<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 333-26853
CCA HOLDINGS CORP.
-------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 43-1720013
-------- ----------
(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
</TABLE>
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
--- ---
<PAGE> 2
CCA HOLDINGS CORP.
FORM 10-Q - FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
Page
----
Part I. Financial Information
---------------------
<S> <C> <C>
Item 1. Consolidated Financial Statements:
CCA Holdings Corp. and Subsidiaries
a. Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 3
b. Consolidated Statements of Operations - Three Months Ended
September 30, 1997 and 1996 5
c. Consolidated Statements of Operations - Nine Months Ended
September 30, 1997 and 1996 6
d. Consolidated Statement of Shareholders' Investment (Deficit)-Nine Months Ended
September 30, 1997 7
e. Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1997 and 1996 8
f. Notes to Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Part II. Other Information
-----------------
Item 1. Legal Proceedings 20
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 20
Signature Page 21
</TABLE>
2
<PAGE> 3
CCA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,557,089 $ 2,934,939
Accounts receivable, net of allowance for doubtful accounts of $626,429
and $371,166, respectively 7,130,335 5,465,750
Prepaid expenses and other 890,108 490,443
Net assets of discontinued operation 108,827 108,827
------------- ------------
Total current assets 9,686,359 8,999,959
------------- ------------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, net 215,236,484 206,351,379
Franchise costs, net of accumulated amortization of $76,298,553 and
$51,761,758, respectively 415,221,994 439,232,345
------------- ------------
630,458,478 645,583,724
------------- ------------
OTHER ASSETS, net 8,936,363 9,667,356
------------- ------------
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS 71,467,129 78,069,816
------------- ------------
NET NONCURRENT ASSETS OF DISCONTINUED OPERATION 1,760,015 1,760,015
------------- ------------
$ 722,308,344 $744,080,870
============= ============
</TABLE>
(Continued on the following page)
3
<PAGE> 4
CCA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------- ------------
(Unaudited)
----------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT (DEFICIT)
--------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 22,158,750 $ 5,880,000
Accounts payable and accrued expenses 20,138,986 18,890,302
Subscriber deposits 456,948 473,601
Payables to affiliates 1,690,252 2,630,149
Other current liabilities -- 1,401,951
-------------- ---------------
Total current liabilities 44,444,936 29,276,003
-------------- ---------------
DEFERRED REVENUE 1,076,307 708,339
-------------- ---------------
DEFERRED INCOME TAXES 55,500,000 55,500,000
-------------- ---------------
LONG-TERM DEBT, less current maturities 448,201,250 462,120,000
-------------- ---------------
DEFERRED MANAGEMENT FEES PAYABLE TO AFFILIATE 1,755,000 1,755,000
-------------- ---------------
NOTES PAYABLE 82,000,000 82,000,000
-------------- ---------------
ACCRUED INTEREST ON NOTES PAYABLE 33,268,131 22,843,402
-------------- ---------------
MINORITY INTEREST IN SUBSIDIARY 82,880,499 90,273,351
-------------- ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' INVESTMENT (DEFICIT):
Class A Voting Common Stock, $.01 par value, 100,000 shares
authorized; 75,515 shares issued and outstanding 755 755
Class B Voting Common Stock, $.01 par value, 20,000 shares authorized;
4,300 shares issued and outstanding 43 43
Class C Non-Voting Common Stock, $.01 par value, 5,000 shares
authorized; 185 shares issued and outstanding 2 2
Additional paid-in capital 79,999,200 79,999,200
Accumulated deficit (106,817,779) (80,395,225)
-------------- ---------------
Total shareholders' investment (deficit) (26,817,779) (395,225)
-------------- ---------------
$ 722,308,344 $ 744,080,870
============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
4
<PAGE> 5
CCA HOLDINGS CORP. 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 $ 28,439,892 $ 25,195,539
Premium service 4,997,333 4,891,780
Other 9,265,675 6,686,222
-------------- --------------
42,702,900 36,773,541
-------------- --------------
EXPENSES:
Operating, general and administrative 20,938,427 18,707,245
Depreciation and amortization 15,850,906 18,069,074
Management and financial advisory service fees - related parties 1,359,254 1,835,750
-------------- --------------
38,148,587 38,612,069
-------------- --------------
