<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, 1998
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 March 31, 1998, 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, 1998
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements
a. Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 3
b. Consolidated Statements of Operations - Three Months Ended
March 31, 1998 and 1997 4
c. Consolidated Statement of Partners' Capital - Three Months Ended
March 31, 1998 5
d. Consolidated Statements of Cash Flows - Three Months Ended March 31, 1998 6
and 1997
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 16
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-None 16
Signature Page 17
</TABLE>
Page 2
<PAGE> 3
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,264,628 $ 2,742,119
Accounts receivable, net of allowance for doubtful accounts of
$349,938 and $312,048, respectively 2,212,682 3,158,282
Prepaid expenses and other 539,050 341,396
------------ ------------
Total current assets 6,016,360 6,241,797
------------ ------------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, net 244,754,859 235,808,350
Franchise costs, net of accumulated amortization of
$131,253,913 and $119,968,082, respectively 470,928,273 480,201,100
Covenant not to compete, net of accumulated amortization of $540,000 and
$480,000, respectively 660,000 720,000
------------ ------------
716,343,132 716,729,450
OTHER ASSETS, net 13,370,872 15,455,893
------------ ------------
$735,730,364 $738,427,140
============ ============
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current maturities of long term debt $ 8,817,950 $ 5,375,000
Accounts payable and accrued expenses 28,058,577 29,972,845
Subscriber deposits and prepayments 503,664 532,595
Payables to manager of cable television systems 867,344 1,120,476
------------ ------------
Total current liabilities 38,247,535 37,000,916
------------ ------------
DEFERRED REVENUE 1,872,820 1,718,710
------------ ------------
LONG-TERM DEBT 677,830,078 666,662,475
------------ ------------
DEFERRED MANAGEMENT FEES 8,536,502 7,805,448
------------ ------------
DEFERRED INCOME TAXES 5,111,308 5,111,308
------------ ------------
PARTNERS' CAPITAL:
General Partner 41,321 201,281
Common Limited Partners - 1,850.05 units issued and outstanding 4,090,800 19,927,002
------------ ------------
Total partners' capital 4,132,121 20,128,283
------------ ------------
$735,730,364 $738,427,140
============ ============
</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 MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
-------------- ------------
<S> <C> <C>
SERVICE REVENUES $ 48,044,199 $ 36,803,777
------------ ------------
OPERATING EXPENSES:
Operating costs 20,187,593 15,682,218
General and administrative 3,869,947 2,948,571
Depreciation and amortization 21,202,436 14,892,199
Management fees 2,402,394 1,841,531
------------ ------------
47,662,370 35,364,519
------------ ------------
Income from operations 381,829 1,439,258
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 50,456 46,204
Interest expense (16,428,447) (13,031,053)
------------ ------------
(16,377,991) (12,984,849)
------------ ------------
Loss before income taxes (15,996,162) (11,545,591)
INCOME TAXES -- --
------------ ------------
Net loss (15,996,162) (11,545,591)
------------ ------------
NET LOSS ALLOCATION TO PARTNERS' CAPITAL ACCOUNTS:
General Partner $ (159,960) $ (115,456)
Class B Preferred Limited Partners -- --
Common Limited Partners (15,836,202) (11,430,135)
------------ ------------
$(15,996,162) $(11,545,591)
============ ============
</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, 1998
(Unaudited)
<TABLE>
<CAPTION>
Class B
Preferred Common
General Limited Limited
Partner Partners Partners Total
----------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 201,281 $ -- $ 19,927,002 $ 20,128,283
Allocation of net loss (159,960) -- (15,836,202) (15,996,162)
------------ ------------ ------------ ------------
BALANCE, March 31, 1998 $ 41,321 $ -- $ 4,090,800 $ 4,132,121
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
Page 5
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CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(15,996,162) $(11,545,591)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization 21,202,436 14,892,199
Amortization of debt issuance costs, debt discount and interest rate
cap agreements 3,653,089 3,218,828
Changes in assets and liabilities, net of effects from acquisitions-
Accounts receivable, net 945,600 126,030
Prepaid expenses and other (197,654) (244,061)
Accounts payable and accrued expenses (1,914,268) (8,820,511)
Subscriber deposits and prepayments (28,931) (114,233)
Payable to manager of cable television systems, including
deferred management fees 477,922 879,282
Deferred revenue 154,110 73,277
------------ ------------
Net cash provided by (used in) operating activities 8,296,142 (1,534,780)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (19,264,704) (10,663,994)
Payments for acquisitions, net of cash acquired -- (69,102,324)
Restricted funds held in escrow -- 1,782,537
------------ ------------
Net cash used in investing activities (19,264,704) (77,983,781)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt issuance costs (8,929) (3,024,672)
Borrowings under revolving credit agreement 14,800,000 88,250,000
Payments under revolving credit agreement (3,300,000) (35,230,000)
Partners' capital contributions -- 29,800,000
------------ ------------
Net cash provided by financing activities 11,491,071 79,795,328
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 522,509 276,767
CASH AND CASH EQUIVALENTS, beginning of period 2,742,119 3,360,507
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 3,264,628 $ 3,637,274
============ ============
CASH PAID FOR INTEREST $ 15,829,861 $ 12,524,517
============ ============
CASH PAID FOR TAXES, net of refunds $ -- $ --
============ ============
</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, 1997 financial
statements to conform with the March 31, 1998 presentation.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The consolidated financial statements as of March 31, 1998 and 1997, 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, 1997.
