<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 JUNE 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
FOR THE SIX MONTHS ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION
Item 1: Condensed Consolidated Financial Statements of Renaissance
Media Group LLC and Subsidiaries
Consolidated Balance Sheets as of June 30, 1999 (Unaudited) and
December 31, 1998...............................................................................4
Condensed Consolidated Statements of Operations for the Two Months
Ended June 30, 1999, One Month Ended April 30, 1999, and Three
Months Ended June 30, 1998 (Unaudited)..........................................................5
Condensed Consolidated Statements of Operations for the Two Months
Ended June 30, 1999, Four Months Ended April 30, 1999, and Six
Months Ended June 30, 1998 (Unaudited)..........................................................6
Condensed Consolidated Statements of Changes in Member's Equity
for June 30, 1999 (Unaudited)...................................................................7
Condensed Consolidated Statements of Cash Flows for the Two Months
Ended June 30, 1999, Four Months Ended April 30, 1999, and Six
Months Ended June 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..........................................................................13
</TABLE>
<PAGE> 3
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
QUARTERLY REPORT
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
<S> <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
------------------ | -------------------
JUNE 30, 1999 | DECEMBER 31,
ASSETS (UNAUDITED) | 1998
------------------ | -------------------
<S> <C> | <C>
Cash and cash equivalents $ 792 | $ 8,482
Accounts receivable - trade (less allowance for doubtful accounts |
of $82 in 1999 and $92 in 1998) 2,492 | 118
Accounts receivable - other 8,000 | 584
Prepaid expenses and other assets 170 | 340
Escrow deposit -- | 150
Investment in cable television systems: |
Property, plant and equipment 66,108 | 71,246
Less: accumulated depreciation (1,322) | (7,294)
--------- | ---------
64,786 | 63,952
--------- | ---------
|
Cable television franchises 399,471 | 236,489
Less: accumulated amortization (4,471) | (11,473)
--------- | ---------
395,000 | 225,016
--------- | ---------
|
Intangible assets -- | 17,559
Less: accumulated amortization -- | (1,059)
--------- | ---------
-- | 16,500
--------- | ---------
|
Total investment in cable television systems 459,786 | 305,468
--------- | ---------
TOTAL ASSETS $ 471,240 | $ 315,142
========= | =========
|
LIABILITIES AND MEMBER'S EQUITY |
|
Accounts payable $ 1,275 | $ 2,042
Accrued expenses 4,565 | 7,470
Advances from affiliates -- | 135
Payables to manager of cable television systems - related party 294 | --
Debt 82,644 | 209,874
--------- | ---------
TOTAL LIABILTIES 88,778 | 219,521
--------- | ---------
MEMBER'S EQUITY: |
Paid-in capital 384,667 | 108,600
Accumulated deficit (2,205) | (12,979)
--------- | ---------
TOTAL MEMBER'S EQUITY 382,462 | 95,621
========= | =========
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 471,240 | $ 315,142
========= | =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
------------------- | ------------------------------------------
TWO MONTHS | ONE MONTH THREE MONTHS
ENDED JUNE 30, | ENDED APRIL 30, ENDED JUNE 30,
1999 | 1999 1998
------------------- | ------------------ -------------------
|
<S> <C> | <C> <C>
Revenues $ 10,411 | $ 5,142 $ 12,921
|
Cost and expenses: |
Operating, general and administrative 4,880 | 2,493 6,556
Depreciation and amortization 5,793 | 2,257 5,456
Corporate expense charges - related party 200 | - -
------------------- | ------------------ -------------------
Operating income (loss) (462) | 392 909
|
Interest income - | 32 60
Interest expense (1,743) | (1,524) (4,376)
------------------- | ------------------ -------------------
|
Loss before provision (benefit) for taxes (2,205) | (1,100) (3,407)
|
Provision (benefit) for taxes - | (123) 75
------------------- | ------------------ -------------------
|
Net loss $ (2,205) | $ (977) $ (3,482)
=================== | ================== ===================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
------------------- | ------------------------------------------
TWO MONTHS | FOUR MONTHS SIX MONTHS
ENDED JUNE 30, | ENDED APRIL 30, ENDED JUNE 30,
1999 | 1999 1998
------------------- | ------------------ -------------------
|
<S> <C> | <C> <C>
Revenues $ 10,411 | $ 20,396 $ 12,921
