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 JUNE 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
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
- -
2
CCA ACQUISITION CORP.
FORM 10-Q - FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
Page
----
Part I. Financial Information
Item 1. CCA Acquisition Corp. and Subsidiaries
a. Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 3
b. Consolidated Statements of Operations - Three Months Ended
June 30, 1997 and 1996 5
c. Consolidated Statements of Operations - Six Months Ended
June 30, 1997 and 1996 6
d. Consolidated Statement of Shareholders' Investment (Deficit)- Six Months Ended
June 30, 1997 7
e. Consolidated Statements of Cash Flows - Six Months Ended June 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 18
Item 6. Exhibits and Reports on Form 8-K 19
Signature Page 20
2
3
CCA ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1997 1996
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 584,870 $ 2,934,939
Accounts receivable, net of allowance for
doubtful accounts of $600,504 and $371,166,
respectively 6,816,142 5,465,750
Prepaid expenses and other 589,211 490,443
Net assets of discontinued operation 108,827 108,827
------------- -------------
Total current assets 8,099,050 8,999,959
------------- -------------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, net 212,101,636 206,351,379
Franchise costs, net of accumulated amortization
of $68,128,344 and $51,761,758, respectively 423,084,037 439,232,345
------------- -------------
635,185,673 645,583,724
------------- -------------
OTHER ASSETS, net 9,327,859 9,667,356
------------- -------------
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS 72,991,008 78,069,816
------------- -------------
NET NONCURRENT ASSETS OF DISCONTINUED OPERATION 1,760,015 1,760,015
------------- -------------
$ 727,363,605 $ 744,080,870
============= =============
(Continued on the following page)
3
4
CCA ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1997 1996
------------ ------------
LIABILITIES AND SHAREHOLDER'S INVESTMENT (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 18,692,500 $ 5,880,000
Accounts payable and accrued expenses 19,221,109 18,517,774
Subscriber deposits and prepayments 465,896 473,601
Payables to affiliates 1,523,382 2,630,149
Other current liabilities -- 1,401,951
------------ ------------
Total current liabilities 39,902,887 28,903,475
------------ ------------
DEFERRED REVENUE 1,323,875 708,339
------------ ------------
DEFERRED INCOME TAXES 55,500,000 55,500,000
------------ ------------
LONG-TERM DEBT, less current maturities 450,307,500 462,120,000
------------ ------------
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 29,661,420 22,843,402
------------ ------------
MINORITY INTEREST IN SUBSIDIARY 85,124,943 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 (98,212,020) (80,022,697)
------------ ------------
Total shareholder's investment (deficit) (18,212,020 (22,697)
------------ ------------
$727,363,605 $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 JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
------------ ------------
SERVICE REVENUES:
Basic service $ 28,030,420 $ 24,781,138
Premium service 5,019,678 4,995,663
Other 8,935,793 7,241,123
------------ ------------
41,985,891 37,017,924
------------ ------------
EXPENSES:
Operating, general and administrative 20,528,417 18,775,291
Depreciation and amortization 15,539,617 15,210,862
Management and financial advisory service fees - related parties 1,384,054 2,285,200
------------ ------------
37,452,088 36,271,353
------------ ------------
Income from operations 4,533,803 746,571
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 1,537 27,597
Interest expense (13,296,023) (11,999,491)
Other (56,921) 474,572
------------ ------------
(13,351,407) (11,497,322)
------------ ------------
Loss before equity in loss of unconsolidated limited
partnerships, provision for income taxes and minority interest
in loss of subsidiary
(8,817,604) (10,750,751)
EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS (3,168,882) (1,479,492)
----------- ------------
Loss before provision for income taxes and minority interest in
loss of subsidiary (11,986,486) (12,230,243)
PROVISION FOR INCOME TAXES -- --
------------- ------------
Loss before minority interest in loss of subsidiary (11,986,486) (12,230,243)
MINORITY INTEREST IN LOSS OF SUBSIDIARY 2,433,193 3,523,226
------------- ------------
Net loss $ (9,553,293) $ (8,707,017)
============= ============
The accompanying notes are an integral part of these consolidated statements.
