##### 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 June 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 X            No Indicate by checkmark whether the registrants are accelerated filers (as
defined in Rule 12b-2 of the Act).
Yes            No X 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.




---



MEDIACOM LLC AND SUBSIDIARIES FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2004 TABLE OF CONTENTS PART I
    
    PageItem 1. Financial StatementsConsolidated Balance Sheets (unaudited) June 30, 2004 and December 31, 2003
    
    
    1Consolidated Statements of Operations (unaudited) Three Months Ended June 30, 2004 and 2003
    
    
    2Consolidated Statements of Operations (unaudited) Six Months Ended June 30, 2004 and 2003
    
    
    3Consolidated Statements of Cash Flows (unaudited) Six Months Ended June 30, 2004 and 2003
    
    
    4Notes to Consolidated Financial Statements (unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    21PART IIItem 1. Legal Proceedings
    
    
    22Item 6. Exhibits and Reports on Form 8-K
    
    
    22CERTIFICATIONCERTIFICATIONCERTIFICATIONCERTIFICATION
  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.




---



##### Table of Contents



PART I 
 ITEM 1. FINANCIAL STATEMENTS 
 MEDIACOM LLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Dollar amounts in 000s)
(Unaudited) June 30,
    
    December 31,2004
    
    2003ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    8,871
    
    
    $
    13,417Investments
    
    
    1,987
    
    
    
    2,288Subscriber accounts receivable, net of allowance for doubtful accounts
of $1,204 and $1,069, respectively
    
    
    26,313
    
    
    
    24,012Prepaid expenses and other assets
    
    
    37,728
    
    
    
    26,733Total current assets
    
    
    74,899
    
    
    
    66,450Preferred equity investment in affiliated company
    
    
    150,000
    
    
    
    150,000Investment in cable television systems:Property, plant and equipment, net of accumulated depreciation of
$682,903 and $637,254, respectively
    
    
    695,829
    
    
    
    708,159Intangible assets, net of accumulated amortization of $238,326 and
$235,979, respectively
    
    
    569,141
    
    
    
    570,953Total investment in cable television systems
    
    
    1,264,970
    
    
    
    1,279,112Other assets, net of accumulated amortization of $17,492 and
$15,835, respectively
    
    
    18,147
    
    
    
    19,804Total assets
    
    $
    1,508,016
    
    
    $
    1,515,366LIABILITIES AND MEMBERS DEFICITCURRENT LIABILITIESAccrued liabilities
    
    $
    105,984
    
    
    $
    93,831Deferred revenue
    
    
    18,356
    
    
    
    16,432Current portion of long-term debt
    
    
    2,863
    
    
    
    2,799Total current liabilities
    
    
    127,203
    
    
    
    113,062Long-term debt, less current portion
    
    
    1,480,131
    
    
    
    1,521,525Other non-current liabilities
    
    
    12,173
    
    
    
    9,062Total liabilities
    
    
    1,619,507
    
    
    
    1,643,649MEMBERS DEFICITCapital contributions
    
    
    548,521
    
    
    
    548,521Accumulated deficit
    
    
    (660,012
    )
    
    
    (676,804
    )Total members deficit
    
    
    (111,491
    )
    
    
    (128,283
    )Total liabilities and members deficit
    
    $
    1,508,016
    
    
    $
    1,515,366
 The accompanying notes to
unaudited consolidated financial
statements are
an integral part of these statements. 1




---



##### Table of Contents



MEDIACOM LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000s, except per share data)
(Unaudited) Three Months EndedJune 30,2004
    
    2003Revenues
    
    $
    121,137
    
    
    $
    113,592Costs and expenses:Service costs (exclusive of depreciation and amortization of
$27,423 and $48,069, respectively, shown separately below)
    
    
    46,294
    
    
    
    41,764Selling, general and administrative expenses
    
    
    21,411
    
    
    
    19,358Management fee expense
    
    
    2,235
    
    
    
    1,759Depreciation and amortization
    
    
    27,423
    
    
    
    48,069Operating income
    
    
    23,774
    
    
    
    2,642Interest expense, net
    
    
    (23,861
    )
    
    
    (25,448
    )Gain (loss) on derivatives, net
    
    
    8,262
    
    
    
    (2,855
    )Gain on sale of assets and investments, net
    
    
    5,885
    
    
    
    675Investment income from affiliate
    
    
    4,500
    
    
    
    4,500Other expense
    
    
    (1,025
    )
    
    
    (1,069
    )Net income (loss)
    
    $
    17,535
    
    
    $
    (21,555
    )
 The accompanying notes to
unaudited consolidated financial
statements are
an integral part of these statements. 2




---



##### Table of Contents



MEDIACOM LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000s, except per share data)
(Unaudited) Six Months EndedJune 30,2004
    
