estimated 8,000 basic subscribers lost due to the hurricane. Digital
customers, at 154,000, which is net of an estimated 2,000 digital customers
lost due to the hurricane, were unchanged compared to a year ago. Our loss in
video subscribers resulted primarily from increased competitive pressures by
DBS service providers, particularly in those markets where we experienced their
local-into-local launches and, to a lesser extent, from our tighter customer
credit policies. To reverse this video subscriber trend, we have been
increasing our customer retention efforts and our emphasis on bundling,
enhancing and differentiating our video products and services with new digital
packages, video-on-demand, high-definition television, digital video recorders
and more local programming. Data revenues rose 42.0%, net of service interruption credits related to
the hurricane. Excluding such credits, data revenues rose 43.3%, due primarily
to an increase in data customers from 113,000 to 153,000, which is net of an
estimated 1,000 data customers lost due to the hurricane.We expect the
customer growth in our data business to continue. We also expect that the
average monthly data revenue per data subscriber will decline going forward due
to the growth of lower-priced, slower speed data customers, as well as the
discounting associated with our bundling of digital and data services. Advertising revenues increased 66.1%, primarily as a result of the
completion of an interconnect in one of our larger markets and, to a lesser
extent, due to higher local advertising sales and bringing in-house certain
markets previously managed by third parties. With respect to our in-house
advertising activities, instead of receiving advertising revenues net of
commissions paid to third parties, we now record the full revenues from these
markets as earned, with the related expenses, including in-house salaries and
commissions, recorded as selling, general and administrative expenses. We do
not expect growth in advertising revenues to continue at the current rate in
2005, as we have no current plans to complete additional interconnects and we
have completed bringing in-house most of our larger markets. Costs and Expenses Service costs increased 11.4% and included incremental costs related to
the hurricane. Excluding such incremental costs, service costs increased 10.8%
over the prior year. Of this increase, 43.2% was due to higher programming
costs related to rate increases on basic and, to a lesser extent, premium
services, offset in part by a decline in basic subscribers, 21.6% was due to
servicing the growth in our data customers, 11.8% was due to an increase in
employee costs, and 7.6% was due to increased vehicle repair and gas costs.
The balance was due to greater expensing of labor and overhead costs resulting
from the transition from upgrade construction to 17




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maintenance activities and utility costs. Excluding the impact of the
hurricane, service costs as a percentage of revenues were 38.8% for the nine
months ended September 30, 2004 and 37.3% for the same period of the prior
year. Selling, general and administrative expenses increased 10.3% and included
incremental costs related to the hurricane. Excluding such incremental costs,
selling, general and administrative expenses increased 9.9%. Of this increase,
26.7% was due to higher advertising expense as we now record in-house
advertising costs that were previously managed by third parties as discussed
above, 23.6% was due to greater expensing of labor and overhead costs resulting
from the transition from upgrade construction to maintenance activities, 22.1%
was due to an increase in employee costs, and 16.7% was due to an increase in
telephone costs. Excluding the impact of the hurricane, selling, general and
administrative expenses as a percentage of revenues were 17.8% for the nine
months ended September 30, 2004, as compared with 17.3% for the nine months
ended September 30, 2003. We expect continued revenue growth in advanced services, which include
digital cable and broadband data access and, in the first half of 2005, the
launch of VoIP telephony service. As a result, we expect our service costs and
selling, general and administrative expenses to increase. Management fee expense reflects charges incurred under our management
agreements with our parent, Mediacom Communications Corporation (MCC).
Management fee expense increased 18.0% to $6.7 million for the nine months
ended September 30, 2004, as compared to $5.7 million for the nine months ended
September 30, 2003. The increase was due to greater overhead costs charged by
MCC during the nine month period ended September 30, 2004. Management fee
expense as a percentage of revenues, which excludes the impact of the
hurricane, was 1.9% for the nine months ended September 30, 2004, as compared
with 1.7% for the nine months ended September 30, 2003. Depreciation and amortization decreased 36.7% and included incremental
impairment charges related to the hurricane. Excluding such incremental costs,
depreciation and amortization decreased 38.4% to $79.7 million for the nine
months ended September 30, 2004, as compared to $129.3 million for the nine
months ended September 30, 2003. The decrease was primarily due to changes,
effective July 1, 2003, in the estimated useful lives of our cable systems and
equipment in conjunction with the completion of our network upgrade and rebuild
program. These changes reduced depreciation by $41.8 million and $20.5 million
for the nine months ended September 30, 2004 and 2003, respectively. This
decrease in the 2004 period was offset in part by increased depreciation for
investments in our cable network and ongoing investments to continue the
rollout of products and services such as video-on-demand, high-definition
television, digital video recorders and broadband data access. See Note 2 to
our unaudited consolidated financial statements. Interest Expense, Net Interest expense, net, decreased 3.3% to $72.5 million for the nine month
period ended September 30, 2004, as compared to $75.0 million for the nine
months ended September 30, 2003. This increase was primarily due to lower
indebtedness for the nine months ended September 30, 2004, offset in part by
lower interest capitalization associated with the substantial reduction of
upgrade/rebuild capital expenditures. Gain on Derivatives, Net We enter into interest rate exchange agreements, or interest rate swaps,
with counterparties to fix the interest rate on a portion of our variable rate
debt in order to reduce the potential volatility in our interest expense that
would otherwise result from changes in market interest rates. As of September
30, 2004 we had interest rate swaps with an aggregate principal amount of
$300.0 million. The changes in their mark-to-market values are derived from
changes in market interest rates, the decrease in their time to maturity and
the creditworthiness of the counterparties. Principally as a result of higher
market interest rates at the end of the quarter compared with the beginning, we
recorded a net gain on derivatives amounting to $2.8 million for the nine
months ended September 30, 2004, as compared to $1.2 million for the nine
months ended September 30, 2003. 18