Income (loss) from operations 4,554,313 (1,838,528)
-------------- --------------
OTHER INCOME (EXPENSE):
Interest income 23,245 44,025
Interest expense (13,287,609) (12,165,214)
Other, net -- (265,815)
-------------- --------------
(13,264,364) (12,387,004)
-------------- --------------
Loss before equity in loss of unconsolidated limited
partnerships, provision for income taxes and minority interest
in loss of subsidiary (8,710,051) (14,225,532)
EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS (1,523,879) (1,605,099)
-------------- --------------
Loss before provision for income taxes and minority interest in
loss of subsidiary (10,233,930) (15,830,631)
PROVISION FOR INCOME TAXES -- --
-------------- --------------
Loss before minority interest in loss of subsidiary (10,233,930) (15,830,631)
MINORITY INTEREST IN LOSS OF SUBSIDIARY 2,244,444 4,961,697
-------------- --------------
Net loss $ (7,989,486) $ (10,868,934)
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
CCA HOLDINGS CORP. 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 $ 83,579,519 $ 70,693,010
Premium service 15,020,008 14,285,943
Other 26,575,998 19,625,336
--------------- ---------------
125,175,525 104,604,289
--------------- ---------------
EXPENSES:
Operating, general and administrative 62,253,163 53,412,294
Depreciation and amortization 46,608,545 48,386,428
Management and financial advisory service fees - related parties 4,074,540 5,227,200
--------------- ---------------
112,936,248 107,025,922
--------------- ---------------
Income (loss) from operations 12,239,277 (2,421,633)
--------------- ---------------
OTHER INCOME (EXPENSE):
Interest income 25,935 138,435
Interest expense (39,477,931) (34,611,112)
Other, net -- (307,699)
--------------- ---------------
(39,451,996) (34,780,376)
--------------- ---------------
Loss before equity in loss of unconsolidated limited
partnerships, and minority interest in loss of subsidiary (27,212,719) (37,202,009)
EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS (6,602,687) (4,922,863)
--------------- ---------------
Loss before provision for income taxes and minority interest in
loss of subsidiary (33,815,406) (42,124,872)
PROVISION FOR INCOME TAXES -- --
--------------- ---------------
Loss before minority interest in loss of subsidiary (33,815,406) (42,124,872)
MINORITY LOSS IN SUBSIDIARY 7,392,852 12,597,277
--------------- ---------------
Net loss $ (26,422,554) $ (29,527,595)
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE> 7
CCA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ 800 $ 79,999,200 $ (80,395,225) $ (395,225)
Net loss -- -- (26,422,554) (26,422,554)
------- ------------- -------------- -------------
BALANCE, September 30, 1997 $ 800 $ 79,999,200 $ (106,817,779) $ (26,817,779)
======= ============= ============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE> 8
CCA HOLDINGS CORP. 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 $ (26,422,554) $ (29,527,595)
Adjustments to reconcile net loss to net cash provided by operating
activities-
Depreciation and amortization 46,608,545 48,386,428
Amortization of debt issuance costs 935,331 --
Equity in loss of unconsolidated limited partnerships 6,602,687 4,922,863
Minority interest in loss of subsidiary (7,392,852) (12,597,277)
Changes in assets and liabilities, net of effects from acquisitions-
Accounts receivable, net (1,664,585) (682,209)
Prepaid expenses and other (399,665) 225,829
Other assets -- (2,046,939)
Accounts payable and accrued expenses 1,248,684 (87,850)
Subscriber deposits (16,653) (246,086)
Payables to affiliates, including deferred management fees (939,897) 1,500,000
Other current liabilities (1,401,951) --
Deferred revenue 367,968 (98,070)
Accrued interest on note payable 10,424,729 9,208,060
-------------- --------------
Net cash provided by operating activities 27,949,787 18,957,154
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (30,728,402) (25,969,477)
Payments for acquisitions, net of cash acquired -- (90,484,489)
Payments of organizational expenses (194) --
Restricted funds held in escrow -- (698,402)
Payments of franchise costs (526,444) (360,647)
Payments of covenants not to compete (157,083) --
Other -- (60,732)
-------------- --------------
Net cash used in investing activities $ (31,412,123) $ (117,573,747)
-------------- --------------
</TABLE>
(Continued on the following page)
8
<PAGE> 9
CCA HOLDINGS CORP. 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 FINANCING ACTIVITIES:
Payments of debt issuance costs $ (275,514) $ (1,814,338)
Borrowings under revolving credit and term loan facility 19,600,000 92,000,000
