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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
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*
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(Exact names of registrants as specified in their charters)
DELAWARE 14-1803051
DELAWARE 14-1801165
DELAWARE 14-1801164
DELAWARE 14-1803049
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
12405 POWERSCOURT DRIVE
ST. LOUIS, MISSOURI 63131
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(Address of principal executive offices) (Zip Code)
(314) 965-0555
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(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 by check mark whether the registrants are accelerated filers (as
defined in Rule 12b-2 of the Exchange Act). Yes | | No |X|
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 MARCH 31, 2003
TABLE OF CONTENTS
PAGE
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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 13
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 25
Item 4. Controls and Procedures 25
Part II. Other Information
Item 1. Legal Proceedings 26
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 28
Certifications 29
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, including, without
limitation, the forward-looking statements set forth in the "Liquidity and
Capital Resources" section under Part I, Item 2 ("Management's Discussion and
Analysis of Financial Condition and Results of Operations") in this Quarterly
Report. 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, including, without limitation, the factors
described under "Certain Trends and Uncertainties" under Part I, Item 2
("Management's Discussion and Analysis of Financial Condition and Results of
Operations") in this Quarterly Report. 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:
- our ability to sustain and grow revenues and cash flows from operating
activities by offering video and data services and to maintain a
stable customer base, particularly in the face of increasingly
aggressive competition from other service providers;
- our ability to comply with all covenants in our indenture, any
violation of which would result in a violation of the indenture and
could trigger a default of other obligations under cross default
provisions;
- availability of funds to meet interest payment obligations under our
debt and to fund our operations and necessary capital expenditures,
either through cash from operations, further borrowings or other
sources;
- any adverse consequences arising out of the recent restatement of our
financial statements;
- the results of the pending grand jury investigation by the United
States Attorney's Office for the Eastern District of Missouri, the
pending SEC investigation and the putative class action and derivative
shareholders litigation against Charter Communications, Inc., our
indirect parent;
- the cost and availability of funding to refinance our existing debt as
it becomes due;
- our ability to achieve free cash flow;
- our ability to obtain programming at reasonable prices;
- general business conditions, economic uncertainty or slowdown and
potential international conflict;
- the impact of any armed conflict, including loss of customers in areas
with large numbers of military personnel; and
- the effects of governmental regulation on our business.
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)
MARCH 31, DECEMBER 31,
2003 2002*
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(UNAUDITED)
ASSETS
CURRENT ASSETS:
Accounts receivable, less allowance for doubtful accounts of $197
and $278, respectively $ 1,097 $ 2,421
Prepaid expenses and other current assets 306 131
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Total current assets 1,403 2,552
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INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment, net of accumulated depreciation of
$64,955 and $57,141, respectively 169,308 175,397
Franchises, net of accumulated amortization of $74,801 and $74,797,
respectively 251,342 251,270
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Total investment in cable properties, net 420,650 426,667
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OTHER ASSETS 14 60
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Total assets $ 422,067 $ 429,279
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LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 15,447 $ 19,791
Payables to manager of cable systems - related parties 61,713 67,255
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Total current liabilities 77,160 87,046
LONG-TERM DEBT 116,112 113,492
MEMBER'S EQUITY 228,795 228,741
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Total liabilities and member's equity $ 422,067 $ 429,279
============ ============
* Agrees with the audited consolidated balance sheet included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
See accompanying notes to consolidated financial statements.
4
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------------
2003 2002
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(RESTATED)
REVENUES $ 26,284 $ 23,591
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COSTS AND EXPENSES:
Operating (excluding depreciation and
amortization and other items listed below) 10,575 9,064
Selling, general and administrative 4,639 4,737
Depreciation and amortization 8,168 4,586
Special charges 199 --
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23,581 18,387
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Income from operations 2,703 5,204
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OTHER EXPENSE:
Interest expense (2,620) (2,366)
Other, net (29) (45)
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(2,649) (2,411)
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Net income $ 54 $ 2,793
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See accompanying notes to consolidated financial statements.
5
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------------
2003 2002
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(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 54 $ 2,793
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization 8,168 4,586
Noncash interest expense 2,620 2,366
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable 1,324 830
Prepaid expenses and other assets (180) (230)
Accounts payable and accrued expenses (1,664) (444)
Payables to related party (5,832) (770)
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Net cash flows from operating activities 4,490 9,131
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,693) (7,563)
Change in accounts payable and accrued expenses related to capital expenditures (2,721) (1,568)
Other, net (76) --
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Net cash flows from investing activities (4,490) (9,131)
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NET CHANGE IN CASH -- --
CASH, beginning of period -- --
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CASH, end of period $ -- $ --
========== ==========
See accompanying notes to consolidated financial statements.
6
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED)
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 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 ("Charter Operating") from which the Company receives funding as
needed. As of March 31, 2003, the Company owns and operates cable systems
serving approximately 145,700 customers. The Company currently provides a full
range of video, data, telephony and other advanced broadband services. The
Company also provides commercial high-speed data, video, telephony and Internet
services as well as advertising sales and production services. The Company
operates primarily in the states of Tennessee and Louisiana.
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. Significant judgments and estimates include capitalization of
labor and overhead costs, depreciation and amortization costs, impairments of
property, plant and equipment and franchises and other contingencies. Actual
results could differ from those estimates.
Reclassifications
Certain 2002 amounts have been reclassified to conform with the 2003
presentation.
3. LIQUIDITY AND CAPITAL RESOURCES
The Company has historically required significant cash to fund capital
expenditures and ongoing operations. The Company's long-term financing structure
as of March 31, 2003 includes $116 million of high-yield debt. None of this
financing matures during 2003. The Company's net cash flows from operating
activities were $4 million and $9 million for the three months ended March 31,
2003 and 2002, respectively. The Company's ongoing operations will depend on its
ability to generate cash and to secure financing in the future. The Company has
historically funded liquidity and capital requirements through cash flows from
operating activities and capital contributions from Charter Communications, Inc.
(Charter), Charter Communications Holdings, LLC (Charter Holdings) and Charter
Operating. The Company believes, however, that at this time Charter and Charter
Holdings have limited access to the debt and equity markets in light of general
economic conditions, their substantial leverage, the business condition of the
cable, telecommunications and technology industry, the current credit rating of
Charter, Charter Holdings and Charter Operating and recent downgrades of
Charter's and Charter Holdings' outstanding debt and liquidity ratings, and
pending litigation and investigations. The Company expects to remain in
compliance with the covenants under its indenture, and that cash flow from
operations will be sufficient to satisfy its liquidity needs until maturity of
the public notes. The Company expects that it will be reliant on capital
contributions from its parent companies to repay the principal amount of its
public notes at maturity.
7
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED)
However, there can be no assurance that its parent companies will have
sufficient liquidity to satisfy this payment when due. In addition, a default
under the covenants governing any of its debt instruments could result in the
acceleration of the Company's payment obligations under its debt and, under
certain circumstances, in cross-defaults under its affiliates' debt obligations,
which could adversely affect its parent companies' ability to provide the
Company with funding.
If the Company's business does not generate sufficient cash flows from operating
activities, and sufficient future distributions are not available to the Company
from other sources of financing, it may not be able to repay its debt, grow its
business, respond to competitive challenges, or to fund its other liquidity and
capital needs. As a means of enhancing the Company's liquidity, the Company is
currently attempting to cut costs, reduce capital expenditures and exploring
sales of assets.
4. RESTATEMENT OF CONSOLIDATED FINANCIAL RESULTS
As discussed in the Company's 2002 Form 10-K, the Company identified a series of
adjustments that have resulted in the restatement of previously announced
quarterly results for the first three quarters of fiscal 2002. In summary, the
adjustments are grouped into the following categories: (i) launch incentives
from programmers; (ii) customer incentives and inducements; (iii) capitalized
labor and overhead costs; (iv) customer acquisition costs; (v) rebuild and
upgrade of cable systems; and (vi) other adjustments. These adjustments have
been reflected in the accompanying consolidated financial statements and reduced
revenues for the three months ended March 31, 2002 by $99. The Company's
consolidated net income increased by $6 million for the three months ended March
31, 2002. In addition, as a result of certain of these adjustments, the
Company's statement of cash flows for the three months ended March 31, 2002 has
been restated. Cash flows from operating activities for the three months ended
March 31, 2002 increased by $2 million. The more significant categories of
adjustments relate to the following as outlined below.
Launch Incentives from Programmers. Amounts previously recognized as advertising
revenue in connection with the launch of new programming channels have been
deferred and recorded in other long-term liabilities in the year such launch
support was provided, and amortized as a reduction of programming costs based
upon the relevant contract term. These adjustments decreased revenue by $41 for
the three months ended March 31, 2002. The corresponding amortization of such
deferred amounts reduced programming expenses by $307 for the three months ended
March 31, 2002.
Customer Incentives and Inducements. Marketing inducements paid to encourage
potential customers to switch from satellite providers to Charter branded
services and enter into multi-period service agreements were previously deferred
and recorded as property, plant and equipment and recognized as depreciation and
amortization expense over the life of customer contracts. These amounts have
been restated as a reduction of revenues of $59 for the three months ended March
31, 2002. Substantially all of these amounts are offset by reduced depreciation
and amortization expense.
