<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
------------ ------------
COMMISSION FILE NUMBERS:
RENAISSANCE MEDIA GROUP LLC*--333-56679
RENAISSANCE MEDIA (LOUISIANA) LLC*--333-56679-02
RENAISSANCE MEDIA (TENNESSEE) LLC*--333-56679-01
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
incorporation or organization) Identification Numbers)
12444 Powerscourt Drive - Suite 100
St. Louis, Missouri 63131
(Address of principal executive offices) (Zip code)
(314) 965-0555
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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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 (Louisiana) LLC and Renaissance Media (Tennessee) LLC are held by
Renaissance Media Group LLC. All of the issued and outstanding shares of capital
stock of Renaissance Media Capital Corporation are held by Renaissance Media
Group LLC. All of the limited liability company membership interests of
Renaissance Media Group LLC are held by Charter Communications, LLC (and
indirectly by Charter Communications Holdings, LLC, a reporting company under
the Exchange Act). There is no public trading market for any of the
aforementioned limited liability company membership interests or shares of
capital stock.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated into this Report by reference: None
* Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC, Renaissance
Media (Tennessee) LLC and Renaissance Media Capital Corporation meet the
conditions set forth in General Instruction J(1)(a) and (b) to the Form 10-K and
are therefore filing with the reduced disclosure format.
<PAGE> 3
RENAISSANCE MEDIA GROUP LLC
RENAISSANCE MEDIA (LOUISIANA) LLC
RENAISSANCE MEDIA (TENNESSEE) LLC
RENAISSANCE MEDIA CAPITAL CORPORATION
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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Page
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Item 1 Business....................................................................... 1
Item 2 Properties..................................................................... 2
Item 3 Legal Proceedings.............................................................. 3
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters.......... 3
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 4
Item 7a Quantitative and Qualitative Disclosures about Market Risk..................... 5
Item 8 Financial Statements and Supplementary Data.................................... 6
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................. 6
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K................. 6
Signatures............................................................................... 10
</TABLE>
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PART I
ITEM 1--BUSINESS
Organization and Ownership Structure
Renaissance Media Group LLC ("Group") was formed by Renaissance Media Holdings
LLC ("Holdings") to own and operate cable television systems that provide
programming and related services to subscribers. Renaissance Media Capital
Corporation ("Capital") was also formed by Holdings as a wholly owned subsidiary
of Group. 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 had previously 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 six cable television
systems from TWI Cable, Inc., a subsidiary of Time Warner Inc. ("Time Warner").
On February 23, 1999, Holdings, Charter Communications, Inc., presently doing
business as Charter Investment, Inc. ("Charter Investment"), and Charter
Communications, LLC ("Buyer" or "CC LLC") executed a purchase agreement (the
"Charter Purchase Agreement"). The Charter Purchase Agreement provided for
Holdings to sell and Buyer to purchase all of the outstanding limited liability
company membership interests in Group held by Holdings (the "Charter
Transaction"), subject to certain covenants and restrictions pending
satisfaction of certain conditions prior to closing. The purchase price was $459
million, consisting of $348 million in cash and $111 million in accreted value
of debt assumed. On April 30, 1999, the Charter Transaction was consummated. The
Company is now indirectly held by Charter Communications Holdings, LLC, which is
a reporting company under the Exchange Act.
General
The Company was formed to acquire, operate and develop medium-sized cable
television systems. The six cable television systems acquired from Time Warner
in 1998 are clustered in southern Louisiana and western Mississippi (the
"Louisiana Systems") and western Tennessee (the "Tennessee System"). As of
December 31, 1999, they passed approximately 196,600 homes and served
approximately 133,600 subscribers. Group and Capital have no material assets
other than Group's investment in Louisiana and Tennessee and do not, and will
not, conduct any operations.
The Company's objective is to increase operating cash flow by increasing the
customer base and the amount of cash flow per customer. The Company intends to
achieve this objective by improving its technical plant, resulting in increasing
the bandwidth capacity of the systems, offering new products and services, and
maximizing customer satisfaction. The Company also 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 offer new cable and broadband services including
digital television and high-speed Internet access.
The Company's principal executive offices are located at 12444 Powerscourt Drive
- - Suite 100, St. Louis, Missouri, 63131.
The Louisiana Systems
The Louisiana Systems consist of five cable television systems serving
approximately 99,900 basic subscribers as of December 31, 1999, located in
southern Louisiana and western Mississippi: the St. Tammany system, the St.
Landry system, the Lafourche system, the Picayune system and the Pointe Coupee
system.
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The Tennessee System
As of December 31, 1999, the Tennessee System served approximately 33,700 basic
subscribers located in Jackson, Tennessee and surrounding counties.
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-K 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-K
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:
- - General economic and business conditions, both nationally and in the regions
where the Company operates;
- - Anticipated capital expenditures for planned upgrades and the ability to fund
these expenditures;
- - Technology changes;
- - The Company's ability to effectively compete in a highly competitive
environment;
- - Changes in business strategy or development plans;
- - Beliefs regarding the effects of governmental regulation on the Company's
business;
- - The ability to attract and retain qualified personnel;
- - Liability and other claims asserted against the Company.
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
affect the Company's business.
ITEM 2--PROPERTIES
A cable television system consists of three principal operating components. The
first component, known as the headend, receives television and information
signals generally by means of special antennas and satellite earth stations. The
second component, the distribution network, which originates at the headend and
extends throughout the system's service area, consists of microwave relays,
coaxial or fiber optic cables and associated electronic equipment placed on
utility poles or buried underground. Coaxial cable is a type of cable used for
broadband data and cable systems. This type of cable has excellent broadband
frequency characteristics, noise, immunity and physical durability. Fiber optic
cable is a communication medium that uses hair-thin glass fibers to transmit
signals over long distances with minimum signal loss or distortion. The third
component of the system is a "drop cable," which extends from the distribution
network into each customer's home and connects the distribution system to the
customer's television set. An additional component used in certain systems is
the home terminal device, or converter/descrambler, that expands channel
capacity to permit reception of multiple channels of programming on a non-cable
ready television set and permits the operator to control the reception of
program offerings by subscribers.
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The Company's principal physical assets consist of cable television systems,
including signal-receiving, encoding and decoding apparatus, headends,
distribution systems and subscriber house drop equipment for each of the
systems. The signal receiving apparatus typically includes a tower, antennas,
ancillary electronic equipment and earth stations for reception of satellite
signals. Headends, consisting of associated electronic equipment necessary for
the reception, amplification and modulation of signals, typically are located
near the receiving devices. The Company's distribution systems consist primarily
of coaxial cable, fiber optic cable and related electronic equipment. As
upgrades are completed, the Company will continue to incorporate fiber optic
cable. At December 31, 1999, approximately 48% of the Company's customers were
served by systems with at least 550 megahertz bandwidth capacity. Subscriber
equipment consists of house drops, converters/descramblers and, in some cases,
traps. The Company owns its distribution systems, various office fixtures, test
equipment and certain service vehicles. The physical components of the systems
require maintenance and periodic upgrading to keep pace with technological
advances.
The Company's cables are generally attached to utility poles in accordance with
pole rental agreements with local public utilities, although in some areas the
distribution cable is buried in trenches or placed in underground ducts. The FCC
regulates most pole attachment rates under the Federal Pole Attachment Act,
although in certain cases attachment rates are regulated by state law.
The Company owns or leases parcels of real property for signal reception sites
(antenna towers and headends), microwave complexes and business offices. The
Company believes that its properties, both owned and leased, are in good
condition and are suitable and adequate for the Company's business operations as
presently conducted.
ITEM 3--LEGAL PROCEEDINGS
As of the date hereof, the Company is not a party to any material pending
litigation proceedings. The Company is subject to certain litigation proceedings
incidental to its business. The Company's management believes that the outcome
of all pending legal proceedings will not, individually or in the aggregate,
have a material adverse effect on the Company's business, results of operations
or financial condition.
PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established trading market for the equity interests in any of
Louisiana, Tennessee, Capital and Group. CC LLC (and indirectly Charter
Communications Holdings, LLC) owns all of the limited liability company
membership interests of Group. Group owns all the limited liability company
membership interests of Louisiana and Tennessee and all the outstanding capital
stock of Capital.
Effective with the Charter Transaction, the Company records distributions when
management fees charged to the Company exceed expenses incurred on its behalf.
For the eight months ended December 31, 1999, net distributions totaled $18,800.
The Company has not paid distributions to its members since its inception. The
Company's ability to pay distributions is limited under the terms of covenants
in the indenture governing Group's outstanding Senior Discount Notes.
3
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ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table summarizes amounts and the percentage of total revenues for
certain items for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED | FOUR MONTHS ENDED FOR THE PERIOD FROM APRIL 9,
DECEMBER 31, 1999 | APRIL 30, 1999 1998 TO DECEMBER 31, 1998 (a)
---------------------------- | ---------------------------- -------------------------------
|
Amount % | Amount % Amount %
------ - | ------ - ------ -
<S> <C> <C> | <C> <C> <C> <C>
Revenues (b) $42,032 100.0 | $21,110 100.0 $ 42,977 100.0
------------ ------------ | --------------- -------- ----------------- ---------
|
Costs and Expenses: |
Operating, General |
and Administrative (b) 20,566 48.9 | 10,096 47.8 22,490 52.3
Depreciation and |
Amortization 23,150 55.1 | 8,912 42.2 19,107 44.5
Corporate Expense |
Charges-Related Party 1,625 3.9 | -- -- -- --
------------ ------------ | --------------- -------- ----------------- ---------
|
Operating Income (Loss) (3,309) (7.9) | 2,102 10.0 1,380 3.2
|
Interest Income 61 0.1 | 122 0.6 158 0.4
Interest Expense (5,527) (13.1) | (6,321) (30.0) (14,358) (33.4)
------------ ------------ | --------------- -------- ----------------- ---------
|
Loss Before Income Taxes (8,775) (20.9) | (4,097) (19.4) (12,820) (29.8)
|
Provision (Benefit) for |
Income Taxes -- -- | (65) (0.3) 135 0.3
------------ ------------ | --------------- -------- ----------------- ---------
|
Net Loss $ (8,775) (20.9) | $(4,032) (19.1) $(12,955) (30.1)
============ ============ | =============== ======== ================= =========
</TABLE>
Other financial data is as follows for the periods indicated (dollars in
thousands, except Revenue per Basic Customer):
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
EIGHT MONTHS ENDED | APRIL 9, 1998 TO
DECEMBER 31, 1999 | DECEMBER 31, 1998 (a)
---------------------------- | -------------------------------
<S> <C> | <C>
EBITDA (c) $ 19,841 | $20,487
Adjusted EBITDA (d) 21,466 | 20,487
Homes Passed |
(at period end) 196,591 | 185,620
Basic Customers 133,617 | 129,164
Basic Penetration 68.0% | 69.6%
Premium Units 72,534 | 58,712
Premium Penetration 54.3% | 45.5%
Average Monthly Revenue |
per Basic Customer $ 39.32 | $36.97
</TABLE>
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(a) The results of operations for the period ended December 31, 1998, only
include operating results for the period April 9, 1998 to December 31, 1998.
Prior to April 9, 1998, the Company had no operations.
(b) Local governmental authorities impose franchise fees on the Company ranging
up to a federally mandated maximum of 5.0% of gross revenues. On a monthly
basis, such fees are collected from the Company's customers and are periodically
remitted to local franchises. Revenues and operating, general and administrative
expenses presented here have been restated for the periods prior to the Charter
Transaction to include the franchise fees collected from customers and then
remitted to local franchises as revenues.
(c) EBITDA represents earnings (loss) before interest, income taxes,
depreciation and amortization. EBITDA is presented because it is a widely
accepted financial indicator of a cable company's ability to service
indebtedness. However, EBITDA should not be considered as an alternative to
income from operations or to cash flows from operating, investing or financing
activities, as determined in accordance with generally accepted accounting
principles. EBITDA should also not be construed as an indication of a company's
operating performance or as a measure of liquidity. Management's discretionary
use of funds depicted by EBITDA may be limited by working capital, debt service
and capital expenditure requirements and by restrictions related to legal
requirements, commitments and uncertainties.
(d) Adjusted EBITDA means EBITDA before corporate expense charges, management
fees and other income (expense). Adjusted EBITDA is presented because it is a
widely accepted financial indicator of a cable company's ability to service
indebtedness. However, adjusted EBITDA should not be considered as an
alternative to income from operations or to cash flows from operating, investing
or financing activities, as determined in accordance with generally accepted
accounting principles. Adjusted EBITDA should also not be construed as an
indication of a company's operating performance or as a measure of liquidity. In
addition, because adjusted EBITDA is not calculated identically by all
companies, the presentation here may not be comparable to other similarly titled
measures of other companies. Management's discretionary use of funds depicted by
adjusted EBITDA may be limited by working capital, debt service and capital
expenditure requirements and by restrictions related to legal requirements,
commitments and uncertainties.
Comparison of Results
As a result of the Charter Transaction, the application of push-down accounting,
and the allocation of purchase price, the financial results for the periods
presented above are not comparable. In addition, prior to the acquisition of the
six cable television systems from Time Warner on April 9, 1998, the Company had
no operations. Consequently, the results of operations for the period ended
December 31, 1998, only include operating results for the period April 9, 1998
to December 31, 1998.
Year 2000 Issues
The Company has not experienced significant service disruptions or any other
problems since the beginning of the year 2000. Management can not assure,
however, that such problems will not arise in connection with customer billing
or other periodic information gathering. The cost of the year 2000 remediation
program was approximately $100,000. Management does not anticipate significant
additional expenditures during 2000.
ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A significant portion of the customer base is concentrated within the local
geographical area of each of the individual cable television systems. The
Company generally extends credit to customers, and the ultimate collection of
accounts receivable could be affected by the local economy. Management performs
continuous credit evaluations of its customers and may require cash in advance
or other special arrangements from certain customers. Management does not
believe that there is any significant credit risk that could have a material
effect on the Company's financial condition.
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The following summarizes the contract terms and fair value of the Company's debt
at December 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
Expected Maturity Date
-------------------------------------------------------------- Fair
2000 2001 2002 2003 2004 Thereafter Total Value
---------- -------- -------- --------- --------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT
Fixed Rate -- -- -- -- -- $114,413 $114,413 $79,517
Interest Rate -- -- -- 10.0% 10.0% 10.0% 10.0%
</TABLE>
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, predecessor combined financial
statements, the related notes thereto, and the reports of the Company's and
predecessor's independent auditors are included in this Form 10-K beginning on
page F-1.
Separate financial statements for Capital have not been presented as Capital had
substantially no assets or equity. Accordingly, management has determined that
such financial statements would not be material to investors.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company filed a Form 8-K dated February 10, 2000 (amended on February 22,
2000), which announced a change in the Company's principal independent
accountants from Ernst & Young LLP to Arthur Andersen LLP.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) A listing of the financial statements, notes and reports of
independent
public accountants required by Item 8 begins on page F-1 of this
Annual Report on Form 10-K.
(2) Financial Statement Schedules
All schedules are omitted because they are not required, not
applicable, or the information is given in the financial statements
or notes thereto.
(3) Exhibits (listed by numbers corresponding to the Exhibit Table of Item
601 in Regulation S-K):
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation of Renaissance Media Capital Corporation
and all amendments thereto. (1)
3.2 By-laws of Renaissance Media Capital Corporation. (1)
3.3 Certificate of Formation of Renaissance Media (Louisiana) LLC. (1)
3.4 * Certificate of Formation of Renaissance Media, LLC.
3.5 Certificate of Formation of Renaissance Media (Tennessee) LLC. (1)
3.7 Certificate of Formation of Renaissance Media Group LLC. (1)
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Exhibit
Number Description
- ------- -----------
3.9 Amended and Restated Limited Liability Agreement of Renaissance Media
Group LLC, dated April 29, 1999. (3)
3.10 Amended and Restated Limited Liability Agreement of Renaissance Media
(Louisiana) LLC, dated April 29, 1999. (3)
3.11 Amended and Restated Limited Liability Agreement of Renaissance Media
(Tennessee) LLC, dated April 29, 1999. (3)
3.12 Amended and Restated Limited Liability Agreement of Renaissance Media
LLC, dated April 29, 1999. (3)
4.1 Indenture dated as of April 9, 1998, by and among Renaissance Media
(Louisiana) LLC, Renaissance Media (Tennessee) LLC, Renaissance Media
Capital Corporation, Renaissance Media Group LLC and United States
Trust Company of New York, as Trustee. (1)
10.5 Social Contract approved by the Federal Communications Commission (the
"FCC") on November 30, 1995, and entered into between the FCC and Time
Warner Entertainment Company, L.P., TWI Cable Inc. and Time Warner
Entertainment-Advance/Newhouse Partnership, or any subsidiary, division
or affiliate thereof. (2)
10.27 Purchase Agreement dated as of February 23, 1999, by and among Charter
Communications, Inc., Charter Communications, LLC, Renaissance Media
Holdings LLC and Renaissance Media Group LLC. [Confidential material
omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.] (4)
10.28 Assumption Agreement, dated as of April 30, 1999, made by Renaissance
Media Group LLC in favor of NationsBank, N.A. (3)
10.29 Assumption Agreement, dated as of April 30, 1999, made by Renaissance
(Louisiana) Media LLC in favor of NationsBank, N.A. (3)
10.30 Assumption Agreement, dated as of April 30, 1999, made by Renaissance
(Tennessee) Media LLC in favor of NationsBank, N.A. (3)
10.31 Assumption Agreement, dated as of April 30, 1999, made by Renaissance
Media Capital Corporation in favor of NationsBank, N.A. (3)
10.33 Assumption Agreement, dated as of April 30, 1999, made by Renaissance
Media LLC in favor of NationsBank, N.A. (3)
27.1 * Financial Data Schedule.
