<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 SEPTEMBER 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from to
---------------- ---------------------
Commission File Number 333-3774
--------
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 (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 _
As of September 30, 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 SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. Financial Information
---------------------
Item 1. Consolidated Financial Statements
a. Consolidated Balance Sheets - As of September 30, 1997 and December 31, 1996 3
b. Consolidated Statements of Operations - For the Three Months Ended
September 30, 1997 and 1996 4
c. Consolidated Statements of Operations - For the Nine Months Ended September 30,
1997 and 1996 5
d. Consolidated Statement of Partners' Capital - For the Nine Months Ended
September 30, 1997 6
e. Consolidated Statements of Cash Flows - For the Nine Months Ended September 30,
1997 and 1996 7
f. Notes to Consolidated Financial Statements 8
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 10
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 18
Signature Page 19
</TABLE>
Page 2
<PAGE> 3
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------------ ---------------
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,434,857 $ 3,360,507
Accounts receivable, net of allowance for doubtful accounts of $423,350,
and $300,378, respectively 3,867,579 2,537,324
Prepaid expenses and other 725,953 299,071
Receivables from parent and affiliates -- 500,000
------------ ------------
Total current assets 6,028,389 6,696,902
------------ ------------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, net 236,608,249 163,998,045
Franchise costs, net of accumulated amortization of $106,637,487 and
$75,221,372 respectively 484,084,945 389,065,380
Covenants not to compete, net of accumulated amortization of $541,324, and
$240,000, respectively 918,676 960,000
------------ ------------
721,611,870 554,023,425
------------ ------------
RESTRICTED FUNDS HELD IN ESCROW -- 1,782,537
------------ ------------
OTHER ASSETS 15,958,090 14,513,068
------------ ------------
$743,598,349 $577,015,932
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 23,782,653 $ 23,958,762
Subscriber deposits and prepayments 418,159 260,244
Payable to affiliates 1,398,018 2,143,899
------------ ------------
Total current liabilities 25,598,830 26,362,905
------------ ------------
DEFERRED MANAGEMENT FEES PAYABLE TO AFFILIATE 6,887,525 4,293,532
------------ ------------
DEFERRED REVENUE 1,768,506 1,661,503
------------ ------------
LONG-TERM DEBT 664,226,922 493,571,442
------------ ------------
DEFERRED INCOME TAXES 5,111,308 5,111,308
------------ ------------
REDEEMABLE PREFERRED LIMITED UNITS - No Class A or Class B units issued or
outstanding at September 30, 1997 and December 31, 1996 -- --
------------ ------------
SPECIAL LIMITED PARTNER UNITS - No Class A or Class B units issued or
outstanding at September 30, 1997 and December 31, 1996 -- --
------------ ------------
PARTNERS' CAPITAL:
General Partner 400,053 460,152
Preferred Limited Partners - No Class A or Class B units issued or
outstanding at September 30, 1997 and December 31, 1996 -- --
Common Limited Partners - 1,850.05 units and 1,513.36 units, issued and
outstanding, respectively 39,605,205 45,555,090
------------ ------------
Total partners' capital 40,005,258 46,015,242
------------ ------------
$743,598,349 $577,015,932
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
Page 3
<PAGE> 4
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
<S> <C> <C>
SERVICE REVENUES:
Basic service $ 33,864,334 $ 23,127,456
Premium service 4,999,405 3,846,817
Other 7,358,177 5,003,908
-------------- --------------
46,221,916 31,978,181
-------------- --------------
OPERATING EXPENSES:
Operating costs 19,829,960 13,550,636
General and administrative 3,330,344 2,437,632
Depreciation and amortization 18,641,197 14,077,817
Management fees - related party 2,311,337 1,600,171
-------------- --------------
44,112,838 31,666,256
-------------- --------------
Income from operations 2,109,078 311,925
-------------- --------------
OTHER INCOME (EXPENSE):
Interest income 49,230 80,844
Interest expense (16,049,250) (11,276,832)
Loss from hurricanes -- (378,100)
-------------- --------------
(16,000,020) (11,574,088)
-------------- --------------
Loss before benefit for income taxes (13,890,942) (11,262,163)
BENEFIT FOR INCOME TAXES -- --
-------------- --------------
Net loss (13,890,942) (11,262,163)
-------------- --------------
REDEMPTION PREFERENCE ALLOCATION:
Special Limited Partner units -- --
Redeemable Preferred Limited units -- --
NET LOSS ALLOCATED TO REDEEMABLE PREFERRED LIMITED UNITS -- --
-------------- --------------
Net loss applicable to partners' capital accounts $ (13,890,942) $ (11,262,163)
============== ==============
NET LOSS ALLOCATION TO PARTNERS' CAPITAL ACCOUNTS:
General Partner $ (138,909) $ (112,622)
