-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q4P2Cj67NQaO6+ESKAfOvcTkNzlNgt2yXmNYIxp+LiUN97XKfeu9e1lYZPns4LLT xOa45JT82egE6Dlum9k8og== 0000950124-97-005963.txt : 19971117 0000950124-97-005963.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950124-97-005963 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CCA ACQUISITION CORP CENTRAL INDEX KEY: 0001038332 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 431696238 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-26853-01 FILM NUMBER: 97717754 BUSINESS ADDRESS: STREET 1: 12444 POWERSCOURT DR STE 400 CITY: ST LOUIS STATE: MO ZIP: 63131 BUSINESS PHONE: 3149650555 MAIL ADDRESS: STREET 1: CCA ACQUISITION CORP STREET 2: 12444 POWERSCOURT DR STE 400 CITY: ST LOUIS STATE: MO ZIP: 63131 10-Q 1 THIRD QUARTER REPORT DATED 9-30-97 1 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 SEPTEMBER 30, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transaction period from ________________ to _______________ Commission File Number 333-26853-01 CCA ACQUISITION CORP. --------------------- (Exact name of registrant as specified in its charter) Delaware 43-1696238 ----------- ------------ (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 12444 Powerscourt Drive - Suite 400 St. Louis, Missouri 63131 - ---------------------------------------- ------ (Address of Principal Executive Offices) (Zip Code) (Registrant's telephone number, including area code) (314) 965-0555
Indicate by check mark whether the registrant (1)_has filed all reports required to be filed by Section_13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)_has been subject to such filing requirements for the past 90 days. Yes X No --- --- 1 2 CCA ACQUISITION CORP. FORM 10-Q - FOR THE QUARTER ENDED SEPTEMBER 30, 1997 INDEX
Page ---- Part I. Financial Information --------------------- Item 1. CCA Acquisition Corp. and Subsidiaries a. Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 3 b. Consolidated Statements of Operations - Three Months Ended September 30, 1997 and 1996 5 c. Consolidated Statements of Operations - Nine Months Ended September 30, 1997 and 1996 6 d. Consolidated Statement of Shareholders' Investment (Deficit)- Nine Months Ended September 30, 1997 7 e. Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1997 and 1996 8 f. Notes to Consolidated Financial Statements 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Part II. Other Information ----------------- Item 1. Legal Proceedings 18 Item 2. Change in Securities - None - Item 3. Defaults upon Senior Securities - None - Item 4. Submission of Matters to a Vote of Security Holders - None - Item 5. Other Information - None - Item 6. Exhibits and Reports on Form 8-K 18 Signature Page 19
2 3 CCA ACQUISITION CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1997 1996 ------------- ------------ (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,557,089 $ 2,934,939 Accounts receivable, net of allowance for doubtful accounts of $626,429 and $371,166, respectively 7,130,335 5,465,750 Prepaid expenses and other 890,108 490,443 Net assets of discontinued operation 108,827 108,827 ------------ ------------ Total current assets 9,686,359 8,999,959 ------------ ------------ INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, net 215,236,484 206,351,379 Franchise costs, net of accumulated amortization of $76,298,553 and $51,761,758, respectively 415,221,994 439,232,345 ------------ ------------ 630,458,478 645,583,724 ------------ ------------ OTHER ASSETS, net 8,936,363 9,667,356 ------------ ------------ INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS 71,467,129 78,069,816 ------------ ------------ NET NONCURRENT ASSETS OF DISCONTINUED OPERATION 1,760,015 1,760,015 ------------ ------------ $722,308,344 $744,080,870 ============ ============
(Continued on the following page) 3 4 CCA ACQUISITION CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1997 1996 ------------- ------------ (Unaudited) LIABILITIES AND SHAREHOLDER'S INVESTMENT (DEFICIT) CURRENT LIABILITIES: Current maturities of long-term debt $ 22,158,750 $ 5,880,000 Accounts payable and accrued expenses 19,407,027 18,517,774 Subscriber deposits and prepayments 456,948 473,601 Payables to affiliates 1,690,252 2,630,149 Other current liabilities -- 1,401,951 ------------ ------------ Total current liabilities 43,712,977 28,903,475 ------------ ------------ DEFERRED REVENUE 1,076,307 708,339 ------------ ------------ DEFERRED INCOME TAXES 55,500,000 55,500,000 ------------ ------------ LONG-TERM DEBT, less current maturities 448,201,250 462,120,000 ------------ ------------ DEFERRED MANAGEMENT FEES PAYABLE TO AFFILIATE 1,755,000 1,755,000 ------------ ------------ NOTES PAYABLE 82,000,000 82,000,000 ------------ ------------ ACCRUED INTEREST ON NOTES PAYABLE 33,268,131 22,843,402 ------------ ------------ MINORITY INTEREST IN SUBSIDIARY 82,880,499 90,273,351 ------------ ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDER'S INVESTMENT (DEFICIT): Common stock, $.01 par value, 100 shares authorized; 100 shares issued and outstanding 1 1 Additional paid-in capital 79,999,999 79,999,999 Accumulated deficit (106,085,820) (80,022,697) ------------ ------------ Total shareholder's investment (deficit) (26,085,820) (22,697) ------------ ------------ $722,308,344 $744,080,870 ============ ============
The accompanying notes are an integral part of these consolidated balance sheets. 4 5 CCA ACQUISITION CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Unaudited)
1997 1996 --------------- --------------- SERVICE REVENUES: Basic service $ 28,439,892 $ 25,195,539 Premium service 4,997,333 4,891,780 Other 9,265,675 6,686,222 ------------ ------------ 42,702,900 36,773,541 ------------ ------------ EXPENSES: Operating, general and administrative 20,822,741 18,707,245 Depreciation and amortization 15,850,906 18,069,074 Management and financial advisory service fees - related parties 1,359,254 1,835,750 ------------ ------------ 38,032,901 38,612,069 ------------ ------------ Income (loss) from operations 4,669,999 (1,838,528) ------------ ------------ OTHER INCOME (EXPENSE): Interest income 23,245 44,025 Interest expense (13,287,609) (12,165,214) Other -- (265,815) ------------ ------------ (13,264,364) (12,387,004) ------------ ------------ Loss before equity in loss of unconsolidated limited partnerships, provision for income taxes and minority interest in loss of subsidiary (8,594,365) (14,255,532) EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS (1,523,879) (1,605,099) ------------ ------------ Loss before provision for income taxes and minority interest in loss of subsidiary (10,118,244) (15,830,631) PROVISION FOR INCOME TAXES -- -- ------------ ------------ Loss before minority interest in loss of subsidiary (10,118,244) (15,830,631) MINORITY INTEREST IN LOSS OF SUBSIDIARY 2,244,444 4,961,697 ------------ ------------ Net loss (7,873,800) (10,868,934) ============ ============
The accompanying notes are an integral part of these consolidated statements. 5 6 CCA ACQUISITION CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Unaudited)
1997 1996 --------------- --------------- SERVICE REVENUES: Basic service $ 83,579,519 $ 70,693,010 Premium service 15,020,008 14,285,943 Other 26,575,998 19,625,336 ------------ ------------- 125,175,525 104,604,289 ------------ ------------- EXPENSES: Operating, general and administrative 61,893,731 53,412,294 Depreciation and amortization 46,608,545 48,386,428 Management and financial advisory service fees - related parties 4,074,540 5,227,200 ------------ ------------- 112,576,816 107,025,922 ------------ ------------- Income (loss) from operations 12,598,709 (2,421,633) ------------ ------------- OTHER INCOME (EXPENSE): Interest income 25,935 138,435 Interest expense (39,477,931) (34,611,112) Other -- (307,699) ------------ ------------- (39,451,996) (34,780,376) ------------ ------------- Loss before equity in loss of unconsolidated limited partnerships, provision for income taxes and minority interest in loss of subsidiary (26,853,287) (37,202,009) EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS (6,602,687) (4,922,863) ------------ ------------- Loss before provision for income taxes and minority interest in loss of subsidiary (33,455,974) (42,124,872) PROVISION FOR INCOME TAXES -- -- ------------ ------------- Loss before minority interest in loss of subsidiary (33,455,974) (42,124,872) MINORITY INTEREST IN LOSS OF SUBSIDIARY 7,392,852 12,597,277 ------------ ------------- Net loss $(26,063,122) $ (29,527,595) ============ =============
The accompanying notes are an integral part of these consolidated statements. 6 7 CCA ACQUISITION CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDER'S INVESTMENT (DEFICIT) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (Unaudited)
