UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
[X]
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the
quarterly period ended June 30, 2005
or
[
]
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the
transition period from ______ to ______.
Commission
file numbers:
333-56679
333-56679-02
333-56679-01
333-56679-03
RENAISSANCE
MEDIA GROUP LLC*
RENAISSANCE
MEDIA (LOUISIANA) LLC*
RENAISSANCE
MEDIA (TENNESSEE) LLC*
RENAISSANCE
MEDIA CAPITAL CORPORATION*
(Exact
names of registrants as specified in their charters)
|
Delaware
|
14-1803051
|
|
|
Delaware
|
14-1801165
|
|
|
Delaware
|
14-1801164
|
|
|
Delaware
|
14-1803049
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
|
|
12405
Powerscourt Drive
|
||
|
St.
Louis, Missouri
|
63131
|
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
(314)
965-0555
|
|
|
(Registrants'
telephone number, including area
code)
|
Indicate
by check mark whether the registrants: (1) have filed all reports required
to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrants were
required to file such reports), and (2) have been subject to such filing
requirements for the past 90 days. YES [X]
NO
[ ]
Indicate
by check mark whether the registrants are accelerated filers (as defined in
Rule
12b-2 of the Exchange Act). YES
[ ] NO [X]
Indicate
the number of shares outstanding of each of the issuers' classes of common
stock, as of the latest practicable date:
All
of
the limited liability company membership interests of Renaissance Media
(Louisiana) LLC and Renaissance Media (Tennessee) LLC are held by Renaissance
Media Group LLC. All of the issued and outstanding shares of capital stock
of
Renaissance Media Capital Corporation are held by Renaissance Media Group LLC.
All of the limited liability company membership interests of Renaissance Media
Group LLC are held by Charter Communications, LLC (and indirectly by Charter
Communications Holdings, LLC, a reporting company under the Exchange Act).
There
is no public trading market for any of the aforementioned limited liability
company membership interests or shares of capital stock.
*
Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC, Renaissance
Media (Tennessee) LLC and Renaissance Media Capital Corporation meet the
conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q
and
are therefore filing this Form with the reduced disclosure format.
RENAISSANCE
MEDIA
GROUP LLC
RENAISSANCE
MEDIA (LOUISIANA) LLC
RENAISSANCE
MEDIA (TENNESSEE) LLC
RENAISSANCE
MEDIA CAPITAL CORPORATION
FORM
10-Q
QUARTER
ENDED JUNE 30, 2005
TABLE
OF CONTENTS
|
|
|
PAGE
|
|
Part
I.
|
FINANCIAL
INFORMATION
|
|
|
4
|
||
|
12
|
||
|
23
|
||
|
Part
II.
|
OTHER
INFORMATION
|
|
|
24
|
||
|
24
|
||
|
25
|
||
|
26
|
||
NOTE:
Separate financial statements of Renaissance Media Capital Corporation,
Renaissance Media (Louisiana) LLC and Renaissance Media (Tennessee) LLC have
not
been presented pursuant to Rule 3-10(b) of Regulation S-X.
This
quarterly report on Form 10-Q is for the six months ended June 30,
2005.
The Securities and Exchange Commission ("SEC") allows us to "incorporate
by
reference" information that we file with the SEC, which means that we can
disclose important information to you by referring you directly to those
documents. Information incorporated by reference is considered to be part
of
this quarterly report. In addition, information that we file with the SEC
in the
future will automatically update and supersede information contained in this
quarterly report. In
this
quarterly report, "we,"
"us" and "our" refer
to
Renaissance
Media Group LLC and its wholly owned finance subsidiaries, Renaissance Media
(Louisiana) LLC, Renaissance Media (Tennessee) LLC and Renaissance Media
Capital
Corporation,
unless
the context requires otherwise.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS:
This
quarterly
report includes
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities
Act"),
and
Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange
Act"),
regarding, among other things, our plans, strategies and prospects, both
business and financial including, without limitation, the forward-looking
statements set forth in the "Results
of Operations"
and
"Liquidity
and Capital Resources"
sections
under Part I, Item 2. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations"
in this
quarterly
report.
Although we believe that our plans, intentions and expectations reflected
in or
suggested by these forward-looking statements are reasonable, we cannot assure
you that we will achieve or realize these plans, intentions or expectations.
Forward-looking statements are inherently subject to risks, uncertainties
and
assumptions including, without limitation, the factors described under
"Certain
Trends and Uncertainties"
under
Part I, Item 2. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations"
in this
quarterly
report.
Many of
the forward-looking statements contained in this quarterly
report may
be
identified by the use of forward-looking words such as "believe," "expect," "anticipate," "should," "planned," "will," "may," "intend," "estimated"
and
"potential,"
among
others. Important factors that could cause actual results to differ materially
from the forward-looking statements we make in this quarterly
report are
set
forth in this quarterly
report and
in
other reports or documents that we file from time to time with the SEC, and
include, but are not limited to:
|
·
|
the
availability of funds to meet interest payment obligations under
our and
our indirect parent companies' debt and to fund our operations
and
necessary capital expenditures, either through cash flows from
operating
activities, further borrowings or other
sources;
|
|
·
|
our
ability to sustain and grow revenues and cash flows from operating
activities by offering video, high-speed Internet and other services
and
to maintain a stable customer base, particularly in the face of
increasingly aggressive competition from other service
providers;
|
|
·
|
our
and our indirect parent companies' ability to comply with all covenants
in
our and our parent companies' indentures, any violation of which
would
result in a violation of the applicable indenture and could trigger
a
default of other obligations of our affiliates under cross-default
provisions;
|
|
·
|
our
and our indirect parent companies' ability to pay or refinance
debt as it
becomes due;
|
|
·
|
our
ability to obtain programming at reasonable prices or to pass programming
cost increases on to our customers;
|
|
·
|
general
business conditions, economic uncertainty or slowdown;
and
|
|
·
|
the
effects of governmental regulation, including but not limited to
local
franchise authorities, on our business.
|
All
forward-looking statements attributable to us or any person acting on our
behalf
are expressly qualified in their entirety by this cautionary statement. We
are
under no duty or obligation to update any of the forward-looking statements
after the date of this quarterly
report.
ITEM
1. FINANCIAL STATEMENTS.
RENAISSANCE
MEDIA GROUP LLC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(DOLLARS
IN THOUSANDS)
|
June
30,
2005
|
December
31,
2004
|
||||||
|
(Unaudited)
|
|||||||
|
ASSETS
|
|||||||
|
CURRENT
ASSETS:
|
|||||||
|
Cash
and cash equivalents
|
$
|
184
|
$
|
228
|
|||
|
Accounts
receivable, less allowance for doubtful accounts of $285 and $234,
respectively
|
1,813
|
1,764
|
|||||
|
Prepaid
expenses and other current assets
|
102
|
155
|
|||||
|
Total
current assets
|
2,099
|
2,147
|
|||||
|
INVESTMENT
IN CABLE PROPERTIES:
|
|||||||
|
Property,
plant and equipment, net of accumulated depreciation of $137,488
and
$120,986, respectively
|
133,704
|
140,406
|
|||||
|
Franchises,
net
|
225,384
|
225,445
|
|||||
|
Total
investment in cable properties, net
|
359,088
|
365,851
|
|||||
|
OTHER
NONCURRENT ASSETS
|
20
|
26
|
|||||
|
Total
assets
|
$
|
361,207
|
$
|
368,024
|
|||
|
LIABILITIES
AND MEMBER'S
EQUITY
|
|||||||
|
CURRENT
LIABILITIES:
|
|||||||
|
Accounts
payable and accrued expenses
|
$
|
13,245
|
$
|
14,923
|
|||
|
Payables
to manager of cable systems - related parties
|
34,782
|
37,254
|
|||||
|
Total
current liabilities
|
48,027
|
52,177
|
|||||
|
LONG-TERM
DEBT
|
115,596
|
115,805
|
|||||
|
OTHER
LONG-TERM LIABILITIES
|
2,186
|
2,792
|
|||||
|
MEMBER'S
EQUITY
|
195,398
|
197,250
|
|||||
|
Total
liabilities and member's equity
|
$
|
361,207
|
$
|
368,024
|
|||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
4
RENAISSANCE
MEDIA GROUP LLC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS
IN THOUSANDS)
(Unaudited)
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
||||||||||||
|
2005
|
2004
|
2005
|
2004
|
||||||||||
|
REVENUES
|
$
|
30,909
|
$
|
28,999
|
$
|
60,561
|
$
|
56,684
|
|||||
|
COSTS
AND EXPENSES:
|
|||||||||||||
|
Operating
(excluding depreciation and amortization)
|
13,815
|
12,178
|
27,210
|
23,984
|
|||||||||
|
Selling,
general and administrative
|
6,089
|
6,064
|
11,963
|
11,483
|
|||||||||
|
Depreciation
and amortization
|
8,681
|
8,400
|
17,414
|
16,705
|
|||||||||
|
Loss
on sale of assets, net
|
143
|
19
|
357
|
18
|
|||||||||
|
Special
charges, net
|
(43
|
)
|
2,051
|
(43
|
)
|
2,267
|
|||||||
|
28,685
|
28,712
|
56,901
|
54,457
|
||||||||||
|
Income
from operations
|
2,224
|
287
|
3,660
|
2,227
|
|||||||||
|
OTHER
EXPENSE:
|
|||||||||||||
|
Interest
expense, net
|
(2,756
|
)
|
(2,756
|
)
|
(5,512
|
)
|
(5,512
|
)
|
|||||
|
Net
loss
|
$
|
(532
|
)
|
$
|
(2,469
|
)
|
$
|
(1,852
|
)
|
$
|
(3,285
|
)
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
5
RENAISSANCE
MEDIA GROUP LLC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS
IN THOUSANDS)
(Unaudited)
|
Six
Months Ended June 30,
|
|||||||
|
2005
|
2004
|
||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
|
Net
loss
|
$
|
(1,852
|
)
|
$
|
(3,285
|
)
|
|
|
Adjustments
to reconcile net loss to net cash flows from operating
activities:
|
|||||||
|
Depreciation
and amortization
|
17,414
|
16,705
|
|||||
|
Special
charges, net
|
--
|
2,051
|
|||||
|
Noncash
interest expense
|
(209
|
)
|
(209
|
)
|
|||
|
Loss
on sale of assets, net
|
357
|
18
|
|||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable
|
(49
|
)
|
(394
|
)
|
|||
|
Prepaid
expenses and other assets
|
52
|
(4
|
)
|
||||
|
Accounts
payable, accrued expenses and other
|
(2,847
|
)
|
(1,505
|
)
|
|||
|
Payables
to related party
|
(3,606
|
)
|
(3,959
|
)
|
|||
|
Net
cash flows from operating activities
|
9,260
|
9,418
|
|||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
|
Purchases
of property, plant and equipment
|
(9,837
|
)
|
(9,376
|
)
|
|||
|
Change
in accrued expenses related to capital expenditures
|
517
|
(60
|
)
|
||||
|
Proceeds
from sale of assets
|
16
|
--
|
|||||
|
Net
cash flows from investing activities
|
(9,304
|
)
|
(9,436
|
)
|
|||
|
NET
CHANGE IN CASH
|
(44
|
)
|
(18
|
)
|
|||
|
CASH,
beginning of period
|
228
|
257
|
|||||
|
CASH,
end of period
|
$
|
184
|
$
|
239
|
|||
|
CASH
PAID FOR INTEREST
|
$
|
5,721
|
$
|
5,721
|
|||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
6
RENAISSANCE
MEDIA GROUP LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS
IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED)
1. Organization
and Basis of Presentation
The
accompanying condensed consolidated financial statements of Renaissance Media
Group LLC (the "Company") include the accounts of the Company and its wholly
owned finance subsidiaries, Renaissance Media (Louisiana) LLC ("Renaissance
Louisiana"), Renaissance Media (Tennessee) LLC ("Renaissance Tennessee") and
Renaissance Media Capital Corporation ("Capital Corporation"). Renaissance
Media
LLC ("Media") is owned 76% and 24% by Renaissance Louisiana and Renaissance
Tennessee, respectively, and owns all of the operating assets of the
consolidated group. All significant intercompany accounts and transactions
among
consolidated entities have been eliminated.