Class B Preferred Limited Partners -- --
Common Limited Partners (13,752,033) (11,149,541)
-------------- --------------
$ (13,890,942) $ (11,262,163)
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 4
<PAGE> 5
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
SERVICE REVENUES:
Basic service $ 93,610,244 $ 63,199,535
Premium service 14,323,582 10,696,788
Other 20,520,702 13,000,242
------------- --------------
128,454,528 86,896,565
------------- --------------
OPERATING EXPENSES:
Operating costs 55,167,138 36,830,523
General and administrative 9,698,203 6,638,960
Depreciation and amortization 52,096,546 38,373,620
Management fees - related party 6,420,637 4,344,837
------------- --------------
123,382,524 86,187,940
------------- --------------
Income from operations 5,072,004 708,625
------------- --------------
OTHER INCOME (EXPENSE):
Interest income 138,049 169,353
Interest expense (44,690,037) (29,393,072)
Loss from hurricanes -- (378,100)
------------- --------------
(44,551,988) (29,601,819)
------------- --------------
Loss before benefit for income taxes (39,479,984) (28,893,194)
BENEFIT FOR INCOME TAXES -- 111,180
------------- --------------
Net loss (39,479,984) (28,782,014)
------------- --------------
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 $ (39,479,984) $ (26,999,699)
============= ==============
NET LOSS ALLOCATION TO PARTNERS' CAPITAL ACCOUNTS:
General Partner (394,799) (269,997)
Class B Preferred Limited Partners -- --
Common Limited Partners (39,085,185) (26,729,702)
------------- --------------
$ (39,479,984) $ (26,999,699)
============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 5
<PAGE> 6
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Class B
Preferred
General Limited Common
Partner Partners Limited 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 (394,799) -- (39,085,185) (39,479,984)
--------- ----------- ------------ ------------
BALANCE, September 30, 1997 $ 400,053 $ -- $ 39,605,205 $ 40,005,258
========= =========== ============ ============
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
Page 6
<PAGE> 7
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(39,479,984) $ (28,782,014)
Adjustments to reconcile net loss to net cash provided by operating
activities
Depreciation and amortization 52,096,546 38,373,620
Amortization of debt issuance costs 1,531,761 411,923
Amortization of interest rate cap agreements 110,708 104,084
Forgiveness of note receivable with related party -- 100,000
Amortization on discount of debentures -- 5,554,504
Deferred income taxes 8,955,480 (111,180)
Changes in assets and liabilities, net of effects from acquisitions -
Accounts receivable, net 73,650 1,504,211
Prepaid expenses and other (410,792) (1,636,139)
Receivables from parent and affiliates 500,000 296,179
Accounts payable and accrued expenses (2,025,097) (1,426,593)
Subscriber deposits and prepayments (219,744) (90,943)
Payable to affiliates 2,566,318 2,493,385
Deferred revenue (31,906) 525,829
------------ -------------
Net cash provided by operating activities 23,666,940 17,316,866
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (52,428,526) (26,714,284)
Payments for acquisitions, net of cash acquired (159,666,104) (125,270,673)
Payments of organizational expenses -- (34,257)
Restricted funds held in escrow 1,782,537 --
Payments of franchise costs (271,785) --
------------ -------------
Net cash used in investing activities (210,583,878) (152,019,214)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt -- 200,000,061
Payment of debt issuance costs (3,428,712) (9,552,619)
Borrowings under revolving credit agreements 200,750,000 16,275,000
Payments under revolving credit agreements (42,130,000) (18,500,000)
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 184,991,288 129,979,494
------------ -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,925,650) (4,722,854)
CASH AND CASH EQUIVALENTS, beginning of period 3,360,507 6,547,438
------------ -------------
CASH AND CASH EQUIVALENTS, end of period $ 1,434,857 $ 1,824,584
============ =============
CASH PAID FOR INTEREST $ 35,198,647 $ 24,172,219
============ =============
CASH PAID FOR TAXES $ -- $
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 7
<PAGE> 8
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 its wholly owned subsidiaries 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 September 30, 1996 financial
statements to conform with the September 30, 1997 presentation.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The consolidated 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
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in the
Partnership'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
closing adjustments (the "Hickory Acquisition"). The purchase price allocation
as reflected in the consolidated financial statements as of September 30, 1997
is subject to certain final closing adjustments. The Hickory Acquisition was
funded by borrowings under the CC-II credit facility.