Additional Common Paid-In Accumulated Stock Capital Deficit Total ---------- ------------ -------------- -------------- BALANCE, December 31, 1996 $ 1 $ 79,999,999 $ (80,022,697) $ (22,697) Net loss -- -- (26,063,122) (26,063,122) --- ------------- ------------- ------------ BALANCE, September 30, 1997 $ 1 $79,999,999 $(106,085,819) $(26,085,819) === =========== ============== ============
The accompanying notes are an integral part of these consolidated statements. 7 8 CCA ACQUISITION CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Unaudited)
1997 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(26,063,122) $ (29,527,595) Adjustments to reconcile net loss to net cash provided by operating activities- Depreciation and amortization 46,608,545 48,386,428 Amortization of debt issuance costs 935,330 -- Equity in loss of unconsolidated limited partnerships 6,602,687 4,922,863 Minority interest in loss of subsidiary (7,392,852) (12,597,277) Changes in assets and liabilities, net of effects from acquisitions- Accounts receivable, net (1,664,585) (682,209) Prepaid expenses and other (399,665) 225,829 Other assets -- (2,046,939) Accounts payable and accrued expenses 889,253 (87,850) Subscriber deposits (16,653) (246,086) Payables to affiliates, including deferred management fees (939,897) 1,500,000 Other current liabilities (1,401,951) -- Deferred revenue 367,968 (98,070) Accrued interest on note payable 10,424,729 9,208,060 ------------ ------------- Net cash provided by operating activities 27,949,787 18,957,154 ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (30,728,402) (25,969,477) Payments for acquisitions, net of cash acquired -- (90,484,489) Payments of organizational expenses (194) -- Restricted funds held in escrow -- (698,402) Payments of franchise costs (526,444) (360,647) Payments of covenants not to compete (157,083) -- Other -- (60,732) ------------ ------------- Net cash used in investing activities $(31,412,123) $(117,573,747) ------------ -------------
(Continued on the following page) 8 9 CCA ACQUISITION CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Unaudited)
1997 1996 --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of debt issuance costs $ (275,514) $ (1,814,338) Borrowings under revolving credit and term loan facility 19,600,000 92,000,000 Payments under revolving credit and term loan facility (17,240,000) (3,000,000) ------------- ------------- Net cash provided by financing activities $ 2,084,486 $ 87,185,662 ------------- ------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (1,377,850) (11,430,931) CASH AND CASH EQUIVALENTS, beginning of period 2,934,939 11,430,931 ------------- ------------- CASH AND CASH EQUIVALENTS, end of period $ 1,557,089 $ -- ============= ============= CASH PAID FOR INTEREST $ 27,435,365 $ 25,802,443 ============= ============= CASH PAID FOR TAXES $ - $ - ============= =============
The accompanying notes are an integral part of these consolidated statements. 9 10 CCA ACQUISITION CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Organization and Basis of Presentation CCA Acquisition Corp. (CAC), a Delaware corporation, was formed on June 27, 1994, and is a wholly-owned subsidiary of CCA Holdings Corp. (CCA Holdings). CAC commenced operations in January 1995 in connection with consummation of the Crown Transaction (as defined below). The accompanying consolidated financial statements include the accounts of CAC; its wholly-owned subsidiary, Cencom Cable Entertainment, Inc. (CCE); and Charter Communications Entertainment I, L.P. (CCE-I), which is controlled by CAC through its general partnership interest (collectively referred to as the "Company"). CCA Holdings is owned approximately 85% by Kelso Investment Associates V, L.P., an investment fund, together with an affiliate (collectively referred to as "Kelso" herein) and certain other individuals and approximately 15% by Charter Communications, Inc. (Charter), manager of CCE-I's cable television systems. All material intercompany transactions and balances have been eliminated. In January 1995, CAC completed the acquisition of certain cable television systems from Crown Media, Inc. (Crown), a subsidiary of Hallmark Cards, Incorporated (Hallmark) (the "Crown Transaction"). On September 29, 1995, CAC and CCT Holdings Corp. (CCT Holdings), an entity affiliated with CCA Holdings by common ownership, entered into an Asset Exchange Agreement whereby CAC exchanged a 1% undivided interest in all of its assets for a 1.22% undivided interest in certain assets to be acquired by CCT Holdings from an affiliate of Gaylord Entertainment Company, Inc. (Gaylord). Effective September 30, 1995, CCT