##### 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 Number: 0-29227 Mediacom Communications Corporation (Exact name of Registrant as specified in its charter)
 Delaware
    
    
    
    06-1566067(State of incorporation)
    
    
    
    (I.R.S. Employer
Identification Number)100 Crystal Run RoadMiddletown, NY 10941(Address of principal executive offices)(845) 695-2600(Registrants telephone number)
 Indicate by check mark whether the Registrant (1) has 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
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X            No Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X            No As of July 29, 2004 there were 89,969,317 shares of Class A common stock
and 28,836,234 shares of Class B common stock outstanding.




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MEDIACOM COMMUNICATIONS CORPORATION 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
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    22PART IIItem 1. Legal Proceedings
    
    
    23Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 6. Exhibits and Reports on Form 8-K
    
    
    24CERTIFICATIONCERTIFICATION
   
 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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PART I 
 ITEM 1. FINANCIAL STATEMENTS MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
(Dollar amounts in 000s)
(Unaudited) June 30,
    
    December 31,2004
    
    2003ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    22,244
    
    
    $
    25,815Investments
    
    
    1,987
    
    
    
    2,933Subscriber accounts receivable, net of allowance for doubtful accounts
of $4,109 and $3,524, respectively
    
    
    59,322
    
    
    
    56,706Prepaid expenses and other assets
    
    
    16,076
    
    
    
    14,260Total current assets
    
    
    99,629
    
    
    
    99,714Investment in cable television systems:Property, plant and equipment, net of accumulated depreciation of
$940,644 and $844,519, respectively
    
    
    1,446,368
    
    
    
    1,465,362Intangible assets, net of accumulated amortization of $293,775 and
$289,906, respectively
    
    
    2,047,060
    
    
    
    2,050,095Total investment in cable television systems
    
    
    3,493,428
    
    
    
    3,515,457Other assets, net of accumulated amortization of $27,082 and
$23,823, respectively
    
    
    36,533
    
    
    
    39,788Total assets
    
    $
    3,629,590
    
    
    $
    3,654,959LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    243,384
    
    
    $
    247,728Deferred revenue
    
    
    38,831
    
    
    
    36,634Current portion of long-term debt
    
    
    30,159
    
    
    
    12,570Total current liabilities
    
    
    312,374
    
    
    
    296,932Long-term debt, less current portion
    
    
    2,979,447
    
    
    
    3,038,922Other non-current liabilities
    
    
    27,776
    
    
    
    33,991Total liabilities
    
    
    3,319,597
    
    
    
    3,369,845STOCKHOLDERS EQUITYClass A common stock, $.01 par value; 300,000,000 shares authorized;
91,506,061 shares issued and 89,969,317 shares outstanding as of June
30, 2004 and 91,345,346 shares issued and 89,808,602 shares outstanding
as of December 31, 2003
    
    
    915
    
    
    
    913Class B common stock, $.01 par value; 100,000,000 shares authorized;
28,836,234 and 28,913,145 shares issued and outstanding as of June
30, 2004 and December 31, 2003, respectively
    
    
    288
    
    
    
    289Additional paid in capital
    
    
    982,878
    
    
    
    982,390Accumulated deficit
    
    
    (668,125
    )
    
    
    (692,515
    )Treasury stock, at cost, 1,536,744 shares of Class A common stock
    
    
    (5,963
    )
    
    
    (5,963
    )Total stockholders equity
    
    
    309,993
    
    
    
    285,114Total liabilities and stockholders equity
    
    $
    3,629,590
    
    
    $
    3,654,959
 The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements 1




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000s, except per share data)
(Unaudited) Three Months EndedJune 30,2004
    
    2003Revenues
    
    $
    267,599
    
    
    $
    252,194Costs and expenses:Service costs (exclusive of depreciation and amortization of
$55,492 and $83,312, respectively, shown separately below)
    
    
    101,672
    
    
    
    95,692Selling, general and administrative expenses
    
    
    52,546
    
    
    
    47,882Corporate expenses
    
    
    4,957
    
    
    
    3,908Depreciation and amortization
    
    
    55,492
    
    
    
    83,312Operating income
    
    
    52,932
    
    
    
    21,400Interest expense, net
    
    
    (47,403
    )
    
    
    (48,883
    )Gain (loss) on derivatives, net
    
    
    21,267
    
    
    
    (8,624
    )Gain on sale of assets and investments, net
    
    
    5,885
    
    
    
    675Other expense
    
    
    (2,378
    )
    
    
    (2,513
    )Net income (loss) before provision for income taxes
    
    
    30,303
    
    
    
    (37,945
    )Provision for income taxes
    
    
    174
    
    
    
    213Net income (loss)
    
    $
    30,129
    
    
    $
    (38,158
    )Basic weighted average shares outstanding
    
    
    118,806
    
    
    
    118,632Basic earnings (loss) per share
    
    $
    0.25
    
    
    $
    (0.32
    )Diluted weighted average shares outstanding
    
    
    128,065
    
    
    
    118,632Diluted earnings (loss) per share
    
    $
    0.25
    
    
    $
    (0.32
    )
 The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements 2




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000s, except per share data)
(Unaudited) Six Months EndedJune 30,2004
    
