SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 8-K/A1
Amendment No. 1 to
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 31, 1996
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Century Communications Corp.
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(Exact name of registrant as specified in its charter)
1-9676
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(Commission File Number)
New Jersey 06-1158179
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(State other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
50 Locust Avenue
New Canaan, Connecticut 06840
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (203) 972-2000
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(Former name or former address, if changed since last report)
Page 1 of 24 Pages
Exhibit Index on Page 23
Item 2. Acquisition or Disposition of Assets
(a) On May 31, 1996, Century Communications Corp. (the "Company")
acquired from ML Media Partners, L.P. (the "Seller") cable television systems
serving Anaheim, Hermosa Beach/Manhattan Beach, Fairfield and Rohnert
Park/Yountville, California (collectively, the "Systems") for an aggregate
purchase price of approximately $287.3 million (subject to further adjustment)
in cash. The purchase price was determined by arms'-length negotiations between
the parties and was funded by available bank lines of credit with Citibank,
N.A., as agent. At May 31, 1996, such systems served an aggregate of
approximately 139,000 primary basic subscribers. The Company and the Seller,
through their respective subsidiaries, jointly own (50% each) a joint venture
that operates cable television systems and radio stations in Puerto Rico.
(b) The assets of the Seller acquired by the Company consisted of those
assets related to the operation of the business of the Systems. The primary
tangible assets acquired were the property, plant and equipment used to provide
cable television services. The Company will continue to use such assets in the
manner in which they were previously used by the Seller.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
The following combined financial statements for the ML California Cable
Division of the Seller, which includes the Systems (the "Division"), are filed
as part of this Current Report on Form 8-K:
Page
------
Independent Auditors' Report F-1
Combined Balance Sheets - as of December 30, 1994, December 29, 1995,
and March 29, 1996 (unaudited) F-2
Combined Statements of Operations and Divisional Equity (Deficit) - for the
years ended December 30, 1994 and December 29, 1995 and the three months ended
March 31, 1995 and March 29, 1996 (unaudited) F-3
Combined Statements of Cash Flows - for the years ended December 30, 1994 and
December 29, 1995 and the three months ended March 31, 1995 and March 29, 1996
(unaudited) F-4
Notes to Combined Financial Statements - for the years ended December 30, 1994
and December 29, 1995 and the three months ended March 31, 1995 and March 29,
1996 (unaudited) F-5
-2-
(b) Pro Forma Financial Information.
The following pro forma combined financial statements for Century
Communications Corp. and Subsidiaries are filed as part of this Current Report
on Form 8-K:
Page
----
Pro Forma Combined Financial Statements F-13
Pro Forma Combined Balance Sheet - as of February 28, 1996 F-14
Pro Forma Combined Statement of Operations - for the year ended May 31, 1995 F-15
Pro Forma Combined Statement of Operations - for the nine months ended February
28, 1996 F-16
Notes to Pro Forma Combined Financial Statements F-17
(c) Exhibits.
The following exhibit is filed as part of this Current Report on Form
8-K:
23 Consent of Deloitte & Touche LLP
-3-
INDEPENDENT AUDITORS' REPORT
ML Media Partners, L.P.:
We have audited the accompanying combined balance sheets of ML California Cable
Division (the "Division"), a division of ML Media Partners, L.P. as of December
29, 1995 and December 30, 1994 and the related combined statements of operations
and division equity (deficit), and of cash flows for the years then ended. These
financial statements are the responsibility of the Division's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Division as of December 29,
1995 and December 30, 1994 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, on May 31, 1996,
substantially all of the Division's assets were sold to Century Communications
Corp. and a portion of the proceeds of the sale were utilized to pay off all of
its existing indebtedness under its Revised ML California Credit Agreement, as
amended.
Deloitte & Touche LLP
Stamford, CT.
May 31, 1996
F-1
ML CALIFORNIA CABLE DIVISION
A DIVISION OF ML MEDIA PARTNERS, L.P.
COMBINED BALANCE SHEETS
DECEMBER 30, 1994, DECEMBER 29,1995 AND MARCH 29, 1996 (Unaudited)
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(Unaudited)
December 30, December 29, March 29,
1994 1995 1996
(In thousands)
ASSETS
Cash $ 728 $ 4,742 $ 7,009
Short-term investments held by agent 6,000
Accounts receivable - net of allowance for
doubtful accounts of $188, $240 and $270
in 1994, 1995 and March 31, 1996,
respectively 1,196 1,119 770
Prepaid and other assets 4,936 5,824 4,952
Property, plant and equipment - net 56,636 49,403 47,479
Goodwill, net of accumulated amortization
of $7,781, $8,755 and $8,999 in 1994, 1995
and March 31, 1996, respectively 31,177 30,203 29,960
Cable television franchises, net of
accumulated amortization of $56,271,
$61,809 and $63,197 in 1994, 1995 and
March 31, 1996, respectively 17,661 12,374 10,988
Other assets - net 2,088 2,224 2,178
--------- --------- ---------
$ 120,422 $ 105,889 $ 103,336
========= ========= =========
LIABILITIES AND DIVISION EQUITY (DEFICIT)
Accounts payable and accrued expenses $ 9,172 $ 6,395 $ 4,950
Customers' deposits and prepayments 493 514 492
Due to ML Media Partners, L.P. 5,111 6,407 6,725
Notes payable 103,857 92,732 91,955
--------- --------- ---------
118,633 106,048 104,122
COMMITMENTS AND CONTINGENCIES
(See Note 9)
DIVISION EQUITY (Deficit) 1,789 (159) (786)
--------- --------- ---------
$ 120,422 $ 105,889 $ 103,336
========= ========= =========
See notes to combined financial statements.
