<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 333-26853
---------
CCA HOLDINGS CORP.
------------------
(Exact name of registrant as specified in its charter)
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
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 JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements:
CCA Holdings Corp. and Subsidiaries
a. Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 3
b. Consolidated Statements of Operations - Three Months Ended
June 30, 1997 and 1996 5
c. Consolidated Statements of Operations - Six Months Ended
June 30, 1997 and 1996 6
d. Consolidated Statement of Shareholders' Investment (Deficit)- Six Months Ended
June 30, 1997 7
e. Consolidated Statements of Cash Flows - Six Months Ended June 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 20
Item 6. Exhibits and Reports on Form 8-K 21
Signature Page 22
</TABLE>
2
<PAGE> 3
CCA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 584,870 $ 2,934,939
Accounts receivable, net of allowance for doubtful accounts of $600,504 and
$371,166 6,816,142 5,465,750
Prepaid expenses and other 589,211 490,443
Net assets of discontinued operation 108,827 108,827
------------ -------------
Total current assets 8,099,050 8,999,959
------------ -------------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, net 212,101,636 206,351,379
Franchise costs, net of accumulated amortization of $68,128,344 and $51,761,758
423,084,037 439,232,345
------------ -------------
635,185,673 645,583,724
------------ -------------
OTHER ASSETS, net 9,327,859 9,667,356
------------ -------------
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS 72,991,008 78,069,816
------------ -------------
NET NONCURRENT ASSETS OF DISCONTINUED OPERATION 1,760,015 1,760,015
------------ -------------
$727,363,605 $ 744,080,870
============ =============
</TABLE>
(Continued on the following page)
3
<PAGE> 4
CCA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 18,692,500 $ 5,880,000
Accounts payable and accrued expenses 19,837,382 18,890,302
Subscriber deposits 465,896 473,601
Payables to affiliates 1,523,382 2,630,149
Other current liabilities -- 1,401,951
------------ -------------
Total current liabilities 40,519,160 29,276,003
------------ -------------
DEFERRED REVENUE 1,323,875 708,339
------------ -------------
DEFERRED INCOME TAXES 55,500,000 55,500,000
------------ -------------
LONG-TERM DEBT, less current maturities 450,307,500 462,120,000
------------ -------------
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 29,661,420 22,843,402
------------ -------------
MINORITY INTEREST IN SUBSIDIARY 85,124,943 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 (98,828,293) (80,395,225)
------------ -------------
Total shareholders' investment (deficit) (18,828,293) (395,225)
------------ -------------
$727,363,605 $ 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 JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
SERVICE REVENUES:
Basic service $28,030,420 $24,781,138
Premium service 5,019,678 4,995,663
Other 8,935,793 7,241,123
----------- -----------
41,985,891 37,017,924
----------- -----------
EXPENSES:
Operating, general and administrative 20,650,291 18,775,291
Depreciation and amortization 15,539,617 15,210,862
Management and financial advisory service fees - related parties 1,384,054 2,285,200
----------- -----------
37,573,962 36,271,353
----------- -----------
Income from operations 4,411,929 746,571
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 1,537 27,597
Interest expense (13,296,023) (11,999,491)
Other, net (56,921) 474,572
----------- -----------
(13,351,407) (11,497,322)
----------- -----------
Loss before equity in loss of unconsolidated limited partnerships,
provision for income taxes and minority interest in loss of
subsidiary (8,939,478) (10,750,751)
EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS (3,168,882) (1,479,492)
----------- -----------
Loss before provision for income taxes and minority interest in loss
of subsidiary (12,108,360) (12,230,243)
PROVISION FOR INCOME TAXES -- --
----------- -----------
Loss before minority interest in loss of subsidiary (12,108,360) (12,230,243)
MINORITY INTEREST IN LOSS OF SUBSIDIARY 2,433,194 3,523,226
----------- -----------
Net loss $(9,675,166) $(8,707,017)
=========== ===========
</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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
SERVICE REVENUES:
Basic service $ 55,139,627 $ 45,497,471
Premium service 10,022,675 9,394,163
Other 17,310,323 12,939,114
------------ ------------
82,472,625 67,830,748
------------ ------------
EXPENSES:
Operating, general and administrative 41,314,736 34,705,049
Depreciation and amortization 30,757,639 30,317,354
Management and financial advisory service fees - related parties 2,715,286 3,391,450
------------ ------------
74,787,661 68,413,853
------------ ------------
