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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ______ to ______.
Commission File Numbers:
333-56679
333-56679-02
333-56679-01
333-56679-03
RENAISSANCE MEDIA GROUP LLC*
RENAISSANCE MEDIA (LOUISIANA) LLC*
RENAISSANCE MEDIA (TENNESSEE) LLC*
RENAISSANCE MEDIA CAPITAL CORPORATION*
--------------------------------------
(Exact names of registrants as specified in their charters)
Delaware 14-1803051
Delaware 14-1801165
Delaware 14-1801164
Delaware 14-1803049
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12405 Powerscourt Drive
St. Louis, Missouri 63131
------------------- -----
(Address of principal executive offices) (Zip Code)
(314) 965-0555
--------------
(Registrants' telephone number, including area code)
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 the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date:
All of the limited liability company membership interests of Renaissance
Media (Louisiana) LLC and Renaissance Media (Tennessee) LLC are held by
Renaissance Media Group LLC. All of the issued and outstanding shares of
capital stock of Renaissance Media Capital Corporation are held by
Renaissance Media Group LLC. All of the limited liability company membership
interests of Renaissance Media Group LLC are held by Charter Communications,
LLC (and indirectly by Charter Communications Holdings, LLC, a reporting
company under the Exchange Act). There is no public trading market for any
of the aforementioned limited liability company membership interests or
shares of capital stock.
* Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC, Renaissance
Media (Tennessee) LLC and Renaissance Media Capital Corporation meet the
conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and
are therefore filing this Form with the reduced disclosure format.
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RENAISSANCE MEDIA GROUP LLC
RENAISSANCE MEDIA (LOUISIANA) LLC
RENAISSANCE MEDIA (TENNESSEE) LLC
RENAISSANCE MEDIA CAPITAL CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
TABLE OF CONTENTS
PAGE
-------
Part I. Financial Information
Item 1. Financial Statements - Renaissance Media Group LLC and
Subsidiaries 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
NOTE: Separate financial statements of Renaissance Media Capital Corporation,
Renaissance Media (Louisiana) LLC and Renaissance Media (Tennessee) LLC have not
been presented pursuant to Rule 3-10(b) of Regulation S-X.
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended, regarding, among other things, our
plans, strategies and prospects, both business and financial. Although we
believe that our plans, intentions and expectations reflected in or suggested by
these forward-looking statements are reasonable, we cannot assure you that we
will achieve or realize these plans, intentions or expectations. Forward-looking
statements are inherently subject to risks, uncertainties and assumptions. Many
of the forward-looking statements contained in this Quarterly Report may be
identified by the use of forward-looking words such as "believe," "expect,"
"anticipate," "should," "planned," "will," "may," "intend," "estimated," and
"potential," among others. Important factors that could cause actual results to
differ materially from the forward-looking statements we make in this Quarterly
Report are set forth in this Quarterly Report and in other reports or documents
that we file from time to time with the United States Securities and Exchange
Commission or the SEC, and include, but are not limited to:
o our plans to achieve growth by offering advanced products and
services;
o our anticipated capital expenditures for our upgrades and new
equipment and facilities;
o our ability to fund capital expenditures and any future acquisitions;
o the effects of governmental regulation on our business;
o our ability to compete effectively in a highly competitive and
changing environment;
o our ability to sustain basic customers;
o our ability to obtain programming as needed and at reasonable prices;
o our ability to continue to do business with existing vendors,
particularly high-tech companies that do not have a long operating
history; and
o general business and economic conditions, particularly in light of the
uncertainty stemming from the armed conflict related to the September
11, 2001 terrorist activities in the United States.
All forward-looking statements attributable to us or a person acting on our
behalf are expressly qualified in their entirety by this cautionary statement.
We are under no obligation to update any of the forward-looking statements after
the date of this Quarterly Report to conform these statements to actual results
or to changes in our expectations.