F-2
ML CALIFORNIA CABLE DIVISION
A DIVISION OF ML MEDIA PARTNERS, L.P.
COMBINED STATEMENTS OF OPERATIONS AND DIVISION EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 30, 1994 AND DECEMBER 29, 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND MARCH 29, 1996 (Unaudited)
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(Unaudited)
December 30, December 29, March 31, March 29,
1994 1995 1995 1996
(In thousands)
SERVICE INCOME $ 54,689 $ 56,729 $ 13,589 $ 14,297
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of services 16,187 17,130 4,208 4,289
Selling, general and administrative 11,906 10,069 2,713 2,969
Management fees and expenses 3,406 3,904 976 986
Depreciation and amortization 18,186 17,990 4,693 4,491
-------- -------- -------- --------
49,685 49,093 12,590 12,735
-------- -------- -------- --------
OPERATING INCOME 5,004 7,636 999 1,562
INTEREST EXPENSE 6,613 9,584 2,213 2,189
-------- -------- -------- --------
NET LOSS (1,609) (1,948) (1,214) (627)
DIVISION EQUITY (DEFICIT) -
beginning of year 3,398 1,789 1,789 (159)
-------- -------- -------- --------
DIVISION EQUITY (DEFICIT) -
end of period $ 1,789 $ (159) $ 575 $ (786)
======== ======== ======== ========
See notes to combined financial statements.
F-3
ML CALIFORNIA CABLE DIVISION
A DIVISION OF ML MEDIA PARTNERS, L.P.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 30, 1994 AND DECEMBER 29, 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND MARCH 29, 1996 (Unaudited
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(Unaudited)
December 30, December 29, March 31, March 29,
1994 1995 1995 1996
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,609) $ (1,948) $ (1,214) $ (627)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for doubtful accounts (43) 52 21 32
(Gain) loss on disposal of assets (122) 21
Depreciation and amortization 18,186 17,990 4,693 4,491
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 2 25 (403) 319
(Increase) decrease in prepaid and other assets (1,005) (888) 596 872
Increase in intangibles and other assets (1,431) (582) (1,079) (14)
Increase (decrease) in accounts payable and
accrued expenses 1,408 (2,264) (1,202) (1,407)
Increase (decrease) in customers' deposits
and prepayments (367) 21 41 (22)
Increase in amounts due to ML Media
Partners, L.P. 1,789 1,296 26 318
------- ------- ------ -------
Net cash provided by operating activities 16,808 13,723 1,479 3,962
------- ------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,305) (4,612) (960) (918)
Proceeds from disposal of assets 243 28
------- ------- ------ -------
Net cash used in investing activities (6,062) (4,584) (960) (918)
------- ------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings (13,518) (11,125) (2,004) (777)
------- ------- ------ -------
Net cash used in financing activities (13,518) (11,125) (2,004) (777)
------- ------- ------ -------
NET (DECREASE) INCREASE IN CASH (2,772) (1,986) (1,485) 2,267
CASH AND SHORT-TERM INVESTMENTS
HELD BY AGENT - beginning of year 9,500 6,728 6,728 4,742
------- ------- ------ -------
CASH AND SHORT-TERM INVESTMENTS
HELD BY AGENT - end of year $ 6,728 $ 4,742 $5,243 $7,009
======= ======= ====== =======
See notes to combined financial statements
F-4
ML CALIFORNIA CABLE DIVISION
A DIVISION OF ML MEDIA PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 30, 1994, DECEMBER 29, 1995 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1995 AND MARCH 29,1996 (UNAUDITED AS TO MARCH 31, 1995
AND MARCH 29, 1996)
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1. THE DIVISION
ML California Cable Division (the "Division") includes the California Cable
television systems (the "Cable Systems") of ML Media Partners L.P. (the
"Partnership") and the cable television franchise licenses held by ML
California Associates, a partnership formed between the Partnership and
Media Management Partners, the general partner of the Partnership. The
Division was formed to acquire, own, maintain and operate cable television
systems in California. The capital contributed to the Division consisted of
the equity of the former ML California Cable Corporation ("Cable Corp.")
which was a wholly-owned subsidiary of the Partnership prior to its
liquidation into the Partnership on December 30, 1986. Cable Corp.
transferred all of its assets, except its Federal Communication Commission
("FCC") licenses for the cable television franchises, and liabilities to
the Partnership upon such liquidation. The licenses were transferred to ML
California Associates for the purpose of holding the licenses, for the
unrestricted use of the Cable Systems.
In January 1994, the Partnership engaged Merrill Lynch & Co. and Daniels &
Associates to act as the Partnership's financial advisors in connection
with a possible sale of all or a portion of the Division.
