<PAGE> 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 MARCH 31, 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 333-3774
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS CAPITAL CORPORATION
-----------------------------------------------------------------
(Exact name of registrants as specified in their charters)
Delaware 43-1728405
- --------------------------------- 43-1740264
(State or Other Jurisdiction of -------------------
Incorporation or Organization) (I.R.S. Employer
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
--- ---
As of March 31, 1997, there was one share of common stock of Charter
Communications Southeast Holdings Capital Corporation outstanding, which was
owned by Charter Communications Southeast Holdings, L.P.
<PAGE> 2
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS CAPITAL CORPORATION
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
Page
----
Part I. Financial Information
Item 1. Consolidated Financial Statements
a. Consolidated Balance Sheets - March 31, 1997
and December 31, 1996 3
b. Consolidated Statements of Operations -
Three Months Ended March 31, 1997 and 1996 4
c. Consolidated Statement of Partners' Capital -
Three Months Ended March 31, 1997 5
d. Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 6
e. Notes to Consolidated Financial Statements 7
Separate financial statements of Charter Communications
Southeast Holdings Capital Corporation have not been
presented as this entity had no operations and
substantially no assets or equity.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings - None -
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 16
Signature Page 17
Page 2
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CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<S> <C> <C>
March 31, December 31,
1997 1996
ASSETS ------------ ------------
------
CURRENT ASSETS:
Cash and cash equivalents $ 3,637,274 $ 3,360,507
Accounts receivable, net of allowance for
doubtful accounts of $ 317,612
and $ 300,378, respectively 3,040,951 2,537,324
Prepaid expenses and other 537,904 299,071
Receivable from parent and affiliates 500,000 500,000
------------ ------------
Total current assets 7,716,129 6,696,902
------------ ------------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, net 180,734,943 163,998,045
Franchise costs, net of accumulated
amortization of $ 84,415,931
and $ 75,221,372 respectively 443,646,952 389,065,380
Covenants not to compete, net of accumulated
amortization of $300,000, and $240,000,
respectively 1,040,000 960,000
------------ ------------
625,421,895 554,023,425
------------ ------------
RESTRICTED FUNDS HELD IN ESCROW -- 1,782,537
------------ ------------
OTHER ASSETS 16,825,712 14,513,068
------------ ------------
$649,963,736 $577,015,932
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 15,763,885 $ 23,958,762
Subscriber deposits and prepayments 399,627 260,244
Payable to affiliates 1,543,926 2,143,899
------------ ------------
Total current liabilities 17,707,438 26,362,905
------------ ------------
DEFERRED MANAGEMENT FEES PAYABLE TO AFFILIATE 5,054,581 4,293,532
------------ ------------
DEFERRED REVENUE 1,744,942 1,661,503
------------ ------------
LONG-TERM DEBT 552,405,816 493,571,442
------------ ------------
DEFERRED INCOME TAXES 5,111,308 5,111,308
------------ ------------
REDEEMABLE PREFERRED LIMITED UNITS - no
Class A or Class B units issued or
outstanding during 1997 or 1996 -- --
------------ ------------
SPECIAL LIMITED PARTNER UNITS - No Class A
or Class B units issued or outstanding
during 1997 or 1996 -- --
------------ ------------
PARTNERS' CAPITAL:
General Partner 679,396 460,152
Preferred Limited Partners - No Class A or
Class B units issued or outstanding during
1997 or 1996 -- --
Common Limited Partners - 1,850.05 units and
1,513.36 units, issued and outstanding,
respectively 67,260,255 45,555,090
------------ ------------
Total partners' capital 67,939,651 46,015,242
------------ ------------
$649,963,736 $577,015,932
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
Page 3
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CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<S> <C> <C>
1997 1996
------------- ------------
SERVICE REVENUES:
Basic service $ 26,741,911 $ 17,502,013
Premium service 4,277,263 2,993,822
Other 5,784,603 3,348,339
------------- ------------
36,803,777 23,844,174
------------- ------------
OPERATING EXPENSES:
Operating costs 15,682,218 10,032,011
General and administrative 2,948,571 1,903,797
Depreciation and amortization 14,892,199 10,883,500
Management fees - related party 1,841,531 1,192,067
