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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, 2004 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
 
  Delaware
Delaware
Delaware
Delaware
    
    14-1803051
14-1801165
14-1801164
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 
  Indicate by check mark whether the registrants: (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [  ] Indicate by check mark whether the registrants are accelerated filers (as
defined in Rule 12b-2 of the Exchange Act). Yes [  ]
No [X] Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: All of the limited liability company membership interests of Renaissance
Media (Louisiana) LLC and Renaissance Media (Tennessee) LLC are held by
Renaissance Media Group LLC. All of the issued and outstanding shares of
capital stock of Renaissance Media Capital Corporation are held by
Renaissance Media Group LLC. All of the limited liability company membership
interests of Renaissance Media Group LLC are held by Charter Communications,
LLC (and indirectly by Charter Communications Holdings, LLC, a reporting
company under the Exchange Act). There is no public trading market for any
of the aforementioned limited liability company membership interests or shares of capital stock. * Renaissance Media Group LLC, Renaissance Media (Louisiana) LLC, Renaissance
Media (Tennessee) LLC and Renaissance Media Capital Corporation meet the
conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and
are therefore filing this Form with the reduced disclosure format.




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RENAISSANCE MEDIA GROUP LLC
RENAISSANCE MEDIA (LOUISIANA) LLC
RENAISSANCE MEDIA (TENNESSEE) LLC
RENAISSANCE MEDIA CAPITAL CORPORATION FORM 10-Q
QUARTER ENDED JUNE 30, 2004 TABLE OF CONTENTS  
 PAGEPart I.
    
    Financial InformationItem 1. Financial Statements - Renaissance Media Group LLC and Subsidiaries
    
    
    4Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 4. Controls and Procedures
    
    
    25Part II.
    
    Other InformationItem 1. Legal Proceedings
    
    
    26Item 6. Exhibits and Reports on Form 8-K
    
    
    26Signatures
    
    
    
    
    27Exhibit Index
    
    
    
    
    28Certificate of Chief Executive OfficerCertificate of Chief Financial OfficerCertificate of Chief Executive OfficerCertificate of Chief Financial Officer
  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 three and six months ended June
30, 2004. 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
refers 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. 2




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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:  
    
    our ability to sustain and grow revenues and cash flows from operating activities by offering video, high-speed data 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 parent companies ability to pay or refinance debt as it becomes due;  
    
    the availability of funds to meet interest payment obligations under our and our parent companies debt and to fund our
operations and necessary capital expenditures, either through cash flows from operating activities, further borrowings or
other sources;  
    
    any adverse consequences arising out of our restatement of our 2000, 2001 and 2002 financial statements;  
    
    the results of the pending grand jury investigation by the United States Attorneys Office for the Eastern District of
Missouri, and the ability to reach a final approved settlement with respect to the putative class action, the
unconsolidated state action, and derivative shareholders litigation against Charter Communications, Inc., our indirect
parent, on the terms of the memoranda of understanding described herein;  
    
    our ability to comply with all covenants in our indenture, any violation of which would result in a violation of the
indenture and could trigger a default of other obligations of our affiliates under cross-default provisions;  
    
    our ability to obtain programming at reasonable prices or to pass 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 taxing authorities, on our business. All forward-looking statements attributable to us or a person acting on our
behalf are expressly qualified in their entirety by this cautionary statement.
We are under no duty or obligation to update any of the forward-looking
statements after the date of this quarterly report. 3




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PART I. FINANCIAL INFORMATION. 
 ITEM 1. FINANCIAL STATEMENTS.
 RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS) June 30,
    
    December 31,2004
    
    2003(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    239
    
    
    $
    257Accounts receivable, less allowance for doubtful
accounts of $319 and $172, respectively
    
    
    1,994
    
    
    
    1,600Prepaid expenses and other current assets
    
    
    132
    
    
    
    155Total current assets
    
    
    2,365
    
    
    
    2,012INVESTMENT IN CABLE PROPERTIES:Property, plant and equipment, net of accumulated
depreciation of $103,392 and $87,480, respectively
    
    
    148,046
    
    
    
    154,540Franchises, net of accumulated amortization of
$74,912 and $74,851, respectively
    
    
    252,274
    
    
    
    252,335Total investment in cable properties, net
    
    
    400,320
    
    
    
    406,875OTHER NONCURRENT ASSETS
    
    
    31
    
    
    
    2Total assets
    
    $
    402,716
    
    
    $
    408,889LIABILITIES AND MEMBERS EQUITYCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    14,933
    
    
    $
    16,284Payables to manager of cable systems  related parties
    
    
    43,411
    
    
    
    44,089Total current liabilities
    
    
    58,344
    
    
    
    60,373LONG-TERM DEBT
    
    
    116,014
    
    
    
    116,223OTHER LONG-TERM LIABILITIES
    
    
    2,534
    
    
    
    3,229MEMBERS EQUITY
    
    
    225,824
    
    
    
    229,064Total liabilities and members equity
    
    $
    402,716
    
    
    $
    408,889
 The accompanying notes are an integral part of these condensed consolidated financial statements. 4




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RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(Unaudited) Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003REVENUES
    
    $
    28,999
    
    
    $
    26,548
    
    
    $
    56,684
    
    
    $
    52,832COSTS AND EXPENSES:Operating (excluding depreciation
and amortization)
    
    
    12,178
    
    
    
    11,027
    
    
    
    23,984
    
    
    
    21,602Selling, general and administrative
    
    
    5,818
    
    
    
    4,521
    
    
    
    10,998
    
    
    
    9,160Depreciation and amortization
    
    
    8,400
    
    
    
    8,104
    
    
    
    16,705
    
    
    
    16,272Loss on sale of assets, net
    
    
    19
    
    
    
    272
    
    
    
    18
    
    
    
    301Option compensation expense, net
    
    
    246
    
    
    
    
    
    
    
    485
    
    
    
    Special charges, net
    
    
    2,051
    
    
    
    13
    
    
    
    2,267
    
    
    
    21228,712
    
    
    
    23,937
    
    
    
    54,457
    
    
    
    47,547Income from operations
    
    
    287
    
    
    
    2,611
    
    
    
    2,227
    
    
    
    5,285OTHER EXPENSE:Interest expense, net
    
    
    (2,756
    )
    
    
    (2,702
    )
    
    
    (5,512
    )
    
    
    (5,322
    )Net loss
    
    $
    (2,469
    )
    
    $
    (91
    )
    
    $
    (3,285
    )
    
    $
    (37
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements. 5




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RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited) Six Months EndedJune 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (3,285
    )
    
    $
    (37
    )Adjustments to reconcile net loss to net cash flows from operating activities:Depreciation and amortization
    
    
    16,705
    
    
    
    16,272Option compensation expense, net
    
    
    430
    
    
    
    Special charges, net
    
    
    2,051
    
    
    
    Noncash interest expense
    
    
    (209
    )
    
    
    2,939Loss on sale of assets, net
    
    
    18
    
    
    
    301Changes in operating assets and liabilities, net of effects from dispositions:Accounts receivable
    
    
    (394
    )
    
    
    532Prepaid expenses and other assets
    
    
    (4
    )
    
    
    19Accounts payable, accrued expenses and other
    
    
    (1,935
    )
    
    
    2,020Payables to related party
    
    
    (3,959
    )
    
    
    (15,515
    )Net cash flows from operating activities
    
    
    9,418
    
    
    
    6,531CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property, plant and equipment
    
    
    (9,376
    )
    
    
    (3,961
    )Change in accrued expenses related to capital expenditures
    
    
    (60
    )
    
    
    (2,451
    )Other, net
    
    
    
    
    