3
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
2002 2001
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Accounts receivable, less allowance for doubtful
accounts of $325 and $468, respectively $ 1,102 $ 1,540
Prepaid expenses and other current assets 60 104
-------- --------
Total current assets 1,162 1,644
-------- --------
INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment, net of accumulated
depreciation of $61,225 and $48,610, respectively 160,163 163,681
Franchises, net of accumulated amortization of $73,853 341,586 341,586
-------- --------
Total investment in cable properties, net 501,749 505,267
-------- --------
OTHER ASSETS 122 244
-------- --------
Total assets $503,033 $507,155
======== ========
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 13,370 $ 15,124
Payables to manager of cable systems - related parties 71,743 74,952
-------- --------
Total current liabilities 85,113 90,076
-------- --------
LONG-TERM DEBT 108,373 103,565
MEMBER'S EQUITY 309,547 313,514
-------- --------
Total liabilities and member's equity $503,033 $507,155
======== ========
See accompanying notes to consolidated financial statements.
4
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED JUNE 30,
---------------------------
2002 2001
------------ -----------
(UNAUDITED)
REVENUES $ 25,357 $ 21,302
-------- --------
OPERATING EXPENSES:
Operating (excluding those items listed below) 8,642 6,278
Selling, general and administrative 4,414 4,050
Depreciation and amortization 10,471 15,934
Corporate expense charges - related parties 366 323
-------- --------
23,893 26,585
-------- --------
Income (loss) from operations 1,464 (5,283)
-------- --------
OTHER EXPENSE:
Interest expense (2,443) (2,205)
Other, net (25) (44)
-------- --------
(2,468) (2,249)
-------- --------
Net loss $ (1,004) $ (7,532)
======== ========
See accompanying notes to consolidated financial statements.
5
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
---------------------
2002 2001
-------- -------
(UNAUDITED)
REVENUES $ 49,047 $ 41,950
-------- --------
OPERATING EXPENSES:
Operating (excluding those items listed below) 16,938 12,688
Selling, general and administrative 9,349 7,829
Depreciation and amortization 21,141 32,352
Corporate expense charges - related parties 706 649
-------- --------
48,134 53,518
-------- --------
Income (loss) from operations 913 (11,568)
-------- --------
OTHER EXPENSE:
Interest expense (4,809) (4,342)
Other, net (70) (76)
-------- --------
(4,879) (4,418)
-------- --------
Net loss $ (3,966) $(15,986)
======== ========
See accompanying notes to consolidated financial statements.
6
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
---------------------
2002 2001
---------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,966) $(15,986)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization 21,141 32,352
Noncash interest expense 4,809 4,342
Changes in operating assets and liabilities:
Accounts receivable 437 (2,776)
Prepaid expenses and other current assets (432) (546)
Accounts payable and accrued expenses (1,754) (16,175)
Payables to related parties (3,209) 22,302
-------- --------
Net cash flows from operating activities 17,026 23,513
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (17,026) (25,322)
-------- --------
Net cash flows from investing activities (17,026) (25,322)
-------- --------
NET CHANGE IN CASH -- (1,809)
CASH, beginning of period -- 1,809
-------- --------
CASH, end of period $ -- $ --
======== ========
See accompanying notes to consolidated financial statements.
7
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
1. Organization and Basis of Presentation
The accompanying consolidated financial statements of Renaissance Media
Group LLC (the "Company") include the accounts of the Company and its
wholly-owned finance subsidiaries, Renaissance Media (Louisiana) LLC
("Renaissance Louisiana"), Renaissance Media (Tennessee) LLC ("Renaissance
Tennessee") and Renaissance Media Capital Corporation ("Capital Corporation").
Renaissance Louisiana, Renaissance Tennessee and Capital Corporation are the
co-issuers of $114.4 million aggregate principal amount at maturity of 10.000%
senior discount notes due 2008 (the "Notes") that were issued in 1998, discussed
in more detail in footnote 4, below, and in footnote 7 to the Company's
financial statements filed on Form 10-K for the year ended December 31, 2001.
The Company has fully and unconditionally guaranteed the Notes. Renaissance
Media LLC ("Media") is owned 76% and 24% by Renaissance Louisiana and
Renaissance Tennessee, respectively, and owns all of the operating assets of the
consolidated group.