7
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(1) Incorporated by reference to the corresponding exhibit of the
Registration Statement of Renaissance Media Group LLC, Renaissance
Media (Louisiana) LLC, Renaissance Media (Tennessee) LLC and
Renaissance Media Capital Corporation on Form S-4 (Commission File No.
333-56679), filed on June 12, 1998.
(2) Incorporated by reference to the corresponding exhibit of Amendment 1
to the Registration Statement of Renaissance Media Group LLC,
Renaissance Media (Louisiana) LLC, Renaissance Media (Tennessee) LLC
and Renaissance Media Capital Corporation on Form S-4 (Commission File
No. 333-56679), filed on August 6, 1998.
(3) Incorporated by reference to the corresponding exhibit of the Quarterly
Report on Form 10-Q of Renaissance Media Group LLC, Renaissance Media
(Louisiana) LLC, Renaissance Media (Tennessee) LLC and Renaissance
Media Capital Corporation for the quarter ended March 31, 1999, filed
on May 17, 1999 (Commission File No. 333-56679).
(4) Incorporated by reference to Exhibit 99.1 of the Current Report on Form
8-Kof Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC,
Renaissance Media (Tennessee) LLC and Renaissance Media Capital
Corporation dated February 23, 1999 (Commission File No. 333-56679).
* Filed herewith.
(b) Reports on Form 8-K:
No reports on form 8-K were filed during the fourth quarter of 1999. However,
the Company filed a form 8-K dated February 10, 2000 (amended on February 22,
2000), which announced a change in the Company's principal independent
accountants.
8
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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual reports or proxy materials were sent to the Registrants' security
holders during fiscal year 1999.
9
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RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
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Page
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RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
Report of Independent Public Accountants...........................................................................F-2
Consolidated Balance Sheet as of December 31, 1999.................................................................F-3
Consolidated Statement of Operations for the eight months ended December 31, 1999..................................F-4
Consolidated Statement of Changes in Member's Equity for the eight months ended December 31, 1999..................F-5
Consolidated Statement of Cash Flows for the eight months ended December 31, 1999..................................F-6
Notes to Consolidated Financial Statements.........................................................................F-7
RENAISSANCE MEDIA GROUP LLC
Report of Independent Auditors.....................................................................................F-18
Consolidated Balance Sheet as of April 30, 1999....................................................................F-19
Consolidated Statement of Operations for the four months ended April 30, 1999......................................F-20
Consolidated Statement of Changes in Members' Equity for the four months ended April 30, 1999......................F-21
Consolidated Statement of Cash Flows for the four months ended April 30, 1999......................................F-22
Notes to Consolidated Financial Statements.........................................................................F-23
RENAISSANCE MEDIA GROUP LLC
Report of Independent Auditors.....................................................................................F-35
Consolidated Balance Sheet as of December 31, 1998.................................................................F-36
Consolidated Statement of Operations for the year ended December 31, 1998..........................................F-37
Consolidated Statement of Changes in Members' Equity for the year ended December 31, 1998..........................F-38
Consolidated Statement of Cash Flows for the year ended December 31, 1998..........................................F-39
Notes to Consolidated Financial Statements.........................................................................F-40
RENAISSANCE MEDIA HOLDINGS LLC AND RENAISSANCE MEDIA LLC
Report of Independent Auditors.....................................................................................F-50
Combined Balance Sheet as of December 31, 1997.....................................................................F-51
Combined Statements of Income and Retained Earnings for the period from November 5, 1997
(Date of Inception) to December 31, 1997 .........................................................................F-52
Combined Statement of Cash Flow for the period from November 5, 1997 (Date of Inception)
to December 31, 1997..............................................................................................F-53
Notes to Financial Statements......................................................................................F-54
PREDECESSOR
Report of Independent Auditors.....................................................................................F-57
Combined Balance Sheet as of April 8, 1998.........................................................................F-58
Combined Statement of Operations for the period from January 1, 1998 through April 8, 1998.........................F-59
Combined Statement of Changes in Net Assets for the period from January 1, 1998 through
April 8, 1998.....................................................................................................F-60
Combined Statement of Cash Flows for the period January 1, 1998 through April 8, 1998..............................F-61
Notes to Combined Financial Statements.............................................................................F-62
PREDECESSOR
Report of Independent Auditors.....................................................................................F-69
Combined Balance Sheets as of December 31, 1996 and 1997...........................................................F-70
Combined Statements of Operations for the years ended December 31, 1995, 1996 and 1997.............................F-71
Combined Statements of Changes in Net Assets for the years ended December 31, 1996 and 1997........................F-72
Combined Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997.............................F-73
Notes to Combined Financial Statements.............................................................................F-74
</TABLE>
F-1
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Report of Independent Public Accountants
To Renaissance Media Group LLC:
We have audited the accompanying consolidated balance sheet of Renaissance
Media Group LLC and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, changes in member's equity and cash
flows for the eight months ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Renaissance Media Group
LLC and subsidiaries as of December 31, 1999, and the results of their
operations and their cash flows for the eight months ended December 31,
1999, in conformity with accounting principles generally accepted in the
United States.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
February 16, 2000
F-2
<PAGE> 15
Renaissance Media Group LLC and Subsidiaries
Consolidated Balance Sheet
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 3,521
Accounts receivable - trade, less allowance for doubtful accounts of $80 1,084
Prepaid expenses and other assets 157
Receivable from related party 12,500
------------------------
Total current assets 17,262
------------------------
Investment in cable systems:
Property, plant and equipment 67,396
Franchises, net of accumulated amortization of $18,445 396,416
------------------------
Total investment in cable systems 463,812
------------------------
TOTAL ASSETS $ 481,074
========================
LIABILITIES AND MEMBER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 16,405
Payables to manager of cable systems - related party 2,289
------------------------
TOTAL CURRENT LIABILITIES 18,694
------------------------
Long-term debt 86,507
------------------------
TOTAL LIABILITIES 105,201
------------------------
Member's equity 375,873
------------------------
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 481,074
========================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 16
Renaissance Media Group LLC and Subsidiaries
Consolidated Statement of Operations
(Dollars in Thousands)
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Revenues $ 42,032
Costs and expenses:
Operating, general and administrative 20,566
Depreciation and amortization 23,150
Corporate expense charges - related party 1,625
--------------------------
Operating loss (3,309)
Interest income 61
Interest expense (5,527)
--------------------------
Net loss $ (8,775)
==========================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 17
Renaissance Media Group LLC and Subsidiaries
Consolidated Statement of Changes in Member's Equity
(Dollars in Thousands)
<TABLE>
<CAPTION>
MEMBER'S EQUITY
---------------------
<S> <C>
Balance at May 1, 1999 $350,444
Contributions 34,610
Distributions (406)
Net loss (8,775)
---------------------
Balance at December 31, 1999 $375,873
=====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 18
Renaissance Media Group LLC and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED DECEMBER 31, 1999
-----------------------
<S> <C>
OPERATING ACTIVITIES:
Net loss $ (8,775)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 23,150
Accretion on senior discount notes and non-cash interest expense 5,451
Changes in operating assets and liabilities:
Accounts receivable (13,107)
Prepaid expenses and other assets 245
Accounts payable and accrued expenses 10,928
Payables to manager of cable systems - related party 2,289
------------------------
Net cash provided by operating activities 20,181
------------------------
INVESTING ACTIVITIES:
Capital expenditures (21,419)
Other investing activities (622)
------------------------
Net cash used in investing activities (22,041)
------------------------
FINANCING ACTIVITIES:
Capital contributions 387
Distributions to parent (406)
------------------------
Net cash used in financing activities (19)
------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,879)
CASH AND CASH EQUIVALENTS, beginning of period 5,400
------------------------
CASH AND CASH EQUIVALENTS, end of period $ 3,521
========================
NON-CASH TRANSACTION - Capital contribution (see
Note 6) $ 34,223
========================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 19
Renaissance Media Group LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where indicated)
1. ORGANIZATION AND BASIS OF PRESENTATION
Renaissance Media Group LLC ("Group"), a Delaware limited liability company, was
formed by Renaissance Media Holdings LLC ("Holdings") to own and operate cable
television systems that provide programming and related services to subscribers.
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 had
previously 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 six cable television
systems from TWI Cable, Inc., a subsidiary of Time Warner Inc. ("Time Warner").
On February 23, 1999, Holdings, Charter Communications, Inc., presently doing
business as Charter Investment, Inc. ("Charter Investment"), and Charter
Communications, LLC ("Buyer" or "CC LLC") executed a purchase agreement (the
"Charter Purchase Agreement"). The Charter Purchase Agreement provided for
Holdings to sell and Buyer to purchase all of the outstanding limited liability
company membership interests in Group held by Holdings (the "Charter
Transaction"), subject to certain covenants and restrictions pending
satisfaction of certain conditions prior to closing. The purchase price was $459
million, consisting of $348 million in cash and $111 million in accreted value
of debt assumed. On April 30, 1999, the Charter Transaction was consummated, and
Group became a wholly owned subsidiary of CC LLC.
As a result of the Charter Transaction, the application of push-down accounting,
and the allocation of purchase price, the financial information of the Company
in the accompanying consolidated financial statements as of December 31, 1999,
and for the period from May 1, 1999, through December 31, 1999, is presented on
a different cost basis than the financial information of the Company for the
period prior to and through April 30, 1999. Therefore, such information is not
comparable.
F-7
<PAGE> 20
Renaissance Media Group LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. These investments are carried at
cost that approximates market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost, including all direct and
certain indirect costs associated with the construction of cable television
transmission and distribution facilities, and the cost of new customer
installations. Capitalized labor, materials and associated overhead amounted to
approximately $1,295 for the eight months ended December 31, 1999. The costs of
disconnecting a customer are charged to expense in the period incurred.
Expenditures for repairs and maintenance are charged to expense as incurred, and
equipment replacement and betterments are capitalized.
Depreciation is provided on the straight-line basis over the following estimated
useful lives:
Cable distribution systems 3-15 years
Buildings and leasehold improvements 5-15 years
Vehicles and equipment 3-5 years
FRANCHISES
Costs incurred in obtaining and renewing cable franchises are deferred and
amortized over the lives of the franchises. Costs relating to unsuccessful
franchise applications are charged to expense when it is determined that the
efforts to obtain the franchise will not be successful. Franchise rights
acquired through the purchase of cable television systems represent management's
estimate of fair value and are generally amortized using the straight-line
method over a period of 15 years. The period of 15 years is management's best
estimate of the useful lives of the franchises and assumes substantially all of
those franchises that expire during the period will be renewed by the Company.
F-8
<PAGE> 21
Renaissance Media Group LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FRANCHISES (CONTINUED)
Amortization expense for franchises was $18,445 for the eight months ended
December 31, 1999.
IMPAIRMENT OF ASSETS
If facts and circumstances suggest that a long-lived asset may be impaired, the
carrying value is reviewed. If a review indicates that the carrying value of
such asset is not recoverable based on projected undiscounted cash flows related
to the asset over its remaining life, the carrying value of such asset is
reduced to its estimated fair value.
REVENUES
Cable television revenues from basic and premium services are recognized when
the related services are provided. Advertising revenues are recognized in the
period the related advertisements are exhibited.
Installation revenues are recognized to the extent of direct selling costs
incurred. The remainder, if any, is deferred and amortized to income over the
estimated average period that customers are expected to remain connected to the
cable television system. As of December 31, 1999, no installation revenue was
deferred, as direct selling costs exceeded installation revenue.
Fees collected from programmers to guarantee carriage are deferred and amortized
to income over the life of the contracts. Local government authorities impose
franchise fees on the Company ranging up to a federally mandated maximum of 5.0%
of gross revenues. On a monthly basis, such fees are collected from the
Company's customers and are periodically remitted to local franchises. Franchise
fees collected and paid are reported as revenues.
INCOME TAXES
Income taxes are the responsibility of the member and are not provided for in
the accompanying consolidated financial statements. In addition, a certain
subsidiary is a corporation subject to income taxes but has had no operations
and, therefore, no taxable income since inception.
F-9
<PAGE> 22
Renaissance Media Group LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
A significant portion of the customer base is concentrated within the local
geographical area of each of the individual cable television systems. The
Company generally extends credit to customers, and the ultimate collection of
accounts receivable could be affected by the local economy. Management performs
continuous credit evaluations of its customers and may require cash in advance
or other special arrangements from certain customers. Management does not
believe that there is any significant credit risk that could have a material
effect on the Company's financial condition.
SEGMENTS
Segments have been identified based upon management responsibility. The Company
operates in one segment, cable services.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. ACQUISITIONS
As a result of the change in ownership of Group discussed in Note 1, the Company
has applied push-down accounting in the preparation of the accompanying
financial statements. Accordingly, the Company increased its member's equity to
$350.4 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 $414.9 million.
F-10
<PAGE> 23
Renaissance Media Group LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where indicated)
3. ACQUISITIONS (CONTINUED)
Unaudited pro forma operating results as though the Charter Transaction had been
consummated on January 1, 1999, with pro forma adjustments to give effect to
amortization of franchises, interest expense and certain other adjustments, are
as follows for the year ended December 31, 1999:
Revenues $62,507
Operating loss (3,947)
Net loss (42,838)
The unaudited pro forma information has been presented for comparative purposes
and does not purport to be indicative of the results of operations had this
transaction been completed as of the assumed date or which may be obtained in
the future.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, 1999:
<TABLE>
<S> <C>
Cable distribution systems $ 67,176
Land, buildings and leasehold improvements 2,057
Vehicles and equipment 2,836
------------------
72,069
Less: accumulated depreciation (4,673)
------------------
Total $ 67,396
==================
</TABLE>
Depreciation expense for assets owned by the Company was $4,673 for the eight
months ended December 31, 1999.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December 31,
1999:
<TABLE>
<S> <C>
Accounts payable $ 5,929
Capital expenditures 5,118
Programming costs 1,525
Franchise fees 1,140
Other accrued liabilities 2,693
----------------
$ 16,405
================
</TABLE>
F-11
<PAGE> 24
Renaissance Media Group LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where indicated)
6. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1999:
<TABLE>
<S> <C>
10% Senior Discount Notes at accreted value $ 83,027
Unamortized premium 3,480
------------------
$ 86,507
==================
</TABLE>
On April 9, 1998, the Company issued $163,175 principal amount at maturity of
10% senior discount notes due 2008 (the "Notes") for proceeds of $100,012. The
Notes pay no cash interest until April 15, 2003. From and after April 15, 2003,
the Notes bear interest, payable semi-annually in cash, at a rate of 10% per
annum on April 15 and October 15 of each year, commencing October 15, 2003. The
Notes are due on April 15, 2008.
On May 28, 1999, as a result of the Charter Transaction (i.e., the change of
control) and in accordance with the terms and conditions of the indenture
governing 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, at which time 48,762 Notes 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. As of December 31, 1999,
$114,413 principal amount at maturity of Notes remain outstanding.
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.
The fair market value of the Notes was $79,517 at December 31, 1999.
F-12
<PAGE> 25
Renaissance Media Group LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where indicated)
7. INCOME TAXES
Prior to June 20, 1999, Louisiana and Tennessee elected to be treated as
corporations for federal income tax purposes. Through this date, the Company
established a valuation allowance to offset the entire potential future tax
benefit of the net operating loss (NOL) carryforward and, therefore, has
recognized no deferred tax benefit with respect to the NOL. Effective June 20,
1999, Louisiana and Tennessee elected to be treated as disregarded entities for
income tax purposes. As a result, the taxable income (loss) of these entities is
the responsibility of the Company's ultimate owners.
8. RELATED PARTY TRANSACTIONS
Effective May 1, 1999, the Company was charged a management fee equal to 3.5% of
revenues, as stipulated in the previous management agreement between Charter
Communications, Inc. ("Charter Communications"), the ultimate parent of the
Company, and CCO. To the extent that management fees charged to the Company are
greater (less) than the proportionate share (based on basic subscribers) of
corporate expenses incurred by Charter Communications on behalf of the Company,
the Company will record distributions to (capital contributions from) Charter
Communications.
On November 12, 1999, Charter Communications and CCO entered into a revised
management agreement eliminating the 3.5% management fee and entitling Charter
Communications to reimbursement from CCO of all of its costs incurred in
connection with the performance of its services under the revised management
agreement. For the eight months ended December 31, 1999, the management fee
charged to the Company exceeded the corporate expenses incurred by Charter
Communications on behalf of the Company by $19, which is reflected as a net
capital distribution. Management fees currently payable of $554 are included in
payables to manager of cable systems - related party as of December 31, 1999.
Charter Investment, manager of Charter Communications pursuant to a mutual
services agreement, utilizes a combination of excess insurance coverage and
self-insurance programs for its medical, dental and workers' compensation
claims. Charges are made to the Company as determined by independent actuaries
at the present value of the actuarially computed present and future liabilities
for such benefits. Such costs totaled $245 for the eight months ended December
31, 1999.
Depreciation and amortization incurred by Charter Investment and Charter
Communications have been allocated to the Company based on the number of basic
customers. Such costs totaled $32 for the eight months ended December 31, 1999,
and are reflected as a capital contribution.
F-13
<PAGE> 26
Renaissance Media Group LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where indicated)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
All other costs incurred by Charter Investment on behalf of the Company are
recorded as expenses in the accompanying consolidated financial statements and
are included in corporate expense charges - related party. Management believes
that costs incurred by Charter Investment on the Company's behalf and included
in the accompanying financial statements are not materially different than costs
the Company would have incurred as a stand alone entity.