|
Cost and expenses: |
Operating, general and administrative 4,880 | 9,382 6,658
Depreciation and amortization 5,793 | 8,912 5,457
Corporate expense charges - related party 200 | - -
------------------ | ------------------ -------------------
Operating income (loss) (462) | 2,102 806
|
Interest income - | 122 60
Interest expense (1,743) | (6,321) (4,389)
------------------ | ------------------ -------------------
|
Loss before provision (benefit) for taxes (2,205) | (4,097) (3,523)
|
Provision (benefit) for taxes - | (65) 75
------------------ | ------------------ -------------------
|
Net loss $ (2,205) | $ ( 4,032) $ (3,598)
================== | ================== ===================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE> 7
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONDENSED 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 -- (3,055) (3,055)
---------------- ---------------- ---------------
Balance at March 31, 1999 108,600 (16,034) 92,566
Net loss -- (977) (977)
---------------- ---------------- ---------------
Balance at April 30, 1999 $ 108,600 $ (17,011) $ (91,589)
================ ================ ===============
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
SUCCESSOR
--------------------------------------------------------
TOTAL
PAID-IN ACCUMULATED MEMBER'S
CAPITAL DEFICIT EQUITY
---------------- ---------------- ---------------
<S> <C> <C> <C>
Initial capitalization, May 1, 1999 $ 350,608 $ -- $ 350,608
Contribution 34,223 -- 34,223
Distribution (164) -- (164)
Net loss -- (2,205) (2,205)
---------------- ---------------- ---------------
Balance at June 30, 1999 $ 384,667 $ (2,205) $ 382,462
================ ================ ===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE> 8
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
------------------- | --------------------------------------
TWO MONTHS ENDED | FOUR MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 | APRIL 30, 1999 JUNE 30, 1998
------------------- | ------------------- -----------------
|
<S> <C> | <C> <C>
OPERATING ACTIVITIES: |
Net loss $ (2,205) | $ (4,032) $ (3,598)
Adjustments to reconcile net loss to net cash provided by (used |
in) operating activities: |
Depreciation and amortization 5,793 | 8,912 5,457
Accretion on senior discount notes and non-cash interest |
expense 1,754 | 3,850 2,300
Changes in operating assets and liabilities, net of effects from |
acquisitions: |
Accounts receivable, net (10,015) | 298 (1,422)
Prepaid expenses and other assets 232 | (75) (360)
Accounts payable and accrued expenses 363 | (5,046) 10,053
Payables to manager of cable television systems - related |
party 129 | -- --
Advances from affiliates -- | (135) 104
--------- | --------- ---------
Net cash provided by (used in) by operating activities (3,949) | 3,772 12,534
--------- | --------- ---------
|
INVESTING ACTIVITIES: |
Acquisitions of cable systems -- | (2,770) (309,500)
Escrow deposit -- | 150 --
Capital expenditures (659) | (4,250) (691)
Cable television franchises -- | -- (1,235)
Other intangible assets -- | 16 (490)
--------- | --------- ---------
Net cash used in investing activities (659) | (6,854) (311,916)
--------- | --------- ---------
|
FINANCING ACTIVITIES: |
Debt acquisition costs -- | -- (8,343)
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 -- | -- 108,500
--------- | --------- ---------
Net cash provided by financing activities -- | -- 302,669
--------- | --------- ---------
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,608) | (3,082) 3,287
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,400 | 8,482 --
--------- | --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 792 | $ 5,400 $ 3,287
========= | ========= =========
|
CASH PAID FOR INTEREST $ 2,515 | $ 4,210 $ 312
========= | ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8
<PAGE> 9
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 this Acquisition, the Company had no operations other than start-up
related activities.
On February 23, 1999, Holdings, Charter Communications, Inc., (now
known as Charter Investment, Inc. and referred to herein as "Charter") and
Charter Communications, LLC ("CC LLC") executed a purchase agreement (the
"Charter Purchase Agreement"), providing for Holdings to sell and CC LLC 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 for a
purchase price of $459 million, consisting of $348 million in cash and $111
million in carrying value of debt assumed.
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.