Holdings acquired certain cable television systems from Gaylord. Upon execution of the Asset Purchase Agreement, CAC and CCT Holdings entered into a series of agreements to contribute the assets acquired under the Crown Transaction to CCE-I and certain assets acquired in the Gaylord acquisition to Charter Communications Entertainment II, L.P. (CCE-II). As a result of entering into these agreements, CAC owns a 55% interest and CCT Holdings owns a 45% interest in the operations of CCE-I and CCE-II, respectively. CAC's investment in CCE-II is accounted for by the equity method. The net loss of CCE-I for the period prior to September 29, 1995, was allocated entirely to CAC. The accompanying unaudited financial statements of CAC have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS: The accompanying financial statements are unaudited; however, in the opinion of management, such statements include all adjustments necessary for a fair presentation of the results for the periods presented. The interim financial statements should be read in conjunction with the financial statements and notes thereto as of and for the year ended December 31, 1996. Interim results are not necessarily indicative of results for a full year. 10 11 3. INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS: Summary financial information of CCE-II for the three and nine month periods ending September 30, 1997 and 1996 is as follows:
Charter Communications Entertainment II, L.P. --------------------------------------------- For the Three Months Ended For the Nine Months Ended September 30, September 30, September 30, September 30, ------------- ------------- ------------- ------------- 1997 1996 1997 1996 ---- ---- ---- ---- Service revenues $ 24,429,069 $ 22,312,458 $ 71,773,215 $ 66,781,032 Income from operations $ 1,394,475 $ 1,183,864 $ 3,766,586 $ 3,606,922 Net loss $ (2,770,688) $ (2,918,362) $(12,004,885) $ (8,950,660)
As of September 30, 1997, CCE-II provided cable television service to approximately 172,100 basic subscribers in southern California. 4. LITIGATION: CAC is involved from time to time in routine legal matters incidental to its business. Management, after consultation with its legal counsel, believes that the resolution of such matters will not have a material adverse effect on CAC's financial position or results of operations. CCE-I is a named defendant in a purported class action lawsuit filed on October 20, 1995 on behalf of the Cencom Cable Income Partners, L.P. ("CCIP") limited partners, which was filed in the Chancery Court of New Castle County, Delaware (the "Action"). The Action named as defendants the general partner of CCIP, the purchasers of all the systems previously owned by CCIP (which includes CCE-I and certain other affiliates of Charter), Charter and certain individuals, including the directors and executive officers of the general partner of CCIP. On February 15, 1996, the Court of Chancery of the State of Delaware in and for New Castle County dismissed all of the plaintiff's claims for injunctive relief (including that which sought to prevent the consummation of the Illinois system acquisition); the plaintiff's claims for money damages which may have resulted from the sale by CCIP of its assets (including the Illinois system) remain pending. Based upon, among other things, the advice of counsel, each of the defendants to the Action believes the Action to be without merit and is contesting it vigorously. In October 1996, the plaintiff filed a Consolidated Amended Class Action Complaint (the "Amended Complaint"). The general partner of CCIP believes that portions of the Amended Complaint are legally inadequate and in January 1997, filed a motion for summary judgment to dismiss all remaining claims in the Action. In October 1997 the court granted in part and denied in part defendants motion for summary judgment. Plaintiffs have filed a motion to alter or amend the court's order. There can be no assurance, however, that the plaintiff will not be awarded damages, some or all of which may be payable by CCE-I, in connection with the Action. CCE is a named defendant in two actions involving an affiliate of Charter, Cencom Cable Income Partners II, L.P. ("CCIP II"), a public limited partnership. On April 15, 1997, a complaint was filed, and two amended complaints subsequently filed, in the Circuit Court of Jackson County, Missouri by plaintiffs who are limited partners of CCIP II against Cencom Properties II, Inc., the general partner