Paul G. Allen, Charter Communications, which is controlled by Mr. Allen, and
certain affiliates of Mr. Allen own equity interests in various entities that
provide services or programming to the Company, including High Speed Access
Corp., ZDTV, USA Networks, Inc., and Oxygen Media, Inc. In addition, certain
officers or directors of Charter Communications also serve as directors of High
Speed Access Corp. and USA Networks, Inc. The Company and its affiliates do not
hold controlling interests in any of these companies.
The Company receives or will receive programming for broadcast via its cable
television systems from ZDTV, USA Networks, Inc. and Oxygen Media, Inc. The
Company pays a fee for the programming service generally based on the number of
subscribers receiving the service. Such fees for the eight months ended December
31, 1999, were less than 1% of total operating costs. In addition, the Company
receives commissions from USA Networks, Inc. for home shopping sales generated
by its customers. Such revenues for the eight months ended December 31, 1999,
were less than 1% of total revenues.
Receivable from related party represents temporary non-interest bearing loans to
CCO.
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company had rental expense under various lease and rental agreements,
primarily for offices, tower sites and warehouses, of approximately $65 for the
eight months ended December 31, 1999. Future minimum lease payments are not
significant.
The Company also rents utility poles in its operations. Generally, pole rentals
are cancelable on short notice, but the Company anticipates that such rentals
will recur. Rent expense for pole rental attachments was approximately $564 for
the eight months ended December 31, 1999.
F-14
<PAGE> 27
Renaissance Media Group LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where indicated)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OTHER AGREEMENTS
In exchange for certain flexibility in establishing cable rate pricing
structures for regulated services that went into effect on January 1, 1996, Time
Warner agreed with the Federal Communications Commission ("FCC") to invest in
certain upgrades to its cable infrastructure (consisting primarily of materials
and labor in connection with the plant upgrades up to 750 MHz) by November 30,
2000. This agreement with the FCC has been assumed by the Company and did not
terminate as a result of the Charter Transaction. The Company expects to spend
approximately $30 million on the upgrades to its cable infrastructure in 2000.
LITIGATION
The Company is a party to lawsuits that arise in the ordinary course of
conducting its business. In the opinion of management, after consulting with
legal counsel, the outcome of these lawsuits will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
REGULATION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation at the federal,
local and, in some instances, state levels. The Cable Communications Policy Act
of 1984 (the "1984 Cable Act"), the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act" and together with the 1984 Cable
Act, the "Cable Acts"), and the Telecommunications Act of 1996 (the "1996
Telecom Act"), establish a national policy to guide the development and
regulation of cable television systems. The FCC has principal responsibility for
implementing the policies of the Cable Acts. Many aspects of such regulation are
currently the subject of judicial proceedings and administrative or legislative
proposals. Legislation and regulations continue to change, and the Company
cannot predict the impact of future developments on the cable television
industry.
The 1992 Cable Act and the FCC's rules implementing that act generally have
increased the administrative and operational expenses of cable television
systems and have resulted in additional regulatory oversight by the FCC and
local or state franchise authorities. The Cable Acts and the corresponding FCC
regulations have established rate regulations.
F-15
<PAGE> 28
Renaissance Media Group LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where indicated)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
REGULATION IN THE CABLE TELEVISION INDUSTRY (CONTINUED)
The 1992 Cable Act permits certified local franchising authorities to order
refunds of basic service tier rates paid in the previous twelve-month period
determined to be in excess of the maximum permitted rates. As of December 31,
1999, the amount refunded by the Company has been insignificant. The Company may
be required to refund additional amounts in the future.
The Company believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including the rate setting provisions
promulgated by the FCC. However, in jurisdictions that have chosen not to
certify, refunds covering the previous twelve-month period may be ordered upon
certification if the Company is unable to justify its basic rates. As of
December 31, 1999, approximately 6% of the Company's local franchising
authorities are certified to regulate basic tier rates. The Company is unable to
estimate at this time the amount of refunds, if any, that may be payable by the
Company in the event certain of its rates are successfully challenged by
franchising authorities or found to be unreasonable by the FCC. The Company does
not believe that the amount of any such refunds would have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
The 1996 Telecom Act, among other things, immediately deregulated the rates for
certain small cable operators and in certain limited circumstances rates on the
basic service tier, and as of March 31, 1999, deregulated rates on the cable
programming service tier (CPST). The FCC has taken the position that it will
still adjudicate pending CPST complaints but will strictly limit its review, and
possible refund orders, to the time period predating the sunset date, March 31,
1999. The Company does not believe any adjudications regarding their pre-sunset
complaints will have a material adverse effect on the Company's consolidated
financial position or results of operations.
A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. State governmental agencies are
required to follow FCC rules when prescribing rate regulation, and thus, state
regulation of cable television rates is not allowed to be more restrictive than
the federal or local regulation.
F-16
<PAGE> 29
Renaissance Media Group LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where indicated)
10. EMPLOYEE BENEFIT PLANS
The Company sponsored a defined contribution plan that covered substantially all
employees (the "Plan"). 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"). Participants in the Charter Plan 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. The Company made contributions to
the Charter Plan totaling $54 for the eight months ended December 31, 1999.
11. ACCOUNTING STANDARD NOT YET IMPLEMENTED
In June 1998, the Financial Accounting Standards Board adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes 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 hedge 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 income statement, 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. The adoption of SFAS No. 133 is not expected to have a
material impact on the consolidated financial statements.
F-17
<PAGE> 30
Report of Independent Auditors
To the Board of Directors of Renaissance Media Group LLC
We have audited the accompanying consolidated balance sheet of Renaissance Media
Group LLC (the "Company") as of April 30, 1999 and the related consolidated
statements of operations, changes in members' equity, and cash flows for the
four months ended April 30, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at April 30, 1999, and the consolidated results of its operations and
its cash flows for the four months then ended in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
June 4, 1999
except for Note 11, as to which the date is
June 29, 1999
F-18
<PAGE> 31
Renaissance Media Group LLC
Consolidated Balance Sheet
(In Thousands)
<TABLE>
<CAPTION>
APRIL 30, 1999
--------------
<S> <C>
Assets
Cash and cash equivalents
Accounts receivable--trade (less allowance for doubtful accounts of $ 5,400
$86) 520
Accounts receivable--other 492
Prepaid expenses and other assets 416
Investment in cable television systems:
Property, plant and equipment 76,250
Less: accumulated depreciation (10,706)
---------------
65,544
---------------
Cable television franchises 238,429
Less: accumulated amortization (16,754)
---------------
221,675
---------------
Intangible assets 17,544
Less: accumulated amortization (1,525)
---------------
16,019
---------------
Net investment in cable television systems 303,238
---------------
Total assets $ 310,066
===============
LIABILITIES AND MEMBERS' EQUITY
Accounts payable $ 546
Accrued expenses 3,222
Subscriber advance payments and deposits 657
Deferred marketing credits 650
Debt 213,402
---------------
Total liabilities 218,477
---------------
Members' equity:
Paid-in capital 108,600
Accumulated deficit (17,011)
---------------
Total members' equity 91,589
---------------
Total liabilities and members' equity $ 310,066
===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 32
Renaissance Media Group LLC
Consolidated Statement of Operations
(In Thousands)
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
APRIL 30, 1999
--------------
<S> <C>
Revenues $ 20,396
Costs and expenses: 6,325
Service costs 3,057
Selling, general and administrative 8,912
Depreciation and amortization --------------
2,102
Operating income
122
Interest income (6,321)
Interest (expense) --------------
(4,097)
(Loss) before credit for taxes
65
Credit for taxes --------------
$ (4,032)
Net (loss) ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 33
Renaissance Media Group LLC
Consolidated Statement of Changes in Members' Equity
(In Thousands)
<TABLE>
<CAPTION>
TOTAL
PAID-IN ACCUMULATED MEMBERS'
CAPITAL DEFICIT EQUITY
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Balance December 31, 1998 $108,600 $(12,979) $95,621
Net (loss) - (4,032) (4,032)
-------------------- -------------------- --------------------
Balance April 30, 1999 $108,600 $(17,011) $91,589
==================== ==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 34
Renaissance Media Group LLC
Consolidated Statement of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
APRIL 30, 1999
--------------
<S> <C>
OPERATING ACTIVITIES
Net (loss) $(4,032)
Adjustments to non-cash and non-operating items:
Depreciation and amortization 8,912
Accretion on Senior Discount Notes 3,528
Other non-cash charges 322
Changes in operating assets and liabilities:
Accounts receivable - trade, net 206
Accounts receivable - other 92
Prepaid expenses and other assets (75)
Accounts payable (1,496)
Accrued expenses (3,449)
Subscriber advance payments and deposits 49
Deferred marketing support (150)
--------------
Net cash provided by operating activities 3,907
--------------
INVESTING ACTIVITIES
Purchased cable television systems:
Property, plant and equipment (830)
Cable television franchises (1,940)
Escrow deposit 150
Capital expenditures (4,250)
Other intangible assets 16
--------------
Net cash used in investing activities (6,854)
--------------
FINANCING ACTIVITIES
Repayment of advances from Holdings (135)
--------------
Net cash used in financing activities (135)
--------------
Net decrease in cash and cash equivalents (3,082)
Cash and cash equivalents at December 31, 1998 8,482
==============
Cash and cash equivalents at April 30, 1999 $ 5,400
==============
SUPPLEMENTAL DISCLOSURES
Interest paid $ 4,210
==============
</TABLE>
See accompanying notes to consolidated financial statements
F-22
<PAGE> 35
Renaissance Media Group LLC
Notes to Consolidated Financial Statements (continued)
(All dollar amounts in thousands)
1. ORGANIZATION AND BASIS OF PRESENTATION
Renaissance Media Group LLC ("Group") a wholly owned subsidiary of Renaissance
Media Holdings LLC ("Holdings"), was formed in March 1998 to own and operate
cable television systems in small and medium sized markets, which provide
programming, and other related services, to subscribers through its hybrid
coaxial and fiber optic distribution plant for a monthly fee. Group and its
wholly owned subsidiaries, Renaissance Media (Louisiana) LLC ("Louisiana"),
Renaissance Media (Tennessee) LLC ("Tennessee"), and Renaissance Media LLC
("Media") are collectively referred to as the "Company". On April 9, 1998, the
Company acquired six cable television systems (the "Acquisition") from TWI
Cable, Inc., a subsidiary of Time Warner Inc. ("Time Warner"). Prior to the
Acquisition, the Company had no operations other than start-up related
activities.
On February 23, 1999, Holdings, Charter Communications, Inc. ("Charter"), now
known 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 of the outstanding
limited liability company membership interests in Group held by Holdings (the
"Charter Transaction") subject to certain covenants and restrictions pending
satisfaction of certain conditions prior to closing. The purchase price was
$459,000, consisting of $348,000 in cash and $111,000 in assumed debt. On April
30, 1999, the Charter Transaction was consummated.
These financial statements have been prepared as of and for the four months
ended April 30, 1999 immediately prior to the consummation of the Charter
Transaction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NEW ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 establishes 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 hedge 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 income
statement, and requires that a company must formally
F-23
<PAGE> 36
Renaissance Media Group LLC
Notes to Consolidated Financial Statements (continued)
(All dollar amounts in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS (CONTINUED)
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. The adoption of SFAS No.
133 is not expected to have a material impact on the consolidated financial
statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of the
Company and its wholly owned subsidiaries. Significant inter-company accounts
and transactions have been eliminated.
CONCENTRATION OF CREDIT RISK
A significant portion of the customer base is concentrated within the local
geographical area of each of the individual cable television systems. The
Company generally extends credit to customers and the ultimate collection of
accounts receivable could be affected by the local economy. Management performs
continuous credit evaluations of its customers and may require cash in advance
or other special arrangements from certain customers. Management does not
believe that there is any significant credit risk which could have a material
effect on the Company's financial condition.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments in short-term, highly
liquid securities, which have maturities when purchased of three months or less.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at purchased and capitalized cost.
Capitalized internal costs principally consist of employee costs and interest on
funds borrowed during construction. Capitalized labor, materials and associated
overhead amounted to approximately $721 for the four months ended April 30,
1999. Replacements, renewals and improvements to installed cable plant are
capitalized. Maintenance and repairs are
F-24
<PAGE> 37
Renaissance Media Group LLC
Notes to Consolidated Financial Statements (continued)
(All dollar amounts in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
charged to expense as incurred. Depreciation expense for the four months
ended April 30, 1999 amounted to $3,434.
Property, plant and equipment is depreciated using the straight-line method over
the following estimated service lives:
<TABLE>
<S> <C>
Buildings and leasehold improvements 5-30 years
Cable systems, equipment and subscriber devices 5-30 years
Transportation equipment 3-5 years
Furniture, fixtures and office equipment 5-10 years
</TABLE>
Property, plant and equipment at April 30, 1999 consisted of:
<TABLE>
<S> <C>
Land $ 436
Buildings and leasehold improvements 1,445
Cable systems, equipment and subscriber devices 64,658
Transportation equipment 2,301
Furniture, fixtures and office equipment 923
Construction in progress 6,487
--------------
76,250
Less: accumulated depreciation (10,706)
--------------
Total $65,544
==============
</TABLE>
CABLE TELEVISION FRANCHISES AND INTANGIBLE ASSETS
Cable television franchise costs include the assigned fair value, at the date of
acquisition, of the franchises from purchased cable television systems.
Intangible assets include goodwill, deferred financing and other intangible
assets. Cable television franchises and intangible assets are amortized using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Cable television franchises 15 years
Goodwill 25 years
Deferred financing and other intangible assets 2-10 years
</TABLE>
F-25
<PAGE> 38
Renaissance Media Group LLC
Notes to Consolidated Financial Statements (continued)
(All dollar amounts in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CABLE TELEVISION FRANCHISES AND INTANGIBLE ASSETS (CONTINUED)
Intangible assets at April 30, 1999 consisted of:
<TABLE>
<S> <C>
Goodwill $ 8,608
Deferred financing costs 8,307
Other intangible assets 629
--------------------
17,544
Less: accumulated amortization (1,525)
--------------------
Total $ 16,019
====================
</TABLE>
The Company reviews the carrying value of its long-lived assets, including
property, plant and equipment, cable television franchises and intangible
assets, whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. To the extent the estimated future cash inflows
attributable to the asset, less estimated future cash outflows, is less than the
carrying amount, an impairment loss is recognized to the extent that the
carrying value of such asset is greater than its fair value.
REVENUES AND COSTS
Subscriber fees are recorded as revenue in the period the related services are
provided and advertising revenues are recognized in the period the related
advertisements are exhibited. Rights to exhibit programming are purchased from
various cable networks. The costs of such rights are generally expensed as the
related services are made available to subscribers.
ADVERTISING COSTS
Advertising costs are expensed upon the first exhibition of the related
advertisements and are recorded net of marketing credits earned from launch
incentive and cooperative advertising programs.
F-26
<PAGE> 39
Renaissance Media Group LLC
Notes to Consolidated Financial Statements (continued)
(All dollar amounts in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS (CONTINUED)
During the four months ended April 30, 1999 the company earned marketing credits
in excess of advertising expense incurred. Advertising expense and marketing
credits amounted to $263 and $306, respectively, for the four months ended April
30, 1999.
ESTIMATES USED IN FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. ACQUISITIONS
BAYOU VISION, INC.
On February 3, 1999, Media acquired the cable television assets of Bayou Vision,
Inc. and Gulf South Cable, Inc. serving approximately 1,950 subscribers in the
Villages of Estherwood, Morse and Mermentau and Acadia and Livingston Parish,
Louisiana. The cash purchase price was approximately $2,700 and was paid out of
available Company funds.
4. DEBT
As of April 30, 1999, debt consisted of:
<TABLE>
<S> <C>
10% Senior Discount Notes at accreted value (a) $110,902
Credit Agreement (b) 102,500
------------------
$213,402
==================
</TABLE>
(a) On April 9, 1998, the Company issued $163,175 principal amount at maturity,
$100,012 initial accreted value, of 10% senior discount notes due 2008 (the
"Notes"). The Notes pay no cash interest until April 15, 2003. From and after
April 15, 2003 the Notes will bear interest, payable semi-annually in cash, at a
rate of 10% per annum on April 15 and October 15 of each year, commencing
October 15, 2003. The Notes are due on April
F-27
<PAGE> 40
Renaissance Media Group LLC
Notes to Consolidated Financial Statements (continued)
(All dollar amounts in thousands)
4. DEBT (CONTINUED)
15, 2008. The fair market value of the Notes at April 30, 1999 was $116,262. See
Note 11 regarding the offer to repurchase the Notes.
(b) On April 9, 1998, Media entered into a credit agreement among Morgan Stanley
& Co. Incorporated as Placement Agent, Morgan Stanley Senior Funding Inc., as
Syndication Agent, the Lenders, CIBC Inc., as Documentation Agent and Bankers
Trust Company as Administrative Agent (the "Credit Agreement"). The aggregate
commitments under the Credit Agreement total $150,000, consisting of a $40,000
revolver (the "Revolver"), $60,000 Tranche A Term Loans and $50,000 Tranche B
Term Loans (collectively the "Term Loans"). The Revolver and Term Loans are
collateralized by a first lien position on all present and future assets and the
member's interest of Media, Louisiana and Tennessee. The Credit Agreement
provides for interest at varying rates based upon various borrowing options and
the attainment of certain financial ratios and for commitment fees of 1/2% on
the unused portion of the revolver. Management believes the terms are comparable
to those that could be obtained from third parties. The effective interest rate,
including commitment fees and amortization of related deferred financing costs
and the interest-rate cap, for the four months ended April 30, 1999 was 7.58%.
