<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______.
COMMISSION FILE NUMBER:
RENAISSANCE MEDIA GROUP LLC - 333-56679
RENAISSANCE MEDIA (TENNESSEE) LLC - 333-56679-01
RENAISSANCE MEDIA (LOUISIANA) LLC - 333-56679-02
RENAISSANCE MEDIA CAPITAL CORPORATION - 333-56679-03
(Exact names of Registrants as specified in their charters)
Delaware 14-1803051
Delaware 14-1801165
Delaware 14-1801164
Delaware 14-1803049
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Numbers)
12444 Powerscourt Drive - Suite 100
St. Louis, Missouri 63131
(Address of principal executive offices)
(314) 965-0555
(Registrants' telephone number including area code)
Indicate by check mark whether the Registrants: (1) have filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days:
Yes X No
------ ------
State the aggregate market value of the voting equity securities held by
non-affiliates of the Registrants:
All of the limited liability company membership interests of
Renaissance Media (Tennessee) LLC and Renaissance Media (Louisiana) 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 one member. There is no public trading market for any of
the aforementioned limited liability company membership interests or
shares of capital stock.
<PAGE> 2
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
QUARTERLY REPORT AS OF SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1: Condensed Consolidated Financial Statements of Renaissance
Media Group LLC and Subsidiaries
Consolidated Balance Sheets as of September 30, 1999 (Unaudited) and
December 31, 1998..................................................................4
Consolidated Statements of Operations for the Three Months Ended
September 30, 1999 and Three Months Ended September 30, 1998
(unaudited)........................................................................5
Consolidated Statements of Operations for the Five Months Ended
September 30, 1999, Four Months Ended April 30, 1999, and Nine
Months Ended September 30, 1998 (unaudited)........................................6
Consolidated Statements of Changes in Member's Equity for
September 30, 1999 (unaudited).....................................................7
Consolidated Statements of Cash Flows for the Five
Months Ended September 30, 1999, Four Months Ended
April 30, 1999, and Nine Months Ended September 30,
1998 (unaudited)...................................................................8
Notes to Condensed Consolidated Financial Statements - (Unaudited).................9
Separate Financial Statements of Renaissance Media Capital Corporation have not
been presented as this entity had no operations and substantially no assets or
equity.
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................................12
</TABLE>
<PAGE> 3
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
QUARTERLY REPORT AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART II OTHER INFORMATION
Item 1: Legal Proceedings..................................................................18
Item 2: Changes in Securities..............................................................18
Item 3: Defaults Upon Senior Securities....................................................18
Item 4: Submission of Matters to Vote of Security Holders..................................18
Item 5: Other Information..................................................................18
Item 6: Exhibits and Reports on Form 8-K...................................................18
Signature Page................................................................................19
</TABLE>
<PAGE> 4
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
------------ | -----------
SEPTEMBER 30, |
1999 | DECEMBER 31,
ASSETS (UNAUDITED) | 1998
------------ | -----------
<S> <C> | <C>
Cash and cash equivalents $ 2,847 | $ 8,482
Accounts receivable - trade (less allowance for doubtful |
accounts of $96 in 1999 and $92 in 1998) 1,793 | 118
Accounts receivable - other -- | 584
Prepaid expenses and other assets 263 | 340
Escrow deposit -- | 150
Receivable from related party 13,500 | --
Investment in cable systems: |
Property, plant and equipment 69,388 | 71,246
Less: accumulated depreciation (3,408) | (7,294)
------------ | -----------
65,980 | 63,952
------------ | -----------
|
|
Cable franchises 399,739 | 236,489
Less: accumulated amortization (11,162) | (11,473)
------------ | -----------
388,577 | 225,016
------------ | -----------
|
Intangible assets -- | 17,559
Less: accumulated amortization -- | (1,059)
------------ | -----------
-- | 16,500
------------ | -----------
|
Total investment in cable television systems 454,557 | 305,468
------------ | -----------
|
TOTAL ASSETS $ 472,960 | $ 315,142
============ | ===========
|
LIABILITIES AND MEMBER'S EQUITY |
|
Accounts payable $ 1,594 | $ 2,042
Accrued expenses 5,909 | 7,470
Advances from affiliates -- | 135
Payables to manager of cable systems - related party 1,647 | --
Debt 83,800 | 209,874