    2003Revenues
    
    $
    531,038
    
    
    $
    494,969Costs and expenses:Service costs (exclusive of depreciation and amortization of
$108,195 and $161,478, respectively, shown separately below)
    
    
    204,123
    
    
    
    190,202Selling, general and administrative expenses
    
    
    104,376
    
    
    
    95,253Corporate expenses
    
    
    9,848
    
    
    
    7,607Depreciation and amortization
    
    
    108,195
    
    
    
    161,478Operating income
    
    
    104,496
    
    
    
    40,429Interest expense, net
    
    
    (94,567
    )
    
    
    (97,589
    )Gain (loss) on derivatives, net
    
    
    13,716
    
    
    
    (9,716
    )Gain on sale of assets and investments, net
    
    
    5,885
    
    
    
    675Other expense
    
    
    (4,813
    )
    
    
    (4,910
    )Net income (loss) before provision for income taxes
    
    
    24,717
    
    
    
    (71,111
    )Provision for income taxes
    
    
    327
    
    
    
    413Net income (loss)
    
    $
    24,390
    
    
    $
    (71,524
    )Basic weighted average shares outstanding
    
    
    118,764
    
    
    
    118,579Basic earnings (loss) per share
    
    $
    0.21
    
    
    $
    (0.60
    )Diluted weighted average shares outstanding
    
    
    118,809
    
    
    
    118,579Diluted earnings (loss) per share
    
    $
    0.21
    
    
    $
    (0.60
    )
 The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements 3




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MEDIACOM COMMUNICATIONS CORPORATION 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)
    
    $
    24,390
    
    
    $
    (71,524
    )Adjustments to reconcile net income (loss) to net cash from operating activities:Depreciation and amortization
    
    
    108,195
    
    
    
    161,478(Gain) loss on derivatives, net
    
    
    (13,716
    )
    
    
    9,716Gain on sale of assets and investments, net
    
    
    (5,885
    )
    
    
    (675
    )Amortization of deferred financing costs
    
    
    3,259
    
    
    
    3,193Changes in assets and liabilities, net of effects from acquisitions:Subscriber accounts receivable, net
    
    
    (2,113
    )
    
    
    (2,019
    )Prepaid expenses and other assets
    
    
    (1,816
    )
    
    
    (4,335
    )Accounts payable and accrued expenses
    
    
    (4,844
    )
    
    
    (2,023
    )Deferred revenue
    
    
    2,197
    
    
    
    2,216Other non-current liabilities
    
    
    2,424
    
    
    
    14,473Net cash flows provided by operating activities
    
    
    112,091
    
    
    
    110,500CASH FLOWS USED IN INVESTING ACTIVITIES:Capital expenditures
    
    
    (81,025
    )
    
    
    (131,889
    )Acquisition of cable television systems
    
    
    (3,372
    )
    
    
    Proceeds from sale of assets and investments
    
    
    10,556
    
    
    
    10,722Other investment activities
    
    
    (424
    )
    
    
    (629
    )Net cash flows used in investing activities
    
    
    (74,265
    )
    
    
    (121,796
    )CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:New borrowings
    
    
    101,000
    
    
    
    166,750Repayment of debt
    
    
    (142,886
    )
    
    
    (144,317
    )Proceeds from issuance of common stock in employee stock purchase plan
    
    
    489
    
    
    
    523Financing costs
    
    
    
    
    
    
    22Net cash flows (used in) provided by financing activities
    
    
    (41,397
    )
    
    
    22,978Net (decrease) increase in cash and cash equivalents
    
    
    (3,571
    )
    
    
    11,682CASH AND CASH EQUIVALENTS, beginning of period
    
    
    25,815
    
    
    
    31,224CASH AND CASH EQUIVALENTS, end of period
    
    $
    22,244
    
    
    $
    42,906SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the period for interest, net of amounts capitalized
    
    $
    90,982
    
    
    $
    99,576SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES:Capital expenditures financed through capital leases
    
    $
    
    
    
    $
    8,286
 The accompanying notes to unaudited consolidated financial
statements are an integral part of these statements 4




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (1) Statement of Accounting Presentation and Other Information Basis of Preparation of Unaudited Consolidated Financial Statements Mediacom Communications Corporation (MCC, and collectively with its
subsidiaries, the Company) 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 No. 000-29227).
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 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 $32.4 million or $0.27
per share for the three months ended June 30, 2004 and $64.5 million or $0.54
per share for the six months ended June 30, 2004. 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
 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. 5