Additional disclosures and information are included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
9
<PAGE> 10
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 $350.6 million to reflect the amounts paid by CC LLC. 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. 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 June 30, 1999, and for the successor period (May 1, 1999,
through June 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 six months ended June
30, 1998) and therefore, such information is not comparable.
Unaudited pro forma operating results as though the Charter Transaction
and TWI Acquisition (discussed in Note1) 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 June 30 Six Months Ended June 30
------------------------------------ -----------------------------------
1999 1998 1999 1998
---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 15,553 $ 14,531 $ 30,807 $ 28,272
Operating loss (710) (1,532) (1,034) (3,567)
Net loss (3,169) (4,087) (6,076) (8,736)
</TABLE>
The unaudited 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") with
aggregate commitments totaling $150,000, consisting 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 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
JUNE 30, 1999
(DOLLARS IN THOUSANDS EXCEPT WHERE INDICATED)
(UNAUDITED)
The Charter Transaction resulted in a "change of control" of the
Company. On May 28, 1999, in accordance with the terms and conditions of the
indenture governing the 10% senior discount notes (the "Notes"), the Company
made an offer (the "Purchase 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 Purchase Offer expired on June 23, 1998, and 48,762 notes
($1,000 face amount at maturity) were validly tendered. On June 28, 1999, CC LLC
made a capital contribution in the amount of $34,223 enabling the Company to
purchase the Notes.
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). To the extent permitted by the indenture, excess
cash will be distributed to CC LLC, including repayment of borrowings under
Charter Communications Operating, LLC's ("CCO"), the indirect parent of the
Company, 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
programming 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.
For the three months and six months ended June 30, 1999, the Company
incurred $707 and $2,716 for programming services under this agreement. In
addition, the Company incurred programming costs of $205 and $918 for
programming services owned directly or indirectly by Time Warner entities for
the three months and six months ended June 30, 1999.
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 or (less)
than the corporate expenses incurred by Charter, the Company will record
distributions to or (capital contributions from) its equity holder. For the
period from May 1, 1999, through June 30, 1999, the management fee charged to
the Company exceeded the corporate expenses incurred by Charter on behalf of the
Company by $164 which is reflected as a capital distribution. Management fees
currently payable of $364 are included in payables to manager of cable
television systems - related party as of June 30, 1999.
11
<PAGE> 12
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(DOLLARS IN THOUSANDS EXCEPT WHERE INDICATED)
(UNAUDITED)
6. EMPLOYEE BENEFIT PLAN
The Company sponsored a defined contribution plan that covered
substantially all employees (the "Plan"). The Plan provided for contributions
from eligible employees up to 15% of their compensation subject to a maximum
limit as determined by the Internal Revenue Service. The Company's contribution
to the Plan was limited to 50% of each eligible employee's contribution up to
10% of his or her compensation. The Company had the right to change the amount
of the Company's matching contribution percentage. The Company matching
contributions totaled $16 and $54 for the three months ended and six months
ended June 30, 1999.
In connection with the Charter Transaction, the Plan's assets were
frozen as of April 30, 1999, and employees became fully vested. Effective July
1, 1999, the Company's employees with two months of service are eligible to
participate in the Charter Communications, Inc. 401(k) Plan (the "Charter
Plan"). Employees that qualify for participation can contribute up to 15% of
their salary, on a before tax basis, subject to a maximum contribution limit as
determined by the Internal Revenue Service.
12
<PAGE> 13
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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. 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.
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 Southwest. 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. (now known
as Charter Investment, Inc. and referred to herein as "Charter") and Charter
Communications, LLC ("CC LLC") executed a purchase agreement (the "Charter
Purchase Agreement"), providing for Holdings to sell and CC LLC 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
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.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The cable television business requires substantial capital for the
upgrading, expansion and maintenance of signal distribution equipment, as well
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 the Systems in a cost-effective manner.
The working capital requirements of a cable television 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 used in operations was $5.6 million and $0.2 million for the
three months ended and six months ended June 30, 1999, respectively. Net cash
used in investing activities was $2.5 million and $7.5 million for the three
months ended and six months ended June 30, 1999. No cash was provided or used in
financing activities for the three months ended and six months ended June 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 $14 million to $17 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 six months ended June 30,
1999, the Company made capital expenditures of approximately $0.7 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.