Capitalized Labor and Overhead Costs. Certain elements of labor costs and
related overhead allocations previously capitalized as property, plant and
equipment as part of the Company's rebuild activities, customer installations
and new service introductions have been expensed in the period incurred. Such
adjustments increased operating expenses by $78 for the three months ended March
31, 2002.
Customer Acquisition Costs. Certain customer acquisition campaigns were
conducted through third-party contractors in portions of 2002. The costs of
these campaigns were originally deferred and recorded as other assets and
recognized as amortization expense over the average customer contract life.
These amounts have been reported as marketing expense in the period incurred and
totaled $212 for the three months ended March 31, 2002. The Company discontinued
this program in the third quarter of 2002 as contracts for third-party vendors
expired. Substantially all of these amounts are offset by reduced depreciation
and amortization expense.
Rebuild and Upgrade of Cable Systems. In 2000, Charter initiated a three-year
program to replace and upgrade a substantial portion of its network, which
included a substantial portion of the Company's network. In
8
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED)
connection with this plan, the Company assessed the carrying value of, and the
associated depreciable lives of, various assets to be replaced. It was
determined that a portion of cable distribution system assets, originally
treated as subject to replacement, were not part of the original replacement
plan but were to be upgraded and have remained in service. The Company also
determined that certain assets subject to replacement during the upgrade program
were misstated in the allocation of the purchase price of the acquisition. This
adjustment reduced property, plant and equipment and increased franchise assets
by $8 million. In addition, the depreciation period for the assets subject to
replacement was adjusted to more closely align with the intended service period
of these assets rather than the three-year straight-line life originally
assigned. As a result, adjustments were recorded to reduce depreciation expense
by $2 million for the three months ended March 31, 2002.
Other Adjustments. In addition to the items described above, other adjustments
of expenses include certain tax reclassifications from tax expense to operating
costs and other miscellaneous adjustments. The net impact of these adjustments
to net income is a decrease of $244 for the three months ended March 31, 2002.
The following tables summarize the effects of the adjustments on the
consolidated statements of operations and cash flows for the three-month period
ended March 31, 2002.
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
MARCH 31, 2002
-------------------------------
AS PREVIOUSLY
REPORTED RESTATED
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Revenue $23,690 $23,591
Income (loss) from operations (551) 5,204
Net income (loss) (2,962) 2,793
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31, 2002
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AS PREVIOUSLY
REPORTED RESTATED
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Net cash flows from operating activities $ 7,113 $ 9,131
Net cash flows from investing activities (7,113) (9,131)
5. FRANCHISES
On January 1, 2002, the Company adopted SFAS No. 142, which eliminates the
amortization of indefinite lived intangible assets. Accordingly, beginning
January 1, 2002, all franchises that qualify for indefinite life treatment under
SFAS No. 142 are no longer amortized against earnings but instead 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
appraiser perform valuations of its franchises as of January 1, 2002. Franchises
were aggregated into two essentially inseparable asset groups to conduct the
valuations. Fair value was determined based on estimated discounted future cash
flows using reasonable and appropriate assumptions that are consistent with
internal forecasts. The appraiser assessed that the fair value of each of the
Company's asset groups exceeded their carrying amount. As a result, no
impairment charge was recorded upon adoption.
In determining whether its franchises have an indefinite life, the Company
considered the exclusivity of the franchise, its expected costs of franchise
renewals, and the technological state of the associated cable systems with a
view to whether or not the Company is in compliance with any technology
upgrading requirements. Based on the Company's assessment, all franchises
qualified for indefinite-life treatment.
9
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED)
Franchise amortization expense for each of the three months ended March 31, 2003
and 2002 was $4 and $0, respectively, which represents the amortization relating
to franchise renewals. For each of the next five years, amortization expense
relating to these franchises is expected to be approximately $20.
6. LONG-TERM DEBT
Long-term debt consists of the following as of the dates presented:
MARCH 31, DECEMBER 31,
2003 2002
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10% senior discount notes $ 114,413 $ 114,413
Unamortized net premium (discount) 1,699 (921)
------------ ------------
$ 116,112 $ 113,492
============ ============
In 1998, Renaissance Louisiana, Renaissance Tennessee and Capital Corporation
issued $163 million principal amount at maturity of 10.000% senior discount
notes due April 15, 2008 (the "Notes") for proceeds of $100 million.
Approximately $49 million of such notes were repurchased in May 1999. The Notes
do not accrue 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 $101 million and $93 million as of March
31, 2003 and December 31, 2002, respectively. The fair value of the Notes is
based on quoted market prices.
For additional information regarding the Notes, refer to Note 9 of the
consolidated financial statements included in the Company's 2002 Annual Report
on Form 10-K.
7. COMPREHENSIVE LOSS
Comprehensive loss is equal to net loss for the three months ended March 31,
2003 and 2002.
8. SPECIAL CHARGES
Special charges of $0.2 million for the three months ended March 31, 2003
represent severance and related costs of our ongoing initiative to reduce our
workforce. We expect to continue to record additional special charges in 2003
related to the reorganization of our operations.
9. INCOME TAXES
The Company is a single member limited liability company not subject to income
tax. The Company holds all operations through indirect subsidiaries. The
majority of these indirect subsidiaries are limited liability companies that are
also not subject to income tax. A certain indirect subsidiary is a corporation
that is subject to income tax, but has no operations and has not generated any
taxable income since inception. Any taxable income that would be generated by
the Company would be the responsibility of the Company's equity owner. As such,
the Company has not provided for income taxes in the accompanying consolidated
financial statements.
10. CONTINGENCIES
Fourteen putative federal class action lawsuits (the "Federal Class Actions")
have been filed against Charter and certain of Charter's former and present
officers and directors in various jurisdictions allegedly on behalf of all
purchasers of Charter's securities during the period from either November 8 or
November 9, 1999 through July 17 or July 18, 2002. Unspecified damages are
sought by the plaintiffs. In general, the lawsuits allege that Charter utilized
misleading accounting practices and failed to disclose these accounting
practices and/or issued false and misleading financial statements and press
releases concerning Charter's operations and prospects.
10
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED)
In October 2002, Charter filed a motion with the Judicial Panel on Multidistrict
Litigation (the "Panel") to transfer the Federal Class Actions to the Eastern
District of Missouri. On March 12, 2003, the Panel transferred the six Federal
Class Actions not filed in the Eastern District of Missouri to that district for
coordinated or consolidated pretrial proceedings with the eight Federal Class
Actions already pending there. The Panel's transfer order assigned the Federal
Class Actions to Judge Charles A. Shaw. By virtue of a prior court order,
StoneRidge Investment Partners LLC became lead plaintiff upon entry of the
Panel's transfer order. Charter has received a consolidated complaint from the
lead plaintiff, which includes as defendants several former and present officers
of Charter, as well as its former outside auditors and a vendor/supplier of
digital set-top terminals. The court has not yet permitted the filing of this
consolidated complaint. No response from Charter will be due until after the
consolidated complaint has been filed.
On September 12, 2002, a shareholders derivative suit (the "State Derivative
Action") was filed in Missouri state court against Charter and its current
directors, as well as its former auditors. A substantively identical derivative
action was later filed and consolidated into the State Derivative Action. The
plaintiffs allege that the individual defendants breached their fiduciary duties
by failing to establish and maintain adequate internal controls and procedures.
Unspecified damages, allegedly on Charter's behalf, are sought by the
plaintiffs.
Separately, on February 12, 2003, a shareholders derivative suit (the "Federal
Derivative Action"), was filed against Charter and its current directors in the
United States District Court for the Eastern District of Missouri. The plaintiff
alleges that the individual defendants breached their fiduciary duties and
grossly mismanaged Charter by failing to establish and maintain adequate
internal controls and procedures. Unspecified damages, allegedly on Charter's
behalf, are sought by the plaintiffs.
In addition to the Federal Class Actions, the State Derivative Action and the
Federal Derivative Action, six putative class action lawsuits have been filed
against Charter and certain of its current directors and officers in the Court
of Chancery of the State of Delaware (the "Delaware Class Actions"). The
Delaware Class Actions are substantively identical and generally allege that the
defendants breached their fiduciary duties by participating or acquiescing in a
purported and threatened attempt by Defendant Paul Allen to purchase shares and
assets of Charter at an unfair price. The lawsuits were brought on behalf of
Charter's securities holders as of July 29, 2002, and seek unspecified damages
and possible injunctive relief. No such proposed transaction by Mr. Allen has
been presented.
The lawsuits discussed above are each in preliminary stages, and no dispositive
motions or other responses to any of the complaints have been filed. No reserves
have been established for those matters because the Company believes they are
either not estimable or not probable. Charter has advised the Company that it
intends to vigorously defend the lawsuits.
In August of 2002, Charter became aware of a grand jury investigation being
conducted by the United States Attorney's Office for the Eastern District of
Missouri into certain of its accounting and reporting practices, focusing on how
Charter reported customer numbers, refunds that Charter sought from programmers
and its reporting of amounts received from digital set-top terminal suppliers
for advertising. Charter has been advised by the U.S. Attorney's Office that no
member of its board of directors, including its Chief Executive Officer, is a
target of the investigation. Charter has advised the Company that it is fully
cooperating with the investigation.