------------- ------------
35,364,519 24,011,375
------------- ------------
Income (loss) from operations 1,439,258 (167,201)
------------- ------------
OTHER INCOME (EXPENSE):
Interest income 46,204 46,844
Interest expense (13,031,053) (6,818,649)
Other -- (2,485)
------------- ------------
(12,984,849) (6,774,290)
------------- ------------
Loss before benefit for income taxes (11,545,591) (6,941,491)
BENEFIT (PROVISION) FOR INCOME TAXES -- 51,191
------------- ------------
Net loss (11,545,591) (6,890,300)
------------- ------------
REDEMPTION PREFERENCE ALLOCATION:
Special Limited Partner units -- (828,616)
Redeemable Preferred Limited units -- (1,452,343)
NET LOSS ALLOCATED TO REDEEMABLE PREFERRED
LIMITED UNITS -- 4,063,274
------------- ------------
Net loss applicable to partners' capital
accounts $ (11,545,591) $ (5,107,985)
============= ============
NET LOSS ALLOCATION TO PARTNERS' CAPITAL
ACCOUNTS:
General Partner $ (115,456) $ (51,080)
Class B Preferred Limited Partners -- --
Common Limited Partners (11,430,135) (5,056,905)
------------- ------------
$ (11,545,591) $ (5,107,985)
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 4
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CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Class B
Preferred Common
General Limited Limited
Partner Partners Partners Total
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ 460,152 $ -- $ 45,555,090 $ 46,015,242
Capital contributions 334,700 -- 33,135,300 33,470,000
Allocation of net loss (115,456) -- (11,430,135) (11,545,591)
---------- ----------- ------------ ------------
BALANCE, March 31, 1997 $ 679,396 $ -- $ 67,260,255 $ 67,939,651
========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
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CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(11,545,591) $(6,890,300)
Adjustments to reconcile net loss to net cash provided by operating
activities
Depreciation and amortization 14,892,199 10,883,500
Amortization of debt issuance costs 443,079 --
Amortization of interest rate cap agreements 41,375 40,125
Forgiveness of note receivable with related party -- 100,000
Amortization on discount of debentures 2,734,374 120,750
Deferred income taxes -- (51,191)
Changes in assets and liabilities, net of effects from acquisitions -
Accounts receivable, net 126,030 (285,056)
Prepaid expenses and other (244,061) (144,078)
Receivable from parent and affiliates -- (2,647,238)
Accounts payable and accrued expenses (8,820,511) (696,747)
Subscriber deposits and prepayments (114,233) (43,923)
Payable to affiliates 879,282 270,059
Deferred revenue 73,277 (33,140)
--------------- ---------------
Net cash provided by (used in) operating activities (1,534,780) 622,761
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (10,663,994) (5,242,024)
Payments for acquisitions, net of cash acquired (69,102,324) (125,270,673)
Payments of organizational expenses -- (34,257)
Restricted funds held in escrow 1,782,537 --
--------------- ---------------
Net cash used in investing activities (77,983,781) (130,546,954)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings -- 200,000,061
Payment of debt issuance costs (3,024,672) (9,037,594)
Borrowings under revolving credit agreement 88,250,000 9,775,000
Payments under revolving credit agreement (35,230,000) (18,100,000)
Payment of note payable -- (15,000,000)
Partners' capital contributions 29,800,000 --
Redemption of Special Limited Partner units -- (43,242,948)
--------------- ---------------
Net cash provided by financing activities 79,795,328 124,394,519
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 276,767 (5,529,674)
CASH AND CASH EQUIVALENTS, beginning of period 3,360,507 6,547,438
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 3,637,274 $ 1,017,764
=============== ===============
CASH PAID FOR INTEREST $ 12,524,517 $ 8,033,416
=============== ===============
CASH PAID FOR TAXES $ -- $ --
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 6
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CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying consolidated financial statements of Charter Communications
Southeast Holdings, L.P. (Charter Holdings) and subsidiaries include the
accounts of Charter Holdings and its direct and indirect wholly owned
subsidiaries: Charter Communications Southeast Properties, Inc., Charter
Communications Southeast Holdings Capital Corporation, Charter Communications
Southeast L.P. (Charter Southeast), Charter Communications Southeast Capital
Corporation, CCP II, Inc., CCP One, Inc., Charter Communications II, L.P.