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Income Taxes The Company provides for income taxes using the liability method in
accordance with SFAS No. 109, Accounting for Income Taxes, which requires an
asset and liability based approach in accounting for income taxes. The Company
recognizes deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and expected
benefits of utilizing net operating loss carryforwards. The Company
periodically assesses the likelihood of realization of deferred tax assets and
net operating loss carryforwards by considering the scheduled reversal of
deferred tax liabilities, taxable income in future periods and tax planning
strategies. 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. (2) Recent Accounting Pronouncements The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, in December 2002, which amends: (i)
SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for an entity that voluntarily changes to the fair value
based method of accounting for stock-based employee compensation; (ii) the
disclosure provisions of SFAS No. 123 to require prominent disclosure about the
effects on reported net income of an entitys accounting policy decisions with
respect to stock-based employee compensation; and (iii) Accounting Principles
Board (APB) Opinion No. 28, Interim Financial Reporting, to require
disclosure about those effects in interim financial information. The Company
adopted SFAS No. 148 on January 1, 2003. The Company did not change to the fair value based method of accounting
for stock-based employees compensation. Accordingly, the adoption of SFAS No.
148 did not affect the Companys financial condition or results of operations.
However, SFAS No. 148 requires that information be provided as if the Company
had accounted for employee stock options under the fair value method of this
statement, including disclosing pro forma information regarding net income
(loss) and net income (loss) per share beginning with the first quarter of
2003. The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, as permitted by SFAS No. 123. Compensation expense for stock
options is measured as the excess, if any, of the quoted market price of the
Companys stock at the date of the grant over the amount the employee must pay
to acquire the stock. No compensation cost has been recognized for any option
grants in the accompanying consolidated statements of operations since the
price of the options was at their fair market value at the date of grant. The
weighted average fair value of all of the employee options was estimated on the
date of grant using the Black-Scholes model. Had the Company applied the fair
value recognition provisions of SFAS No. 123 to stock-based compensation, MCCs
net income (loss) and basic and diluted net income (loss) per share would have
been changed from the as reported amounts to the pro forma amounts as
follows (dollars in thousands, except per share amounts): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income (loss), as reported
    
    $
    30,129
    
    
    $
    (38,158
    )
    
    $
    24,390
    
    
    $
    (71,524
    )Deduct: Total stock based
compensation expense determined
under fair value based method of
all awards, net of related tax effects
    
    
    (6
    )
    
    
    (556
    )
    
    
    (3,808
    )
    
    
    (4,470
    )Pro forma, net income (loss)
    
    $
    30,123
    
    
    $
    (38,714
    )
    
    $
    20,582
    
    
    $
    (75,994
    )Basic and diluted earnings (loss) per share:As reported
    
    $
    0.25
    
    
    $
    (0.32
    )
    
    $
    0.21
    
    
    $
    (0.60
    )Proforma
    
    $
    0.25
    
    
    $
    (0.33
    )
    
    $
    0.17
    
    
    $
    (0.64
    )
 6




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (3) Earnings Per Share The Company
calculates earnings per share in accordance with Statement
SFAS No. 128, Earnings per Share. SFAS No. 128 computes basic earnings per
share by dividing the net income (loss) by the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per
share is computed by dividing the net income by the weighted average number of
shares of common stock outstanding during the period plus the effects of any
dilutive securities. Diluted earnings per share considers the impact of
potentially dilutive securities except in periods in which there is a loss
because the inclusion of the potential common shares would have an
anti-dilutive effect. Our potentially dilutive securities include common
shares which may be issued upon exercise of our stock options or upon
conversion of convertible senior notes. Diluted
EPS for the three months ended June 30, 2004 excludes
approximately 11.1 million potential common shares, related to
our stock option plans because the option exercise price was greater
than the average market price of our common stock. For the six months
ended June 30, 2004, the diluted EPS excludes approximately 11.1 million potential common
shares, related to our stock option plans because the option
exercise price was greater than the average market price of our
common stock, and approximately 9.2 million of potential common shares related
to convertible senior notes, which were considered to be
anti-dilutive. Diluted EPS for the three and six months
ended June 30, 2003 excludes approximately 20.0 million
potential common shares, primarily related to our stock option and
convertible senior notes because the assumed issuance of such
potential common shares is antidilutive in periods in which there is
a loss. The following table reconciles the numerator and denominator
of the computations of diluted earnings per share for the three and
six months ended June 30, 2004 (dollars in thousands, except per
share amounts): Three Months
Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2004Net
    
    
    
    
    
    Earnings
    
    Net
    
    
    
    
    
    EarningsIncome
    
    Shares
    
    Per Share
    
    Income
    
    Shares
    
    Per ShareBasic earnings per share
    
    $
    30,129
    
    
    
    118,806
    
    
    $
    0.25
    
    
    $
    24,390
    
    
    
    118,764
    
    
    $
    0.21Effect of dilutive securities:Conversion of convertible senior notes
    
    
    2,264
    
    
    
    9,214
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Assumed exercise of stock options
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    Diluted earnings per share
    
    $
    32,393
    
    
    
    128,065
    
    
    $
    0.25
    
    
    $
    24,390
    
    
    
    118,809
    
    
    $
    0.21
 7




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (4) 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
    
    $
    7,056
    
    
    $
    7,059Buildings and leasehold improvements
    
    
    39,586
    
    
    
    41,273Cable systems, equipment and subscriber devices
    
    
    2,251,163
    
    
    
    2,172,953Vehicles
    
    
    61,421
    
    
    
    63,023Furniture, fixtures and office equipment
    
    
    27,786
    
    
    
    25,5732,387,012
    
    
    
    2,309,881Accumulated depreciation
    
    
    (940,644
    )
    