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Gain (Loss) on Sale of Assets and Investments, Net The Company had a net gain on sale of assets and investments amounting to
$5.9 million for the nine months ended September 30, 2004, compared to a loss
of $0.9 million for the nine months ended September 30, 2003. The net gain for
the nine months ended September 30, 2004 was principally due to the sale of a
cable system in May 2004, serving approximately 3,450 subscribers, for gross
proceeds of about $10.1 million. Other expense Other expense was $3.1 million and $3.2 million for the nine months ended
September 30, 2004 and 2003, respectively. Other expense primarily represents
amortization of deferred financing costs and fees on unused credit commitments. Net income (loss) As a result of the factors described above, we generated net income for
the nine months ended September 30, 2004 of $10.1 million, as compared to a net
loss of $46.4 million for the nine months ended September 30, 2003. Operating Income Before Depreciation and Amortization OIBDA decreased 1.4% to $145.3 million, reflecting $3.9 million of service
interruption credits and incremental operating costs related to Hurricane Ivan.
Excluding these service credits and incremental costs, OIBDA increased 1.3% to
$149.1 million due to a 6.6% increase in revenues, partially offset by a 10.8%
increase in service costs and a 9.9% increase in selling, general and
administrative expenses. Excluding the impact of Hurricane Ivan, OIBDA,
expressed as a percentage of revenues, was 41.6% for the nine months ended
September 30, 2004, as compared to 43.7% for the respective period of 2003. 19




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Liquidity and Capital Resources Uses of Cash As an integral part of our business plan, we have significantly invested,
and will continue to invest, additional capital in our cable network to enhance
its reliability and capacity, which will allow for the introduction of new
advanced broadband services. In addition, we will continue to pursue a
business strategy that includes selective acquisitions. For the nine months
ended September 30, 2004, we made capital expenditures of $61.5 million and
purchased a small cable system for $3.4 million. We also repaid $49.0 million
of debt. Sources of Cash We expect to fund our capital requirements and operations through a
combination of internally generated funds, dividends from our $150.0 million
preferred equity investment in Mediacom Broadband LLC that has a 12% annual
cash dividend payable quarterly, and amounts available under our bank credit
facilities. For the nine months ended September 30, 2004, net cash flows
provided by operating activities amounted to $97.5 million and we received in
aggregate $13.5 million of cash dividends on the preferred equity. We also
received $10.6 million in proceeds from the sale of assets and investments,
primarily from the sale of a cable system. Other On October 21, 2004, our operating subsidiaries refinanced their two bank
credit facilities (the two prior credit facilities) with a new $1.15 billion
bank credit facility (the new credit facility) that expires in March 2013. As
of September 30, 2004, the two prior credit facilities had an aggregate size of
$924.0 million, of which $647.9 million was outstanding. These two prior credit
facilities were scheduled to expire in 2008, or in 2007 under certain
circumstances. Approximately $658 million was drawn from the new credit facility at
closing, of which approximately $652 million was used to pay in full
outstanding indebtedness, including accrued interest, under the two prior
credit facilities and the balance was used to pay fees and expenses.
The financial obligations of the operating subsidiaries under the two prior
credit facilities have been satisfied, and the prior credit facilities have
been terminated. We have entered into interest rate exchange agreements with
counterparties, which expire from September 2006 through March 2007, to hedge
$300.0 million of floating rate debt. Under the terms of all of our interest
rate exchange agreements, we are exposed to credit loss in the event of
nonperformance by the other parties of the agreements. However, due to the
high creditworthiness of our counterparties, which are major banking firms
rated investment grade, we do not anticipate their nonperformance. As of
September 30, 2004, about 76% of our outstanding indebtedness was at fixed
interest rates or subject to interest rate protection. As of September 30, 2004, our total debt was $1.48 billion, and we were in
compliance with all covenants under our debt arrangements. On the same date
our annualized cost of debt was approximately 6.6%, and we had unused credit
commitments of about $269.9 million, all of which could be borrowed and used
for general corporate purposes based on the terms and conditions of their debt
arrangements. As of that same date, after giving effect to our new credit
facility, we had unused credit commitments of $485.8 million, all of which
could be borrowed and used for general corporate purposes based on the terms
and conditions of our debt arrangements. As of September 30, 2004, approximately $6.2 million of letters of credit
were issued to various parties to secure our performance relating to insurance
and franchise requirements. Although we have not generated earnings sufficient to cover fixed charges
in the past, we have generated cash and obtained financing sufficient to meet
our short-term requirements, including our debt service, working capital and
capital expenditures. We expect that we will continue to be able to generate
funds and obtain financing sufficient to service our long-term business plan,
service our debt obligations and complete any future acquisitions. However,
there can be no assurance that we will be able to obtain sufficient financing,
or, if we were able to do so, that the terms would be favorable to us. 20