Income from operations 7,684,964 (583,105)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 2,690 94,410
Interest expense (26,190,322) (22,445,898)
Other, net -- (41,884)
------------ ------------
(26,187,632) (22,393,372)
------------ ------------
Loss before equity in loss of unconsolidated limited partnerships, and
minority interest in loss of subsidiary
(18,502,668) (22,976,477)
EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS (5,078,808) (3,317,764)
------------ ------------
Loss before provision for income taxes and minority interest in loss
of subsidiary (23,581,476) (26,294,241)
PROVISION FOR INCOME TAXES -- --
------------ ------------
Loss before minority interest in loss of subsidiary (23,581,476) (26,294,241)
MINORITY LOSS IN SUBSIDIARY 5,148,408 7,635,580
------------ ------------
Net loss $(18,433,068) $(18,658,661)
============ ============
</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 SIX MONTHS ENDED JUNE 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 -- -- (18,433,068) (18,433,068)
---- ----------- ------------ ------------
BALANCE, June 30, 1997 $800 $79,999,200 $(98,828,293) $(18,828,293)
==== =========== ============ ============
</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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(18,433,068) $ (18,658,661)
Adjustments to reconcile net loss to net cash provided by operating activities-
Depreciation and amortization 30,757,639 30,317,354
Amortization of debt issuance costs 558,468 --
Equity in loss of unconsolidated limited partnerships 5,078,808 3,317,764
Minority interest in loss of subsidiary (5,148,408) (7,635,580)
Changes in assets and liabilities, net of effects from acquisitions-
Accounts receivable, net (1,350,392) 3,400
Prepaid expenses and other (98,768) (789,932)
Accounts payable and accrued expenses 947,080 (430,136)
Subscriber deposits (7,705) (381,759)
Payables to affiliates, including deferred management fees (1,106,767) 1,004,830
Other current liabilities (1,401,951) --
Deferred revenue 615,536 (47,394)
Accrued interest on note payable 6,818,018 6,008,522
------------ -------------
Net cash provided by operating activities 17,228,490 12,708,408
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (19,932,963) (14,500,577)
Payments for acquisitions, net of cash acquired -- (91,913,251)
Payments of organizational expenses (194) --
Payments of franchise costs (218,278) --
Payments of covenants not to compete (157,083) --
------------ -------------
Net cash used in investing activities $(20,308,518) $(106,413,828)
------------ -------------
</TABLE>
(Continued on the following page)
8
<PAGE> 9
CCA HOLDINGS CORP. 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 FINANCING ACTIVITIES:
Payments of debt issuance costs (270,041) (1,479,885)
Borrowings under revolving credit and term loan facility 10,800,000 89,000,000
Payments under revolving credit and term loan facility (9,800,000) (3,000,000)
------------ ------------
Net cash provided by financing activities 729,959 84,520,115
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,350,069) (9,185,305)
CASH AND CASH EQUIVALENTS, beginning of period 2,934,939 11,430,931
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 584,870 $ 2,245,626
============ ============
CASH PAID FOR INTEREST $ 16,708,783 $ 17,638,936
============ ============
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 combined operations of CCE-I and CCE-II, respectively. 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 six month periods
ending June 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Charter Communications Entertainment II, L.P.
---------------------------------------------
For the Three Months Ended For the Six Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Service revenues $ 24,674,583 $ 22,493,461 $ 47,344,146 $ 44,468,574
Income from operations 1,789,252 1,521,211 2,372,111 2,423,058
Net loss (5,761,604) (2,689,985) (9,234,197) (6,032,298)
</TABLE>
As of June 30, 1997, CCE-II provided cable television service to approximately
173,200 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. 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 on June 19, 1997, an amended
complaint was filed, in the Circuit Court of Jackson County, Missouri by 269
individual 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 allege that the defendants
breached fiduciary duties, committed fraud and made various misrepresentations
in the marketing and sale of the CCIP II limited partnership units. 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 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
11
<PAGE> 12
in both actions, including defenses based on applicable statutes of limitations.
CCE intends to defend the actions vigorously. CCE is not able at this early
stage to project the expenses which will be associated with the actions or to
predict any potential outcome or exposure.