The
Company is an indirect wholly owned subsidiary of Charter Communications
Operating, LLC ("Charter Operating"), which provides funding to the Company
as
needed. Charter Operating is an indirect subsidiary of Charter Communications
Holdings, LLC, which is an indirect subsidiary of Charter Communications, Inc.
("Charter"). The Company offers its customers traditional cable video
programming (analog and digital video) as well as high-speed Internet services
and, in some areas, advanced broadband services such as high definition
television and video on demand. The Company sells its cable video programming,
high-speed Internet and advanced broadband services on a subscription basis.
The
Company also sells local advertising on satellite-delivered
networks.
Charter
Communications Holding Company, LLC ("Charter Holdco"), the Company's indirect
parent, and Charter, the Company's manager and indirect parent, provide
management services for the cable systems owned or operated by the Company.
The
management services include such services as centralized customer billing,
data
processing and related support, benefits administration and coordination of
insurance coverage and self-insurance programs for medical, dental and workers'
compensation claims. Costs associated with providing these services are billed
and charged directly to the Company and are included within operating costs
in
the accompanying condensed consolidated statements of operations.
The
accompanying condensed consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in
the
United States for interim financial information and the rules and regulations
of
the Securities and Exchange Commission ("SEC"). Accordingly, certain information
and footnote disclosures typically included in the Company's Annual Report
on
Form 10-K have been condensed or omitted for this quarterly report. The
accompanying condensed consolidated financial statements are unaudited and
are
subject to review by regulatory authorities. However, in the opinion of
management, such financial statements include all adjustments, which consist
of
only normal recurring adjustments, necessary for a fair presentation of the
results for the periods presented. Interim results are not necessarily
indicative of results for a full year.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Areas involving significant judgments and estimates include
capitalization of labor and overhead costs; depreciation and amortization costs;
impairments of property, plant and equipment and franchises; income taxes and
contingencies. Actual results could differ from those estimates.
Reclassifications
Certain
2004 amounts have been reclassified to conform with the 2005
presentation.
2. Liquidity
and Capital Resources
The
Company recognized income from operations of $2.2 million and $3.7 million
for
the three and six months ended June 30, 2005, respectively, and $0.3 million
and
$2.2 million for the three and six months ended June 30, 2004, respectively.
The
Company's net cash flows from operating activities were $9.3 million and $9.4
million for the six months ended June 30, 2005 and 2004, respectively.
7
RENAISSANCE
MEDIA GROUP LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS
IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED)
The
Company has historically required significant cash to fund debt service costs,
capital expenditures and ongoing operations. Historically, the Company has
funded these requirements through cash flows from operating activities. However,
the mix of funding sources changes from period to period. For the six months
ended June 30, 2005, the Company generated $9.3 million of net cash flows from
operating activities. In addition, the Company used approximately $9.8 million
for purchases of property, plant and equipment. The Company expects that cash
on
hand and cash flows from operating activities will be adequate to meet its
cash
needs in 2005.
The
Company's long-term financing as of June 30, 2005 consists of $114.4 million
principal amount of senior discount notes due in 2008. The Company expects
that
it will rely on capital contributions from its indirect parent companies to
repay the principal amount of its notes at maturity. However, there can be
no
assurances that its indirect parent companies will have sufficient liquidity
to
satisfy this payment when due. As of June 30, 2005, the Company's indirect
parent companies have $19.1 billion of debt and may incur additional debt in
the
future. Cash flows from operating activities and amounts available under the
Charter Operating credit facilities may not be sufficient to fund the Company's
and its parent companies' operations and satisfy its parent companies' principal
repayment obligations that come due in 2006 and, the Company believes, will
not
be sufficient to fund its parent companies' operations and satisfy such
repayment obligations thereafter. The debt of each of the Company's indirect
parent companies has certain covenants which may restrict such Company's ability
to make distributions to their respective direct parent companies to satisfy
future principal repayment obligations. In addition, a default under the
covenants governing the Company's indenture could result in the acceleration
of
the Company's payment obligations under the Company's debt and, under certain
circumstances, in cross-defaults under the Company's affiliates' debt
obligations, which could adversely affect the Company's indirect parent
companies' ability to provide us with funding.
Because
Charter is the Company's manager, any financial or liquidity problems of Charter
could cause serious disruption to the Company's business and have a material
adverse effect on its business and results of operations. Any such event could
adversely impact the Company's own credit rating, and its relations with
customers and suppliers, which could in turn further impair the Company's
ability to obtain financing and operate its business. Further, to the extent
that any such event results in a change of control of Charter (whether through
a
bankruptcy, receivership or other reorganization of Charter and/or Charter
Holdco, or otherwise), it could result in an event of default under the Charter
Operating credit facilities and would require a change of control repurchase
offer under the Company's outstanding notes.
3. Franchises
Franchise
rights represent the value attributed to agreements with local authorities
that
allow access to homes in cable service areas acquired through the purchase
of
cable systems. Management estimates the fair value of franchise rights at the
date of acquisition and determines if the franchise has a finite-life or an
indefinite-life as defined by SFAS No. 142, Goodwill
and Other Intangible Assets.
Franchises that qualify for indefinite-life treatment under SFAS No. 142
are tested for impairment annually based on valuations, or more frequently
as
warranted by events or changes in circumstances. Such
test
resulted in a total franchise impairment of approximately $21.0 million during
the third quarter of 2004. Franchises are aggregated into
essentially inseparable asset groups to conduct the valuations. The asset groups
generally represent geographic clustering of the Company's cable systems into
groups by which such systems are managed. Management believes such grouping
represents the highest and best use of those assets.
The
Company's valuations, which are based on the present value of projected after
tax cash flows, result in a value of property, plant and equipment, franchises,
customer relationships and its total entity value. The value of goodwill is
the
difference between the total entity value and amounts assigned to the other
assets.
Franchises,
for valuation purposes, are defined as the future economic benefits of the
right
to solicit and service potential customers (customer marketing rights), and
the
right to deploy and market new services such as interactivity to the potential
customers (service marketing rights). Fair value is determined based on
estimated discounted future cash flows using assumptions consistent with
internal forecasts. The franchise after-tax cash flow is calculated as the
after-tax cash flow generated by the potential customers obtained and the new
services added to those customers in future periods. The sum of the present
value of the franchises' after-tax cash flow in years 1 through 10 and the
continuing value of the after-tax cash flow beyond year 10 yields the fair
value
of the franchise.
8
RENAISSANCE
MEDIA GROUP LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS
IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED)
Franchise
amortization expense for the three and six months ended June 30, 2005 was
$30
and $61, respectively, and franchise amortization expense for the three and
six
months ended June 30, 2004 was $30 and $61, respectively, which represents
the
amortization relating to franchises that did not qualify for indefinite-life
treatment under SFAS No. 142, including costs associated with franchise
renewals. The Company expects that amortization expense on franchise assets
will
be approximately $0.1 million annually for each of the next five years. Actual
amortization expense in future periods could differ from these estimates
as a
result of new intangible asset acquisitions or divestitures, changes in useful
lives and other relevant factors.
4. Accounts
Payable and Accrued Expenses
Accounts
payable and accrued expenses consist of the following as of June 30, 2005 and
December 31, 2004:
|
June
30,
2005
|
December
31,
2004
|
||||||
|
Accounts
payable - trade
|
$
|
2,070
|
$
|
2,899
|
|||
|
Accrued
capital expenditures
|
1,094
|
577
|
|||||
|
Accrued
expenses:
|
|||||||
|
Interest
|
2,384
|
2,384
|
|||||
|
Programming
costs
|
1,144
|
1,116
|
|||||
|
Franchise-related
fees
|
2,408
|
2,677
|
|||||
|
State
sales tax
|
2,254
|
2,792
|
|||||
|
Personal
property tax
|
979
|
1,182
|
|||||
|
Other
|
912
|
1,296
|
|||||
|
$
|
13,245
|
$
|
14,923
|
||||
5. Long-Term
Debt
Long-term
debt consists of the following as of June 30, 2005 and December 31, 2004:
|
June
30,
2005
|
December
31,
2004
|
||||||
|
10%
senior discount notes
|
$
|
114,413
|
$
|
114,413
|
|||
|
Unamortized
net premium
|
1,183
|
1,392
|
|||||
|
$
|
115,596
|
$
|
115,805
|
||||
In
1998,
Renaissance Louisiana, Renaissance Tennessee and Capital Corporation issued
$163.2 million principal amount at maturity of 10.000% senior discount notes
due
April 15, 2008 (the "Notes") for proceeds of $100.0 million. Approximately
$48.8
million principal amount of such notes were repurchased in May 1999. The Notes
began accruing cash interest on April 15, 2003. From and after April 15, 2003,
the Notes bear interest, payable semi-annually in cash, at a rate of 10% per
annum on April 15 and October 15 of each year, commencing October 15, 2003.