On November 4, 2002, Charter received an informal, non-public inquiry from the
Staff of the Securities and Exchange Commission (SEC). The SEC has subsequently
issued a formal order of investigation dated January 23, 2003, and subsequent
document and testimony subpoenas. The investigation and subpoenas generally
concern Charter's prior reports with respect to its determination of the number
of customers, and various of its other accounting policies and practices
including its capitalization of certain expenses and dealings with certain
vendors, including programmers and digital set-top terminal suppliers. Charter
has advised the Company that it is actively cooperating with the SEC Staff.
Charter is unable to predict the outcome of the lawsuits and the government
investigations described above. An unfavorable outcome in the lawsuits or the
government investigations described above could have a material adverse effect
on Charter's results of operations and financial condition.
11
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED)
Charter is generally required to indemnify each of the named individual
defendants in connection with these matters pursuant to the terms of its Bylaws
and (where applicable) such individual defendants' employment agreements.
Pursuant to the terms of certain employment agreements and in accordance with
the Bylaws of Charter, in connection with the pending grand jury investigation,
SEC investigation and the above described lawsuits, Charter's current directors
and its current and former officers have been advanced certain costs and
expenses incurred in connection with their defense. Certain of the individual
defendants also serve or have served as officers and directors of the Company.
The limited liability company agreements of the Company and its limited
liability company subsidiaries, and the bylaws of its corporate subsidiaries may
require each such entity to indemnify Charter and the individual named
defendants in connection with the matters set forth above.
In addition to the matters set forth above, the Company is also party to other
lawsuits and claims that arose in the ordinary course of conducting its
business. In the opinion of management, after taking into account recorded
liabilities, the outcome of these other lawsuits and claims will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
Charter has directors' and officers' liability insurance coverage that it
believes is available for these matters, where applicable and subject to the
terms, conditions and limitations of the respective policies.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Reference is made to "Certain Trends and Uncertainties" of this section and
"Cautionary Statement Regarding Forward-Looking Statements," which describe
important factors that could cause actual results to differ from expectations
and non-historical information contained herein. In addition, this section
should be read in conjunction with the Annual Report on Form 10-K of Renaissance
Media Group LLC and subsidiaries and Charter Holdings for the year ended
December 31, 2002.
All comparisons and references in this Form 10-Q to results for the three months
ended March 31, 2002 are to the restated results. See "Restatement of
Consolidated Financial Results" below and Note 4 to our consolidated financial
statements contained in "Item 1. Financial Statements " for a more detailed
discussion of the restatement.
"We," "us" and "our" refer to Renaissance Media Group LLC and its wholly-owned
finance subsidiaries, Renaissance Media (Louisiana) LLC, Renaissance Media
(Tennessee) LLC and Renaissance Media Capital Corporation.
INTRODUCTION
We have a history of net losses. Historically our net losses were principally
attributable to the substantial interest costs we incurred because of our high
level of debt, the significant depreciation expenses that we incurred resulting
from the extensive capital investments we had made in our cable properties and
the amortization and impairment of our franchise intangibles. We expect interest
cost and depreciation expenses will remain substantial. However, with the
adoption of Statement of Financial Accounting Standards No. 142, we no longer
are required to amortize indefinite-lived assets (franchises) but rather test
for impairment on an annual basis.
The first cash interest payment on our public notes will be due in October,
2003. Thereafter, we will be required to pay interest in cash each April and
October. In addition, our outstanding public notes will mature in 2008. We
expect that we will be reliant on loans and capital contributions from our
parent companies to repay our public notes at maturity. However, there can be no
assurances that our parent companies will have sufficient liquidity to provide
funds to us to satisfy this payment when due.
RESTATEMENT OF CONSOLIDATED FINANCIAL RESULTS
As discussed in our 2002 Form 10-K, we identified a series of adjustments that
have resulted in the restatement of previously announced quarterly results for
the first three quarters of fiscal 2002. In summary, the adjustments are grouped
into the following categories: (i) launch incentives from programmers; (ii)
customer incentives and inducements; (iii) capitalized labor and overhead costs;
(iv) customer acquisition costs; (v) rebuild and upgrade of cable systems; and
(vi) other adjustments. These adjustments have been reflected in the
accompanying consolidated financial statements and reduced revenues for the
three months ended March 31, 2002 by $99. Our consolidated net income increased
by $6 million for the three months ended March 31, 2002. In addition, as a
result of certain of these adjustments, our statement of cash flows for the
three months ended March 31, 2002 has been restated. Cash flows from operating
activities for the three months ended March 31, 2002 increased by $2 million.
The more significant categories of adjustments relate to the following as
outlined below (dollars in thousands, except where indicated).
Launch Incentives from Programmers. Amounts previously recognized as advertising
revenue in connection with the launch of new programming channels have been
deferred and recorded in other long-term liabilities in the year such launch
support was provided, and amortized as a reduction of programming costs based
upon the relevant contract term. These adjustments decreased revenue by $41 for
the three months ended March 31, 2002. The corresponding amortization of such
deferred amounts reduced programming expenses by $307 for the three months ended
March 31, 2002.
Customer Incentives and Inducements. Marketing inducements paid to encourage
potential customers to switch from satellite providers to Charter branded
services and enter into multi-period service agreements were previously deferred
and recorded as property, plant and equipment and recognized as depreciation and
amortization expense over the life of customer contracts. These amounts have
been restated as a reduction of revenues of $59 for the three months ended March
31, 2002. Substantially all of these amounts are offset by reduced depreciation
and amortization expense.
13
Capitalized Labor and Overhead Costs. Certain elements of labor costs and
related overhead allocations previously capitalized as property, plant and
equipment as part of our rebuild activities, customer installations and new
service introductions have been expensed in the period incurred. Such
adjustments increased operating expenses by $78 for the three months ended March
31, 2002.
Customer Acquisition Costs. Certain customer acquisition campaigns were
conducted through third-party contractors in portions of 2002. The costs of
these campaigns were originally deferred and recorded as other assets and
recognized as amortization expense over the average customer contract life.
These amounts have been reported as marketing expense in the period incurred and
totaled $212 for the three months ended March 31, 2002. We discontinued this
program in the third quarter of 2002 as contracts for third-party vendors
expired. Substantially all of these amounts are offset by reduced depreciation
and amortization expense.
Rebuild and Upgrade of Cable Systems. In 2000, Charter initiated a three-year
program to replace and upgrade a substantial portion of its network, which
included a portion of our network. In connection with this plan, we assessed the
carrying value of, and the associated depreciable lives of, various assets to be
replaced. It was determined that a portion of cable distribution system assets,
originally treated as subject to replacement, were not part of the original
replacement plan but were to be upgraded and have remained in service. We also
determined that certain assets subject to replacement during the upgrade program
were misstated in the allocation of the purchase price of the acquisition. This
adjustment reduced property, plant and equipment and increased franchise assets
by $8 million. In addition, the depreciation period for the assets subject to
replacement was adjusted to more closely align with the intended service period
of these assets rather than the three-year straight-line life originally
assigned. As a result, adjustments were recorded to reduce depreciation expense
by $2 million for the three months ended March 31, 2002.
Other Adjustments. In addition to the items described above, other adjustments
of expenses include certain tax reclassifications from tax expense to operating
costs and other miscellaneous adjustments. The net impact of these adjustments
to net income is a decrease of $244 for the three months ended March 31, 2002.
The following tables summarize the effects of the adjustments on the
consolidated statements of operations and cash flows for the three-month period
ended March 31, 2002 (dollars in thousands).
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
MARCH 31, 2002
-------------------------------
AS PREVIOUSLY
REPORTED RESTATED
------------- -------------
Revenue $23,690 $23,591
Income (loss) from operations (551) 5,204
Net income (loss) (2,962) 2,793
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31, 2002
-------------------------------
AS PREVIOUSLY
REPORTED RESTATED
------------- -------------
Net cash flows from operating activities $ 7,113 $ 9,131
Net cash flows from investing activities (7,113) (9,131)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We disclosed our critical accounting policies and the means by which we develop
estimates therefor in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our 2002 Annual Report on Form 10-K.
