<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 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 333-3774
--------
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 June 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 JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
a. Consolidated Balance Sheets - As of June 30, 1997 and December 31, 1996 3
b. Consolidated Statements of Operations - For the Three Months
Ended June 30, 1997 and 1996 4
c. Consolidated Statements of Operations - For the
Six Months Ended June 30, 1997 and 1996 5
d. Consolidated Statement of Partners' Capital - For the Six Months
Ended June 30, 1997 6
e. Consolidated Statements of Cash Flows - For the Six Months Ended
June 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 18
Item 2.Change in Securities - None -
Item 3.Defaults upon Senior Securities - None -
Item 4.Submission of Matters to a Vote of Security Holders - None -
Item 5.Other Information - None -
Item 6.Exhibits and Reports on Form 8-K 18
Signature Page 19
</TABLE>
Page 2
<PAGE> 3
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,868,472 $ 3,360,507
Accounts receivable, net of allowance for doubtful accounts of $443,858,
and $300,378, respectively 3,816,978 2,537,324
Prepaid expenses and other 252,735 299,071
Receivable from affiliate -- 500,000
------------ ------------
Total current assets 5,938,185 6,696,902
------------ ------------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, net 223,142,183 163,998,045
Franchise costs, net of accumulated amortization of $95,592,495
and $75,221,372 respectively 495,096,842 389,065,380
Covenants not to compete, net of accumulated amortization of $481,324,
and $240,000, respectively 978,676 960,000
------------ ------------
719,217,701 554,023,425
------------ ------------
RESTRICTED FUNDS HELD IN ESCROW -- 1,782,537
------------ ------------
OTHER ASSETS 16,502,244 14,513,068
------------ ------------
$741,658,130 $577,015,932
============ ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 24,754,545 $ 23,958,762
Subscriber deposits and prepayments 440,030 260,244
Payable to affiliates 2,110,472 2,143,899
------------ ------------
Total current liabilities 27,305,047 26,362,905
------------ ------------
DEFERRED MANAGEMENT FEES PAYABLE TO AFFILIATE 5,963,214 4,293,532
------------ ------------
DEFERRED REVENUE 1,765,992 1,661,503
------------ ------------
LONG-TERM DEBT 647,616,369 493,571,442
------------ ------------
DEFERRED INCOME TAXES 5,111,308 5,111,308
------------ ------------
REDEEMABLE PREFERRED LIMITED UNITS - No Class A or Class B units
issued or outstanding at June 30, 1997 and December 31, 1996 -- --
------------ ------------
SPECIAL LIMITED PARTNER UNITS - No Class A or Class B units issued or
outstanding at June 30, 1997 and December 31, 1996 -- --
------------ ------------
PARTNERS' CAPITAL:
General Partner 538,962 460,152
Preferred Limited Partners - No Class A or Class B units issued or
outstanding at June 30, 1997 and December 31, 1996 -- --
Common Limited Partners - 1,850.05 units and 1,513.36 units, issued and
outstanding, respectively 53,357,238 45,555,090
------------ ------------
Total partners' capital 53,896,200 46,015,242
------------ ------------
$741,658,130 $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 JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
SERVICE REVENUES:
Basic service $ 33,003,999 $ 22,570,066
Premium service 5,046,914 3,856,149
Other 7,377,922 4,647,995
-------------- --------------
45,428,835 31,074,210
------------- -------------
OPERATING EXPENSES:
Operating costs 19,654,960 13,247,605
General and administrative 3,419,288 2,296,148
Depreciation and amortization 18,563,150 13,372,178
Management fees - related party 2,267,769 1,552,599
-------------- --------------
43,905,167 30,468,530
-------------- --------------
Income from operations 1,523,668 605,680
-------------- --------------
OTHER INCOME (EXPENSE):
Interest income 42,615 41,665
Interest expense (15,609,734) (11,337,716)
Other -- 831
-------------- --------------
(15,567,119) (11,295,220)
-------------- --------------
Loss before benefit for income taxes (14,043,451) (10,689,540)
BENEFIT FOR INCOME TAXES -- 59,989
-------------- --------------
Net loss (14,043,451) (10,629,551)
-------------- --------------
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 $ (14,043,451) $ (10,629,551)
=============== ==============
NET LOSS ALLOCATION TO PARTNERS' CAPITAL ACCOUNTS:
General Partner $ (140,434) $ (106,296)
Class B Preferred Limited Partners -- --
Common Limited Partners (13,903,017) (10,523,255)
-------------- --------------
$ (14,043,451) $ (10,629,551)
============== ==============
</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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
SERVICE REVENUES:
Basic service $ 59,745,910 $ 40,072,079
Premium service 9,324,177 6,849,971
Other 13,162,525 7,996,334