5
6
CCA ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
------------ ------------
SERVICE REVENUES:
Basic service $ 55,139,627 $ 45,497,471
Premium service 10,022,675 9,394,163
Other 17,310,323 12,939,114
------------ ------------
82,472,625 67,830,748
------------ ------------
EXPENSES:
Operating, general and administrative 41,070,990 34,705,049
Depreciation and amortization 30,757,639 30,317,354
Management and financial advisory service fees - related parties 2,715,286 3,391,450
------------ ------------
74,543,915 68,413,853
------------ ------------
Income from operations 7,928,710 (583,105)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 2,690 94,410
Interest expense (26,190,322) (22,445,898)
Other -- (41,884)
------------ ------------
(26,187,632) (22,393,372)
------------ ------------
Loss before equity in loss of unconsolidated limited
partnerships, provision for income taxes and minority interest
in loss of subsidiary (18,258,922) (22,976,477)
EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS (5,078,808) (3,317,764)
------------ ------------
Loss before provision for income taxes and minority interest in
loss of subsidiary (23,337,730) (26,294,241)
PROVISION FOR INCOME TAXES -- --
------------ ------------
Loss before minority interest in loss of subsidiary (23,337,730) (26,294,241)
MINORITY INTEREST IN LOSS OF SUBSIDIARY 5,148,408 7,635,580
------------ ------------
Net loss $(18,189,322) $(18,658,661)
============ ============
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 SIX MONTHS ENDED JUNE 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 -- -- (18,189,322) (18,189,322)
---- ------------ --------------- -------------
BALANCE, June 30, 1997 $ 1 $ 79,999,999 $ (98,212,019) $ (18,212,019)
==== ============ =============== ==============
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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(18,189,322) $ (18,658,661)
Adjustments to reconcile net loss to net cash provided by operating
activities-
Depreciation and amortization 30,757,639 30,317,354
Amortization of debt issuance costs 558,468 --
Equity in loss of unconsolidated limited partnerships 5,078,808 3,317,764
Minority interest in loss of subsidiary (5,148,408) (7,635,580)
Changes in assets and liabilities, net of effects from acquisitions-
Accounts receivable, net (1,350,392) 3,400
Prepaid expenses and other (98,768) (789,932)
Accounts payable and accrued expenses 703,334 (430,136)
Subscriber deposits (7,705) (381,759)
Payables to affiliates, including deferred management fees (1,106,767) 1,004,830
Other current liabilities (1,401,951) --
Deferred revenue 615,536 (47,394)
Accrued interest on note payable 6,818,018 6,008,522
------------- --------------
Net cash provided by operating activities 17,228,490 12,708,408
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (19,932,963) (14,500,577)
Payments for acquisitions, net of cash acquired -- (91,913,251)
Payments of organizational expenses (194) --
Payments of franchise costs (218,278) --
Payments of covenants not to compete (157,083) --
------------- --------------
Net cash used in investing activities $(20,308,518) $(106,413,828)
============= ==============
(Continued on the following page)
8
9
CCA ACQUISITION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt issuance costs (270,041) (1,479,885)
Borrowings under revolving credit and term loan facility 10,800,000 89,000,000
Payments under revolving credit and term loan facility (9,800,000) (3,000,000)
-------------- --------------
Net cash provided by financing activities 729,959 84,520,115
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,350,069) (9,185,305)
CASH AND CASH EQUIVALENTS, beginning of period 2,934,939 11,430,931
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 584,870 $ 2,245,626
============== ==============
CASH PAID FOR INTEREST $ 16,708,783 $ 17,638,936
============== ==============
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 combined operations of CCE-I and CCE-II, respectively. 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 six month periods
ending June 30, 1997 and 1996 is as follows:
Charter Communications Entertainment II, L.P.