14
RESULTS OF OPERATIONS
The following table summarizes amounts and the percentages of total revenues for
certain items for the periods indicated (dollars in thousands):
THREE MONTHS ENDED MARCH 31,
---------------------------------------
2003 2002
------------------ ------------------
Revenues $ 26,284 100% $ 23,591 100%
-------- ------ -------- ------
Costs and expenses:
Operating (excluding depreciation and amortization
and other items listed below) 10,575 40% 9,064 38%
Selling, general and administrative 4,639 18% 4,737 21%
Depreciation and amortization 8,168 31% 4,586 19%
Special charges 199 1% -- --
-------- ------ -------- ------
23,581 90% 18,387 78%
-------- ------ -------- ------
Income from operations 2,703 10% 5,204 22%
-------- --------
Other expense:
Interest expense (2,620) (2,366)
Other expenses (29) (45)
-------- --------
(2,649) (2,411)
-------- --------
Net income $ 54 $ 2,793
======== ========
COMPARISON OF RESULTS
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
Revenues. Revenues increased $2.7 million, or 11%, to $26.3 million for the
three months ended March 31, 2003 from $23.6 million for the three months ended
March 31, 2002. Revenues by service offering are as follows (dollars in
thousands):
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------
2003 2002 2003 OVER 2002
-------------------- -------------------- --------------------
% OF % OF %
AMOUNT REVENUES AMOUNT REVENUES CHANGE CHANGE
-------- -------- -------- -------- -------- --------
Analog video $ 16,525 63% $ 15,695 67% $ 830 5%
Digital video 4,437 17% 3,816 16% 621 16%
High-speed data 2,145 8% 991 4% 1,154 116%
Advertising sales 1,043 4% 1,086 5% (43) (4)%
Other 2,134 8% 2,003 8% 131 7%
-------- -------- -------- -------- --------
$ 26,284 100% $ 23,591 100% $ 2,693 11%
======== ======== ======== ======== ========
Analog video revenues consist primarily of revenues from basic services. Analog
video revenues increased $0.8 million, or 5%, primarily due to general price
increases, offset by decreases in analog video customers at March 31, 2003
compared to March 31, 2002. We do not expect an increase in analog video
customers; however, our goal is to sustain revenues by reducing analog customer
losses and to grow revenues through price increases on certain services and
packages as well as the sale of data services and digital video services.
All of our digital video customers also receive basic analog video service, and
digital video revenues consist of the portion of revenues from digital video
customers in excess of the amount paid by these customers for analog video
service. Additionally, included within digital video revenues are revenues from
premium services and pay-per-view services. Digital video revenues increased
$0.6 million, or 16%, as a result of digital customers increasing at March
15
31, 2003 compared to March 31, 2002 coupled with general price increases. While
we expect to increase digital customers as a result of various marketing plans
we expect to initiate in upcoming periods, we experienced a loss of digital
customers since December 31, 2002. We expect any increase in digital customers
and service penetration will be less than levels experienced in prior periods.
High-speed data revenues increased $1.2 million from $1.0 million for the three
months ended March 31, 2002 to $2.1 million for the three months ended March 31,
2003 primarily due to an increase in high-speed data customers. Between 2002 and
2003, we were able to offer this service to more of our customers, as the
estimated percentage of homes passed that could receive high-speed data service
increased as a result of our ongoing system upgrades.
Advertising sales revenues consist primarily of revenues from commercial
advertising customers, programmers and other vendors. Advertising sales
decreased $43,000, or 4%, for the three months ended March 31, 2003 compared to
the three months ended March 31, 2002. For the three months ended March 31, 2003
and 2002, we received $71 and $201, respectively, in advertising revenue from
programmers. We expect that advertising provided to programmers will decline
substantially in the future. Such advertising purchases are made pursuant to
written agreements that are generally consistent with other third-party
commercial advertising agreements and at prices that we believe approximate fair
value.
Other revenues consist primarily of revenues from franchise fees, commercial
high-speed data revenues, late payment fees, customer installations, wire
maintenance fees, home shopping, equipment rental, dial-up Internet service and
other miscellaneous revenues. Other revenues increased $0.1 million, or 7%, from
$2.0 million for the three months ended March 31, 2002 to $2.1 million for the
three months ended March 31, 2003. The increase was primarily due to an increase
in commercial high-speed data revenues as a result of our internal growth in
advanced services offset by decreases in late payment fees charged to customers
and other miscellaneous revenues.
Operating Expenses. Operating expenses increased by $1.5 million, or 17%, from
$9.1 million for the three months ended March 31, 2002 to $10.6 million for the
three months ended March 31, 2003. Key components of operating expenses as a
percentage of revenues are as follows (dollars in thousands):
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------
2003 2002 2003 OVER 2002
-------------------- -------------------- --------------------
% OF % OF %
AMOUNT REVENUES AMOUNT REVENUES CHANGE CHANGE
-------- -------- -------- -------- -------- --------
Programming costs $ 6,908 26% $ 5,833 25% $ 1,075 18%
Advertising sales 581 2% 519 2% 62 12%
Service costs 3,086 12% 2,712 11% 374 14%
-------- -------- -------- -------- --------
$ 10,575 40% $ 9,064 38% $ 1,511 17%
======== ======== ======== ======== ========
Programming costs consist primarily of costs paid to programmers for the
provision of basic, premium and digital channels and pay-per-view programs. The
increase in programming costs of $1.1 million, or 18%, was primarily due to
price increases, particularly in sports programming, an increased number of
channels carried on our systems and an increase in digital customers. The costs
were offset by the amortization of launch support against analog video
programming costs of $451 and $444 for the three months ended March 31, 2003 and
2002, respectively.
Our cable programming costs have increased, in every year we have operated, in
excess of customary inflationary and cost-of-living type increases, and they are
expected to continue to increase due to a variety of factors, including
additional programming being provided to customers as a result of system
rebuilds that increase channel capacity, increased costs to produce or purchase
cable programming, increased costs from certain previously discounted
programming, and inflationary or negotiated annual increases. Our increasing
programming costs will result in declining video product margins to the extent
we are unable to pass on cost increases to our customers. We expect to partially
offset any resulting margin compression through increased incremental high-speed
data revenues.
Advertising sales expenses consist of costs related to traditional advertising
services, including salaries and benefits and commissions. Advertising sales
expenses increased $0.1 million due to an increase in salaries. Service costs
consist primarily of service personnel salaries and benefits, franchise fees,
system utilities, internet service provider fees, maintenance and pole rent
expense. The increase in service costs of $0.4 million, or 14%, resulted
primarily
16
from an increase in labor costs related to personnel who had previously spent a
majority of their time on capitalizable activities, who now as a result of the
decrease in rebuild and upgrade activities, are spending their time on
non-capitalizable activities.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $0.1 million, or 2%, from $4.7 million for
the three months ended March 31, 2002 to $4.6 million for the three months ended
March 31, 2003. Key components of expense as a percentage of revenues are as
follows (dollars in thousands):
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------
2003 2002 2003 OVER 2002
-------------------- -------------------- --------------------
% OF % OF %
AMOUNT REVENUES AMOUNT REVENUES CHANGE CHANGE
-------- -------- -------- -------- -------- --------
General and
administrative $ 4,465 17% $ 4,141 18% $ 324 8%
Marketing 174 1% 596 3% (422) (71)%
-------- -------- -------- -------- --------
$ 4,639 18% $ 4,737 21% $ (98) (2)%
======== ======== ======== ======== ========
General and administrative expenses consist primarily of salaries and benefits,
call center costs, rent expense, billing costs, bad debt expense and property
taxes. The increase in general and administrative expenses of $0.3 million, or
8%, resulted primarily from increases in call center costs of $0.3 million.
Marketing expenses decreased $0.4 million, or 71%, due to reduced promotional
activity related to our service offerings including advertising, telemarketing
and direct sales. However, we expect marketing expenses to increase in
subsequent quarters over the first quarter of 2003.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased by $3.6 million, or 78%, from $4.6 million for the three months ended
March 31, 2002 to $8.2 million for the three months ended March 31, 2003. The
increase was due primarily to an increase in depreciation expense related to
additional capital expenditures in 2003 and 2002.
Special Charges. Special charges of $0.2 million for the three months ended
March 31, 2003 represents severance and related costs of our on-going initiative
to reduce our workforce. We expect to continue to record additional special
charges in 2003 related to the reorganization of our operations.
Interest Expense, net. Interest expense increased $0.2 million, or 11%, to $2.6
million for the three months ended March 31, 2003 from $2.4 million for the
three months ended March 31, 2002. This increase is a result of the accretion of
our senior discount notes.
Net Income. Net income decreased by $2.7 million, to $0.1 million for the three
months ended March 31, 2003 from $2.8 million for the three months ended March
31, 2002 as a result of the combination of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
INTRODUCTION
This section contains a discussion of our liquidity and capital resources,
including a discussion of our cash position, sources and uses of cash, access to
debt facilities and other financing sources, historical financing activities,
cash needs, capital expenditures and outstanding debt. The first part of this
section, entitled "Overview" summarizes our outstanding debt and provides an
overview of these topics. The second part of this section, entitled "Historical
Operating, Financing and Investing Activities" provides information regarding
the cash provided from or used in our operating, financing and investing
activities during the three months ended March 31, 2003 and 2002. The third part
of this section, entitled "Capital Expenditures" provides more detailed
information regarding our historical capital expenditures and our planned
capital expenditures going forward.
17
OVERVIEW
Our business requires significant cash to fund capital expenditures, debt
service costs and ongoing operations. We have historically funded our operating
activities through cash flows from operating activities. We have funded capital
requirements through cash flows from operating activities and capital
contributions from our parent companies. The mix of funding sources changes from
period to period, but for the three months ended March 31, 2003, 100% of our
funding requirements were from cash flows from operating activities.
Accordingly, during 2003, we expect to fund our liquidity and capital
requirements principally through cash flows from operating activities.
The principal amount of our senior notes was $116 million as of March 31, 2003.