of CCIP II, Cencom Partners Inc., the general partner of Cencom Partners, L.P., ("CPLP"), an entity in which CCIP II invested, certain named brokerage firms involved in the original sale of the limited partnership units and CCE. CCE provided management services to both CCIP II and CPLP and also owned all of the stock of the general partners of each of these partnerships prior to mid-1994. The plaintiffs alleged that the defendants breached fiduciary duties and the terms of the CCIP II partnership agreement in connection with the investment in Cencom Partners, L.P., the management of certain CCIP II assets and the sale of certain CCIP II assets. The plaintiffs seek recovery of the consideration paid for their partnership units, restitution of all profits received by the defendants in connection with the CCIP II transaction and punitive damages. On June 10, 1997, a purported class action was filed in the Court of Chancery of the State of Delaware, in and for New Castle County on behalf of the limited partners of CCIP II against Cencom Properties II, Inc., CCE, Charter, certain other affiliates of Charter and certain individuals, including officers of Charter or Cencom Properties II, Inc. The 11 12 plaintiffs allege that the defendants breached fiduciary duties and the terms of the CCIP II partnership agreement in connection with the investment in Cencom Partners, L.P., the management of certain CCIP II assets and the sale of certain CCIP II assets. The damages claimed by the plaintiffs are as yet unspecified. CCE believes that it has meritorious defenses in both actions. CCE intends to defend the actions vigorously. CCE is not able to project the expenses which will be associated with the actions or to predict any potential outcome or financial impact. On October 20, 1997, a purported class action was filed in St. Louis County Circuit Court under the name Gerald Ortbals v. Charter Communications, on behalf of all persons residing in Missouri who are or were residential subscribers of CCE-I cable television service, and who have been charged a processing fee for delinquent payment of their cable bill. The action challenges the legality of CCE-I's processing fee and seeks declaratory judgment, injunctive relief and unspecified damages. CCE-I believes the lawsuit to be without merit and intends to defend the action vigorously. The Company is not able at this early stage to project the expense which will be associated with this action or to predict any potential outcome or financial impact. 12 13 CCA ACQUISITION CORP. AND SUBSIDIARIES Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Significant Transactions CCA Acquisition Corp. and its subsidiaries (collectively the "Company" ) have completed the following acquisitions of cable television systems:
Approximate Acquisition Date Purchase Price Location of Systems ---------------- -------------- ------------------- January 1995 $488.2 million Missouri, Connecticut October 1995 $ 96.0 million Missouri, Massachusetts January 1996 $ 9.4 million Missouri March 1996 $ 82.1 million Illinois November 1996 $ 24.2 million Missouri
As of September 30, 1997, the Company had no pending acquisitions. Results of Operations The following table sets forth the approximate number of basic subscribers and premium subscriptions of the Company as of the dates indicated:
September 30, December 31, September 30, 1997 1996 1996 ---- ---- ---- Basic Subscribers: Missouri/Illinois systems 228,000 223,300 208,900 Connecticut/Massachusetts systems 118,700 115,000 114,900 ------- ------- ------- 346,700 338,300 323,800 ======= ======= ======= Premium Subscription Units: Missouri/Illinois systems 119,200 130,100 127,000 Connecticut/Massachusetts systems 59,400 64,500 62,600 ------- ------- -------- 178,600 194,600 189,600 ======= ======= ======= Homes Passed: Missouri/Illinois systems 401,300 138,700 366,600 Connecticut/Massachusetts systems 140,500 394,900 138,200 ------- ------- -------- 541,800 533,600 504,800 ======= ======= =======
13 14 The following table sets forth certain items in dollars (in thousands) and as a percentage of service revenues for the periods indicated:
For the Three Months Ended September 30, ------------------- (Unaudited) 1997 1996 ----------------------- ----------------------- % of % of Amount Revenue Amount Revenue ------ ------- ------ ------- Service Revenues $ 42,703 100.0% $ 36,774 100.0% -------- ----- -------- ----- Operating Expenses: Operating, general and administrative 20,823 48.8 18,707 50.9 Depreciation and amortization 15,851 37.1 18,069 49.1 Management and financial advisory service fees - related parties 1,359 3.2 1,836 5.0 -------- ----- -------- ----- 38,033 89.1 38,612 105.0 -------- ----- -------- ----- Income from operations 4,670 10.9 (1,838) (5.0) -------- ----- -------- ----- Other Income (Expense): Interest income 23 .1 44 .1 Interest expense (13,287) (31.1) (12,165) (33.1) Other, net --- --- (266) (.7) -------- ----- -------- ----- (13,264) (31.0) (12,387) (33.7) -------- ----- -------- ----- (8,594) (20.1) (14,225) (38.7) Equity in loss of unconsolidated limited partnerships (1,524) (3.6) (1,605) (4.4) Provision for income taxes --- --- --- --- Minority interest in loss of subsidiary 2,244 5.3 4,961 13.5 -------- ----- -------- ----- Net loss $ (7,874) (18.4)% $(10,869) (29.6)% ======== ===== ======== =====
14 15 The following table sets forth certain items in dollars (in thousands) and as a percentage of service revenues for the periods indicated:
For the Nine Months Ended September 30, ------------------- (Unaudited) 1997 1996 --------------------- ------------------------ % of % of Amount Revenue Amount Revenue ------ ------- ------ ------- Service Revenues $ 125,176 100.0% $ 104,604 100.0% --------- ------- ---------- ------- Operating Expenses: Operating, general and administrative 61,894 49.4 53,412 51.0 Depreciation and amortization 46,609 37.2 48,387 46.3 Management and financial advisory service fees - related parties 4,074 3.3 5,227 5.0 --------- ------- ---------- ------- 112,577 89.9 107,026 102.3 --------- ------- ---------- ------- Income (Loss) from operations 12,599 10.1 (2,422) (2.3) --------- ------- ---------- ------- Other Income (Expense): Interest income 26 --- 138 .1 Interest expense (39,478) (31.5) (34,611) (33.1) Other, net --- --- (307) (.2) --------- ------- ---------- ------- -- (39,452) (31.5) (34,780) (33.2) --------- ------- ---------- ------- (26,853) (21.4) (37,202) (35.5) Equity in loss of unconsolidated limited partnerships (6,603) (5.3) (4,923) (4.7) Provision for income taxes --- --- --- --- Minority interest in loss of subsidiary 7,393 5.9 12,597 12.0 ---------- ------- ---------- -------- Net loss $ (26,063) (20.8)% $ (29,528) (28.2)% ========= ======== ========== ========
Service Revenues The Company earns substantially all of its revenues from monthly subscription fees for basic tier, expanded tier, premium channels, equipment rental and ancillary services provided by its cable television systems. Service revenues increased by 16.1% and 19.7% to $42,703,000 and $125,176,000, for the three and nine month periods ended September 30, 1997, when compared to the similar periods of 1996. This increase in 1997 is primarily due to an increase in subscribers for the basic tier of cable service offered by the systems resulting primarily from acquisitions of cable systems by the Company during 1996. In addition, the Company experienced significant internal subscriber growth between periods and implemented basic and expanded tier retail rate increases in certain systems, in accordance with federal law. The internal subscriber growth reflects the success of management's marketing efforts to add new customers and retain existing customers, as well as improved customer service. In addition, a limited amount of new-build construction increased the coverage of the systems. Premium service revenue has decreased between comparable periods as a result of the decrease in the number of premium service subscriptions being subscribed to by the Company's basic subscribers. This decrease is due to the elimination of The Movie Channel in Connecticut and Massachusetts and, second, due to the industry-wide trend of basic subscribers purchasing fewer premium services. 15 16 In late 1996, the Company acquired a local cable advertising operation based in St. Louis, which had revenues of approximately $4.4 million for the nine months ended September 30, 1997. This accounts for a significant portion of the increase in other service revenues as compared to 1996. Operating Expenses Operating, general and administrative costs increased by 11.3% and 15.9% to $20,823,000 and $61,894,000 for the three and nine months ended September 30, 1997 when compared to the similar periods of 1996. The majority of this increase was related to the increased costs associated with the cable television systems acquired during 1996. In addition, these increases are also related to increases in programming costs, as