(CC-II), and Charter Communications, L.P. (CC-I), collectively referred to as
the "Partnership" or the "Company" herein. All significant intercompany
balances and transactions have been eliminated in consolidation.
The accompanying unaudited financial statements 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.
Certain reclassifications have been made to the March 31, 1996 financial
statements to conform with the March 31, 1997 presentation.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The consolidated financial statements as of March 31, 1997 and 1996, 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 consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Registrant's Form 10-K for the year ended December 31, 1996.
Interim results are not necessarily indicative of results for a full year.
3. ACQUISITIONS
In February 1997, CC-II acquired the net assets of Prime Cable of Hickory,
L.P., which included the cable television system in and around Hickory, North
Carolina, for approximately $69.4 million, including transaction costs and
preliminary closing adjustments. The purchase price allocation as reflected in
the consolidated financial statements as of March 31, 1997 is subject to
certain final closing adjustments.
Subsequent to March 31, 1997, CC-I and CC-II acquired the net assets of certain
cable television systems located in North Carolina and South Carolina from
Cencom Cable Income Partners II, L.P. (CCIP II) and Cencom Partners, L.P.
(CPLP), affiliated entities, for an aggregate purchase price of approximately
$89.2 million.
4. PARTNERS' CAPITAL
In February 1997, Charter Holdings received $30 million of cash contributions
as well as the contribution of the assets and related liabilities of a certain
cable television system serving areas in and around Stockbridge, Georgia (the
"Stockbridge System"). The Stockbridge System, which had an appraised value
(net of debt approximately $3.1 million) of approximately $3.67 million, was
contributed to Charter Southeast which, in turn, contributed such system to
CC-II and was recorded at fair market value. The $30.0 million contribution
was contributed to Charter Southeast which, in turn, contributed $5.0 million
of such capital to CC-I and $25.0 million of such capital to CC-II, to be
ultimately used toward future acquisitions. Pending consummation of such
future acquisitions, the equity
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contribution was used to pay down outstanding indebtedness under the credit
facilities of CC-I and CC-II. Costs of $200,000 were incurred in connection
with the capital contributions. These capital contributions resulted in an
increase in limited partnership units of 336.7.
5. SIGNIFICANT NONCASH TRANSACTION
The Partnership has reflected the contribution of the Stockbridge System (see
Note 4) as a noncash transaction in the accompanying consolidated financial
statements.
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CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS CAPITAL CORP
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Significant Transactions
Since April 1994, the Charter Communications Southeast Holding, L.P. and its
subsidiaries (collectively the "Company" or the "Partnership") have completed
the following transactions:
<TABLE>
<CAPTION>
Approximate
Acquisition Date Purchase Price Location of Systems
- ---------------- -------------- -------------------
<S> <C> <C>
April 1994 $174.7 million Georgia, Alabama, Louisiana
January 1995 $108.0 million Kentucky, N. Carolina, S. Carolina
May 1995 $ 22.0 million Georgia
May 1995 $ 48.0 million Alabama
July 1995 $ 34.7 million Georgia
November 1995 $ 35.0 million S. Carolina
January 1996 $ 8.4 million S. Carolina
March 1996 $112.0 million Georgia, N. Carolina, Tenn., Ky.
November 1996 $ 22.0 million Alabama, Tennessee
February 1997 $ 69.4 million N. Carolina
February 1997 $ 3.7 million Georgia
</TABLE>
As of March 31, 1997, the Company had four pending acquisitions for the
purchase of cable television systems serving approximately 51,500 basic
subscribers and 24,500 premium subscriptions for a total purchase price of
approximately $89.2 million. These four transactions were consummated by the
Company during April 1997.