------------ | -----------
TOTAL LIABILITIES 92,950 | 219,521
------------ | -----------
MEMBER'S EQUITY: |
Paid-in capital 384,261 | 108,600
Accumulated deficit (4,251) | (12,979)
------------ | -----------
Total member's equity 380,010 | 95,621
============ | ===========
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 472,960 | $ 315,142
============ | ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
------------------ | ------------------
THREE MONTHS ENDED | THREE MONTHS ENDED
SEPTEMBER 30, 1999 | SEPTEMBER 30, 1998
------------------ | ------------------
<S> <C> | <C>
Revenues $ 15,782 | $ 14,246
|
Cost and expenses: |
Operating, general and administrative 7,709 | 7,198
Depreciation and amortization 8,777 | 6,802
Corporate expense charges - related party 311 | -
------------------ | ------------------
Operating income (loss) (1,015) | 246
|
Interest income 38 | 31
Interest expense (1,050) | (4,679)
------------------ | ------------------
|
Loss before provision for income taxes (2,027) | (4,402)
|
Provision for income taxes 19 | 30
------------------ | ------------------
|
Net loss $ (2,046) | $ (4,432)
================== | ==================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
------------------- | ------------------------------------------
FIVE MONTHS | NINE MONTHS
ENDED | FOUR MONTHS ENDED
SEPTEMBER 30, | ENDED APRIL 30, SEPTEMBER 30,
1999 | 1999 1998
------------------- | ------------------ -------------------
<S> <C> | <C> <C>
Revenues $ 26,193 | $ 20,396 $ 27,167
|
Cost and expenses: |
Operating, general and administrative 12,589 | 9,382 13,855
Depreciation and amortization 14,570 | 8,912 12,259
Corporate expense charges - related party 511 | - -
------------------- | ------------------ -------------------
Operating income (loss) (1,477) | 2,102 1,053
|
Interest income 38 | 122 91
Interest expense (2,793) | (6,321) (9,069)
------------------- | ------------------ -------------------
|
Loss before provision (benefit) for income taxes (4,232) | (4,097) (7,925)
|
Provision (benefit) for income taxes 19 | (65) 105
------------------- | ------------------ -------------------
|
Net loss $ (4,251) | $ (4,032) $ (8,030)
=================== | ================== ===================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE> 7
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------------------
PAID-IN ACCUMULATED TOTAL MEMBER's
CAPITAL DEFICIT EQUITY
---------------- -------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1998 $ 108,600 $ (12,979) $ 95,621
Net loss -- (4,032) (4,032)
---------------- --------------- ---------------
Balance at April 30, 1999 $ 108,600 $ (17,011) $ 91,589
================ =============== ===============
- ---------------------------------------------------------------------------------------------------------------------
SUCCESSOR
--------------------------------------------------------
TOTAL
PAID-IN ACCUMULATED MEMBER's
CAPITAL DEFICIT EQUITY
---------------- ---------------- ---------------
Initial capitalization, May 1, 1999 $ 350,444 $ -- $ 350,444
Contribution 34,223 -- 34,223
Distributions (406) -- (406)
Net loss -- (4,251) (4,251)
---------------- ---------------- ---------------
Balance at September 30, 1999 $ 384,261 $ (4,251) $ 380,010
================ ================ ===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE> 8
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
------------------- | --------------------------------------
| NINE MONTHS
| ENDED
FIVE MONTHS ENDED | FOUR MONTHS ENDED SEPTEMBER 30,
SEPTEMBER 30, 1999 | APRIL 30, 1999 1998
------------------- | ----------------- ----------------
<S> <C> | <C> <C>
OPERATING ACTIVITIES: |
Net loss $ (4,251) | $ (4,032) $ (8,030)
Adjustments to reconcile net loss to net cash provided by |
operating activities: |
Depreciation and amortization 14,570 | 8,912 12,259
Accretion on senior discount notes and non-cash interest |
expense 2,744 | 3,850 4,835
Changes in operating assets and liabilities, net of effects |
from acquisitions: |
Accounts receivable, net (14,816) | 298 (1,546)
Prepaid expenses and other assets 139 | (75) (530)
Accounts payable and accrued expenses 2,026 | (5,046) 8,574
Payables to manager of cable systems - related party 1,646 | - -
Deferred marketing support - | - 478
Advances from affiliates - | (135) 104
------------------ | ---------------- ---------------
Net cash provided by operating activities 2,058 | 3,772 16,144
------------------ | ---------------- ---------------
|
INVESTING ACTIVITIES: |
Acquisitions of cable systems (268) | (2,770) (309,600)
Escrow deposit - | 150 -
Capital expenditures (3,937) | (4,250) (2,260)
Cable franchises - | - (1,510)
Other intangible assets - | 16 (463)
------------------ | ---------------- ---------------
Net cash used in investing activities (4,205) | (6,854) (313,833)
------------------ | ---------------- ---------------
|
FINANCING ACTIVITIES: |
Debt acquisition costs - | - (8,344)