The Company is an indirect wholly-owned subsidiary of Charter
Communications Operating, LLC from which the Company receives funding as needed.
As of June 30, 2002 and December 31, 2001, the Company owns and operates cable
systems serving approximately 149,100 and 149,800 customers, respectively. The
Company currently offers a full array of traditional analog cable services and
advanced bandwidth services such as digital cable television, interactive video
programming, Internet access through television-based service, dial-up telephone
modems and high-speed cable modems, and video-on-demand. The Company operates
primarily in the states of Tennessee and Louisiana.
Reclassifications
Certain 2001 amounts have been reclassified to conform with the 2002
presentation.
2. Responsibility for Interim Financial Statements
The accompanying consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and the rules and regulations of
the Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures typically included in the Company's Annual Report on Form
10-K have been condensed or omitted for this Quarterly Report. The accompanying
consolidated financial statements are unaudited. However, in the opinion of
management, such statements include all adjustments, which consist of only
normal recurring adjustments, necessary for a fair presentation of the results
for the periods presented. Interim results are not necessarily indicative of
results for a full year.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. Intangible Assets
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142, among other things, eliminates the amortization of
goodwill and indefinite-lived intangible assets. The Company has sufficiently
upgraded the technological state of its cable systems and now has experience
with the local franchise authorities where it acquired franchises to conclude
that substantially all of its franchises will be renewed indefinitely.
On January 1, 2002, the Company adopted SFAS No. 142. Accordingly,
beginning January 1, 2002, all franchises that qualify for indefinite life
treatment under SFAS No. 142 are no longer being amortized against earnings and
will be tested for impairment annually, or more frequently as warranted by
events or changes in circumstances. During the first quarter of 2002, the
Company had an independent appraisal performed to determine the valuations of
its franchises as of January 1, 2002. Franchises were aggregated into
essentially inseparable reporting units to conduct the valuations. The appraisal
determined that the fair value of each of the Company's
8
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
reporting units exceeded their carrying amount. As a result, no impairment
charge was recorded upon adoption. The carrying amount of franchises as of June
30, 2002 and December 31, 2001 was $341.6 million.
As required by SFAS No. 142, the standard has not been retroactively
applied to the results for the period prior to adoption. A reconciliation of net
loss for the three and six months ended June 30, 2002 and 2001, as if SFAS No.
142 had been adopted as of January 1, 2001, is presented below (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------- ---------
2002 2001 2002 2001
--------- -------- -------- ---------
Net loss:
Reported net loss $ (1,004) $ (7,532) $ (3,966) $(15,986)
Add back: amortization of indefinite-lived franchises -- 6,924 -- 13,848
-------- -------- -------- --------
Adjusted net loss $ (1,004) $ (608) $ (3,966) $ (2,138)
======== ======== ======== ========
4. Long-Term Debt
Long-term debt consists of the following as of the dates presented (in
thousands):
June 30, December 31,
2002 2001
---------- ----------
10% senior discount notes $ 114,413 $ 114,413
Unamortized net discount (6,040) (10,848)
--------- ---------
$ 108,373 $ 103,565
========= =========
In 1998, Renaissance Louisiana, Renaissance Tennessee and Capital
Corporation issued $163.2 million principal amount at maturity of 10.000% senior
discount notes due April 15, 2008 (the "Notes") for proceeds of $100.0 million.
The Notes pay no cash interest until April 15, 2003. From and after April 15,
2003, the Notes bear interest, payable semi-annually in cash, at a rate of 10%
per annum on April 15 and October 15 of each year, commencing October 15, 2003.
The Company has fully and unconditionally guaranteed the Notes.
The fair market value of the Notes was $94.4 million and $89.2 million
as of June 30, 2002 and December 31, 2001, respectively. The fair value of the
Notes is based on quoted market prices.
There are no significant restrictions on the ability of the Company to
obtain funds from its subsidiaries through dividends or loans, provided that the
Company remains a guarantor under the indenture (the "Indenture") pursuant to
which the Notes were issued and that any loans are evidenced by promissory
notes. Additionally, there are no significant restrictions on the ability of
Renaissance Louisiana and Renaissance Tennessee to obtain funds from Media
through dividends or loans provided that Renaissance Media remains a restricted
subsidiary under the Indenture.