The Charter Transaction resulted in a "change of control" of the
Company. On May 28, 1999, in accordance with the terms and conditions of the
indenture governing the 10% senior discount notes (the "Notes"), the Company
made an offer (the "Purchase 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 Purchase Offer expired on June 28, 1999, and 48,762 notes
($1,000 face amount at maturity) were validly tendered. On June 28, 1999, CC LLC
made a capital contribution in the amount of $34,223 enabling the Company to
purchase the Notes.
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). To the extent permitted by the indenture,
excess cash will be distributed to CC LLC, including repayments of borrowings
under Charter Communications Operating, LLC's ("CCO") the indirect parent of the
Company, credit facility (the "CCO Credit Agreement").
The Company and all subsidiaries of CCO have guaranteed payment and
performance by CCO of its obligations under 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.
14
<PAGE> 15
RESULTS OF OPERATIONS
The Comparability of operating results between the three and six months
ended June 30, 1999 and the corresponding periods for 1998 are affected by two
events which occurred during 1998 and 1999: 1) Charter Transaction on April 30,
1999 and 2) TWI Acquisition on April 9, 1998.
The following table summarizes the operating results for the three and
six months ended June 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 June 30). 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
television 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 $82.6 million. The remainder of our operations is being
financed by CCO.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- --------------------------
1999 1998 1999 1998
------------- ------------- ------------ -------------
(in 000's)
<S> <C> <C> <C> <C>
Revenues $ 15,553 $ 12,921 $ 30,807 $ 12,921
Operating expenses 15,623 12,012 29,167 12,115
------------- ------------- ------------ -------------
Operating income (loss) (70) 909 1,640 806
Interest and other expenses 3,112 4,391 7,877 4,404
------------- ------------- ------------ -------------
Net loss $ (3,182)$ (3,482) $ (6,237)$ (3,598)
============= ============= ============ =============
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998
The Systems served 131,447 basic subscribers at June 30, 1999 compared
with 126,985 basic subscribers at June 30, 1998, an increase of 4,462
subscribers or 3.5%. Premium service units decreased to 54,262 at June 30, 1999
from 60,189 at June 30, 1998.
Revenues. Revenues increased $2.6 million, or 20.4%, to $15.6 million
for the three months ended June 30, 1999 from $12.9 million for the three months
ended June 30, 1998. The increase in revenues for the three months ended June
30, 1999 resulted primarily from the TWI Acquisition.
Expenses. Expenses include operating, general and administrative and
depreciation and amortization and increased $3.6 million or 30.1% from $12.0
million for the three months ended June 30, 1998 to $15.6 million for the three
months ended June 30, 1999. The increase in expenses for the three months ended
June 30, 1999 resulted primarily from the Charter Transaction and TWI
Acquisition.
In connection with the TWI Acquisition, Media entered into an agreement
with Time Warner, pursuant to which Time Warner would manage the Company's
programming 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. For the three months ended June 30,
1999, the Company incurred $0.7 million for programming services under this
agreement.
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 or (less)
than the corporate expenses incurred by Charter, the Company will record
distributions to or (capital contributions from) its equity holder. For the
period from May 1, 1999, through June 30, 1999, the management fee charged to
the Company exceeded the corporate expenses incurred by Charter on behalf of the
Company by $164,000 which is reflected as a capital distribution.
Operating Income (loss). Operating income decreased $1 million from
$0.9 million for the three months ended June 30, 1998 to an operating loss of
$0.1 million for the three months ended June 30, 1998. The decrease in operating
income for the three months ended June 30, 1999 resulted primarily from the
Charter Transaction and TWI Acquisition.
Interest Expense and other expenses. Interest expense and other
expenses, decreased $1.3 million or 29.1% to $3.1 million for the three months
ended June 30, 1999 from $4.4 million for the three months ended June 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 $0.3
million, or 8.6%, to $3.2 million for the three months ended June 30, 1999 from
$3.5 million for the three months ended June 30, 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
Revenues. Revenues increased $17.9 million, or 138.4%, to $30.8 million
for the six months ended June 30, 1999 from $12.9 million for the six months
ended June 30, 1998. The increase in revenues for the six months ended June 30,
1999 resulted primarily from the TWI Acquisition.