    
    (844,519
    )Property, plant and equipment, net
    
    $
    1,446,368
    
    
    $
    1,465,362
 Depreciation expense for the three and six months ended June 30, 2004 was
approximately $52.9 million and $102.4 million, respectively and $79.8 million
and $153.6 million for the respective periods in 2003. (5) 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. 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
    
    $
    1,944,546
    
    
    $
    140,947
    
    
    $
    1,803,599Goodwill
    
    
    224,613
    
    
    
    3,231
    
    
    
    221,382Subscriber Lists
    
    
    165,981
    
    
    
    144,037
    
    
    
    21,944Covenants not to compete
    
    
    5,695
    
    
    
    5,560
    
    
    
    135$
    2,340,835
    
    
    $
    293,775
    
    
    $
    2,047,060
 Gross Asset
    
    Accumulated
    
    Net AssetDecember 31, 2003
    
    Value
    
    Amortization
    
    ValueFranchise costs
    
    $
    1,943,010
    
    
    $
    141,167
    
    
    $
    1,801,843Goodwill
    
    
    224,281
    
    
    
    3,232
    
    
    
    221,049Subscriber Lists
    
    
    167,015
    
    
    
    140,030
    
    
    
    26,985Covenants not to compete
    
    
    5,695
    
    
    
    5,477
    
    
    
    218$
    2,340,001
    
    
    $
    289,906
    
    
    $
    2,050,095
 Amortization expense for the three and six months ended June 30, 2004 was
approximately $2.6 million and $5.8 million, respectively and $3.5 million and
$7.9 million for the respective periods in 2003. The Companys estimated
future aggregate amortization expense for 2004 through 2008 and beyond is $5.3
million, $2.8 million, $2.1 million, $2.1 million, $2.1 million and $7.7
million, respectively. 8




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (6)
    Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following as of June
30, 2004 and December 31, 2003 (dollars in thousands): June 30,
    
    December 31,2004
    
    2003Accounts payable
    
    $
    3,440
    
    
    $
    6,563Accrued interest
    
    
    58,578
    
    
    
    55,053Accrued payroll and benefits
    
    
    25,682
    
    
    
    23,524Accrued programming costs
    
    
    67,212
    
    
    
    77,296Accrued property, plant and equipment
    
    
    17,418
    
    
    
    25,463Accrued taxes and fees
    
    
    26,259
    
    
    
    26,513Other accrued expenses
    
    
    44,795
    
    
    
    33,316$
    243,384
    
    
    $
    247,728
  (7)
    Debt As of June 30, 2004 and December 31, 2003, debt consisted of (dollars in
thousands): June 30,
    
    December 31,2004
    
    2003Bank credit facilities
    
    $
    1,605,376
    
    
    $
    1,646,50081/2% senior notes
    
    
    200,000
    
    
    
    200,00077/8% senior notes
    
    
    125,000
    
    
    
    125,00091/2% senior notes
    
    
    500,000
    
    
    
    500,00011% senior notes
    
    
    400,000
    
    
    
    400,00051/4% convertible senior notes
    
    
    172,500
    
    
    
    172,500Capital lease obligations
    
    
    6,730
    
    
    
    7,492$
    3,009,606
    
    
    $
    3,051,492Less: Current portion
    
    
    30,159
    
    
    
    12,570Total long-term debt
    
    $
    2,979,447
    
    
    $
    3,038,922
 The average interest rate on outstanding debt under the bank credit
facilities for the three and six months ended June 30, 2004 was 2.9%, before
giving effect to the interest rate exchange agreements discussed below. As of
June 30, 2004, the Company had unused credit commitments of approximately
$738.4 million under its bank credit facilities, of which about $657.4 million
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. 9




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MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 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 $800.0 million is fixed at a weighted
average rate of approximately 3.3%. 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 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 $21.3 million and $13.7
million, respectively, for the three and six months ended June 30, 2004, as
compared to a loss of $8.6 million and $9.7 million, respectively, for the
three and six months ended June 30, 2003. Under the terms of the interest rate exchange agreements, which expire
from 2005 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 paid approximately $2.1 million if these
agreements were terminated, inclusive of accrued interest.  (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 second quarter of 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 Mediacom Communications
Corporation, MCC Georgia LLC, an indirect subsidiary of Mediacom Communications
Corporation 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 the Company has 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 the Company 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. The Company intends to vigorously
defend against these claims. At the present time, the Company is unable to
reasonably evaluate the likelihood of an unfavorable outcome or quantify the
possible damages, if any, associated with these matters, or judge whether or
not those damages would be material to its consolidated financial position,
results of operations, cash flows or business. The Company also is 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




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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 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 Mediacom Communications Corporation is currently the nations eighth
largest cable television company based on customers served and the leading
cable operator focused on serving the smaller cities and towns in the United
States. We provide our customers with a wide array of broadband products and
services, including traditional analog video services, digital television,
video-on-demand, high-definition television and broadband data access. As of
June 30, 2004, our cable systems passed approximately 2.77 million homes and
served approximately 1.49 million basic subscribers in 23 states. In mid-2003, we completed our planned 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 service. We currently provide digital video services to
approximately 373,000 subscribers, representing a penetration of approximately
25.0% of our basic subscribers. We also currently provide broadband data
services to approximately 327,000 subscribers, representing a penetration of
approximately 11.8% 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 2004, competitive pressure from DBS service
providers intensified when they launched local television channels in
additional markets representing an estimated 27% 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. As of
June 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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##### 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
    