Interim results are not necessarily indicative of results for a full year.
3. LITIGATION
A purported class action lawsuit on behalf of the Cencom Cable Income Partners,
L.P. (CCIP) limited partners was filed in 1995 (the "Action"), which sought,
among other things, to enjoin permanently the purchase of systems from CCIP,
including those by CC-II (the "CCIP Acquisition"). On February 15, 1996, all of
the plaintiff's claims for injunctive relief were dismissed (including that
which sought to prevent the consummation of the CCIP Acquisition); the
plaintiff's claims for money damages which may have resulted from the CCIP
Acquisition remain pending. In October 1996 the plaintiff filed a Consolidated
Amended Class Action Complaint (the "Amended Complaint"). The general partner of
CCIP believed that portions of the Amended Complaint were legally inadequate and
filed a dispositive motion as to all remaining claims in the Action. In October
1997, The court granted in part and denied in part the defendants motion, the
effect of which narrowed the remaining issues significantly. Each of the
defendants in the Action including the Partnership, believes the Action, which
remains pending, to be without merit and is contesting it vigorously. There can
be no assurance, however, that the plaintiff will not be awarded damages, some
or all of which may be payable by the Partnership, in connection with the
Action.
In June 1997, a purported class action lawsuit was filed in Delaware Chancery
Court under the name of Wallace, Mathews, Lerner and Roberts v. Wood et.al.,
Case No. 15731, by certain limited partners of Cencom Cable Income Partners II,
L.P. (CCIP II), a publicly held limited partnership, against numerous
defendants. The suit alleges that defendants CC-I and CC-II, both of which are
related to CCIP II's general partner, purchased cable television systems from
CCIP II in April 1997 at less than fair value. In connection with the purchase
of these assets, CC-I
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and CC-II paid the highest amount bid in a multiple round auction process
involving nonaffiliated 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 the
purchasers was approved by a majority of CCIP II's limited partners. In November
1997, the plaintiffs amended their complaint to restate their allegations as a
shareholders' derivative claim. For these reasons, amongst others, management of
the Partnership believes that the claims against CC-I and CC-II are without
merit and will defend them vigorously.
The Partnership is also a party to lawsuits which are generally incidental to
its business. In the opinion of management, after consulting with legal counsel,
the outcome of these lawsuits will not have a material adverse effect on the
Partnership's consolidated financial position or results of operations.
Page 8
<PAGE> 9
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 $69.1 million N. Carolina
February 1997 $3.7 million Georgia
April 1997 $90.5 million N. Carolina, S. Carolina
</TABLE>
The only pending sale transaction is for approximately 1,600 subscribers in
Tennessee, subject to the buyer obtaining financing and completion of the asset
sale contract.