Results of Operations
The following table sets forth the approximate number of basic subscribers and
premium subscriptions of the Partnership as of the dates indicated:
<TABLE>
<S> <C> <C> <C>
March 31, December 31, March 31,
1997 1996 1996
-------- ----------- --------
Basic Subscribers:
Nashville Cluster 42,800 42,400 41,600
Northern Alabama Cluster 62,800 62,400 47,700
New Orleans Cluster 36,000 35,600 35,400
Atlanta Cluster 67,400 62,400 56,400
Greenville-Spartanburg/Asheville
Cluster 79,500 78,100 76,600
Hickory Cluster 35,100 -- --
Non-Cluster Systems 51,000 49,700 49,800
------- ------- -------
374,600 330,600 307,500
======= ======= =======
Premium Subscription Units:
Nashville Cluster 22,400 22,800 24,300
Northern Alabama Cluster 26,900 27,000 26,200
New Orleans Cluster 17,900 16,800 16,900
Atlanta Cluster 26,800 23,700 21,800
Greenville-Spartanburg/Ashville Cluster 32,200 30,400 27,500
Hickory Cluster 14,700 -- --
Non-Cluster Systems 32,700 30,500 31,900
------- ------- -------
173,600 151,200 148,600
======= ======= =======
</TABLE>
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The following table sets forth certain items in dollars (in thousands) and as a
percentage of service revenues for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------
(Unaudited)
1997 1996
---------------------- -----------------------
% of % of
Amount Revenue Amount Revenue
------ ------- ------ -------
<S> <C> <C> <C> <C>
Service Revenues $ 36,804 100.0% $ 23,844 100.0%
--------- ------ -------- ------
Operating Expenses:
Operating costs 15,682 42.6% 10,032 42.1%
General and administrative 2,949 8.0% 1,904 8.0%
Depreciation and Amortization 14,892 40.5% 10,883 45.6%
Management Fees - Related Party 1,842 5.0% 1,192 5.0%
--------- ------ -------- ------
35,365 96.1% 24,011 100.7%
--------- ------ -------- ------
Income (Loss) From Operations 1,439 3.9% (167) -0.7%
--------- ------ -------- ------
Other Income (Expense):
Interest Income 46 0.1% 47 0.2%
Interest Expense (13,031) -35.4% (6,819) -28.6%
Other --- 0.0% (2) 0.0%
--------- ------ -------- ------
(12,985) -35.3% (6,774) -28.4%
--------- ------ -------- ------
Loss Before Benefit for Income Taxes (11,546) -31.4% (6,941) -29.1%
Benefit for Income Taxes --- 0.0% 51 0.2%
--------- ------ -------- ------
Net Loss $ (11,546) -31.4% $ (6,890) -28.9%
========= ====== ======== ======
</TABLE>
Service Revenues
The Partnership 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 54.3% to $ 36,804,000, for the three month period
ended March 31, 1997, when compared to the similar period 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 Partnership throughout 1997 and 1996. In
addition, the Partnership experienced significant internal subscriber growth
(See supplemental analysis of quarterly operating results) 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.
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Operating Expenses
Operating costs increased by $ 5,650,000 or 56.3% for the three months ended
March 31, 1997 when compared to the similar period of 1996. The majority of
this increase was related to the acquisitions of additional cable television
systems during 1996 and 1997. Operating costs, as a percentage of service
revenues, have increased from 42.1% for the quarter ended March 31, 1996 to
42.6% for the quarter ended March 31, 1997. This is primarily related to
increases in programming costs, as many of the Partnership's programming
contracts had rate increases effective during the first quarter of 1997. The
Partnership expects that programming cost increases will continue to be an
on-going issue for the next several years.
General and administrative expenses increased by $1,045,000 or 54.9% for the
three months ended March 31, 1997 when compared to the similar period of 1996.
This increase is primarily a result of the acquisitions of additional cable
television systems during 1996 and 1997. General and administrative expenses,
as a percentage of service revenues, have remained constant at 8.0% for the
quarters ended March 31, 1997 and March 31, 1996.
Depreciation and amortization increased by 36.8% from $10,883,000 to
$14,892,000 for the three months ended March 31, 1997, when compared to the
similar period 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 months ended March 31, 1997 compared to the
similar period 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 91.1% from $ 6,819,000 to $ 13,031,000 for the
three months ended March 31, 1997, when compared to the similar period of 1996.
This increase was primarily due to the increase in the average outstanding bank
debt balance between the comparable periods, an increase in interest rates on
the bank debt and an increase in the interest expense associated with issuing
the Senior Notes and Discount Debentures on March 28, 1996.
Net Loss
Net loss increased by 67.6% from $ (6,890,000) to $ (11,546,000) for the three
months ended March 31, 1997 when compared to the similar period of 1996. In
1997, increased amortization and interest expense were significant factors
versus the prior year.