    $
    108,424
    
    
    $
    104,712
    
    
    $
    212,691
    
    
    $
    201,907Depreciation and amortization
    
    
    (55,492
    )
    
    
    (83,312
    )
    
    
    (108,195
    )
    
    
    (161,478
    )Operating income
    
    $
    52,932
    
    
    $
    21,400
    
    
    $
    104,496
    
    
    $
    40,429
 Actual Results of Operations Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003 The following table sets forth the 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
    
    $
    267,599
    
    
    $
    252,194
    
    
    $
    15,405
    
    
    
    6.1
    %Costs and expenses:Service costs
    
    
    101,672
    
    
    
    95,692
    
    
    
    5,980
    
    
    
    6.2Selling, general and administrative
expenses
    
    
    52,546
    
    
    
    47,882
    
    
    
    4,664
    
    
    
    9.7Corporate expenses
    
    
    4,957
    
    
    
    3,908
    
    
    
    1,049
    
    
    
    26.8Depreciation and amortization
    
    
    55,492
    
    
    
    83,312
    
    
    
    (27,820
    )
    
    
    (33.4
    )Operating income
    
    
    52,932
    
    
    
    21,400
    
    
    
    31,532
    
    
    
    147.3Interest expense, net
    
    
    (47,403
    )
    
    
    (48,883
    )
    
    
    1,480
    
    
    
    (3.0
    )Gain (loss) on derivatives, net
    
    
    21,267
    
    
    
    (8,624
    )
    
    
    29,891
    
    
    NMGain on sale of assets and investments, net
    
    
    5,885
    
    
    
    675
    
    
    
    5,210
    
    
    NMOther expense
    
    
    (2,378
    )
    
    
    (2,513
    )
    
    
    135
    
    
    
    (5.4
    )Net income (loss) before provision for
income taxes
    
    
    30,303
    
    
    
    (37,945
    )
    
    
    68,248
    
    
    NMProvision for income taxes
    
    
    174
    
    
    
    213
    
    
    
    (39
    )
    
    NMNet income (loss)
    
    $
    30,129
    
    
    $
    (38,158
    )
    
    $
    68,287
    
    
    NMOperating income before depreciation and
amortization
    
    $
    108,424
    
    
    $
    104,712
    
    
    $
    3,712
    
    
    
    3.5
    %
 12




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Revenues The following table sets forth revenue information for the three months
ended June 30, 2004 and 2003 (dollars in millions): Three Months EndedJune 30,2004
    
    2003% of
    
    
    
    
    
    % ofAmount
    
    Revenues
    
    Amount
    
    Revenues
    
    $ Change
    
    % ChangeVideo
    
    $
    217.0
    
    
    
    81.1
    %
    
    $
    214.1
    
    
    
    84.9
    %
    
    $
    2.9
    
    
    
    1.4
    %Data
    
    
    38.1
    
    
    
    14.2
    
    
    
    27.3
    
    
    
    10.8
    
    
    
    10.8
    
    
    
    39.6Advertising
    
    
    12.5
    
    
    
    4.7
    
    
    
    10.8
    
    
    
    4.3
    
    
    
    1.7
    
    
    
    15.7$
    267.6
    
    
    
    100.0
    %
    
    $
    252.2
    
    
    
    100.0
    %
    
    $
    15.4
    
    
    
    6.1
    %
 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 6.1%, 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 video subscribers during the period. Video revenues increased 1.4% as a result of the aforementioned basic rate
increases, partially offset by a 4.4% decline in basic subscribers from
1,560,000 to 1,491,000. Digital customers, at 373,000, were down compared to
385,000 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 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 39.6% due primarily to an increase in data customers
from 234,000 to 327,000, partially offset by a slight decrease in average
monthly data revenue per data subscriber from $40.61 to $40.42. We expect the
customer trend in our data business to continue given anticipated demand for
our broadband data service. Advertising revenues increased 15.7%, primarily as a result of bringing
in-house certain markets previously managed by third parties and to a lesser
extent from increased local advertising sales. 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. 13