    2003Revenues
    
    $
    239,914
    
    
    $
    222,702Costs and expenses:Service costs (exclusive of depreciation and amortization of
$53,749 and $97,720, respectively, shown separately below)
    
    
    92,629
    
    
    
    82,606Selling, general and administrative expenses
    
    
    42,184
    
    
    
    38,576Management fee expense
    
    
    4,440
    
    
    
    3,422Depreciation and amortization
    
    
    53,749
    
    
    
    97,720Operating income
    
    
    46,912
    
    
    
    378Interest expense, net
    
    
    (47,799
    )
    
    
    (51,601
    )Gain (loss) on derivatives, net
    
    
    4,870
    
    
    
    (2,313
    )Gain on sale of assets and investments, net
    
    
    5,885
    
    
    
    675Investment income from affiliate
    
    
    9,000
    
    
    
    9,000Other expense
    
    
    (2,076
    )
    
    
    (2,102
    )Net income (loss)
    
    $
    16,792
    
    
    $
    (45,963
    )
 The accompanying notes to
unaudited consolidated financial
statements are
an integral part of these statements. 3




---



##### Table of Contents



MEDIACOM LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in 000s)
(Unaudited) Six Months EndedJune 30,2004
    
    2003CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:Net income (loss)
    
    $
    16,792
    
    
    $
    (45,963
    )Adjustments to reconcile net income (loss) to net cash from operating activities:Depreciation and amortization
    
    
    53,749
    
    
    
    97,720(Gain) loss on derivatives, net
    
    
    (4,870
    )
    
    
    2,313Gain on sale of assets and investments, net
    
    
    (5,885
    )
    
    
    (675
    )Amortization of deferred financing costs
    
    
    1,657
    
    
    
    1,627Changes in assets and liabilities, net of effects from acquisitions:Subscriber accounts receivable, net
    
    
    (1,798
    )
    
    
    (3,933
    )Prepaid expenses and other assets
    
    
    (10,995
    )
    
    
    (5,781
    )Accrued liabilities
    
    
    11,653
    
    
    
    12,466Deferred revenue
    
    
    1,924
    
    
    
    1,169Other non-current liabilities
    
    
    3,536
    
    
    
    6,560Net cash flows provided by operating activities
    
    
    65,763
    
    
    
    65,503CASH FLOWS USED IN INVESTING ACTIVITIES:Capital expenditures
    
    
    (35,739
    )
    
    
    (56,418
    )Acquisition of cable television system
    
    
    (3,372
    )
    
    
    Proceeds from sale of assets and investments
    
    
    10,556
    
    
    
    1,762Other investing activities
    
    
    (424
    )
    
    
    (187
    )Net cash flows used in investing activities
    
    
    (28,979
    )
    
    
    (54,843
    )CASH FLOWS USED IN FINANCING ACTIVITIES:New borrowings
    
    
    36,000
    
    
    
    104,750Repayment of debt
    
    
    (77,330
    )
    
    
    (111,092
    )Financing costs
    
    
    
    
    
    
    20Net cash flows used in financing activities
    
    
    (41,330
    )
    
    
    (6,322
    )Net (decrease) increase in cash and cash equivalents
    
    
    (4,546
    )
    
    
    4,338CASH AND CASH EQUIVALENTS, beginning of period
    
    
    13,417
    
    
    
    20,890CASH AND CASH EQUIVALENTS, end of period
    
    $
    8,871
    
    
    $
    25,228SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the period for interest, net of amounts capitalized
    
    $
    48,417
    
    
    $
    52,197SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES:Capital expenditures financed through capital leases
    
    $
    
    
    
    $
    3,204
 The accompanying notes to
unaudited consolidated financial
statements are an
integral part of these statements. 4




---



##### Table of Contents



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. The Company 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 June 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 recently completed network upgrade and rebuild program. The changes
in estimated useful lives were made to reflect managements evaluation of the
longer economic lives of the Companys upgraded and rebuilt network. The
weighted average useful lives of such fixed assets changed from approximately 7
years to approximately 12 years. These changes were made on a prospective
basis effective July 1, 2003 and resulted in a reduction of depreciation
expense and a corresponding increase in net income of approximately $20.9
million and $41.6 million for the three and six months ended June 30, 2004,
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




---



##### Table of Contents



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 June 30, 2004 and December 31, 2003, property, plant and equipment
consisted of (dollars in thousands): June 30,
    
    December 31,2004
    
    2003Land and land improvements
    
    $
    1,425
    
    
    $
    1,470Buildings and leasehold improvements
    
    
    15,538
    
    
    
    18,191Cable systems, equipment and subscriber devices
    
    
    1,319,345
    
    
    
    1,283,345Vehicles
    
    
    28,774
    
    
    
    29,266Furniture, fixtures and office equipment
    
    
    13,650
    
    
    
    13,1411,378,732
    
    
    