5. Contingencies
The Company is party to lawsuits and claims that arose in the ordinary
course of conducting its business. In the opinion of management, after
consulting with legal counsel, and taking into account recorded liabilities, the
outcome of these lawsuits and claims will not have a material adverse effect on
the Company's consolidated financial position or results of operations.
6. Recently Issued Accounting Standards
In June 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS 146 requires that a
9
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
liability for costs associated with an exit or disposal activity be recognized
when the liability is incurred rather than when a company commits to such an
activity and also establishes fair value as the objective for initial
measurement of the liability. The Company will adopt SFAS No. 146 for exit or
disposal activities that are initiated after December 31, 2002. Adoption will
not have a material impact on the consolidated financial statements of the
Company.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following table summarizes amounts and the percentage of total
revenues for certain items for the periods indicated (dollars in thousands):
SIX MONTHS ENDED JUNE 30,
--------------------------------------------
2002 2001
------------------- ----------------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
-------- -------- -------- --------
Revenues $ 49,047 100.0% $ 41,950 100.0%
-------- ----- -------- -----
Operating expenses:
Operating (excluding those items listed below) 16,938 34.5% 12,688 30.2%
Selling, general and administrative 9,349 19.1% 7,829 18.7%
Depreciation and amortization 21,141 43.1% 32,352 77.1%
Corporate expense charges - related parties 706 1.4% 649 1.5%
-------- ----- -------- -----
48,134 98.1% 53,518 127.5%
-------- ----- -------- -----
Income (loss) from operations 913 1.9% (11,568) (27.5)%
Other expense:
Interest expense (4,809) (9.8)% (4,342) (10.4)%
Other, net (70) (0.1)% (76) (0.2)%
-------- ----- -------- -----
(4,879) (9.9)% (4,418) (10.6)%
-------- ----- -------- -----
Net loss $ (3,966) (8.0)% $(15,986) (38.1)%
======== ===== ======== =====
Other financial and operational data for the periods indicated follows
(dollars in thousands, except average monthly revenue per basic customer):
SIX MONTHS ENDED JUNE 30,
-------------------------
2002 2001
--------- ------------
EBITDA (a) $ 21,984 $ 20,708
Cash flows from operating activities 17,026 23,513
Cash flows from investing activities (17,026) (25,322)
Homes passed (at period end) (b) 212,700 211,300
Basic customers (at period end) (c) 149,100 147,700
Basic penetration (at period end) (d) 70.1% 69.9%
Digital customers (at period end) (e) 51,800 45,100
Digital penetration of basic customers (at period end) (f) 34.7% 30.5%
Cable modem customers (at period end) (g) 15,200 3,400
Average monthly revenue per basic customer (quarter) (h) $ 56.69 $ 48.07
(a) EBITDA represents earnings (loss) before interest and depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a cable company's ability to service indebtedness. However,
EBITDA should not be considered as an alternative to income (loss) from
operations or to cash flows from operating, investing or financing
activities, as determined in accordance with accounting principles
generally accepted in the United States. EBITDA should also not be
construed as an indication of a company's operating performance or as a
measure of liquidity. In addition, because EBITDA is not calculated
identically by all companies, the presentation here may not be comparable
to other similarly titled measures of other companies. Management's
discretionary use of funds depicted by EBITDA may be limited by working
capital, debt service and capital expenditure requirements and by
restrictions related to legal requirements, commitments and uncertainties.
11
(b) Homes passed are the number of living units, such as single residence
homes, apartments and condominium units, passed by the cable television
distribution network in a given cable system service area to which we offer
the service indicated.