    
    (119
    )Net cash flows from investing activities
    
    
    (9,436
    )
    
    
    (6,531
    )NET CHANGE IN CASH
    
    
    (18
    )
    
    
    CASH, beginning of period
    
    
    257
    
    
    
    CASH, end of period
    
    $
    239
    
    
    $
    CASH PAID FOR INTEREST
    
    $
    5,721
    
    
    $
    70
 The accompanying notes are an integral part of these condensed consolidated financial statements. 6




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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. As of June 30, 2004, the Company owns and operates cable systems
serving approximately 148,000 analog video customers. The Company offers its
customers traditional cable video programming (analog and digital video) as
well as high-speed data services and, in some areas, advanced broadband
services such as video on demand. The Company sells its cable video
programming, high-speed data and advanced broadband services on a subscription
basis. Charter Communications Holding Company, LLC (Charter Holdco) and Charter
Communications, Inc. (Charter), the Companys managers and indirect parents,
provide management services for the cable systems owned or operated by the
Company. The management services include such services as centralized customer
billing services, 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
and contingencies. Actual results could differ from those estimates. Reclassifications
Certain 2003 amounts have been reclassified to conform with
the 2004 presentation. 2. Liquidity and Capital Resources The Company recognized income from operations of $0.3 million and $2.2 million
for the three and six months ended June 30, 2004, respectively, and $2.6
million and $5.3 million for the three and six months ended June 30, 2003,
respectively. The Companys net cash flows from operating activities were $9.4
million and $6.5 million for the six months ended June 30, 2004 and 2003,
respectively. The Company has historically required significant cash to fund
capital expenditures and debt service costs. Historically, the Company has
funded these requirements through cash flows from operating activities and
capital contributions from its parent companies. The mix of funding sources
changes from period to period, but for the six months ended June 30, 2004, 100%
of our funding requirements were met from cash flows from operating activities.
The Company expects to remain in compliance 7




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RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED) with the covenants under its indenture, and expects that cash flow from
operating activities will be sufficient to satisfy its liquidity needs until
maturity of its public notes. The Company expects that it will rely on capital contributions from its parent
companies to repay the principal amount of its public notes at maturity.
However, there can be no assurance that its parent companies will have
sufficient liquidity to satisfy this payment when due. The Companys parent
companies have a significant amount of debt. Any financial or liquidity
problems of the parent companies would likely cause serious disruption to the
Companys business and have a material adverse effect on its business and
results of operations. Any such event would likely adversely impact the
Companys credit rating, and its relations with customers and suppliers, which
could in turn further impair its ability to obtain financing and operate its
business. In addition, a default under the covenants governing any of the
Companys indentures could result in the acceleration of the Companys payment
obligations under its debt and, under certain circumstances, in cross-defaults
under its affiliates debt obligations, which could adversely affect its parent
companies ability to provide the Company with funding. If the Companys business does not generate sufficient cash flow from operating
activities, and sufficient future distributions are not available to the
Company from other sources of financing, it may not be able to repay its debt,
grow its business, respond to competitive challenges, or to fund its other
liquidity and capital needs. 3. Franchises On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, which eliminates the amortization of
indefinite-lived intangible assets. Accordingly, beginning January 1, 2002,
all franchises that qualify for indefinite-life treatment under SFAS No. 142
are no longer amortized against earnings but instead are tested for impairment
annually, or more frequently as warranted by events or changes in
circumstances. Based on the guidance prescribed in Emerging Issues Task Force
(EITF) Issue No. 02-7, Unit of Accounting for Testing of Impairment of
Indefinite-Lived Intangible Assets,franchises are aggregated into essentially
inseparable asset groups to conduct the valuations. The asset groups generally
represented geographic clusters of the Companys cable systems by which the
Company manages its operating assets, which management believes represents the
highest and best use of those assets. Fair value is determined based on
estimated discounted future cash flows using assumptions that are consistent
with internal forecasts. Franchise amortization expense for the three and six months ended June 30, 2004
was $30 and $61, respectively, and franchise amortization expense for the three
and six months ended June 30, 2003 was $6 and $10, respectively, which
represents the amortization relating to franchise renewals. Franchise renewals
are amortized on a straight-line basis over 10 years. Amortization expense
relating to these franchises is expected to be approximately $0.1 million
annually. Actual amortization expense to be reported 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. 8




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RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED) 4. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following as of June 30,
2004 and December 31, 2003: June 30,
    
    December 31,2004
    
    2003Accounts payable  trade
    
    $
    1,961
    
    
    $
    2,349Accrued capital expenditures
    
    
    865
    
    
    
    925Accrued expenses:Interest
    
    
    2,384
    
    
    
    2,384Programming costs
    
    
    1,737
    
    
    
    1,720Franchise-related fees
    
    
    2,499
    
    
    
    2,873State sales tax
    
    
    3,459
    
    
    
    3,630Personal property tax
    
    
    969
    
    
    
    1,172Other
    
    
    1,059
    
    
    
    1,231$
    14,933
    
    
    $
    16,284
 5. Long-Term Debt Long-term debt consists of the following as of June 30, 2004 and December 31,
2003: June 30,
    
    December 31,2004
    
    200310% senior discount notes
    
    $
    114,413
    
    
    $
    114,413Unamortized net premium
    
    
    1,601
    
    
    
    1,810$
    116,014
    
    
    $
    116,223
 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 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. The fair market value of the Notes was $117.8 million and $118.5 million as of
June 30, 2004 and December 31, 2003, respectively. The fair market value of
the Notes is based on quoted market prices. 6. Comprehensive Loss Comprehensive loss is equal to net loss for the three and six months ended June
30, 2004 and 2003. 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 these indirect subsidiaries are limited liability companies that
are also not subject to income tax. One 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 its inception. Any taxable income 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. 9




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RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED) 8. Contingencies Fourteen
putative federal class action lawsuits (the Federal
Class Actions)
have been 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 are sought by the
plaintiffs. In general, the lawsuits allege that Charter utilized misleading
accounting practices and failed to disclose these accounting practices and/or
issued false and misleading financial statements and press releases concerning
Charters operations and prospects. The Federal Class Actions were
specifically and individually identified in public filings made by Charter
prior to the date of this quarterly report. In October 2002, Charter filed a motion with the Judicial Panel on
Multidistrict Litigation (the Panel) to transfer the Federal Class Actions
to the Eastern District of Missouri. On March 12, 2003, the Panel transferred
the six Federal Class Actions not filed in the Eastern District of Missouri to
that district for coordinated or consolidated pretrial proceedings with the
eight Federal Class Actions already pending there. The Panels transfer order
assigned the Federal Class Actions to Judge Charles A. Shaw. By virtue of a
prior court order, StoneRidge Investment Partners LLC became lead plaintiff
upon entry of the Panels transfer order. StoneRidge subsequently filed a
Consolidated Amended Complaint. The Court subsequently consolidated the
Federal Class Actions into a single consolidated action (the Consolidated
Federal Class Action) for pretrial purposes. On June 19, 2003, following a
status and scheduling conference with the parties, the Court issued a Case
Management Order setting forth a schedule for the pretrial phase of the
Consolidated Federal Class Action. Motions to dismiss the Consolidated Amended
Complaint were filed. On February 10, 2004, in response to a joint motion made
by StoneRidge and defendants, Charter, Vogel and Allen, the Court entered an
order providing, among other things, that: (1) the parties who filed such
motion, engage in a mediation within ninety (90) days; and (2) all proceedings
in the Consolidated Federal Class Actions were stayed until May 10, 2004. On
May 11, 2004, the Court extended the stay in the Consolidated Federal Class
Action for an additional sixty (60) days. On July 12, 2004, the parties
submitted a joint motion to again extend the stay, this time until September
10, 2004. The Court granted that extension on July 20, 2004. 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. A substantively identical
derivative action was later filed and consolidated into the State Derivative
Action. The plaintiffs allege that the individual defendants breached their
fiduciary duties by failing to establish and maintain adequate internal
controls and procedures. Unspecified damages, allegedly on Charters behalf,
are sought by the plaintiffs. On March 12, 2004, an action substantively identical to the State Derivative
Action was filed in the Missouri State Court, against Charter and certain of
its current and former directors, as well as its former auditors. The
plaintiffs allege that the individual defendants breached their fiduciary
duties by failing to establish and maintain adequate internal controls and
procedures. Unspecified damages, allegedly on Charters behalf, are sought by
plaintiffs. 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 alleges that the individual defendants breached their fiduciary
duties and grossly mismanaged Charter by failing to establish and maintain
adequate internal controls and procedures. Unspecified damages, allegedly on
Charters behalf, are sought by the plaintiffs. On August 5, 2004, Charter entered into Memoranda of Understanding setting
forth agreements in principle regarding settlement of the consolidated Federal
Class Action and the Federal Derivative Action (the Actions). 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 will 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 will be paid in cash (by Charters insurance
carriers) and the balance will be paid 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. The warrants would have an exercise price 10