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##### Table of Contents



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 6.2% over the prior year. Of this increase, 32.2%
was due to servicing the growth in our data customers, 21.5% was due to
increased programming costs caused by rate increases and channel additions,
offset in part by a reduction in video subscribers and an increase in launch
support received from programmers, 11.3% was due to an increase in vehicle
repair and gas costs, and 9.0% was due to increased use of outside contractors
to service our customers. The balance was from higher employee costs, utility
costs and plant maintenance costs. As a percentage of revenues, service costs
were 38.0% for the three months ended June 30, 2004 and 37.9% for the three
months ended June 30, 2003. Selling, general and administrative expenses include: wages and salaries
for our call centers, 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 9.7%. Of this
increase, 33.3% was due to higher marketing costs for new programs instituted
during the quarter, 20.8% was principally due to an increase in employee costs,
11.8% was due to higher advertising costs as a result of bringing in-house
certain markets previously managed by third parties, 11.3% was due to increased
property taxes and franchise fees, 10.6% was due to greater expensing of labor
and overhead costs resulting from the transition from upgrade construction to
maintenance activities, and 8.0% was due to increased telephone costs. As a
percentage of revenues, selling, general and administrative expenses were 19.6%
for the three months ended June 30, 2004, as compared with 19.0% for the three
months ended June 30, 2003. We expect continued revenue growth in advanced services, which include
digital cable, high-definition television 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. Corporate expenses reflect compensation of corporate employees and other
corporate overhead. Corporate expenses increased 26.8% to $5.0 million for the
three months ended June 30, 2004, as compared to $3.9 million for the three
months ended June 30, 2003. This was principally due to increases in employee
compensation, and to a lesser extent, increases in professional service fees
and insurance premiums. We believe the annual increase in corporate expenses
will moderate as the rate of change in employee compensation is not expected to
repeat going forward. As a percentage of revenues, corporate expenses were
1.9% 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 33.4% to $55.5 million for the
three months ended June 30, 2004, as compared to $83.3 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 $32.4 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 1 to our
unaudited consolidated financial statements. Interest Expense, Net Interest expense, net, decreased by 3.0% to $47.4 million for the three
months ended June 30, 2004, as compared to $48.9 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, as compared to the three months ended June 30, 2003. 14




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##### Table of Contents



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 $800.0
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 $21.3 million for the three
months ended June 30, 2004, as compared to a net loss on derivatives of $8.6
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 for gross proceeds
of about $10.1 million. Other Expense Other expense was $2.4 million and $2.5 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 $30.1
million for the three months ended June 30, 2004, as compared to a net loss of
$38.2 million for the three months ended June 30, 2003. Operating Income Before Depreciation and Amortization OIBDA increased 3.5% to $108.4 million due to a 6.1% increase in revenues,
partially offset by a 6.2% increase in service costs and a 9.7% increase in
selling, general and administrative expenses. OIBDA, expressed as a percentage
of revenues, was 40.5% for the three months ended June 30, 2004, as compared to
41.5% in the year-ago period. 15




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Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003 The following table sets forth the 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
    
    $
    531,038
    
    
    $
    494,969
    
    
    $
    36,069
    
    
    
    7.3
    %Costs and expenses:Service costs
    
    
    204,123
    
    
    
    190,202
    
    
    
    13,921
    
    
    
    7.3Selling, general and administrative
expenses
    
    
    104,376
    
    
    
    95,253
    
    
    
    9,123
    
    
    
    9.6Corporate expenses
    
    
    9,848
    
    
    
    7,607
    
    
    
    2,241
    
    
    
    29.5Depreciation and amortization
    
    
    108,195
    
    
    
    161,478
    
    
    
    (53,283
    )
    
    
    (33.0
    )Operating income
    
    
    104,496
    
    
    
    40,429
    
    
    
    64,067
    
    
    
    158.5Interest expense, net
    
    
    (94,567
    )
    
    
    (97,589
    )
    
    
    3,022
    
    
    
    (3.1
    )Gain (loss) on derivatives, net
    
    
    13,716
    
    
    
    (9,716
    )
    
    
    23,432
    
    
    NMGain on sale of assets and investments, net
    
    
    5,885
    
    
    
    675
    
    
    
    5,210
    
    
    NMOther expense
    
    
    (4,813
    )
    
    
    (4,910
    )
    
    
    97
    
    
    
    (2.0
    )Net income (loss) before provision for
income taxes
    
    
    24,717
    
    
    
    (71,111
    )
    
    
    95,828
    
    
    NMProvision for income taxes
    
    
    327
    
    
    
    413
    
    
    
    (86
    )
    
    NMNet income (loss)
    
    $
    24,390
    
    
    $
    (71,524
    )
    
    $
    95,914
    
    
    NMOperating income before depreciation and
amortization
    
    $
    212,691
    
    
    $
    201,907
    
    
    $
    10,784
    
    
    
    5.3
    %
 Revenues The following table sets forth revenue information for the six months
ended June 30, 2004 and 2003 (dollars in millions): Six Months EndedJune 30,2004
    
    2003% of
    
    
    
    
    
    % ofAmount
    
    Revenues
    
    Amount
    
    Revenues
    
    $ Change
    
    % ChangeVideo
    
    $
    433.2
    
    
    
    81.6
    %
    
    $
    423.5
    
    
    
    85.6
    %
    
    $
    9.7
    
    
    
    2.3
    %Data
    
    
    74.7
    
    
    
    14.0
    
    
    
    51.6
    
    
    
    10.4
    
    
    
    23.1
    
    
    
    44.8Advertising
    
    
    23.1
    
    
    
    4.4
    
    
    
    19.9
    
    
    
    4.0
    
    
    
    3.2
    
    
    
    16.1$
    531.0
    
    
    
    100.0
    %
    
    $
    495.0
    
    
    
    100.0
    %
    
    $
    36.0
    
    
    
    7.3
    %
 Revenues rose 7.3%, 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 video subscribers during the period. Video revenues increased 2.3% as a result of the aforementioned basic rate
increases, partially offset by a 4.4% decline in basic subscribers from
1,560,000 to 1,492,000. Digital customers, at 373,000, were down compared to
385,000 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 are increasing our 16