    1,345,413Accumulated depreciation
    
    
    (682,903
    )
    
    
    (637,254
    )Property, plant and equipment, net
    
    $
    695,829
    
    
    $
    708,159
 Depreciation expense for the three and six months ended June 30, 2004 was
approximately $25.3 million and $49.4 million, respectively and $45.2 million
and $90.9 million for the respective periods in 2003. (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. 6




---



##### Table of Contents



MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Indefinite-lived intangible assets include goodwill and cable franchise
costs and are accounted for in accordance with SFAS No. 142 Goodwill and Other
Intangible Assets. The provisions of SFAS No. 142, which were adopted by the
Company on January 1, 2002, prohibit the amortization of indefinite-lived
intangible assets and goodwill, but require such assets to be tested annually
for impairment, or more frequently if impairment indicators arise. The Company
has determined that its cable franchise costs and goodwill are indefinite-lived
assets. Accordingly, on January 1, 2002, the Company ceased the amortization
of its indefinite-lived intangible assets. Other finite-lived intangible
assets, which consist primarily of subscriber lists and covenants not to
compete, continue to be amortized over their useful lives of 5 to 10 years and
5 years, respectively. The following table summarizes the net asset value for
each intangible asset category as of June 30, 2004 and December 31, 2003
(dollars in thousands): Gross Asset
    
    Accumulated
    
    Net AssetJune 30, 2004
    
    Value
    
    Amortization
    
    ValueFranchise costs
    
    $
    654,697
    
    
    $
    102,195
    
    
    $
    552,502Goodwill
    
    
    14,217
    
    
    
    2,682
    
    
    
    11,535Subscriber Lists
    
    
    132,858
    
    
    
    127,889
    
    
    
    4,969Covenants not to compete
    
    
    5,695
    
    
    
    5,560
    
    
    
    135$
    807,467
    
    
    $
    238,326
    
    
    $
    569,141
 Gross 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 six months ended June 30, 2004 was
approximately $2.1 million and $4.3 million, respectively and $2.9 million and
$6.9 million for the respective periods in 2003. The Companys future
estimated aggregate amortization expense for 2004 through 2005 is $4.3 million
and $0.8 million, respectively. (5) Accrued Liabilities Accrued liabilities consist of the following as of June 30, 2004 and
December 31, 2003 (dollars in thousands): June
30,
    
    December 31,2004
    
    2003Accrued interest
    
    $
    30,363
    
    
    $
    31,040Accrued payroll and benefits
    
    
    7,443
    
    
    
    9,728Accrued programming costs
    
    
    24,131
    
    
    
    14,144Accrued property, plant and equipment
    
    
    6,953
    
    
    
    12,182Accrued service costs
    
    
    5,167
    
    
    
    3,137Accrued taxes and fees
    
    
    12,255
    
    
    
    10,057Accrued telecommunications
    
    
    8,544
    
    
    
    5,612Other accrued expenses
    
    
    6,954
    
    
    
    3,964Subscriber advance payments
    
    
    4,174
    
    
    
    3,967$
    105,984
    
    
    $
    93,831
 7




---



##### Table of Contents



MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (6) Debt As of June 30, 2004 and December 31, 2003, debt consisted of (dollars in
thousands): June 30,
    
    December 31,2004
    
    2003Bank credit facilities
    
    $
    655,376
    
    
    $
    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
    
    
    2,618
    
    
    
    2,824$
    1,482,994
    
    
    $
    1,524,324Less: Current portion
    
    
    2,863
    
    
    
    2,799Total long-term debt
    
    $
    1,480,131
    
    
    $
    1,521,525
 The average interest rate on debt outstanding under the bank credit
facilities for the three and six months ended June 30, 2004, was 2.5%, before
giving effect to the interest rate exchange agreements discussed below. As of
June 30, 2004, the Company had unused credit commitments of approximately
$296.5 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 June 30,
2004. The Company uses interest rate exchange agreements with counterparties to
fix the interest rate on a portion of its floating rate debt. As of June 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%. This fixed rate is then adjusted, if
necessary, by the applicable three-month London Interbank Offering Rate to
determine the interest expense related to the Companys interest rate swap
agreements. 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. The Companys use of interest rate
exchange agreements may result in short-term gains or losses and may increase
the volatility of earnings. The Company had a gain of $8.3 million and $4.9
million, respectively, for the three and six months ended June 30, 2004, as
compared to a loss of $2.9 million and $2.3 million, respectively, for the
three and six months ended June 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 high creditworthiness
of the Companys counterparties, which are major banking firms rated investment
grade, the Company does not anticipate their nonperformance. The fair value of
the interest rate exchange agreements is the estimated amount that the Company
would receive or pay to terminate such agreements, taking into account current
interest rates, their remaining lives and the current creditworthiness of the
Companys counterparties. At June 30, 2004, based on the mark-to-market
valuation, the Company would have received approximately $1.3 million if these
agreements were terminated, inclusive of accrued interest. (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 six months ended June 30,
2004, the Company received in aggregate $9.0 million in cash dividends on the
preferred equity. 8