On November 28, 1994, the Partnership entered into an agreement (the "Asset
Purchase Agreement") with Century Communications Corp. ("Century") to sell
to Century substantially all of the Division's assets used in the
operations of the cable systems serving the Anaheim, Hermosa
Beach/Manhattan Beach, Robert Park/Yountville and Fairfield communities. On
May 31, 1996, after satisfaction of certain conditions, including obtaining
approvals from the FCC and the municipal authorities issuing the franchises
for the systems, the Partnership sold substantially all of the Division's
assets to Century for approximately $287,300,000, which is subject to
further adjustment as provided for in the Asset Purchase Agreement. A
portion of the proceeds from this sale were utilized by the Division to pay
off all of its existing indebtedness under its Revised ML California Credit
Agreement, as amended (See Note 6).
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The combined financial statements include only
those assets, liabilities and results of operations which relate to the
business of the Division. The combined financial statements do not include
any assets, liabilities or operations attributable to the Partnership's or
the Partners' individual activities.
The fiscal year of the Division ends on the last Friday of each calendar
year.
F-5
MANAGEMENT ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting periods. Actual
results could differ from those estimates.
REVENUE RECOGNITION - Service income includes earned subscriber service
revenues and charges for installation and connections. Subscriber services
paid for in advance are recorded as income when earned.
SHORT-TERM INVESTMENTS HELD BY AGENT - Short-term investments held by agent
at December 30, 1994 represents investments with maturities of less than 30
days.
GOODWILL - Goodwill represents the excess of purchase price over the values
assigned to the tangible and intangible assets acquired and is being
amortized using the straight-line method over 40 years. Amortization
expense for each of the years ended December 30, 1994 and December 29, 1995
was approximately $974,000 and for the three months ended March 31, 1995
and March 29, 1996 was approximately $244,000.
VALUATION OF INTANGIBLE ASSETS - The Division, on an annual basis,
undertakes a review and valuation of the net carrying value, recoverability
and write-off of all categories of its intangible assets. The Division in
its valuation considers current market values of its properties,
competition, prevailing economic conditions, government policy including
taxation, and the Division's and the industry's historical and current
growth patterns, as well as the recoverability of the cost of its
intangible assets based on a comparison of estimated undiscounted operating
cash flows.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment from
acquisitions are recorded at their fair values based upon an independent
appraisal at the date of acquisition. Property, plant and equipment
additions are stated at cost. Depreciation is computed using the
straight-line method over the following estimated useful lives of the
assets:
Buildings 20-30 years
Cable television transmission and
distribution systems and related equipment 3-12 years
Miscellaneous equipment and furniture and
fixtures 3-7 years
Initial subscriber connection costs are capitalized and included as part of
the distribution systems. Costs related to disconnects and reconnects are
expensed as incurred. Expenditures for maintenance and repairs are charged
to cost of services as incurred. Betterments, replacement equipment and
additions are capitalized and depreciated over the remaining life of the
assets.
CABLE TELEVISION FRANCHISES - Cable television franchise rights from cable
television acquisitions are recorded at their fair values based upon an
independent appraisal. Such amounts are amortized over the weighted-average
useful lives of the franchises (6-15 years) using the straight-line method.
Amortization expense for the years ended December 30, 1994 and December 29,
1995 was $5,526,000 and $5,538,000 and for the three months ended March 31,
1995 and March 29, 1996 was $1,383,000 and $1,388,000, respectively.
F-6
OTHER ASSETS - Other assets includes deferred financing costs which are
amortized over the life of the outstanding debt (10 years) using the
straight-line method and organization costs which are amortized over the
average lives of the franchises (13 years) using the straight-line method.
Additionally, the Division has funds in certain escrow accounts which are
included in other assets on the balance sheet at December 30, 1994,
December 29, 1995 and March 29, 1996. In 1994, the Division deposited
certain funds in an escrow account in accordance with the Division's
agreement with the Cable Telecommunications Joint Powers Agency ("CTJPA").
Such funds are to be held for the benefit of CTJPA's subscribers pending
determination of the Division's potential need to make refunds to the
subscribers in connection with rate re-regulation. The balance of such
escrow account as of March 29, 1996 was $828,258, including related
interest. In the first quarter of 1995, the Division was required to
deposit $680,000 in another escrow account pursuant to an agreement with
the City of Fairfield, California to be held for the benefit of the City of
Fairfield's subscribers pending determination of the Division's potential
need to make refunds to the subscribers in connection with rate
re-regulation. The balance of such escrow account as of March 29, 1996 was
$177,974, including related interest. Management currently believes that
under the FCC's existing decisions, the most material issues in the
Division's rate cases should ultimately be decided in a manner
predominantly favorable to the Division. Total funds deposited in the
escrow accounts and recorded in other assets by the Division totaled
approximately $790,731, $1,027,413 and $1,037,590 as of December 30, 1994,
December 29, 1995, and March 29, 1996, respectively.
INCOME TAXES - No provision or benefit has been made for federal or state
income taxes as taxable income or losses of the Division are allocated to
the partners for inclusion in their respective income tax returns.