The
Company has fully and unconditionally guaranteed the Notes.
6. Comprehensive
Loss
Comprehensive
loss is equal to net loss for the three and six months ended June 30, 2005
and
2004.
7. Income
Taxes
The
Company is a single member limited liability company not subject to income
tax.
The Company holds all operations through indirect subsidiaries. The majority
of
those indirect subsidiaries are limited liability companies that are also not
subject to income tax. A certain indirect subsidiary of the Company is a
corporation that is subject to income tax, but has no operations and has not
generated any taxable income since inception. Any taxable income
9
RENAISSANCE
MEDIA GROUP LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS
IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED)
generated
by the Company would be the responsibility of the Company's equity owner.
As
such, the Company has not provided for income taxes in the accompanying
condensed consolidated financial statements.
8. Contingencies
Securities
Class Actions and Derivative Suits
Fourteen
putative federal class action lawsuits (the "Federal Class Actions") were filed
against Charter and certain of its former and present officers and directors
in
various jurisdictions allegedly on behalf of all purchasers of Charter's
securities during the period from either November 8 or November 9, 1999 through
July 17 or July 18, 2002. Unspecified damages were sought by the plaintiffs.
In
general, the lawsuits alleged that Charter utilized misleading accounting
practices and failed to disclose these accounting practices and/or issued false
and misleading financial statements and press releases concerning Charter's
operations and prospects. The Federal Class Actions were specifically and
individually identified in public filings made by Charter prior to the date
of
this quarterly report. On March 12, 2003, the Panel transferred the six Federal
Class Actions not filed in the Eastern District of Missouri to that district
for
coordinated or consolidated pretrial proceedings with the eight Federal Class
Actions already pending there. The Court subsequently consolidated the Federal
Class Actions into a single action (the "Consolidated Federal Class Action")
for
pretrial purposes. On August 5, 2004, the plaintiff's representatives,
Charter and the individual defendants who were the subject of the suit entered
into a Memorandum of Understanding setting forth agreements in principle to
settle the Consolidated Federal Class Action. These parties subsequently entered
into Stipulations of Settlement dated as of January 24, 2005 (described more
fully below) which incorporate the terms of the August 5, 2004 Memorandum of
Understanding.
On
September 12, 2002, a shareholders derivative suit (the "State Derivative
Action") was filed in the Circuit Court of the City of St. Louis, State of
Missouri (the "Missouri State Court") against Charter and its then current
directors, as well as its former auditors. The plaintiffs alleged that the
individual defendants breached their fiduciary duties by failing to establish
and maintain adequate internal controls and procedures. On March 12, 2004,
an
action substantively identical to the State Derivative Action was filed in
Missouri State Court against Charter and certain of its current and former
directors, as well as its former auditors. On July 14, 2004, the Court
consolidated this case with the State Derivative Action.
Separately,
on February 12, 2003, a shareholders derivative suit (the "Federal Derivative
Action") was filed against Charter and its then current directors in the United
States District Court for the Eastern District of Missouri. The plaintiff in
that suit alleged that the individual defendants breached their fiduciary duties
and grossly mismanaged Charter by failing to establish and maintain adequate
internal controls and procedures.
As
noted
above, Charter and the individual defendants entered into a Memorandum of
Understanding on August 5, 2004 setting forth agreements in principle regarding
settlement of the Consolidated Federal Class Action, the State Derivative
Action(s) and the Federal Derivative Action (the "Actions"). Charter and various
other defendants in those actions subsequently entered into Stipulations of
Settlement dated as of January 24, 2005, setting forth a settlement of the
Actions in a manner consistent with the terms of the Memorandum of
Understanding. The Stipulations of Settlement, along with various supporting
documentation, were filed with the Court on February 2, 2005. On May 23,
2005 the United States District Court for the Eastern District of Missouri
conducted the final fairness hearing for the Actions, and on June 30,
2005,
the Court issued its final approval of the settlements. Members of the class
had
30 days from the issuance of the June 30 order approving the settlement
to
file an appeal challenging the approval. Two
notices of appeal were filed relating to the settlement, but Charter does not
yet know the specific issues presented by such appeals, nor have
briefing
schedules been set.
As
amended, the Stipulations of Settlement provide that, in exchange for a release
of all claims by plaintiffs against Charter and its former and present officers
and directors named in the Actions, Charter would pay to the plaintiffs a
combination of cash and equity collectively valued at $144.0 million, which
will
include the fees and expenses of plaintiffs' counsel. Of this amount, $64.0
million would be paid in cash (by Charter's insurance carriers) and the $80.0
million balance was to be paid (subject to Charter's right to substitute cash
therefor described below) in shares of Charter Class A common stock having
an
aggregate value of $40.0 million and ten-year warrants to purchase shares of
Charter Class A common stock having an aggregate warrant value of $40.0 million,
with such values in each case being determined pursuant to formulas set forth
in
the Stipulations of Settlement. However, Charter had
the
right, in its sole discretion, to substitute cash for some or all of the
aforementioned securities on a dollar for dollar basis. Pursuant to that right,
Charter elected to fund the $80.0 million obligation with 13.4 million
shares of Charter Class A common stock (having an aggregate value of
approximately $15.0 million pursuant to the formula set forth in the
Stipulations of Settlement) with the remaining balance (less an agreed upon
$1.6 million discount in respect of that portion allocable to plaintiffs'
attorneys' fees) to be paid in cash. In addition, Charter had agreed to issue
additional shares of its Class A common stock to its insurance carrier having
an
aggregate value of $5.0 million; however, by agreement with its carrier Charter
has paid $4.5 million in cash in lieu of issuing such shares. Charter
delivered the settlement consideration to the claims administrator on
July 8, 2005, and it will be held in escrow pending any appeals of the
approval. On July 14, 2005, the Circuit Court for the City of St. Louis
dismissed with prejudice the State Derivative Actions.
As
part
of the settlements, Charter has committed to a variety of corporate governance
changes, internal practices and public disclosures, some of which have already
been undertaken and none of which are inconsistent with measures Charter is
taking in connection with the recent conclusion of the SEC investigation.
Government
Investigations
In
August
2002, Charter became aware of a grand jury investigation being conducted by
the
U.S. Attorney's Office for the Eastern District of Missouri into certain of
its
accounting and reporting practices, focusing on how Charter reported customer
numbers, and its reporting of amounts received from digital set-top terminal
suppliers for advertising. The U.S. Attorney's Office publicly stated that
Charter was not a target of the investigation. Charter was also advised by
the
U.S. Attorney's Office that no current officer or member of its board of
directors was a target of the investigation. On July 24, 2003, a federal grand
jury charged four former officers of Charter with conspiracy and mail and wire
fraud, alleging improper accounting and reporting practices focusing on revenue
from digital set-top terminal suppliers and inflated customer account numbers.
Each of the indicted former officers pled guilty to single conspiracy counts
related to the original mail and wire fraud charges and were sentenced April
22,
2005. Charter has advised the Company that it has fully cooperated with the
investigation, and following the sentencings, the U.S. Attorney's Office for
the
Eastern District of Missouri announced that its investigation was concluded
and
that no further indictments would issue.
Indemnification
Charter
was generally required to indemnify, under certain conditions, each of the
named
individual defendants in connection with the matters described above pursuant
to
the terms of its bylaws and (where applicable) such individual defendants'
employment agreements. In accordance with these documents, in connection with
the grand jury investigation, a now-settled SEC investigation and the
above-described lawsuits, some of Charter's current and former directors and
current and former officers have been advanced certain costs and expenses
incurred in connection with their defense. On February 22, 2005, Charter filed
suit against four of its former officers who were indicted in the course of
the
grand jury investigation. These suits seek to recover the legal fees and other
related expenses advanced to these individuals. One of these former officers
has
counterclaimed against Charter alleging, among other things, that Charter owes
him additional indemnification for legal fees that Charter did not pay and
another of these former officers has counterclaimed against Charter for accrued
sick leave.
Other
Litigation
In
addition to the matters set forth above, Charter is also party to other lawsuits
and claims that arose in the ordinary course of conducting its business. In
the
opinion of management, after taking into account recorded liabilities, the
outcome of these other lawsuits and claims are not expected to have a material
adverse effect on the Company's consolidated financial condition, results of
operations or its liquidity.
Reference
is made to "Certain Trends and Uncertainties" of this section and "Cautionary
Statement Regarding Forward-Looking Statements," which describe important
factors that could cause actual results to differ from expectations and
non-historical information contained herein. In addition, this section should
be
read in conjunction with the annual reports on Form 10-K of Renaissance Media
Group LLC and subsidiaries and our indirect parents, Charter Communications,
Inc. ("Charter") and Charter Communications Holdings, LLC ("Charter Holdings"),
for the year ended December 31, 2004.
"We,"
"us" and "our" refer to Renaissance
Media Group LLC and its wholly owned finance subsidiaries, Renaissance Media
(Louisiana) LLC, Renaissance Media (Tennessee) LLC and Renaissance Media Capital
Corporation.
INTRODUCTION
For
the
six months ended June 30, 2005 and 2004, our income from operations, which
includes depreciation and amortization expense but excludes interest expense,
was $3.7 million and $2.2 million, respectively. We had an operating margin
of
6% and 4% for the six months ended June 30, 2005 and 2004, respectively. The
increase in income from operations and operating margin from 2004 to 2005 was
principally due to a special charge of $2.3 million recorded in 2004 primarily
related to the terms set forth in the memoranda of understanding regarding
settlement of the consolidated Federal Class Action and Federal Derivative
Action which did not recur in 2005.
Our
outstanding notes require us to pay cash interest each April and October and
mature in 2008. We expect that we will rely on loans and capital contributions
from our indirect parent companies to repay our notes at maturity. However,
there can be no assurance that our indirect parent companies will have
sufficient liquidity to provide funds to us to satisfy this payment when
due.