Payments under revolving credit and term loan facility (17,240,000) (3,000,000)
------------- --------------
Net cash provided by financing activities 2,084,486 87,185,662
------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,377,850) (11,430,931)
CASH AND CASH EQUIVALENTS, beginning of period 2,934,939 11,430,931
------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 1,557,089 $ --
============= ==============
CASH PAID FOR INTEREST $ 27,435,365 $ 25,802,443
============= ==============
CASH PAID FOR TAXES $ -- $ --
============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
9
<PAGE> 10
CCA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
CCA Holdings Corp. (CCA Holdings), a Delaware corporation, was formed on
November 17, 1994. CCA Holdings commenced operations in January 1995 in
connection with consummation of the Crown Transaction (as defined below). The
accompanying consolidated financial statements include the accounts of CCA
Holdings; its wholly-owned subsidiary, CCA Acquisition Corp. (CAC); CAC's
wholly-owned subsidiary, Cencom Cable Entertainment, Inc. (CCE); and Charter
Communications Entertainment I, L.P. (CCE-I), which is controlled by CAC
through its general partnership interest (collectively referred to as the
"Company"). CCA Holdings is owned approximately 85% by Kelso Investment
Associates V, L.P., an investment fund, together with an affiliate
(collectively referred to as "Kelso" herein) and certain other individuals and
approximately 15% by Charter Communications, Inc. (Charter), manager of CCE-I's
cable television systems. All material intercompany transactions and balances
have been eliminated.
In January 1995, CAC completed the acquisition of certain cable television
systems from Crown Media, Inc. (Crown), a subsidiary of Hallmark Cards,
Incorporated (the "Crown Transaction"). On September 29, 1995, CAC and CCT
Holdings Corp. (CCT Holdings), an entity affiliated with CCA Holdings by common
ownership, entered into an Asset Exchange Agreement whereby CAC exchanged a 1%
undivided interest in all of its assets for a 1.22% undivided interest in
certain assets to be acquired by CCT Holdings from an affiliate of Gaylord
Entertainment Company, Inc. (Gaylord). Effective September 30, 1995, CCT
Holdings acquired certain cable television systems from Gaylord. Upon
execution of the Asset Purchase Agreement, CAC and CCT Holdings entered into a
series of agreements to contribute the assets acquired under the Crown
Transaction to CCE-I and certain assets acquired in the Gaylord acquisition to
Charter Communications Entertainment II, L.P. (CCE-II). As a result of
entering into these agreements, CCA Holdings owns a 55% interest and CCT
Holdings owns a 45% interest in the operations of CCE-I and CCE-II,
respectively. CCA Holdings investment in CCE-II is accounted for by the equity
method. The net loss of CCE-I for the period prior to September 29, 1995, was
allocated entirely to CCA Holdings.
The accompanying unaudited financial statements of CCA Holdings have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements are unaudited; however, in the opinion of
management, such statements include all adjustments necessary for a fair
presentation of the results for the periods presented. The interim financial
statements should be read in conjunction with the financial statements and
notes thereto as of and for the year ended December 31, 1996. Interim results
are not necessarily indicative of results for a full year.
10
<PAGE> 11
3. INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS:
Summary financial information of CCE-II for the three and nine month periods
ending September 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Charter Communications Entertainment II, L.P.
----------------------------------------------------------------------------------
For the Three Months Ended For the Nine Months Ended
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Service revenues $ 24,429,069 $ 22,312,458 $ 71,773,215 $ 66,781,032
Income from operations 1,394,475 1,183,864 3,766,586 3,606,922
Net loss $ (2,770,688) $ (2,918,362) $ (12,004,885) $ (8,950,660)
</TABLE>
As of September 30, 1997, CCE-II provided cable television service to
approximately 172,100 basic subscribers in southern California.
4. LITIGATION:
CCA Holdings is involved from time to time in routine legal matters incidental
to its business. Management, after consultation with its legal counsel,
believes that the resolution of such matters will not have a material adverse
effect on CCA Holdings' financial position or results of operations.