CONCENTRATIONS OF CREDIT RISK - Financial instruments that potentially
subject the Division to concentrations of credit risk consist principally
of trade receivables. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
Division's customer base.
DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount
reported in the balance sheets for cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximates fair value
because of the immediate or short-term maturity of these financial
instruments. The carrying value of the Division's revised ML California
Credit Agreement, as amended approximated its fair value at December 30,
1994, December 29, 1995 and March 29, 1996. (See Note 6)
3. RELATED PARTIES
The Division has an agreement with the Partnership whereby the Division
incurs a management fee for services provided by Media Management Partners.
The Division's allocated portion of the management fee aggregated
approximately $1,469,000 and $1,275,000 for the years ended December 30,
1994 and December 29, 1995, and $319,000 and $317,000 for the three months
ended March 31, 1995 and March 29, 1996, such amounts were included in due
to ML Media Partners, L.P.
The Division has an agreement with MultiVision Cable TV Corp.
("MultiVision"), which is partially owned by an officer of Media Management
Partners, whereby MultiVision provides the Division with certain
administrative services. The net cost to the Division of such services for
the years ended December 30, 1994 and December 29, 1995 was $1,937,000 and
$2,630,000 and for the three months ended March 31, 1995 and March 29, 1996
was $657,000 and $668,000, respectively.
F-7
Included in prepaid and other assets at December 30, 1994, December 29,
1995 and March 29, 1996 are receivables of approximately $1,233,000,
$2,173,000 and $1,713,459, respectively, due from Multivision resulting
from normal funding for the Division's operating activities.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 30, 1994, December 29, 1995 and
March 29, 1996 consists of the following (in thousands):
(Unaudited)
December 30, December 29, March 29,
1994 1995 1996
Land $ 3,121 $ 3,121 $ 3,121
Buildings and improvements 2,781 2,787 2,787
Cable distribution systems and
equipment 112,206 116,185 117,044
Other 3,581 3,278 3,296
--------- --------- ---------
121,689 125,371 126,248
Less accumulated depreciation (65,053) (75,968) (78,769)
--------- --------- ---------
$ 56,636 $ 49,403 $ 47,479
========= ========= =========
Depreciation expense for the years ended December 30, 1994, December 29,
1995, and for the three months ended March 31, 1995 and March 29, 1996, was
$11,459,000, $11,283,000, $2,927,000 and $2,801,000, respectively.
5. OTHER ASSETS
Other assets at December 30, 1994 and December 29, 1995 and March 29, 1996
consists of the following (in thousands):
(Unaudited)
December 30, December 29, March 29,
1994 1995 1996
Deferred financing costs $ 1,975 $ 1,975 $ 1,975
Organizational costs 159 159 159
Other 1,297 1,628 1,642
------- ------- -------
3,431 3,762 3,776
Less accumulated amortization (1,343) (1,538) (1,598)
------- ------- -------
$ 2,088 $ 2,224 $ 2,178
======= ======= =======
Amortization expense for the years ended December 30, 1994, December 29,
1995, for the three months ended March 31, 1995 and March 29, 1996 was
$227,000, $195,000, $142,000 and $60,000, respectively.
F-8
6. NOTES PAYABLE
On May 15, 1990, the Partnership entered into a $160,000,000 Amended and
Restated Credit Agreement (the Revised "ML California Credit Agreement")
with a group of banks led by Bank of America National Trust and Savings
Association ("Bank of America"). The Revised ML California Credit Agreement
is secured by substantially all of the assets of the Cable Systems and two
affiliated radio stations, KORG-AM and KEZY-FM (collectively "the
Affiliates"). The original bank credit agreement was amended and restated
to allow the Partnership to borrow up to $160,000,000 if certain operating
levels outlined in the agreement were met. At closing, approximately
$137,000,000 was borrowed under the Revised ML California Credit Agreement,
with the proceeds used to refinance all outstanding borrowings under the
$115,000,000 original bank credit agreement, repay all outstanding
borrowings under a $16,500,000 loan of the two affiliated radio stations,
repay working capital advances to the Partnership, and pay various
refinancing expenses. At December 30, 1994, December 29, 1995 and March 29,
1996, $129,188,000, $120,148,500 and $120,148,500, respectively, was
outstanding under the Revised ML California Credit Agreement of which
$103,857,000, $92,732,000 and $91,955,000 for December 30, 1994 and
December 29, 1995 and March 29, 1996, respectively, relates to the Division
and $25,331,000, $27,416,500 and $28,193,500 for December 30, 1994 and
December 29, 1995 and March 29, 1996, relates to the two affiliated radio
stations.
The Revised ML California Credit Agreement was structured as a revolving
credit facility through September 30, 1992, at which time all outstanding
borrowings under the facility ($150,000,000 as of that date) were converted
to a term loan scheduled to fully amortize by September 30, 1999.
As of September 30, 1994 and December 30, 1994, due in part to the negative
impact of rate-reregulation on the operations of the Division, the
Affiliates were in default of certain financial covenants contained in the
Revised ML California Credit Agreement. These defaults were cured during
the first quarter of 1995 (see below). In addition, as of December 30,
1994, the Affiliates expected to be unable to meet during 1995 the
principal payment requirements then contained in the Revised ML California
Credit Agreement.