15
<PAGE> 16
Expenses. Expenses increased $17.1 million or 140.8% from $12.1 million
for the six months ended June 30, 1998 to $29.2 for the six months ended June
30, 1999. For the six months ended June 30, 1999, the Company incurred $2.7
million for programming services under the Time Warner Agreement. The increase
in expenses for the six months ended June 30, 1999 resulted primarily from the
Charter Transaction and TWI Acquisition.
Operating Income (Loss). Operating income increased $0.8 million or
103.5% to $1.6 million for the six months ended June 30, 1999 from $0.8 million
for the six months ended June 30, 1998. The increase in operating income
resulted from the increase in revenue of $17.9 million for the six month period
ended June 30, 1999, over the six month period ended June 30, 1998.
Interest Expense and other expenses. Interest expense and other
expenses, increased $3.5 million or 78.9% to $7.9 million for the six months
ended June 30, 1999 from $4.4 million for the six months ended June 30, 1998.
This increase was due primarily to the fact that the TWI acquisition partially
offset by the extinguishment of debt on May 1, 1999.
Net Loss. For the reasons discussed above, net loss increased $2.6
million, or 73.3%, to $6.2 million for the six months ended June 30, 1999 from
$3.6 million for the six months ended June 30, 1998.
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 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 expects to receive Year 2000 certifications from independent parties
by the second quarter of 1999. Determinations of Year 2000 compliance
requirements for less mission critical systems are in progress and are expected
to be completed in the 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, if executed as planned, 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 not incurred any material Year 2000 costs to date, and
excluding the need for contingency plans, does not expect to incur any material
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.
16
<PAGE> 17
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 not yet finalized contingency plans necessary to handle
the most likely worst case scenarios. Before concluding as to possible
contingency plans, the Company must determine whether the material service
providers contemplate having such plans in place. In the event that contingency
plans from material service providers are not in place or are deemed inadequate,
management expects to have such plans in place by the third quarter of 1999.
IMPACT OF INFLATION
With the exception of 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. 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 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).
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
(a) CHANGE IN CONTROL
As a result of the Charter Transaction and on April 30, 1999,
the direct owner of 100% of Group's membership interests was
Charter Communications, LLC and the ultimate beneficial owner was
Paul G. Allen.
In addition to a beneficial ownership interest in Group,
Charter Investment, Inc. ("Charter"), previously doing business
as Charter Communications, Inc., an entity substantially owned by
Paul G. Allen, was named manager of Group and each of its
subsidiaries pursuant to the terms of Amended and Restated
Limited Liability Company Agreements (the "LLC Agreements"),
dated April 30, 1999. Furthermore, Charter now provides
management services to Group and its subsidiaries by virtue of an
Amended and Restated Management Agreement between Charter and
Charter Communications Holdings, LLC ("Charter Holdings"); this
agreement covers all subsidiaries of Charter Holdings.
(b) CHANGE OF DIRECTORS
Effective April 30, 1999, pursuant to the LLC Agreements
Jerald L. Kent was appointed as the sole member of the Board of
Directors of Group and each of its subsidiaries.
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
RENAISSANCE MEDIA CAPITAL CORPORATION
By: /s/ JERALD L. KENT August 13, 1999
--------------------------------------------
Name: Jerald L. Kent
Title: President, Chief Executive Officer
By: /s/ KENT D. KALKWARF August 13, 1999
--------------------------------------------
Name: Kent D. Kalkwarf
Title: Senior Vice President and
Chief Financial Officer
19
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<ARTICLE> 5
<CIK> 0001062363
<NAME> RENAISSANCE MEDIA
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 792
<SECURITIES> 0
<RECEIVABLES> 10,574
<ALLOWANCES> 82
<INVENTORY> 0
<CURRENT-ASSETS> 11,454
<PP&E> 67,430
<DEPRECIATION> (1,322)
<TOTAL-ASSETS> 471,240
<CURRENT-LIABILITIES> 5,840
<BONDS> 82,644
0
0
<COMMON> 0
<OTHER-SE> 382,462
<TOTAL-LIABILITY-AND-EQUITY> 471,240
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<INCOME-PRETAX> (6,302)
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