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>
March 31, December 31, March 31,
1998 1997 1997
------------------ ---------------- ---------------
<S> <C> <C> <C>
Basic Subscribers:
Nashville Cluster 44,300 43,700 42,800
Northern Alabama Cluster 63,800 62,900 62,800
New Orleans Cluster 37,300 36,600 36,000
Atlanta Cluster 70,500 69,000 67,400
Greenville-Spartanburg/Asheville Cluster 107,100 105,000 79,500
Hickory Cluster 51,900 51,000 35,100
Non-Cluster Systems 65,300 64,000 51,000
-------
------- -------
440,200 432,200 374,600
======= ======= =======
Premium Subscription Units:
Nashville Cluster 21,200 21,800 22,400
Northern Alabama Cluster 25,600 25,100 26,900
New Orleans Cluster 19,700 18,500 17,900
Atlanta Cluster 64,400 61,000 26,800
Greenville-Spartanburg/Ashville Cluster 43,400 41,500 32,200
Hickory Cluster 19,100 18,700 14,700
Non-Cluster Systems 35,200 36,200 32,700
------- ------- -------
228,600 222,800 173,600
======= ======= =======
</TABLE>
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<PAGE> 10
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)
1998 1997
---------------------------------- -----------------------------------
% of % of
Amount Revenue Amount Revenue
-------- -------- ---------- -------
<S> <C> <C> <C> <C>
Service Revenues $ 48,044 100.0% $ 36,804 100.0%
-------- -------- ---------- -------
Operating Expenses:
Operating costs 20,188 42.0% 15,682 42.6%
General and administrative 3,870 8.1% 2,949 8.0%
Depreciation and Amortization 21,202 44.1% 14,892 40.5%
Management Fees - Related Party 2,402 5.0% 1,842 5.0%
-------- -------- ---------- -------
47,662 99.2% 35,365 96.1%
-------- -------- ---------- -------
Income (Loss) From Operations 382 .8% 1,439 3.9%
-------- -------- ---------- -------
Other Income (Expense):
Interest Income 50 0.1% 46 0.1%
Interest Expense (16,428) -34.2% (13,031) -35.4%
Other -- 0.0% -- 0.0%
-------- -------- ---------- -------
(16,378) -34.1% (12,985) -35.3%
-------- -------- ---------- -------
Loss Before Benefit for Income Taxes (15,996) -33.3% (11,546) -31.4%
Benefit for Income Taxes -- 0.0% -- 0.0%
-------- -------- ---------- -------
Net Loss $(15,996) -33.3% $ (11,546) -31.4%
======== ======== ========== =======
</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 30.5% from $36.8 million to $48.0 million, for the three
month period ended March 31, 1998, when compared to the similar period of 1997.
This increase in 1998 is primarily due to an increase in subscribers for the
cable services offered by the systems resulting primarily from acquisitions of
cable systems by the Partnership throughout 1997. 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
applicable to rate regulation. The internal subscriber growth reflects the
success of management's marketing efforts to add new customers and retain
existing customers, as well as offering 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 28.7% from $15.7 million to $20.2 million for the
three months ended March 31, 1998 when compared to the similar period of 1997.
The majority of this increase was related to costs associated with the
acquisitions of additional cable television systems during 1997. Operating
costs, as a percentage of service revenues, have decreased from 42.6% for the
quarter ended March 31, 1997 to 42.0% for the quarter ended March31, 1998,
primarily as a result of the Partnership's efforts to increase operating
efficiencies as a result of clustering its cable television systems.
General and administrative expenses increased by $921,000 or 31.2% for the three
months ended March 31, 1998 when compared to the similar period of 1997. This
increase is primarily a result of the costs associated with acquisitions of
additional cable television systems during 1997. General and administrative
expenses, as a percentage of service revenues, have increased to 8.1% from 8.0%
for the quarters ended March 31, 1998 and March 31, 1997, respectively.
Depreciation and amortization increased by 42.4% from $14.9 million to $21.2
million for the three months ended March 31, 1998, when compared to the similar
period of 1997. 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 increased during the three months ended March 31, 1998 compared to the
similar period of 1997. This increase is due primarily to a decrease in the
estimated useful lives used in calculating depreciation.
Other Income / Expense
Interest expense increased by 26.1% from $13.0 million to $16.4 million for the
three months ended March 31, 1998, when compared to the similar period of 1997.
This increase was primarily due to the increase in the average outstanding bank
debt balance between the comparable periods.
Net Loss
Net loss increased by 38.5% from $11.5 million to $16.0 million for the three
months ended March 31, 1998 when compared to the similar period of 1997. In
1998, increased depreciation and interest expense were significant factors
versus the prior year.
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Liquidity and Capital Resources
The Partnership's growth by acquisition has historically 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, 1998, the Partnership's long-term debt of $677.8 million consisted
of $114.2 million outstanding under the revolving credit and term loan facility
of CC-I, $349.0 million outstanding under the revolving credit and term loan
facility of CC-II, $125.0 million of indebtedness from the sale of 11 1/4%
Senior Notes by Charter Southeast, and $98.4 million of indebtedness from the
sale of Debentures. The Partnership had unused and available borrowing capacity
of $13.0 million and $41.0 million under the credit facilities of CC-I and
CC-II, respectively, at March 31, 1998. The Partnership is currently negotiating
with the agent banks of the revolving credit and term loan facilities of CC-I
and CC-II for the purpose of amending or restating the existing facilities to
allow for increased availability, increased limits for capital expenditures and
lengthened loan amortization schedules.