CCE-I is a named defendant in a purported class action lawsuit filed on October
20, 1995 on behalf of the Cencom Cable Income Partners, L.P. ("CCIP") limited
partners, which was filed in the Chancery Court of New Castle County, Delaware
(the "Action"). The Action named as defendants the general partner of CCIP,
the purchasers of all the systems previously owned by CCIP (which includes
CCE-I and certain other affiliates of Charter), Charter and certain
individuals, including the directors and executive officers of the general
partner of CCIP. On February 15, 1996, the Court of Chancery of the State of
Delaware in and for New Castle County dismissed all of the plaintiff's claims
for injunctive relief (including that which sought to prevent the consummation
of the Illinois system acquisition); the plaintiff's claims for money damages
which may have resulted from the sale by CCIP of its assets (including the
Illinois system) remain pending. Based upon, among other things, the advice of
counsel, each of the defendants to the Action believes the Action to be without
merit and is contesting it vigorously. In October 1996, the plaintiff filed a
Consolidated Amended Class Action Complaint (the "Amended Complaint"). The
general partner of CCIP believes that portions of the Amended Complaint are
legally inadequate and in January 1997, filed a motion for summary judgment to
dismiss all remaining claims in the Action. In October 1997 the court granted
in part and denied in part defendants motion for summary judgment. Plaintiffs
have filed a motion to alter or amend the court's order. There can be no
assurance, however, that the plaintiff will not be awarded damages, some or all
of which may be payable by CCE-I, in connection with the Action.
CCE is a named defendant in two actions involving an affiliate of Charter,
Cencom Cable Income Partners II, L.P. ("CCIP II"), a public limited
partnership. On April 15, 1997, a complaint was filed, and two amended
complaints subsequently filed, in the Circuit Court of Jackson County, Missouri
by plaintiffs who are limited partners of CCIP II against Cencom Properties II,
Inc., the general partner of CCIP II, Cencom Partners Inc., the general partner
of Cencom Partners, L.P., ("CPLP"), an entity in which CCIP II invested,
certain named brokerage firms involved in the original sale of the limited
partnership units and CCE. CCE provided management services to both CCIP II
and CPLP and also owned all of the stock of the general partners of each of
these partnerships prior to mid-1994. The plaintiffs alleged that the
defendants breached fiduciary duties and the terms of the CCIP II partnership
agreement in connection with the investment in Cencom Partners, L.P., the
management of certain CCIP II assets and the sale of certain CCIP II assets.
The plaintiffs seek recovery of the consideration paid for their partnership
units, restitution of all profits received by the defendants in connection with
the CCIP II transaction and punitive damages. On June 10, 1997, a purported
class action was filed in the Court of Chancery of the State of Delaware, in
and for New Castle County on behalf of the limited partners of CCIP II against
Cencom Properties II, Inc., CCE, Charter, certain other affiliates of Charter
and certain individuals, including officers of Charter or Cencom Properties II,
Inc. The plaintiffs allege that the defendants breached fiduciary duties and
the terms of the CCIP II partnership agreement in
11
<PAGE> 12
connection with the investment in Cencom Partners, L.P., the management of
certain CCIP II assets and the sale of certain CCIP II assets. The damages
claimed by the plaintiffs are as yet unspecified. CCE believes that it has
meritorious defenses in both actions. CCE intends to defend the actions
vigorously. CCE is not able to project the expenses which will be associated
with the actions or to predict any potential outcome or financial impact.
On October 20, 1997, a purported class action was filed in St. Louis County
Circuit Court under the name Gerald Ortbals v. Charter Communications, on
behalf of all persons residing in Missouri who are or were residential
subscribers of CCE-I cable television service, and who have been charged a
processing fee for delinquent payment of their cable bill. The action
challenges the legality of CCE-I's processing fee and seeks declaratory
judgment, injunctive relief and unspecified damages. CCE-I believes the
lawsuit to be without merit and intends to defend the action vigorously. The
Company is not able at this early stage to project the expense which will be
associated with this action or to predict any potential outcome or financial
impact.