6. 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 385,000 were outstanding at June 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:
Approximate
Acquisition Date Purchase Price Location of Systems
---------------- -------------- -------------------
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
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 Company as of the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
------------------ ---------------- ---------------
<S> <C> <C> <C>
Basic Subscribers:
Missouri/Illinois systems 225,600 223,300 207,300
Connecticut/Massachusetts systems 115,300 115,000 112,000
------- ------- -------
340,900 338,300 319,300
======= ======= =======
Premium Subscription Units:
Missouri/Illinois systems 119,800 130,100 124,500
Connecticut/Massachusetts systems 58,400 64,500 62,300
------- ------- -------
178,200 194,600 186,800
======= ======= =======
Homes Passed:
Missouri/Illinois systems 139,500 138,700 137,900
Connecticut/Massachusetts systems 399,100 394,900 366,000
------- ------- -------
538,600 533,600 503,900
======= ======= =======
</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 June 30,
(Unaudited)
1997 1996
---------------------- ----------------------
% of % of
Amount Revenue Amount Revenue
------ ------- ------ -------
<S> <C> <C> <C> <C>
Service Revenues $ 41,986 100.0% $ 37,018 100.0%
-------- ------- -------- -------
Operating Expenses:
Operating, general and administrative 20,650 49.2 18,775 50.7
Depreciation and amortization 15,540 37.0 15,211 41.1
Management and financial advisory service
fees - related parties 1,384 3.3 2,285 6.2
-------- ------- -------- -------
37,574 89.5 36,271 98.0
-------- ------- -------- -------
Income from operations 4,412 10.5 747 2.0
-------- ------- -------- -------
Other Income (Expense):
Interest income 2 0.0 27 0.1
Interest expense (13,296) (31.7) (11,999) (32.4)
Other, net (57) (0.1) 475 1.3
-------- ------- -------- -------
(13,351) (31.8) (11,497) (31.1)
-------- ------- -------- -------
(8,939) (21.3) (10,750) (29.0)
Equity in loss of unconsolidated limited
partnerships (3,169) (7.5) (1,480) (4.0)
Provision for income taxes 0 0.0 0 0.0
Minority interest in loss of subsidiary 2,433 5.8 3,523 9.5
-------- ------- -------- -------
Net loss $ (9,675) (23.0)% $ (8,707) (23.5)%
======== ======= ======== =======
</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 Six Months
Ended June 30,
(Unaudited)
1997 1996
----------------------- ----------------------
% of % of
Amount Revenue Amount Revenue
------ ------- ------ -------
<S> <C> <C> <C> <C>
Service Revenues $ 82,473 100.0% $ 67,831 100.0%
-------- ------- -------- -------
Operating Expenses:
Operating, general and administrative 41,315 50.1 34,705 51.2
Depreciation and amortization 30,758 37.3 30,317 44.7
Management and financial advisory
service fees - related parties 2,715 3.3 3,392 5.0
-------- ------- -------- -------
74,788 90.7 68,414 100.9
-------- ------- -------- -------
Income (Loss) from operations 7,685 9.3 (583) (0.9)
-------- ------- -------- -------
Other Income (Expense):
Interest income 3 0.0 94 0.1
Interest expense (26,190) (31.8) (22,446) (33.1)
Other, net 0 0.0 (42) (0.1)
-------- ------- -------- -------
(26,187) (31.8) (22,394) (33.0)
-------- ------- -------- -------
(18,502) (22.4) (22,977) (33.9)
Equity in loss of unconsolidated limited
partnerships (5,079) (6.2) (3,318) (4.9)
Provision for income taxes 0 0.0 0 0.0%
Minority interest in loss of subsidiary 5,148 6.2 7,636 11.3
-------- ------- -------- -------
Net loss $(18,433) (22.4)% $(18,659) (27.5)%
======== ======= ======== =======
</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 13.4% and 21.6% to $41,986,000 and $82,473,000, for the three and
six month periods ended June 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 elimination of
The Movie Channel in Connecticut and Massachusetts and, second, due to the
industry-wide trend of basic subscribers purchasing fewer premium services.
15
<PAGE> 16
In late 1996, the Company acquired a local cable advertising operation based in
St. Louis, which had revenues of approximately $2.5 million for the six months
ended June 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 10.0% and 19.0% to
$20,650,000 and $41,315,000 for the three and six months ended June 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 1.5% to 50.8%
and 1.1% to 49.9% for the three and six month periods ended June 30, 1997,
respectively, versus the same periods for the prior year.
Depreciation and amortization increased by 2.2% and 1.5% to $15,540,000 and
$30,758,000 for the three and six months ended June 30, 1997, 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 an increase in
revenues due to internal subscriber growth and retail rate increases.
Other Income / Expense
Interest expense increased by 10.8% and 16.7% to $13,296,000 and $26,190,000 for
the three and six months ended June 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 increased by 114% and 53% to $3,169,000 and $5,079,000 for the
three and six months ended June 30, 1997, respectively, when compared to similar
periods of 1996. This increase is due to larger net losses at CCE-II for the
three and six months ended June 30, 1997.
Net Loss
Net loss increased by 11.1% and 1.2% to $9,675,000 and $18,433,000 for the three
and six months ended June 30, 1997 when compared to the similar periods of 1996.