See Note 11 regarding the repayment of amounts outstanding under the Credit
Agreement upon consummation of the Charter Transaction. The Credit Agreement and
the indenture pursuant to which the Notes were issued contain restrictive
covenants on the Company regarding additional indebtedness, investment
guarantees, loans, acquisitions, dividends and merger or sale of the
subsidiaries and require the maintenance of certain financial ratios.
5. INTEREST RATE CAP AGREEMENT
The Company purchases interest rate cap agreements that are designed to limit
its exposure to increasing interest rates and are designated to its floating
rate debt. The strike price of these agreements exceeds the current market
levels at the time they are entered into. The interest rate indices specified by
the agreements have been and are expected to be highly correlated with the
interest rates the Company incurs on its floating rate debt. Payments to be
received as a result of the specified interest rate index exceeding the strike
price are accrued in other assets and are recognized as a reduction of interest
expense (the accrual accounting method). The cost of these agreements is
included in other assets and amortized to interest expense ratably during the
life of the agreement. Upon termination of interest rate cap agreements, any
gain is deferred in other liabilities and amortized over the remaining term of
the original contractual life of the agreement as a reduction of interest
expense.
F-28
<PAGE> 41
Renaissance Media Group LLC
Notes to Consolidated Financial Statements (continued)
(All dollar amounts in thousands)
5. INTEREST RATE CAP AGREEMENT (CONTINUED)
The Company purchased an interest rate cap agreement from Morgan Stanley Capital
Services Inc. The carrying value as of April 30, 1999 was $34. The fair value of
the interest rate cap was $0 as of April 30, 1999.
The following table summarizes the interest rate cap agreement:
<TABLE>
<CAPTION>
NOTIONAL INITIAL
PRINCIPAL EFFECTIVE TERMINATION CONTRACT FIXED RATE
AMOUNT TERM DATE DATE COST (PAY RATE)
- ------------------- --------------- --------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
$100,000 2 Years 12/1/97 12/1/99 $ 100 7.25%
</TABLE>
6. TAXES
For the four months ended April 30, 1999, the credit for taxes has been
calculated on a separate company basis. The components of the credit for taxes
are as follows:
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED APRIL 30,
1999
----------------------
<S> <C>
Federal:
Current $ -
Deferred -
State: -
Current (65)
Deferred -
----------------------
(Credit) for taxes $ (65)
======================
</TABLE>
The Company's current state tax credit results from overpayment in 1998 of
franchise tax in Tennessee and Mississippi and tax on capital in New York.
The Company has a net operating loss ("NOL") carry-forward for income tax
purposes which is available to offset future taxable income. This NOL totals
approximately $22,324 and will expire in the year 2018 and 2019 at $14,900 and
$7,424 respectively. The Company has established a valuation allowance to offset
the entire potential future tax benefit of the NOL carry-forward and, therefore,
has recognized no deferred tax asset with respect to the NOL.
F-29
<PAGE> 42
Renaissance Media Group LLC
Notes to Consolidated Financial Statements (continued)
(All dollar amounts in thousands)
6. TAXES (CONTINUED)
Louisiana and Tennessee have elected to be treated as corporations for federal
income tax purposes and have not recorded any tax benefit for their losses as
the realization of these losses by reducing future taxable income in the carry
forward period is uncertain at this time.
7. RELATED PARTY TRANSACTIONS
(A) Transactions with Morgan Stanley entities
In connection with the Acquisition, Media entered into the Credit Agreement with
Morgan Stanley Senior Funding Inc. and Morgan Stanley & Co. Incorporated
(collectively the "Morgan Stanley Entities") acted as the Placement Agent for
the Notes. In connection with these services the Morgan Stanley Entities
received customary fees and expense reimbursement comparable to that of a third
party exchange.
(B) Transactions with Time Warner and related parties
In connection with the Acquisition, Media entered into an agreement with Time
Warner (the "Time Warner Agreement"), pursuant to which Time Warner managed the
Company's programming in exchange for providing the Company access to certain
Time Warner programming arrangements (the "Programming Arrangements").
Management believes that programming rates made available to the Company through
its relationship with Time Warner are lower than rates that the Company could
obtain separately. Such volume rates will not continue to be available after the
Charter Transaction.
For the four months ended April 30, 1999, the Company incurred approximately
$2,716 in costs under the Programming Arrangements. In addition, the Company has
incurred programming costs of approximately $958 for programming services owned
directly or indirectly by Time Warner entities for the four months ended April
30, 1999.
(C) Transactions with board member
The Company has utilized the law firm of one of its board members for legal
services for the Acquisition, financing agreements and various ongoing legal
matters. These fees totaled approximately $154 for the four months ended April
30, 1999.
F-30
<PAGE> 43
Renaissance Media Group LLC
Notes to Consolidated Financial Statements (continued)
(All dollar amounts in thousands)
8. ACCRUED EXPENSES
Accrued expenses as of April 30, 1999 consist of the following:
<TABLE>
<S> <C>
Accrued franchise fees $ 830
Accrued programming costs 644
Accrued salaries, wages and benefits 516
Accrued interest 340
Accrued property and sales tax 231
Accrued legal and professional fees 43
Other accrued expenses 618
------------------
$ 3,222
==================
</TABLE>
9. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution plan which covers substantially all
employees (the "Plan"). The Plan provides for contributions from eligible
employees up to 15% of their compensation subject to Internal Revenue Code
limitations. The Company's contribution to the Plan is limited to 50% of each
eligible employee's contribution up to 10% of his or her compensation. The
Company has the right in any year to set the amount of the Company's
contribution percentage. Company matching contributions to the Plan for the four
months ended April 30, 1999 were approximately $54. All participant
contributions and earnings are fully vested upon contribution and Company
contributions and earnings vest 20% per year of employment with the Company,
becoming fully vested after five years.
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.
F-31
<PAGE> 44
Renaissance Media Group LLC
Notes to Consolidated Financial Statements (continued)
(All dollar amounts in thousands)
10. COMMITMENTS AND CONTINGENCIES
(A) Leases
The Company had rental expense under various lease and rental agreements
primarily for offices, tower sites and warehouses of approximately $59 for the
four months ended April 30, 1999. In addition, the Company rents utility poles
in its operations generally under short term arrangements, but the Company
expects these arrangements to recur. Total rent expense for utility poles was
approximately $272 for the four months ended April 30, 1999.
Future minimum annual rental payments under noncancellable leases are as
follows:
<TABLE>
<S> <C>
1999 $ 29
2000 38
2001 24
2002 21
2003 and thereafter 70
-----------------
Total $ 182
=================
</TABLE>
(B) Employment Agreements
Media entered into employment agreements with six senior executives, who are
also investors in Holdings, for the payment of salaries and bonuses. In
connection with the Charter Transaction, the employment agreements with the six
senior executives were terminated with no liability to the Company.
(C) Other Agreements
In exchange for certain flexibility in establishing cable rate pricing
structures for regulated services that went into effect on January 1, 1996, Time
Warner agreed with the Federal Communications Commission ("FCC") to invest in
certain upgrades to its cable infrastructure (consisting primarily of materials
and labor in connection with the plant upgrades up to 750 MHz) by November 30,
2000. This agreement with the FCC (the "FCC Agreement") has been assumed by the
Company as part of the Acquisition and did not terminate as a result of the
Charter Transaction. The Company has agreed to invest approximately $25,100 in
upgrades to its cable infrastructure in accordance with the FCC Agreement.
F-32
<PAGE> 45
Renaissance Media Group LLC
Notes to Consolidated Financial Statements (continued)
(All dollar amounts in thousands)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(C) Other Agreements
The Company has spent approximately $3,650 on such upgrades as of April 30,
1999.
11. SUBSEQUENT EVENTS
The Charter Transaction was consummated at the close of business on April 30,
1999. In connection with the closing of the Charter Transaction, all amounts
outstanding under the Credit Agreement, including accrued interest and unpaid
fees, were paid in full and the Credit Agreement was terminated. The effects of
the debt repayment and the CC LLC capital contribution will be reflected in the
consolidated financial statements of the Company for periods subsequent to April
30, 1999.
In connection with the closing of the Charter Transaction, the Time Warner
Agreement was terminated on April 30, 1999 and Media paid Time Warner $650 for
deferred marketing credits owed to program providers under the Programming
Arrangements. See Note 7 (Transactions with Time Warner and related parties).
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 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 ($1,000 face amount at maturity) were validly
tendered and accepted for purchase. On June 28, 1999, Charter Communications
Operating, LLC, the indirect parent of Group, 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.
12. MANAGEMENT AGREEMENT (UNAUDITED)
Effective May 1, 1999, the Company is charged a management fee equal to 3.5% of
revenues, as stipulated in the previous management agreement between Charter and
Charter Communications Operating, LLC ("CCO"), the indirect parent of Group. To
the extent that management fees charged to the Company are greater/(less) than
the proportionate share (based on basic subscribers) of corporate expenses
incurred by Charter on behalf of the Company, Group will record distributions
to/(capital contributions from) Charter. On November 12, 1999, Charter and CCO
entered into a revised management agreement eliminating the 3.5% management fee
and entitling
F-33
<PAGE> 46
Renaissance Media Group LLC
Notes to Consolidated Financial Statements (continued)
(All dollar amounts in thousands)
12. MANAGEMENT AGREEMENT (UNAUDITED) (CONTINUED)
Charter to reimbursement from CCO of all of its costs incurred in connection
with the performance of its services under the revised management agreement.
F-34
<PAGE> 47
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Renaissance Media Group LLC
We have audited the accompanying consolidated balance sheet of Renaissance
Media Group LLC as of December 31, 1998 and the related consolidated statements
of operations, changes in members' equity, and cash flows for the year ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Renaissance
Media Group LLC at December 31, 1998, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
February 22, 1999
except for Note 11, as to which
the date is February 24, 1999
F-35
<PAGE> 48
RENAISSANCE MEDIA GROUP LLC
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 8,482
Accounts receivable -- trade (less allowance for doubtful
accounts of $92).......................................... 726
Accounts receivable -- other................................ 584
Prepaid expenses and other assets........................... 340
Escrow deposit.............................................. 150
Investment in cable television systems:
Property, plant and equipment............................. 71,246
Less: Accumulated depreciation............................ (7,294)
--------
63,952
--------
Cable television franchises............................... 236,489
Less: Accumulated amortization............................ (11,473)
--------
225,016
--------
Intangible assets......................................... 17,559
Less: Accumulated amortization............................ (1,059)
--------
16,500
--------
Total investment in cable television systems......... 305,468
--------
Total assets...................................... $315,750
========
LIABILITIES AND MEMBERS' EQUITY
Accounts payable............................................ $ 2,042
Accrued expenses(a)......................................... 6,670
Subscriber advance payments and deposits.................... 608
Deferred marketing support.................................. 800
Advances from Holdings...................................... 135
Debt........................................................ 209,874
--------
Total Liabilities................................. 220,129
--------
Members' Equity:
Paid in capital............................................. 108,600
Accumulated deficit......................................... (12,979)
--------
Total members' equity................................ 95,621
--------
Total liabilities and members' equity............. $315,750
========
</TABLE>
- ---------------
(a) includes accrued costs from transactions with affiliated companies of $921.
See accompanying notes to financial statements.
F-36
<PAGE> 49
RENAISSANCE MEDIA GROUP LLC
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES.................................................... $ 41,524
--------
COSTS & EXPENSES
Service Costs(a).......................................... 13,326
Selling, General & Administrative......................... 7,711
Depreciation & Amortization............................... 19,107
--------
Operating Income....................................... 1,380
Interest Income........................................ 158
Interest (Expense) (b)................................. (14,358)
--------
(Loss) Before Provision for Taxes...................... (12,820)
Provision for Taxes.................................... 135
--------
Net (Loss)............................................. $(12,955)
========
</TABLE>
- ---------------
(a) includes costs from transactions with affiliated companies of $7,523.
(b) includes $676 of amortization of deferred financing costs.
See accompanying notes to financial statements.
F-37
<PAGE> 50
RENAISSANCE MEDIA GROUP LLC
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PAID TOTAL
IN ACCUMULATED MEMBER'S
CAPITAL (DEFICIT) EQUITY
------- ----------- --------
<S> <C> <C> <C>
Contributed Members' Equity -- Renaissance Media
Holdings LLC and Renaissance Media LLC................ $ 15,000 $ (24) $14,976
Additional capital contributions........................ 93,600 -- 93,600
Net (Loss).............................................. -- (12,955) (12,955)
-------- -------- -------
Balance December 31, 1998............................... $108,600 $(12,979) $95,621
======== ======== =======
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 51
RENAISSANCE MEDIA GROUP LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net (loss).................................................. $(12,955)
Adjustments to non-cash and non-operating items:
Depreciation and amortization............................. 19,107
Accretion on Senior Discount Notes........................ 7,363
Other non-cash charges.................................... 730
Changes in operating assets and liabilities:
Accounts receivable -- trade, net...................... (726)
Accounts receivable -- other........................... (584)
Prepaid expenses and other assets...................... (338)
Accounts payable....................................... 2,031
Accrued expenses....................................... 6,660
Subscriber advance payments and deposits............... 608
Deferred marketing support............................. 800
--------
Net cash provided by operating activities................... 22,696
--------
INVESTING ACTIVITIES:
Purchased cable television systems:
Property, plant and equipment.......................... (65,580)
Cable television franchises............................ (235,412)
Cash paid in excess of identifiable assets............. (8,608)
Escrow deposit............................................ (150)
Capital expenditures...................................... (5,683)
Cable television franchises............................... (1,077)
Other intangible assets................................... (526)
--------
Net cash (used in) investing activities..................... (317,036)
--------
FINANCING ACTIVITIES:
Debt acquisition costs.................................... (8,323)
Principal repayments on bank debt......................... (7,500)
Advances from Holdings.................................... 33
Proceeds from bank debt................................... 110,000
Proceeds from 10% Senior Discount Notes................... 100,012
Capital contributions..................................... 108,600
--------
Net cash provided by financing activities................... 302,822
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 8,482
CASH AND CASH EQUIVALENTS AT DECEMBER 31, 1997.............. --
--------
CASH AND CASH EQUIVALENTS AT DECEMBER 31, 1998.............. $ 8,482
========
SUPPLEMENTAL DISCLOSURES:
INTEREST PAID............................................. $ 4,639
========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE> 52
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Renaissance Media Group LLC ("Group") was formed on March 13, 1998 by
Renaissance Media Holdings LLC ("Holdings"). Holdings is owned by Morgan Stanley
Capital Partners III, L.P. ("MSCP III"), Morgan Stanley Capital Investors, L.P.
("MSCI"), MSCP III 892 Investors, L.P. ("MSCP Investors" and, collectively, with
its affiliates, MSCP III and MSCI and their respective affiliates, the "Morgan
Stanley Entities"), Time Warner and the Management Investors. 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"), which were formed on January 7, 1998.
Louisiana and Tennessee acquired a 76% interest and 24% interest, respectively,
in Renaissance Media LLC ("Media") from Morgan Stanley Capital Partners III,
Inc. ("MSCP"), on February 13, 1998 through an acquisition of entities under
common control accounted for as if it were a pooling of interests. As a result,
Media became a subsidiary of Group and Holdings. Group and its aforementioned
subsidiaries are collectively referred to as the "Company". On April 9, 1998,
the Company acquired (the "Acquisition") six cable television systems (the
"Systems") from TWI Cable, Inc. ("TWI Cable"), a subsidiary of Time Warner Inc.
("Time Warner"). See Note 3. Prior to this Acquisition, the Company had no
operations other than start-up related activities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NEW ACCOUNTING STANDARDS
During fiscal 1998, the Financial Accounting Standards Board ("FASB")
issued Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133").
FAS 133 provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. The Company
will adopt FAS 133 as of January 1, 2000. The impact of the adoption on the
Company's consolidated financial statements is not expected to be material.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of the Company and its wholly owned subsidiaries. Significant intercompany
accounts and transactions have been eliminated.
CONCENTRATION OF CREDIT RISK
A significant portion of the customer base is concentrated within the local
geographical area of each of the individual cable television systems. The
Company generally extends credit to customers and the ultimate collection of
accounts receivable could be affected by the local economy. Management performs
continuous credit evaluations of its customers and may require cash in advance
or other special arrangements from certain customers. Management does not
believe that there is any significant credit risk which could have a material
effect on the Company's financial condition.
REVENUE AND COSTS
Subscriber fees are recorded as revenue in the period the related services
are provided and advertising revenues are recognized in the period the related
advertisements are exhibited.
F-40
<PAGE> 53
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Rights to exhibit programming are purchased from various cable networks. The
costs of such rights are generally expensed as the related services are made
available to subscribers.
ADVERTISING COSTS
Advertising costs are expensed upon the first exhibition of the related
advertisements. Advertising expense amounted to $491 in 1998.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments in short-term,
highly liquid securities, which have maturities when purchased of three months
or less.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at purchased and capitalized
cost. Capitalized internal costs principally, consist of employee costs and
interest on funds borrowed during construction. Capitalized labor, materials and
associated overhead amounted to approximately $1,429 in 1998. Replacements,
renewals and improvements to installed cable plant are capitalized. Maintenance
and repairs are charged to expense as incurred. Depreciation expense for the
year ended December 31, 1998 amounted to $7,314. Property, plant and equipment
is depreciated using the straight-line method over the following estimated
service lives:
<TABLE>
<S> <C>
Buildings and leasehold improvements........................ 5 - 30 years
Cable systems, equipment and subscriber devices............. 5 - 30 years
Transportation equipment.................................... 3 - 5 years
Furniture, fixtures and office equipment.................... 5 - 10 years
</TABLE>
Property, plant and equipment at December 31, 1998 consisted of:
<TABLE>
<S> <C>
Land........................................................ $ 432
Buildings and leasehold improvements...................... 1,347
Cable systems, equipment and subscriber devices........... 62,740
Transportation equipment.................................. 2,181
Furniture, Fixtures and office equipment.................. 904
Construction in progress.................................. 3,642
-------
71,246
Less: accumulated depreciation.............................. (7,294)
-------
Total............................................. $63,952
=======
</TABLE>
F-41
<PAGE> 54
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
CABLE TELEVISION FRANCHISES AND INTANGIBLE ASSETS
Cable television franchise costs include the assigned fair value, at the
date of acquisition, of the franchises from purchased cable television systems.