5. APPRECIATION RIGHTS PLAN:
Certain employees are participants in the 1996 Charter Communications/Kelso
Group Appreciation Rights Plan (the "Plan"). The Plan covers certain key
employees and consultants within the group of companies and partnerships
controlled by affiliates of Kelso and managed by Charter (collectively, the
"Investment Group"). The Plan permits the granting of up to 1,000,000 units,
of which 489,000 were outstanding at September 30, 1997. Unless otherwise
provided in a particular instance, units vest at a rate of 20% per annum. The
Plan entitles participants to receive payment of the appreciated unit value for
vested units, upon the occurrence of certain events specified in the Plan
(i.e., change in control, employee termination). The units do not represent a
right to an equity interest to any entities within the Investment Group.
Compensation expense is based on the appreciated unit value and is amortized
over the vesting period. The obligation and related expense of the Plan is the
responsibility of and has been recorded (pro rata) at CCA Holdings and CCT
Holdings.
12
<PAGE> 13
CCA HOLDINGS CORP. AND SUBSIDIARIES
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Significant Transactions
CCA Holdings Corp. and its subsidiaries (collectively the "Company" ) have
completed the following acquisitions of cable television systems:
<TABLE>
<CAPTION>
Approximate
Acquisition Date Purchase Price Location of Systems
---------------- ---------------- -----------------------
<S> <C> <C>
January 1995 $488.2 million Missouri, Connecticut
October 1995 $ 96.0 million Missouri, Massachusetts
January 1996 $ 9.4 million Missouri
March 1996 $ 82.1 million Illinois
November 1996 $ 24.2 million Missouri
</TABLE>
As of September 30, 1997, the Company had no pending acquisitions.
Results of Operations
The following table sets forth the approximate number of basic subscribers and
premium subscriptions of the Company as of the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
Basic Subscribers:
Missouri/Illinois systems 228,000 223,300 208,900
Connecticut/Massachusetts systems 118,700 115,000 114,900
------- ------- -------
346,700 338,300 323,800
======= ======= =======
Premium Subscription Units:
Missouri/Illinois systems 119,200 130,100 127,000
Connecticut/Massachusetts systems 59,400 64,500 62,600
------ ------- -------
178,600 194,600 189,600
======= ======= =======
Homes Passed:
Missouri/Illinois systems 401,300 138,700 366,600
Connecticut/Massachusetts systems 140,500 394,900 138,200
------- ------- -------
541,800 533,600 504,800
======= ======= =======
</TABLE>
13
<PAGE> 14
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
------------------------- -------------------------
Amount % of Revenue Amount % of Revenue
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Service Revenues $ 42,703 100.0% $ 36,774 100.0%
-------- ------- -------- -------
Operating Expenses:
Operating, general and administrative 20,938 49.0 18,707 50.9
Depreciation and amortization 15,851 37.1 18,069 49.1
Management and financial advisory
service fees - related parties 1,359 3.2 1,836 5.0
-------- ------- -------- -------
38,148 89.3 38,612 105.0
-------- ------- -------- -------
Income from operations 4,555 10.7 (1,838) (5.0)
-------- ------- -------- -------
Other Income (Expense):
Interest income 23 .1 44 .1
Interest expense (13,288) (31.1) (12,165) (33.1)
Other, net -- -- (266) (.7)
-------- ------- -------- -------
(13,265) (31.0) (12,387) (33.7)
-------- ------- -------- -------
(8,710) (20.4) (14,255) (38.7)
Equity in loss of unconsolidated
limited partnerships (1,524) (3.6) (1,605) (4.4)
Provision for income taxes -- -- -- --
Minority interest in loss of subsidiary 2,244 5.3 4,961 13.5
-------- ------- -------- -------
Net loss $ (7,990) (18.7)% (10,869) (29.6)%
======== ======= ======== ========
</TABLE>
14
<PAGE> 15
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
------------------------------ ---------------------------------
Amount % of Revenue Amount % of Revenue
----------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Service Revenues $ 125,176 100.0% $ 104,604 100.0%
--------- ------ --------- -------
Operating Expenses:
Operating, general and administrative 62,253 49.7 53,412 51.0
Depreciation and amortization 46,609 37.2 48,387 46.3
Management and financial advisory
service fees - related parties 4,075 3.3 5,227 5.0
--------- ------ --------- -------
112,937 90.2 107,026 102.3
--------- ------ --------- -------
Income (Loss) from operations 12,239 9.8 (2,422) (2.3)
--------- ------ --------- -------
Other Income (Expense):