In April 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 $90.3
million, including transaction costs and closing adjustments. These
acquisitions were funded by availability under the respective credit
facilities.
Page 8
<PAGE> 9
The pro forma effects of the above-described 1997 transactions as well as the
acquisition of cable television systems during 1996 on the Partnership's
results of operations for the nine months ended September 30, 1997 and 1996 are
presented in the following unaudited tabulation:
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------
1997 1996
---- ----
<S> <C> <C>
Service revenues $135,633,421 $122,218,646
============ ============
Income from operations $ 5,737,376 $ 3,496,345
============ ============
Net loss $(42,243,124) $(43,438,558)
============ ============
</TABLE>
The pro forma results presented above are based upon currently available
information and certain assumptions that management believes are reasonable.
4. PARTNERS' CAPITAL:
In February 1997, Charter Holdings received $30.0 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 approximately $3.1 million in debt) of approximately $3.67 million, was
contributed at fair market value to Charter Southeast which, in turn,
contributed such system to CC-II. The $30.0 million contributed to Charter
Holdings was contributed to Charter Southeast. Charter Southeast contributed
$5.0 million to CC-I and $25.0 million to CC-II of the $30.0 million
contributed. Prior to consummation of the aforementioned acquisitions in April
1997, the equity contribution was used to reduce outstanding indebtedness under
the credit facilities of CC-I and CC-II. Costs of $200,000 were incurred in
connection with the cash capital contributions. These capital contributions
resulted in an increase in issued and outstanding limited partnership units of
336.7 units.
5. LITIGATION:
In June 1997, a purported class action lawsuit was filed in Delaware Chancery
Court under the name of Wallace, Matthews, Lerner and Roberts v. Wood et.
al., Case No. 15731, by certain limited partners of CCIP II, a publicly held
limited partnership, against numerous defendants. The suit alleges that
defendants CC-I and CC-II, both of which are affiliates of CCIP II's general
partner, purchased cable television system assets from CCIP II in April 1997 at
less than fair value. In connection with the purchase of these assets, CC-I
and CC-II paid the highest amount bid in a multiple round auction process
involving non-affiliated third parties. Furthermore, the assets acquired had
been appraised by two independent appraisers, the purchase price paid as a
result of the auction was higher than the appraised value, and the proposed
sale to affiliated purchasers was approved by a majority of CCIP II's limited
partners. For these reasons, amongst others, management of the Company
believes that the claims against CC-I and CC-II are without merit and will
defend them vigorously.
6. 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.
Page 9
<PAGE> 10
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 Holdings, 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
April 1997 $ 89.2 million N. Carolina, S. Carolina
</TABLE>
As of September 30, 1997, the Company had no pending acquisitions. However,
the Partnership has engaged a third-party broker for the purpose of potentially
selling cable systems that are non-strategic to the Partnership on a long-term
basis. The cable systems identified on a preliminary basis comprise up to
approximately 70,000 basic subscribers, which are primarily the Partnerships
non-clustered systems. Any such sale of cable systems is subject to approval
by the General Partner, based upon the prevailing market conditions at such
time.