Intangible assets include goodwill, deferred financing and other intangible
assets. Cable television franchises and intangible assets are amortized using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Cable television franchises................................. 15 years
Goodwill.................................................... 25 years
Deferred financing and other intangible assets.............. 2 - 10 years
</TABLE>
Intangible assets at December 31, 1998 consisted of:
<TABLE>
<S> <C>
Goodwill.................................................... $ 8,608
Deferred Financing Costs.................................... 8,323
Other intangible assets..................................... 628
-------
17,559
Less: accumulated amortization.............................. (1,059)
-------
Total............................................. $16,500
=======
</TABLE>
The Company periodically reviews the carrying value of its long-lived
assets, including property, plant and equipment, cable television franchises and
intangible assets, whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. To the extent the estimated future cash
inflows attributable to the asset, less estimated future cash outflows, is less
than the carrying amount, an impairment loss is recognized to the extent that
the carrying value of such asset is greater than its fair value.
ESTIMATES USED IN FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
3. ACQUISITIONS
TWI CABLE
On April 9, 1998, the Company acquired six cable television systems from
TWI Cable. The systems are clustered in southern Louisiana, western Mississippi
and western Tennessee. This Acquisition represented the first acquisition by the
Company. The purchase price for the systems was $309,500 which was paid as
follows: TWI Cable received $300,000 in cash, inclusive of an escrow deposit of
$15,000, and a $9,500 (9,500 units) equity interest in Renaissance Media
Holdings LLC, the parent company of Group. In addition to the purchase price,
the Company incurred approximately $1,385 in transaction costs, exclusive of
financing costs.
The Acquisition was accounted for using the purchase method and,
accordingly, results of operations are reported from the date of the Acquisition
(April 9, 1998). The excess of the
F-42
<PAGE> 55
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
purchase price over the estimated fair value of the tangible assets acquired has
been allocated to cable television franchises and goodwill in the amount of
$235,387 and $8,608, respectively.
DEFFNER CABLE
On August 31, 1998, the Company acquired the assets of Deffner Cable, a
cable television company located in Gadsden, Tennessee. The purchase price was
$100 and was accounted for using the purchase method. The allocation of the
purchase price is subject to change, although management does not believe that
any material adjustment to such allocation is expected.
BAYOU VISION, INC.
On February 3, 1999, Media acquired the cable television assets of Bayou
Vision, Inc. and Gulf South Cable, Inc. serving approximately 1,950 subscribers
in the Villages of Estherwood, Morse and Mermentau and Acadia and Livingston
Parish, Louisiana. The cash purchase price was approximately $2,700 and was paid
out of available Company funds.
Unaudited Pro Forma summarized results of operations for the Company for
the year ended December 31, 1998 and 1997, assuming the Acquisition, Notes (as
hereinafter defined) offering and Credit Agreement (as hereinafter defined) had
been consummated on January 1, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1998
---- ----
<S> <C> <C>
Revenues.................................................... $ 50,987 $ 56,745
Expenses.................................................... 53,022 55,210
-------- --------
Operating (loss) income..................................... (2,035) 1,535
Interest expense and other expenses......................... (19,740) (19,699)
-------- --------
Net (Loss).................................................. $(21,775) $(18,164)
======== ========
</TABLE>
4. DEBT
As of December 31, 1998, debt consisted of:
<TABLE>
<S> <C>
10.00% Senior Discount Notes at Accreted Value(a)........... $107,374
Credit Agreement(b)......................................... 102,500
--------
$209,874
========
</TABLE>
(a) On April 9, 1998, in connection with the Acquisition described in Note
3, the Company issued $163,175 principal amount at maturity, $100,012 initial
accreted value, of 10.00% senior discount notes due 2008 ("Notes"). The Notes
pay no interest until April 15, 2003. From and after April 15, 2003 the Notes
will bear interest, payable semi-annually in cash, at a rate of 10% per annum on
April 15 and October 15 of each year, commencing October 15, 2003. The Notes are
due on April 15, 2008.
(b) On April 9, 1998, Renaissance Media entered into a credit agreement
among Morgan Stanley & Co. Incorporated as Placement Agent, Morgan Stanley
Senior Funding Inc., as Syndication Agent, the Lenders, CIBC Inc., as
Documentation Agent and Bankers Trust Company as Administrative Agent (the
"Credit Agreement"). The aggregate commitments under the Credit
F-43
<PAGE> 56
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Agreement total $150,000, consisting of a $40,000 revolver, $60,000 Tranche A
Term Loans and $50,000 Tranche B Term Loans (collectively the "Term Loans"). The
revolving credit and term loans are collateralized by a first lien position on
all present and future assets and the member's interest of Media, Louisiana and
Tennessee. The Credit Agreement provides for interest at varying rates based
upon various borrowing options and the attainment of certain financial ratios
and for commitment fees of 1/2% on the unused portion of the revolver. The
effective interest rate, including commitment fees and amortization of related
deferred financing costs and the interest-rate cap, for the year ended December
31, 1998 was 8.82%.
On April 9, 1998, $110,000 was borrowed under the Credit Agreement's
Tranche A and B Term Loans. On June 23, 1998, $7,500 was repaid resulting in
$102,500 of outstanding Tranche A and B Term Loans as of December 31, 1998.
As of December 31, 1998, the Company had unrestricted use of the $40,000
revolver. No borrowings had been made by the Company under the revolver through
that date.
Annual maturities of borrowings under the Credit Agreement for the years
ending December 31 are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 776
2000........................................................ 1,035
2001........................................................ 2,701
2002........................................................ 9,506
2003........................................................ 11,590
2004........................................................ 11,590
Thereafter.................................................. 65,302
--------
102,500
Less: Current portion....................................... (776)
--------
$101,724
========
</TABLE>
The Credit Agreement and the Indenture pursuant to which the Notes were
issued contain restrictive covenants on the Company and subsidiaries regarding
additional indebtedness, investment guarantees, loans, acquisitions, dividends
and merger or sale of the subsidiaries and require the maintenance of certain
financial ratios.
Total interest cost incurred for the year ended December 31, 1998,
including commitment fees and amortization of deferred financing and
interest-rate cap costs was $14,358, net of capitalized interest of $42.
5. INTEREST RATE-CAP AGREEMENT
The Company purchases interest-rate cap agreements that are designed to
limit its exposure to increasing interest rates and are designated to its
floating rate debt. The strike price of these agreements exceeds the current
market levels at the time they are entered into. The interest rate indices
specified by the agreements have been and are expected to be highly correlated
with the interest rates the Company incurs on its floating rate debt. Payments
to be received as a result of the specified interest rate index exceeding the
strike price are accrued in other assets and are recognized as a reduction of
interest expense (the accrual accounting method). The cost of these agreements
is included in other assets and amortized to interest expense ratably during
F-44
<PAGE> 57
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
the life of the agreement. Upon termination of an interest-rate cap agreement,
any gain is deferred in other liabilities and amortized over the remaining term
of the original contractual life of the agreement as a reduction of interest
expense.
On December 1, 1997, the Company purchased an interest-rate cap agreement
from Morgan Stanley Capital Services Inc. The carrying value as of December 31,
1998 was $47. The fair value of the interest-rate cap, which is based upon the
estimated amount that the Company would receive or pay to terminate the cap
agreement as of December 31, 1998, taking into consideration current interest
rates and the credit worthiness of the counterparties, approximates its carrying
value.
The following table summarizes the interest-rate cap agreement:
<TABLE>
<CAPTION>
NOTIONAL INITIAL
PRINCIPAL EFFECTIVE TERMINATION CONTRACT FIXED RATE
AMOUNT TERM DATE DATE COST (PAY RATE)
- --------- ---- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
$100,000 2 years 12/1/97 12/1/99 $100 7.25%
</TABLE>
6. TAXES
For the year ended December 31, 1998, the provision for income taxes has
been calculated on a separate company basis. The components of the provision for
income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Federal:
Current..................................................... $ --
Deferred.................................................. --
State:
Current................................................... 135
Deferred.................................................. --
----
Provision for income taxes............................. $135
====
</TABLE>
The Company's current state tax liability results from its obligation to
pay franchise tax in Tennessee and Mississippi and tax on capital in New York.
The Company has a net operating loss ("NOL") carryforward for income tax
purposes which is available to offset future taxable income. This NOL totals
approximately $14,900 and expires in the year 2018. The Company has established
a valuation allowance to offset the entire potential future tax benefit of the
NOL carryforward and, therefore, has recognized no deferred tax asset with
respect to the NOL.
Louisiana and Tennessee have elected to be treated as corporations for
federal income tax purposes and have not recorded any tax benefit for their
losses as the realization of theses losses by reducing future taxable income in
the carry forward period is uncertain at this time.
7. RELATED PARTY TRANSACTIONS
(a) TRANSACTIONS WITH MORGAN STANLEY ENTITIES
In connection with the Acquisition, Media entered into the Credit Agreement
with Morgan Stanley Senior Funding Inc. and Morgan Stanley & Co. Incorporated
acted as the Placement
F-45
<PAGE> 58
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Agent for the Notes. In connection with these services the Morgan Stanley
Entities received customary fees and expense reimbursement.
(b) TRANSACTIONS WITH TIME WARNER AND RELATED PARTIES
In connection with the Acquisition, Media entered into an agreement with
Time Warner, pursuant to which Time Warner manages the Company's programming in
exchange for providing the Company access to certain Time Warner programming
arrangements.
(c) Transactions with Management
Prior to the consummation of the Acquisition described in Note 3, Media
paid fees in 1998 to six senior executives of the Company who are investors in
the Company (the "Management Investors") for services rendered prior to their
employment by Media relating to the Acquisition and the Credit Agreement. These
fees totaled $287 and were recorded as transaction and financing costs.
(d) DUE TO MANAGEMENT INVESTORS
Prior to the formation of the Company, the Management Investors advanced
$1,000 to Holdings, which was used primarily for working capital purposes. Upon
formation of the Company, Holdings contributed certain assets and liabilities to
Group and the $1,000 advance from the Management Investors was recorded as paid
in capital.
(e) TRANSACTIONS WITH BOARD MEMBER
The Company has utilized the law firm of one of its board members for legal
services for the Acquisition, financing agreements and various ongoing legal
matters. These fees totaled approximately $1,348 for the year ended December 31,
1998.
8. ACCRUED EXPENSES
Accrued expenses as of December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Accrued programming costs................................... $1,986
Accrued interest............................................ 1,671
Accrued franchise fees...................................... 1,022
Accrued legal and professional fees,........................ 254
Accrued salaries, wages and benefits........................ 570
Accrued property and sales tax.............................. 637
Other accrued expenses...................................... 530
------
$6,670
======
</TABLE>
9. EMPLOYEE BENEFIT PLAN
Effective April 9, 1998, the Company began sponsoring a defined
contribution plan which covers substantially all employees (the "Plan"). The
Plan provides for contributions from eligible employees up to 15% of their
compensation. The Company's contribution to the Plan is limited to 50% of each
eligible employee's contribution up to 10% of his or her compensation. The
Company has the right in any year to set the amount of the Company's
contribution percentage.
F-46
<PAGE> 59
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Company matching contributions to the Plan for the year ended December 31, 1998
were approximately $97. All participant contributions and earnings are fully
vested upon contribution and company contributions and earnings vest 20% per
year of employment with the Company, becoming fully vested after five years.
10. COMMITMENTS AND CONTINGENCIES
(a) LEASES
The Company had rental expense under various lease and rental agreements
primarily for offices, tower sites and warehouses of approximately $125 in 1998.
In addition, the Company rents utility poles in its operations generally under
short term arrangements, but the Company expects these arrangements to recur.
Total rent expense for utility poles was approximately $620 in 1998. Future
minimum annual rental payments under noncancellable leases are as follows:
<TABLE>
<S> <C>
1999............................................... $162
2000............................................... 38
2001............................................... 24
2002............................................... 20
2003 and thereafter................................ 66
----
Total......................................... $310
====
</TABLE>
(b) EMPLOYMENT AGREEMENTS
Media has entered into employment agreements with six senior executives who
are also investors in Holdings. Under the conditions of five of the agreements
the employment term is five years, expiring in April 2003 and requires Media to
continue salary payments (including any bonus) through the term if the
executive's employment is terminated by Media without cause, as defined in the
employment agreement. Media's obligations under the employment agreements may be
reduced in certain situations based on actual operating performance relative to
the business plan, death or disability or by actions of the other senior
executives.
The employment agreement for one senior executive has a term of one year
and may be renewed annually. This agreement has been renewed through April 8,
2000.
(c) OTHER AGREEMENTS
In exchange for certain flexibility in establishing cable rate pricing
structures for regulated services that went into effect on January 1, 1996, Time
Warner agreed with the Federal Communications Commission ("FCC") to invest in
certain upgrades to its cable infrastructure (consisting primarily of materials
and labor in connection with the plant upgrades up to 750 megahertz) by 1999
(approximately $23 million). This agreement with the FCC has been assumed by the
Company as part of the Acquisition.
11. SUBSEQUENT EVENT
On February 23, 1999, Holdings entered into an agreement with Charter
Communications, LLC and Charter Communications, Inc., to sell 100% of its
members' equity in the Company for approximately $459,000, subject to certain
closing conditions. This transaction is expected to close during the third
quarter of 1999.
F-47
<PAGE> 60
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
12. YEAR 2000 ISSUES (UNAUDITED)
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 parities 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 1999. Determinations of Year 2000
compliance requirements for less mission critical systems are in progress and
are expected to be completed in the second 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 issues will be addressed by mid
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.
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 a significant impact on collections, results of operations and
the liquidity of the Company.
F-48
<PAGE> 61
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
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.
F-49
<PAGE> 62
REPORT OF INDEPENDENT AUDITORS
To the Members of
Renaissance Media Holdings LLC
Renaissance Media LLC
We have audited the accompanying combined balance sheet of Renaissance Media
Holdings LLC and Renaissance Media LLC (as combined, the "Company") as of
December 31, 1997 and the related combined income statement and statement of
cash flows for the period from November 5, 1997 (date of inception) to December
31, 1997. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 31, 1997 and the results of its operations and its cash flows for the
period from November 5, 1997 (date of inception) to December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
March 16, 1998
F-50
<PAGE> 63
RENAISSANCE MEDIA HOLDINGS LLC AND RENAISSANCE MEDIA LLC
COMBINED BALANCE SHEET
December 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents.......................................... $ 903,034
Accrued interest income............................................ 59,434
Accounts receivable................................................ 2,500
Prepaid expenses and other assets.................................. 2,041
Escrow deposit..................................................... 15,000,000
Deferred acquisition costs, net.................................... 347,500
Deferred financing costs........................................... 692,500
Less accumulated amortization...................................... (4,271)
-----------
688,229
-----------
Total assets................................................... $17,002,738
===========
LIABILITIES AND MEMBERS' EQUITY
Due to Management Investors........................................ $ 1,000,000
Accounts payable................................................... 11,313
Accrued expenses:
Legal............................................................ 880,000
Audit fees....................................................... 15,000
Other professional fees.......................................... 60,000
1,966,313
-----------
MEMBERS' EQUITY:
Morgan Stanley Capital Partners III, Inc. ......................... 1
Morgan Stanley Capital Partners III, L.P. ......................... 13,269,701
MSCP III 892 Investors, L.P. ...................................... 1,358,582
Morgan Stanley Capital Investors, L.P. ............................ 371,717
Retained earnings.................................................. 36,424
-----------
Total members' equity.......................................... 15,036,425
-----------
Total liabilities and members' equity.......................... $17,002,738
===========
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE> 64
RENAISSANCE MEDIA HOLDINGS LLC AND RENAISSANCE MEDIA LLC
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
November 5, 1997 (Date of Inception) to December 31, 1997
<TABLE>
<S> <C>
Revenues:
Interest income........................................................ $64,968
-------
Total revenue...................................................... 64,968
-------
Expenses:
Employee............................................................... 9,196
General................................................................ 77
Professional........................................................... 15,000
Interest expense....................................................... 4,271
Total expenses..................................................... 28,544
-------
Net income......................................................... $36,424
Retained earnings, beginning of period............................. -0-
-------
Retained earnings, end of period................................... $36,424
=======
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE> 65
RENAISSANCE MEDIA HOLDINGS LLC AND RENAISSANCE MEDIA LLC
COMBINED STATEMENT OF CASH FLOW
November 5, 1997 (Date of Inception) to December 31, 1997
<TABLE>
<S> <C>
Operating Activities:
Net income........................................................ $ 36,424
Adjustments to non-cash and non-operating items:
Non-cash interest expense/(income).............................. 4,271
Changes in operating assets and liabilities:
Accrued interest income....................................... (59,434)
Accounts receivable........................................... (2,500)
Prepaid expenses and other assets............................. (2,041)
Purchase of interest rate cap agreement....................... (102,500)
Accrued expenses:
Other professional fees..................................... 2,500
Audit fees.................................................. 15,000
Accounts payable.............................................. 11,313
Net cash (used in) operating activities........................... (96,967)
------------
Investing Activities:
Escrow deposit.................................................... (15,000,000)
Net cash (used in) investing activities........................... (15,000,000)
------------
Financing Activities:
Due to Management Investors....................................... 1,000,000
Capital contributions:
Morgan Stanley Capital Partners III, Inc........................ 1
Morgan Stanley Capital Partners III, L.P........................ 13,269,701
MSCP III 892 Investors, L.P..................................... 1,358,582
Morgan Stanley Capital Investors, L.P........................... 371,717
------------
Net cash provided by (used in) financing activities............... 16,000,001
------------
Net Increase in Cash and Cash Equivalents......................... 903,034
Cash and Cash Equivalents at the beginning of the period.......... --
------------
Cash and Cash Equivalents at the end of the period................ $ 903,034
============
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE> 66
RENAISSANCE MEDIA HOLDINGS LLC AND RENAISSANCE MEDIA LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. Organization and Basis of Presentation
Renaissance Media Holdings LLC ("Holdings") was formed on November 5, 1997 to
acquire certain cable television systems in Louisiana, Tennessee and
Mississippi. The initial investing stockholders of Holdings were Morgan Stanley
Capital Partners III, L.P. ("MSCP III L.P."), MSCP III 892 Investors, L.P.