Interest income 26 -- 138 .1
Interest expense (39,478) (31.5) (34,611) (33.1)
Other, net -- -- (307) (.2)
--------- ------ --------- -------
(39,452) (31.5) (34,780) (33.2)
--------- ------ --------- -------
(27,213) (21.7) (37,202) (35.5)
Equity in loss of unconsolidated
limited partnerships (6,603) (5.3) (4,923) (4.7)
Provision for income taxes -- -- -- --
Minority interest in loss of subsidiary 7,393 5.9 12,597 12.0
--------- ------ --------- -------
Net loss $ (26,423) (21.1)% (29,528) (28.2)%
========= ====== ========= =======
</TABLE>
Service Revenues
The Company earns substantially all of its revenues from monthly subscription
fees for basic tier, expanded tier, premium channels, equipment rental and
ancillary services provided by its cable television systems. Service revenues
increased by 16.1% and 19.7% to $42,703,000 and $125,176,000, for the three and
nine month periods ended September 30, 1997, when compared to the similar
periods of 1996. This increase in 1997 is primarily due to an increase in
subscribers for the basic tier of cable service offered by the systems
resulting primarily from acquisitions of cable systems by the Company during
1996. In addition, the Company experienced significant internal subscriber
growth (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.
Premium service revenue has decreased between comparable periods as a result of
the decrease in the number of premium service subscriptions being subscribed to
by the Company's basic subscribers. This decrease is due to the
15
<PAGE> 16
elimination of The Movie Channel in Connecticut and Massachusetts and, second,
due to the industry-wide trend of basic subscribers purchasing fewer premium
services.
In late 1996, the Company acquired a local cable advertising operation based in
St. Louis, which had revenues of approximately $4.4 million for the nine months
ended September 30, 1997. This accounts for a significant portion of the
increase in other service revenues as compared to 1996.
Operating Expenses
Operating, general and administrative costs increased by 11.9% and 16.6% to
$20,938,000 and $62,253,000 for the three and nine months ended September 30,
1997 when compared to the similar periods of 1996. The majority of this
increase was related to the increased costs associated with the cable
television systems acquired during 1996. In addition, these increases are also
related to increases in programming costs, as many of the Company's programming
contracts had rate increases effective during the first quarter of 1997. The
Company expects that programming cost increases will continue to be an on-going
issue for the next several years. Operating margin, or EBITDA, calculated as
service revenues less operating, general and administrative expenses, rose
approximately 1.9% to 51.0% and 1.3% to 50.3% for the three and nine month
periods ended September 30, 1997, respectively, versus the same periods for the
prior year.
Depreciation and amortization decreased by 12.3% and 3.7% to $15,851,000 and
$46,609,000 for the three and nine months ended September 30, 1997, when
compared to the similar periods of 1996. The decrease in depreciation and
amortization is a result of the completion of the amortization period for the
covenant not to compete, offset partially by the increase in depreciation
expense for 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 nine months ended September
30, 1997 compared to the similar periods of 1996. This decrease is due
primarily to an increase in revenues due to internal subscriber growth and
retail rate increases.
Other Income / Expense
Interest expense increased by 9.2% and 14.1% to $13,288,000 and $39,478,000 for
the three and nine months ended September 30, 1997, when compared to the
similar periods of 1996. This increase is primarily due to the increase in the
average outstanding bank debt balance between the comparable periods.
Equity in Loss of Unconsolidated Limited Partnerships
Equity in loss of unconsolidated limited partnerships pertains to the Company's
share of losses in Charter Communications Entertainment, L.P. and Charter
Communications Entertainment II, L.P. ("CCE-II"). The Company maintains a 55%
investment in both these entities. Equity in loss of unconsolidated limited
partnerships decreased by 5.1% to $1,524,000 for the three months ended
September 30, 1997, and increased 34.1% to $6,603,000 for the nine months ended
September 30, 1997, respectively, when compared to similar periods of 1996.
These fluctuations are due to the results of CCE-II for the three and nine
months ended September 30, 1997.