RESULTS
OF OPERATIONS
The
following table sets forth the percentages of revenues that items in the
accompanying condensed consolidated statements of operations constituted for
the
periods presented (dollars in thousands):
|
Six
Months Ended June 30,
|
|||||||||||||
|
2005
|
2004
|
||||||||||||
|
Revenues
|
$
|
60,561
|
100
|
%
|
$
|
56,684
|
100
|
%
|
|||||
|
Costs
and expenses:
|
|||||||||||||
|
Operating
(excluding depreciation and amortization)
|
27,210
|
45
|
%
|
23,984
|
42
|
%
|
|||||||
|
Selling,
general and administrative
|
11,963
|
20
|
%
|
11,483
|
20
|
%
|
|||||||
|
Depreciation
and amortization
|
17,414
|
29
|
%
|
16,705
|
30
|
%
|
|||||||
|
Loss
on sale of assets, net
|
357
|
--
|
18
|
--
|
|||||||||
|
Special
charges, net
|
(43
|
)
|
--
|
2,267
|
4
|
%
|
|||||||
|
56,901
|
94
|
%
|
54,457
|
96
|
%
|
||||||||
|
Income
from operations
|
3,660
|
6
|
%
|
2,227
|
4
|
%
|
|||||||
|
Other
expense:
|
|||||||||||||
|
Interest
expense, net
|
(5,512
|
)
|
(5,512
|
)
|
|||||||||
|
Net
loss
|
$
|
(1,852
|
)
|
$
|
(3,285
|
)
|
Revenues. Revenues increased $3.9 million, or 7%, to $60.6 million for the six months ended June 30, 2005 from $56.7 million for the six months ended June 30, 2004. This increase is principally the result of increases in the number of digital video and high-speed Internet customers as well as price increases for video and data services, and is offset partially by a decrease in analog video customers. Our goal is to increase revenues by improving customer service which we believe will stabilize our analog video customer base, implementing price increases on certain services and packages and increasing the number of customers who purchase high-speed Internet services, digital video and advanced products and services such as VOD, high definition television and DVR service.
Revenues
by service offering were as follows (dollars in thousands):
|
Six
Months Ended June 30,
|
|||||||||||||||||||||
|
2005
|
2004
|
2005
over 2004
|
|||||||||||||||||||
|
Revenues
|
%
of
Revenues
|
Revenues
|
%
of
Revenues
|
Change
|
%
Change
|
||||||||||||||||
|
Video
|
$
|
42,187
|
70
|
%
|
$
|
42,023
|
74
|
%
|
$
|
164
|
--
|
||||||||||
|
High-speed
Internet
|
8,859
|
14
|
%
|
6,661
|
12
|
%
|
2,198
|
33
|
%
|
||||||||||||
|
Advertising
sales
|
3,470
|
6
|
%
|
2,612
|
5
|
%
|
858
|
33
|
%
|
||||||||||||
|
Commercial
|
1,759
|
3
|
%
|
1,441
|
2
|
%
|
318
|
22
|
%
|
||||||||||||
|
Other
|
4,286
|
7
|
%
|
3,947
|
7
|
%
|
339
|
9
|
%
|
||||||||||||
|
$
|
60,561
|
100
|
%
|
$
|
56,684
|
100
|
%
|
$
|
3,877
|
7
|
%
|
||||||||||
Video
revenues consist primarily of revenues from analog and digital video services
provided to our non-commercial customers. Video revenues increased by $0.2
million to $42.2 million for the six months ended June 30, 2005 as compared
to
$42.0 million for the six months ended June 30, 2004. The increase
was
primarily the result of price increases and an increase in digital video
customers, partially offset by a decline in analog video customers.
Revenues
from high-speed Internet services provided to our non-commercial customers
increased $2.2 million, or 33%, from $6.7 million for the six months ended
June
30, 2004 to $8.9 million for the six months ended June 30,
2005.
The
increase was primarily the result of an increase in high-speed Internet
customers and an increase in the average price of the service.
Advertising
sales revenues consist primarily of revenues from commercial advertising
customers, programmers and other vendors. Advertising sales increased $0.9
million, or 33%, from $2.6 million for the six months ended June 30, 2004 to
$3.5 million for the six months ended June 30, 2005, primarily as a result
of an
increase in local advertising sales. For the six months ended June 30, 2005
and
2004, we received $0.2 million and $0.1 million in advertising sales revenues
from vendors.
Commercial
revenues consist primarily of revenues from cable video and high-speed Internet
services to our commercial customers. Commercial revenues increased
approximately $0.3 million, or 22%, from $1.4 million for the six months ended
June 30, 2004 to $1.8 million for the six months ended June 30, 2005, primarily
as a result of an increase in commercial high-speed Internet
revenues.
Other
revenues consist of revenues from franchise fees, equipment rental, customer
installations, home shopping, dial-up Internet service, late payment fees,
wire
maintenance fees and other miscellaneous revenues. Other revenues increased
$0.3
million, or 9%, from $3.9 million for the six months ended June 30, 2004 to
$4.3
million for the six months ended June 30, 2005. The increase was primarily
the
result of an increase in installation revenue.
Operating
Expenses.
Operating expenses increased by $3.2 million, or 13%, from $24.0 million for
the
six months ended June 30, 2004 to $27.2 million for the six months ended June
30, 2005. Programming costs included in the accompanying condensed consolidated
statements of operations were $16.9 million and $15.5 million, representing
30%
and 29% of total costs and expenses for the six months ended June 30, 2005
and
2004, respectively. Key expense components as a percentage of revenues were
as
follows (dollars in thousands):
|
Six
Months Ended June 30,
|
|||||||||||||||||||||
|
2005
|
2004
|
2005
over 2004
|
|||||||||||||||||||
|
Expenses
|
%
of
Revenues
|
Expenses
|
%
of
Revenues
|
Change
|
%
Change
|
||||||||||||||||
|
Programming
|
$
|
16,900
|
28
|
%
|
$
|
15,525
|
27
|
%
|
$
|
1,375
|
9
|
%
|
|||||||||
|
Advertising
sales
|
1,320
|
2
|
%
|
1,190
|
2
|
%
|
130
|
11
|
%
|
||||||||||||
|
Service
|
8,990
|
15
|
%
|
7,269
|
13
|
%
|
1,721
|
24
|
%
|
||||||||||||
|
$
|
27,210
|
45
|
%
|
$
|
23,984
|
42
|
%
|
$
|
3,226
|
13
|
%
|
||||||||||
Programming
costs consist primarily of costs paid to programmers for analog, premium,
digital channels and pay-per-view programming. The increase in programming
costs
of $1.4 million, or 9%, was a result of price increases, particularly in sports
programming and an increase in digital video customers, partially offset by
decreases in analog video customers. Programming costs were offset by the
amortization of payments received from programmers in support of launches of
new
channels of $0.5 million and $0.8 million for the six months ended June 30,
2005
and 2004, respectively.
Our
cable
programming costs have increased in every year we have operated in excess of
U.S. inflation and cost-of-living increases, and we expect them to continue
to
increase because of a variety of factors, including inflationary or negotiated
annual increases, additional programming being provided to customers and
increased costs to purchase programming. Our increasing programming costs will
result in declining operating margins for our video services to the extent
we
are unable to pass on cost increases to our customers. We expect to partially
offset any resulting margin compression from our traditional video services
with
revenue from advanced video services, increased high-speed Internet revenues,
advertising revenues and commercial service revenues.
Advertising
sales expenses consist of costs related to traditional advertising services
provided to advertising customers, including salaries, benefits and commissions.
The increase in advertising sales of $0.1 million, or 11%, was a result of
an
increase in sales and commissions. Service costs consist primarily of service
personnel salaries and benefits, franchise fees, system utilities, Internet
service provider fees, maintenance and pole rent expense. The increase in
service costs of $1.7 million, or 24%, resulted primarily from increased labor
and maintenance costs to support our infrastructure, increased equipment
maintenance, an increase in franchise fees as a result of increased revenues
and
higher fuel prices.
Selling,
General and Administrative Expenses.
Selling,
general and administrative expenses increased by $0.5 million, or 4%, from
$11.5
million for the six months ended June 30, 2004 to $12.0 million for the six
months ended June 30, 2005. Key components of expense as a percentage of
revenues were as follows (dollars in thousands):
|
Six
Months Ended June 30,
|
|||||||||||||||||||||
|
2005
|
2004
|
2005
over 2004
|
|||||||||||||||||||
|
Expenses
|
%
of
Revenues
|
Expenses
|
%
of
Revenues
|
Change
|
%
Change
|
||||||||||||||||
|
General
and administrative
|
$
|
10,608
|
18
|
%
|
$
|
10,208
|
18
|
%
|
$
|
400
|
4
|
%
|
|||||||||
|
Marketing
|
1,355
|
2
|
%
|
1,275
|
2
|
%
|
80
|
6
|
%
|
||||||||||||
|
$
|
11,963
|
20
|
%
|
$
|
11,483
|
20
|
%
|
$
|
480
|
4
|
%
|
||||||||||
General
and administrative expenses consist primarily of salaries and benefits, rent
expense, billing costs, call center costs, internal network costs, bad debt
expense and property taxes. The increase in general and administrative expenses
of $0.4 million, or 4%, resulted primarily from increases in expenses related
to
our commercial business of $0.3 million.
Marketing
expenses increased $0.1 million, or 6%, as a result of an increased investment
in targeted marketing and branding campaigns.
Depreciation
and Amortization.
Depreciation and amortization expense increased by $0.7 million, or 4%, from
$16.7 million for the six months ended June 30, 2004 to $17.4 million for the
six months ended June 30, 2005. The increase in depreciation related to an
increase in capital expenditures.
Loss
on Sale of Assets, Net. Loss
on
sale of assets of $0.4 million and $18 thousand for the six months ended June
30, 2005 and 2004, respectively, represents losses realized on the disposal
of
fixed assets.
Special
Charges, Net. Special
charges of $(43) thousand for the six months ended June 30, 2005 represents
an
agreed
upon cash discount on settlement of the consolidated Federal Class Action and
Federal Derivative Action.
See "—
Legal Proceedings." Special charges of $2.3 million for the six months ended
June 30, 2004 primarily consists of approximately $2.1 million of expense
allocated to us as part of the terms set forth in memoranda of understanding
regarding settlement of the consolidated Federal Class Action and Federal
Derivative Action and approximately $0.2 million of litigation costs related
to
the tentative settlement of the South Carolina national class action suit,
all
of which settlements are subject to final documentation and court approval.
Interest
Expense, Net.
Interest
expense remained unchanged at $5.5 million for
the
six
months ended June 30, 2005 and 2004, respectively.