-------------- --------------
82,232,612 54,918,384
-------------- --------------
OPERATING EXPENSES:
Operating costs 35,337,178 23,279,616
General and administrative 6,367,859 4,199,945
Depreciation and amortization 33,455,349 24,295,803
Management fees - related party 4,109,300 2,744,666
--------------- ---------------
79,269,686 54,520,030
--------------- ---------------
Income from operations 2,962,926 398,354
--------------- ---------------
OTHER INCOME (EXPENSE):
Interest income 88,819 88,509
Interest expense (28,640,787) (18,116,240)
Other -- (1,654)
--------------- ---------------
(28,551,968) (18,029,385)
--------------- ---------------
Loss before benefit for income taxes (25,589,042) (17,631,031)
BENEFIT FOR INCOME TAXES -- 111,180
--------------- ---------------
Net loss (25,589,042) (17,519,851)
--------------- ---------------
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 $ (25,589,042) $ (15,737,536)
=============== ===============
NET LOSS ALLOCATION TO PARTNERS' CAPITAL ACCOUNTS:
General Partner $ (255,890) $ (157,375)
Class B Preferred Limited Partners -- --
Common Limited Partners (25,333,152) (15,580,161)
--------------- ---------------
$ (25,589,042) $ (15,737,536)
=============== ===============
</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 SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Class B
General Preferred 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 (255,890) -- (25,333,152) (25,589,042)
-------- ------ ----------- ------------
BALANCE, June 30, 1997 $ 538,962 $ -- $ 53,357,238 $ 53,896,200
========== ====== ============ ============
</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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (25,589,042) $ (17,519,851)
Adjustments to reconcile net loss to net cash provided by operating
activities
Depreciation and amortization 33,455,349 24,295,803
Amortization of debt issuance costs 1,108,494 199,409
Amortization of interest rate cap agreements 86,084 66,875
Amortization of discount on debentures 5,844,927 2,837,627
Forgiveness of note receivable with related party -- 100,000
Changes in assets and liabilities, net of effects from acquisitions -
Accounts receivable, net 124,249 1,558,448
Prepaid expenses and other 62,426 63,062
Receivable from affiliate 500,000 296,179
Accounts payable and accrued expenses (1,053,202) (197,889)
Subscriber deposits and prepayments (197,873) (69,591)
Payable to affiliates 2,354,461 1,507,062
Deferred revenue (34,420) 553,987
------------- --------------
Net cash provided by operating activities 16,661,453 13,691,121
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (31,578,550) (15,491,286)
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 (238,691) --
------------- --------------
Net cash used in investing activities (189,700,808) (140,796,216)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt -- 200,000,061
Payment of debt issuance costs (3,372,680) (9,305,903)
Borrowings under revolving credit agreement 182,850,000 9,775,000
Payments under revolving credit agreement (37,730,000) (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 171,547,320 123,726,210
-------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,492,035) (3,378,885)
CASH AND CASH EQUIVALENTS, beginning of period 3,360,507 6,547,438
------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 1,868,472 $ 3,168,553
=============== =============
CASH PAID FOR INTEREST $ 16,304,941 $ 12,669,902
=============== =============
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 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 June 30, 1996 financial
statements to conform with the June 30, 1997 presentation.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The consolidated financial statements as of June 30, 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 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
preliminary closing adjustments (the "Hickory Acquisition"). The purchase
price allocation as reflected in the consolidated financial statements as of
June 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 $89.2
million. 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 six months ended June 30, 1997 and 1996 are
presented in the following unaudited tabulation:
For the six months ended June 30,
------------------------------------
1997 1996
----------------- -----------------
Revenues $ 89,411,505 $ 80,426,916
============ ============
Income from operations $ 3,628,298 $ 2,504,818
============ ============
Net loss $(27,918,017) $(29,002,486)
============ ===========
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, to be ultimately used toward
future acquisitions. 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 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 $174.7million Georgia, Alabama, Louisiana
January 1995 $108.0million Kentucky, N. Carolina, S. Carolina
May 1995 $ 22.0million Georgia