Repayments on bank debt - | - (7,500)
Proceeds from bank debt - | - 110,000
Net proceeds from issuance of 10% senior discount notes - | - 100,012
Capital contributions - | - 108,600
Distributions to parent (406) | - -
------------------ | ---------------- ---------------
Net cash provided by (used in) financing activities (406) | - 302,768
------------------ | ---------------- ---------------
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,553) | (3,082) 5,079
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,400 | 8,482 -
------------------ | ---------------- ---------------
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,847 | $ 5,400 $ 5,079
================== | ================ ===============
|
CASH PAID FOR INTEREST $ 2,525 | $ 4,210 $ 2,464
================== | ================ ===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8
<PAGE> 9
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS EXCEPT WHERE INDICATED)
(UNAUDITED)
1. ORGANIZATION
Renaissance Media Group LLC ("Group") was formed on March 13, 1998, by
Renaissance Media Holdings LLC ("Holdings"). On March 20, 1998, Holdings
contributed to Group its membership interests in two wholly owned subsidiaries;
Renaissance Media (Louisiana) LLC ("Louisiana") and Renaissance Media
(Tennessee) LLC ("Tennessee"). Louisiana and Tennessee acquired a 76% interest
and 24% interest, respectively, in Renaissance Media LLC ("Media") from Morgan
Stanley Capital Partners III, Inc. ("MSCP III") on February 13, 1998 for a
nominal amount. As a result, Media became a subsidiary of Holdings. The transfer
was accounted for as a reorganization of entities under common control similar
to a pooling of interests since an entity affiliated with MSCP III had a
controlling interest in Holdings. Group and its subsidiaries are collectively
referred to as the "Company" herein. On April 9, 1998, the Company acquired (the
"TWI Acquisition") six cable television systems (the "TWI Systems") from TWI
Cable, Inc. ("TWI Cable") a subsidiary of Time Warner Inc. ("Time Warner").
Prior to TWI Acquisition, the Company had no operations other than start-up
related activities.
On February 23, 1999, Holdings, Charter Communications, Inc., presently
doing business as Charter Investment, Inc. ("Charter") and Charter
Communications, LLC ("Buyer" or "CC LLC") executed a purchase agreement (the
"Charter Purchase Agreement"), providing for Holdings to sell and Buyer to
purchase, all the outstanding limited liability company membership interests in
Group held by Holdings (the "Charter Transaction") subject to certain covenants
and restrictions pending closing and satisfaction of certain conditions prior to
closing. The purchase price was $459 million, consisting of $348 million in cash
and $111 million in carrying value of debt assumed. On April 30, 1999, the
Charter Transaction was consummated.
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles. The interim financial statements
are unaudited but include all adjustments, which are of normal recurring nature
that the Company considers necessary for a fair presentation of the financial
position and the results of operations and cash flows for such periods.
Operating results of interim periods are not necessarily indicative of results
for a full year.
For further information, refer to the Company's Annual Report on Form
10-K for the year ended December 31, 1998 for additional disclosures and
information.
9
<PAGE> 10
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS EXCEPT WHERE INDICATED)
(UNAUDITED)
3. ACQUISITIONS:
As a result of the change in ownership of Group, the Company has
applied push-down accounting in the preparation of the accompanying financial
statements effective April 30, 1999. Accordingly, the Company increased its
member's equity to $350.4 million to reflect the amounts paid by Charter. The
purchase price was allocated to assets acquired and liabilities assumed based on
their relative fair values including amounts assigned to franchises of $399.5
million. The allocation of the purchase price is based, in part, on preliminary
information which is subject to adjustment upon obtaining complete valuation
information of intangible assets. Management believes that the finalization of
the purchase price will not have a material impact on the results of operations
or financial position of the Company.
As a result of the Charter Transaction, application of push-down
accounting and the allocation of purchase price, the financial information of
the Company in the accompanying condensed consolidated financial statements and
notes thereto as of September 30, 1999, and for the successor period (May 1,
1999 through September 30, 1999) is presented on a different cost basis than the
financial information of the Company as of December 31, 1998, and for the
predecessor periods (January 1, 1999 through April 30, 1999, and the nine months
ended September 30, 1998) and therefore, such information is not comparable.