The notes do not accrue 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, with interest payments
commencing October 15, 2003. We have fully and unconditionally guaranteed the
notes.
The fair market value of the notes was $101 million and $93 million as of March
31, 2003 and December 31, 2002, respectively. The fair value of the notes are
based on quoted market prices.
See the Section entitled "Liquidity and Capital Resources" of "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our 2002 Annual Report on Form 10-K for a description of our
senior notes indenture, including certain terms, restrictions and covenants.
We expect to remain in compliance with the covenants under our indenture, and
that cash flows from operating activities will be sufficient to satisfy our
liquidity needs until maturity of the public notes. We expect that we will be
reliant on loans and capital contributions from our parent companies to repay
the principal amount of our public notes at maturity.
However, there can be no assurance that our parent companies will have
sufficient liquidity to provide funds to us to satisfy this payment when due. In
addition, a default under the covenants governing any of our debt instruments
could result in the acceleration of our payment obligations under our debt and,
under certain circumstances, in cross-defaults under our affiliates' debt
obligations, which could adversely affect our parent companies' ability to
provide us with funding.
It is unclear whether we will have access to sufficient capital to satisfy our
continuing cash interest payment obligations through maturity, or the repayment
of our public notes when they mature in 2008. Cash flows from operating
activities may not be sufficient, on their own, to permit us to satisfy these
obligations.
Traditionally, we have relied on our affiliates' ability to access the public
debt and equity markets as a source of capital. Moody's Investor Services
downgraded Charter's outstanding debt in October, 2002 and again in January,
2003 and our outstanding debt in January, 2003. Moody's also reduced its
liquidity rating of Charter to its lowest level. In January, 2003, Standard &
Poor's downgraded Charter's outstanding debt. We believe that as a result of our
parent companies' significant levels of debt, current market conditions and
these downgrades, our parent companies have limited access to the debt market at
this time, and we accordingly expect to fund our cash needs during 2003 from
cash flows from operating activities.
Increased funding requirements from customer demand for digital video, data or
telephony services, or the need to offer certain services in certain of our
markets in order to compete effectively could make us reliant on our parent
companies' ability to make loans and capital contributions to us. Consequently,
our financial condition and results of operations could suffer materially.
If, at any time, additional capital or borrowing capacity is required beyond
amounts internally generated or available through traditional debt financings by
us, we would consider:
- further reducing our expenses and capital expenditures, which would
likely impair our ability to increase revenue;
18
- selling assets; or
- seeking funding from our parent companies through the issuance of debt
or equity by our parent companies, including Charter, Charter
Holdings, or Charter Operating the proceeds of which could be
contributed to us.
If the above strategies were not successful, ultimately, we could be forced to
restructure our obligations or seek protection under the bankruptcy laws. In
addition, if we need to raise additional capital or find it necessary to engage
in a recapitalization or other similar transaction, our noteholders might not
receive all principal and interest payments to which they are contractually
entitled.
Although in the past, Mr. Allen and his affiliates have purchased equity from
Charter and Charter Holdco for the purpose of funding capital contributions to
us, there is no obligation for Mr. Allen or his affiliates to purchase equity
from or contribute or loan funds to us or to our subsidiaries in the future.
As a means of enhancing our liquidity, we are currently attempting to cut costs,
reduce capital expenditures and exploring sales of assets.
HISTORICAL OPERATING, FINANCING AND INVESTING ACTIVITIES
We did not hold any cash and cash equivalents as of March 31, 2003 and December
31, 2002.
Operating Activities. Net cash provided by operating activities for the three
months ended March 31, 2003 and 2002 was $4 million and $9 million,
respectively. Operating activities provided $5 million less cash during the
three months ended March 31, 2003 compared to the corresponding period in 2002
primarily due to the $5 million reduction in the payable to related party during
the three months ended March 31, 2003 compared to the corresponding period in
2002.
Investing Activities. Net cash used in investing activities for the three months
ended March 31, 2003 and 2002 was $4 million and $9 million, respectively.
Investing activities used $5 million less cash during the three months ended
March 31, 2003 compared to the corresponding period in 2002 primarily as a
result of reductions in capital expenditures.
CAPITAL EXPENDITURES
We have substantial ongoing capital expenditure requirements. We made purchases
of property, plant and equipment of $2 million and $8 million for the three
months ended March 31, 2003 and 2002, respectively. The majority of the capital
expenditures relates to our customer premise equipment and rebuild and upgrade
program. Upgrading our cable systems has enabled us to offer digital television,
cable modem high-speed Internet access, video-on-demand, interactive services,
additional channels and tiers, and expanded pay-per-view options to a larger
customer base. Our capital expenditures in 2003 were funded from cash flows from
operating activities. In addition, during the three months ended March 31, 2003
and 2002, our liabilities related to capital expenditures decreased $3 million
and $2 million, respectively.
During 2003, we expect to spend approximately $10 million to $20 million in the
aggregate on capital expenditures. We expect our capital expenditures in 2003
will be lower than 2002 levels because our rebuild and upgrade plans are largely
completed.
CERTAIN TRENDS AND UNCERTAINTIES
The following discussion highlights a number of trends and uncertainties, in
addition to those discussed elsewhere in this Quarterly Report and in other
documents that we file with the SEC, that could materially impact our business,
results of operations and financial condition.
Liquidity. Our business requires significant cash to fund capital expenditures,
debt service costs and ongoing operations. Our ongoing operations will depend on
our ability to generate cash and to secure financing in the future. We have
historically funded liquidity and capital requirements through cash flows from
operating activities and capital contributions from Charter, Charter Holdings
and Charter Operating. We believe, however, that at this time Charter, Charter
Operating and Charter Holdings have limited access to the debt and equity
markets in light of
19
general economic conditions, their substantial leverage, the business condition
of the cable, telecommunications and technology industry, the current credit
rating of Charter and Charter Holdings and recent downgrades of Charter's and
Charter Holdings' outstanding debt and liquidity ratings, and pending litigation
and investigations.
In addition, as the principal amounts owing under our various debt obligations
become due, sustaining our liquidity will become more difficult over time. It is
unclear whether we will have access to sufficient capital to satisfy our
principal repayment obligations, which are scheduled to come due in 2008. Cash
flows from operating activities and other existing sources of funds may not be
sufficient, on their own, to permit us to satisfy these obligations.
If our business does not generate sufficient cash flows from operating
activities, and sufficient future distributions are not available to us from
other sources of financing, we may not be able to repay our debt, grow our
business, respond to competitive challenges, or to fund our other liquidity and
capital needs. As a means of enhancing our liquidity, we are currently
attempting to cut costs, reduce capital expenditures and exploring sales of
assets.
If we need to seek alternative sources of financing, there can be no assurance
that we will be able to obtain the requisite financing or that such financing,
if available, would not have terms that are materially disadvantageous to our
existing debt holders. Although Mr. Allen and his affiliates have purchased
equity from Charter and Charter Holdco in the past, there is no obligation for
Mr. Allen or his affiliates to purchase equity or contribute or lend funds to us
or to our subsidiaries in the future.
If we are unable to raise needed capital, ultimately, we could be forced to
restructure our obligations or seek protection under the bankruptcy laws. In
addition, if we find it necessary to engage in a recapitalization or other
similar transaction, our noteholders might not receive all principal and
interest payments to which they are contractually entitled.
Restrictive Covenants. The indenture governing our publicly held notes contains
a number of significant covenants that could adversely impact our business. In
particular, our indenture restricts our and our subsidiaries' ability to:
- incur additional debt;
- pay dividends on equity or repurchase equity;
- grant liens;
- make investments;
- sell all or substantially all of our assets or merge with or into
other companies;
- sell assets;
- enter into sale-leasebacks;
- in the case of restricted subsidiaries, create or permit to exist
dividend or payment restrictions with respect to the bond issuers,
guarantee the bond issuers' debt, or issue specified equity interests;
and
- engage in certain transactions with affiliates.
The ability to comply with these provisions may be affected by events beyond our
control. The breach of any of these covenants will result in a default under the
applicable debt agreement or instrument and could trigger acceleration of the
debt under the applicable agreement and in certain cases under other agreements
governing our long-term indebtedness. Any default under our indenture might
adversely affect our growth, our financial condition and our results of
operations and our ability to make payments on our publicly held notes.
Parent Level Liquidity Concerns. Our direct and indirect owners, including
Charter, Charter Operating and Charter Holdings face significant liquidity
issues.
Because of its corporate structure, Charter has less access to capital than its
operating subsidiaries and therefore Charter's ability to repay its senior notes
is subject to additional uncertainties. Charter will not be able to make
20
interest payments beginning in April, 2004, or principal payments at maturity in
2005 and 2006, with respect to its convertible senior notes unless it can obtain
additional financing or it receives distributions or other payments from its
subsidiaries. The indentures governing the Charter Holdings notes permit
Charter Holdings to make distributions to Charter Holdco only if, at the
time of distribution, Charter Holdings can meet a leverage ratio of 8.75 to 1.0,
there is no default under the indentures and other specified tests are met.