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RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED) equal to 150% of the fair market value (as defined) of Charter Class A common
stock as of the date of the entry of the order of final judgment approving the
settlement. In addition, Charter expects to issue additional shares of its
Class A common stock to its insurance carrier having an aggregate value of $5.0
million. As a result, the Company recorded a $2.1 million special charge on
its consolidated statement of operations for the three and six months ended
June 30, 2004 related to its portion of the expense allocation for the
aggregate value of the Charter Class A common stock and warrants to be issued.
The expense was allocated amongst Charters indirect operating subsidiaries pro
rata based on analog video customers. Additionally, as part of the
settlements, Charter will also commit 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
described below. The settlement of each of the lawsuits is conditioned upon,
among other things, the parties approval and execution of definitive
settlement agreements with respect to the matters described above, judicial
approval of the settlements by the Court following notice to the class, and
dismissal of the consolidated derivative actions now pending in Missouri State
Court, which are related to the Federal Derivative Action. In addition to the Federal Class Actions, the State Derivative Action, the new
Missouri State Court derivative action and the Federal Derivative Action, six
putative class action lawsuits were filed against Charter and certain of its
then current directors and officers in the Court of Chancery of the State of
Delaware (the Delaware Class Actions). The lawsuits were filed after the
filing of a Schedule 13D amendment by Mr. Allen indicating that he was
exploring a number of possible alternatives with respect to restructuring or
expanding his ownership interest in Charter. Charter believes that the
plaintiffs speculated that Mr. Allen might have been contemplating an unfair
bid for shares of Charter or some other sort of going private transaction on
unfair terms and generally alleged that the defendants breached their fiduciary
duties by participating in or acquiescing to such a transaction. The lawsuits,
which are substantively identical, were brought on behalf of Charters
securities holders as of July 29, 2002, and sought unspecified damages and
possible injunctive relief. However, Charter has informed the Company that no
such transaction by Mr. Allen has been presented. On April 30, 2004, orders of
dismissal without prejudice were entered in each of the Delaware Class Actions. 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 has
publicly stated that Charter is not a target of the investigation. Charter has
also been advised by the U. S. Attorneys office that no member of its board of
directors, including its Chief Executive Officer, is a target of the
investigation. 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. On July 25, 2003,
one of the former officers who was indicted entered a guilty plea. Charter has
advised the Company that it is fully cooperating with the investigation. On November 4, 2002, Charter received an informal, non-public inquiry from the
staff of the SEC. The SEC issued a formal order of investigation dated January
23, 2003, and subsequently served document and testimony subpoenas on Charter
and a number of its former employees. The investigation and subpoenas
generally concerned Charters prior reports with respect to its determination
of the number of customers, and various of its accounting policies and
practices including its capitalization of certain expenses and dealings with
certain vendors, including programmers and digital set-top terminal suppliers.
On July 27, 2004, the SEC and Charter reached a final agreement to settle the
investigation. In the Settlement Agreement and Cease and Desist Order, Charter
agreed to entry of an administrative order prohibiting any future violations of
United States securities laws and requiring certain other remedial internal
practices and public disclosures. Charter neither admitted nor denied any
wrongdoing, and the SEC assessed no fine against Charter. Charter is generally required to indemnify 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 pending
grand jury investigation, the now settled SEC investigation and the above
described lawsuits, some of its current and former directors and Charters
current and former officers have been advanced certain costs and expenses
incurred in connection with their defense. 11




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##### Table of Contents



RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED)
(UNAUDITED) Charter has liability insurance coverage that it believes is available for the
matters described above, where applicable, subject to the terms, conditions and
limitations of the respective policies. There is no assurance that current
coverage will be sufficient for all claims described above or any future claims
that may arise. In October 2001, two customers, Nikki Nicholls and Geraldine M. Barber, filed a
class action suit against Charter Holdco in South Carolina Court of Common
Pleas (South Carolina Class Action), purportedly on behalf of a class of
Charter Holdcos customers, alleging that Charter Holdco improperly charged
them a wire maintenance fee without request or permission. They also claimed
that Charter Holdco improperly required them to rent analog and/or digital
set-top terminals even though their television sets were cable
ready. A
substantively identical case was filed in the Superior Court of Athens  Clarke
County, Georgia by Emma S. Tobar on March 26, 2002 (the Georgia Class
Action), alleging a nationwide class for these claims. Charter Holdco removed
the South Carolina Class Action to the United States District Court for the
District of South Carolina in November 2001, and moved to dismiss the suit in
December 2001. The federal judge remanded the case to the South Carolina Court
of Common Pleas in August 2002 without ruling on the motion to dismiss. The
plaintiffs subsequently moved for a default judgment, arguing that upon return
to state court, Charter Holdco should have but did not file a new motion to
dismiss. The state court judge granted the plaintiffs motion over Charter
Holdcos objection in September 2002. Charter Holdco immediately appealed that
decision to the South Carolina Court of Appeals and the South Carolina Supreme
Court, but those courts have ruled that until a final judgment is entered
against Charter Holdco, they lack jurisdiction to hear the appeal. In January 2003, the Court of Common Pleas granted the plaintiffs motion for
class certification. In October and November 2003, Charter Holdco filed
motions (a) asking that court to set aside the default judgment, and (b)
seeking dismissal of plaintiffs suit for failure to state a claim. In January
2004, the Court of Common Pleas granted in part and denied in part Charter
Holdcos motion to dismiss for failure to state a claim. It also took under
advisement Charter Holdcos motion to set aside the default judgment. In April
2004, the parties to both the Georgia and South Carolina Class Actions
participated in a mediation. The mediator made a proposal to the parties to
settle the lawsuits. In May 2004, the parties accepted the mediators proposal
and reached a tentative settlement, subject to final documentation and court
approval. As a result of the tentative settlement, the Company recorded a
special charge of $0.2 million in its consolidated statement of operations in
the first quarter of 2004. On July 8, 2004, the Superior Court of Athens 
Clarke County, Georgia granted a motion to amend the Tobar complaint to add
Nicholls, Barber and April Jones as plaintiffs in the Georgia Class Action and
to add any potential class members in South Carolina. The Court also granted
preliminary approval of the proposed settlement on that date. A hearing to
consider final approval of the settlement is scheduled to occur on November 10,
2004. On August 2, 2004, the parties submitted a joint request to the South
Carolina Court of Common Pleas to stay the South Carolina Class Action pending
final approval of the settlement. Charter is awaiting a ruling on that
request. Charter is unable to predict the outcome of the remaining lawsuits and the
government investigation described above. An unfavorable outcome in any of
these lawsuits or the government investigation could have a material adverse
effect on the Companys financial condition, results of operations or its
liquidity. 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 financial condition, results of
operations or its liquidity. 12