---



##### Table of Contents



MEDIACOM LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (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 three and six months ended June 30, 2004 and $0.7 million for the
three and six months ended June 30, 2003. The net gain for the
three and six months ended June 30, 2004
was principally due to the sale of a non-strategic cable system with
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,
Mediacom Communications Corporation, 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. While the Company and its subsidiaries are not defendants in the lawsuit,
in the event of an outcome materially adverse to its parent company, the
Companys own consolidated financial position, results of operation, cash flows
or business could also be materially adversely affected. MCC Georgia LLC and
the Companys parent company have advised it that they intend to vigorously
defend against these claims. They also have informed the Company that they are
unable to reasonably evaluate the likelihood of an unfavorable outcome or
quantify the possible damages, if any, associated with these matters, or
whether or not the those damages would be material. The Company, its parent company and its subsidiaries or other affiliated
companies are also involved in various other legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Companys consolidated financial position, results of operations, cash flows or
business. 9




---



##### 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 six
months ended June 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 June 30, 2004, our cable systems passed approximately 1.32 million homes
and served approximately 702,000 basic subscribers in 22 states. Since
commencement of our operations in March 1996, we have experienced significant
growth by deploying a disciplined strategy of acquiring underperforming cable
systems and improving their operating and financial performance. Many of our
cable systems are located in markets that are contiguous with, or in close
proximity to, cable systems owned and operated by Mediacom Broadband LLC, a
wholly-owned subsidiary of our manager. 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 and broadband data
access. We currently provide digital video services to approximately 150,000
subscribers, representing a penetration of approximately 21.4% of our basic
subscribers. We also currently provide broadband data services to
approximately 145,000 subscribers, representing a penetration of approximately
11.0% 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 six months of June 30, 2004, competitive pressure from DBS
service providers intensified when they launched local television channels in
additional markets representing an estimated 31% of our basic subscriber base.
Since they have been permitted to deliver local television broadcast signals
beginning in 1999, DIRECTV, Inc. and Echostar Communications Corporation, the
two largest DBS service providers, have been increasing the number of markets
in which they deliver these local television signals. These local-into-local
launches were usually accompanied by heavy marketing and advertising and were
the primary cause of our loss of basic subscribers in recent periods including
the second quarter of 2004. As of June 30, 2004, competitive local-into-local
services in our markets covered an estimated 86% 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 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. 10




---



##### Table of Contents



The following table sets forth the reconciliation of OIBDA to operating
income for the three and six months ended June 30, 2004 and 2003 (dollars in
thousands and unaudited): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003OIBDA
    
    $
    51,197
    
    
    $
    50,711
    
    
    $
    100,661
    
    
    $
    98,098Depreciation and amortization
    
    
    (27,423
    )
    
    
    (48,069
    )
    
    
    (53,749
    )
    
    
    (97,720
    )Operating income
    
    $
    23,774
    
    
    $
    2,642
    
    
    $
    46,912
    
    
    $
    378
 Actual Results of Operations Three Months Ended June 30, 2004 Compared to Three Months Ended June 30,
2003 The following table sets forth our unaudited consolidated statements of
operations for the three months ended June 30, 2004 and 2003 (dollars in
thousands and percentage changes that are not meaningful are marked NM): Three Months EndedJune 30,2004
    
    2003
    
    $ Change
    
    %
ChangeRevenues
    
    $
    121,137
    
    
    $
    113,592
    
    
    $
    7,545
    
    
    
    6.6
    %Costs and expenses:Service costs
    
    
    46,294
    
    
    
    41,764
    
    
    
    4,530
    
    
    
    10.8Selling, general and administrative
expenses
    
    
    21,411
    
    
    
    19,358
    
    
    
    2,053
    
    
    
    10.6Management fee expense
    
    
    2,235
    
    
    
    1,759
    
    
    
    476
    
    
    
    27.1Depreciation and amortization
    
    
    27,423
    
    
    
    48,069
    
    
    
    (20,646
    )
    
    
    (43.0
    )Operating income
    
    
    23,774
    
    
    
    2,642
    
    
    
    21,132
    
    
    
    799.8Interest expense, net
    
    
    (23,861
    )
    
    
    (25,448
    )
    
    
    1,587
    
    
    
    (6.2
    )Gain (loss) on derivatives, net
    
    
    8,262
    
    
    
    (2,855
    )
    
    
    11,117
    
    
    NMGain on sale of assets and investments, net
    
    
    5,885
    
    
    
    675
    
    
    
    5,210
    
    
    NMInvestment income
    
    
    4,500
    
    
    