---------------------------------------------
For the Three Months Ended For the Six Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
Service revenues $24,674,583 $22,493,461 $47,344,146 $44,468,574
Income from
operations 1,789,252 1,521,211 2,372,111 2,423,058
Net loss (5,761,604) (2,689,985) (9,234,197) (6,032,298)
As of June 30, 1997, CCE-II provided cable television service to approximately
173,200 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. 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 on June 19, 1997,
an amended complaint was filed, in the Circuit Court of Jackson County,
Missouri by 269 individual 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 allege that the defendants breached fiduciary duties, committed
fraud and made various misrepresentations in the marketing and sale of the CCIP
II limited partnership units. 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 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 the CCIP II
assets.
11
12
The damages claimed by the plaintiffs are as yet unspecified. CCE believes
that it has meritorious defenses in both actions, including defenses based on
applicable statutes of limitations. CCE intends to defend the actions
vigorously. CCE is not able at this early stage to project the expenses which
will be associated with the actions or to predict any potential outcome or
exposure.
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 June 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:
June 30, December 31, June 30,
1997 1996 1996
----------- ------------ -----------
Basic Subscribers:
Missouri/Illinois systems 225,600 223,300 207,300
Connecticut/Massachusetts systems 115,300 115,000 112,000
------- ------- -------
340,900 338,300 319,300
======= ======= =======
Premium Subscription Units:
Missouri/Illinois systems 119,800 130,100 124,500
Connecticut/Massachusetts systems 58,400 64,500 62,300
------- ------- -------
178,200 194,600 186,800
======= ======= =======
Homes Passed:
Missouri/Illinois systems 139,500 138,700 137,900
Connecticut/Massachusetts systems 399,100 394,900 366,000
------- ------- -------
538,600 533,600 503,900
======= ======= =======
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 June 30,
----------------------------------------------------
(Unaudited)
1997 1996
------------------------- -------------------------
Amount % of Revenue Amount % of Revenue
----------- ------------ ----------- ------------
Service Revenues $ 41,986 100.0% $ 37,018 100.0%
-------- ----- -------- -----
Operating Expenses:
Operating, general and administrative 20,528 48.9 18,775 50.7
Depreciation and amortization 15,540 37.0 15,211 41.1
Management and financial advisory
service fees - related parties 1,384 3.3 2,285 6.2
-------- ----- -------- -----
37,452 89.2 36,271 98.0
-------- ----- -------- -----
Income from operations 4,534 10.8 747 2.0
-------- ----- -------- -----
Other Income (Expense):
Interest income 2 0.0 27 0.1
Interest expense (13,296) (31.7) (11,999) (32.4)
Other, net (57) (0.1) 475 1.3
-------- ----- -------- -----
(13,351) (31.8) (11,497) (31.1)
-------- ----- -------- -----
(8,817) (21.0) (10,750) (29.0)
Equity in loss of unconsolidated
limited partnerships (3,169) (7.5) (1,480) (4.0)
Provision for income taxes 0 0.0 0 0.0
Minority interest in loss of subsidiary 2,433 5.8 3,523 9.5
-------- ----- -------- -----
Net loss $ (9,553) (22.8)% $ (8,707) (23.5)%
======== ===== ======== =====
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 Six Months
Ended June 30,
-------------------------------------------------------
(Unaudited)
1997 1996
------------------------- ----------------------------
Amount % of Revenue Amount % of Revenue
----------- ------------ -------------- ------------
Service Revenues $ 82,473 100.0% $ 67,831 100.0%
-------- ----- --------- -----
Operating Expenses:
Operating, general and administrative 41,071 49.8 34,705 51.2
Depreciation and amortization 30,758 37.3 30,317 44.7
Management and financial advisory
service fees - related parties 2,715 3.3 3,392 5.0
-------- ----- --------- -----
74,544 90.4 68,414 100.9
-------- ----- --------- -----
Income (Loss) from operations 7,929 9.6 (583) (0.9)
-------- ----- --------- -----
Other Income (Expense):
Interest income 3 0.0 94 0.1
Interest expense (26,190) (31.8) (22,446) (33.1)
Other, net 0 0.0 (42) (0.1)
-------- ----- --------- -----
(26,187) (31.8) (22,394) (33.0)
-------- ----- --------- -----
(18,258) (22.1) (22,977) (33.9)
Equity in loss of unconsolidated
limited partnerships (5,079) (6.2) (3,318) (4.9)
Provision for income taxes 0 0.0 0 0.0%
Minority interest in loss of subsidiary 5,148 6.2 7,636 11.3
-------- ----- --------- -----
Net loss $(18,189) (22.1)% $ (18,659) (27.5)%
======== ===== ========= =====
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 13.4% and 21.6% to $41,986,000 and $82,473,000, for the three and
six month periods ended June 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 $2.5 million for the six months
ended June 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 9.3% and 18.3% to
$20,528,000 and $41,071,000 for the three and six months ended June 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 1.8% to 51.1% and 1.4% to 50.2% for the three and six month
periods ended June 30, 1997, respectively, versus the same periods for the
prior year.