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Reference is made to Certain Trends and Uncertainties of this section and
Cautionary Statement Regarding Forward-Looking Statements, which describe
important factors that could cause actual results to differ from expectations
and non-historical information contained herein. In addition, this section
should be read in conjunction with the annual reports on Form 10-K of
Renaissance Media Group LLC and subsidiaries and Charter Communications
Holdings, LLC (Charter Holdings) for the year ended December 31, 2003. 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 During 2003, we and our indirect parents, Charter Communications, Inc.
(Charter) and Charter Communications Holding Company, LLC (Charter Holdco),
undertook a number of transition activities including reorganizing our
workforce, adjusting our cable video pricing and packages, completing call
center consolidations and implementing billing conversions. Due to the focus
on such activities and certain financial constraints, we reduced spending on
marketing our products and services. We believe the reduced marketing
activities and other necessary operational changes negatively impacted customer
growth and acquisition, primarily during the first half of 2003. During the
second half of 2003 and the first half of 2004, we increased our marketing
efforts and implemented promotional campaigns to accelerate advanced service
penetration, particularly in high-speed data. For the six months ended June 30, 2004 and 2003, our income from operations,
which includes depreciation and amortization expense but excludes interest
expense, was $2.2 million and $5.3 million, respectively. Our operating
margins decreased from 10% for the six months ended June 30, 2003 to 4% for the
six months ended June 30, 2004 primarily due to increases in option
compensation expense and special charges that we recognized in the six months
ended June 30, 2004. The first cash interest payment on our public notes occurred in October 2003.
We are now required to pay cash interest each April and October. In addition,
our outstanding public notes will mature in 2008. We expect that we will rely
on loans and capital contributions from our parent companies to repay our
public notes at maturity. However, there can be no assurance that our parent
companies will have sufficient liquidity to provide funds to us to satisfy this
payment when due. CRITICAL ACCOUNTING POLICIES AND ESTIMATES For a discussion of our critical accounting policies and the means by which we
develop estimates therefor, see Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations in our 2003 Annual Report on
Form 10-K. 13




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##### Table of Contents



RESULTS OF OPERATIONS Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003 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 30,2004
    
    2003Revenues
    
    $
    56,684
    
    
    
    100
    %
    
    $
    52,832
    
    
    
    100
    %Costs and expenses:Operating (excluding depreciation and amortization)
    
    
    23,984
    
    
    
    42
    %
    
    
    21,602
    
    
    
    41
    %Selling, general and administrative
    
    
    10,998
    
    
    
    19
    %
    
    
    9,160
    
    
    
    17
    %Depreciation and amortization
    
    
    16,705
    
    
    
    30
    %
    
    
    16,272
    
    
    
    31
    %Loss on sale of assets, net
    
    
    18
    
    
    
    
    
    
    
    301
    
    
    
    1
    %Option compensation expense, net
    
    
    485
    
    
    
    1
    %
    
    
    
    
    
    
    Special charges, net
    
    
    2,267
    
    
    
    4
    %
    
    
    212
    
    
    
    54,457
    
    
    
    96
    %
    
    
    47,547
    
    
    
    90
    %Income from operations
    
    
    2,227
    
    
    
    4
    %
    
    
    5,285
    
    
    
    10
    %Other expense:Interest expense
    
    
    (5,512
    )
    
    
    
    
    
    
    (5,322
    )Net loss
    
    $
    (3,285
    )
    
    
    
    
    
    $
    (37
    )
 Revenues.Revenues increased $3.9 million, or 7%, to $56.7 million for the six
months ended June 30, 2004 from $52.8 million for the six months ended June 30,
2003. This increase is principally the result of increases in the number of
analog video, digital video and high-speed data customers as well as price
increases for video and data services. Our goal is to increase revenues by
implementing price increases on certain services and packages and increasing
revenues from incremental high-speed data services, digital video and advanced
products and services, such as video on demand (VOD), provided to some of our
existing residential customer base and commercial customers. Revenues by service offering were as follows (dollars in thousands): Six Months Ended June 30,2004
    
    2003
    
    2004 over 2003% of
    
    
    
    
    
    % ofRevenues
    
    Revenues
    
    Revenues
    
    Revenues
    
    Change
    
    % ChangeVideo
    
    $
    42,023
    
    
    
    74
    %
    
    $
    40,874
    
    
    
    77
    %
    
    $
    1,149
    
    
    
    3
    %High-speed data
    
    
    6,661
    
    
    
    12
    %
    
    
    4,517
    
    
    
    9
    %
    
    
    2,144
    
    
    
    47
    %Advertising sales
    
    
    2,612
    
    
    
    5
    %
    
    
    2,291
    
    
    
    4
    %
    
    
    321
    
    
    
    14
    %Commercial
    
    
    1,441
    
    
    
    2
    %
    
    
    1,129
    
    
    
    2
    %
    
    
    312
    
    
    
    28
    %Other
    
    
    3,947
    
    
    
    7
    %
    
    
    4,021
    
    
    
    8
    %
    
    
    (74
    )
    
    
    (2
    )%$
    56,684
    
    
    
    100
    %
    
    $
    52,832
    
    
    
    100
    %
    
    $
    3,852
    
    
    
    7
    %
 Video revenues consist primarily of revenues from analog and digital video
services provided to our non-commercial customers. Video revenues increased by
$1.1 million, or 3%, to $42.0 million for the six months ended June 30, 2004 as
compared to $40.9 million for the six months ended June 30, 2003. The increase
was primarily a result of price increases and an increase in analog and digital
video customers. Revenues from high-speed data services provided to our non-commercial customers
increased $2.2 million, or 47%, from $4.5 million for the six months ended June
30, 2003 to $6.7 million for the six months ended June 30, 2004. 14




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##### Table of Contents



The increase was primarily the result of the addition of high-speed data
customers within our existing service areas 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 $0.3 million, or 14%, for the six months ended June 30, 2004 compared
to the six months ended June 30, 2003. For each of the six months ended June
30, 2004 and 2003, we received $0.1 million in advertising revenue from
vendors. Commercial revenues consist primarily of revenues from cable video and
high-speed data services to our commercial customers. Commercial revenues
increased $0.3 million, or 28%, from $1.1 million for the six months ended June
30, 2003 to $1.4 million for the six months ended June 30, 2004 primarily as a
result of an increase in commercial high-speed data 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
decreased $0.1 million, or 2%, from $4.0 million for the six months ended June
30, 2003 to $3.9 million for the six months ended June 30, 2004. The decrease
was primarily the result of a decrease in installation revenue. Operating Expenses.Operating expenses increased by $2.4 million, or 11%, from
$21.6 million for the six months ended June 30, 2003 to $24.0 million for the
six months ended June 30, 2004. Programming costs included in the accompanying
condensed consolidated statements of operations were $15.5 million and $13.7
million, representing 29% of total operating costs and expenses for each of
the six months ended June 30, 2004 and 2003, respectively. Key expense
components as a percentage of revenues were as follows (dollars in thousands): Six Months Ended June 30,2004
    
    2003
    
    2004 over 2003% of
    
    
    
    
    
    % ofExpenses
    
    Revenues
    
    Expenses
    
    Revenues
    
    Change
    
    % ChangeProgramming
    
    $
    15,525
    
    
    