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Critical Accounting Policies The foregoing discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. Periodically we evaluate our estimates,
including those related to doubtful accounts, long-lived assets, capitalized
costs and accruals. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable. Actual results may
differ from these estimates under different assumptions or conditions. We believe the following represent the most significant and subjective
estimates used in the preparation of our consolidated financial statements: Property, Plant and Equipment In accordance with Statement of Financial Accounting Standards (SFAS)
No. 51, Financial Reporting by Cable Television Companies, we capitalized a
portion of direct and indirect costs related to the construction, replacement
and installation of property, plant and equipment. Capitalized costs are
recorded as additions to property, plant and equipment and depreciated over the
life of the related assets. 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. Goodwill and Other Intangible Assets In accordance with SFAS No. 142, Goodwill and Other Intangible Assets,
the amortization of goodwill and indefinite-lived intangible assets is
prohibited and requires such assets to be tested annually for impairment, or
more frequently if impairment indicators arise. We have determined that our
cable franchise costs are indefinite-lived assets. Our annual impairment
tests, performed in the fourth quarter of 2003, based on financial information
as of September 30, 2003, determined that there was no impairment of goodwill
or indefinite-lived intangible assets. There have been no events since then
that would require an analysis to be completed before the annual test date. Inflation and Changing Prices Our systems costs and expenses are subject to inflation and price
fluctuations. Such changes in costs and expenses can generally be passed
through to subscribers. Programming costs have historically increased at rates
in excess of inflation and are expected to continue to do so. We believe that
under the Federal Communications Commissions existing cable rate regulations,
we may increase rates for cable television services to more than cover any
increases in programming. However, competitive conditions and other factors in
the marketplace may limit our ability to increase its rates. 21




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, we use interest rate exchange
agreements, or swaps, with counterparties to fix the interest rate on our
floating rate debt. As of September 30, 2004, we had interest rate exchange
agreements with various banks pursuant to which the interest rate on $300.0
million is fixed at a weighted average rate of approximately 3.0%. The fixed
rates of the swap agreements are offset against the applicable three-month
London Interbank Offering Rate to determine the interest expense related to
these agreements. Under the terms of the interest rate exchange agreements,
which expire from 2006 through 2007, we are exposed to credit loss in the event
of nonperformance by the other parties. However, due to the high
creditworthiness of our counterparties, which are major banking firms rated
investment grade, we do not anticipate their nonperformance. At September 30,
2004, based on the mark-to-market valuation, we would have paid approximately
$0.8 million, including accrued interest, if we terminated these agreements. On October 21, 2004, the operating subsidiaries of the Company refinanced
their two credit facilities (the two prior credit facilities) with a new
$1.15 billion senior secured credit facility. This new credit facility, which
consists of a $400 million revolving credit loan, a $200 million delayed-draw
term loan, and a $550 million term loan, has a final maturity of March 31,
2013. The Company incurred $5.7 million of financing costs associated with
this refinancing that will be recorded in the fourth quarter of 2004 and
amortized over the term of the credit facility. The table below provides the expected maturity and estimated fair value of
our debt as of September 30, 2004 giving effect for our new credit facility
(dollars in thousands). See Note 6 to our unaudited consolidated financial
statements. Bank Credit
    