    4,500
    
    
    
    
    
    
    
    Other expense
    
    
    (1,025
    )
    
    
    (1,069
    )
    
    
    44
    
    
    NMNet income (loss)
    
    $
    17,535
    
    
    $
    (21,555
    )
    
    $
    39,090
    
    
    NMOperating income before depreciation and
amortization
    
    $
    51,197
    
    
    $
    50,711
    
    
    $
    486
    
    
    
    1.0
    %
 11




---



##### Table of Contents



Revenues The following table sets forth revenue information for the three months
ended June 30, 2004 and 2003 (dollars in millions): Three Months Ended June 30,2004
    
    2003% of
    
    
    
    
    
    % ofAmount
    
    Revenues
    
    Amount
    
    Revenues
    
    $ Change
    
    % ChangeVideo
    
    $
    100.9
    
    
    
    83.3
    %
    
    $
    100.1
    
    
    
    88.1
    %
    
    $
    0.8
    
    
    
    0.8
    %Data
    
    
    16.8
    
    
    
    13.9
    
    
    
    11.5
    
    
    
    10.1
    
    
    
    5.3
    
    
    
    46.1Advertising
    
    
    3.4
    
    
    
    2.8
    
    
    
    2.0
    
    
    
    1.8
    
    
    
    1.4
    
    
    
    70.0$
    121.1
    
    
    
    100.0
    %
    
    $
    113.6
    
    
    
    100.0
    %
    
    $
    7.5
    
    
    
    6.6
    %
 Video revenues represent monthly subscription fees charged to customers
for our core cable television products and services (including basic, expanded
basic and analog premium programming, digital cable television programming
services, wire maintenance, equipment rental and services to commercial
establishments), pay-per-view charges, installation and reconnection fees, late
payment fees, and other ancillary revenues. Data revenues primarily represent
monthly subscription fees charged to customers for our data products and
services and equipment rental fees. Franchise fees charged to customers for
payment to local franchising authorities are included in their corresponding
revenue category. Revenues rose 6.6%, largely attributable to an increase in broadband data
customers and basic rate increases applied on our video customers, driven in
large part by our own video programming cost increases, offset by a reduction
in basic subscribers in the period. Video revenues increased 0.8% as a result of the aforementioned basic rate
increases and a 2.0% increase in digital customers, from 147,000 to 150,000,
partially offset by a 5.0% decline in basic subscribers from 739,000 to
702,000. Our loss in basic subscribers resulted primarily from increased
competitive pressures by DBS service providers, particularly in those markets
where we experienced their local-into-local launches, and to a lesser extent
from our tighter customer credit policies. To reverse this basic subscriber
trend, we are 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 46.1%, due primarily to an increase in data customers
from 101,000 to 145,000, as well as a gain in average monthly data revenue per
data subscriber from $39.86 to $40.32. We expect this customer trend in our
data business to continue given anticipated demand for our broadband data
service. Advertising revenues increased 70.0%, primarily as a result of bringing
in-house certain markets previously managed by third parties. 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 expect this trend to continue for the next two quarters relative to
last year. However, we do not expect growth in advertising revenues to
continue at this 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. 12




---



##### Table of Contents



Service costs increased 10.8% over the prior year. Of this increase,
39.9% was due to higher programming costs related to rate increases and the
expansion of our service offerings, offset in part by a decline in basic
subscribers, 23.6% was due to servicing the growth in our data customers, 12.8%
was due to increased vehicle repair and gas costs, and 10.0% was due to
increased employee costs. The balance was due to higher utility costs and the
use of outside contractors to service our customers. As a percentage of
revenues, service costs were 38.2% for the three months ended June 30, 2004 and
36.8% 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 10.6%. Of this
increase, 22.5% was due to an increase in employee costs, 19.9% was due to
higher advertising expense as we now record in-house advertising costs that
were previously managed by third parties as discussed above, 13.3% was due to
an increase of bad debt expense resulting from increased customer churn, 11.6%
was due to an increase in general office expenses, and 10.6% was due to greater
expensing of labor and overhead costs resulting from the transition from
upgrade construction to maintenance activities. As a percentage of revenues,
selling, general and administrative expenses were 17.7% for the three months
ended June 30, 2004, as compared with 17.0% for the three months ended June 30,
2003. We expect the rate of increase in expenses relating to our advertising
sales to moderate as the migration of the work in-house is completed. 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 27.1% to $2.2 million for the three months
ended June 30, 2004, as compared to $1.8 million for the three months ended
June 30, 2003. The increase was due to greater overhead costs charged by MCC
during the three month period ended June 30, 2004. As a percentage of
revenues, management fee expense was 1.8% for the three months ended June 30,
2004, as compared with 1.5% for the three months ended June 30, 2003. Depreciation and amortization decreased 43.0% to $27.4 million for the
three months ended June 30, 2004, as compared to $48.1 million for the three
months ended June 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 $20.9 million for the three
months ended June 30, 2004. This decrease was offset in part by increased
depreciation for investments in our cable network and ongoing investments to
continue the rollout of products and services such as video-on-demand,
high-definition television and broadband data access. See Note 2 to our
unaudited consolidated financial statements. Interest Expense, Net Interest expense, net, decreased 6.2% to $23.9 million for the three month
period ended June 30, 2004, as compared to $25.4 million for the three months
ended June 30, 2003. This was primarily due to lower indebtedness and lower
market interest rates on our variable rate debt for the three months ended June
30, 2004. Gain (Loss) 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 June 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 13