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 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, 1998.
The Partnership incurred capital expenditures of approximately $19.3 million
during the first quarter of 1998 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 $80.0 million to
$90.0 million during fiscal 1998.
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. One such proposal currently being explored by the Partnership
involves approximately 8,200 customers residing within the City of LaGrange,
Georgia. Pursuant to the proposal 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 costs
savings. Management continues to work diligently toward completion of an
agreement. However, 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.
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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.
Year 2000 Impact
As of the quarter ended March 31, 1998, the Company began a process to identify
and address issues surrounding the Year 2000 and its impact on the Company's
operations. The issue surrounding the Year 2000 is whether the computer systems,
software and all equipment using a computer chip will properly recognize date
sensitive information when the year changes to 2,000, or "00". Computerized
systems that do not properly recognize such information could generate erroneous
data or cause a system to fail. This issue impacts the Company as to its owned
or licensed computer systems and equipment used in connection with internal
operations, including systems, software and equipment supplied by vendors and
third party service providers. The Company may also be affected by virtue of its
external dealings with third parties in the regular course of business. As
management of the Company has not completed its initial assessment of the impact
the Year 2000 may have on the Company's operations, it cannot estimate the costs
associated with ensuring the Company's operations are Year 2000 compliant. The
Company is in the initial phases of determining the impact of the Year 2000, and
management anticipates completion of the project by December 1998, allowing
adequate time for testing. However, there can be no assurance that the Company's
operations nor the computer systems of other companies with whom the Company
conducts business will be Year 2000 compliant prior to December 31, 1999. If
such modifications and conversions are not completed timely, the Year 2000
problem may have a material impact on the operation of the Company.
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Supplemental Analysis of Quarterly Operating Results
The following table sets forth certain operating results and statistics for the
three months ended March 31, 1998 compared to the three months ended March 31,
1997. The following dollar amounts are in thousands, except for per subscriber
amounts:
<TABLE>
<CAPTION>
For the Three Months For the Three Months
---------------------------------------------- -----------------------------------------
Ended March 31, 1998 Ended March 31, 1997
(Unaudited) (Unaudited)
SYSTEMS Systems SYSTEMS Systems
ACQUIRED ON OR Acquired ACQUIRED ON OR Acquired
BEFORE 1/1/97 After 1/1/97 Total BEFORE 1/1/97 After 1/1/97 Total
------------------ ------------ ---------- ---------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service Revenues $38,119 $9,925 $48,044 $34,636 $2,168 $36,804
---------- ---------- ---------- ---------- ---------- ---------
Operating Expenses:
Operating costs 16,040 4,147 20,187 14,705 977 15,682
General and administrative 3,202 668 3,870 2,764 185 2,949
---------- ---------- ---------- ---------- ---------- ---------
19,242 4,815 24,057 17,469 1,162 18,631
---------- ---------- ---------- ---------- ---------- ----------
EBITDA (a) $18,877 5,110 $23,987 $17,167 1,006 $18,173
========== ========== ========== ========== ========== =========
EBITDA Margin 49.5% 51.5% 49.9% 49.6% 46.4% 49.4%
========== ========== ========== ========== ========== =========
Operating Statistical Data, at end
of period:
Monthly revenue per subcriber $ 36.48 -- -- $ 33.15 -- --
Homes passed (b) 532,300 149,000 681,300 507,800 60,200 568,000
Basic subscribers 348,300 91,900 440,200 336,800 37,800 374,600
Basic penetration 65.4% 61.7% 64.6% 66.3% 62.8% 66.0%
Premium subscriptions 192,600 35,900 228,500 121,600 52,000 173,600
</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.
(b) Homes passed as previously reported for March 31, 1997 were revised upward
by 13,000 homes passed as a result of management's review and verification of
the engineering and billing records.
Page 14
<PAGE> 15
Results of Operations - Supplemental analysis for the Quarter Ended March 31,
1998 Versus the Quarter Ended March 31, 1997 (for Systems Acquired
Before January 1, 1997)
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, 1998 versus the three months ended March 31, 1997.
Specifically, the comparable analysis includes the results of operations for
acquisitions completed between April 1994 and December 1996. - see Significant
Transactions for a complete listing of all acquisitions by the Company.