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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 44.8% due primarily to an increase in data customers
from 234,000 to 327,000, as well as an increase in average monthly data revenue
per data subscriber from $40.45 to $41.00. We expect this customer trend in
our data business to continue given anticipated demand for our broadband data
service. Advertising revenues increased 16.1%, primarily as a result of bringing
in-house certain markets previously managed by third parties and to a lesser
extent from increased local advertising sales. 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 7.3% over the prior year. Of this increase, 34.2%
was due to servicing the growth in our data customers, 20.7% was due to
increased programming costs caused by rate increases and channel additions,
offset in part by a reduction in video subscribers and an increase in launch
support received from programmers, 13.2% was due to an increase in employee
costs, 11.3% was due to greater expensing of labor and overhead costs resulting
from the transition from upgrade construction to maintenance activities, and
9.1% was due to an increase in vehicle repair and gas costs. The balance was
from utility and plant maintenance costs. As a percentage of revenues, service
costs were 38.4% for the six months ended June 30, 2004 and June 30, 2003. Selling, general and administrative expenses increased 9.6%. Of this
increase, 22.0% was principally due to an increase in employee costs, 20.2% was
due to higher marketing costs for new programs instituted during the period,
18.8% was due to higher advertising costs primarily as a result of bringing
in-house certain markets previously managed by third parties, 11.1% was due to
increased property taxes and franchise fees, and 10.9% was due to an increase
in telephone costs. As a percentage of revenues, selling, general and
administrative expenses were 19.7% for the six months ended June 30, 2004, as
compared with 19.2% for the six 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, high-definition television 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. Corporate expenses reflect compensation of corporate employees and other
corporate overhead. Corporate expenses increased 29.5% to $9.8 million for the
six months ended June 30, 2004, as compared to $7.6 million for the six months
ended June 30, 2003. This was principally due to increases in employee
compensation, and to a lesser extent, professional fees and insurance premiums.
We believe the annual increase in corporate expenses will moderate as the rate
of change in employee compensation is not expected to repeat going forward. As
a percentage of revenues, corporate expenses were 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 33.0% to $108.2 million for the
six months ended June 30, 2004, as compared to $161.5 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 $64.5 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 1 to our
consolidated financial statements. 17




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##### Table of Contents



Interest Expense, Net Interest expense, net, decreased by 3.1% to $94.6 million for the six
months ended June 30, 2004, as compared to $97.6 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 six 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 $800.0
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 $13.7 million for the six
months ended June 30, 2004, as compared to a net loss on derivatives of $9.7
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 for gross proceeds of about $10.1 million. Other Expense Other expense was $4.8 million and $4.9 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. Net Income (loss) Due to the factors described above, we generated net income of $24.4
million for the six months ended June 30, 2004, as compared to a net loss of
$71.5 million for the six months ended June 30, 2003. Operating Income Before Depreciation and Amortization OIBDA increased 5.3% to $212.7 million due to a 7.3% increase in revenues,
partially offset by a 7.3% increase in service costs and 9.6% increase in
selling, general and administrative expenses. OIBDA, expressed as a percentage
of revenues, was 40.1% for the six months ended June 30, 2004, as compared to
40.8% in 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. 18




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##### Table of Contents



Net
cash flows provided by operating activities amounted to
$112.1 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 $74.3 million, due
principally to capital expenditures of $81.0 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. Net cash flows used in financing activities for the six
months ended June 30, 2004 were $41.4 million and reflected
the repayment of debt. We own our cable systems through two principal subsidiaries, Mediacom
Broadband LLC and Mediacom LLC. The operating subsidiaries of Mediacom
Broadband LLC have a $1.4 billion bank credit facility expiring in September
2010, of which $950.0 million was outstanding as of June 30, 2004. The
operating subsidiaries of Mediacom LLC have two bank credit facilities
aggregating $958.1 million, of which $655.4 million was outstanding as of June
30, 2004. Mediacom LLCs 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 Mediacom LLC does not
refinance its $200.0 million 81/2% senior notes due April 2008 prior to March
31, 2007. We have entered into interest rate exchange agreements with
counterparties, which expire from June 2005 through March 2007, to hedge $800.0
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 73% of the Companys outstanding indebtedness was at
fixed interest rates or subject to interest rate protection. As of June 30, 2004, our total debt was $3.01 billion, we had unused
credit commitments of about $738.4 million under our bank credit facilities,
and our annualized cost of debt capital was approximately 6.5%. On such date,
approximately $657.4 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 its debt
arrangements for all periods through June 30, 2004. As of June 30, 2004, approximately $14.3 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. 19




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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 capitalize a
portion of direct and indirect costs related to the construction, replacement
and installation of property, plant and equipment, including certain costs
related to new video and broadband data subscriber installations. 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. Recent Accounting Pronouncements The FASB issued SFAS No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure, in December 2002, which amends: (i) SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based
method of accounting for stock-based employee compensation; (ii) the disclosure
provisions of SFAS No. 123 to require prominent disclosure about the effects on
reported net income of an entitys accounting policy decisions with respect to
stock-based employee compensation; and (iii) Accounting Principles Board
(APB) Opinion No. 28, Interim Financial Reporting, to require disclosure
about those effects in interim financial information. We adopted SFAS No. 148
on January 1, 2003. We did not change to the fair value based method of
accounting for stock-based employee compensation. Accordingly, the adoption of
SFAS No. 148 did not affect our financial condition or results of operations. 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 our rates. 20