---



##### Table of Contents



counterparties. Principally as a result of higher market interest rates
at the end of the quarter compared to the beginning, we recorded a net gain on
derivatives amounting to $8.3 million for the three months ended June 30, 2004,
as compared to a loss on derivatives amounting to $2.9 million for the three
months ended June 30, 2003. Gain 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 three months ended June 30, 2004 and $0.7 million for the
three months ended June 30, 2003. The net gain for the three
months ended June 30, 2004 was principally due to the sale of a
non-strategic cable system with approximately 3,450 subscribers. Other expense Other expense was $1.0 million and $1.1 million for the three months ended
June 30, 2004 and 2003, respectively. Other expense primarily represents
amortization of deferred financing costs and fees on unused credit commitments. Net income (loss) Due to the factors described above, we generated net income of $17.5
million for the three months ended June 30, 2004, as compared to a net loss of
$21.6 million for the three months ended June 30, 2003. Operating Income Before Depreciation and Amortization OIBDA increased 1.0% to $51.2 million due to a 6.6% increase in revenues,
partially offset by a 10.8% increase in service costs and a 10.6% increase in
selling, general and administrative expenses. OIBDA, expressed as a percentage
of revenues, was 42.3% for the three months ended June 30, 2004, as compared to
44.6% for the year-ago period. Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003 The following table sets forth our unaudited consolidated statements of
operations for the six months ended June 30, 2004 and 2003 (dollars in
thousands and percentage changes that are not meaningful are marked NM): Six Months EndedJune 30,2004
    
    2003
    
    $ Change
    
    %
ChangeRevenues
    
    $
    239,914
    
    
    $
    222,702
    
    
    $
    17,212
    
    
    
    7.7
    %Costs and expenses:Service costs
    
    
    92,629
    
    
    
    82,606
    
    
    
    10,023
    
    
    
    12.1Selling, general and administrative
expenses
    
    
    42,184
    
    
    
    38,576
    
    
    
    3,608
    
    
    
    9.4Management fee expense
    
    
    4,440
    
    
    
    3,422
    
    
    
    1,018
    
    
    
    29.7Depreciation and amortization
    
    
    53,749
    
    
    
    97,720
    
    
    
    (43,971
    )
    
    
    (45.0
    )Operating income
    
    
    46,912
    
    
    
    378
    
    
    
    46,534
    
    
    NMInterest expense, net
    
    
    (47,799
    )
    
    
    (51,601
    )
    
    
    3,802
    
    
    
    (7.4
    )Gain (loss) on derivatives, net
    
    
    4,870
    
    
    
    (2,313
    )
    
    
    7,183
    
    
    NMGain on sale of assets and investments, net
    
    
    5,885
    
    
    
    675
    
    
    
    5,210
    
    
    NMInvestment income
    
    
    9,000
    
    
    
    9,000
    
    
    
    
    
    
    
    Other expense
    
    
    (2,076
    )
    
    
    (2,102
    )
    
    
    26
    
    
    NMNet income (loss)
    
    $
    16,792
    
    
    $
    (45,963
    )
    
    $
    62,755
    
    
    NMOperating income before depreciation and
amortization
    
    $
    100,661
    
    
    $
    98,098
    
    
    $
    2,563
    
    
    
    2.6
    %
 14




---



##### Table of Contents



Revenues The following table sets forth revenue information for the six months
ended June 30, 2004 and 2003 (dollars in millions): Six Months Ended June 30,2004
    
    2003% of
    
    
    
    
    
    % ofAmount
    
    Revenues
    
    Amount
    
    Revenues
    
    $ Change
    
    % ChangeVideo
    
    $
    201.1
    
    
    
    83.8
    %
    
    $
    197.5
    
    
    
    88.7
    %
    
    $
    3.6
    
    
    
    1.8
    %Data
    
    
    32.7
    
    
    
    13.6
    
    
    
    21.8
    
    
    
    9.8
    
    
    
    10.9
    
    
    
    50.0Advertising
    
    
    6.1
    
    
    
    2.6
    
    
    
    3.4
    
    
    
    1.5
    
    
    
    2.7
    
    
    