Net
Loss.
Net loss
decreased to $1.9 million for
the
six
months ended June 30, 2005 from $3.3 million for
the
six
months ended June 30, 2004 as a result of the combination of factors described
above.
LIQUIDITY
AND CAPITAL RESOURCES
Introduction
This
section contains a discussion of our liquidity and capital resources, including
a discussion of our cash position, sources and uses of cash, access to credit
facilities and other financing sources, historical financing activities, cash
needs, capital expenditures and outstanding debt.
Overview
Our
business requires significant cash to fund debt service costs, capital
expenditures and ongoing operations. We have historically funded these
requirements through cash flows from operating activities. However, the mix
of
funding sources changes from period to period. For the six months ended June
30,
2005, we generated $9.3 million of net cash flows from operating activities.
During 2005, we expect to fund our liquidity and capital requirements primarily
through cash on hand and cash flows from operating activities.
The
principal amount of our senior notes was $114.4 million as of June 30, 2005.
Since
October 15, 2003, interest on the notes is payable semi-annually in arrears
in
cash at a rate of 10% per year. On April 15, 2003, the notes became redeemable
at the option of the issuers thereof, in whole or in part, initially at 105%
of
their principal amount at maturity, plus accrued interest, declining to 100%
of
the principal amount at maturity, plus accrued interest, on or after April
15,
2006.
Renaissance Media Group has fully and unconditionally guaranteed the
notes.
See
the
section entitled "Liquidity and Capital Resources" of "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
our
2004 Annual Report on Form 10-K for a description of our senior notes indenture,
including certain terms, restrictions and covenants.
We
expect
to remain in compliance with the covenants under our indenture. We expect that
cash flows from operating activities will be sufficient to satisfy our liquidity
needs until maturity of the notes. However, we expect to rely on capital
contributions from our indirect parent companies to repay the principal amount
of our notes at maturity. There can be no assurance that our indirect parent
companies will have sufficient liquidity to provide funds to us to satisfy
this
payment when due. As of June 30, 2005, our indirect parent companies have $19.1
billion of debt and may incur additional debt in the future. Cash flows from
operating activities and amounts available under the Charter Operating credit
facilities may not be sufficient to fund our and our parent companies'
operations and satisfy our parent companies' principal repayment obligations
that come due in 2006 and, we believe, will not be sufficient to fund our parent
companies' operations and satisfy such repayment obligations thereafter. The
debt of each of our indirect parent companies has certain covenants which may
restrict their ability to make distributions to their respective direct parent
companies to satisfy future principal repayment obligations. In addition, a
default under the covenants governing our indenture could result in the
acceleration of our payment obligations under our debt and, under certain
circumstances, in cross-defaults under our affiliates' debt obligations, which
could adversely affect our indirect parent companies' ability to provide us
with
funding.
Increased
funding requirements from customer demand for digital video and high-speed
Internet services, or the need to offer other advanced services in certain
of
our markets in order to compete effectively could make us further reliant on
our
indirect parent companies' ability to make loans and capital contributions
to
us. If we are unable to receive adequate financing to fund operations, our
financial condition and results of operations could suffer
materially.
No
assurances can be given that we will not experience liquidity problems because
of adverse market conditions, increased competition or other unfavorable events,
or if we do not obtain sufficient additional financing on a timely basis as
our
debt becomes due. If,
at
any time, additional capital or borrowing capacity is required beyond amounts
internally generated or available through our indirect parent companies'
existing credit facilities or in traditional debt or equity financings, we
would
consider:
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further
reducing our expenses and capital expenditures, which would likely
impair
our ability to increase revenue;
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selling
assets; or
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seeking
funding, if available, from our indirect parent companies, including
from
the issuance of debt or equity by our indirect parent companies,
including
Charter, Charter Holdings, CCH II, LLC, CCO Holdings, LLC or Charter
Communications Operating, LLC, the proceeds of which could be loaned
or
contributed to us.
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If
the
above strategies are not successful, we could be forced to restructure our
obligations or seek protection under the bankruptcy laws. In addition, if we
find it necessary to engage in a recapitalization or other similar transaction,
our noteholders might not receive principal and interest payments to which
they
are contractually entitled.
Although
Paul G. Allen, Charter's principal shareholder, and his affiliates have
purchased equity from Charter and Charter Holdco in the past, there is no
obligation for Mr. Allen or his affiliates to purchase equity or contribute
or
lend funds to us or to our indirect parent companies or subsidiaries in the
future.
Historical
Operating, Financing and Investing Activities
We
held
$0.2 million and $0.2 million in cash and cash equivalents as of June 30, 2005
and December 31, 2004, respectively.
Operating
Activities.
Net
cash
provided by operating activities for the six months ended June 30, 2005 and
2004
was $9.3 million and $9.4 million, respectively. Operating activities provided
$0.1 million less cash during the six months ended June 30, 2005 compared to
the
corresponding period in 2004, primarily as a result of changes in operating
assets and liabilities that used $0.6 million more cash during the six months
ended June 30, 2005 compared to the corresponding period in 2004 offset by
an
increase in revenue over cash costs year over year.
Investing
Activities. Net
cash
used in investing activities for the six months ended June 30, 2005 and 2004
was
$9.3 million and $9.4 million, respectively. Investing activities used $0.1
million less cash during the six months ended June 30, 2005 compared to the
corresponding period in 2004, primarily as a result of an increase in our change
in accrued expenses related to capital expenditures.
Capital
Expenditures
We
have
significant ongoing capital expenditure requirements. Capital expenditures
were
$9.8 million and $9.4 million for the six months ended
June 30,
2005 and
2004,
respectively. Capital expenditures increased as a result of increased spending
on support capital related to our investment in service improvements and
scalable infrastructure related to VOD.
Upgrading
our cable systems has enabled us to offer digital television, high-speed
Internet services, VOD, interactive services, additional channels and tiers,
and
expanded pay-per-view options to a larger customer base. Our capital
expenditures are funded primarily from cash flows from operating activities.
In
addition, during the six
months ended June
30,
2005 and
2004,
our
liabilities related to capital expenditures increased $0.5 million and decreased
by $0.1 million, respectively.
Capital
expenditures are expected to increase in 2005 compared to 2004 as a result
of
the deployment of advanced digital boxes. We expect that the nature of these
expenditures will continue to be composed primarily of purchases of customer
premise equipment and for scalable infrastructure costs. We expect to fund
capital expenditures for 2005 primarily from cash flows from operating
activities.
CERTAIN
TRENDS AND UNCERTAINTIES
The
following discussion highlights a number of trends and uncertainties, in
addition to those discussed elsewhere in this quarterly report and in Item
7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our 2004 Annual Report on Form 10-K, that could materially impact
our business, results of operations and financial condition.
Restrictive
Covenants.
The
indenture governing our notes contains a number of significant covenants that
could adversely impact our business. In particular, our indenture restricts
our
and our subsidiaries' ability to:
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incur
additional debt;
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·
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repurchase
or redeem equity interests and debt;
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·
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make
investments;
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sell
all or substantially all of our assets or merge with or into other
companies;
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sell
assets;
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enter
into sale-leasebacks;
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in
the case of restricted subsidiaries, create or permit to exist dividend
or
payment restrictions with respect to the bond issuers, guarantee
the bond
issuers' debt, or issue specified equity interests;
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engage
in certain transactions with affiliates; and
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grant
liens.
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Our
ability to comply with these provisions may be affected by events beyond our
control. The breach of any of these covenants will result in a default under
the
indenture governing our notes, which could result in acceleration of such notes
and in certain cases, could result in cross-defaults under our affiliates'
debt
obligations. Any default under our indenture might adversely affect our growth,
our financial condition and our results of operations and the ability to make
payments on our notes. For more information, see the section above entitled
"—
Liquidity and Capital Resources."
Liquidity.
Our
business requires significant cash to fund debt service costs, capital
expenditures and ongoing operations. Our ongoing operations will depend on
our
ability to generate cash and to secure financing in the future. We have
historically funded liquidity and capital requirements through cash flows from
operating activities.
As
the
principal amounts of our notes become due in 2008, it is unclear whether we
will
have access to sufficient capital to satisfy these principal repayment
obligations. Cash flows from operating activities and other existing sources
of
funds may not be sufficient, on their own, to permit us to satisfy these
obligations.
If
our
business does not generate sufficient cash flow from operating activities,
and
sufficient future contributions are not available to us from other sources
of
financing, we may not be able to repay our debt, grow our business, respond
to
competitive challenges or fund our other liquidity and capital needs.
If
we
need to seek alternative sources of financing, there can be no assurance that
we
will be able to obtain the requisite financing or that such financing, if
available, would not have terms that are materially disadvantageous to our
existing debt holders. Although Mr. Allen and his affiliates have purchased
equity from Charter and Charter Holdco in the past, there is no obligation
for
Mr. Allen or his affiliates to purchase equity or contribute or lend funds
to us
or to our indirect parent companies or subsidiaries in the future.
If
we or
our indirect parent companies are unable to raise needed capital, ultimately,
we
could be forced to restructure our obligations or seek protection under the
bankruptcy laws. In addition, if we find it necessary to engage in a
recapitalization or other similar transaction, our noteholders might not receive
all principal and interest payments to which they are contractually
entitled.
For
more
information, see the section above entitled "— Liquidity and Capital
Resources."
Parent
Company Liquidity Concerns.
Our
long-term financing as of June 30, 2005 consists of $114.4 million principal
amount of senior discount notes due in 2008. We expect to rely on capital
contributions from our indirect parent companies to repay the principal amount
of our notes at maturity. However, there can be no assurances that our indirect
parent companies will have sufficient liquidity to satisfy this payment when
due. As of June 30, 2005, our parent companies have $19.1 billion of debt and
may incur additional debt in the future. Cash flows from operating activities
and amounts available under the Charter Communications Operating, LLC ("Charter
Operating") credit facilities may not be sufficient to fund our and our parent
companies' operations and satisfy our parent companies' principal repayment
obligations that come due in 2006 and, we believe, will not be sufficient to
fund our parent companies' operations and satisfy such repayment obligations
thereafter. Each of our indirect parent companies' debt has certain covenants
which may restrict their ability to make distributions to their respective
direct parent companies to satisfy future principal repayment obligations.