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LIQUIDITY AND CAPITAL RESOURCES
The Partnership's growth by acquisition during 1997 and 1996 has been funded
primarily by borrowings under bank credit facilities, the proceeds of the
$146,820,000 of Senior Secured Discount Debentures (the "Debentures") and the
11 1/4% Senior Notes (the "Notes"), and equity contributions. Cash flows
provided by operating activities together with borrowings under bank credit
facilities have been sufficient to fund the Partnership'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 Partnership anticipates that future acquisitions 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 Partnership 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 Partnership's
ability to pursue a strategy that includes growth through acquisitions.
At March 31, 1997, the Partnership's long-term debt of $552.4 million consisted
of $107.9 million outstanding under the revolving credit and term loan facility
of CC-I, $233.5 million outstanding under the revolving credit and term loan
facility of CC-II, $125 million of indebtedness from the sale of 11 1/4% Senior
Notes by Charter Southeast, and $86.0 million of indebtedness from the sale of
Debentures. The Partnership had unused and available borrowing capacity of
$42.1 million and $131.5 million under the credit facilities of CC-I and CC-II,
respectively, at March 31, 1997. With regard to the CC-II credit facility, in
February 1997 the credit facility was amended to allow for, among other things,
an increase in availability to $365 million. CC-II increased the facility to
complete the acquisition of the Hickory, North Carolina system, to fund the
acquisitions consummated in April 1997 and to fund capital expenditures.
In February 1997, CC-II acquired the assets of the cable television system in
and around Hickory, North Carolina, for approximately $69.4 million, after
transaction costs and preliminary closing adjustments. The Hickory cable
television system served approximately 35,000 basic customers who subscribed to
approximately 14,700 premium subscriptions. The Hickory acquisition was funded
by borrowings under the CC-II credit facility.
In February 1997, Charter Holdings received $30 million of cash contributions
as well as the contribution of the assets and related liabilities of a certain
cable television system serving areas in and around Stockbridge, Georgia (the
"Stockbridge System"). The Stockbridge System, which had an appraised value
(net of debt approximately $3.1 million) of approximately $3.67 million, was
contributed to Charter Southeast which, in turn, contributed such system to
CC-II and were recorded at fair market value. The $30.0 million contribution
was contributed to Charter Southeast which, in turn, contributed $5.0 million
of such capital to CC-I and $25.0 million of such capital to CC-II, to be
ultimately used toward future acquisitions. Pending consummation of such
future acquisitions, the equity contribution was used to pay down outstanding
indebtedness under the credit facilities of CC-I and CC-II. Costs of $200,000
were incurred in connection with the capital contributions.
In April 1997, CC-I acquired the assets of a cable television system located in
Sanford, North Carolina, serving approximately 12,700 basic subscribers, for a
purchase price of approximately $20.8 million. Also, during April 1997, CC-II
acquired the assets of certain cable television systems located in Anderson
County, South Carolina, Abbeville, South Carolina, and Lincolnton, North
Carolina. CC-II acquired certain cable television systems, which serve
approximately 38,800 basic subscribers, for an aggregate purchase price of
approximately $68.4 million. These acquisitions by CC-I and CC-II were funded
by availability under their respective credit facilities. The selling entities
were affiliates of the Company.
Cash interest is payable on a monthly and quarterly basis for borrowings
outstanding under the CC-I and CC-II credit facilities. Cash interest is
payable semi-annually, in March and September, on the Senior Notes until March
2006. The discount related to the original sale of the Debentures is amortized
through March 2001; thereafter, cash interest is payable on a semi-annual basis
in March and September until March 2007.
The Partnership 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 facilities. Interest rate swap and cap agreements
are accounted for by the Partnership as a hedge of the debt obligation. As a
result, the net settlement amount of any
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<PAGE> 13
such swap or cap is recorded as interest expense in the period incurred. The
affects of the Partnership's hedging practices on its weighted average
borrowing rate and on reported interest expense were not material for the three
months ended March 31, 1997.
The Partnership incurred capital expenditures of approximately $10.7 million
during the first quarter of 1997 in connection with the improvement and
upgrading of the Partnership's cable systems. The Partnership anticipates that
capital expenditures for such purposes will be approximately $70.0 million
during 1997.