Depreciation and amortization increased by 2.2% and 1.5% to $15,540,000 and
$30,758,000 for the three and six months ended June 30, 1997, when compared to
the similar periods of 1996. The increase in depreciation and amortization is
a result of 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 six months ended June 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 10.8% and 16.7% to $13,296,000 and $26,190,000
for the three and six months ended June 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 increased by 114% and 53% to $3,169,000 and $5,079,000 for the
three and six months ended June 30, 1997, respectively, when compared to
similar periods of 1996. This increase is due to larger net losses at CCE-II
for the three and six months ended June 30, 1997.
Net Loss
Net loss increased (decreased) by 9.7% and (2.5)% to $9,553,000 and $18,189,000
for the three and six months ended June 30, 1997 when compared to the similar
periods of 1996. In 1997, significant factors versus the prior year were
increases in income from operations and a decrease in the equity in loss of
unconsolidated limited partnerships, offset partially by increases in interest
expense and an allocation 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 has been 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 June 30, 1997, the Company's long-term debt (including current maturities)
of $580.7 million consisted of $469.0 million outstanding under the revolving
credit and term loan facility, $82.0 million outstanding for the Senior
Subordinated Notes due 1999 (the " Notes"), and $29.7 million of accrued
interest on the Notes. The Company had unused and available borrowing capacity
of $36.0 million under the credit facility at June 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 six months ended June 30, 1997.
The Company incurred capital expenditures of approximately $19.9 million during
the six months ended June 30, 1997 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
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. 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 on June 19, 1997,
an amended complaint was filed, in the Circuit Court of Jackson County,
Missouri by 269 individual 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 allege that the defendants breached fiduciary duties, committed
fraud and made various misrepresentations in the marketing and sale of the CCIP
II limited partnership units. 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 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 the CCIP II
assets. The damages claimed by the plaintiffs are as yet unspecified. CCE
believes that it has meritorious defenses in both actions, including defenses
based on applicable statutes of limitations. CCE intends to defend the actions
vigorously. CCE is not able at this early stage to project the expenses which
will be associated with the actions or to predict any potential outcome or
exposure.
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
The Company filed with the Securities and Exchange Commission a Registration
Statement on Form S-4 for the purpose of registering its $82.0 million Senior
Subordinated Notes due 1999 (the "Notes"). The registration of the Notes was
completed on July 29, 1997. By August 28, 1997, all of the outstanding Series
A Notes had been tendered and exchanged for Series B Senior Subordinated Notes
due 1999.
18
19
Item 6. Exhibits and Reports on Form 8-K
Exhibits
27 Financial Data Schedule
19
20
CCA ACQUISITION CORP.
FOR THE QUARTER ENDED JUNE 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 September 12, 1997
-------------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Kent D. Kalkwarf September 12, 1997
-------------------------
Kent D. Kalkwarf
Senior Vice President and
Chief Financial Officer
20