Charter Holdings did not meet that leverage ratio for the quarter ended March
31, 2003. Because Charter is our manager, any financial or liquidity problems of
Charter would be likely to cause serious disruption to our business and to have
a material adverse affect on our operations and results. In addition, our parent
companies' ability to make loans or capital contributions to us would likely be
adversely affected. Any such event would likely adversely impact our own credit
rating, and our relations with customers and suppliers, which could in turn
further impair our ability to obtain financing and operate our business. In
addition, because Charter Holdings and Charter Holdco are our direct and
indirect owners, their financial or liquidity problems could have similar
impacts on us.
Finally, to the extent that any such event results in a change of control of
Charter (whether through a bankruptcy, receivership or other reorganization of
Charter and/or Charter Holdco, or otherwise), it could require a change of
control repurchase offer under our outstanding notes.
Securities Litigation and Government Investigations. As previously reported, a
number of federal class actions were filed against Charter and certain of its
former and present officers and directors alleging violations of securities
laws. In addition, a number of other lawsuits have been filed against Charter in
other jurisdictions. A shareholders derivative suit was filed in the United
States District Court for the Eastern District of Missouri, and several class
action lawsuits were filed in Delaware state court against Charter and certain
of its directors and officers. Finally, two derivative suits were filed in
Missouri state court against Charter, its current directors and its former
independent auditor; these actions were consolidated during the fourth quarter
of 2002. The federal derivative suit, the Delaware class actions and the
consolidated derivative suit each allege that the defendants breached their
fiduciary duties.
In August of 2002, Charter became aware of a grand jury investigation being
conducted by the United States Attorney's Office for the Eastern District of
Missouri into certain of its accounting and reporting practices focusing on how
Charter reported customer numbers, refunds that Charter sought from programmers
and its reporting of amounts received from digital set-top terminal
manufacturers for advertising. Charter has been advised by the U.S. Attorney's
Office that no member of the board of directors of Charter, including its Chief
Executive Officer, is a target of the investigation. Charter has advised us that
it is fully cooperating with the investigation. In November 2002, Charter
received an informal, non-public inquiry from the Staff of the Securities and
Exchange Commission (SEC). The SEC has subsequently issued a formal order of
investigation dated January 23, 2003, and subsequent document and testimony
subpoenas. The investigation and subpoenas generally concern Charter's prior
reports with respect to the determination of the number of its customers, and
various of Charter's other accounting policies and practices, including its
capitalization of certain expenses and dealings with certain vendors, including
programmers and digital set-top terminal suppliers. Charter has advised us that
it is actively cooperating with the SEC staff.
Due to the inherent uncertainties of litigation and investigations, Charter
cannot predict the ultimate outcome of these proceedings. In addition, the
recent restatement of its financial statements may lead to additional
allegations in the pending securities class and derivative actions against
Charter, or to additional claims being filed or to investigations being expanded
or commenced. These proceedings, and Charter's actions in response to these
proceedings, could result in substantial costs, substantial potential
liabilities and the diversion of management's attention, all of which could
affect adversely the market price of our publicly-traded notes, as well as our
ability to meet future operating and financial estimates and to execute our
business and financial strategies. To the extent that the foregoing matters are
not covered by insurance, our limited liability company agreement and those of
our limited liability company subsidiaries, and the bylaws of our corporate
subsidiaries may require each entity to indemnify Charter and the above
directors and current and former officers in connection with such matters.
Competition. The industry in which we operate is highly competitive. In some
instances, we compete against companies with fewer regulatory burdens, easier
access to financing, greater personnel resources, greater brand name recognition
and long-standing relationships with regulatory authorities and customers.
Increasing consolidation in the cable industry and the repeal of certain
ownership rules may provide additional benefits to certain of our competitors,
either through access to financing, resources or efficiencies of scale.
In particular, we face competition within the subscription television industry,
which includes providers of paid television service employing technologies other
than cable, such as direct broadcast satellite, also known as DBS.
21
Competition from DBS, including intensive marketing efforts and aggressive
pricing, has had an adverse impact on our ability to retain customers. Local
telephone companies and electric utilities can compete in this area, and they
increasingly may do so in the future. The subscription television industry also
faces competition from broadcast companies distributing television broadcast
signals without assessing a subscription fee and from other communications and
entertainment media, including conventional radio broadcasting services,
newspapers, movie theaters, the Internet, live sports events and home video
products. With respect to our Internet access services, we face competition,
including intensive marketing efforts and aggressive pricing, from telephone
companies and other providers of "dial-up" and digital subscriber line
technology, also known as DSL. Further loss of customers to DBS or other
alternative video and data services could have a material negative impact on our
business.
Integration of Operations. In the past, Charter (our manager) experienced rapid
growth from acquisitions of a number of smaller cable operators and the rapid
rebuild and rollout of advanced services. This activity has placed and is
expected to continue to place a significant strain on Charter's management,
operations and other resources. Our future success will depend in part on
Charter's ability to successfully integrate the operations acquired, including
our operations. The failure to implement management, operating or financial
systems necessary to successfully integrate acquired operations, including
headend and call center consolidation and standardization of operating
procedures, could have a material adverse effect on our business, results of
operations and financial condition. In addition, Charter's ability to properly
manage our operations will be impacted by our ability to attract, retain and
incentivize experienced, qualified, professional management.
Services. We expect that a substantial portion of our near-term growth will be
achieved through revenues from high-speed data services, digital video, bundled
service packages, and to a lesser extent other services that take advantage of
cable's broadband capacity. The technology involved in our product and service
offerings generally requires that we have permission to use intellectual
property and that such property not infringe on rights claimed by others. We may
not be able to offer these advanced services successfully to our customers or
provide adequate customer service and these advanced services may not generate
adequate revenues. Also, if the vendors we use for these services are not
financially viable over time, we may experience disruption of service and incur
costs to find alternative vendors. In addition, if it is determined that the
product being utilized infringes on the rights of others, we may be sued or be
precluded from using the technology.
Increasing Programming Costs. Programming has been, and is expected to continue
to be, our largest operating expense item. In recent years, the cable industry
has experienced a rapid escalation in the cost of programming, particularly
sports programming. This escalation may continue, and we may not be able to pass
programming cost increases on to our customers. The inability to pass these
programming cost increases on to our customers would have an adverse impact on
our cash flow and operating margins.
Public Notes Price Volatility. The market price of our publicly-traded notes has
been and is likely to continue to be highly volatile. We expect that the price
of our securities may fluctuate in response to various factors, including the
factors described throughout this section and various other factors which may be
beyond our control. These factors beyond our control could include: financial
forecasts by securities analysts; new conditions or trends in the cable or
telecommunications industry; general economic and market conditions and
specifically, conditions related to the cable or telecommunications industry;
any further downgrade of Charter's (or our) debt ratings; announcement of the
development of improved or competitive technologies; the use of new products or
promotions by us or our competitors; changes in accounting rules; and new
regulatory legislation adopted in the United States.
In addition, the securities market in general, and the market for cable
television securities in particular, have experienced significant price
fluctuations. Volatility in the market price for companies may often be
unrelated or disproportionate to the operating performance of those companies.
These broad market and industry factors may seriously harm the market price of
our public notes, regardless of our operating performance. In the past,
securities litigation has often commenced following periods of volatility in the
market price of a company's securities, and recently such purported class action
lawsuits were filed against Charter.
Economic Slowdown; Global Conflict. It is difficult to assess the impact that
the general economic slowdown and global conflict will have on future
operations. However, the economic slowdown has resulted and the slowdown and the
war could continue to result in reduced spending by customers and advertisers,
which could reduce our revenues and operating cash flow, and also could affect
our ability to collect accounts receivable and maintain customers. In addition,
any prolonged military conflict would materially and adversely affect our
revenues from our systems providing services to military installations. 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
22
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.
Long-Term Indebtedness - Change of Control Payments. We may not have the ability
to raise the funds necessary to fulfill our obligations under our public notes
following a change of control. A change of control under our public notes would
require us to make an offer to repurchase our outstanding public notes. A
failure by us to make or complete a change of control offer would place us in
default of these agreements.
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 or multiple channels added by
digital broadcasters. 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. In addition, the carriage of new high-definition broadcast and
satellite programming services over the next few years may consume significant
amounts of system capacity without contributing to proportionate increases in
system revenue.
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 regulated access to cable plant. 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 officially classified
cable's provision of high-speed Internet 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.
The Federal Communications Commission's March 2002 ruling also held that
Internet access service provided by cable operators was not subject to franchise
fees assessed by local franchising authorities. A number of local franchise
authorities and Internet service providers have appealed this decision. The
matter is scheduled to be argued in May 2003. As a result of this ruling, we
have stopped collecting franchise fees for cable modem service.
CONTINGENCIES
SECURITIES CLASS ACTIONS AND DERIVATIVE SUITS AGAINST CHARTER. Fourteen putative
federal class action lawsuits (the "Federal Class Actions") have been filed
against Charter, the Company's manager and indirect parent, and certain of its
and our former and present officers and directors in various jurisdictions
allegedly on behalf of all purchasers of the securities of Charter during the
period from either November 8 or November 9, 1999 through July 17 or July 18,
2002. Unspecified damages are sought by the plaintiffs. In general, the lawsuits
allege that Charter utilized misleading accounting practices and failed to
disclose these accounting practices and/or issued false and misleading financial
statements and press releases concerning Charter's operations and prospects.