During October 1996, the Partnership became aware that the local power
commission affiliated with the City of Newnan, Georgia, announced its intention
to construct a fiber optic system for the delivery of video and data services
to the entire city. The power commission's construction would be completed
during 1997 and would pass approximately 6,000 homes, from which there are
currently approximately 3,500 homes that subscribe to cable television services
offered by the Partnership. In addition, the City of Newnan recently received
a franchise for the unincorporated area surrounding the city. The Partnership
completed the upgrade of its existing cable plant to 750 MHz during December
1996, and began an aggressive marketing effort during the first quarter of 1997
to promote its new channel offerings and other services. The Partnership
cannot determine the impact, it any, this project by the City of Newnan will
have on long-term results or strategies of the Partnership.
The Partnership has had discussions with several municipalities, counties and
utility companies in Georgia to explore the possibility of a sale and
lease-back venture whereby the Partnership would sell the cable television
distribution plant and then enter into a long-term capital lease and continue
to operate the cable system. Pursuant to the proposals currently under
discussion, the Partnership and its venture partner would upgrade the plant to
860 MHz, allocating a portion of the spectrum to the venture partner for its
purposes. The Partnership would expect to benefit by gaining access to
upgraded plant, obtaining lower cost financing through the venture partner, and
realizing certain operating costs. There is no assurance that a final
agreement will be reached with respect to any such proposals.
The Partnership 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 Partnership does
not maintain insurance covering its underground plant, the cost of which
management believes is currently prohibitive. Management believes that the
Partnership's insurance coverage is adequate, and intends to monitor the
insurance markets to attempt to obtain coverage for the Partnership's
underground plants at reasonable and cost-effective rates.
The Partnership 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 Partnership in the
event such systems' rates are successfully challenged by regulatory authorities
is not currently estimable. The Partnership 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 Partnership.
Page 13
<PAGE> 14
Supplemental Analysis of Quarterly Operating Results
The following table sets forth certain operating results and statistics for the
three months ended March 31, 1997 compared to the three months ended March 31,
1996. The following dollar amounts are in thousands, except for per subscriber
amounts:
<TABLE>
For the Three Months For the Three Months
Ended March 31, 1997 Ended March 31, 1996
------------------------------------------ --------------------------------------------------
(Unaudited) (Unaudited)
SYSTEMS Systems SYSTEMS Systems
ACQUIRED ON OR Acquired ACQUIRED ON OR Acquired
BEFORE 1/1/96 After 1/1/96 Total BEFORE 1/1/96 After 1/1/96 Total
-------------- ------------ ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Service Revenues $ 26,696 $ 10,108 $ 36,804 $ 23,844 $ -- $ 23,844
-------- -------- -------- -------- ------ --------
Operating Expenses:
Operating costs 11,499 4,183 15,682 10,032 -- 10,032
General and administrative 2,211 738 2,949 1,904 -- 1,904
-------- -------- -------- -------- --------
13,710 4,921 18,631 11,936 -- 11,936
-------- -------- -------- -------- ------ --------
EBITDA (a) $ 12,986 5,187 $ 18,173 $ 11,908 $ -- $ 11,908
======== ======== ======== ======== ====== ========
EBITDA Margin 48.6% 51.3% 49.4% 49.9% -- 49.9%
======== ======== ======== ======== ====== ========
Operating Statistical Data,
at end of period:
Monthly revenue per subscriber $ 33.15 $ 31.73 $ 32.75 $ 30.99 -- $ 30.99
Homes passed 397,800 157,200 555,000 386,500 -- 386,500
Basic subscribers 268,400 106,200 374,600 256,400 -- 256,400
Basic penetration 67.5% 67.5% 67.5% 66.3% -- 66.3%
Premium subscriptions 121,600 52,000 173,600 125,600 -- 125,600
</TABLE>
(a) EBITDA represents income before interest expense, income taxes,
depreciation and amortization, management fees and other income (expense).
EBITDA is calculated before payment of management fees so as to be consistent
with certain financial terms contained in the revolving credit and term loan
facilities. Management fees paid by the Company are calculated as 5% of
service revenues, 60% of which is payable currently and 40% is deferred.
Management believes that EBITDA is a meaningful measure of performance because
it is commonly used in the cable television industry to analyze and compare
cable television companies on the basis of operating performance, leverage and
liquidity. EBITDA is not presented in accordance with generally accepted
accounting principles and should not be considered an alternative to, or more
meaningful than, operating income or operating cash flows as an indicator of
the Partnership's operating performance. EBITDA does not include the
Partnership's debt obligations or other significant commitments.