May 1995 $ 48.0million Alabama
July 1995 $ 34.7million Georgia
November 1995 $ 35.0million S. Carolina
January 1996 $ 8.4million S. Carolina
March 1996 $112.0million 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 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 Partnership as of the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
--------- ----------- ---------
<S> <C> <C> <C>
Basic Subscribers:
Nashville Cluster 42,700 42,400 41,600
Northern Alabama Cluster 62,400 62,400 47,800
New Orleans Cluster 35,800 35,600 34,700
Atlanta Cluster 67,600 62,400 60,600
Greenville-Spartanburg/Asheville Cluster 103,500 78,100 76,800
Hickory Cluster 50,400 -- --
Non-Cluster Systems 63,200 49,700 49,800
---------- ------------ ----------
425,600 330,600 311,300
========== ============ ==========
Premium Subscription Units:
Nashville Cluster 22,000 22,800 25,200
Northern Alabama Cluster 21,000 27,000 23,100
New Orleans Cluster 17,800 16,800 16,500
Atlanta Cluster 33,100 23,700 22,300
Greenville-Spartanburg/Ashville Cluster 43,000 30,400 27,600
Hickory Cluster 20,200 -- --
Non-Cluster Systems 41,500 30,500 31,000
---------- ------------ ----------
198,600 151,200 145,700
========== ============ ==========
</TABLE>
Page 10
<PAGE> 11
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 June 30,
--------------
(Unaudited)
1997 1996
----------------------------- ------------------------------
% of
Amount Revenue Amount % of Revenue
-------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Service Revenues $ 45,429 100.0% $ 31,074 100.0%
------------- ---------- -------- -----------
Operating Expenses:
Operating costs 19,655 43.3 13,248 42.6
General and administrative 3,419 7.5 2,296 7.4
Depreciation and Amortization 18,563 40.8 13,372 43.0
Management Fees - Related Party 2,268 5.0 1,553 5.0
------------- ---------- -------- -----------
43,905 96.6 30,469 98.0
------------- ---------- -------- -----------
Income from Operations 1,524 3.4 605 2.0
------------- ---------- -------- -----------
Other Income (Expense):
Interest Income 43 .1 42 .1
Interest Expense (15,610) (34.4) (11,338) (36.5)
Other -- -- 1 --
------------- ---------- -------- -----------
(15,567) (34.3) (11,295) (36.4)
------------- ---------- -------- -----------
Loss Before Benefit for Income
Taxes (14,043) (30.9) (10,690) (34.4)
Benefit for Income Taxes -- -- 60 .2
------------- ---------- -------- -----------
Net Loss $ (14,043) (30.9)% $(10,630) (34.2)%
============= ========== ======== ===========
</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>
For the Six Months
Ended June 30,
-------------------------------------------------------------
(Unaudited)
1997 1996
----------------------------- ------------------------------
% of
Amount Revenue Amount % of Revenue
--------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Service Revenues $82,232 100.0% $ 54,918 100.0%
------- ------ ----------- ------
Operating Expenses:
Operating costs 35,337 43.0 23,280 42.4
General and administrative 6,368 7.7 4,200 7.7
Depreciation and Amortization 33,455 40.7 24,296 44.2
Management Fees - Related Party 4,109 5.0 2,744 5.0
-------- ------- ----------- ------
79,269 96.4 54,520 99.3
-------- ------- ----------- ------
Income from Operations 2,963 3.6 398 .7
-------- ------- ----------- ------
Other Income (Expense):
Interest Income 89 .1 89 .2
Interest Expense (28,641) (34.8) (18,116) (33.0)
Other -- -- (2) --
-------- ------ ----------- ------
(28,552) (34.7) (18,029) (32.8)
-------- ------ ----------- ------
Loss Before Benefit for Income
Taxes (25,589) (31.1) (17,631) (32.1)
Benefit for Income Taxes -- -- 111 .2
-------- ------ ----------- ------
Net Loss $(25,589) (31.1)% $ (17,520) (31.9)%
======== ====== =========== ======
</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 46.2% and 49.7% to $45,429,000 and $82,232,000,
for the three and six month periods ended June 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 construction
increased the coverage of the systems.
Page 12
<PAGE> 13
Operating Expenses
Operating costs increased by 48.4% and 51.8% to $19,655,000 and $35,337,000 for
the three and six months ended June 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 six months ended June 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 48.9% and 51.6% to $3,419,000 and
$6,368,000 for the three and six months ended June 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 38.8% and 37.7% to $18,563,000 and
$33,455,000 for the three and six months ended June 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 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 the increase in revenues as a result of internal subscriber
growth and retail rate increases.
Other Income / Expense
Interest expense increased by 37.7% and 58.1% to $15,610,000 and $28,641,000
for the three and six months ended June 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 and Debentures on March 28,
1996.