("MSCP III 892"), and Morgan Stanley Capital Investors, L.P. ("MSCI L.P.").
Renaissance Media LLC ("Media") was formed on November 24, 1997. The initial
investing stockholder of Media was Morgan Stanley Capital Partners III, Inc.
("MSCP III Inc.).
The financial statements of Holdings and Media (as combined, the "Company")
have been combined as of December 31, 1997 and for the period from November 5,
1997 (date of inception) to December 31, 1997 as (i) it is management's belief
that the combined financial statements present the financial position and
results of operations of what will become the ultimate legal entity structure
upon the closing of the Asset Purchase Transaction (as defined in Note 3 below)
and the offering of the Notes (as defined in Note 9 below), (ii) Media and
Holdings were the only legal operating entities in existence at December 31,
1997 with any assets, liabilities, revenue or expenses, (iii) Media was
nominally capitalized at $1 and had minimal operations, (iv) Media and Holdings
were under common control because (x) Holdings has been advised by MSCP III
L.P., MSCP III 892 and MSCI L.P. that MSCP III Inc. is the general partner of
the general partner of each of MSCP III L.P., MSCP III 892 and MSCI L.P., which
were the sole equity owners of Holdings and as general partner controls all
activities of MSCP III L.P., MSCP III 892 and MSCI L.P. (including, without
limitation, their major operating and financial policies) and (y) MSCP III Inc.
was the sole equity owner of Media, and (v) the financial statements of Media
are not material to the combined financial statements. Subsequent to December
31, 1997, the following legal entity structure changes were enacted: (a)
Holdings formed two wholly-owned subsidiaries, Renaissance Media (Louisiana) LLC
("Louisiana") and Renaissance Media (Tennessee) LLC ("Tennessee"), on January 7,
1998; (b) Louisiana and Tennessee acquired a 76% interest and 24% interest in
Media, respectively, from MSCP III Inc. on February 13, 1998 at the same nominal
amount through an acquisition of entities under common control accounted for as
if it were a pooling of interests, as a result of which Media became a
subsidiary of Holdings; (c) Holdings formed two wholly-owned subsidiaries,
Renaissance Media Group LLC ("Group") and Renaissance Media Capital Corporation,
on March 13, 1998 and March 12, 1998, respectively; and (d) Holdings contributed
its membership interests in Louisiana and Tennessee to Group on March 20, 1998.
Significant intercompany transactions and accounts have been eliminated.
2. Summary of Significant Accounting Policies
Use of Estimates
The presentation of the financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and footnotes thereto. Actual results could differ from
those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Deferred Acquisition and Financing Costs
Deferred acquisition and financing costs at December 31, 1997 consist
primarily of legal fees associated with the acquisition of certain assets of TWI
Cable Inc. ("TWI Cable") and financing costs relating to the
F-54
<PAGE> 67
RENAISSANCE MEDIA HOLDINGS LLC AND RENAISSANCE MEDIA LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997
contemplated financing (see note 4). Subsequent to the closing of the
acquisition, these costs will be amortized over periods ranging from 8 to 15
years.
3. Time Warner Asset Purchase Agreement
On November 14, 1997, Holdings entered into an Asset Purchase Agreement (the
"Time Warner Asset Purchase Agreement") with TWI Cable whereby Holdings agreed
to purchase from TWI Cable the assets of certain cable television systems in
Louisiana, Tennessee and Mississippi (the "Acquisition"). This transaction
closed on April 9, 1998 and was accounted for using the purchase method. The
purchase price for the assets acquired was $309.5 million, $300 million of which
was paid in cash and $9.5 million of which was paid by the issuance of an equity
interest (9,500 units) in Holdings to TWI Cable at the closing. The 9,500 units
issued to TWI Cable as equity represent an 8.8% interest in Holdings, determined
by dividing the TWI Cable interest of 9,500 units by the total units outstanding
of Holdings of 108,500. TWI Cable's interest in Holdings is as a minority member
with one Board representative, and TWI Cable has economic interests in Holdings
equal to its ownership percentage on the same basis as all other members of
Holdings. Holdings was formed to consummate the Acquisition and had no assets
prior to this transaction. In accordance with the Limited Liability Company
Agreement of Holdings, TWI Cable is not required to make any future equity
contribution to Holdings and its ability to sell or otherwise dispose of its
interests in Holdings is limited. In accordance with the Time Warner Asset
Purchase Agreement, Holdings made a deposit payment of $15 million on December
5, 1997 which was held by an escrow agent until the closing date. (See Note 9.)
4. Capitalization and Debt Financing
In accordance with a commitment letter dated November 14, 1997, Morgan
Stanley Senior Funding, Inc. has committed to provide up to $200 million of
acquisition debt financing to Media ("Acquisition Debt"), including $25 million
available to Media, if necessary, to fund capital expansion and upgrade programs
as well as for general working capital requirements. (See Note 9.)
5. Interest Rate Cap Agreement
On December 5, 1997, Media purchased an interest rate cap agreement from
Morgan Stanley Capital Services Inc. At December 31, 1997, the interest rate cap
agreement effectively fixed or set a maximum interest rate of 7.25% on bank debt
borrowings up to $100 million. The interest rate cap agreement expires on
December 5, 1999. The cost of this agreement has been recorded as deferred
financing costs and is being amortized to interest expense ratably over the life
of the agreement.
6. Due to Management Investors
Subsequent to the formation of the Company and the execution of the Time
Warner Asset Purchase Agreement, the Management Investors advanced $1 million to
Holdings. At the closing of the Time Warner Asset Purchase Agreement, (see Note
9), this advance will be contributed by the Management Investors to Holdings as
equity.
7. Commitments
Media entered into a lease agreement on January 5, 1998 for corporate office
headquarters. The lease agreement expires on January 4, 1999. Annual rental
expense for 1998 under the agreement will be $90,000.
F-55
<PAGE> 68
RENAISSANCE MEDIA HOLDINGS LLC AND RENAISSANCE MEDIA LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997
8. Income Taxes
Holdings and Media are limited liability companies and are not subject to
Federal or State Income Tax. Any income earned by these entities will be taxed
to their respective members.
9. Subsequent Events (Unaudited)
On April 9, 1998, the Acquisition described in Note 3 was completed. At that
time Holdings assigned its rights and obligations under the Time Warner Asset
Purchase Agreement to Media.
The capitalization of Holdings was modified with respect to the financing
aspects of the transaction such that the Acquisition Debt described in Note 4
was reduced to $150 million of which $110 million was drawn and $40 million is
available under a revolving credit facility. In addition, Renaissance Media
Group LLC, Renaissance Media (Louisiana) LLC, Renaissance (Tennessee) LLC and
Renaissance Media Capital Corporation (collectively, the "Obligors") issued $163
million principal amount of senior discount notes due 2008 (the "Notes") and
received net cash proceeds of approximately $100 million. The Notes will fully
accrete to face value on April 15, 2003, and after such date will bear interest,
payable semi-annually in cash, at a rate of 10% per annum on April 15 and
October 15 of each year commencing October 15, 2003. The Notes are redeemable at
the option of the Obligors at any time on or after April 15, 2003 at 105.0% of
the principal amount thereof at maturity until April 15, 2004 and declining in
accordance with a schedule to 100.0% of the principal amount thereof at maturity
in 2006 and thereafter. The payment of the Notes will be guaranteed by
Renaissance Media Group LLC and will be effectively subordinated to all
liabilities of Renaissance Media Group LLC's subsidiaries. The indenture for the
Notes contains certain restrictive covenants. Additional equity contributions of
$93.5 million, were made by MSCP III, L.P., MSCP III 892, MSCI L.P., TWI Cable
and the Management Investors on April 9, 1998 to the Company.
F-56
<PAGE> 69
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
TWI Cable, Inc.
We have audited the accompanying combined balance sheet of the Picayune MS,
Lafourche LA, St. Tammany LA, St. Landry LA, Pointe Coupee LA, and Jackson TN
cable television systems, (collectively, the "Combined Systems") included in TWI
Cable, Inc. ("TWI Cable"), as of April 8, 1998, and the related combined
statements of operations, changes in net assets and cash flows for the period
from January 1, 1998 through April 8, 1998. These combined financial statements
are the responsibility of the Combined Systems' management. Our responsibility
is to express an opinion on these combined financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Combined Systems, included in TWI Cable, at April 8, 1998, and the combined
results of their operations and their cash flows for the period from January 1,
1998 through April 8, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
New York, New York
February 22, 1999
F-57
<PAGE> 70
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 8, 1998
-------------
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 7
Receivables, less allowance of $116......................... 576
Prepaid expenses and other assets........................... 438
Property, plant and equipment, net.......................... 35,992
Cable television franchises, net............................ 195,907
Goodwill and other intangibles, net......................... 50,023
--------
Total assets...................................... $282,943
========
LIABILITIES AND NET ASSETS
Accounts payable............................................ $ 63
Accrued programming expenses................................ 978
Accrued franchise fees...................................... 616
Subscriber advance payments and deposits.................... 593
Deferred income taxes....................................... 61,792
Other liabilities........................................... 747
--------
Total liabilities................................. 64,789
Total net assets.................................. 218,154
--------
Total liabilities and net assets.................. $282,943
========
</TABLE>
See accompanying notes to combined financial statements.
F-58
<PAGE> 71
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1, 1998
THROUGH
APRIL 8, 1998
---------------
<S> <C>
REVENUES.................................................... $15,221
COSTS AND EXPENSES:
Operating and programming................................... 3,603
Selling, general and administrative......................... 4,134
Depreciation and amortization............................... 5,031
(Gain) on disposal of fixed assets.......................... (96)
-------
Total costs and expenses.......................... 12,672
-------
Operating income............................................ 2,549
Provision for income taxes.................................. 1,191
-------
Net income.................................................. $ 1,358
=======
</TABLE>
See accompanying notes to combined financial statements.
F-59
<PAGE> 72
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
COMBINED STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1997................................ $224,546
Repayment of advances from Parent........................... (17,408)
Advances from Parent...................................... 9,658
Net income................................................ 1,358
--------
Balance at April 8, 1998.................................... $218,154
========
</TABLE>
See accompanying notes to combined financial statements.
F-60
<PAGE> 73
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1, 1998
THROUGH
APRIL 8, 1998
---------------
<S> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 1,358
Adjustments for noncash and nonoperating items:
Income tax expense........................................ 1,191
Depreciation and amortization............................. 5,031
(Gain) on disposal of fixed assets........................ (96)
Changes in operating assets and liabilities:
Receivables, prepaids and other assets................. 289
Accounts payable, accrued expenses and other
liabilities........................................... (770)
Other balance sheet changes............................ (4)
-------
Net cash provided by operations............................. 6,999
-------
INVESTING ACTIVITIES:
Capital expenditures........................................ (613)
-------
Net cash used in investing activities....................... (613)
-------
FINANCING ACTIVITIES:
Net repayment of advances from Parent....................... (7,750)
-------
Net cash (used in) financing activities..................... (7,750)
INCREASE IN CASH AND CASH EQUIVALENTS....................... (1,364)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 1,371
-------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 7
=======
</TABLE>
See accompanying notes to combined financial statements.
F-61
<PAGE> 74
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The cable television systems operating in the metropolitan areas of
Picayune, Mississippi; Lafourche, Louisiana; St. Tammany, Louisiana; St. Landry,
Louisiana; Pointe Coupee, Louisiana; and Jackson, Tennessee (the "Combined
Systems") are principally engaged in the cable television business under
non-exclusive franchise agreements, which expire at various times beginning in
1999. The Combined Systems' operations consist primarily of selling video
programming which is distributed to subscribers for a monthly fee through a
network of coaxial and fiber-optic cables.
Prior to January 4, 1996, the Combined Systems were included in certain
subsidiaries of Cablevision Industries Corporation ("CVI"). On January 4, 1996,
CVI merged into a wholly owned subsidiary of Time Warner Inc. (the "CVI
Merger"). On October 1, 1996, Time Warner Inc. ("Time Warner") completed a
reorganization amongst certain of its wholly owned cable television subsidiaries
whereby CVI was renamed TWI Cable Inc. ("TWI Cable").
BASIS OF PRESENTATION
TWI Cable has sold the Combined Systems to Renaissance Media Holdings LLC
("Renaissance") pursuant to an Asset Purchase Agreement with Renaissance, dated
November 14, 1997 (see Note 8). Accordingly, the accompanying combined financial
statements of the Combined Systems reflect the "carved out" historical financial
position, results of operations, cash flows and changes in net assets of the
operations of the Combined Systems as if they had been operating as a separate
company. Effective as of January 1, 1996, the Combined Systems' financial
statements reflect the new basis of accounting arising from Time Warner's merger
with CVI. Based on Time Warner's allocation of the purchase price, the assets
and liabilities of the Combined Systems were revalued resulting in goodwill
allocated to the Combined Systems of approximately $52,971,000, which is being
amortized over its estimated life of 40 years. In addition, approximately
$220,981,000 was allocated to cable television franchises and other intangible
assets, which is being amortized over periods up to 20 years.
The combined statements have been adjusted to include the allocation of
certain corporate expenses incurred by Time Warner Cable and/or TWI Cable on the
Combined Systems' behalf, based upon the number of Combined System subscribers
managed by Time Warner Cable and the ratio of Combined System subscribers to
total TWI Cable subscribers, respectively. These allocations reflect all costs
of doing business that the Combined Systems would have incurred on a stand alone
basis as disclosed in Note 3. Management believes that these allocations are
reasonable.
BASIS OF COMBINATION
The combined financial statements include the assets, liabilities,
revenues, expenses, income, loss and cash flows of the Combined Systems, as if
the Combined Systems were a single company. Significant intercompany accounts
and transactions between the Combined Systems have been eliminated. Significant
accounts and transactions with Time Warner and its affiliates are disclosed as
related party transactions (see Note 3).
F-62
<PAGE> 75
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined financial
statements and footnotes thereto. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK
A significant portion of the customer base is concentrated within the local
geographical area of each of the individual cable television systems. The
Combined Systems generally extend credit to customers and the ultimate
collection of accounts receivable could be affected by the local economy.
Management performs continuous credit evaluations of its customers and may
require cash in advance or other special arrangements from certain customers.
Management does not believe that there is any significant credit risk which
could have a material effect on the financial condition of the Combined Systems.
REVENUE AND COSTS
Subscriber fees are recorded as revenue in the period the related services
are provided and advertising revenues are recognized in the period the related
advertisements are exhibited. Rights to exhibit programming are purchased from
various cable networks. The costs of such rights are generally expensed as the
related services are made available to subscribers.
FRANCHISE FEES
Local governmental authorities impose franchise fees on the cable
television systems owned by the Combined Systems ranging up to a federally
mandated maximum of 5.0% of gross revenues. On a monthly basis, such fees are
collected from the Combined Systems' customers and such fees are not included as
revenue or as a franchise fee expense.
ADVERTISING COSTS
Advertising costs are expensed upon the first exhibition of the related
advertisements. Advertising expense amounted to $105,000 for the period from
January 1, 1998 through April 8, 1998.
STATEMENT OF CASH FLOWS
The Combined Systems participate in a cash management system with
affiliates whereby cash receipts are transferred to a centralized bank account
from which centralized payments to various suppliers and creditors are made on
behalf of the Combined Systems. The excess of such cash receipts over payments
is included in net assets. Amounts shown as cash represent the Combined Systems'
net cash receipts not transferred to the centralized account as of December 31,
1996 and 1997. The average net intercompany payable balances was $166,522,000
for the period from January 1, 1998 through April 8, 1998.
For purposes of this statement, cash and cash equivalents includes all
highly liquid investments purchased with original maturities of three months or
less.
F-63
<PAGE> 76
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Additions to property,
plant and equipment generally include material, labor, overhead and interest.
Depreciation is provided on the straight-line method over estimated useful lives
as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-20 years
Cable television equipment.................................. 5-15 years
Furniture, fixtures and other equipment..................... 3-10 years
</TABLE>
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
APRIL 8, 1998
-------------
(IN THOUSANDS)
<S> <C>
Land and buildings.......................................... $ 2,255
Cable television equipment.................................. 40,276
Furniture, fixtures and other equipment..................... 2,308
Construction in progress.................................... 1,183
--------
46,022
Less accumulated depreciation............................... (10,030)
--------
Total............................................. $ 35,992
========
</TABLE>
INTANGIBLE ASSETS
The Combined Systems amortized goodwill over periods up to 40 years and
cable television franchises over periods up to 20 years, both using the
straight-line method. For the period from January 1, 1998 through April 8, 1998
amortization of goodwill amounted to $360,000 and amortization of cable
television franchises amounted to $3,008,000. Accumulated amortization of
intangible assets amounted to $28,114,000 at April 8, 1998.