Page 14
<PAGE> 15
Results of Operations - Supplemental analysis for the Quarter Ended March 31,
1997 Versus the Quarter Ended March 31, 1996 (for Systems Acquired Before
January 1, 1996)
The following discussion is provided to show the results of operations on a
comparable basis for those systems owned by the Partnership during the three
months ended March 31, 1997 versus the three months ended March 31, 1996.
Specifically, the comparable analysis includes the results of operations for
the seven acquisitions completed between April 1994 and January 1996. - see
Significant Transactions for a complete listing of all acquisitions by the
Company. The operating results of the systems acquired during March 1996 from
Cencom Cable Income Partners, L.P., are included with the results of systems
acquired after January 1, 1996.
Service revenues increased by $2,852,000 or 12.0% when comparing the revenues
for the quarter ended March 31, 1997 to the results for the comparable systems
for the quarter ended March 31, 1996. This increase is due to a net gain of
approximately 12,000 or 4.7%, for basic subscribers between quarters and,
second, to retail rate increases implemented in certain of the Partnership's
systems.
Operating expenses increased approximately $1,774,000 or 14.9% when comparing
the operating expenses for the quarter ended March 31, 1997 to the results for
the comparable systems for the quarter ended March 31, 1996. This increase is
primarily due to increases in license fees paid for programming as a result of
additional subscribers, new channels launched and increases in the rates paid
to the programming services. The Company believes that the growth in
programming expense is consistent with industry-wide increases.
The Partnership experienced growth in operating cash flow (EBITDA) of
approximately $1,078,000 or 9.1% when comparing the operating cash flow for the
quarter ended March 31, 1997 to the results for the comparable systems for the
quarter ended March 31, 1996. EBITDA margin decreased from 49.9% to 48.6%
when comparing the similar periods, primarily as a result of the increase in
programming costs.
Page 15
<PAGE> 16
Part II. Other Information
Item 1. Legal Proceedings - None
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 - None
(b) Reports on Form 8-K
1. The Partnership filed a report on Form 8-K dated February 21,
1997 and covering Item 2 with respect to the acquisition of the
cable television systems located in and around Hickory, North
Carolina.
2. The Partnership filed a report on Form 8-K dated April 11,
1997 and covering Item 2 with respect to the acquisitions of
certain cable television systems located in North Carolina and
South Carolina.
Pursuant to Article 3 of Regulation S-X, no financial statement
information was required in connection with the Form 8-K filings related to the
two sale transactions.
Page 16
<PAGE> 17
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS CAPITAL CORPORATION
FOR QUARTER ENDED MARCH 31, 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.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
By: Charter Communications Holdings Properties, Inc.,
its General Partner
By: /s/ Jerald L. Kent
---------------------------------
Jerald L. Kent
President and
Chief Financial Officer
By: /s/Jerald L. Kent May 13, 1997
---------------------------------
Jerald L. Kent
President and
Chief Financial Officer
By: /s/Ralph G. Kelly May 13, 1997
---------------------------------
Ralph G. Kelly
Senior Vice President - Treasurer
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS
CAPITAL CORPORATION
By: /s/ Jerald L. Kent
---------------------------------
Jerald L. Kent
President and
Chief Financial Officer
By: /s/Jerald L. Kent May 13, 1997
---------------------------------
Jerald L. Kent
President and
Chief Financial Officer
By: /s/Ralph G. Kelly May 13, 1997
---------------------------------
Ralph G. Kelly
Senior Vice President - Treasurer
Page 17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,637,274
<SECURITIES> 0
<RECEIVABLES> 3,358,563
<ALLOWANCES> 317,612
<INVENTORY> 0
<CURRENT-ASSETS> 7,716,129
<PP&E> 180,734,943
<DEPRECIATION> 0
<TOTAL-ASSETS> 649,963,736
<CURRENT-LIABILITIES> 17,707,438
<BONDS> 552,405,816
0
0
<COMMON> 0
<OTHER-SE> 67,939,651
<TOTAL-LIABILITY-AND-EQUITY> 649,963,736
<SALES> 36,803,777
<TOTAL-REVENUES> 36,803,777
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 35,364,519
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,031,053
<INCOME-PRETAX> (11,545,591)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,545,591)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,545,591)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