In October 2002, Charter filed a motion with the Judicial Panel on Multidistrict
Litigation (the "Panel") to transfer the Federal Class Actions to the Eastern
District of Missouri. On March 12, 2003, the Panel transferred the six Federal
Class Actions not filed in the Eastern District of Missouri to that district for
coordinated or consolidated pretrial proceedings with the eight Federal Class
Actions already pending there. The Panel's transfer order assigned the Federal
Class Actions to Judge Charles A. Shaw. By virtue of a prior court order,
StoneRidge Investment Partners LLC became lead plaintiff upon entry of the
Panel's transfer order. Charter has received a consolidated complaint from the
lead plaintiff, which includes as defendants several former and present officers
of Charter, as well as its and our former outside auditors and a vendor/supplier
of digital set-top terminals. The court
23
has not yet permitted the filing of this consolidated complaint. No response
from Charter will be due until after the consolidated complaint has been filed.
On September 12, 2002, a shareholders derivative suit (the "State Derivative
Action") was filed in Missouri state court against Charter and its current
directors, as well as its and our former auditors. A substantively identical
derivative action was later filed and consolidated into the State Derivative
Action. The plaintiffs allege that the individual defendants breached their
fiduciary duties by failing to establish and maintain adequate internal controls
and procedures. Unspecified damages, allegedly on Charter's behalf, are sought
by the plaintiffs.
Separately, on February 12, 2003, a shareholders derivative suit (the "Federal
Derivative Action"), was filed against Charter and its current directors in the
United States District Court for the Eastern District of Missouri. The plaintiff
alleges that the individual defendants breached their fiduciary duties and
grossly mismanaged Charter by failing to establish and maintain adequate
internal controls and procedures. Unspecified damages, allegedly on Charter's
behalf, are sought by the plaintiffs.
In addition to the Federal Class Actions, the State Derivative Action and the
Federal Derivative Action, six putative class action lawsuits have been filed
against Charter and certain of its current directors and officers in the Court
of Chancery of the State of Delaware (the "Delaware Class Actions"). The
Delaware Class Actions are substantively identical and generally allege that the
defendants breached their fiduciary duties by participating or acquiescing in a
purported and threatened attempt by Defendant Paul Allen to purchase shares and
assets of Charter at an unfair price. The lawsuits were brought on behalf of
Charter's securities holders as of July 29, 2002, and seek unspecified damages
and possible injunctive relief. No such proposed transaction by Mr. Allen has
been presented.
All of the lawsuits discussed above are each in preliminary stages, and no
dispositive motions or other responses to any of the complaints have been filed.
Charter has advised the Company that it intends to vigorously defend the
lawsuits.
GOVERNMENT INVESTIGATIONS. In August of 2002, Charter became aware of a grand
jury investigation being conducted by the United States Attorney's Office for
the Eastern District of Missouri into certain of its accounting and reporting
practices, focusing on how Charter reported customer numbers, refunds that
Charter sought from programmers and its reporting of amounts received from
digital set-top terminal suppliers for advertising. Charter has been advised by
the U.S. Attorney's Office that no member of its board of directors, including
its Chief Executive Officer, is a target of the investigation. Charter has
advised us that it is fully cooperating with the investigation.
On November 4, 2002, Charter received an informal, non-public inquiry from the
Staff of the Securities and Exchange Commission (SEC). The SEC has subsequently
issued a formal order of investigation dated January 23, 2003, and subsequent
document and testimony subpoenas. The investigation and subpoenas generally
concern Charter's prior reports with respect to its determination of the number
of customers (including the adequacy of our disconnect policies, the application
of those policies and their effect on the customer totals reported by us during
2001 and prior periods), and various of its accounting policies and practices
including its capitalization of certain expenses and dealings with certain
vendors, including programmers and digital set-top terminal suppliers. Charter
has advised us that it is actively cooperating with the SEC Staff.
OUTCOME. Charter is unable to predict the outcome of the lawsuits and the
government investigations described above. An unfavorable outcome in the
lawsuits or the government investigations described above could have a material
adverse effect on our results of operations and financial condition. Upon
completion of the investigations referred to above, and depending on their
outcome, we will make such adjustments to our previously reported customer
numbers as may be appropriate. Also, previously reported customer numbers will
be adjusted to eliminate cable modem only customers from our analog video
customer count. We will be eliminating the cable modem only customers from our
analog video customer count because we determined that most of these customers
were unable to receive our most basic level of analog service because this
service was physically secured or blocked, was unavailable in certain areas or
the customers were unaware that this service was available to them.
INDEMNIFICATION. Charter is generally required to indemnify each of the named
individual defendants in connection with these matters pursuant to the terms of
its Bylaws and (where applicable) such individual defendants' employment
agreements. Pursuant to the terms of certain employment agreements and in
accordance with the Bylaws of Charter, in connection with the pending grand jury
investigation, SEC investigation and the above
24
described lawsuits, Charter's current directors and its current and former
officers have been advanced certain costs and expenses incurred in connection
with their defense. Certain of the individual defendants also serve or have
served as our officers and directors. The limited liability company agreements
of the Company and its limited liability company subsidiaries may require each
such entity to indemnify Charter and the individual named defendants in
connection with the matters set forth above.
INSURANCE. Charter has directors' and officers' liability insurance coverage
that it believes is available for these matters, where applicable and subject to
the terms, conditions and limitations of the respective policies.
OTHER. In addition to the matters set forth above, we are also party to other
lawsuits and claims that arose in the ordinary course of conducting our
business. In the opinion of management, after taking into account recorded
liabilities, the outcome of these other lawsuits and claims will not have a
material adverse effect on our consolidated financial position or results of
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Within 90 days prior to the filing date of this report, management, including
our Chief Executive Officer and interim Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures with respect to the information generated for use in this Quarterly
Report. The evaluation was based in part upon reports and affidavits provided by
a number of executives. Based upon, and as of the date of that evaluation, our
Chief Executive Officer and interim Chief Financial Officer concluded that the
disclosure controls and procedures were effective to provide reasonable
assurances that information required to be disclosed in the reports we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.
In designing and evaluating the disclosure controls and procedures, our
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance of
achieving the desired control objectives and management necessarily was required
to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based upon the above evaluation, our management
believes that its controls do provide such reasonable assurances.
25
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
In addition to those matters disclosed under the heading "Contingencies" of
Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and
Results of Operations", we are involved from time to time in routine legal
matters and other claims incidental to our business. We believe that the
resolution of such routine matters and other incidental claims, taking into
account established reserves and insurance, will not have a material adverse
impact on our consolidated financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Exhibit
Number Description of Document
------ -----------------------
3.1 Certificate of Incorporation of Renaissance Media Capital
Corporation and all amendments thereto. (Incorporated by reference
to the corresponding exhibit of the Registration Statement of
Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC,
Renaissance Media (Tennessee) LLC and Renaissance Media Capital
Corporation on Form S-4 (Commission File Nos. 333-56679,
333-56679-02, 333-56679-01 and 333-56679-03, respectively), filed on
June 12, 1998.))
3.2 By-laws of Renaissance Media Capital Corporation. (Incorporated by
reference to the corresponding exhibit of the Registration Statement
of Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC,
Renaissance Media (Tennessee) LLC and Renaissance Media Capital
Corporation on Form S-4 (Commission File Nos. 333-56679,
333-56679-02, 333-56679-01 and 333-56679-03, respectively), filed on
June 12, 1998.))
3.3 Certificate of Formation of Renaissance Media (Louisiana) LLC.
(Incorporated by reference to the corresponding exhibit of the
Registration Statement of Renaissance Media Group LLC, Renaissance
Media (Louisiana) LLC, Renaissance Media (Tennessee) LLC and
Renaissance Media Capital Corporation on Form S-4 (Commission File
Nos. 333-56679, 333-56679-02, 333-56679-01 and 333-56679-03,
respectively), filed on June 12, 1998.))
3.4 Certificate of Formation of Renaissance Media, LLC. (Incorporated by
reference to the corresponding exhibit of the Annual Report on Form
10-K of Renaissance Media Group LLC, Renaissance Media (Louisiana)
LLC, Renaissance Media (Tennessee) and Renaissance Media Capital
Corporation, filed March 30, 2000 (Commission File Nos. 333-56679,
333-56679-02, 333-56679-01 and 333-56679-03, respectively)).
3.5 Certificate of Formation of Renaissance Media (Tennessee) LLC.
(Incorporated by reference to the corresponding exhibit of the
Registration Statement of Renaissance Media Group LLC, Renaissance
Media (Louisiana) LLC, Renaissance Media (Tennessee) LLC and
Renaissance Media Capital Corporation on Form S-4 (Commission File
Nos. 333-56679, 333-56679-02, 333-56679-01 and 333-56679-03,
respectively), filed on June 12, 1998.))