Service revenues increased by $3,483,000 or 10.1% when comparing the revenues
for the quarter ended March 31, 1998 to the results for the comparable systems
for the quarter ended March 31, 1997. This increase is due to a net gain of
approximately 11,500 or 3.4%, for basic subscribers between quarters and,
second, to retail rate increases implemented in certain of the Partnership's
systems.
Operating expenses increased approximately $1,773,000 or 10.1% when comparing
the operating expenses for the quarter ended March 31, 1998 to the results for
the comparable systems for the quarter ended March 31, 1997. 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 on
a per subscriber basis 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 $1,710,000 or 10.0% when comparing the operating cash flow for the
quarter ended March 31, 1998 to the results for the comparable systems for the
quarter ended March 31, 1997. EBITDA margin decreased from 49.6% to 49.5% when
comparing the similar periods, primarily as a result of the increase in
programming costs, offset by the Partnership realizing certain cost savings as a
result of increasing the subscriber base in its operating clusters.
Page 15
<PAGE> 16
Part II. Other Information
Item 1. Legal Proceedings
A purported class action lawsuit on behalf of the Cencom Cable Income Partners,
L.P. (CCIP) limited partners was filed in 1995 (the "Action"), which sought,
among other things, to enjoin permanently the purchase of systems from CCIP,
including those by CC-II (the "CCIP Acquisition"). On February 15, 1996, all of
the plaintiff's claims for injunctive relief were dismissed (including that
which sought to prevent the consummation of the CCIP Acquisition); the
plaintiff's claims for money damages which may have resultedfrom the CCIP
Acquisition remain pending. In October 196, the plaintiff filed a Consolidated
Amended Class Action Complaint(the "Amended Complaint"). The general partner of
CCIP believed that portions of the Amended Complaint were legally inadequate and
filed a dispositive motion as to all remaining claims in the Action. In October
1997, The court granted in part and denied in part the defendants motion, the
effect of which narrowed the remaining issues significantly. Each of the
defendants in the Action including the Partnership, believes the Action, which
remains pending, to be without merit and is contesting it vigorously. There can
be no assurance, however, that the plaintiff will not be awarded damages, some
or all of which may be payable by the Partnership, in connection with the
Action.
In June 1997, a purported class action lawsuit was filed in Delaware Chancery
Court under the name of Wallace, Mathews, Lerner and Roberts v. Wood et.al.,
Case No. 15731, by certain limited partners of Cencom Cable Income Partners II,
L.P. (CCIP II), a publicly held limited partnership, against numerous
defendants. The suit alleges that defendants CC-I and CC-II, both of which are
related to CCIP II's general partner, purchased cable television systems 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 nonaffiliated 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 the purchasers was approved by a majority of CCIP II's limited
partners. In November 1997, the plaintiffs amended their complaint to restate
their allegations as a shareholders' derivative claim. For these reasons,
amongst others, management of the Partnership believes that the claims against
CC-I and CC-II are without merit and will defend them vigorously.
The Partnership is also a party to lawsuits which are generally incidental to
its business. In the opinion of management, after consulting with legal counsel,
the outcome of these lawsuits will not have a material adverse effect on the
Partnership's consolidated financial position or results of operations.
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 16
<PAGE> 17
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS CAPITAL CORPORATION
FOR QUARTER ENDED MARCH 31, 1998
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 April 30, 1998
----------------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Kent D. Kalkwarf April 30, 1998
----------------------------
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 April 30, 1998
----------------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Kent D. Kalkwarf April 30, 1998
----------------------------
Kent D. Kalkwarf
Senior Vice President and
Chief Financial Officer
Page 17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,264,628
<SECURITIES> 0
<RECEIVABLES> 2,524,730
<ALLOWANCES> 312,048
<INVENTORY> 0
<CURRENT-ASSETS> 6,016,360
<PP&E> 244,754,859
<DEPRECIATION> 0
<TOTAL-ASSETS> 735,730,364
<CURRENT-LIABILITIES> 38,247,535
<BONDS> 677,830,078
0
0
<COMMON> 0
<OTHER-SE> 4,132,121
<TOTAL-LIABILITY-AND-EQUITY> 735,730,364
<SALES> 48,044,199
<TOTAL-REVENUES> 48,044,199
<CGS> 0
<TOTAL-COSTS> 47,662,370
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,428,447
<INCOME-PRETAX> (15,996,162)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,996,162)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,996,162)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