    27
    %
    
    $
    13,722
    
    
    
    26
    %
    
    $
    1,803
    
    
    
    13
    %Advertising sales
    
    
    1,190
    
    
    
    2
    %
    
    
    1,170
    
    
    
    2
    %
    
    
    20
    
    
    
    2
    %Service
    
    
    7,269
    
    
    
    13
    %
    
    
    6,710
    
    
    
    13
    %
    
    
    559
    
    
    
    8
    %$
    23,984
    
    
    
    42
    %
    
    $
    21,602
    
    
    
    41
    %
    
    $
    2,382
    
    
    
    11
    %
 Programming costs consist primarily of costs paid to programmers for the
provision of basic, premium and digital channels and pay-per-view programming.
The increase in programming costs of $1.8 million, or 13%, was a result of
price increases, particularly in sports programming, an increased number of
channels carried on our systems and an increase in analog and digital video
customers. Programming costs were offset by the amortization of payments
received from programmers in support of launches of new channels of $0.8
million and $0.9 million for the six months ended June 30, 2004 and 2003,
respectively. Our cable programming costs have increased in every year we have operated in
excess of customary inflationary and cost-of-living type increases, and we
expect them to continue to increase because of a variety of factors, including
additional programming being provided to customers as a result of system
rebuilds that increase channel capacity, increased costs to produce or purchase
programming, increased costs for previously discounted programming and
inflationary or negotiated annual increases. Our increasing programming costs
will result in declining video product margins to the extent we are unable to
pass on cost increases to our customers. We expect to partially offset any
resulting margin compression from our traditional video services with revenue
from advanced video services, increased incremental high-speed data 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. Advertising sales expenses increased $20 thousand, or 2%, for the
six months ended June 30, 2004 compared to the corresponding period in 2003.
Service costs consist primarily of service personnel salaries and benefits,
franchise fees, system utilities, Internet service provider fees, maintenance
and pole rent expense. The increase in service costs of $0.6 million, or 8%,
resulted primarily from additional activity associated with ongoing
infrastructure maintenance. 15




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##### Table of Contents



Selling, General and Administrative Expenses.Selling, general and
administrative expenses increased by $1.8 million, or 20%, from $9.2 million
for the six months ended June 30, 2003 to $11.0 million for the six months
ended June 30, 2004. Key components of expense as a percentage of revenues
were as follows (dollars in thousands): Six Months Ended June 30,2004
    
    2003
    
    2004 over 2003% of
    
    
    
    
    
    % ofExpenses
    
    Revenues
    
    Expenses
    
    Revenues
    
    Change
    
    % ChangeGeneral and
administrative
    
    $
    9,723
    
    
    
    17
    %
    
    $
    8,604
    
    
    
    16
    %
    
    $
    1,119
    
    
    
    13
    %Marketing
    
    
    1,275
    
    
    
    2
    %
    
    
    556
    
    
    
    1
    %
    
    
    719
    
    
    
    129
    %$
    10,998
    
    
    
    19
    %
    
    $
    9,160
    
    
    
    17
    %
    
    $
    1,838
    
    
    
    20
    %
 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 $1.1 million, or 13%, resulted primarily from an increase of
approximately $0.5 million in bad debt expense and $0.7 million in customer
service costs and network related expenses. These increases were partially
offset by a decrease in salary and benefit costs. Marketing expenses increased $0.7 million as a result of an increased
investment in marketing and branding campaigns. Depreciation and Amortization.Depreciation and amortization expense increased
by $0.4 million, or 3%, from $16.3 million for the six months ended June 30,
2003 to $16.7 million for the six months ended June 30, 2004. This increase
was due primarily to an increase in depreciation expense related to additional
capital expenditures in 2004 and 2003. Loss on Sale of Assets, Net.Loss on sale of assets of $18 thousand and $0.3
million for the six months ended June 30, 2004 and 2003, respectively,
represents the loss realized on the sale of fixed assets. Option Compensation Expense, Net. Option compensation expense of $0.5 million
for the six months ended June 30, 2004 primarily represents the expense related
to options granted following the adoption of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Special Charges, net.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 for the aggregate value of the Charter Class A common stock and
warrants to purchase Charter Class A common stock contemplated to be issued 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. Special
charges of $0.2 million for the six months ended June 30, 2003 primarily
represents severance and related costs of our workforce reduction. We expect
to continue to record additional special charges in 2004 related to the
reorganization of our operations. Interest Expense, net.Interest expense increased $0.2 million, or 4%, to $5.5
million for the six months ended June 30, 2004 from $5.3 million for the six
months ended June 30, 2003. This increase is a result of the accretion and
cash interest associated with our senior discount notes. Net Loss.Net loss increased $3.2 million to $3.3 million for the six months
ended June 30, 2004 from $37 thousand for the six months ended June 30, 2003 as
a result of the combination of factors discussed above. 16




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##### Table of Contents



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 capital expenditures, debt
service costs and ongoing operations. We have historically funded our
operating activities and capital requirements through cash flows from operating
activities and capital contributions from our parent companies. The mix of
funding sources changes from period to period, but for the six months ended
June 30, 2004, 100% of our funding requirements were met from cash flows from
operating activities. During 2004, we expect to fund our liquidity and capital
requirements primarily through cash flows from operating activities. The principal amount of our senior notes was $114.4 million as of June 30,
2004. 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. The fair market value of the senior notes was $117.8 million and $118.5 million
as of June 30, 2004 and December 31, 2003, respectively. The fair market value
of the senior notes is based on quoted market prices. See the section entitled Liquidity and Capital Resources of Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations in our 2003 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 public notes. However, there can be
no assurance that we will have access to sufficient capital to repay our public
notes when they mature in 2008. Cash flows from operating activities may not
be sufficient, on their own, to permit us to satisfy these obligations.
Traditionally, we have relied on our parents ability to access the public debt
and equity markets, as well as borrowings under our parents credit facilities,
as a source of capital. There can be no assurance that our parent companies
will have sufficient liquidity to provide funds to us to satisfy this payment
when due. In addition, a default under the covenants governing 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 parent companies ability to
provide us with funding. Increased funding requirements from customer demand for digital video and
high-speed data 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 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 parent companies existing credit facilities or in traditional debt
or equity financings, we would consider:  
    
    further reducing our expenses and capital expenditures, which would
likely impair our ability to increase revenue;
    
    selling assets; or
    
    seeking funding from our parent companies through the issuance of
debt or equity by our 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. 17