Pro forma operating results as though the Charter Transaction and the
TWI Acquisition (discussed in Note 1) had been consummated on January 1, 1998
with pro forma adjustments to give effect to amortization of franchises,
interest expense and certain other adjustments are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------------ -----------------------------------
1999 1998 1999 1998
---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues $15,782 $14,660 $46,667 $42,932
Operating income (loss) 1,668 6,461 634 2,894
Net income (loss) 5,067 2,652 (1,009) (6,084)
</TABLE>
The pro forma information has been presented for comparative purposes
and does not purport to be indicative of the results of operations had these
transactions been completed as of the assumed date or which may be obtained in
the future.
4. DEBT
Media maintained a credit agreement (the "Credit Agreement"). The
aggregate commitments under the Credit Agreement totaled $150,000, consisted of
a $40,000 revolver, $60,000 Tranche A Term Loans and $50,000 Tranche B Term
Loans. In connection with the Charter Transaction all amounts outstanding,
including accrued interest and unpaid fees, under the Credit Agreement were paid
in full and the Credit Agreement was terminated on April 30, 1999.
10
<PAGE> 11
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS EXCEPT WHERE INDICATED)
(UNAUDITED)
On May 28, 1999, as a result of the Charter Transaction (i.e., change
of control) and in accordance with the terms and conditions of the indenture
governing the 10% senior discount notes (the "Notes"), the Company made an offer
(the "Tender Offer") to purchase any and all of the Notes at 101% of their
accreted value, plus accrued and unpaid interest, if any, through June 28, 1999.
The Tender Offer expired on June 23, 1999, whereby 48,762 notes ($1 face amount
at maturity) were validly tendered and accepted for purchase. On June 28, 1999,
Charter Communications Operating, LLC ("CCO"), the indirect parent of the
Company, paid a sum of $34,223 for all of the Notes validly tendered.
Accordingly, the Company recorded this payment for the extinguishment of debt as
a capital contribution.
The indenture governing the Notes limits cash payments by the Company
to the sum of: i) the amount by which consolidated EBITDA (as defined) exceeds
130% of consolidated interest expense (as defined) determined on a cumulative
basis, ii) capital contributions, and iii) an amount equal to the net reduction
in investments (as defined). Excess cash will be made available to CCO, parent
entity of CC LLC, as permitted by the indenture, including the funding of CCO's
credit facility (the "CCO Credit Agreement").
The Company and all subsidiaries of CCO have guaranteed payment and
performance by CCO of its obligations inherent in the CCO Credit Agreement. In
addition, Group and its wholly owned subsidiaries, and all subsidiaries of CCO
have pledged their ownership interests as collateral to the CCO Credit
Agreement.
5. RELATED PARTY TRANSACTIONS
In connection with the TWI Acquisition, Media entered into an agreement
with Time Warner, pursuant to which Time Warner would manage the Company's cable
programming services in exchange for providing the Company access to certain
Time Warner programming arrangements (the "Time Warner Agreement"). Management
believes that these programming rates made available through its relationship
with Time Warner are lower than the Company could obtain separately. Such volume
rates are not available after the Charter Transaction.
In connection with the Charter Transaction, the Time Warner Agreement
was terminated and Media returned to Time Warner $650 in deferred marketing
credits owed to program providers under the programming arrangements.
Currently, the Company is charged a management fee equal to 3.5% of
revenues, as stipulated in the management agreement between Charter and CCO. To
the extent that management fees charged to the Company are greater (less) than
the corporate expenses incurred by Charter, the Company will record
distributions to (capital contributions from) Charter. For the period from May
1, 1999 through September 30, 1999, the management fee charged to the Company
exceeded the corporate expenses incurred by Charter on behalf of the Company by
$406, which is reflected as a capital distribution. Management fees currently
payable of $917 are included in payables to manager of cable systems - related
party as of September 30, 1999.
Receivable from related party represents temporary non-interest bearing
loans to CCO.
11
<PAGE> 12
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION AND RECENT DEVELOPMENTS
Renaissance Media Group LLC ("Group") was formed by Renaissance Media
Holdings LLC ("Holdings") on March 13, 1998. Group was formed to acquire,
operate and develop cable television systems through its subsidiaries in markets
within the United States primarily located in the Southeast. Group and its
wholly owned subsidiaries are collectively referred to as the "Company" herein.
Prior to March 13, 1998, the Company's start-up activities were conducted by
Holdings and Renaissance Media LLC ("Media").