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##### 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 $800.0 million is fixed at
a weighted average rate of approximately 3.3%. 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 2005 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 paid
approximately $2.1 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 7 to our
unaudited consolidated financial statements. Bank Credit
    
    Capital LeaseSenior Notes
    
    Facilities
    
    Obligations
    
    TotalExpected Maturity:July 1, 2004 to June 30, 2005
    
    $
    
    
    
    $
    27,994
    
    
    $
    2,165
    
    
    $
    30,159July 1, 2005 to June 30, 2006
    
    
    
    
    
    
    78,991
    
    
    
    2,233
    
    
    
    81,224July 1, 2006 to June 30, 2007
    
    
    172,500
    (1)
    
    
    230,566
    
    
    
    2,125
    
    
    
    405,191July 1, 2007 to June 30, 2008
    
    
    
    
    
    
    313,674
    
    
    
    207
    
    
    
    313,881July 1, 2008 to June 30, 2009
    
    
    200,000
    
    
    
    283,401
    
    
    
    
    
    
    
    483,401Thereafter
    
    
    1,025,000
    
    
    
    670,750
    
    
    
    
    
    
    
    1,695,750Total
    
    $
    1,397,500
    
    
    $
    1,605,376
    
    
    $
    6,730
    
    
    $
    3,009,606Fair Value
    
    $
    1,404,000
    
    
    $
    1,605,376
    
    
    $
    6,730
    
    
    $
    3,016,106Weighted Average Interest Rate
    
    
    9.1
    %
    
    
    2.9
    %
    
    
    3.1
    %
    
    
    5.8
    %
   (1)
    
    Represents convertible senior notes due July 2006. 21




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES Our management carried out an evaluation, with the participation of our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of
our disclosure controls and procedures as of June 30, 2004. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective to ensure that
information required to be disclosed by us in reports that we file or submit
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 our internal control over financial
reporting in connection with the evaluation required by Rule 13a-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, our internal
control over financial reporting. 22




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##### Table of Contents



PART II 
 ITEM 1. LEGAL PROCEEDINGS See
Note 9 to our consolidated financial statements. 
 ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES During the quarter ended June 30, 2004, we granted stock options to
certain of our employees to purchase an aggregate of 15,000 shares of Class A
Common Stock at an exercise price of $7.94 per share. The grant of stock
options to the employees was not registered under the Securities Act of 1933
because the stock options either did not involve an offer or sale for purposes
of Section 2(a)(3) of the Securities Act of 1933, in reliance on the fact that
the stock options were granted for no consideration, or were offered and sold
in transactions not involving a public offering, exempt from registration under
the Securities Act of 1933 pursuant to Section 4(2). 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On June 17, 2004, we held our annual meeting of stockholders to (i) elect
seven directors to serve for a term of one year, (ii) approve
the Non-Employee Directors Equity Incentive
Plan and (iii) ratify the selection of the Companys independent auditors for
the year ending December 31, 2004. The following individuals were elected to serve as directors for a term of
one year: Vote For
    
    Vote WithheldRocco B. Commisso
    
    
    344,680,055
    
    
    
    29,386,602Craig S. Mitchell
    
    
    372,551,319
    
    
    
    1,515,338William S. Morris III
    
    
    372,072,918
    
    
    
    1,993,739Thomas V. Reifenheiser
    
    
    371,714,905
    
    
    
    2,351,752Natale S. Ricciardi
    
    
    371,716,745
    
    
    
    2,349,912Mark E. Stephan
    
    
    344,083,933
    
    
    
    29,982,724Robert L. Winikoff
    
    
    344,960,362
    
    
    
    29,106,295
 These individuals constituted our entire Board of Directors and served as
our directors immediately preceding the annual meeting. The
stockholders approved the Non-Employee Directors Equity Incentive Plan. The result of the vote
was as follows: 363,145,014 votes were for the approval, 3,502,554 votes were
against the approval and 20,248 votes abstained from the approval. The stockholders ratified the selection of PricewaterhouseCoopers LLP as
our independent auditors for the year ending December 31, 2004. The result of
the vote was as follows: 373,243,410 votes were for the selection, 820,392
votes were against the selection and 2,855 votes abstained from the selection. 23




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##### Table of Contents



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits ExhibitNumber
    
    Exhibit Description31.1
    
    Rule 13a-14(a) Certifications32.1
    
    Section 1350 Certifications
 (b) Reports on Form 8-K: During the quarter ended June 30, 2004, we filed or furnished the
following current report on Form 8-K with the Securities and Exchange
Commission: Current report on Form 8-K, dated May 7, 2004, was furnished on May 7,
2004. The item reported was:  
    
    Item 12  Regulation FD Disclosure, which reported the issuance of
a press release announcing our financial results for the quarter ended
March 31, 2004. 24




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##### Table of Contents



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