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##### Table of Contents



If the above strategies are not successful, ultimately, we could be forced to
restructure our obligations or seek protection under the bankruptcy laws. In
addition, if we need to raise additional capital through the issuance of equity
or find it necessary to engage in a recapitalization or other similar
transaction, our noteholders might not receive all principal and interest
payments to which they are contractually entitled. Although in the past, Paul G. Allen, Charters principal shareholder, and his
affiliates have purchased equity from Charter and Charter Holdco for the
purpose of funding capital contributions to us, there is no obligation for Mr.
Allen or his affiliates to purchase equity from or contribute or loan funds to
us or to our subsidiaries in the future. Historical Operating, Financing and Investing Activities We held $0.2 million and $0.3 million in cash and cash equivalents as of June
30, 2004 and December 31, 2003, respectively. Operating Activities.Net cash provided by operating activities for the six
months ended June 30, 2004 and 2003 was $9.4 million and $6.5 million,
respectively. Operating activities provided $2.9 million more cash during the
six months ended June 30, 2004 compared to the corresponding period in 2003,
primarily as a result of changes in operating assets and liabilities that used
$6.7 million less cash during the six months ended June 30, 2004 compared to
the corresponding period in 2003 partially offset by an increase in cash
interest expense of $3.3 million and special charges of $2.1 million. Investing Activities.Net cash used in investing activities for the six months
ended June 30, 2004 and 2003 was $9.4 million and $6.5 million, respectively.
Investing activities used $2.9 million more cash during the six months ended
June 30, 2004 compared to the corresponding period in 2003, primarily as a
result of an increase in purchases of property, plant and equipment of
approximately $5.4 million, partially offset by a decrease of approximately
$2.4 million in our change in accrued expenses related to capital expenditures. Capital Expenditures We have significant ongoing capital expenditure requirements. Capital
expenditures were $9.4 million and $4.0 million for the six months ended June
30, 2004 and 2003, respectively. The majority of the capital expenditures for
the six months ended June 30, 2004 and 2003 related to our customer premise
equipment. Upgrading our cable systems has enabled us to offer digital television,
high-speed data services, VOD, 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, 2004 and 2003, our liabilities related to
capital expenditures decreased $0.1 million and $2.5 million, respectively. During 2004, we expect to spend a total of $15.0 million to $20.0 million on
capital expenditures. We expect that the nature of these expenditures will
continue to shift from upgrade/rebuild costs to customer premise equipment and
scalable infrastructure costs. We expect to fund capital expenditures for 2004
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 the
Critical Accounting Policies and Estimates section of Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations in
our 2003 Annual Report on Form 10-K, that could materially impact our business,
results of operations and financial condition. Restrictive Covenants.The indenture governing our publicly held notes contains
a number of significant covenants that could adversely impact our business. In
particular, our indenture restricts our and our subsidiaries ability to:  
    
    make certain investments or acquisitions;
    
    enter into related party transactions;
    
    dispose of assets or merge;
    
    incur additional debt;
    
    issue equity;
    
    repurchase or redeem equity interests and debt; 18




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
    
    grant liens;
    
    pledge assets; and
    
    pay dividends or make other distributions. The ability to comply with these provisions may be affected by events beyond
our control. The breach of any of these covenants will result in a default
under the indenture governing our publicly held notes that could result in
acceleration of our publicly held 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 publicly held
notes. For more information, see the section above entitled  Liquidity and
Capital Resources. Liquidity.Our business requires significant cash to fund capital expenditures,
debt service costs and ongoing operations. Our ongoing operations will depend
on our ability to generate cash and to secure financing in the future. We have
historically funded liquidity and capital requirements through cash flows from
operating activities and capital contributions from our indirect parent
companies. As the principal amounts of our public 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 to 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 subsidiaries in the future. If we or our 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 Level Liquidity Concerns. Our indirect parent companies have a
significant amount of debt. Any financial or liquidity problems of our
indirect parent companies would likely cause serious disruption to our business
and have a material adverse effect on our business and results of operations.
Any such event would likely adversely impact our 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 require a change of control repurchase offer
under our outstanding notes. Securities Litigation and Government Investigations.A number of putative
federal class action lawsuits have been 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 other lawsuits have been filed against Charter in other
jurisdictions. A shareholders derivative suit was filed in the U.S. District
Court for the Eastern District of Missouri, and several class action lawsuits
were filed in Delaware state court against Charter and certain of its directors
and officers. Finally, three shareholders derivative suits were filed in
Missouri state court against Charter, its then current directors and its former
independent auditor. These actions have been consolidated. The federal
shareholders derivative suit, the Delaware class actions and the consolidated
derivative suit each allege that the defendants breached their fiduciary
duties. 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 it
reported customer numbers, and its reporting of amounts received from digital
set-top terminal suppliers for advertising. The U.S. Attorneys Office has
publicly stated that Charter is not a target of the investigation. Charter has
also been 19




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advised by the U.S. Attorneys Office that no member of its board of directors,
including its Chief Executive Officer, is a target of the investigation. 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. On July 25, 2003, one of the former
officers who was indicted entered a guilty plea. Charter has advised us that
it is fully cooperating with the investigation. On November 4, 2002, Charter received an informal, non-public inquiry from the
staff of the SEC. The SEC issued a formal order of investigation dated January
23, 2003, and subsequently served document and testimony subpoenas on Charter
and a number of its former employees. The investigation and subpoenas
generally concerned Charters prior reports with respect to its determination
of the number of customers and various of its accounting policies and practices
including its capitalization of certain expenses and dealings with certain
vendors, including programmers and digital set-top terminal suppliers. On July
27, 2004, the SEC and Charter reached a final agreement to settle the
investigation. In the Settlement Agreement and Cease and Desist Order, Charter
agreed to entry of an administrative order prohibiting any future violations of
United States securities laws and requiring certain other remedial internal
practices and public disclosures. Charter neither admitted nor denied any
wrongdoing, and the SEC assessed no fine against Charter. In addition, Charter has recently entered into Memoranda of Understanding
setting forth proposed terms of settlement for the above described class
actions and derivative suits. Settlement of those actions under the terms of
the memoranda is subject to a number of conditions, and there can therefore be
no assurance that the actions will be settled on those terms or at all. For
more information, see the section below entitled   Contingencies. However, due to the inherent uncertainties of litigation and investigations,
and due to the remaining conditions to the finalization of our anticipated
settlements, Charter cannot predict with certainty the ultimate outcome of
these proceedings. An unfavorable outcome in the lawsuits or the government
investigation described above could result in significant potential liabilities
and have a material adverse effect on our consolidated financial condition and
results of operations or our liquidity. Further, these proceedings, and
Charters actions in response to these proceedings, could result in significant
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. 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.
Local telephone companies and electric utilities can compete in this area, and
they increasingly may do so in the future. The subscription television
industry also faces competition from free broadcast television and from other
communications and entertainment media. With respect to our Internet access
services, we face competition, including intensive marketing efforts and
aggressive pricing, from telephone companies and other providers of dial-up
and digital subscriber line technology, also known as DSL. Further loss of
customers to DBS or other alternative video and data services could have a
material negative impact on our business. Mergers, joint ventures and alliances among franchised, wireless or private
cable operators, satellite television providers, local exchange carriers 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. Streamlining of Operations.In the past, Charter (our manager) experienced
rapid growth from acquisitions of a number of smaller cable operators and the
rapid rebuild and rollout of advanced services. Our future success will depend
in part on Charters ability to standardize and streamline our operations. The
failure to implement a consistent corporate culture and management, operating
or financial systems or procedures necessary to standardize and streamline our
operations and effectively operate our enterprise could have a material adverse
effect on our business, results of operations and financial condition. In
addition, Charters ability to properly manage our operations will be impacted
by Charters ability to attract, retain and incentivize experienced, qualified,
professional 20