In 1997, significant factors versus the prior year were increases in income from
operations and a decrease in the equity in loss of unconsolidated limited
partnerships, offset partially by increases in interest expense and an
allocation 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 has been 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 June 30, 1997, the Company's long-term debt (including current maturities) of
$580.7 million consisted of $469.0 million outstanding under the revolving
credit and term loan facility, $82.0 million outstanding for the Senior
Subordinated Notes due 1999 (the "Notes"), and $29.7 million of accrued interest
on the Notes. The Company had unused and available borrowing capacity of $36.0
million under the credit facility at June 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 six months ended June 30, 1997.
The Company incurred capital expenditures of approximately $19.9 million during
the six months ended June 30, 1997 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 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 Acquired ACQUIRED ON Acquired
OR BEFORE After OR BEFORE After
4/1/96 4/1/96 Total 4/1/96 4/1/96 Total
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C>
Service Revenues $ 40,702 $ 1,284 $ 41,986 $37,018 -- $37,018
Operating Expenses:
Operating, general and
administrative 20,014 636 20,650 18,775 -- 18,775
-------- -------- -------- ------- ------- -------
EBITDA (a) $ 20,688 $ 648 $ 21,336 $18,243 -- $18,243
======== ======== ======== ======= ======= =======
EBITDA Margin (b) 50.8% 50.5% 50.8% 49.3% -- 49.3%
======== ======== ======== ======= ======= =======
Operating Statistical Data, at end of period:
Monthly revenue per subscriber $ 41.16 $ 37.88 $ 41.05 $ 38.65 $ -- $ 38.65
Homes passed 510,000 28,600 538,600 503,900 -- 503,900
Basic subscribers 329,600 11,300 340,900 319,300 -- 319,300
Basic penetration 64.6% 39.5% 63.3% 63.4% -- 63.4%
Premium subscriptions 172,700 5,500 178,200 186,800 -- 186,800
</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 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 June 30,
1997 Versus the Quarter Ended June 30, 1996 (for Systems Acquired Before
January 1, 1996)
The following discussion is provided to show the results of operations on a
comparable basis for those systems owned by the Company 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 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 $3,684,000 or 10.0% 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 10,300 or 3.2%, for basic subscribers between quarters and,
second, to retail rate increases implemented in certain of the Company's
systems.
Operating, general and administrative expenses increased approximately
$1,239,000 or 6.6% 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. 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
$2,445,000 or 13.4% 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 increased to 50.8% from 49.3% 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
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. 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 on June 19, 1997, an amended
complaint was filed, in the Circuit Court of Jackson County, Missouri by 269
individual 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 allege that the defendants
breached fiduciary duties, committed fraud and made various misrepresentations
in the marketing and sale of the CCIP II limited partnership units. 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 connection with the investment in
Cencom Partners, L.P., the management of certain CCIP II assets and the sale of
the CCIP II assets. The damages claimed by the plaintiffs are as yet
unspecified. CCE believes that it has meritorious defenses in both actions,
including defenses based on applicable statutes of limitations. CCE intends to
defend the actions vigorously. CCE is not able at this early stage to project
the expenses which will be associated with the actions or to predict any
potential outcome or exposure.
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
The Company filed with the Securities and Exchange Commission a Registration
Statement on Form S-4 for the purpose of registering its $82.0 million Senior
Subordinated Notes due 1999 (the "Notes"). The registration of the Notes was
completed on July 29, 1997. By August 28, 1997, all of the outstanding Series A
Notes had been tendered and exchanged for Series B Senior Subordinated Notes due
1999.
20
<PAGE> 21
Item 6. Exhibits and Reports on Form 8-K
Exhibits
27 Financial Data Schedule
21
<PAGE> 22
CCA HOLDINGS CORP.
FOR THE 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.
CCA HOLDINGS CORP.
By: /s/ Jerald L. Kent
-----------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Jerald L. Kent September 12, 1997
-----------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Kent D. Kalkwarf September 12, 1997
Kent D. Kalkwarf
Senior Vice President and
Chief Financial Officer
22
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 584,870
<SECURITIES> 0
<RECEIVABLES> 7,416,646
<ALLOWANCES> 600,504
<INVENTORY> 0
<CURRENT-ASSETS> 8,099,050
<PP&E> 212,101,636
<DEPRECIATION> 0
<TOTAL-ASSETS> 727,363,605
<CURRENT-LIABILITIES> 40,519,160
<BONDS> 580,661,420
0
0
<COMMON> (18,828,293)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 727,363,605
<SALES> 41,985,891
<TOTAL-REVENUES> 41,985,891
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 37,573,962
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,296,023
<INCOME-PRETAX> (8,939,478)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,939,478)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,675,166)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