many of the Company's programming contracts had rate increases effective during the first quarter of 1997. The Company expects that programming cost increases will continue to be an on-going issue for the next several years. Operating margin, or EBITDA, calculated as service revenues less operating, general and administrative expenses, rose approximately 2.1% to 51.2% and 1.7% to 50.6% for the three and nine month periods ended September 30, 1997, respectively, versus the same periods for the prior year. Depreciation and amortization decreased by 12.3% and 3.7% to $15,851,000 and $46,609,000 for the three and nine months ended September 30, 1997, when compared to the similar periods of 1996. The decrease in depreciation and amortization is a result of the completion of the amortization period for a covenant not to compete, offset partially by the increase in depreciation expense for capital expenditures made to the systems, in addition to the increase in property, plant and equipment and franchise costs resulting from the acquisitions of additional cable systems. Depreciation expense as a percent of revenues decreased during the three and nine months ended September 30, 1997 compared to the similar periods of 1996. This decrease is due primarily to an increase in revenues due to internal subscriber growth and retail rate increases. Other Income / Expense Interest expense increased by 9.2% and 14.1% to $13,288,000 and $39,478,000 for the three and nine months ended September 30, 1997, when compared to the similar periods of 1996. This increase is primarily due to the increase in the average outstanding bank debt balance between the comparable periods. Equity in Loss of Unconsolidated Limited Partnerships Equity in loss of unconsolidated limited partnerships pertains to the Company's share of losses in Charter Communications Entertainment, L.P. and Charter Communications Entertainment II, L.P. ("CCE-II"). The Company maintains a 55% investment in both these entities. Equity in loss of unconsolidated limited partnerships decreased by 5.0% to $1,524,000 for the three months ended September 30, 1997, and increased 34.1% to $6,603,000 for the nine months ended September 30, 1997, respectively, when compared to similar periods of 1996. These fluctuations are due to the results of CCE-II for the three and nine months ended September 30, 1997. Net Loss Net loss decreased by 27.6% and 11.7% to $7,874,000 and $26,063,000 for the three and nine months ended September 30, 1997 when compared to the similar periods of 1996. In 1997, significant factors versus the prior year were increases in income from operations, offset partially by increases in interest expense and decreased allocations of CCE-I's loss to the minority interest holder. 16 17 Liquidity and Capital Resources The Company's growth by acquisition during 1995 and 1996 was funded primarily by borrowings under bank credit facilities, seller financing arrangements, and equity contributions. Cash flows provided by operating activities together with borrowings under its bank credit facility have been sufficient to fund the Company's debt service, capital expenditures and working capital requirements. Future cash flows provided by operating activities and availability for borrowings under the existing credit facilities are anticipated to be sufficient during the next 12 months for the Partnership's ongoing debt service, capital expenditures and working capital needs. The Company anticipates that future acquisitions, if any, could be financed through borrowings, either presently available under the existing credit facilities, or as a result of amending the existing credit facilities to allow for expanded borrowing capacity, combined with additional equity contributions. Although to date the Company has been able to obtain financing on satisfactory terms, there can be no assurance that this will continue to be the case in the future and, thereby, could negatively impact the Company's ability to pursue a strategy that includes growth through acquisitions. At September 30, 1997, the Company's long-term debt (including current maturities) of $585.6 million consisted of $470.4 million outstanding under the revolving credit and term loan facility, $82.0 million outstanding for the Senior Subordinated Notes due 1999 (the " Notes"), and $33.2 million of accrued interest on the Notes. The Company had unused and available borrowing capacity of $30.2 million under the credit facility at September 30, 