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management. Services.We expect that a significant portion of our near-term growth will be
achieved through revenues from high-speed data services, digital video, bundled
service packages, and to a lesser extent, various commercial services that take
advantage of cables broadband capacity. The technology involved in our
product and service offerings generally requires that we have permission to use
intellectual property and that such property not infringe on rights claimed by
others. We may not be able to offer these advanced services successfully to
our customers or provide adequate customer service and these advanced services
may not generate adequate revenues. Also, if the vendors we use for these
services are not financially viable over time, we may experience disruption of
service and incur costs to find alternative vendors. In addition, if it is
determined that the product 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. This escalation may continue, and we may not be able to
pass programming cost increases on to our customers. 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 (significantly all of which were
renegotiated and renewed in 2003), as of June 30, 2004, approximately 36% of
Charters current programming contracts, under which we purchase programming,
have expired or are scheduled to expire by the end of 2004, and approximately
another 12% by the end of 2005. Public Notes Price Volatility.The market price of our publicly traded notes
has been and is likely to continue to be highly volatile. We expect that the
price of our securities may fluctuate in response to various factors, including
the factors described throughout this section and various other factors which
may be beyond our control. These factors beyond our control could include:
financial forecasts by securities analysts; new conditions or trends in the
cable or telecommunications industry; general economic and market conditions
and specifically, conditions related to the cable or telecommunications
industry; any further downgrade of our indirect parent companies (or our) debt
ratings; announcement of the development of improved or competitive
technologies; the use of new products or promotions by us or our competitors;
changes in accounting rules; and new regulatory legislation adopted in the
United States. In addition, the securities market in general, and the market for cable
television securities in particular, have experienced significant price
fluctuations. Volatility in the market price for companies may often be
unrelated or disproportionate to the operating performance of those companies.
These broad market and industry factors may seriously harm the market price of
our 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. If we experience reduced operating revenues, it could
negatively affect our ability to make expected capital expenditures and could
also result in our inability to meet our 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. Long-Term Indebtedness  Change of Control Payments.We may not have the
ability to raise the funds necessary to fulfill our obligations under our
public notes following a change of control. A change of control under our
public notes would require us to make an offer to repurchase our outstanding
public notes. However, a failure by us to make or complete a change of control
offer would place us in default of these agreements. Regulation and Legislation.Cable 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. For example, there has been considerable legislative interest
recently in requiring cable operators to offer historically bundled programming
services on an á la carte basis. 21




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Cable operators also face significant regulation of their channel carriage.
They currently can be required to devote significant capacity to the carriage
of programming that they would not carry voluntarily, including certain local
broadcast signals, local public, educational and government access programming,
and unaffiliated commercial leased access programming. This carriage burden
could increase in the future, particularly if the FCC were to require cable
systems to carry both the analog and digital versions of local broadcast
signals or multiple channels added by digital broadcasters. The FCC is
currently conducting a proceeding in which it is considering this channel usage
possibility, although it previously issued a tentative decision against such
dual carriage. In addition, the carriage of new high definition broadcast and
satellite programming services over the next few years may consume significant
amounts of system capacity without contributing to proportionate increases in
system revenue. There is also uncertainty whether local franchising
authorities, state regulators, the FCC, or the U.S. Congress will impose
obligations on cable operators to provide unaffiliated Internet service
providers with regulated access to cable plant. If they were to do so, and the
obligations were found to be lawful, it could complicate our operations in
general, and our Internet operations in particular, from a technical and
marketing standpoint. These open access obligations could adversely impact our
profitability and discourage system upgrades and the introduction of new
products and services. The United States Court of Appeals for the Ninth
Circuit recently vacated in part an FCC ruling defining cable modem service as
an information service and remanded for further proceedings. The Ninth
Circuit held that cable modem service is not cable service but is part
telecommunications service and part information service. The decision will
likely be appealed, but it may possibly lead to cable operators having to
contribute to the federal governments universal service fund, to open access
requirements, and to other common carrier regulations. As we offer other
advanced services over our cable system, we are likely to face additional calls
for regulation of our capacity and operation. These regulations, if adopted,
could adversely affect our operations. CONTINGENCIES Securities Class Actions and Derivative Suits Against Charter.Fourteen
putative federal class action lawsuits (the Federal Class Actions) have been
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 are sought by the plaintiffs. In general, the lawsuits allege that
Charter utilized misleading accounting practices and failed to disclose these
accounting practices and/or issued false and misleading financial statements
and press releases concerning Charters operations and prospects. The Federal
Class Actions were specifically and individually identified in public filings
made by Charter prior to the date of this quarterly report. In October 2002, Charter filed a motion with the Judicial Panel on
Multidistrict Litigation (the Panel) to transfer the Federal Class Actions
to the Eastern District of Missouri. On March 12, 2003, the Panel transferred
the six Federal Class Actions not filed in the Eastern District of Missouri to
that district for coordinated or consolidated pretrial proceedings with the
eight Federal Class Actions already pending there. The Panels transfer order
assigned the Federal Class Actions to Judge Charles A. Shaw. By virtue of a
prior court order, StoneRidge Investment Partners LLC became lead plaintiff
upon entry of the Panels transfer order. StoneRidge subsequently filed a
Consolidated Amended Complaint. The Court subsequently consolidated the
Federal Class Actions into a single consolidated action (the Consolidated
Federal Class Action) for pretrial purposes. On June 19, 2003, following a
status and scheduling conference with the parties, the Court issued a Case
Management Order setting forth a schedule for the pretrial phase of the
Consolidated Federal Class Action. Motions to dismiss the Consolidated Amended
Complaint were filed. On February 10, 2004, in response to a joint motion made
by StoneRidge and defendants, Charter, Vogel and Allen, the Court entered an
order providing, among other things, that: (1) the parties who filed such
motion, engage in a mediation within ninety (90) days; and (2) all proceedings
in the Consolidated Federal Class Actions were stayed until May 10, 2004. On
May 11, 2004, the Court extended the stay in the Consolidated Federal Class
Action for an additional sixty (60) days. On July 12, 2004, the parties
submitted a joint motion to again extend the stay, this time until September
10, 2004. The Court granted that extension on July 20, 2004. 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. A substantively identical
derivative action was later filed and consolidated into the State Derivative
Action. The plaintiffs allege that the individual defendants breached their
fiduciary duties by failing to establish and maintain adequate internal
controls and procedures. Unspecified damages, allegedly on Charters behalf,
are sought by the plaintiffs. 22




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On March 12, 2004, an action substantively identical to the State Derivative
Action was filed in the Missouri State Court, against Charter and certain of
its current and former directors, as well as its former auditors. The
plaintiffs allege that the individual defendants breached their fiduciary
duties by failing to establish and maintain adequate internal controls and
procedures. Unspecified damages, allegedly on Charters behalf, are sought by
plaintiffs. 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 alleges that the individual defendants breached their fiduciary
duties and grossly mismanaged Charter by failing to establish and maintain
adequate internal controls and procedures. Unspecified damages, allegedly on
Charters behalf, are sought by the plaintiffs. On August 5, 2004, Charter entered into Memoranda of Understanding setting
forth agreements in principle regarding settlement of the consolidated Federal
Class Action and the Federal Derivative Action (the Actions). 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 will 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 will be paid in cash (by Charters insurance
carriers) and the balance will be paid 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. The warrants would have an exercise price equal to
150% of the fair market value (as defined) of Charter Class A common stock as
of the date of the entry of the order of final judgment approving the
settlement. In addition, Charter expects to issue additional shares of its
Class A common stock to its insurance carrier having an aggregate value of $5.0
million. As part of the settlements, Charter will also commit 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 described below. The settlement of each of the lawsuits is
conditioned upon, among other things, the parties approval and execution of
definitive settlement agreements with respect to the matters described above,
judicial approval of the settlements by the Court following notice to the
class, and dismissal of the consolidated derivative actions now pending in
Missouri State Court, which are related to the Federal Derivative Action. In addition to the Federal Class Actions, the State Derivative Action, the new
Missouri State Court derivative action and the Federal Derivative Action, six
putative class action lawsuits were filed against Charter and certain of its
then current directors and officers in the Court of Chancery of the State of
Delaware (the Delaware Class Actions). The lawsuits were filed after the
filing of a Schedule 13D amendment by Mr. Allen indicating that he was
exploring a number of possible alternatives with respect to restructuring or
expanding his ownership interest in Charter. Charter believes that the
plaintiffs speculated that Mr. Allen might have been contemplating an unfair
bid for shares of Charter or some other sort of going private transaction on
unfair terms and generally alleged that the defendants breached their fiduciary
duties by participating in or acquiescing to such a transaction. The lawsuits,
which are substantively identical, were brought on behalf of Charters
securities holders as of July 29, 2002, and sought unspecified damages and
possible injunctive relief. However, Charter has informed us that no such
transaction by Mr. Allen has been presented. On April 30, 2004, orders of
dismissal without prejudice were entered in each of the Delaware Class Actions. 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 has publicly stated that Charter is not a target of the
investigation. Charter has also been advised by the U. S. Attorneys office
that no member of its board of directors, including its Chief Executive
Officer, is a target of the investigation. 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.
On July 25, 2003, one of the former officers who was indicted entered a guilty
plea. Charter has advised us that it is fully cooperating with the
investigation. On November 4, 2002, Charter received an informal, non-public inquiry from the
staff of the SEC. The SEC issued a formal order of investigation dated January
23, 2003, and subsequently served document and testimony subpoenas on Charter
and a number of its former employees. The investigation and subpoenas
generally concerned Charters prior reports with respect to its determination
of the number of customers, and various of its accounting policies and 23