    Capital LeaseSenior Notes
    
    Facilities
    
    Obligations
    
    TotalExpected Maturity:October 1, 2004 to September 30, 2005
    
    $
    
    
    
    $
    4,125
    
    
    $
    877
    
    
    $
    5,002October 1, 2005 to September 30, 2006
    
    
    
    
    
    
    5,500
    
    
    
    904
    
    
    
    6,404October 1, 2006 to September 30, 2007
    
    
    
    
    
    
    5,500
    
    
    
    609
    
    
    
    6,109October 1, 2007 to September 30, 2008
    
    
    200,000
    
    
    
    5,500
    
    
    
    9
    
    
    
    205,509October 1, 2008 to September 30, 2009
    
    
    
    
    
    
    5,500
    
    
    
    
    
    
    
    5,500Thereafter
    
    
    625,000
    
    
    
    621,752
    
    
    
    
    
    
    
    1,246,752Total
    
    $
    825,000
    
    
    $
    647,877
    
    
    $
    2,399
    
    
    $
    1,475,276Fair Value
    
    $
    805,125
    
    
    $
    647,877
    
    
    $
    2,399
    
    
    $
    1,455,401Weighted Average Interest Rate
    
    
    9.0
    %
    
    
    3.1
    %
    
    
    3.1
    %
    
    
    6.4
    %
 22




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ITEM 4. CONTROLS AND PROCEDURES Mediacom LLC The management of Mediacom LLC (Mediacom) carried out an evaluation,
with the participation of Mediacoms Chief Executive Officer and Chief
Financial Officer, of the effectiveness of Mediacoms disclosure controls and
procedures as of September 30, 2004. Based upon that evaluation, Mediacoms
Chief Executive Officer and Chief Financial Officer concluded that Mediacoms
disclosure controls and procedures were effective to ensure that information
required to be disclosed by Mediacom in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission. There has not been any change in Mediacoms internal control over
financial reporting in connection with the evaluation required by Rule
15d-15(d) under the Exchange Act that occurred during the quarter ended
September 30, 2004 that has materially affected, or is reasonably likely to
materially affect, Mediacoms internal control over financial reporting. Mediacom Capital Corporation The management of Mediacom Capital Corporation (Mediacom Capital)
carried out an evaluation, with the participation of Mediacom Capitals Chief
Executive Officer and Chief Financial Officer, of the effectiveness of Mediacom
Capitals disclosure controls and procedures as of September 30, 2004. Based
upon that evaluation, Mediacom Capitals Chief Executive Officer and Chief
Financial Officer concluded that Mediacom Capitals disclosure controls and
procedures were effective to ensure that information required to be disclosed
by Mediacom Capital in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission. There has not been any change in Mediacom Capitals internal control over
financial reporting in connection with the evaluation required by Rule
15d-15(d) under the Exchange Act that occurred during the quarter ended
September 30, 2004 that has materially affected, or is reasonably likely to
materially affect, Mediacom Capitals internal control over financial
reporting. 23




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PART II 
 ITEM 1. LEGAL PROCEEDINGS See Note 9 to our consolidated financial statements. 
 ITEM 6. EXHIBITS ExhibitNumber
    
    Exhibit Description10.1
    
    Credit Agreement, dated as of October 21, 2004, among the operating subsidiaries of
Mediacom LLC, the lenders thereto and JPMorgan Chase Bank, as administrative agent for
the lenders(1)31.1
    
    Rule 15d-14(a) Certifications
of Mediacom LLC31.2
    
    Rule 15d-14(a) Certifications of
Mediacom Capital Corporation32.1
    
    Section 1350 Certifications of
Mediacom LLC32.2
    
    Section 1350 Certifications of
Mediacom Capital Corporation
  (1)Filed as an exhibit to the Quarterly Report on Form 10-Q for the Quarter
ended September 30, 2004 of Mediacom Communications Corporation and
incorporated herein by reference. 24




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. MEDIACOM LLCNovember 9, 2004
    By:
    /s/ MARK E. STEPHANMark E. StephanExecutive Vice President and
  Chief Financial Officer 25




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. MEDIACOM CAPITAL CORPORATIONNovember 9, 2004
    By:
    /s/ MARK E. STEPHANMark E. StephanExecutive Vice President and
  Chief Financial Officer 26