In
addition, a default under the covenants governing our indenture could result
in
the acceleration of our payment obligations under our debt and, under certain
circumstances, in cross-defaults under our affiliates' debt obligations, which
could adversely affect our indirect parent companies' ability to provide us
with
funding.
Because
Charter is our manager, any financial or liquidity problems of Charter could
cause serious disruption to our business and have a material adverse effect
on
our business and results of operations. Any such event could adversely impact
our own credit rating, and our relations with customers and suppliers, which
could in turn further impair our ability to obtain financing and operate our
business. Further, to the extent that any such event results in a change of
control of Charter (whether through a bankruptcy, receivership or other
reorganization of Charter and/or Charter Holdco, or otherwise), it could result
in an event of default under the Charter Operating credit facilities and would
require a change of control repurchase offer under our outstanding
notes.
Securities
Litigation. A
number
of putative federal class action lawsuits were filed against Charter and certain
of its former and present officers and directors alleging violations of
securities laws, which have been consolidated for pretrial purposes. In
addition, a number of shareholder derivative lawsuits were filed against Charter
in the same and other jurisdictions. A shareholders derivative suit was filed
in
the U.S. District Court for the Eastern District of Missouri against Charter
and
its then current directors. Also, three shareholders derivative suits were
filed
in Missouri state court against Charter, its then current directors and its
former independent auditor. These state court actions have been consolidated.
The federal shareholders derivative suit and the consolidated derivative suit
each alleged that the defendants breached their fiduciary duties.
Charter
entered into Stipulations of Settlement setting forth proposed terms of
settlement for the above-described class actions and derivative suits. On
May 23, 2005 the United States District Court for the Eastern District
of
Missouri
conducted the final fairness hearing for the Actions, and on June 30,
2005,
the Court issued its final approval of the settlements. Members of the class
had
30 days from the issuance of the June 30 order approving the settlement
to
file an appeal challenging the approval. Two notices of appeal were filed
relating to the settlement, but Charter does not yet know the specific issues
presented by such appeals, nor have briefing schedules been set. See "Part
II,
Item 1. Legal Proceedings."
Moreover,
due to (i) the inherent uncertainties of litigation and investigations, (ii)
the
remaining conditions to the finalization of our anticipated settlements, (iii)
the possibility of appeals and objections to the settlements, and (iv) the
need
for us to comply with, and/or otherwise implement certain covenants, conditions,
undertakings, procedures and other obligations that would be or have been
imposed under the terms of the settlements, Charter cannot predict with
certainty the ultimate outcome of these proceedings. An unfavorable outcome
in
the lawsuits described above could result in substantial potential liabilities
and have a material adverse effect on our consolidated financial condition
and
results of operations or our liquidity. Further, these proceedings, and our
actions in response to these proceedings, could result in substantial additional
defense costs and the diversion of management's attention, and could adversely
affect our ability to execute our business and financial
strategies.
Competition.
The
industry in which we operate is highly competitive, and has become more so
in
recent years. In some instances, we compete against companies with fewer
regulatory burdens, easier access to financing, greater personnel resources,
greater brand name recognition and long-established relationships with
regulatory authorities and customers. Increasing consolidation in the cable
industry and the repeal of certain ownership rules may provide additional
benefits to certain of our competitors, either through access to financing,
resources or efficiencies of scale.
Our
principal competitor for video services throughout our territory is direct
broadcast satellite television services, also known as DBS. Competition from
DBS, including intensive marketing efforts, aggressive pricing, and the ability
of DBS to provide certain services that we are in the process of developing,
has
had an adverse impact on our ability to retain customers. DBS has grown rapidly
over the last several years and continues to do so. The cable industry,
including Charter, has lost a significant number of subscribers to DBS
competition, and we face serious challenges in this area in the future. We
believe that competition from DBS service providers may present greater
challenges in areas of lower population density, and that our systems serve
a
higher concentration of such areas than those of other major cable service
providers.
Local
telephone companies and electric utilities can offer video and other services
in
competition with us, and they increasingly may do so in the future. Certain
telephone companies have begun more extensive deployment of fiber in their
networks that will enable them to begin providing video services, as well as
high-bandwidth Internet access services, to residential and business customers.
Some of these telephone companies have obtained, and are now seeking, franchises
or alternative authorizations that are less burdensome than existing Charter
franchises. The subscription television industry also faces competition from
free broadcast television and from other communications and entertainment media.
Further loss of customers to DBS or other alternative video and data services
could have a material negative impact on the value of our business and its
performance.
With
respect to our Internet access services, we face competition, including
intensive marketing efforts and aggressive pricing, from telephone companies
and
other providers of "dial-up" and digital subscriber line technology, also known
as DSL. DSL service is competitive with high-speed Internet service over cable
systems. In addition, DBS providers have entered into joint marketing
arrangements with Internet access providers to offer bundled video and Internet
service, which competes with our ability to provide bundled services to our
customers. In addition, as we expand our telephone offerings, we will face
considerable competition from established telephone companies.
In
order
to attract new customers, from time to time we make promotional offers,
including offers of temporarily reduced-price or free service. These promotional
programs result in significant advertising, programming and operating expenses,
and also require us to make capital expenditures to acquire additional digital
set-top terminals. Customers who subscribe to our services as a result of these
offerings may not remain customers for any significant period of time following
the end of the promotional period. A failure to retain existing customers and
customers added through promotional offerings or to collect the amounts they
owe
us could have an adverse effect on our business and financial
results.
Mergers,
joint ventures and alliances among franchised, wireless or private cable
operators, satellite television providers, telephone companies and others,
and
the repeal of certain ownership rules may provide additional benefits
to
some
of our competitors, either through access to financing, resources or
efficiencies of scale, or the ability to provide multiple services in direct
competition with us.
Long-Term
Indebtedness - Change of Control Payments.
We
may
not have the ability to raise the funds necessary to fulfill our obligations
under our notes following a change of control. A change of control under our
notes would require us to make an offer to repurchase our outstanding notes.
However, a failure by us to make or complete a change of control offer would
place us in default of these agreements.
Services.
We
expect
that a substantial portion of our near-term growth will be achieved through
revenues from high-speed Internet services, digital video, bundled service
packages, and to a lesser extent various commercial services that take advantage
of cable's broadband capacity. We may not be able to offer these advanced
services successfully to our customers or provide adequate customer service
and
these advanced services may not generate adequate revenues. Also, if the vendors
we use for these services are not financially viable over time, we may
experience disruption of service and incur costs to find alternative vendors.
In
addition, the technology involved in our product and service offerings generally
requires that we have permission to use intellectual property and that such
property not infringe on rights claimed by others. If it is determined that
the
product or service being utilized infringes on the rights of others, we may
be
sued or be precluded from using the technology.
Increasing
Programming Costs. Programming
has been, and is expected to continue to be, our largest operating expense
item.
In recent years, the cable industry has experienced a rapid escalation in the
cost of programming, particularly sports programming. We expect programming
costs to continue to increase because of a variety of factors, including
inflationary or negotiated annual increases, additional programming being
provided to customers and increased costs to purchase programming. The inability
to fully pass these programming cost increases on to our customers would have
an
adverse impact on our cash flow and operating margins. As measured by
programming costs, and excluding premium services (substantially all of which
were renegotiated and renewed in 2003), as of July 7, 2005 approximately 9%
of
Charter's current programming contracts were expired, and approximately another
21% are scheduled to expire at or before the end of 2005. There can be no
assurance that these agreements will be renewed on favorable or comparable
terms. To the extent that we are unable to reach agreement with certain
programmers on terms that we believe are reasonable we may be forced to remove
such programming channels from our line-up, which could result in a further
loss
of customers.
Notes
Price Volatility.
The
market price of our and our indirect parent companies' publicly traded notes
has
been and is likely to continue to be highly volatile. We expect that the price
of these securities may fluctuate in response to various factors, including
the
factors described in this section and various other factors, which may be beyond
our control. These factors beyond our control could include: financial forecasts
by securities analysts; new conditions or trends in the cable or
telecommunications industry; general economic and market conditions and
specifically, conditions related to the cable or telecommunications industry;
any change in our debt ratings; the development of improved or competitive
technologies; the use of new products or promotions by us or our competitors;
changes in accounting rules or interpretations; and new regulatory legislation
adopted in the United States.
In
addition, the securities market in general, and the market for cable television
securities in particular, have experienced significant price fluctuations.
Volatility in the market price for companies may often be unrelated or
disproportionate to the operating performance of those companies. These broad
market and industry factors may seriously harm the market price of our notes,
regardless of our operating performance. In the past, securities litigation
has
often commenced following periods of volatility in the market price of a
company's securities, and several purported class action lawsuits were filed
against Charter in 2001 and 2002, following a decline in its stock price.
Economic
Slowdown; Global Conflict.
It is
difficult to assess the impact that the general economic slowdown and global
conflict will have on future operations. However, the economic slowdown has
resulted and could continue to result in reduced spending by customers and
advertisers, which could reduce our revenues, and also could affect our ability
to collect accounts receivable and maintain customers. Reductions in operating
revenues would likely negatively affect our ability to make expected capital
expenditures and could also result in our inability to meet our obligations
under our financing agreements. These developments could also have a negative
impact on our financing and variable interest rate agreements through
disruptions in the market or negative market conditions.
Regulation
and Legislation.
Cable
system operations are extensively regulated at the federal, state, and local
level, including rate regulation of basic service and equipment and municipal
approval of franchise agreements and their
terms,
such as franchise requirements to upgrade cable plant and meet specified
customer service standards. Additional legislation and regulation is always
possible.
Cable
operators also face significant regulation of their channel carriage. They
currently can be required to devote substantial capacity to the carriage of
programming that they would not carry voluntarily, including certain local
broadcast signals, local public, educational and government access programming,
and unaffiliated commercial leased access programming. This carriage burden
could increase in the future, particularly if cable systems were required to
carry both the analog and digital versions of local broadcast signals (dual
carriage) or to carry multiple program streams included with a single digital
broadcast transmission (multicast carriage). Additional government mandated
broadcast carriage obligations could disrupt existing programming commitments,
interfere with our preferred use of limited channel capacity and limit our
ability to offer services that would maximize customer appeal and revenue
potential. Although the FCC issued a decision in February 2005, confirming
an
earlier ruling against mandating either dual carriage or multicast carriage,
that decision has been appealed. In addition, the FCC could reverse its own
ruling or Congress could legislate additional carriage obligations.