Effective February 23, 1995, the Partnership and the banks entered into a
first amendment (the "First Amendment") to the Revised ML California Credit
Agreement that provided for reduced principal payments and less restrictive
covenants during the first three quarters of 1995. In exchange, the
Affiliates paid an amendment fee of $322,969 to the banks and agreed to
allow the banks to charge a higher interest rate on outstanding borrowings
under the Revised ML California Credit Agreement. (A further fee was due to
the lenders if the sale of the Division was not consummated prior to
December 29, 1995). Certain other terms of the Revised ML California Credit
Agreement were also affected by the First Amendment.
Pursuant to the Revised ML California Credit Agreement, as amended, a
payment of principal in the amount of approximately $13.1 million (the
"Principal Payment") became due and payable by the Partnership on December
29, 1995. Since the sale of the Division did not occur by that date, the
Partnership was unable to make the entire Principal Payment, but did make a
$3,555,000 partial payment. Effective December 29, 1995, the Partnership
and the banks entered into a third amendment (the "Third Amendment") to the
Revised ML California Credit Agreement that provided for reduced principal
payments for the fourth quarter of 1995 and required a new quarterly
principal payment of $15,812,500 to be due and payable on April 1, 1996. In
addition, the Third Amendment increased the Partnership's cost of borrowing
and required the payment of an amendment fee of approximately $323,000. As
of March 29, 1996, the Affiliates were in compliance under the Revised ML
California Credit Agreement.
F-9
Because the sale of the Division was not consummated by April 1, 1996, the
Affiliates were unable to make the entire principal payment of
approximately $15.8 million due on that date under the Revised ML
California Credit Agreement, as amended, but did make a $2.0 million
partial payment. In addition, the Partnership and the banks entered into a
fourth amendment on March 29, 1996 to the Revised ML California Credit
Agreement, as amended, deferring the due date of the remaining principal
payment until May 31, 1996.
Borrowings under the Revised ML California Credit Agreement originally bore
interest at an annual rate equal to, at the Partnership's option, either
Bank of America's Reference Rate or an Offshore Rate plus the Applicable
Margin, as defined, which ranged from .75% to 1.50% in the case of
Reference Rate Loans and from 1.25% to 2.50% in the case of Offshore Rate
Loans, depending on the Funded Debt Ratio of the Affiliates.
All borrowings under the Revised ML California Credit Agreement currently
bear interest at floating rates. The overall effective interest rate for
the borrowings under the Revised ML California Credit Agreement was
approximately 5.83% and 9.55% during the years ended December 30, 1994 and
December 29, 1995, respectively. Pursuant to the terms of the First
Amendment, the applicable margin was increased for periods following
December 31, 1994, to between 2.50% and 2.75% for Offshore Rate Loans and
between 1.50% and 1.75% for Reference Rate Loans. Pursuant to the terms of
the Third Amendment, dated as of December 29, 1995, to the revised ML
California Credit Agreement, the applicable margin was revised for periods
following December 29, 1995, to 3.75% for offshore rate loans and 2.75% for
reference rate loans.
The Revised ML California Credit Agreement as amended requires the Borrower
to maintain certain minimum ratios and generally restricts the Borrower's
rights relating to capital distributions, investments, dispositions,
additional indebtedness, mergers, consolidations and capital expenditures.
The Division sold substantially all of its assets to Century on May 31,
1996 and utilized a portion of the proceeds from the sale to pay off all of
its existing indebtedness under the Revised ML California Credit Agreement,
as amended (see Note 1). Management believes the carrying value of the
Revised California Credit Agreement, as amended, approximated its fair
value at December 30, 1994, December 29, 1995 and March 29, 1996.
7. STATEMENT OF CASH FLOWS
Cash paid for interest for the years ended December 30, 1994 and December
29, 1995 and for the three months ended March 31, 1995 and March 29, 1996
was approximately $6,287,000, $12,859,000, $3,858,000 and $2,768,000,
respectively. Property, plant and equipment of approximately $696,000,
$184,000, $442,000 and $146,000 was acquired but not paid for as of
December 30, 1994, December 29, 1995, March 31, 1995 and March 29, 1996,
respectively.
F-10
8. PROPERTY TAXES
The Division filed property tax assessment appeals with various counties in
California related to changes in the methods used by assessors to value
tangible property and possessory interests. The revised methods had
significantly increased property taxes since they included values
attributed to what the Division believed to be nontaxable, intangible
assets. These appeals covered the tax years from 1987 to present.
In December 1993, the Division received a favorable decision with respect
to a property tax appeal filed with one county served by the Division. The
county had the right to appeal the decision for a period of six months.
This period expired without appeal during the second quarter of 1994. Also
in December of 1993, the Division reached a favorable agreement in
principle with a second county served by the Division where an appeal
relating to property taxes had also been filed. During 1994, the Division
finalized assessed property values with, and received a refund of
approximately $700,000 from, this second county. In part, as a result of
these developments, the Division continues to be entitled to receive tax
refunds. On December 31, 1993, the Division reduced by approximately
$2,200,000 general and administrative expense in order to account for these
tax refunds. During the fourth quarter of 1994, Orange County, California,
in which a significant percentage of the Division's cable systems are
located, filed for bankruptcy. At December 30, 1994, December 29, 1995 and
March 31, 1996, the net property tax refund receivable from Orange County
was approximately $1,700,000, $2,300,000 and $1,840,000. The decrease of
approximately $460,000 represents a portion of the property tax refund
which was received from Orange County, during the first quarter of 1996.