    79.4$
    239.9
    
    
    
    100.0
    %
    
    $
    222.7
    
    
    
    100.0
    %
    
    $
    17.2
    
    
    
    7.7
    %
 Revenues rose 7.7%, 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 increased 1.8% as a result of the aforementioned basic rate
increases and a 2.0% increase in digital customers, from 147,000 to 150,000,
partially offset by a 5.0% decline in basic subscribers from 739,000 to
702,000. Our loss in basic subscribers resulted primarily from increased
competitive pressures by DBS service providers, particularly in those markets
where we experienced their local-into-local launches, and to a lesser extent
from our tighter customer credit policies. To reverse this basic subscriber
trend, we are 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 50.0%, due primarily to an increase in data customers
from 101,000 to 145,000, as well as a gain in average monthly data revenue per
data subscriber from $39.90 to $40.81. We expect this customer trend in our
data business to continue given anticipated demand for our broadband data
service. Advertising revenues increased 79.4%, primarily as a result of bringing
in-house certain markets previously managed by third parties. 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 expect this trend to continue for the next two quarters relative to
last year. However, we do not expect growth in advertising revenues to
continue at this rate in 2005, as we have completed bringing in-house most of
our larger markets. Costs and Expenses Service costs increased 12.1% over the prior year. Of this increase,
41.5% was due to higher programming costs related to rate increases and the
expansion of our service offerings, offset in part by a decline in basic
subscribers, 24.3% was due to servicing the growth in our data customers, 14.6%
was due to an increase in employee costs, and 9.2% 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
maintenance activities and utility costs. As a percentage of revenues, service
costs were 38.6% for the six months ended June 30, 2004 and 37.1% for the same
period of the prior year. Selling, general and administrative expenses increased 9.4%. Of this
increase, 27.5% was due to higher advertising expense as we now record in-house
advertising costs that were previously managed by third parties as
discussed above, 24.3% was due to an increase in employee costs, 13.2% was due
to an increase in telephone costs, and 11.9% was due to greater expensing of
labor and overhead costs resulting from the transition from upgrade construction to maintenance activities. As a percentage of revenues, selling,
general and administrative expenses were 17.6% for the six months ended June
30, 2004, as compared with 17.3% for the six months ended June 30, 2003. 15




---



##### Table of Contents



We expect the rate of increase in expenses relating to our advertising
sales to moderate as the migration of the work in-house is completed. 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 29.7% to $4.4 million for the six months ended
June 30, 2004, as compared to $3.4 million for the six months ended June 30,
2003. The increase was due to greater overhead costs charged by MCC during the
six month period ended June 30, 2004. As a percentage of revenues, management
fee expense was 1.9% for the six months ended June 30, 2004, as compared with
1.5% for the six months ended June 30, 2003. Depreciation and amortization decreased 45.0% to $53.7 million for the six
months ended June 30, 2004, as compared to $97.7 million for the six months
ended June 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 $41.6 million for the six months ended
June 30, 2004. This decrease was offset in part by increased depreciation for
investments in our cable network and ongoing investments to continue the
rollout of products and services such as video-on-demand, high-definition
television and broadband data access. See Note 2 to our unaudited consolidated
financial statements. Interest Expense, Net Interest expense, net, decreased 7.4% to $47.8 million for the six month
period ended June 30, 2004, as compared to $51.6 million for the six months
ended June 30, 2003. This was primarily due to lower indebtedness and lower
market interest rates on our variable rate debt for the three months ended June
30, 2004. Gain (Loss) 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 June 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 to the beginning, we
recorded a net gain on derivatives amounting to $4.9 million for the six months
ended June 30, 2004, as compared to a loss on derivatives amounting to $2.3
million for the six months ended June 30, 2003. Gain 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 six months ended June 30, 2004 and $0.7 million for the
six months ended June 30, 2003. The net gain for the six months
ended June 30, 2004 was principally due to the sale of a
non-strategic cable system with approximately 3,450 subscribers. Other expense Other expense was $2.1 million and $2.1 million for the six months ended
June 30, 2004 and 2003, respectively. Other expense primarily represents
amortization of deferred financing costs and fees on unused credit commitments. 16