(c) As of June 30, 2002 and 2001, basic customers include: 1) approximately 100
and 200 customers (0.1% of total customers), respectively, who pay an
additional $10 per month over the standard modem retail rate and are
entitled to receive "lifeline basic" service as a result of their purchase
of cable modem service and 2) approximately 2,800 commercial customers who
are calculated on an equivalent bulk unit ("EBU") basis. EBU is calculated
by dividing the bulk rate charged to respective accounts by the most
prevalent rate charged in each system for the comparable tier of service to
determine the equivalent customers. The EBU method of calculating basic
customers is consistent with the methodology used in determining costs paid
to programmers and has been consistently applied year over year.
(d) Penetration represents the number of customers as a percentage of homes
passed.
(e) Digital customers include all households that have one or more digital
converter boxes. Included in digital customers at June 30, 2002 and 2001
are 600 and 0, respectively, customers that receive digital service
directly through satellite transmission.
(f) Penetration of basic customers represents the number of digital customers
as a percentage of basic customers.
(g) As of June 30, 2002 and 2001, cable modem customers include approximately
500 and 100, respectively, commercial customers who are calculated on an
equivalent modem unit ("EMU") basis. EMU is calculated by dividing
commercial revenue by the average effective rate charged in each system for
modem services to determine the equivalent customers. We have utilized this
methodology since 1999, as it conforms to the internal practices followed
for operating and capital expenditure budgeting.
(h) Average monthly revenue per basic customer represents revenues divided by
the number of months in the period divided by the number of basic customers
at period end.
COMPARISON OF RESULTS
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Revenues. Revenues increased $7.0 million, or 16.7%, to $49.0 million for the
six months ended June 30, 2002 from $42.0 million for the six months ended June
30, 2001. Revenues by service offering are as follows (dollars in millions):
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------------------
2002 2001 2002 OVER 2001
----------------------------- ----------------------------- --------------------------
AMOUNT % OF REVENUES AMOUNT % OF REVENUES CHANGE % CHANGE
----------- -------------- ----------- -------------- ----------- -----------
Analog video $ 34.7 70.8% $ 31.7 75.5% $ 3.0 9.5%
Digital video 5.2 10.6% 4.3 10.2% 0.9 20.9%
Cable modem 2.3 4.7% 0.4 1.0% 1.9 475.0%
Advertising sales 2.9 5.9% 2.2 5.2% 0.7 31.8%
Other 3.9 8.0% 3.4 8.1% 0.5 14.7%
----------- -------------- ----------- -------------- -----------
$ 49.0 100.0% $ 42.0 100.0% $ 7.0 16.7%
=========== ============== =========== ============== ===========
Analog video revenues consist primarily of revenues from basic and
premium services. Analog video revenues increased $3.0 million as a result of
basic customers increasing by 1,400, or 0.9%, to 149,100 at June 30, 2002
compared to 147,700 at June 30, 2001 coupled with general rate increases in
basic service.
Digital video revenues consist primarily of revenues related to the
provision of digital video service. Digital video revenues increased $0.9
million as a result of digital customers increasing by 6,700, or 14.9%, to
12
51,800 at June 30, 2002 compared to 45,100 at June 30, 2001 coupled with general
rate increases in digital service. Increased marketing efforts and strong demand
for this service have also contributed to the increase.
Cable modem revenues consist primarily of revenues related to the
provision of high-speed Internet service. Cable modem revenues increased $1.9
million as a result of cable modem customers increasing by 11,800, or 347.1%, to
15,200 at June 30, 2002 compared to 3,400 at June 30, 2001. The increase was due
to internal growth as our system upgrades and expansion continue to increase our
ability to offer high-speed Internet service to a larger customer base. Internal
growth in cable modem services was the result of strong marketing efforts
coupled with increased demand for such services.
Advertising sales revenues consist primarily of revenues from
traditional advertising services as well as advertising related to launch
revenues from programming agreements. Advertising sales increased $0.7 million,
or 31.8%, from $2.2 million for the six months ended June 30, 2001 to $2.9
million for the six months ended June 30, 2002. The increase was primarily due
to increased advertising capacity as a result of increased channel lineup and
improved market conditions.