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>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
Basic Subscribers:
Nashville Cluster 43,000 42,400 42,000
Northern Alabama Cluster 62,600 62,400 48,400
New Orleans Cluster 36,500 35,600 35,900
Atlanta Cluster 68,200 62,400 61,500
Greenville-Spartanburg/Asheville Cluster 104,100 78,100 77,300
Hickory Cluster 50,400 -- --
Non-Cluster Systems 63,500 49,700 49,900
--------- ------- -------
428,300 330,600 315,000
========= ======= =======
</TABLE>
Page 10
<PAGE> 11
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
--------------- -------------- ---------------
<S> <C> <C> <C>
Premium Subscription Units:
Nashville Cluster 22,900 22,800 22,800
Northern Alabama Cluster 25,900 27,000 22,500
New Orleans Cluster 18,900 16,800 17,300
Atlanta Cluster 48,700 23,700 22,800
Greenville-Spartanburg/Asheville Cluster 42,500 30,400 29,100
Hickory Cluster 19,000 -- --
Non-Cluster Systems 37,100 30,500 30,500
-------- -------- --------
215,000 151,200 145,000
======== ======== ========
</TABLE>
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 September 30,
-------------------
(Unaudited)
1997 1996
------------------------------- --------------------------------
% of % of
Amount Revenue Amount Revenue
------ ------- ------ -------
<S> <C> <C> <C> <C>
Service Revenues $ 46,222 100.0% $ 31,978 100.0%
--------- --------- ---------- --------
Operating Expenses:
Operating costs 19,830 42.9 13,551 42.4
General and administrative 3,330 7.2 2,437 7.6
Depreciation and Amortization 18,641 40.3 14,078 44.0
Management Fees - Related Party 2,312 5.0 1,600 5.0
--------- --------- ---------- --------
44,113 95.4 31,666 99.0
--------- --------- ---------- --------
Income from Operations 2,109 4.6 312 1.0
--------- --------- ---------- --------
Other Income (Expense):
Interest Income 49 .1 81 .3
Interest Expense (16,049) (34.7) (11,277) (35.3)
Loss From Hurricanes -- -- (378) (1.2)
--------- --------- ---------- --------
(16,000) (34.6) (11,574) (36.2)
--------- --------- ---------- --------
Loss Before Benefit for Income Taxes (13,891) (30.0) (11,262) (35.2)
Benefit for Income Taxes -- --
--------- --------- ---------- --------
Net Loss $ (13,891) (30.0)% $ (11,262) (35.2)%
========= ========= ========== ========
</TABLE>
Page 11
<PAGE> 12
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 Nine Months
Ended September 30,
-------------------
(Unaudited)
1997 1996
------------------------------- ------------------------------
% of % of
Amount Revenue Amount Revenue
------ ------- ------ -------
<S> <C> <C> <C> <C>
Service Revenues $ 128,455 100.0% $ 86,897 100.0%
--------- --------- --------- ------
Operating Expenses:
Operating costs 55,167 42.9 36,830 42.4
General and administrative 9,698 7.6 6,639 7.7
Depreciation and Amortization 52,097 40.5 38,374 44.1
Management Fees - Related Party 6,421 5.0 4,345 5.0
--------- --------- --------- ------
123,383 96.0 86,188 99.2
--------- --------- --------- ------
Income from Operations 5,072 4.0 709 .8
--------- --------- --------- ------
Other Income (Expense):
Interest Income 138 .1 169 .2
Interest Expense (44,690) (34.8) (29,393) (33.8)
Other -- -- (378) (.4)
--------- --------- --------- ------
(44,552) (34.7) (29,602) (34.0)
--------- --------- --------- ------
Loss Before Benefit for Income Taxes (39,480) (30.7) (28,893) (33.2)
Benefit for Income Taxes -- 111 .1
--------- --------- --------- ------
Net Loss $ (39,480) (30.7)% $ (28,782) (33.1)%
========= ========= ========= ======
</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 44.5% and 47.8% to $46.2 million and $128.5
million for the three and nine month periods ended September 30, 1997,
respectively, when compared to the similar periods of 1996. These increases
are 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 plant construction increased the coverage area of
the systems.
Page 12
<PAGE> 13
Operating Expenses
Operating costs increased by 46.3% and 49.8% to $19.8 million and $55.2 million
for the three and nine months ended September 30, 1997, respectively, when
compared to the similar periods of 1996. The majority of this increase was
related to operating costs associated with the cable television systems
acquired during 1996 and 1997. Operating costs, as a percentage of service
revenues, have increased slightly for the three and nine months ended September
30, 1997 when compared to similar periods of 1996. 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 36.6% and 46.1% to $3.3 million
and $9.7 million for the three and nine months ended September 30, 1997,
respectively, when compared to the similar periods of 1996. This increase is
primarily a result of the general and administrative costs of the cable
television systems acquired during 1996 and 1997.