Over
the
past several years, proposals have been advanced that would require cable
operators offering Internet service to provide non-discriminatory access to
cable’s broadband infrastructure to competing Internet service providers. In a
June 2005 ruling, commonly referred to as Brand
X,
the
Supreme Court upheld an FCC decision making it less likely that any
non-discriminatory "open access" requirements (which are generally associated
with common carrier regulation of "telecommunications services") will be imposed
on the cable industry by local, state or federal authorities. The Supreme Court
held that the FCC was correct in classifying cable-provided Internet service
as
an "information service," rather than a "telecommunications service." This
favorable regulatory classification limits the ability of various governmental
authorities to impose open access requirements on cable-provided Internet
service. Given the recency of the Brand
X decision,
however, the nature of any legislative or regulatory response remains uncertain.
The imposition of open access requirements could materially affect our business.
CONTINGENCIES
Securities
Class Actions and Derivative Suits. Fourteen
putative federal class action lawsuits (the "Federal Class Actions") were filed
against Charter, our manager and indirect parent, and certain of its former
and
present officers and directors in various jurisdictions allegedly on behalf
of
all purchasers of Charter's securities during the period from either November
8
or November 9, 1999 through July 17 or July 18, 2002. Unspecified damages were
sought by the plaintiffs. In general, the lawsuits alleged that Charter utilized
misleading accounting practices and failed to disclose these accounting
practices and/or issued false and misleading financial statements and press
releases concerning Charter's operations and prospects. The Federal Class
Actions were specifically and individually identified in public filings made
by
Charter prior to the date of this quarterly report. On March 12, 2003, the
Panel
transferred the six Federal Class Actions not filed in the Eastern District
of
Missouri to that district for coordinated or consolidated pretrial proceedings
with the eight Federal Class Actions already pending there. The Court
subsequently consolidated the Federal Class Actions into a single action
(the "Consolidated Federal Class Action") for pretrial purposes. On
August 5, 2004, the plaintiff's representatives, Charter and the individual
defendants who were the subject of the suit entered into a Memorandum of
Understanding setting forth agreements in principle to settle the Consolidated
Federal Class Action. These parties subsequently entered into Stipulations
of Settlement dated as of January 24, 2005 (described more fully below)
which incorporate the terms of the August 5, 2004 Memorandum of
Understanding.
On
September 12, 2002, a shareholders derivative suit (the "State Derivative
Action") was filed in the Circuit Court of the City of St. Louis, State of
Missouri (the "Missouri State Court"), against Charter and its then current
directors, as well as its former auditors. The plaintiffs alleged that the
individual defendants breached their fiduciary duties by failing to establish
and maintain adequate internal controls and procedures.
On
March 12, 2004, an action substantively identical to the State Derivative
Action was filed in Missouri State Court against Charter and certain of its
current and former directors, as well as its former auditors. On July 14,
2004, the Court consolidated this case with the State Derivative Action.
Separately,
on February 12, 2003, a shareholders derivative suit (the "Federal Derivative
Action"), was filed against Charter and its then current directors in the United
States District Court for the Eastern District of Missouri. The plaintiff in
that suit alleged that the individual defendants breached their fiduciary duties
and grossly mismanaged Charter by failing to establish and maintain adequate
internal controls and procedures.
As
noted
above, Charter and the individual defendants entered into a Memorandum of
Understanding on August 5, 2004 setting forth agreements in principle
regarding settlement of the Consolidated Federal Class Action, the State
Derivative Action(s) and the Federal Derivative Action (the "Actions"). Charter
and various other defendants in those actions subsequently entered into
Stipulations of Settlement dated as of January 24, 2005, setting forth
a
settlement of the Actions in a manner consistent with the terms of the
Memorandum of Understanding. The Stipulations of Settlement, along with various
supporting documentation, were filed with the Court on February 2, 2005.
On
May 23, 2005 the United States District Court for the Eastern District
of
Missouri conducted the final fairness hearing for the Actions, and on
June 30, 2005, the Court issued its final approval of the settlements.
Members of the class had 30 days from the issuance of the June 30 order
approving the settlement to file an appeal challenging the approval. Two notices
of appeal were filed relating to the settlement, but Charter does not yet know
the specific issues presented by such appeals, nor have briefing schedules
been
set.
As
amended, the Stipulations of Settlement provide that, in exchange for a release
of all claims by plaintiffs against Charter and its former and present officers
and directors named in the Actions, Charter would pay to the plaintiffs a
combination of cash and equity collectively valued at $144.0 million, which
will
include the fees and expenses of plaintiffs' counsel. Of this amount, $64.0
million would be paid in cash (by Charter's insurance carriers) and the $80.0
million balance was to be paid (subject to Charter's right to substitute cash
therefor described below) in shares of Charter Class A common stock having
an
aggregate value of $40.0 million and ten-year warrants to purchase shares of
Charter Class A common stock having an aggregate warrant value of $40.0 million,
with such values in each case being determined pursuant to formulas set forth
in
the Stipulations of Settlement. However, Charter had the right, in its sole
discretion, to substitute cash for some or all of the aforementioned securities
on a dollar for dollar basis. Pursuant to that right, Charter elected to fund
the $80.0 million obligation with 13.4 million shares of Charter
Class
A common stock (having an aggregate value of approximately $15.0 million
pursuant to the formula set forth in the Stipulations of Settlement) with the
remaining balance (less an agreed upon $1.6 million discount in respect
of
that portion allocable to plaintiffs' attorneys' fees) to be paid in cash.
In
addition, Charter had agreed to issue additional shares of its Class A common
stock to its insurance carrier having an aggregate value of $5.0 million;
however, by agreement with its carrier Charter has paid $4.5 million
in
cash in lieu of issuing such shares. Charter delivered the settlement
consideration to the claims administrator on July 8, 2005, and it will
be
held in escrow pending any appeals of the approval. On July 14, 2005, the
Circuit Court for the City of St. Louis dismissed with prejudice the State
Derivative Actions.
As
part
of the settlements, Charter has committed to a variety of corporate governance
changes, internal practices and public disclosures, some of which have already
been undertaken and none of which are inconsistent with measures Charter is
taking in connection with the recent conclusion of the SEC investigation.
Government
Investigations.
In
August 2002, Charter became aware of a grand jury investigation being conducted
by the U.S. Attorney's Office for the Eastern District of Missouri into certain
of its accounting and reporting practices, focusing on how Charter reported
customer numbers, and its reporting of amounts received from digital set-top
terminal suppliers for advertising. The U.S. Attorney's Office publicly stated
that Charter was not a target of the investigation. Charter was also advised
by
the U.S. Attorney's Office that no current officer or member of its board of
directors was a target of the investigation. On July 24, 2003, a federal grand
jury charged four former officers of Charter with conspiracy and mail and wire
fraud, alleging improper accounting and reporting practices focusing on revenue
from digital set-top terminal suppliers and inflated customer account numbers.
Each of the indicted former officers pled guilty to single conspiracy counts
related to the original mail and wire fraud charges and were sentenced April
22,
2005. Charter has advised us that it has fully cooperated with the
investigation, and following the sentencings, the U.S. Attorney's Office for
the
Eastern District of Missouri announced that its investigation was concluded
and
that no further indictments would issue.
Indemnification.
Charter
was generally required to indemnify, under certain conditions, each of the
named
individual defendants in connection with the matters described above pursuant
to
the terms of its bylaws and (where applicable) such individual defendants'
employment agreements. In accordance with these documents, in connection with
the grand jury investigation, a now-settled SEC investigation and the
above-described lawsuits, some of Charter's current and former directors and
current and former officers have been advanced certain costs and expenses
incurred in connection with their defense. On February 22, 2005, Charter filed
suit against four of its former officers who were indicted in the course of
the
grand jury investigation. These suits seek to recover the legal fees and other
related expenses advanced to these individuals. One of these former officers
has
counterclaimed against Charter alleging, among other things, that Charter owes
him additional indemnification for legal fees that Charter did not pay and
another of these former officers has counterclaimed against Charter for accrued
sick leave.
Other
Litigation. In
addition to the matters set forth above, Charter is also party to other lawsuits
and claims that arose in the ordinary course of conducting its business. In
the
opinion of management, after taking into account recorded liabilities, the
outcome of these other lawsuits and claims are not expected to have a material
adverse effect on our consolidated financial condition, results of operations
or
our liquidity.
As
of the
end of the period covered by this report, management, including our Interim
Chief Executive Officer and Interim Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures with respect to the information generated for use in this quarterly
report. The evaluation was based in part upon reports and affidavits provided
by
a number of executives. Based upon, and as of the date of that evaluation,
our
Interim Chief Executive Officer and Interim Chief Financial Officer concluded
that the disclosure controls and procedures were effective to provide reasonable
assurances that information required to be disclosed in the reports we file
or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms.
There
was
no change in our internal control over financial reporting during the quarter
ended March 31, 2005 that has materially affected, or is reasonably likely
to
materially affect, our internal control over financial reporting.
In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance of achieving
the
desired control objectives and management necessarily was required to apply
its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Based upon the above evaluation, our management believes that our
controls do provide such reasonable assurances.
PART
II. OTHER INFORMATION.
In
addition to those matters disclosed under the heading "Contingencies" of Part
I,
Item 2. "Management's Discussion and Analysis of Financial Condition and Results
of Operations", we are involved from time to time in routine legal matters
and
other claims incidental to our business. We believe that the resolution of
such
routine matters and other incidental claims, taking into account established
reserves and insurance, will not have a material adverse impact on our
consolidated financial position or results of operations.
The
index
to the exhibits begins on page 26 of this quarterly report.
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrants have duly caused this quarterly report to be signed on their behalf
by the undersigned, thereunto duly authorized.
|
RENAISSANCE
MEDIA GROUP LLC
|
|
|
RENAISSANCE
MEDIA (LOUISIANA) LLC
|
|
|
RENAISSANCE
MEDIA (TENNESSEE) LLC
|
|
|
Dated:
August 5, 2005
|
By:
CHARTER COMMUNICATIONS, INC.,
|
|
Registrants'
Manager
|
|
|
By:
/s/ Paul E.
Martin
|
|
|
Name:
Paul E. Martin
|
|
|
Title:
Senior Vice President, Interim Chief Financial Officer,
|
|
|
Principal
Accounting Officer and
Corporate Controller
|
|
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|
|
of
Charter Communications, Inc. (Manager);
|
|
|
Renaissance
Media Group LLC; Renaissance Media
|
|
|
(Louisiana)
LLC; and Renaissance Media (Tennessee) LLC
|
|
|
Dated:
August 5, 2005
|
RENAISSANCE
MEDIA CAPITAL CORPORATION
|
|
By:
/s/ Paul E.