Other revenues consist primarily of revenues from franchise fees,
customer installations, home shopping, dial-up Internet service and other
miscellaneous revenues. Other revenues increased $0.5 million, or 14.7%, from
$3.4 million for the six months ended June 30, 2001 to $3.9 million for the six
months ended June 30, 2002. The increase was primarily due to an increase in
miscellaneous revenues, coupled with increases in the other aforementioned
revenues.
Operating Expenses. Operating expenses increased by $4.2 million, or
33.1%, from $12.7 million for the six months ended June 30, 2001 to $16.9
million for the six months ended June 30, 2002. Key components of operating
expenses as a percentage of revenues are as follows (dollars in millions):
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------------------
2002 2001 2002 OVER 2001
----------------------------- ----------------------------- --------------------------
AMOUNT % OF REVENUES AMOUNT % OF REVENUES CHANGE % CHANGE
----------- -------------- ----------- -------------- ----------- -----------
Analog video programming $ 10.9 22.3% $ 9.6 22.8% $ 1.3 13.5%
Digital video 1.7 3.5% 1.0 2.4% 0.7 70.0%
Cable modem 1.1 2.2% 0.2 0.5% 0.9 450.0%
Advertising sales 1.1 2.2% - - % 1.1 - %
Service costs 2.1 4.3% 1.9 4.5% 0.2 10.5%
----------- -------------- ----------- -------------- -----------
$ 16.9 34.5% $ 12.7 30.2% $ 4.2 33.1%
=========== ============== =========== ============== ===========
Analog video programming costs consist primarily of costs paid to
programmers for the provision of basic and premium channels as well as
pay-per-view programs and channel guides. The increase in analog video
programming of $1.3 million, or 13.5%, was primarily due to inflationary or
negotiated price increases, particularly in sports programming, and increased
channel lineup. The increase of $0.7 million, or 70.0%, in direct operating
costs to provide digital video services was primarily due to internal growth of
these advanced services and increased programming costs. The increase of $0.9
million, or 450.0%, in direct operating costs to provide cable modem services
was primarily due to internal growth. Advertising sales expenses increased $1.1
million from $0 for the six months ended June 30, 2001 to $1.1 million for the
six months ended June 30, 2002 as we previously outsourced our advertising
services to a third-party provider and recognized only the net revenue on such
services. The increase in service costs of $0.2 million, or 10.5%, resulted
primarily from overall continued internal growth.
13
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.5 million, or 19.2%, from $7.8 million
for the six months ended June 30, 2001 to $9.3 million for the six months ended
June 30, 2002. Key components of operating expenses as a percentage of revenues
are as follows (dollars in millions):
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------------------
2002 2001 2002 OVER 2001
----------------------------- ---------------------------- --------------------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES CHANGE % CHANGE
----------- -------------- ----------- ------------- ----------- -----------
General and
administrative $ 8.6 17.6% $ 7.3 17.5% $ 1.3 17.8%
Marketing 0.7 1.5% 0.5 1.2% 0.2 40.0%
----------- -------------- ----------- ------------- -----------
$ 9.3 19.1% $ 7.8 18.7% $ 1.5 19.2%
=========== ============== =========== ============= ===========
General and administrative expenses consist primarily of salaries and
benefits, franchise fees, rent expense, billing costs, bad debt expense and
property taxes. The increase in general and administrative expenses of $1.3
million, or 17.8%, resulted primarily from overall continued internal growth.
Marketing expenses increased $0.2 million, or 40.0%, related to an increased
level of promotions of our service offerings.
Depreciation and Amortization Expense. Depreciation and amortization
expense decreased $11.3 million, or 34.9%, to $21.1 million for the six months
ended June 30, 2002 from $32.4 million for the six months ended June 30, 2001.
This decrease was due primarily to the adoption of Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets,"
which requires that franchise intangible assets that meet the indefinite life
criteria of SFAS No. 142 no longer be amortized against earnings but instead be
tested for impairment on an annual basis. Upon adoption we did not incur an
impairment charge and eliminated the amortization of indefinite-lived assets.
Amortization of such assets totaled $13.8 million for the six months ended June
30, 2001. This decrease was partially offset by the increase in depreciation
expense related to additional capital expenditures in 2002 and 2001.