IMPAIRMENT
Management separately reviews the carrying value of acquired long-lived
assets for each acquired entity on a quarterly basis to determine whether an
impairment may exist. Management considers relevant cash flow and profitability
information, including estimated future operating results, trends and other
available information, in assessing whether the carrying value of long-lived
assets can be recovered. Upon a determination that the carrying value of
long-lived assets will not be recovered from the undiscounted future cash flows
of the acquired business, the carrying value of such long-lived assets would be
considered impaired and would be reduced by a charge to operations in the amount
of the impairment. An impairment charge is measured as a deficiency in estimated
discounted future cash flows of the acquired business to recover the carrying
value related to the long-lived assets.
INCOME TAXES
Income taxes have been provided using the liability method prescribed by
FASB Statement No. 109, "Accounting for Income Taxes." Under the liability
method, deferred income taxes reflect tax carryforwards and the net tax effects
of temporary differences between the carrying
F-64
<PAGE> 77
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
amount of assets and liabilities for financial statements and income tax
purposes, as determined under enacted tax laws and rates.
2. EMPLOYEE BENEFIT PLANS
Following the CVI Merger, the Combined Systems began participation in the
Time Warner Cable Pension Plan (the "Pension Plan"), a non-contributory defined
benefit pension plan, and the Time Warner Cable Employee Savings Plan (the
"Savings Plan") which are administered by a committee appointed by the Board of
Representatives of Time Warner Entertainment Company, L.P. ("TWE"), an affiliate
of Time Warner, and which cover substantially all employees.
Benefits under the Pension Plan are determined based on formulas which
reflect an employee's years of service and compensation levels during the
employment period. Pension expense for the period from January 1, 1998 through
April 8, 1998 totaled $61,000.
The Combined Systems' contributions to the Savings Plan are limited to
6.67% of an employee's eligible compensation during the plan year. The Board of
Representatives of TWE has the right in any year to set the maximum amount of
the Combined Systems' contribution. Defined contribution plan expense for the
period from January 1, 1998 through April 8, 1998 totaled $38,000.
The Combined Systems have no material obligations for other post retirement
benefits.
3. RELATED PARTIES
In the normal course of conducting business, the Combined Systems had
various transactions with Time Warner and its affiliates, generally on terms
resulting from a negotiation between the affected units that in management's
view resulted in reasonable allocations.
PROGRAMMING
Included in the Combined Systems' operating expenses are charges for
programming and promotional services provided by Home Box Office, Turner
Broadcasting System, Inc. and other affiliates of Time Warner. These charges are
based on customary rates and are in the ordinary course of business. These
charges totaled $1,164,000 for the period from January 1, 1998 through April 8,
1998. Accrued related party expenses for these programming and promotional
services included in accrued programming expenses approximated $409,000 for the
period from January 1, 1998 through April 8, 1998.
MANAGEMENT FEES
TWI Cable entered into a management service arrangement with Time Warner
Cable ("TWC"), pursuant to which TWC is responsible for the management and
operation of TWI Cable, which includes the Combined Systems. The management fees
paid to TWC by TWI Cable are based on an allocation of the corporate expenses of
TWC's cable division in proportion to the respective number of subscribers of
all cable systems managed by TWC's cable division. The allocation of the TWI
Cable management fee to the Combined Systems approximated $486,000 for the
period from January 1, 1998 through April 8, 1998.
Other divisional expenses allocated to the Combined Systems approximated
$299,000 for the period from January 1, 1998 through April 8, 1998.
F-65
<PAGE> 78
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. INTEREST EXPENSE
Prior to the CVI Merger, the Jackson, Tennessee system was included in
Cablevision Industries Limited Partnership and Combined Entities ("CILP"). The
Jackson system was charged interest expense in connection with CILP's (a) senior
and subordinated bank credit agreements; and (b) senior unsecured subordinated
Series A and Series B notes payable to CVI. The remaining five systems
comprising the Combined Systems were included in Cablevision Industries of the
Southeast, Inc. and Combined Entities ("CIOS"). These systems were charged
interest expense in connection with CIOS's (a) bank revolving credit agreement;
and (b) junior and senior subordinated debt to CVI.
5. INCOME TAXES
Effective January 4, 1996, the Combined Systems are included in the
consolidated federal income tax return of Time Warner. Prior to January 4, 1996,
the Combined Systems were included in the consolidated federal income tax return
of CVI. The provision for income taxes has been calculated on a separate company
basis. The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JANUARY 1, 1998
THROUGH
APRIL 8, 1998
--------------------
(IN THOUSANDS)
<S> <C>
Federal:
Current................................................... $ --
Deferred................................................ 962
State:
Current................................................. --
Deferred................................................ 229
------
Net provision for income taxes....................... $1,191
======
</TABLE>
The Combined Systems did not, and will not, have a tax sharing agreement
with either Time Warner, TWI Cable or CVI. Therefore, the Combined Systems have
not and will not be compensated for the utilization of the Combined Systems' tax
losses, by Time Warner, TWI Cable or CVI. In addition, the Combined Systems have
not and will not be required to make payments to either Time Warner or TWI Cable
for the current tax provision of the Combined Systems.
The differences between the income tax provision expected at the U.S.
federal statutory income tax rate and the total income tax provision are due to
nondeductible goodwill amortization and state taxes.
F-66
<PAGE> 79
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Combined Systems' deferred tax assets and
liabilities, as calculated on a separate company basis, are as follows:
<TABLE>
<CAPTION>
APRIL 8, 1998
-------------
(IN THOUSANDS)
<S> <C>
Deferred tax liabilities:
Amortization................................................ $57,817
Depreciation.............................................. 4,181
-------
Total gross deferred tax liabilities.............. 61,998
-------
Deferred tax assets:
Tax loss carryforwards.................................... 160
Allowance for doubtful accounts........................... 46
-------
Total deferred tax assets......................... 206
-------
Net deferred tax liability........................ $61,792
=======
</TABLE>
On a separate company basis, the Combined Systems have tax loss
carryforwards of approximately $400,000 at April 8, 1998. However, if the
Combined Systems are acquired in an asset purchase, the tax loss carryforwards,
and net deferred tax liabilities relating to temporary differences will not
carry over to Renaissance (see Note 8).
6. COMMITMENTS AND CONTINGENCIES
The Combined Systems had rental expense of approximately $244,000 for the
period from January 1, 1998 through April 8, 1998 under various lease and rental
agreements for offices, utility poles, warehouses and computer equipment. Future
minimum annual rental payments under noncancellable leases will approximate
$1,000,000 annually over the next five years.
In exchange for certain flexibility in establishing cable rate pricing
structures for regulated services that went into effect on January 1, 1996, TWC
has agreed with the Federal Communications Commission ("FCC") to invest in
certain upgrades to its cable infrastructure (consisting primarily of materials
and labor in connection with the plant upgrades up to 750 megahertz) over the
next three years (approximately $25 million at December 31, 1997). This
agreement with the FCC, which extends to the Combined Systems, will be assumed
by Renaissance as it relates to the Combined Systems in accordance with the
Asset Purchase Agreement.
F-67
<PAGE> 80
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. OTHER LIABILITIES
Other liabilities consist of:
<TABLE>
<CAPTION>
APRIL 8, 1998
-------------
(IN THOUSANDS)
<S> <C>
Compensation................................................ $279
Data Processing Costs....................................... 161
Sales and other taxes....................................... 146
Copyright Fees.............................................. 35
Pole Rent................................................... 93
Other....................................................... 33
----
Total............................................. $747
====
</TABLE>
8. SUBSEQUENT EVENT
The sale of the Combined Systems, in connection with the Asset Purchase
Agreement with Renaissance, closed on April 9, 1998 at the purchase price of
$309,500,000.
F-68
<PAGE> 81
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
TWI Cable Inc.
We have audited the accompanying combined balance sheets of the Picayune
MS, Lafourche LA, St. Tammany LA, St. Landry LA, Pointe Coupee LA, and Jackson
TN cable television systems, (collectively, the "Combined Systems") included in
TWI Cable, Inc. ("TWI Cable"), as of December 31, 1996 and 1997, the related
combined statements of operations, changes in net assets and cash flows for the
years then ended. In addition, we have audited the combined statement of
operations and cash flows for the year ended December 31, 1995 of the
Predecessor Combined Systems. These combined financial statements are the
responsibility of the Combined Systems' or the Predecessor's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Combined
Systems, included in TWI Cable or the Predecessor, at December 31, 1996 and
1997, and the combined results of their operations and their cash flows for the
years ended December 31, 1995, 1996 and 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
March 16, 1998
F-69
<PAGE> 82
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 570 $ 1,371
Receivables, less allowance of $71 and $116 for the years
ended December 31, 1996 and 1997, respectively............ 794 1,120
Prepaid expenses and other assets........................... 45 183
Property, plant and equipment, net.......................... 36,966 36,944
Cable television franchises, net............................ 209,952 198,913
Goodwill and other intangibles, net......................... 51,722 50,383
-------- --------
Total assets...................................... $300,049 $288,914
======== ========
LIABILITIES AND NET ASSETS
Accounts payable............................................ $ 1,640 $ 652
Accrued programming expenses................................ 847 904
Accrued franchise fees...................................... 736 835
Subscriber advance payments and deposits.................... 66 407
Deferred income taxes....................................... 58,340 60,601
Other liabilities........................................... 945 969
-------- --------
Total liabilities................................. 62,574 64,368
Total net assets.................................. 237,475 224,546
-------- --------
Total liabilities and net assets.................. $300,049 $288,914
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-70
<PAGE> 83
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1996 1997
---- ---- ----
(PREDECESSOR) (INCLUDED IN TWI CABLE INC.)
<S> <C> <C> <C>
REVENUES............................................ $43,549 $47,327 $50,987
COSTS AND EXPENSES:
Operating and programming........................... 13,010 12,413 12,101
Selling, general and administrative................. 9,977 12,946 13,823
Depreciation and amortization....................... 17,610 18,360 18,697
(Gain) loss on disposal of fixed assets............. -- (244) 620
------- ------- -------
Total costs and expenses.................. 40,597 43,475 45,241
------- ------- -------
Operating income.................................... 2,952 3,852 5,746
Interest expense.................................... 11,871 -- --
------- ------- -------
(Loss) income before income tax (benefit) expense... (8,919) 3,852 5,746
Income tax (benefit) expense........................ (3,567) 1,502 2,262
------- ------- -------
Net (loss) income................................... $(5,352) $ 2,350 $ 3,484
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-71
<PAGE> 84
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<S> <C>
Contribution by Parent...................................... $250,039
Repayment of advances from Parent........................... (47,895)
Advances from Parent...................................... 32,981
Net income................................................ 2,350
--------
Balance at December 31, 1996................................ 237,475
Repayment of advances from Parent......................... (50,661)
Advances from Parent...................................... 34,248
Net income................................................ 3,484
--------
Balance at December 31, 1997................................ $224,546
========
</TABLE>
See accompanying notes to combined financial statements.
F-72
<PAGE> 85
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997
---- ---- ----
(PREDECESSOR) (INCLUDED IN TWI CABLE INC.)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income................................... $(5,352) $ 2,350 $ 3,484
Adjustments for noncash and nonoperating items:
Income tax (benefit) expense................... (3,567) 1,502 2,262
Depreciation and amortization.................. 17,610 18,360 18,697
(Gain) loss on disposal of fixed assets........ -- (244) 620
Changes in operating assets and liabilities:
Receivables, prepaids and other assets....... (196) 944 (464)
Accounts payable, accrued expenses and other
liabilities............................... (972) 176 (466)
Other balance sheet changes.................. -- -- (529)
------- --------- --------
Net cash provided by operations..................... 7,523 23,088 23,604
INVESTING ACTIVITIES:
Purchase of Predecessor cable systems, net of cash
acquired.......................................... -- (249,473) --
Capital expenditures................................ (7,376) (8,170) (6,390)
------- --------- --------
Net cash used in investing activities............... (7,376) (257,643) (6,390)
FINANCING ACTIVITIES:
Advance from Parent for purchase of Predecessor..... -- 250,039 --
Net repayment of advances from Parent............... -- (14,914) (16,413)
------- --------- --------
Net cash provided by (used in) financing
activities........................................ -- 235,125 (16,413)
INCREASE IN CASH AND CASH EQUIVALENTS............... 147 570 801
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.... 419 0 570
------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......... $ 566 $ 570 $ 1,371
======= ========= ========
</TABLE>
See accompanying notes to combined financial statements.
F-73
<PAGE> 86
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The cable television systems operating in the metropolitan areas of
Picayune, Mississippi; Lafourche, Louisiana; St. Tammany, Louisiana; St. Landry,
Louisiana; Pointe Coupee, Louisiana; and Jackson, Tennessee (the "Combined
Systems") are principally engaged in the cable television business under
non-exclusive franchise agreements, which expire at various times beginning in
1999. The Combined Systems' operations consist primarily of selling video
programming which is distributed to subscribers for a monthly fee through a
network of coaxial and fiber-optic cables.
Prior to January 4, 1996, the Combined Systems were included in certain
subsidiaries of Cablevision Industries Corporation ("CVI"). On January 4, 1996,
CVI merged into a wholly owned subsidiary of Time Warner Inc. (the "CVI
Merger"). On October 1, 1996, Time Warner Inc. ("Time Warner") completed a
reorganization amongst certain of its wholly owned cable television subsidiaries
whereby CVI was renamed TWI Cable Inc. ("TWI Cable").
BASIS OF PRESENTATION
TWI Cable has committed to sell the Combined Systems to Renaissance Media
Holdings LLC ("Renaissance") pursuant to an Asset Purchase Agreement with
Renaissance, dated November 14, 1997. Accordingly, the accompanying combined
financial statements of the Combined Systems reflect the "carved out" historical
financial position, results of operations, cash flows and changes in net assets
of the operations of the Combined Systems as if they had been operating as a
separate company. Effective as of January 1, 1996, the Combined Systems'
financial statements reflect the new basis of accounting arising from Time
Warner's merger with CVI. Based on Time Warner's allocation of the purchase
price, the assets and liabilities of the Combined Systems were revalued
resulting in goodwill allocated to the Combined Systems of approximately
$52,971,000, which is being amortized over its estimated life of 40 years. In
addition, approximately $220,981,000 was allocated to cable television
franchises and other intangible assets, which is being amortized over periods up
to 20 years. The Combined Systems' financial statements through December 31,
1995 reflect the historical cost of their assets and liabilities and results of
their operations.
The combined statements have been adjusted to include the allocation of
certain corporate expenses incurred by Time Warner Cable and/or TWI Cable on the
Combined Systems' behalf, based upon the number of Combined System subscribers
managed by Time Warner Cable and the ratio of Combined System subscribers to
total TWI Cable subscribers, respectively. These allocations reflect all costs
of doing business that the Combined Systems would have incurred on a stand alone
basis as disclosed in Note 3. Management believes that these allocations are
reasonable.
BASIS OF COMBINATION
The combined financial statements include the assets, liabilities,
revenues, expenses, income, loss and cash flows of the Combined Systems, as if
the Combined Systems were a single company. Significant intercompany accounts
and transactions between the Combined Systems have been eliminated. Significant
accounts and transactions with Time Warner and its affiliates are disclosed as
related party transactions (see Note 3).
F-74
<PAGE> 87
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined financial
statements and footnotes thereto. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK
A significant portion of the customer base is concentrated within the local
geographical area of each of the individual cable television systems. The
Combined Systems generally extend credit to customers and the ultimate
collection of accounts receivable could be affected by the local economy.
Management performs continuous credit evaluations of its customers and may
require cash in advance or other special arrangements from certain customers.
Management does not believe that there is any significant credit risk which
could have a material effect on the financial condition of the Combined Systems.
REVENUE AND COSTS
Subscriber fees are recorded as revenue in the period the related services
are provided and advertising revenues are recognized in the period the related
advertisements are exhibited. Rights to exhibit programming are purchased from
various cable networks. The costs of such rights are generally expensed as the
related services are made available to subscribers.
FRANCHISE FEES
Local governmental authorities impose franchise fees on the cable
television systems owned by the Combined Systems ranging up to a federally
mandated maximum of 5.0% of gross revenues. On a monthly basis, such fees are
collected from the Combined Systems' customers. Prior to January 1997, franchise
fees were not separately itemized on customers' bills. Such fees were considered
part of the monthly charge for basic services and equipment, and therefore were
reported as revenue and expense in the Combined Systems' financial results.
Management began the process of itemizing such fees on all customers' bills
beginning in January 1997. In conjunction with itemizing these charges, the
Combined Systems began separately collecting the franchise fee on all revenues
subject to franchise fees. As a result, such fees are no longer included as
revenue or as franchise fee expense. The net effect of this change is a
reduction in 1997 revenue and franchise fee expense of approximately $1,500,000
versus the comparable period in 1996.
ADVERTISING COSTS
Advertising costs are expensed upon the first exhibition of the related
advertisements. Advertising expense amounted to $308,000, $632,000 and $510,000
for the years ended 1995, 1996 and 1997, respectively.
STATEMENT OF CASH FLOWS
The Combined Systems participate in a cash management system with
affiliates whereby cash receipts are transferred to a centralized bank account
from which centralized payments to various suppliers and creditors are made on
behalf of the Combined Systems. The excess of
F-75
<PAGE> 88
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
such cash receipts over payments is included in net assets. Amounts shown as
cash represent the Combined Systems' net cash receipts not transferred to the
centralized account as of December 31, 1996 and 1997. The average net
intercompany payable balances were $173,348,000 and $170,438,000 for the years
ended December 31, 1996 and 1997, respectively.