On April 9, 1998, the Company completed its first acquisition (the "TWI
Acquisition"). Pursuant to an asset purchase agreement with TWI Cable, the
Company acquired cable television systems clustered in southern Louisiana,
western Mississippi and western Tennessee (the "TWI Systems").
On February 23, 1999, Holdings, Charter Communications, Inc.
("Charter"), presently doing business as Charter Investment, Inc., and Charter
Communications, LLC ("Buyer" or "CC LLC") executed a purchase agreement (the
"Charter Purchase Agreement"), providing for Holdings to sell and Buyer to
purchase, all the outstanding limited liability company membership interests in
Group held by Holdings (the "Charter Transaction") subject to certain covenants
and restrictions pending closing, and satisfaction of certain conditions prior
to closing. On April 30, 1999, the Charter Transaction was consummated. In
connection therewith, all amounts outstanding, including accrued interest and
unpaid fees, under the Credit Agreement were paid in full and the Credit
Agreement was terminated.
OVERVIEW
Historically, the Company's strategy has been to increase its revenues
and EBITDA, (as defined herein), by acquiring, operating and developing cable
television systems and capitalizing on the expertise of management, as well as
the Company's relationship with the management investors and Time Warner.
Following the completion of the Charter Transaction, the Company
intends to continue to increase its subscriber base and operating cash flow by
improving and upgrading its technical plant and expanding its service offerings.
The Company believes that by clustering systems it is able to realize economies
of scale, such as reduced payroll, reduced billing and technical costs per
subscriber, reduced advertising sales costs, increased local advertising sales,
more efficient roll-out and utilization of new technologies and consolidation of
its customer service functions. The Company plans to improve and upgrade its
technical plant, which should allow it to provide a wide array of new services
and service tiers, as well as integrate new interactive features into advanced
analog and digital set-top consumer equipment. The Company also plans to develop
and provide new cable and broadband services and develop ancillary businesses
including digital video and high-speed Internet access services.
RESULTS OF OPERATIONS
The comparability of operating results between the three and nine
months ended September 30, 1999 and the corresponding periods for 1998 are
affected by two events which occurred during 1998 and 1999: 1) the Charter
Transaction on April 30, 1999 and 2) the TWI Acquisition on April 9, 1998.
12
<PAGE> 13
The following table summarizes the operating results for the three and
nine months ended September 30, 1999 in comparison to the same periods in 1998,
the 1999 results for the predecessor period (January 1 through April 30) have
been combined with the successor period (May 1 through September 30) and exclude
any pro forma adjustments related to the Charter Transaction. The most
significant impact of the Charter Transaction on the operating results was the
increase in amortization expense as a result of the allocation of $399.5 million
to cable franchises and the reduction in interest expense as a result of the
extinguishment of debt. In conjunction with the Charter Transaction, our debt
has been reduced to $83.8 million. The remainder of our operations is being
financed by CCO.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- -------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 15,782 $ 14,246 $ 46,589 $ 27,167
Operating expenses 16,797 14,000 45,964 26,114
------------ ----------- ----------- -----------
Operating income (loss) (1,015) 246 625 1,053
Interest and other expenses 1,031 4,678 8,908 9,083
------------ ----------- ----------- -----------
Net loss $ (2,046) $ (4,432) $ (8,283) $ (8,030)
============ =========== =========== ===========
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1998
The Systems served 132,258 basic subscribers at September 30, 1999
compared with 127,919 basic subscribers at September 30, 1998, an increase of
4,339 subscribers or 3.4%. Premium service units increased to 60,750 at
September 30, 1999 from 59,831 at September 30, 1998.
Revenues. Revenues increased $1.6 million, or 10.8%, to $15.8 million
for the three months ended September 30, 1999 from $14.2 million for the three
months ended September 30, 1998. The increase in revenues for the three months
ended September 30, 1999 resulted primarily from the increase in basic customers
and an increase in the basic and expanded basic rates charged to these
customers.
Operating Expenses. Operating expenses include operating, general and
administrative, depreciation and amortization, and corporate expense charges and
increased $2.8 million or 20.0% from $14.0 million for the three months ended
September 30, 1998 to $16.8 million for the three months ended September 30,
1999. The increase in operating expenses for the three months ended September
30, 1999 resulted primarily from the increase in programming costs and severance
costs associated with the Charter Transaction. Programming rates previously made
available to the Company through its relationship with Time Warner are lower
than such volume rates available after the Charter Transaction.