Depreciation and amortization increased by 32.4% and 35.8% to $18.6 million and
$52.1 million for the three and nine months ended September 30, 1997,
respectively, when compared to the similar periods of 1996. The increase in
depreciation and amortization is a result of capital expenditures made to the
cable systems, in addition to the increase in property, plant and equipment and
franchise costs resulting from the acquisitions of additional cable systems.
Depreciation expense as a percent of revenues decreased during the three and
nine months ended September 30, 1997 compared to the similar periods of 1996.
This decrease is due primarily to the increase in revenues as a result of
internal subscriber growth and retail rate increases.
Other Income/Expense
Interest expense increased by 42.3% and 52.0% to $16.0 million and $44.7
million for the three and nine months ended September 30, 1997, respectively,
when compared to the similar periods 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 expense associated with issuing the
Senior Notes and the Debentures on March 28, 1996, an increase in interest
rates on the bank debt and an increase in the interest expense related to the
amortization of deferred debt costs associated with issuing the Senior Notes
(as defined herein) on March 28, 1996.
Net Loss
Net loss increased by 23.3% and 37.2% to $13.9 million and $39.5 million for
the three and nine months ended September 30, 1997, respectively, when compared
to the similar periods of 1996. For 1997, the increases in net loss were
attributable to the increase in interest expense, offset partially by an
increase in income from operations.
Page 13
<PAGE> 14
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"), the 11
1/4% Senior Notes (the "Senior 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 the Partnership has been able to obtain financing on satisfactory
terms, there can be no assurance that this will continue in the future,
thereby, negatively impacting the Partnership's ability to pursue a strategy
that includes growth through acquisitions.
At September 30, 1997, the Partnership's long-term debt of $664.2 million
consisted of $135.0 million outstanding under the revolving credit and term
loan facility of CC-I, $312.0 million outstanding under the revolving credit
and term loan facility of CC-II, $92.2 million from the sale of the Debentures,
and $125.0 million of indebtedness from the sale of the Senior Notes. The
Partnership had unused and available borrowing capacity of $15.0 million and
$53.0 million under the credit facilities of CC-I and CC-II, respectively, at
September 30, 1997. In February 1997, the CC-II credit facility was amended to
allow for, among other things, an increase in availability to $365.0 million.
The Partnership incurred debt issuance costs of $3.4 million to amend the CC-II
credit facility. CC-II increased the facility to complete the acquisition of
its 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 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 $30.0 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 approximately $3.1 million in debt) of approximately $3.67 million, was
contributed at fair market value to Charter Southeast which, in turn,
contributed such system to CC-II. The $30.0 million contributed to Charter
Holdings was contributed to Charter Southeast. Charter Southeast contributed
$5.0 million to CC-I and $25.0 million to CC-II, of the $30.0 million
contributed. Prior to 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 cash capital contribution. These capital contributions resulted in an
increase in issued and outstanding limited partnership units of 336.7 units.
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 these 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 maturity date.
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
Page 14
<PAGE> 15
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
and nine months ended September 30, 1997.
The Partnership incurred capital expenditures of approximately $52.4 million
during the nine months ended September 30, 1997, respectively, 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. In response to this situation, the Partnership completed
the upgrade of its existing cable television plant inside the City of Newnan 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. During 1997, the local power commission received a franchise for the
unincorporated county area surrounding the city. As of September 30, 1997, the
Partnership's cable system in and around the City of Newnan served
approximately 14,900 basic subscribers, an increase of approximately 500 basic
subscribers since December 31, 1996. However, the number of basic subscribers
within the City of Newnan has decreased by approximately 700 subscribers since
December 31, 1996, to approximately 2,800 at September 30, 1997. The
Partnership cannot determine the impact, if any, this project by the local
power commission 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
750 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 cost savings. 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 15
<PAGE> 16
Supplemental Analysis of Quarterly Operating Results
The following table sets forth certain operating results and statistics for the
three months ended September 30, 1997 compared to the three months ended
September 30, 1996. The following dollar amounts are in thousands, except for
per subscriber amounts:
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended September 30, 1997 Ended September 30, 1996
-------------------------------------------- ----------------------------------------
(Unaudited) (Unaudited)
Systems Systems Systems Systems
Scquired on or Acquired Acquired on or Acquired
Before 7/1/96 After 7/1/96 Total Before 7/1/96 After 7/1/96 Total
-------------- ------------ --------- -------------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Service Revenues $ 35,467 $ 10,755 $ 46,222 $ 31,978 -- $ 31,978
--------- --------- -------- -------- -------- --------
Operating Expenses:
Operating costs 15,241 4,589 19,830 13,551 -- 13,551
General and administrative 2,572 758 3,330 2,438 -- 2,438
--------- --------- -------- -------- -------- --------
17,813 5,347 23,160 15,989 -- 15,989
--------- --------- -------- -------- -------- --------
EBITDA (a) $ 17,654 $ 5,408 $ 23,062 $ 15,989 -- $ 15,989
--------- --------- -------- -------- -------- --------
EBITDA Margin (b) 49.8% 50.3% 49.9% 50.0% -- 50.0%
--------- --------- -------- -------- -------- --------
Operating Statistical Data, at
end of period:
Monthly revenue per subscriber $ 36.29 $ 34.98 $ 35.97 $ 33.84 -- $ 33.84
Homes passed 483,000 165,700 648,700 467,600 -- 467,600
Basic subscribers 325,800 102,500 428,300 315,000 -- 315,000
Basic penetration 67.5% 61.9% 66.0% 67.4% -- 67.4%
Premium subscriptions 174,200 40,800 215,000 145,000 -- 145,000
</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.