For purposes of this statement, cash and cash equivalents includes all
highly liquid investments purchased with original maturities of three months or
less.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Additions to property,
plant and equipment generally include material, labor, overhead and interest.
Depreciation is provided on the straight-line method over estimated useful lives
as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-20 years
Cable television equipment.................................. 5-15 years
Furniture, fixtures and other equipment..................... 3-10 years
</TABLE>
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
---- ----
<S> <C> <C>
Land and buildings.......................................... $ 2,003 $ 2,265
Cable television equipment.................................. 32,324 39,589
Furniture, fixtures and other equipment..................... 1,455 2,341
Construction in progress.................................... 5,657 1,028
------- -------
41,439 45,223
Less accumulated depreciation............................... (4,473) (8,279)
------- -------
Total............................................. $36,966 $36,944
======= =======
</TABLE>
INTANGIBLE ASSETS
During 1996 and 1997, the Combined Systems amortized goodwill over periods
up to 40 years and cable television franchises over periods up to 20 years, both
using the straight-line method. Prior to the CVI Merger, goodwill and cable
television franchises were amortized over 15 years using the straight-line
method. For the years ended 1995, 1996, and 1997, amortization of goodwill
amounted to $8,199,000, $1,325,000, and $1,325,000, respectively, and
amortization of cable television franchises amounted to $1,284,000, $11,048,000,
and $11,048,000, respectively. Accumulated amortization of intangible assets at
December 31, 1996 and 1997 amounted to $12,373,000 and $24,746,000,
respectively.
IMPAIRMENT
Management separately reviews the carrying value of acquired long-lived
assets for each acquired entity on a quarterly basis to determine whether an
impairment may exist. Management considers relevant cash flow and profitability
information, including estimated future operating results, trends and other
available information, in assessing whether the carrying value of long-lived
assets can be recovered. Upon a determination that the carrying value of
long-lived assets
F-76
<PAGE> 89
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
will not be recovered from the undiscounted future cash flows of the acquired
business, the carrying value of such long-lived assets would be considered
impaired and would be reduced by a charge to operations in the amount of the
impairment. An impairment charge is measured as a deficiency in estimated
discounted future cash flows of the acquired business to recover the carrying
value related to the long-lived assets.
INCOME TAXES
Income taxes have been provided using the liability method prescribed by
FASB Statement No. 109, "Accounting for Income Taxes." Under the liability
method, deferred income taxes reflect tax carryforwards and the net tax effects
of temporary differences between the carrying amount of assets and liabilities
for financial statements and income tax purposes, as determined under enacted
tax laws and rates.
2. EMPLOYEE BENEFIT PLANS
Following the CVI Merger, the Combined Systems began participation in the
Time Warner Cable Pension Plan (the "Pension Plan"), a non-contributory defined
benefit pension plan, and the Time Warner Cable Employee Savings Plan (the
"Savings Plan") which are administered by a committee appointed by the Board of
Representatives of Time Warner Entertainment Company, L.P. ("TWE"), an affiliate
of Time Warner, and which cover substantially all employees.
Benefits under the Pension Plan are determined based on formulas which
reflect an employee's years of service and compensation levels during the
employment period. Pension expense for the years ended December 31, 1996 and
1997 totaled $184,000 and $192,000, respectively.
The Combined Systems' contributions to the Savings Plan are limited to
6.67% of an employee's eligible compensation during the plan year. The Board of
Representatives of TWE has the right in any year to set the maximum amount of
the Combined Systems' contribution. Defined contribution plan expense for the
years ended December 31, 1996 and 1997 totaled $107,000 and $117,000,
respectively.
Prior to the CVI Merger, substantially all employees were eligible to
participate in a profit sharing plan or a defined contribution plan. The profit
sharing plan provided that the Combined Systems may contribute, at the
discretion of their board of directors, an amount up to 15% of compensation for
all eligible participants out of its accumulated earnings and profits, as
defined. Profit sharing expense amounted to approximately $31,000 for the year
ended December 31, 1995.
The defined contribution plan contained a qualified cash or deferred
arrangement pursuant to Internal Revenue Code Section 401(k). This plan provided
that eligible employees may contribute from 2% to 10% of their compensation to
the plan. The Combined Systems matched contributions of up to 4% of the
employees' compensation. The expense for this plan amounted to approximately
$96,000 for the year ended December 31, 1995.
The Combined Systems have no material obligations for other post retirement
benefits.
F-77
<PAGE> 90
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. RELATED PARTIES
In the normal course of conducting business, the Combined Systems had
various transactions with Time Warner and its affiliates, generally on terms
resulting from a negotiation between the affected units that in management's
view resulted in reasonable allocations.
PROGRAMMING
Included in the Combined Systems' 1996 and 1997 operating expenses are
charges for programming and promotional services provided by Home Box Office,
Turner Broadcasting System, Inc. and other affiliates of Time Warner. These
charges are based on customary rates and are in the ordinary course of business.
For the year ended December 31, 1996 and 1997, these charges totaled $3,260,000
and $3,458,000, respectively. Accrued related party expenses for these
programming and promotional services included in accrued programming expenses
approximated $327,000 and $291,000 for the years ended December 31, 1996 and
1997, respectively. There were no such programming and promotional service
related party transactions in 1995.
MANAGEMENT FEES
TWI Cable entered into a management service arrangement with Time Warner
Cable ("TWC"), pursuant to which TWC is responsible for the management and
operation of TWI Cable, which includes the Combined Systems. The management fees
paid to TWC by TWI Cable are based on an allocation of the corporate expenses of
TWC's cable division in proportion to the respective number of subscribers of
all cable systems managed by TWC's cable division. The allocation of the TWI
Cable management fee to the Combined Systems approximated $1,432,000 and
$1,715,000 for the years ended December 31, 1996 and 1997, respectively.
Other divisional expenses allocated to the Combined Systems approximated
$1,301,000 and $1,067,000 for the years ended December 31, 1996 and 1997,
respectively.
4. INTEREST EXPENSE
Prior to the CVI Merger, the Jackson, Tennessee system was included in
Cablevision Industries Limited Partnership and Combined Entities ("CILP"). The
Jackson system was charged interest expense in connection with CILP's (a) senior
and subordinated bank credit agreements; and (b) senior unsecured subordinated
Series A and Series B notes payable to CVI. The remaining five systems
comprising the Combined Systems were included in Cablevision Industries of the
Southeast, Inc. and Combined Entities ("CIOS"). These systems were charged
interest expense in connection with CIOS's (a) bank revolving credit agreement;
and (b) junior and senior subordinated debt to CVI.
5. INCOME TAXES
Effective January 4, 1996, the Combined Systems are included in the
consolidated federal income tax return of Time Warner. Prior to January 4, 1996,
the Combined Systems were included in the consolidated federal income tax return
of CVI. The provision (benefit) for income
F-78
<PAGE> 91
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
taxes has been calculated on a separate company basis. The components of the
provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
FEDERAL:
Current............................... $ -- $ -- $ --
Deferred............................ (2,881) 1,213 1,826
STATE:
Current............................. -- -- --
Deferred............................ (686) 289 436
------- ------ ------
Net provision (benefit) for income
taxes............................ $(3,567) $1,502 $2,262
======= ====== ======
</TABLE>
The Combined Systems did not, and will not, have a tax sharing agreement
with either Time Warner, TWI Cable or CVI. Therefore, the Combined Systems have
not and will not be compensated for the utilization of the Combined Systems' tax
losses, by Time Warner, TWI Cable or CVI. In addition, the Combined Systems have
not and will not be required to make payments to either Time Warner or TWI Cable
for the current tax provision of the Combined Systems.
The differences between the income tax provision (benefit) expected at the
U.S. federal statutory income tax rate and the total income tax provision
(benefit) are due to nondeductible goodwill amortization and state taxes.
Significant components of the Combined Systems' deferred tax assets and
liabilities, as calculated on a separate company basis, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Amortization................................. $61,266 $58,507
Depreciation............................... 3,576 4,060
------- -------
Total gross deferred tax
liabilities...................... 64,842 62,567
------- -------
DEFERRED TAX ASSETS:
Tax loss carryforwards..................... 6,474 1,920
Allowance for doubtful accounts............ 28 46
------- -------
Total deferred tax assets.......... 6,502 1,966
------- -------
Net deferred tax liability................. $58,340 $60,601
======= =======
</TABLE>
On a separate company basis, the Combined Systems have tax loss
carryforwards of approximately $4.8 million at December 31, 1997. However, if
the Combined Systems are acquired in an asset purchase, the tax loss
carryforwards, and net deferred tax liabilities relating to temporary
differences will not carry over to Renaissance (see Note 8).
F-79
<PAGE> 92
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
The Combined Systems had rental expense of approximately $642,000,
$824,000, and $843,000 for the years ended December 31, 1995, 1996 and 1997,
respectively, under various lease and rental agreements for offices, utility
poles, warehouses and computer equipment. Future minimum annual rental payments
under noncancellable leases will approximate $1,000,000 annually over the next
five years.
In exchange for certain flexibility in establishing cable rate pricing
structures for regulated services that went into effect on January 1, 1996, TWC
has agreed with the Federal Communications Commission ("FCC") to invest in
certain upgrades to its cable infrastructure (consisting primarily of materials
and labor in connection with the plant upgrades up to 750 megahertz) over the
next three years (approximately $22 million). This agreement with the FCC, which
extends to the Combined Systems, will be assumed by Renaissance as it relates to
the Combined Systems in accordance with the Asset Purchase Agreement.
7. OTHER LIABILITIES
Other liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Compensation................................................ $217 $250
Data Processing Costs....................................... 100 90
Sales and other taxes....................................... 101 90
Copyright Fees.............................................. 85 83
Pole Rent................................................... 66 63
Other....................................................... 376 393
---- ----
Total.................................................. $945 $969
==== ====
</TABLE>
8. SUBSEQUENT EVENT (UNAUDITED)
The sale of the Combined Systems, in connection with the Asset Purchase
Agreement with Renaissance, closed on April 9, 1998 at the purchase price of
$309,500,000.
F-80
<PAGE> 93
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunder duly authorized.
RENAISSANCE MEDIA GROUP LLC
RENAISSANCE MEDIA (LOUISIANA) LLC
RENAISSANCE MEDIA (TENNESSEE) LLC
Dated March 28, 2000 By: CHARTER COMMUNICATIONS, INC.
----------------------------
its Manager
By: /s/ JERALD L. KENT
----------------------------
Name: Jerald L. Kent
Title: President, Chief Executive Officer
RENAISSANCE MEDIA CAPITAL CORPORATION
Dated March 28, 2000 By: /s/ JERALD L. KENT
----------------------------
Name: Jerald L. Kent
Title: President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ JERALD L. KENT March 28, 2000
------------------
Name: Jerald L. Kent
Title: President and Chief Executive Officer
of Charter Communications, Inc. (Manager);
Renaissance Media Group LLC; Renaissance
Media (Louisiana) LLC; Renaissance Media
(Tennessee) LLC; and Renaissance Media
Capital Corporation.
By: /s/ KENT D. KALKWARF March 28, 2000
--------------------
Name: Kent D. Kalkwarf
Title: Senior Vice President and
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer) of
Charter Communications, Inc. (Manager);
Renaissance Media Group LLC; Renaissance
Media (Louisiana) LLC; Renaissance Media
(Tennessee) LLC; and Renaissance Media
Capital Corporation.
10
<PAGE> 94
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C>
3.1 Certificate of Incorporation of Renaissance Media Capital Corporation
and all amendments thereto. (1)
3.2 By-laws of Renaissance Media Capital Corporation. (1)
3.3 Certificate of Formation of Renaissance Media (Louisiana) LLC. (1)
3.4 Certificate of Formation of Renaissance Media, LLC. E-3
3.5 Certificate of Formation of Renaissance Media (Tennessee) LLC. (1)
3.7 Certificate of Formation of Renaissance Media Group LLC. (1)
3.9 Amended and Restated Limited Liability Agreement of Renaissance Media
Group LLC, dated April 29, 1999. (3)
3.10 Amended and Restated Limited Liability Agreement of Renaissance Media
(Louisiana) LLC, dated April 29, 1999. (3)
3.11 Amended and Restated Limited Liability Agreement of Renaissance Media
(Tennessee) LLC, dated April 29, 1999. (3)
3.12 Amended and Restated Limited Liability Agreement of Renaissance Media
LLC, dated April 29, 1999. (3)
4.1 Indenture dated as of April 9, 1998, by and among Renaissance Media
(Louisiana) LLC, Renaissance Media (Tennessee) LLC, Renaissance Media
Capital Corporation, Renaissance Media Group LLC and United States
Trust Company of New York, as Trustee. (1)
10.5 Social Contract approved by the Federal Communications Commission (the
"FCC") on November 30, 1995, and entered into between the FCC and Time
Warner Entertainment Company, L.P., TWI Cable Inc. and Time Warner
Entertainment-Advance/Newhouse Partnership, or any subsidiary,
division or affiliate thereof. (2)
10.27 Purchase Agreement dated as of February 23, 1999, by and among Charter
Communications, Inc., Charter Communications, LLC, Renaissance Media
Holdings LLC and Renaissance Media Group LLC. [Confidential material
omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.] (4)
10.28 Assumption Agreement, dated as of April 30, 1999, made by Renaissance
Media Group LLC in favor of NationsBank, N.A. (3)
10.29 Assumption Agreement, dated as of April 30, 1999, made by Renaissance
(Louisiana) Media LLC in favor of NationsBank, N.A. (3)
</TABLE>
E-1
<PAGE> 95
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C>
10.30 Assumption Agreement, dated as of April 30, 1999, made by Renaissance
(Tennessee) Media LLC in favor of NationsBank, N.A. (3)
10.31 Assumption Agreement, dated as of April 30, 1999, made by Renaissance
Media Capital Corporation in favor of NationsBank, N.A. (3)
10.33 Assumption Agreement, dated as of April 30, 1999, made by Renaissance
Media LLC in favor of NationsBank, N.A. (3)
27.1 Financial Data Schedule. E-5
</TABLE>
(1) Incorporated by reference to the corresponding exhibit of the
Registration Statement of Renaissance Media Group LLC, Renaissance
Media (Louisiana) LLC, Renaissance Media (Tennessee) LLC and
Renaissance Media Capital Corporation on Form S-4 (Commission File No.
333-56679), filed on June 12, 1998.
(3) Incorporated by reference to the corresponding exhibit of Amendment 1
to the Registration Statement of Renaissance Media Group LLC,
Renaissance Media (Louisiana) LLC, Renaissance Media (Tennessee) LLC
and Renaissance Media Capital Corporation on Form S-4 (Commission File
No. 333-56679), filed on August 6, 1998.
(3) Incorporated by reference to the corresponding exhibit of the Quarterly
Report on Form 10-Q of Renaissance Media Group LLC, Renaissance Media
(Louisiana) LLC, Renaissance Media (Tennessee) LLC and Renaissance
Media Capital Corporation for the quarter ended March 31, 1999, filed
on May 17, 1999 (Commission File No. 333-56679).
(4) Incorporated by reference to Exhibit 99.1 of the Current Report on Form
8-K of Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC,
Renaissance Media (Tennessee) LLC and Renaissance Media Capital
Corporation dated February 23, 1999 (Commission File No. 333-56679).
E-2
<PAGE> 1
Page 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF LIMITED
LIABILITY COMPANY OF "RENAISSANCE MEDIA LLC", FILED IN THIS OFFICE ON THE
TWENTY-FOURTH DAY OF NOVEMBER, A.D. 1997 AT 9 O'CLOCK A.M.
(Seal)
/s/ Edward J. Freel
(Seal) ___________________________________
EDWARD J. FREEL, SECRETARY OF STATE
E-3
<PAGE> 2
CERTIFICATE OF FORMATION
OF
RENAISSANCE MEDIA LLC
This Certificate of Formation of Renaissance Media LLC (the "COMPANY"),
dated, November 24, 1997 is being duly executed and filed by Morgan Stanley
Capital Partners III, Inc., as an authorized person, to form a limited
liability company under the Delaware Limited Liability Company Act (6 Del C,
section 18-101, et seq.).
FIRST. The name of the limited liability company formed hereby is
Renaissance Media LLC.
SECOND. The address of the registered office of the Company in the State
of Delaware is c/o Corporation Service Company, 1013 Centre Road, City of
Wilmington, County of New Castle, Delaware 19805.
THIRD. The name and address of the registered agent for service of process
on the Company in the State of Delaware is Corporation Service Company, 1013
Centre Road, City of Wilmington, County of New Castle, Delaware 19805.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of the date first above written.
MORGAN STANLEY CAPITAL PARTNERS III, INC.
By: /s/ Lawrence B. Sorrel
------------------------
Name: Lawrence B. Sorrel
Title: Managing Director
E-4
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001062363
<NAME> RENAISSANCE MEDIA GROUP LLC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,521
<SECURITIES> 0
<RECEIVABLES> 1,164
<ALLOWANCES> 80
<INVENTORY> 0
<CURRENT-ASSETS> 17,262
<PP&E> 72,069
<DEPRECIATION> 4,673
<TOTAL-ASSETS> 481,074
<CURRENT-LIABILITIES> 18,694
<BONDS> 86,507
0
0
<COMMON> 0
<OTHER-SE> 375,873
<TOTAL-LIABILITY-AND-EQUITY> 481,074
<SALES> 0
<TOTAL-REVENUES> 62,428
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 63,635
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,848
<INCOME-PRETAX> (12,807)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,807)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,807)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