Net Loss
Net loss decreased by 26.5% and 10.5% to $7,989,000 and $26,422,000 for the
three and nine months ended September 30, 1997 when compared to the similar
periods of 1996. In 1997, significant factors versus the prior year were
increases in income from operations, offset partially by increases in interest
expense and decreased allocations of CCE-I's loss to the minority interest
holder.
16
<PAGE> 17
Liquidity and Capital Resources
The Company's growth by acquisition during 1995 and 1996 was funded primarily
by borrowings under bank credit facilities, seller financing arrangements, and
equity contributions. Cash flows provided by operating activities together
with borrowings under its bank credit facility have been sufficient to fund the
Company's debt service, capital expenditures and working capital requirements.
Future cash flows provided by operating activities and availability for
borrowings under the existing credit facilities are anticipated to be
sufficient during the next 12 months for the Partnership's ongoing debt
service, capital expenditures and working capital needs. The Company
anticipates that future acquisitions, if any, could be financed through
borrowings, either presently available under the existing credit facilities, or
as a result of amending the existing credit facilities to allow for expanded
borrowing capacity, combined with additional equity contributions. Although to
date the Company has been able to obtain financing on satisfactory terms, there
can be no assurance that this will continue to be the case in the future and,
thereby, could negatively impact the Company's ability to pursue a strategy
that includes growth through acquisitions.
At September 30, 1997, the Company's long-term debt (including current
maturities) of $585.6 million consisted of $470.4 million outstanding under the
revolving credit and term loan facility, $82.0 million outstanding for the
Senior Subordinated Notes due 1999 (the "Notes"), and $33.2 million of accrued
interest on the Notes. The Company had unused and available borrowing capacity
of $30.2 million under the credit facility at September 30, 1997. Cash
interest is payable on a monthly and quarterly basis for borrowings under the
credit facility. Cash interest on the Notes is payable on December 31, 1999,
the stated maturity date.
The Company manages risk arising from fluctuations in interest rates through
the use of interest rate swap and cap agreements required under the terms of
the existing credit facility. Interest rate swap and cap agreements are
accounted for by the Company as a hedge of the debt obligation. As a result,
the net settlement amount of any such swap or cap is recorded as interest
expense in the period incurred. The affects of the Company's hedging practices
on its weighted average borrowing rate and on reported interest expense were
not material for the three and nine months ended September 30, 1997.
The Company incurred capital expenditures of approximately $10.8 million and
$30.7 million during the three and nine months ended September 30, 1997,
respectively, in connection with the improvement and upgrading of the Company's
cable systems. The majority of these expenditures were incurred by the
Illinois and Western Connecticut systems as each system is upgrading its cable
television plant to 750 MHz. The Company anticipates that capital expenditures
will be approximately $40.0 million during 1997.
The Company has insurance covering risks incurred in the ordinary course of
business, including general liability, property and business interruption
coverage. As is typical in the cable television industry, the Company does not
maintain insurance covering its underground plant, the cost of which management
believes is currently prohibitive. Management believes that the Company's
insurance coverage is adequate, and intends to monitor the insurance markets to
attempt to obtain coverage for the Company's underground plants at reasonable
and cost-effective rates.
The Company believes that it has generally complied with the provisions of the
1992 Act regarding cable programming service rates. However, some systems may
be charging rates which are in excess of allowable rates and, accordingly, may
be subject to challenge by regulatory authorities, such challenge may result in
the Partnership being required to make refunds to subscribers. The amount of
refunds, if any, which could be payable by the Company in the event such
systems' rates are successfully challenged by regulatory authorities is not
currently estimable. The Company has not reserved any amounts for payment of
such refunds as the General Partner does not believe that the amounts of any
such refunds would have a material adverse effect on the financial position or
results of the Company.