3.7 Certificate of Formation of Renaissance Media Group LLC.
(Incorporated by reference to the corresponding exhibit of the
Registration Statement of Renaissance Media Group LLC, Renaissance
Media (Louisiana) LLC, Renaissance Media (Tennessee) LLC and
Renaissance Media Capital Corporation on Form S-4 (Commission File
Nos. 333-56679, 333-56679-02, 333-56679-01 and 333-56679-03,
respectively), filed on June 12, 1998.))
3.9 Amended and Restated Limited Liability Agreement of Renaissance
Media Group LLC, dated April 29, 1999. (Incorporated by reference to
the corresponding exhibit of the Quarterly Report on Form 10-Q of
Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC,
Renaissance Media (Tennessee) LLC and Renaissance Media Capital
Corporation for the quarter ended March 31, 1999, filed on May 17,
1999 (Commission File Nos. 333-56679, 333-56679-02, 333-56679-01 and
333-56679-03, respectively)).
3.10 Amended and Restated Limited Liability Agreement of Renaissance
Media (Louisiana) LLC, dated April 29, 1999. (Incorporated by
reference to the corresponding exhibit of the Quarterly Report on
Form 10-Q of Renaissance Media Group LLC, Renaissance Media
(Louisiana) LLC, Renaissance Media (Tennessee) LLC and Renaissance
Media Capital Corporation for the quarter ended March 31, 1999,
filed on May 17, 1999 (Commission File Nos. 333-56679, 333-56679-02,
333-56679-01 and 333-56679-03, respectively)).
26
3.11 Amended and Restated Limited Liability Agreement of Renaissance
Media (Tennessee) LLC, dated April 29, 1999. (Incorporated by
reference to the corresponding exhibit of the Quarterly Report on
Form 10-Q of Renaissance Media Group LLC, Renaissance Media
(Louisiana) LLC, Renaissance Media (Tennessee) LLC and Renaissance
Media Capital Corporation for the quarter ended March 31, 1999,
filed on May 17, 1999 (Commission File Nos. 333-56679, 333-56679-02,
333-56679-01 and 333-56679-03, respectively)).
3.12 Amended and Restated Limited Liability Agreement of Renaissance
Media LLC, dated April 29, 1999. (Incorporated by reference to the
corresponding exhibit of the Quarterly Report on Form 10-Q of
Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC,
Renaissance Media (Tennessee) LLC and Renaissance Media Capital
Corporation for the quarter ended March 31, 1999, filed on May 17,
1999 (Commission File Nos. 333-56679, 333-56679-02, 333-56679-01 and
333-56679-03, respectively)).
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
(a) REPORTS ON FORM 8-K
None.
27
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: May 15, 2003 By: CHARTER COMMUNICATIONS, INC.,
-----------------------------
Registrants' Manager
By: /s/ Steven A. Schumm
--------------------
Name: Steven A. Schumm
Title: Executive Vice President and Chief
Administrative Officer and interim 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: May 15, 2003 RENAISSANCE MEDIA CAPITAL CORPORATION
By: /s/ Steven A. Schumm
--------------------
Name: Steven A. Schumm
Title: Executive Vice President and Chief
Administrative Officer and interim Chief
Financial Officer (Principal Financial Officer)
By: /s/ Paul E. Martin
------------------
Name: Paul E. Martin
Title: Senior Vice President and Corporate
Controller (Principal Accounting Officer)
28
CERTIFICATIONS
I, Carl E. Vogel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Renaissance Media
Group LLC, Renaissance Media (Louisiana) LLC, Renaissance Media (Tennessee)
LLC and Renaissance Media Capital Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrants as of, and for, the periods presented in this
quarterly report;
4. The registrants' other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrants and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrants, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrants' disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrants' other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants' auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants' ability to
record, process, summarize and report financial data and have
identified for the registrants' auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrants' other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
/s/ Carl E. Vogel
- -----------------
Carl E. Vogel
Chief Executive Officer
29
I, Steven A. Schumm, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Renaissance Media
Group LLC, Renaissance Media (Louisiana) LLC, Renaissance Media (Tennessee)
LLC and Renaissance Media Capital Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrants as of, and for, the periods presented in this
quarterly report;
4. The registrants' other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrants and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrants, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrants' disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrants' other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants' auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants' ability to
record, process, summarize and report financial data and have
identified for the registrants' auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrants' other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
/s/ Steven A. Schumm
- --------------------
Steven A. Schumm
Chief Administrative Officer and
Interim Chief Financial Officer
30
EXHIBIT INDEX
Exhibit
Number Description of Document
------ -----------------------
3.1 Certificate of Incorporation of Renaissance Media Capital
Corporation and all amendments thereto. (Incorporated by reference
to the corresponding exhibit of the Registration Statement of
Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC,
Renaissance Media (Tennessee) LLC and Renaissance Media Capital
Corporation on Form S-4 (Commission File Nos. 333-56679,
333-56679-02, 333-56679-01 and 333-56679-03, respectively), filed on
June 12, 1998.))
3.2 By-laws of Renaissance Media Capital Corporation. (Incorporated by
reference to the corresponding exhibit of the Registration Statement
of Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC,
Renaissance Media (Tennessee) LLC and Renaissance Media Capital
Corporation on Form S-4 (Commission File Nos. 333-56679,
333-56679-02, 333-56679-01 and 333-56679-03, respectively), filed on
June 12, 1998.))
3.3 Certificate of Formation of Renaissance Media (Louisiana) LLC.
(Incorporated by reference to the corresponding exhibit of the
Registration Statement of Renaissance Media Group LLC, Renaissance
Media (Louisiana) LLC, Renaissance Media (Tennessee) LLC and
Renaissance Media Capital Corporation on Form S-4 (Commission File
Nos. 333-56679, 333-56679-02, 333-56679-01 and 333-56679-03,
respectively), filed on June 12, 1998.))
3.4 Certificate of Formation of Renaissance Media, LLC. (Incorporated by
reference to the corresponding exhibit of the Annual Report on Form
10-K of Renaissance Media Group LLC, Renaissance Media (Louisiana)
LLC, Renaissance Media (Tennessee) and Renaissance Media Capital
Corporation, filed March 30, 2000 (Commission File Nos. 333-56679,
333-56679-02, 333-56679-01 and 333-56679-03, respectively)).
3.5 Certificate of Formation of Renaissance Media (Tennessee) LLC.
(Incorporated by reference to the corresponding exhibit of the
Registration Statement of Renaissance Media Group LLC, Renaissance
Media (Louisiana) LLC, Renaissance Media (Tennessee) LLC and
Renaissance Media Capital Corporation on Form S-4 (Commission File
Nos. 333-56679, 333-56679-02, 333-56679-01 and 333-56679-03,
respectively), filed on June 12, 1998.))
3.7 Certificate of Formation of Renaissance Media Group LLC.
(Incorporated by reference to the corresponding exhibit of the
Registration Statement of Renaissance Media Group LLC, Renaissance
Media (Louisiana) LLC, Renaissance Media (Tennessee) LLC and
Renaissance Media Capital Corporation on Form S-4 (Commission File
Nos. 333-56679, 333-56679-02, 333-56679-01 and 333-56679-03,
respectively), filed on June 12, 1998.))
3.9 Amended and Restated Limited Liability Agreement of Renaissance
Media Group LLC, dated April 29, 1999. (Incorporated by reference to
the corresponding exhibit of the Quarterly Report on Form 10-Q of
Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC,
Renaissance Media (Tennessee) LLC and Renaissance Media Capital
Corporation for the quarter ended March 31, 1999, filed on May 17,
1999 (Commission File Nos. 333-56679, 333-56679-02, 333-56679-01 and
333-56679-03, respectively)).
3.10 Amended and Restated Limited Liability Agreement of Renaissance
Media (Louisiana) LLC, dated April 29, 1999. (Incorporated by
reference to the corresponding exhibit of the Quarterly Report on
Form 10-Q of Renaissance Media Group LLC, Renaissance Media
(Louisiana) LLC, Renaissance Media (Tennessee) LLC and Renaissance
Media Capital Corporation for the quarter ended March 31, 1999,
filed on May 17, 1999 (Commission File Nos. 333-56679, 333-56679-02,
333-56679-01 and 333-56679-03, respectively)).
3.11 Amended and Restated Limited Liability Agreement of Renaissance
Media (Tennessee) LLC, dated April 29, 1999. (Incorporated by
reference to the corresponding exhibit of the Quarterly Report on
Form 10-Q of Renaissance Media Group LLC, Renaissance Media
(Louisiana) LLC, Renaissance Media (Tennessee) LLC and Renaissance
Media Capital Corporation for the quarter ended March 31, 1999,
filed on May 17, 1999 (Commission File Nos. 333-56679, 333-56679-02,
333-56679-01 and 333-56679-03, respectively)).
3.12 Amended and Restated Limited Liability Agreement of Renaissance
Media LLC, dated April 29, 1999. (Incorporated by reference to the
corresponding exhibit of the Quarterly Report on Form 10-Q of
Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC,
Renaissance Media (Tennessee) LLC and Renaissance Media Capital
Corporation for the quarter ended March 31, 1999, filed on May 17,
1999 (Commission File Nos. 333-56679, 333-56679-02, 333-56679-01 and
31
333-56679-03, respectively)).
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
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