Corporate Expense Charges - Related Parties. Corporate expense charges
for the six months ended June 30, 2002 and 2001 represent costs incurred on our
behalf by our affiliates, Charter Communication Holding Company, LLC and Charter
Communications, Inc., and increased $0.1 million, or 16.7%, to $0.7 million for
the six months ended June 30, 2002, from $0.6 million for the six months ended
June 30, 2001. The increase was due primarily the result of hiring additional
employees during the six months ended June 30, 2002 as compared with the six
months ended June 30, 2001.
Interest Expense. Interest expense increased $0.5 million, or 11.6%, to
$4.8 million for the six months ended June 30, 2002 from $4.3 million for the
six months ended June 30, 2001. This increase is due to an increase in average
outstanding debt during the six months ended June 30, 2002 due to the accrual of
noncash interest expense.
Net Loss. Net loss decreased by $12.0 million, or 75.0%, to $4.0
million for the six months ended June 30, 2002 from $16.0 million for the six
months ended June 30, 2001 as a result of the combination of the factors
discussed above.
CERTAIN TRENDS AND UNCERTAINTIES
Regulation and Legislation. Cable systems are extensively regulated at
the federal, state, and local level, including rate regulation of basic service
and equipment and municipal approval of franchise agreements and their terms,
such as franchise requirements to upgrade cable plant and meet specified
customer service standards. Cable operators also face significant regulation of
their channel carriage. They currently can be required to devote substantial
capacity to the carriage of programming that they would not carry voluntarily,
including certain local broadcast signals, local public, educational and
government access programming, and unaffiliated commercial leased access
programming. This carriage burden could increase in the future, particularly if
the Federal Communications Commission were to require cable systems to carry
both the analog and digital versions of local broadcast signals. The Federal
Communications Commission is currently conducting a proceeding in which it is
considering this channel usage possibility, although it recently issued a
tentative decision against such dual carriage.
14
There is also uncertainty whether local franchising authorities, state
regulators, the Federal Communications Commission, or the U.S. Congress will
impose obligations on cable operators to provide unaffiliated Internet service
providers with access to cable plant on non-discriminatory terms. If they were
to do so, and the obligations were found to be lawful, it could complicate our
operations in general, and our Internet operations in particular, from a
technical and marketing standpoint. These access obligations could adversely
impact our profitability and discourage system upgrades and the introduction of
new products and services. Multiple federal courts have now struck down
open-access requirements imposed by several different franchising authorities as
unlawful. In March 2002, the Federal Communications Commission adopted a policy
of regulatory forbearance concerning cable's provision of high-speed Internet
service, and it officially classified such service in a manner that makes open
access requirements unlikely. At the same time, the Federal Communications
Commission initiated a rulemaking proceeding that leaves open the possibility
that the Commission may assert regulatory control in the future. As we offer
other advanced services over our cable system, we are likely to face additional
calls for regulation of our capacity and operation. These regulations, if
adopted, could adversely affect our operations.
Management of Growth. We, along with our affiliated companies, have
experienced rapid growth that has placed and is expected to continue to place a
significant strain on our management, operations and other resources. Our future
success will depend in part on our ability to successfully integrate the
operations acquired. The failure to implement management, operating or financial
systems necessary to successfully integrate acquired operations or otherwise
manage growth when and as needed could have a material adverse effect on our
business, results of operations and financial condition.
We continue to evaluate opportunities to swap or divest non-strategic
cable systems. Our primary criterion in considering these opportunities is the
potential financial and debt-reduction benefits we expect to ultimately realize
as a result of a divestiture or swap. We also continue to explore acquisition
opportunities to enhance our operations in existing markets. We consider each
transaction in the context of our overall existing and planned operations.
New Services and Products. We expect that a substantial portion of our
future growth will be achieved through revenues from new products and services.
We may not be able to offer these new products and services successfully to our
customers and these new products and services may not generate adequate
revenues. If we are unable to grow our cash flow sufficiently, we may be unable
to fulfill our obligations or obtain alternative financing. Further, due to
declining market conditions and slowing economic trends during the last year,
both before and after the terrorist attacks on September 11, 2001, we cannot
assure you that we will be able to achieve our planned levels of growth as these
conditions and events may negatively affect the demand for our additional
services and products and spending by customers and advertisers.