The original claim for property tax refunds was filed by the Division
during 1995 for approximately $2,800,000. Based on correspondence received
from Orange County officials, it is expected that 88% of such claim will
eventually be refunded to the Division.
9. COMMITMENTS AND CONTINGENCIES
COMMITMENTS - The Division rents office space, equipment and space on
utility poles under leases with terms of less than one year or under
agreements which are generally terminable on short notice. Rental expense
was $360,000 and $377,000 for years ended December 30, 1994 and December
29, 1995 and $95,000 and $118,000 for the three months ended March 31, 1995
and March 29, 1996, respectively. Rental commitments under lease
obligations subsequent to December 29, 1995 and March 29, 1996 are not
significantly different than those shown above.
CONTINGENCIES - On May 1, 1996 a class action lawsuit was filed against the
Division on behalf of subscribers to the Division's cable systems serving
Anaheim, Villa Park and adjacent areas of unincorporated Orange County,
California. This class action suit alleges that excessive late fee payments
have been charged by the Division to such subscribers since April, 1992
and seeks refunds of late fee payments to subscribers, and related
interest and legal costs. Based on discussions with legal counsel,
management believes it has meritorious defenses to this action and intends
to defend it vigorously. The Company is unable to estimate its potential
liability, if any, related to this claim, or whether any additional
members may be added to the class action.
The Division is involved in other litigation matters which involve certain
claims which arise in the normal course of business, none of which, in the
opinion of management, is expected to have a material adverse effect on the
Division's financial position or results of operations.
10. REGULATORY MATTERS
On October 5, 1992, Congress enacted the 1992 Cable Act. The 1992 Cable Act
substantially re-regulates the cable television industry and imposes
numerous requirements, including provisions regarding rates which may be
regulated by the applicable local franchising authority or the FCC,
exclusive programming arrangements, the carriage of broadcast signals,
customer service standards and various other matter.
F-11
In complying with the benchmark regulatory scheme, the Division was
required to reduce present combined basic service rates effective September
1, 1993. In addition, pursuant to the 1992 Cable Act, revenue from
secondary outlets and from remote control units was eliminated or reduced
significantly. The Division has defrayed some of these resulting revenue
declines by taking certain actions which, among others, includes
instituting charges for converters, as permitted by the 1992 Cable Act.
On February 22, 1994, the FCC adopted a series of additional measures that
expand and substantially alter its cable rate regulations. The FCC's major
actions include the following: (1) modification of its benchmark
methodology in a way which will effectively require cable rates to be
reduced, on average, an additional 7% (i.e., beyond the 10% reduction
previously ordered in 1993) from their September 30, 1992 level or to the
new benchmark, whichever is less; (2) the issuance of new standards and
requirements to be used in making cost-of-service showings by cable
operators who seek to justify rates above the levels determined by the
benchmark approach; and (3) the clarification and/or reaffirmation of a
number of "going forward" issues that had been the subject of various
petitions for reconsideration.
On November 10, 1994, the FCC adopted new "going forward" rules and further
tightened its regulation of a la carte packages. These new rules allow
operators to pass through the costs, plus a 20 cent per channel mark-up,
for channels newly added to regulated tiers. Through 1996, however,
operators will be subject to an aggregate $1.50 cap on the amount they may
increase cable program service tier rates due to channel additions. The FCC
also established a "new product tier" intended to provide operators
unregulated pricing and packaging flexibility, particularly for newer
services, so long as they preserve the fundamental nature of their
preexisting regulated tiers.
On February 1, 1996, the Congress passed S.652, "The Telecommunications Act
of 1996" (the "Act"), which was signed into law by the President of the
United States. The new law will alter federal, state and local laws and
regulations regarding telecommunications provider and services, including
the Division and the cable television industry. The Act substantially
deregulates (except for basic service) cable service rates over a three
year period. Implementing regulations of the Act are currently being
written. The effect that the Act will have on the Division cannot be
determined at this time.
The rate reductions mandated by the FCC have had a detrimental impact on
the revenues and profits of the Division's cable television operations. The
rate reductions and limits on the pricing of a-la-carte tiers are
principally responsible for the occurrence of defaults under the Revised ML
California Credit Agreement during 1994 (see Note 6).
******
F-12
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
PRO FORMA COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following unaudited pro forma combined balance sheet and statements of
operations include the accounts of Century Communications Corp. and subsidiaries
(the "Company") and the acquisition of ML California Cable Division, a division
of ML Media Partners, L.P. Amounts included for the Company have been derived
from the audited consolidated statement of operations for the year ended May 31,
1995 and the unaudited consolidated balance sheet and statement of operations as
of February 29, 1996 and for the nine months then ended. Amounts included for ML
California Cable Division have been derived from their audited combined
financial statements adjusted for interim financial activity. See Note 2 of
Notes to Pro Forma Combined Financial Statements for a discussion of the effect
of this transaction. The pro forma combined balance sheet assumes ML California
Cable Division was acquired on February 29, 1996. The pro forma combined
statements of operations assume that the acquisition of ML California Cable
Division was completed as of the beginning of each fiscal period presented. The
pro forma combined statements also assume that the Company utilized $287.3
million from existing credit agreements to purchase the net assets of ML
California Cable Division. In the opinion of management, all adjustments
necessary to present fairly such pro forma combined statements were made.