Net Loss
Net loss increased by 32.1% and 62.6% to $14,043,000 and $25,589,000 for the
three and six months ended June 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 June 30, 1997, the Partnership's long-term debt of $647.6 million consisted
of $130.5 million outstanding under the revolving credit and term loan facility
of CC-I, $303.0 million outstanding under the revolving credit and term loan
facility of CC-II, $89.1 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 $19.5 million and $62.0 million
under the credit facilities of CC-I and CC-II, respectively, at June 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. 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 $30.0 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, to be ultimately used toward
future acquisitions. 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 capital contributions. 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 such swap or cap is recorded as
interest expense in the period incurred. The affects of the Partnership's
hedging
Page 14
<PAGE> 15
practices on its weighted average borrowing rate and on reported interest
expense were not material for the three months ended June 30, 1997.
The Partnership incurred capital expenditures of approximately $31.6 million
during the six months ended June 30, 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 will be completed
during 1997 and will pass approximately 6,000 homes, from which there are
currently approximately 3,400 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, if 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
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 June 30, 1997 compared to the three months ended June 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 June 30, 1997 Ended June 30, 1996
---------------------------------------------------- ----------------------------------------------
(Unaudited) (Unaudited)
SYSTEMS Systems SYSTEMS Systems
ACQUIRED ON OR Acquired ACQUIRED ON OR Acquired
BEFORE 4/1/96 After 4/1/96 Total BEFORE 4/1/96 After 4/1/96 Total
--------------- ------------ -------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service Revenues $ 35,213 $10,216 $ 45,429 $ 31,074 -- $ 31,074
---------- ------- ---------- ---------- ------ ----------
Operating Expenses:
Operating costs 15,229 4,426 19,655 13,248 --
General and administrative 2,719 700 3,419 2,296 --
---------- ------- ---------- ---------- ------ ----------
17,948 5,126 23,074 15,544 -- 15,544
---------- ------- ---------- ---------- ------ ----------
EBITDA (a) $ 17,265 $ 5,090 $ 22,355 $ 15,530 -- $ 15,530
========== ======= ========== ========== ====== ==========
EBITDA Margin 49.0% 49.8% 49.2% 50.0% -- 50.0%
========== ======= ========== ========== ====== ==========
Operating Statistical Data, at end
of period:
Monthly revenue per subscriber $ 36.32 $ 33.26 $ 35.58 $ 33.27 -- $ 33.27
Homes passed 484,000 159,700 643,700 462,300 -- 462,300
Basic subscribers 323,200 102,400 425,600 311,300 -- 311,300
Basic penetration 66.8% 64.1% 66.1% 67.3% -- 67.3%
Premium subscriptions 156,200 42,400 198,600 145,900 -- 145,900
</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 16
<PAGE> 17
Results of Operations - Supplemental analysis for the Quarter Ended June 30,
1997 Versus the Quarter Ended
June 30, 1996 (for Systems Acquired Before April 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 June 30, 1997 versus the three months ended June 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 $4,139,000 or 13.3% when comparing the revenues
for the quarter ended June 30, 1997 to the results for the comparable systems
for the quarter ended June 30, 1996. This increase is due to a net gain of
approximately 11,900 or 3.8% for basic subscribers between quarters and,
second, to retail rate increases implemented in certain of the Partnership's
systems.
Operating expenses increased approximately $2,404,000 or 15.5% when comparing
the operating expenses for the quarter ended June 30, 1997 to the results for
the comparable systems for the quarter ended June 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 $1,735,000 or 11.2% when comparing the operating cash flow for
the quarter ended June 30, 1997 to the results for the comparable systems for
the quarter ended June 30, 1996. EBITDA margin decreased from 50.0% to 49.0%
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
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.
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
Exhibits
27 Financial Data Schedule
Page 18
<PAGE> 19
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS CAPITAL CORPORATION
FOR 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.
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 Executive Officer
By: /s/Jerald L. Kent August 13, 1997
-------------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Kent D. Kalkwarf August 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 August 13, 1997
-------------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Kent D. Kalkwarf August 13, 1997
-------------------------
Kent D. Kalkwarf
Senior Vice President and
Chief Financial Officer
Page 19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,868,472
<SECURITIES> 0
<RECEIVABLES> 3,816,978
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,938,185
<PP&E> 223,142,183
<DEPRECIATION> 0
<TOTAL-ASSETS> 741,658,130
<CURRENT-LIABILITIES> 27,305,047
<BONDS> 647,616,369
0
0
<COMMON> 0
<OTHER-SE> 53,896,200
<TOTAL-LIABILITY-AND-EQUITY> 741,658,130
<SALES> 45,428,835
<TOTAL-REVENUES> 45,428,835
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 43,905,167
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,609,734
<INCOME-PRETAX> (14,043,451)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,043,451)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,043,451)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