---



##### Table of Contents



Net income (loss) Due to the factors described above, we generated net income of $16.8
million for the six months ended June 30, 2004, as compared to a net loss of
$46.0 million for the six months ended June 30, 2003. Operating Income Before Depreciation and Amortization OIBDA increased 2.6% to $100.7 million due to a 7.7% increase in revenues,
partially offset by a 12.1% increase in service costs and a 9.4% increase in
selling, general and administrative expenses. OIBDA, expressed as a percentage
of revenues, was 42.0% for the six months ended June 30, 2004, as compared to
44.0% for the year-ago period. Liquidity and Capital Resources As an integral part of our business plan, we have significantly invested,
and will continue to invest, additional capital in our cable network to enhance
its reliability and capacity, which will allow for the introduction of new
advanced broadband services. We also will continue to pursue a business
strategy that includes selective acquisitions. We expect to fund our capital
requirements and operations through a combination of internally generated
funds, and amounts available under our bank credit facilities. Net cash flows provided by operating activities
amounted to $65.8 million for the six months ended June 30, 2004, due
principally to our operating income, depreciation and
amortization, interest expense and changes in current assets and
liabilities. Net cash flows used in investing activities for the six months ended
June 30, 2004 were $29.0 million, due principally to capital expenditures of
$35.7 million and the purchase of a small cable system for
$3.4 million, offset by $10.6 million in proceeds
principally from the sale of a cable system. We have a $150.0 million preferred equity investment in Mediacom Broadband
LLC. The preferred equity investment has a 12% annual cash dividend, payable
quarterly in cash. For the six months ended June 30, 2004, we received in
aggregate $9.0 million of cash dividends on the preferred
equity. Net cash flows used in financing
activities were
$41.3 million for the six months ended June 30, 2004, and reflects the repayment of debt. We have two bank credit facilities in the aggregate amount of $958.1
million. These bank credit facilities expire in September 2008 and December
2008, however, their final maturities are subject to earlier repayment on dates
ranging from June 2007 to December 2007 if we do not refinance our $200.0
million 81⁄2% senior notes due April 2008 prior to March 31, 2007. 17




---



##### Table of Contents



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 June
30, 2004, about 76% of our outstanding indebtedness was at fixed interest rates
or subject to interest rate protection. As of June 30, 2004, our total debt was approximately $1.48 billion, we
had unused credit commitments of about $296.5 million under our bank credit
facilities and our annualized cost of debt capital was approximately 6.5%. On
such date, approximately $296.5 million could be borrowed and used for general
corporate purposes based on the terms and conditions of our
debt arrangements. The Company was in compliance with all
covenants under our debt arrangements for all periods through June 30,
2004. As of June 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. 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 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. 18




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, we use interest rate exchange agreements
with counterparties in order to fix the interest rate on its floating rate
debt. As of June 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%. This fixed interest rate is
then adjusted, if necessary, by the applicable three-month London Interbank
Offering Rate to determine the interest expense related to our interest rate
swap 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 nonperformance by the other parties. At
June 30, 2004, based on the mark-to-market valuation, we would have received
approximately $1.3 million if we terminated these agreements, inclusive of
accrued interest. The table below provides the expected maturity and estimated fair value of
our debt as of June 30, 2004 (dollars in thousands). See Note 6 to our
unaudited consolidated financial statements. Bank Credit
    
    Capital LeaseSenior Notes
    
    Facilities
    
    Obligations
    
    TotalExpected Maturity:July 1, 2004 to June 30, 2005
    
    $
    
    
    
    $
    1,994
    
    
    $
    870
    
    
    $
    2,864July 1, 2005 to June 30, 2006
    
    
    
    
    
    
    40,241
    
    
    
    897
    
    
    
    41,138July 1, 2006 to June 30, 2007
    
    
    
    
    
    
    176,816
    
    
    
    826
    
    
    
    177,642July 1, 2007 to June 30, 2008
    
    
    
    
    
    
    248,674
    
    
    
    25
    
    
    
    248,699July 1, 2008 to June 30, 2009
    
    
    200,000
    
    
    
    187,651
    
    
    
    
    
    
    
    387,651Thereafter
    
    
    625,000
    
    
    
    
    
    
    
    
    
    
    
    625,000Total
    
    $
    825,000
    
    
    $
    655,376
    
    
    $
    2,618
    
    
    $
    1,482,994Fair Value
    
    $
    811,125
    
    
    $
    655,376
    
    
    $
    2,618
    
    
    $
    1,469,119Weighted Average Interest Rate
    
    
    9.0
    %
    
    
    2.5
    %
    
    
    3.1
    %
    
    
    6.1
    %
 19




---



##### Table of Contents



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 June 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 June
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 June 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 June
30, 2004 that has materially affected, or is reasonably likely to materially
affect, Mediacom Capitals internal control over financial reporting. 20




---



##### Table of Contents



PART II 
 ITEM 1. LEGAL PROCEEDINGS See
Note 9 to our consolidated financial statements. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits ExhibitNumber
    
    Exhibit Description31.1
    
    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
 (b) Reports on Form 8-K None. 21




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. MEDIACOM LLCAugust 9, 2004
    BY:
    /s/ MARK E. STEPHANMark E. StephanExecutive Vice President and
Chief Financial Officer 22




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. MEDIACOM CAPITAL CORPORATIONAugust 9, 2004
    BY:
    /s/ MARK E. STEPHANMark E. StephanExecutive Vice President and
Chief Financial Officer 23