Operating Income (Loss). Operating income decreased $1.2 million from
$0.2 million for the three months ended September 30, 1998 to an operating loss
of $1.0 million for the three months ended September 30, 1999. The increase in
revenues that resulted from customer growth and price increases was not
sufficient to offset the increase in operating expenses.
Interest Expense and other expenses. Interest expense and other
expenses, decreased $3.7 million or 78.0% to $1.0 million for the three months
ended September 30, 1999 from $4.7 million for the three months ended September
30, 1998. This decrease was due to lower interest expense in connection with the
extinguishment of debt on May 1, 1999.
Net Loss. For the reasons discussed above, net loss decreased $2.4
million, or 53.8%, to $2.0 million for the three months ended September 30, 1999
from $4.4 million for the three months ended September 30, 1998.
13
<PAGE> 14
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Revenues increased $19.4 million, or 71.5%, to $46.6 million
for the nine months ended September 30, 1999 from $27.2 million for the nine
months ended September 30, 1998. The increase in revenues for the nine months
ended September 30, 1999 resulted primarily from the TWI Acquisition.
Operating Expenses. Operating expenses increased $19.9 million or 76.0%
from $26.1 million for the nine months ended September 30, 1998 to $46.0 for the
nine months ended September 30, 1999. The increase in operating expenses for the
nine months ended September 30, 1999 resulted primarily from the Charter
Transaction and the TWI Acquisition.
Operating Income (Loss). Operating income decreased $0.5 million or
40.6% to $0.6 million for the nine months ended September 30, 1999 from $1.1
million for the nine months ended September 30, 1998. The decrease in operating
income resulted from the Charter Transaction and the TWI Acquisition.
Interest Expense and other expenses. Interest expense and other
expenses, decreased $0.2 million or 1.9% to $8.9 million for the nine months
ended September 30, 1999 from $9.1 million for the nine months ended September
30, 1998. This decrease was due to the extinguishment of debt on May 1, 1999.
Net Loss. For the reasons discussed above, net loss increased $0.3
million, or 3.2% to $8.3 million for the nine months ended September 30, 1999
from $8.0 million for the nine months ended September 30, 1998.
REGULATION AND LEGISLATION
The operation of a cable system is extensively regulated by the Federal
Communications Commission, some state governments and most local governments.
The 1996 Telecom Act has altered the regulatory structure governing the nation's
communications providers. It removes barriers to competition in both the cable
television market and the local telephone market. Among other things, it reduces
the scope of cable rate regulation and encourages additional competition in the
video programming industry by allowing local telephone companies to provide
video programming in their own telephone service areas.
The 1996 Telecom Act requires the Federal Communications Commission to
undertake a host of rulemakings. Moreover, Congress and the Federal
Communications Commission have frequently revisited the subject of cable
regulation. Future legislative and regulatory changes could adversely affect our
operations, and there have been calls in Congress and at the Federal
Communications Commission to maintain or even tighten cable regulation in the
absence of widespread effective competition.
The 1992 Cable Act imposed an extensive rate regulation regime on the
cable television industry, which limited the ability of cable companies to
increase subscriber fees. Under the regime, all cable systems are subject to
rate regulation, unless they fact "effective competition" in their local
franchise area. Federal law now defines "effective competition" on a
community-specific basis as requiring satisfaction of conditions rarely
satisfied in the current marketplace.
The Federal Communications Commission's authority to regulate cable
programming service tier rates effectively expired on March 31, 1999. The
Federal Communications Commission has taken the position that it will still
adjudicate cable programming service tier complaints filed after this sunset
date, but no later than 180 days after the last cable programming service tier
rate increase imposed prior to March 31, 1999, and will strictly limit its
review, and possibly refund orders, to the time period predating the sunset
date. We do not believe any adjudications regarding these pre-sunset complaints
will have a material adverse effect on our business. The elimination of cable
programming service tier regulation, which is the rate regulation of a
particular level of packaged programming services, typically referring to the
expanded basic level of service, on a prospective basis affords us substantially
greater pricing flexibility.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The cable business requires substantial capital for the upgrading,
expansion and maintenance of signal distribution equipment, as well as for home
subscriber devices and wiring, and service vehicles. The Company will continue
to deploy fiber optic technology and to upgrade the Systems to a minimum of 550
MHz. The deployment of fiber optic technology will allow the Company to complete
future upgrades to its systems in a cost-effective manner.
The working capital requirements of a cable business are generally not
significant since subscribers are billed for services monthly in advance, while
the majority of expenses incurred (except for payroll) are paid generally 30-60
days after their incurrence.