Economic Slowdown; Terrorism; And Armed Conflict. Although we do not
believe that the armed conflict following the terrorist attacks on September 11,
2001 and related events have resulted in any material changes to our business
and operations to date, it is difficult to assess the impact that these events,
combined with the general economic slowdown, will have on future operations.
These events, combined with the general economic slowdown, could result in
reduced spending by customers and advertisers, which could reduce our revenues
and operating cash flow. Additionally, an economic slowdown could affect our
ability to collect accounts receivable. If we experience reduced operating
revenues, it could negatively affect our ability to make expected capital
expenditures and could also result in our inability to meet our obligations
under our financing agreements. These developments could also have a negative
impact on our financing agreements through disruptions in the market or negative
market conditions. Terrorist attacks could interrupt or disrupt our ability to
deliver our services (or the services provided to us by programmers) and could
cause unforeseen damage to our physical facilities. Armed conflict, terrorism
and the related events may have other adverse effects on us, in ways that cannot
be presently predicted.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS 146 requires that a
liability for costs associated with an exit or disposal activity be recognized
when the liability is incurred rather than when a company commits to such an
activity and also establishes fair value as the objective for initial
measurement of the liability. We will adopt SFAS No. 146 for exit or disposal
activities that are initiated after December 31, 2002. Adoption will not have a
material impact on our consolidated financial statements.
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PART II. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
Exhibit
Number Description of Document
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Executive Officer). *
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Financial Officer). *
* filed herewith
(B) REPORTS ON FORM 8-K
On April 22, 2002, the registrant filed a current report on Form 8-K
dated April 22, 2002 to report that the registrant had changed its principal
independent accountants.
On April 26, 2002, the registrant filed a current report on Form 8-K/A
dated April 22, 2002 as an amendment to the Form 8-K dated and filed on April
22, 2002 regarding a change in its principal independent accountants.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrants have duly caused this Quarterly Report to be signed on
their behalf by the undersigned, thereunto duly authorized.
RENAISSANCE MEDIA GROUP LLC
RENAISSANCE MEDIA (LOUISIANA) LLC
RENAISSANCE MEDIA (TENNESSEE) LLC
Dated: August 9, 2002 By: CHARTER COMMUNICATIONS, INC.,
------------------------------
Registrants' Manager
By: /s/ Kent D. Kalkwarf
---------------------
Name: Kent D. Kalkwarf
Title: Executive Vice President and Chief Financial Officer
(Principal Financial Officer) of Charter Communications, Inc.
(Manager); Renaissance Media Group LLC, Renaissance Media
(Louisiana) LLC; and Renaissance Media (Tennessee) LLC
By: /s/ Paul E. Martin
-------------------
Name: Paul E. Martin
Title: Senior Vice President and Corporate Controller
(Principal Accounting Officer) of Charter Communications, Inc.
(Manager); Renaissance Media Group LLC; Renaissance Media
(Louisiana) LLC; and Renaissance Media (Tennessee) LLC
Dated: August 9, 2002 RENAISSANCE MEDIA CAPITAL CORPORATION
By: /s/ Kent D. Kalkwarf
---------------------
Name: Kent D. Kalkwarf
Title: Executive Vice President and Chief Financial Officer
(Principal Financial Officer) of Charter Communications, Inc.
(Manager); Renaissance Media Group LLC, Renaissance Media
(Louisiana) LLC; and Renaissance Media (Tennessee) LLC
By: /s/ Paul E. Martin
-------------------
Name: Paul E. Martin
Title: Senior Vice President and Corporate Controller
(Principal Accounting Officer) of Charter Communications, Inc.
(Manager); Renaissance Media Group LLC; Renaissance Media
(Louisiana) LLC; and Renaissance Media (Tennessee) LLC
17
EXHIBIT INDEX
Exhibit
Number Description of Document
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Executive Officer). *
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Financial Officer). *
* filed herewith
18