(b) Represents EBITDA as a percent of service revenues.
Page 16
<PAGE> 17
Results of Operations - Supplemental analysis for the Quarter Ended September
30, 1997 Versus the Quarter Ended September 30, 1996 (for Systems
Acquired Before July 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 September 30, 1997 versus the three months ended September 30,
1996. Specifically, the comparable analysis includes the results of operations
for the eight acquisitions completed between April 1994 and March 1996 - see
Significant Transactions for a complete listing of all acquisitions by the
Company.
Service revenues increased by $3.5 million or 10.9% when comparing the revenues
for the quarter ended September 30, 1997 to the results for the comparable
systems for the quarter ended September 30, 1996. This increase is due to a
net gain of approximately 10,800 or 3.4% for basic subscribers between quarters
and to retail rate increases implemented in certain of the Partnership's
systems. In addition, the Partnership has increased its ratio of premium
subscriptions to basic subscribers from .46 to 1.00 to .53 to 1.00 as a result
of marketing multiple premium subscriptions in a packaged format at a
discounted retail rate.
Operating expenses increased approximately $1.8 million or 11.4% when comparing
the operating expenses for the quarter ended September 30, 1997 to the results
for the comparable systems for the quarter ended September 30, 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 $1.7 million or 10.4% when comparing the operating cash flow for
the quarter ended September 30, 1997 to the results for the comparable systems
for the quarter ended September 30, 1996. EBITDA margin decreased from 50.0%
to 49.8% when comparing the similar periods, primarily as a result of the
increase in programming costs.
Page 17
<PAGE> 18
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:
27 Financial Data Schedule
B. Reports on Form 8-K - None
Page 18
<PAGE> 19
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS CAPITAL CORPORATION
FOR QUARTER ENDED SEPTEMBER 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
By: Charter Communications Southeast
Holdings Properties, Inc..
its General Partner
By: /s/ Jerald L. Kent
--------------------------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Jerald L. Kent November 13, 1997
-----------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Kent D. Kalkwarf November 13, 1997
-----------------------
Kent D. Kalkwarf
Senior Vice President and
Chief Financial Officer
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS
CAPITAL CORPORATION
By: /s/ Jerald L. Kent
------------------------------------
Jerald L. Kent
President and Chief
Executive Officer
By: /s/Jerald L. Kent November 13, 1997
--------------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Kent D. Kalkwarf November 13, 1997
--------------------------
Kent D. Kalkwarf
Senior Vice President and
Chief Financial Officer
Page 19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,434,857
<SECURITIES> 0
<RECEIVABLES> 3,867,579
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,028,389
<PP&E> 236,608,249
<DEPRECIATION> 0
<TOTAL-ASSETS> 743,598,349
<CURRENT-LIABILITIES> 25,598,830
<BONDS> 664,226,922
0
0
<COMMON> 0
<OTHER-SE> 40,005,258
<TOTAL-LIABILITY-AND-EQUITY> 743,598,349
<SALES> 46,221,916
<TOTAL-REVENUES> 46,221,916
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 44,112,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,049,250
<INCOME-PRETAX> (13,890,942)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,890,942)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,890,942)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