The pro forma combined statements are not necessarily indicative of what the
actual results of operations or financial position would have been had the
transactions occurred as of the beginning of the period or date thereof, nor
does it purport to indicate the results of the future operations of the Company.
F-13
Century Communications Corp. and Subsidiaries
Unaudited Pro Forma Combined Balance Sheet
February 29, 1996 ( Amounts in Thousands)
- --------------------------------------------------------------------------------
Pro Forma Adjustments
-----------------------------
ML California Pro Forma
ASSETS Century Cable Division Combined Acquisition Combined
CURRENT ASSETS: Comm. Corp. Pending Acquisition Debit Credit Acquisition
----------------- ------------------- -------------- ------------ -----------
Cash and short term investments $157,376 $7,009 $7,009 (a) $157,376
Accounts receivable -net 47,814 770 48,584
Prepaid expenses and other current assets 7,328 4,952 5,855 (b) 6,425
------------------ ------------- --------- ---------- ----------
TOTAL CURRENT ASSETS 212,518 12,731 12,864 212,385
PROPERTY, PLANT & EQUIPMENT - NET 540,469 47,479 $56,366 (c) $644,314
INVESTMENTS IN MARKETABLE EQUITY
SECURITIES 51,677 51,677
EQUITY INVESTMENTS IN CABLE TELEVISION
AND CELLULAR TELEPHONE SYSTEMS 122,772 122,772
DEBT ISSUANCE COSTS - NET 29,675 29,675
CABLE TELEVISION FRANCHISES - NET 355,837 10,988 174,196 (d) 541,021
CELLULAR TELEPHONE LICENSE - NET 366,928 366,928
GOODWILL - NET 265,439 29,960 29,960 (e) 265,439
OTHER ASSETS - NET 25,107 2,178 2,178 (f) 25,107
------------------ ------------- ----------- ------------- -----------
TOTAL $1,970,422 $103,336 $230,562 $45,002 $2,259,318
================== ============= =========== ============= ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long term debt $5,729 $98,680 $98,680 (g) $5,729
Accounts payable 48,738 174 48,912
Accrued interest payable 37,795 147 147 (g) 37,795
Other accrued expenses 45,813 4,629 46,743
Customer deposits and prepayments 13,149 492 13,641
------------------ ------------- ----------- ---------------- ----------
TOTAL CURRENT LIABILITIES 151,224 104,122 98,827 152,820
LONG TERM DEBT 1,781,790 $287,300 (h) 2,069,090
DEFERRED INCOME TAXES 99,681 99,681
MINORITY INTEREST IN SUBSIDIARIES 173,782 173,782
SUBSIDIARY CONVERTIBLE REDEEMABLE
PREFERRED STOCK 179,440 179,440
COMMON STOCKHOLDERS' (DEFICIENCY) EQUITY (415,495) (786) 786 (i) (415,495)
------------------ ------------- ---------- --------------- -----------
TOTAL $1,970,422 $103,336 $98,827 $288,086 $2,259,318
================== ============= ========== ================ ===========
See notes to pro forma combined financial statements.
F-14
Century Communications Corp. and Subsidiaries
Unaudited Pro Forma Combined Statement of Operations
Nine Months Ended February 29, 1996 ( Amounts in Thousands, Except Share Data )
- --------------------------------------------------------------------------------
Pro Forma Adjustments
ML California ------------------------ Pro Forma
Century Cable Division Combined Acquisition Combined
Comm. Corp. Pending Acquisition Debit Credit Acquisition
---------- -------------------- --------- --------- ------------
REVENUES
Cable service income $272,635 $42,662 $315,297
Cellular service income 82,573 82,573
Australian operations 4,512 4,512
---------- -------- ----------
359,720 42,662 402,382
---------- -------- ----------
COSTS AND EXPENSES
Cost of services - Cable 60,452 12,855 73,307
Cost of services - Cellular 19,772 19,772
Selling general & administrative 89,329 10,942 $ 2,938 (a) 97,333
Depreciation and amortization 143,715 13,486 $21,677 (b) 13,486 (b) 165,392
Australian operations 21,621 21,621
---------- --------- ----------- -------- ----------
334,889 37,283 21,677 16,424 377,425
---------- --------- ----------- -------- ----------
Operating income 24,831 5,379 24,957
Gain on sale of assets 4,218 4,218
Interest 134,026 6,980 14,652 (c) 6,980 (c) 148,678
Other expense 6,430 6,430
---------- --------- ----------- -------- ----------
Loss before income tax benefit and
minority interest (111,407) (1,601) (125,933)
Income tax benefit 22,082 -- (d) 22,082
---------- --------- ----------- -------- ----------
Loss before minority interest (89,325) (1,601) (103,851)
Minority interest in loss of subsidiaries 22,637 22,637
--------- -------- ----------
NET LOSS ($66,688) ($1,601) ($81,214)
========= ========= ==========
Dividend Requirement on subsidiary
convertibleredeemable preferred $3,171 $3,171
stock ========== ==========
Loss applicable to common shares ($69,859) ($84,385)
========== ==========
Loss per common share ($0.95) ($1.15)
========== ==========
Weighted average number of common shares
and common share equivalents outstanding
during the period 73,689,000 73,689,000
========== ==========
See notes to pro forma combined financial statements.