Net cash provided by operations was $5.7 million and $5.8 million for
the three months ended and nine months ended September 30, 1999, respectively.
Net cash used in investing activities was $3.5 million and $11.1 million for the
three months ended and nine months ended September 30, 1999. Net cash used in
financing activities was $-0- and $0.4 million for the three months ended and
nine months ended September 30, 1999.
The Company expects to make substantial investments in capital to: (i)
upgrade its cable plant; (ii) build line extensions; (iii) purchase new
equipment; and (iv) acquire the equipment necessary to implement its digital,
Internet and data transmission strategies. In 1999, the Company estimates
capital expenditures will range from approximately $10 million to $12 million.
However, the actual amount and timing of the Company's capital requirements may
differ materially from the Company's estimates as a result of, among other
things, the demand for the Company's services and regulatory, technological and
competitive developments (including additional market developments and new
opportunities) in the Company's industry. During the nine months ended September
30, 1999, the Company made capital expenditures of approximately $8.2 million.
Borrowings under Media's Credit Agreement bore interest at floating
rates, although the Company was required to maintain interest rate protection
programs. Media's obligations under the Credit Agreement were secured by
substantially all the assets of Media. On April 30, 1999, all outstanding
indebtedness under the Credit Agreement was repaid and the facility was
terminated.
On May 28, 1999, as a result of the Charter Transaction (i.e., change
of control) and in accordance with the terms and conditions of the indenture
governing the 10% senior discount notes (the "Notes"), the Company made an offer
(the "Tender Offer") to purchase any and all of the Notes at 101% of their
accreted value, plus accrued and unpaid interest, if any, through June 28, 1999.
The Tender Offer expired on June 23, 1999, whereby 48.8 million notes ($1,000
face amount at maturity) were validly tendered and accepted for purchase. On
June 28, 1999, Charter Communications Operating, LLC ("CCO"), parent entity of
CC LLC, paid a sum of $34.2 million for all the Notes validly tendered.
Accordingly, the Company recorded this payment for the extinguishment of debt as
a capital contribution.
The indenture governing the 10% Notes limits cash payments by the
Company to the sum of: i) the amount by which consolidated EBITDA (as defined)
exceeds 130% of consolidated interest expense (as defined) determined on a
cumulative basis, ii) capital contributions, and iii) an amount equal to the net
reduction in investments (as defined). Excess cash will be made available to
CCO, as permitted by the indenture, including the funding of CCO's credit
facility (the "CCO Credit Agreement").
The Company and all subsidiaries of CCO have guaranteed payment and
performance by CCO of its obligations inherent in the CCO Credit Agreement. In
addition, Group and its wholly owned subsidiaries, Renaissance (Louisiana) Media
LLC and Renaissance (Tennessee) Media LLC, and all subsidiaries of CCO have
pledged their ownership interests as collateral to the CCO Credit Agreement.
YEAR 2000 ISSUES
The Company relies on computer systems, related software applications
and other control devices in operating and monitoring all major aspects of its
business, including, but not limited to, its financial systems (such as general
ledger, accounts payable, payroll and fixed asset modules), subscriber billing
systems, internal networks and telecommunications equipment. The Company also
relies, directly and indirectly, on the external systems of
15
<PAGE> 16
various independent business enterprises, such as its suppliers and financial
organizations, for the accurate exchange of data.
The Company continues to assess the likely impact of Year 2000 issues
on its business operations, including its material information technology ("IT")
and non-IT applications. These material applications include all billing and
subscriber information systems, general ledger software, payroll systems,
accounting software, phone switches and certain headend applications, all of
which are third party supported.
The Company believes it has identified all systems that may be affected
by Year 2000 issues. Concurrent with the identification phase, the Company is
securing compliance determinations relative to all identified systems. For those
systems that the Company believes are material, compliance programs have been
received or such systems have been certified by independent parties as Year 2000
compliant. For those material systems that are subject to compliance programs,
the Company has received Year 2000 certifications from independent parties by
the second quarter of 1999. Determinations of Year 2000 compliance requirements
for less mission critical systems have been completed by the end of third
quarter of 1999.
With respect to third parties with which the Company has a material
relationship, the Company believes its most significant relationships are with
financial institutions, who receive subscriber monthly payments and maintain
Company bank accounts, and subscriber billing and management systems providers.
We have received compliance programs, which should provide a high degree of
assurance that all Year 2000 third party issues described herein will be
addressed by late 1999.