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practices including its capitalization of certain expenses and dealings with
certain vendors, including programmers and digital set-top terminal suppliers.
On July 27, 2004, the SEC and Charter reached a final agreement to settle the
investigation. In the Settlement Agreement and Cease and Desist Order, Charter
agreed to entry of an administrative order prohibiting any future violations of
United States securities laws and requiring certain other remedial internal
practices and public disclosures. Charter neither admitted nor denied any
wrongdoing, and the SEC assessed no fine against Charter. Indemnification.Charter is generally required to indemnify 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 pending grand jury investigation, the now settled SEC investigation and the
above described lawsuits, some of its current and former directors and
Charters current and former officers have been advanced certain costs and
expenses incurred in connection with their defense. Insurance. Charter has liability insurance coverage that it believes is
available for the matters described above, where applicable, subject to the
terms, conditions and limitations of the respective policies. There is no
assurance that current coverage will be sufficient for all claims described
above or any future claims that may arise. Other Litigation.In October 2001, two customers, Nikki Nicholls and Geraldine
M. Barber, filed a class action suit against Charter Holdco in South Carolina
Court of Common Pleas (South Carolina Class Action), purportedly on behalf
of a class of Charter Holdcos customers, alleging that Charter Holdco
improperly charged them a wire maintenance fee without request or permission.
They also claimed that Charter Holdco improperly required them to rent analog
and/or digital set-top terminals even though their television sets were cable
ready. A substantively identical case was filed in the Superior Court of
Athens  Clarke County, Georgia by Emma S. Tobar on March 26, 2002 (the
Georgia Class Action), alleging a nationwide class for these claims. Charter
Holdco removed the South Carolina Class Action to the United States District
Court for the District of South Carolina in November 2001, and moved to dismiss
the suit in December 2001. The federal judge remanded the case to the South
Carolina Court of Common Pleas in August 2002 without ruling on the motion to
dismiss. The plaintiffs subsequently moved for a default judgment, arguing
that upon return to state court, Charter Holdco should have but did not file a
new motion to dismiss. The state court judge granted the plaintiffs motion
over Charter Holdcos objection in September 2002. Charter Holdco immediately
appealed that decision to the South Carolina Court of Appeals and the South
Carolina Supreme Court, but those courts have ruled that until a final judgment
is entered against Charter Holdco, they lack jurisdiction to hear the appeal. In January 2003, the Court of Common Pleas granted the plaintiffs motion for
class certification. In October and November 2003, Charter Holdco filed
motions (a) asking that court to set aside the default judgment, and (b)
seeking dismissal of plaintiffs suit for failure to state a claim. In January
2004, the Court of Common Pleas granted in part and denied in part Charter
Holdcos motion to dismiss for failure to state a claim. It also took under
advisement Charter Holdcos motion to set aside the default judgment. In April
2004, the parties to both the Georgia and South Carolina Class Actions
participated in a mediation. The mediator made a proposal to the parties to
settle the lawsuits. In May 2004, the parties accepted the mediators proposal
and reached a tentative settlement, subject to final documentation and court
approval. As a result of the tentative settlement, we recorded a special
charge of $0.2 million in our consolidated statement of operations in the first
quarter of 2004. On July 8, 2004, the Superior Court of Athens  Clarke
County, Georgia granted a motion to amend the Tobar complaint to add Nicholls,
Barber and April Jones as plaintiffs in the Georgia Class Action and to add any
potential class members in South Carolina. The Court also granted preliminary
approval of the proposed settlement on that date. A hearing to consider final
approval of the settlement is scheduled to occur on November 10, 2004. On
August 2, 2004, the parties submitted a joint request to the South Carolina
Court of Common Pleas to stay the South Carolina Class Action pending final
approval of the settlement. Charter is awaiting a ruling on that request. Outcome.Charter is unable to predict the outcome of the remaining lawsuits and
the government investigation described above. An unfavorable outcome in any of
these lawsuits or the government investigation could have a material adverse
effect on our consolidated financial condition, results of operations or our
liquidity. 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. 24




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ITEM 4. CONTROLS AND PROCEDURES. As of the end of the period covered by this report, management, including our
Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures with respect to the information generated for use in this quarterly
report. The evaluation was based in part upon reports and affidavits provided
by a number of executives. Based upon, and as of the date of that evaluation,
our Chief Executive Officer and 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 June 30, 2004 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. 25




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PART II. OTHER INFORMATION. 
 ITEM 1. LEGAL PROCEEDINGS. In addition to those matters disclosed under the heading Contingencies of
Part I, Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations, we are involved from time to time in routine legal
matters and other claims incidental to our business. We believe that the
resolution of such routine matters and other incidental claims, taking into
account established reserves and insurance, will not have a material adverse
impact on our consolidated financial position or results of operations. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS The index to the exhibits begins on page 28 of this quarterly report. (b) REPORTS ON FORM 8-K None. 26




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrants have duly caused this quarterly report to be signed on
their behalf by the undersigned, thereunto duly authorized. RENAISSANCE MEDIA GROUP LLCRENAISSANCE MEDIA (LOUISIANA) LLCRENAISSANCE MEDIA (TENNESSEE) LLCDated: August 13, 2004
    
    By:
    CHARTER COMMUNICATIONS, INC.,Registrants ManagerBy:

    /s/ Michael P. HusebyName: Michael P. HusebyTitle: Executive Vice President and Chief Financial Officer(Principal Financial Officer) of Charter Communications, Inc.(Manager); Renaissance Media Group LLC, Renaissance Media(Louisiana) LLC; and Renaissance Media (Tennessee) LLCBy:
    /s/ Paul E. MartinName: Paul E. MartinTitle: Senior Vice President and Corporate Controller(Principal Accounting Officer) of Charter Communications, Inc.(Manager); Renaissance Media Group LLC; Renaissance Media(Louisiana) LLC; and Renaissance Media (Tennessee) LLCDated: August 13, 2004
    
    RENAISSANCE MEDIA CAPITAL CORPORATIONBy:
    /s/ Michael P. HusebyName: Michael P. HusebyTitle: Executive Vice President and Chief Financial Officer(Principal Financial Officer)By:

    /s/ Paul E. MartinName: Paul E. MartinTitle: Senior Vice President and Corporate Controller(Principal Accounting Officer)
 27




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##### Table of Contents



EXHIBIT INDEX ExhibitNumber
    
    Description of Document31.1
    
    Certificate of Chief Executive Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act
of 1934.31.2
    
    Certificate of 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 (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 (Chief Financial Officer).
 28