17
<PAGE> 18
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
Ended September 30, 1997
---------------------------------------------
(Unaudited)
SYSTEMS Systems
ACQUIRED ON Acquired
OR BEFORE After
7/1/96 7/1/96 Total
------------- ------------ ----------
<S> <C> <C> <C>
Service revenues $ 41,399 $ 1,304 $ 42,703
Operating, general and administrative 20,296 642 20,938
---------- --------- ----------
EBITDA (a) $ 21,103 $ 662 $ 21,765
========== ========== ==========
EBITDA Margin (b) 51.0% 50.8% 51.0%
========== ========== ==========
Operating Statistical Data, at end of period:
Monthly revenue per subscriber $ 41.18 $ 37.47 $ 41.06
Homes passed 513,100 28,700 541,800
Basic subscribers 335,100 11,600 346,700
Basic penetration 65.3% 40.4% 64.0%
Premium subscriptions 172,100 6,500 178,600
<CAPTION>
For the Three Months
Ended September 30, 1996
---------------------------------------------
(Unaudited)
SYSTEMS Systems
ACQUIRED ON Acquired
OR BEFORE After
7/1/96 7/1/96 Total
------------- ------------ ----------
<S> <C> <C> <C>
Service revenues $ 36,774 -- $ 36,774
Operating, general and administrative 18,707 -- 18,707
---------- ---------- ----------
EBITDA (a) $ 18,067 -- $ 18,067
========== ========== ==========
EBITDA Margin (b) 49.1% -- 49.1%
========== ========== ==========
Operating Statistical Data, at end of period:
Monthly revenue per subscriber $ 37.86 -- $ 37.86
Homes passed 504,800 -- 504,800
Basic subscribers 323,800 -- 323,800
Basic penetration 64.1% -- 64.1%
Premium subscriptions 189,600 -- 189,600
</TABLE>
(a) EBITDA represents income before interest expense, interest income, income
taxes, depreciation and amortization, management fees, other income (expense),
equity in loss of unconsolidated limited partnerships, loss from discontinued
operation and minority interest in loss of subsidiary. 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 Company's
operating performance. EBITDA does not include the Company's debt obligations
or other significant commitments.
(b) Represents EBITDA as a percent of service revenues.
18
<PAGE> 19
Results of Operations - Supplemental analysis for the Quarter Ended September
30, 1997 Versus the Quarter Ended September 30, 1996 (for Systems Acquired on
or 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 Company 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 acquisitions completed between January 1995 and March 1996 - see
Significant Transactions for a complete listing of all acquisitions by the
Company.
Service revenues increased by $4,625,000 or 12.6% 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 11,300 or 3.5%, for basic subscribers between
quarters and to retail rate increases implemented in certain of the Company's
systems.
Operating, general and administrative expenses increased approximately
$1,589,000 or 8.5% 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. In addition, the Company believes that operating
expense growth has, in certain situations, been constrained as a result of the
Company realizing operating efficiencies through consolidation within its two
clusters.
The Company experienced growth in operating cash flow (EBITDA) of approximately
$3,036,000 or 16.8% 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 increased to 51.0% from 49.1%
when comparing the similar periods, primarily as a result of the increase in
service revenues as a result of subscriber growth and rate increases, which
were sufficient to offset the increases in operating expenses.
19
<PAGE> 20
Part II. Other Information
Item 1. Legal Proceedings
On October 20, 1997, a purported class action was filed in St. Louis County
Circuit Court under the name Gerald Ortbals v. Charter Communications, on
behalf of all persons residing in Missouri who are or were residential
subscribers of CCE-I cable television service, and who have been charged a
processing fee for delinquent payment of their cable bill. The action
challenges the legality of CCE-I's processing fee and seeks declaratory
judgment, injunctive relief and unspecified damages. CCE-I believes the
lawsuit to be without merit and intends to defend the action vigorously. The
Company is not able at this early stage to project the expense which will be
associated with this action or to predict any potential outcome or financial
impact.
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
20
<PAGE> 21
CCA HOLDINGS CORP.
FOR THE 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.
CCA HOLDINGS CORP.
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
21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,557,089
<SECURITIES> 0
<RECEIVABLES> 7,756,764
<ALLOWANCES> 626,429
<INVENTORY> 0
<CURRENT-ASSETS> 9,686,359
<PP&E> 215,236,484
<DEPRECIATION> 0
<TOTAL-ASSETS> 722,308,344
<CURRENT-LIABILITIES> 44,444,936
<BONDS> 585,628,131
0
0
<COMMON> (26,817,779)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 722,308,344
<SALES> 42,702,900
<TOTAL-REVENUES> 42,702,900
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 38,148,587
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,287,609
<INCOME-PRETAX> (10,233,930)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,233,930)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,989,486)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