The Company has incurred $100,000 in Year 2000 costs to date, and
excluding the need for contingency plans, does not expect to incur any
additional significant Year 2000 costs in the future because most of its
applications are maintained by third parties who have borne Year 2000 compliance
costs.
The Company cannot be certain that it or third parties supporting its
systems have resolved or will resolve all Year 2000 issues in a timely manner.
Failure by the Company or any such third party to successfully address the
relevant Year 2000 issues could result in disruptions of the Company's business
and the incurrence of significant expenses by the Company. Additionally, the
Company could be affected by any disruption to third parties with which the
Company does business if such third parties have not successfully addressed
their Year 2000 issues.
Failure to resolve Year 2000 issues could result in improper billing to
the Company's subscribers which could have a major impact on the recording of
revenue and the collection of cash as well as create significant customer
dissatisfaction. In addition, failure on the part of the financial institutions
with which the Company relies on for its cash collection and management services
could also have significant impact on collections, results of operations and the
liquidity of the Company.
The Company has developed contingency plans necessary to handle the
most likely worst case scenarios and distributed those plans to field personnel
outlining specific manual override procedures and a communication program. These
plans have been developed in concert with out third party suppliers.
IMPACT OF INFLATION
With the exception of cable programming costs, the Company does not
believe that inflation has had or will have a significant effect on its results
of operations or capital expenditure programs. Cable programming cost increases
in the past have tended to exceed inflation and may continue to do so in the
future. The Company, in accordance with FCC regulations, may pass along
programming cost increases to its subscribers.
NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board issued Statement
No. 133, entitled "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"). SFAS No. 133 established accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value and that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedging accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on
16
<PAGE> 17
the hedged item in the statement of operations, and requires that a company must
formally document, designate and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 137 "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133 -- An Amendment of FASB Statement No. 133" has delayed the effective date of
SFAS No. 133 to fiscal years beginning after June 15, 2000. We have not yet
quantified the impacts of adopting SFAS No. 133 on our consolidated financial
statements nor have we determined the timing or method of our adoption of SFAS
No. 133. However, SFAS No. 133 could increase volatility in earnings (losses).
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
the Securities Exchange Act of 1934, as amended, and of the Securities Act of
1933, as amended, and is subject to the safe harbors created by those sections.
The Company's actual results could differ materially from those discussed herein
and its current business plans could be altered in response to market conditions
and other factors beyond the Company's control. The forward-looking statements
within this Form 10-Q are identified by words such as "believes", "anticipates",
"accepts", "intends", "may", "will" and other similar expressions. However,
these words are not the exclusive means of identifying such statements. In
addition, any statements that refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking
statements. The Company undertakes no obligation to release publicly the results
of any revisions to these forward-looking statements that may be made to reflect
events or circumstances occurring subsequent to the filing of this Form 10-Q
with the SEC.
Important factors that could cause actual results to differ materially
from the forward-looking statements contained herein include, but are not
limited to:
- our anticipated capital expenditures for our planned upgrades and
the ability to fund these expenditures; and
- our expectations to be ready for any Year 2000 problem.
Readers are urged to review and consider carefully the various
disclosures made by the Company in this report and in the Company's other
reports filed with the SEC that attempt to advise interested parties of the
risks and factors that may effect the Company's business.
17
<PAGE> 18
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS - None
ITEM 2: CHANGES IN SECURITIES - None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS - None
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Included in this report:
27.1 Financial Data Schedule (supplied for the information
of the Commission)
(b) REPORTS OF FORM 8-K - none during the quarter.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
RENAISSANCE MEDIA GROUP LLC
RENAISSANCE MEDIA (TENNESSEE) LLC
RENAISSANCE MEDIA (LOUISIANA) LLC
Dated November 12, 1999 By: CHARTER INVESTMENT, INC.
------------------------
its Manager
By: /s/ JERALD L. KENT
--------------------------------------
Name: Jerald L. Kent
Title: President, Chief Executive Officer
RENAISSANCE MEDIA CAPITAL CORPORATION
Dated November 12, 1999 By: /s/ JERALD L. KENT
--------------------------------------
Name: Jerald L. Kent
Title: President, Chief Executive Officer
By: /s/ JERALD L. KENT November 12, 1999
--------------------------------------
Name: Jerald L. Kent
Title: President, Chief Executive Officer
By: /s/ KENT D. KALKWARF November 12, 1999
--------------------------------------
Name: Kent D. Kalkwarf
Title: Senior Vice President and
Chief Financial Officer
19
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