1997. Cash interest is payable on a monthly and quarterly basis for borrowings under the credit facility. Cash interest on the Notes is payable on December 31, 1999, the stated maturity date. The Company manages risk arising from fluctuations in interest rates through the use of interest rate swap and cap agreements required under the terms of the existing credit facility. Interest rate swap and cap agreements are accounted for by the Company as a hedge of the debt obligation. As a result, the net settlement amount of any such swap or cap is recorded as interest expense in the period incurred. The affects of the Company's hedging practices on its weighted average borrowing rate and on reported interest expense were not material for the three and nine months ended September 30, 1997. The Company incurred capital expenditures of approximately $10.8 million and $30.7 million during the three and nine months ended September 30, 1997, respectively, in connection with the improvement and upgrading of the Company's cable systems. The majority of these expenditures were incurred by the Illinois and Western Connecticut systems as each system is upgrading its cable television plant to 750 MHz. The Company anticipates that capital expenditures will be approximately $40.0 million during 1997. The Company has insurance covering risks incurred in the ordinary course of business, including general liability, property and business interruption coverage. As is typical in the cable television industry, the Company does not maintain insurance covering its underground plant, the cost of which management believes is currently prohibitive. Management believes that the Company's insurance coverage is adequate, and intends to monitor the insurance markets to attempt to obtain coverage for the Company's underground plants at reasonable and cost-effective rates. The Company believes that it has generally complied with the provisions of the 1992 Act regarding cable programming service rates. However, some systems may be charging rates which are in excess of allowable rates and, accordingly, may be subject to challenge by regulatory authorities, such challenge may result in the Partnership being required to make refunds to subscribers. The amount of refunds, if any, which could be payable by the Company in the event such systems' rates are successfully challenged by regulatory authorities is not currently estimable. The Company has not reserved any amounts for payment of such refunds as the General Partner does not believe that the amounts of any such refunds would have a material adverse effect on the financial position or results of the Company. 17 18 Part II. Other Information Item 1. Legal Proceedings On October 20, 1997, a purported class action was filed in St. Louis County Circuit Court under the name Gerald Ortbals v. Charter Communications, on behalf of all persons residing in Missouri who are or were residential subscribers of CCE-I cable television service, and who have been charged a processing fee for delinquent payment of their cable bill. The action challenges the legality of CCE-I's processing fee and seeks declaratory judgment, injunctive relief and unspecified damages. CCE-I believes the lawsuit to be without merit and intends to defend the action vigorously. The Company is not able at this early stage to project the expense which will be associated with this action or to predict any potential outcome or financial impact. Item 2. Change in Securities - None Item 3. Defaults upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K A. Exhibits 27 Financial Data Schedule B. Reports on Form 8-K - None 18 19 CCA ACQUISITION CORP. FOR THE QUARTER ENDED SEPTEMBER 30, 1997 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CCA ACQUISITION CORP. By: /s/ Jerald L. Kent ------------------------------- Jerald L. Kent President and Chief Executive Officer By: /s/Jerald L. Kent November 13, 1997 ---------------------------- Jerald L. Kent President and Chief Executive Officer By: /s/Kent D. Kalkwarf November 13, 1997 ---------------------------- Kent D. Kalkwarf Senior Vice President and Chief Financial Officer 19 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 JUL-01-1997 SEP-30-1997 1,557,089 0 7,756,764 626,429 0 9,686,359 215,236,484 0 722,308,344 43,712,977 585,628,131 0 0 (26,085,820) 0 722,308,344 42,702,900 42,702,900 0 0 38,032,901 0 13,287,609 (10,118,244) 0 (10,118,244) 0 0 0 (7,873,800) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----