Martin
|
|
|
Name:
Paul E. Martin
|
|
|
Title:
Senior Vice President, Interim Chief Financial Officer,
|
|
|
Principal
Accounting Officer and
Corporate Controller
|
|
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|
|
Exhibit
Number
|
Description
of Document
|
|
|
3.1
|
Certificate
of Incorporation of Renaissance Media Capital Corporation and all
amendments thereto (incorporated by reference to the Exhibit 3.1
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 filed on June 12, 1998 (File No.
333-56679)).
|
|
|
3.2
|
By-laws
of Renaissance Media Capital Corporation (incorporated by reference
to the
Exhibit 3.2 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 filed on June
12, 1998
(File No. 333-56679)).
|
|
|
3.3
|
Certificate
of Formation of Renaissance Media (Louisiana) LLC (incorporated
by
reference to the Exhibit 3.3 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
filed on June 12, 1998 (File No. 333-56679)).
|
|
|
3.4
|
Certificate
of Formation of Renaissance Media (Tennessee) LLC (incorporated
by
reference to the Exhibit 3.5 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
filed on June 12, 1998 (File No. 333-56679)).
|
|
|
3.5
|
Certificate
of Formation of Renaissance Media Group LLC (incorporated by reference
to
the Exhibit 3.7 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 filed on
June 12,
1998 (File No. 333-56679)).
|
|
|
3.6
|
Amended
and Restated Limited Liability Agreement of Renaissance Media Group
LLC,
dated April 29, 1999 (incorporated by reference to Exhibit 3.9
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 filed on May 17, 1999 (File No. 333-56679)).
|
|
|
3.7
|
Amended
and Restated Limited Liability Agreement of Renaissance Media (Louisiana)
LLC, dated April 29, 1999 (incorporated by reference to Exhibit
3.10 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 filed on May 17, 1999 (File
No.
333-56679)).
|
|
|
3.8
|
Amended
and Restated Limited Liability Agreement of Renaissance Media (Tennessee)
LLC, dated April 29, 1999 (incorporated by reference to Exhibit
3.11 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 filed on May 17, 1999 (File
No.
333-56679)).
|
|
|
3.9
|
Amended
and Restated Limited Liability Agreement of Renaissance Media LLC,
dated
April 30, 1999 (incorporated by reference to Exhibit 3.12 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 filed on May 17, 1999 (File No.
333-56679)).
|
|
|
3.10
|
Certificate
of Formation of Renaissance Media LLC (incorporated by reference
to
Exhibit 3.4 of the annual report on Form 10-K of Renaissance Media
Group
LLC, Renaissance Media (Louisiana) LLC, Renaissance Media (Tennessee)
and
Renaissance Media Capital Corporation filed March 30, 2000 (File
No.
333-56679)).
|
|
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 (incorporated by reference to the Exhibit 4.1 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 filed on June 12, 1998 (File No.
333-56679)).
|
|
|
10.1(a)
|
Stipulation
of Settlement, dated as of January 24, 2005, regarding settlement
of
Consolidated Federal Class Action entitled In Re Charter Communications,
Inc. Securities Litigation. (incorporated by reference to Exhibit
10.48 to
the
annual report on Form 10-K filed by Charter
Communications, Inc. on March 3, 2005 (File No.
000-27927)).
|
|
|
10.1(b)
|
Amendment
to Stipulation of Settlement, dated as of May 23, 2005, regarding
settlement of Consolidated Federal Class Action entitled In Re
Charter
Communications, Inc. Securities Litigation. (incorporated by reference
to
Exhibit 10.35(b)
to
Amendment No. 3 to the registration statement on Form S-1 filed
by Charter Communications, Inc. on June 8, 2005 (File No.
333-121186)).
|
|
|
10.2+
|
Employment
Agreement, dated as of April 1, 2005, by and between Michael J.
Lovett and
Charter Communications, Inc. (incorporated by reference to Exhibit
10.11
to the quarterly report on Form 10-Q filed by Charter Communications,
Inc.
on May 3, 2005 (File No. 000-27927)).
|
|
|
10.3+
|
Letter
Agreement, dated April 15, 2005, by and between Charter Communications,
Inc. and Paul E. Martin (incorporated by reference to Exhibit 99.1
to the
current report on Form 8-K of Charter Communications, Inc. filed
April 19,
2005 (File No. 0000-27927)).
|
|
|
10.4+
|
2005
Executive Cash Award Plan dated as of June 9, 2005 (incorporated
by
reference to Exhibit 99.1 to the current report on Form 8-K of
Charter
Communications, Inc. filed June 15, 2005 (File No.
0000-27927)).
|
|
|
10.5+
|
Restricted
Stock Agreement, dated as of July 13, 2005, by and between
Robert P.
May and Charter Communications, Inc. (incorporated by reference
to
Exhibit 99.1 to the current report on Form 8-K of
Charter
Communications, Inc. filed July 13, 2005 (File
No. 000-27927)).
|
|
|
10.6+
|
Restricted
Stock Agreement, dated as of July 13, 2005, by and between
Michael J.
Lovett and Charter Communications, Inc. (incorporated by reference
to
Exhibit 99.2 to the current report on Form 8-K of
Charter
Communications, Inc. filed July 13, 2005 (File
No. 000-27927)).
|
|
|
31.1*
|
Certificate
of Interim Chief Executive Officer pursuant to Rule 13a-14(a)/Rule
15d-14(a) under the Securities Exchange Act of 1934.
|
|
|
31.2*
|
Certificate
of Interim Chief Financial Officer pursuant to Rule 13a-14(a)/Rule
15d-14(a) under the Securities Exchange Act of 1934.
|
|
|
32.1*
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Interim Chief Executive Officer).
|
|
|
32.2*
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Interim Chief Financial Officer).
|
*
Document attached
+
Management compensatory plan or arrangement
27
Exhibit
31.1
I,
Robert
P. May, certify that:
|
1.
|
|
I
have reviewed this Quarterly Report on Form 10-Q of Renaissance
Media
Group LLC, Renaissance Media (Louisiana) LLC, Renaissance Media
(Tennessee) LLC and Renaissance Media Capital
Corporation;
|
|
|
||
|
2.
|
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
||
|
3.
|
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this
report;
|
|
|
||
|
4.
|
|
The
registrants’ other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the registrants and have:
|
|
|
(a)
|
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrants, including
their
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
|
|
|||
|
(b)
|
[Reserved];
|
||
|
|
(c)
|
|
Evaluated
the effectiveness of the registrants’ disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
|
|
|||
|
|
(d)
|
|
Disclosed
in this report any change in the registrants’ internal control over
financial reporting that occurred during the registrants’ most recent
fiscal quarter (the registrants’ fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrants’ internal control over financial
reporting; and
|
|
5.
|
|
The
registrants’ other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrants’ auditors and the audit committee of the registrants’
board of directors (or persons performing the equivalent
functions):
|
|
|
(a)
|
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants’ ability to record,
process, summarize and report financial information;
and
|
|
|
|||
|
|
(b)
|
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants’ internal control
over financial reporting.
|
Date:
August 5, 2005
/s/
Robert P. May
Robert
P.
May
Interim
President and Chief Executive Officer
Exhibit
31.2
I,
Paul
E. Martin, certify that:
|
1.
|
|
I
have reviewed this Quarterly Report on Form 10-Q of Renaissance
Media
Group LLC, Renaissance Media (Louisiana) LLC, Renaissance Media
(Tennessee) LLC and Renaissance Media Capital
Corporation;
|
|
|
||
|
2.
|
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
||
|
3.
|
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this
report;
|
|
|
||
|
4.
|
|
The
registrants’ other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the registrants and have:
|
|
|
(a)
|
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrants, including
their
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
|
|
|||
|
(b)
|
[Reserved];
|
||
|
|
(c)
|
|
Evaluated
the effectiveness of the registrants’ disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
|
|
|||
|
|
(d)
|
|
Disclosed
in this report any change in the registrants’ internal control over
financial reporting that occurred during the registrants’ most recent
fiscal quarter (the registrants’ fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrants’ internal control over financial
reporting; and
|
|
5.
|
|
The
registrants’ other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrants’ auditors and the audit committee of the registrants’
board of directors (or persons performing the equivalent
functions):
|
|
|
(a)
|
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants’ ability to record,
process, summarize and report financial information;
and
|
|
|
|||
|
|
(b)
|
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants’ internal control
over financial reporting.
|
Date:
August 5,
2005
/s/
Paul E. Martin
Paul
E.
Martin
Interim
Chief Financial Officer
(Principal
Financial Officer)
Exhibit
32.1
CERTIFICATION
OF CHIEF EXECUTIVE
OFFICER
REGARDING PERIODIC REPORT CONTAINING
FINANCIAL
STATEMENTS
I,
Robert
P. May, the Interim President and Chief Executive Officer of Renaissance Media
Group LLC, Renaissance Media (Louisiana) LLC, Renaissance Media (Tennessee)
LLC
and Renaissance Media Capital Corporation (the "Company") in compliance with
18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, hereby certify that, the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 2005 (the "Report") filed with
the
Securities and Exchange Commission:
| · |
fully
complies with the requirements of Section 13(a) of the Securities
Exchange
Act of 1934; and
|
| · |
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
/s/
Robert P. May
Robert
P.
May
Interim
President and Chief Executive Officer
August
5,
2005
Exhibit
32.2
CERTIFICATION
OF CHIEF FINANCIAL
OFFICER
REGARDING PERIODIC REPORT CONTAINING
FINANCIAL
STATEMENTS
I,
Paul
E. Martin, the Interim Chief Financial Officer of Renaissance Media Group LLC,
Renaissance Media (Louisiana) LLC, Renaissance Media (Tennessee) LLC and
Renaissance Media Capital Corporation (the "Company") in compliance with 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, hereby certify that, the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 2005 (the "Report") filed with
the
Securities and Exchange Commission:
| · |
fully
complies with the requirements of Section 13(a) of the Securities
Exchange
Act of 1934; and
|
| · |
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
/s/
Paul E. Martin
Paul
E.
Martin
Interim
Chief Financial Officer
(Principal
Financial Officer)
August
5,
2005