F-15
Century Communications Corp. and Subsidiaries
Unaudited Pro Forma Combined Statement of Operations
Year Ended May 31, 1995 ( Amounts in Thousands, Except Share Data)
- --------------------------------------------------------------------------------
Pro Forma Adjustments
ML California --------------------------- Pro Forma
Century Cable Division Combined Acquisition Combined
Comm Corp. Pending Acquision Debit Credit Acquisition
----------- ----------------- ------------------- -------- ------------
REVENUES
Cable service income $331,268 $55,539 $386,807
Cellular service income 85,419 85,419
---------- ---------- ----------
416,687 55,539 472,226
---------- ---------- ----------
COSTS AND EXPENSES
Cost of services - Cable 81,521 16,580 98,101
Cost of services - Cellular 22,152 22,152
Selling general & administrative 110,381 14,754 $3,614 (a) 121,521
Depreciation and amortization 171,931 18,104 $28,903 (b) 18,104 (b) 200,834
Regulatory restructuring charge 4,000 4,000
---------- ---------- ---------- ------- ----------
389,985 49,438 28,903 21,718 446,608
---------- ---------- ---------- ------- ----------
Operating income 26,702 6,101 25,618
Interest 139,001 7,851 19,536 (c) 7,851 (c) 158,537
Other expense 2,400 2,400
---------- ---------- ---------- ------- ----------
Loss before income tax benefit
and minority interest (114,699) (1,750) (135,319)
Income tax benefit 8,061 -- (d) 8,061
---------- ---------- ---------- ------- ----------
Loss before minority interest (106,638) (1,750) (127,258)
Minority interest in loss
of subsidiaries 24,013 24,013
----------- ---------- ------------
NET LOSS ($82,625) ($1,750) ($103,245)
============ ========== ============
Dividend Requirement on
subsidiary convertible
redeemable preferred stock $4,419 $4,419
========== ==========
Loss applicable to
common shares ($87,044) ($107,664)
========== ==========
Loss per common share ($1.01) ($1.25)
========== ==========
Weighted average number of
common shares and common
share equivalents
outstanding during the
period 86,277,000 86,277,000
========== ==========
See notes to pro forma combined financial statements.
F-16
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The pro forma combined financial statements include the financial position
and results of operations of Century Communications Corp. and subsidiaries
(the "Company") and the acquisition of ML California Cable Division (the
"Acquisition"), a division of ML Media Partners, L.P., as if such acquisition
had been consummated as of the beginning of each fiscal period presented for
the pro forma statements of operations and as of February 28, 1996 for the
combined pro forma balance sheet.
The purchase price of the Acquisition was $287,300, subject to further
adjustments as specified in the Asset Purchase Agreement.
2. PRO FORMA ADJUSTMENTS
COMBINED BALANCE SHEET
(a) Reverse cash and short term investments of the Acquisition which will
not be acquired by the Company.
(b) Reverse receivable from an affiliate of the Acquisition and certain
other assets which will not be acquired by the Company.
(c) Record purchase price allocated to property, plant and equipment.
(d) Record purchase price allocated to cable television franchises.
(e) Reverse historical goodwill of the Acquisition based on purchase price
allocation.
(f) Reverse the intangible assets capitalized by the Acquisition which
represent no future value to the Company and reverse the escrow payment
made by the Company in relation to the Acquisition.
(g) Reverse accrued interest and debt of the Acquisition which will not be
assumed by the Company.
(h) Record $287,300 of debt which was used by the Company to fund the
acquisition.
(i) Reverse equity of the Acquisition.
F-17
COMBINED STATEMENT OF OPERATIONS
(a) Reverse management fees and expense recorded by the Acquisition as such
management agreements were terminated after the acquisition.
(b) Reverse depreciation and amortization costs related to capitalized
assets of the Acquisition and record depreciation of fixed assets and
amortization of cable television franchises and in accordance with the
Company's accounting policies.
(c) Reverse interest expense incurred by the Acquisition on debt not assumed
by the Company and record incremental interest expense as if the
$287,300 of debt was outstanding for each fiscal period presented at an
interest rate of 6.8%.
F-18
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 hereunto duly authorized.
CENTURY COMMUNICATIONS CORP.
By: /s/ Scott N. Schneider
-----------------------------------
Name: Scott N. Schneider
Title: Senior Vice President, Treasurer
and Chief Accounting Officer
Date: August 13, 1996
-4-
EXHIBIT INDEX
Exhibit Page
No. Description No.
- ------- ----------- ---
23 Consent of Deloitte & Touche LLP 24
-5-