<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 333-26853-02
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
(Exact name of registrant as specified in its charter)
Delaware 43-1723475
-------- ----------
(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
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
FORM 10-Q - FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
-----
<TABLE>
<CAPTION>
Page
----
Part I. Financial Information
---------------------
<S> <C>
Item 1. Charter Communications Entertainment, L.P.
a. Balance Sheets - September 30, 1997 and December 31, 1996 3
b. Statements of Operations - Three Months Ended
September 30, 1997 and 1996 4
c. Statements of Operations - Nine Months Ended
September 30, 1997 and 1996 5
d. Statement of Partners' Capital -Nine Months Ended September 30, 1997 6
e. Statements of Cash Flows - Nine Months Ended September 30, 1997 and 1996 7
f. Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Part II. Other Information
-----------------
Item 1. Legal Proceedings 12
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 12
Signature Page 13
</TABLE>
2
<PAGE> 3
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
ASSETS
------
<S> <C> <C>
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS $252,052,568 $ 279,854,790
SUBORDINATED NOTE RECEIVABLE FROM UNCONSOLIDATED LIMITED PARTNERSHIP 25,000,000 25,000,000
INTEREST RECEIVABLE FROM UNCONSOLIDATED LIMITED PARTNERSHIP 3,906,750 2,418,000
------------ -------------
$280,959,318 $ 307,272,790
============ =============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
NOTES PAYABLE $82,000,000 $ 82,000,000
ACCRUED INTEREST ON NOTES PAYABLE 33,268,131 22,843,403
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
General partners -- 624,614
Limited partners-
Ordinary Capital Accounts -- 10,543,510
Preferred Capital Account 165,691,187 191,261,263
------------ -------------
Total partners' capital 165,691,187 202,429,387
------------ -------------
$280,959,318 $ 307,272,790
============ =============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE> 4
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS $(7,586,107) $(13,634,792)
INTEREST EXPENSE (3,606,710) (3,199,538)
INTEREST INCOME - UNCONSOLIDATED LIMITED PARTNERSHIP 496,250 502,732
------------ ------------
Net loss $(10,696,567) $(16,331,598)
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS $(27,802,222) $(36,124,439)
INTEREST EXPENSE (10,424,728) (9,208,060)
INTEREST INCOME - UNCONSOLIDATED LIMITED PARTNERSHIP 1,488,750 1,497,268
------------ ------------
Net loss $(36,738,200) $(43,835,231)
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Limited Partners
-------------------------------
Ordinary Preferred
General Capital Capital
Partners Accounts Account Total
----------- ------------ -------------- -----
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ 624,614 $ 10,543,510 $ 191,261,263 $ 202,429,387
Net loss (624,614) (10,543,510) (25,570,076) (36,738,200)
------------ -------------- ------------- -------------
BALANCE, September 30, 1997 -- -- 165,691,187 165,691,187
============ ============== ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
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 $(36,738,200) $(43,835,231)
Adjustments to reconcile net loss to net cash provided by operating
activities-
Equity in loss of unconsolidated limited partnerships 27,802,222 36,124,439
Changes in assets and liabilities-
Interest receivable from unconsolidated limited partnership (1,488,750) (1,497,268)
Accrued interest on note payable 10,424,728 9,208,060
------------ ------------
Net cash provided by operating activities -- --
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES: -- --
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES: -- --
------------ ------------
CASH, beginning and end of period $ -- $ --
============ ============
CASH PAID FOR INTEREST $ -- $ --
============ ============
CASH PAID FOR TAXES $ -- $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
In September 1995, the assets of certain cable television systems purchased in
January 1995 were contributed from CCA Acquisition Corp. (CAC) and its wholly
owned subsidiary, Cencom Cable Entertainment, Inc., (CCE), respectively, to
Charter Communications Entertainment, L.P. (the "Partnership"). CAC and CCE
owned and operated the systems during the first nine months of 1995. These
systems were contributed to a newly formed partnership, Charter Communications
Entertainment I, L.P. (CCE-I). The Partnership, CAC, CCE and CCE-I are all
indirectly owned approximately 85% by Kelso Investment Associated 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). Therefore, this series of transactions is a
reorganization under common control and has been accounted for in a manner
similar to a pooling of interests. Accordingly, the financial statements
reflect the activity of these systems for the entire year.
In January 1995, CAC completed the acquisition of certain cable television
systems from Crown Media, Inc. (Crown), a subsidiary of Hallmark Cards,
Incorporated ("Hallmark") (the "Crown Transaction"). On September 29, 1995,
CAC and CCT Holdings Corp. (CCT Holdings), an entity affiliated with CCA
Holdings Corp. ("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).
In September 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, the parent company of
CAC 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.
As a result of these transactions, CCE owns a 33% limited partnership interest
in the Partnership, CAC owns a 21% limited partnership interest in the
Partnership and CCT Holdings owns a 44% limited partnership interest in the
Partnership. CAC and CCT Holdings each own a 1% general partnership interest
in the Partnership. The Partnership will terminate no later than December 31,
2055, as provided in its partnership agreement (the "Partnership Agreement").
The accompanying unaudited financial statements of the Partnership 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.
Investment in Unconsolidated Limited Partnerships
The Partnership has a 97.78% limited partnership interest in both CCE-I and
CCE-II. CCE-I is controlled by CAC and CCE-II is controlled by CCT Holdings
through their general partnership interests and provisions within the various
partnership agreements; therefore, the Partnership's investment in these
entities is accounted for using the equity method of accounting. Under this
method, the investments are originally recorded at cost and are subsequently
adjusted to recognized the Partnership's share of net earnings or losses as
they occur and distributions when received.
8
<PAGE> 9
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.
3. INVESTMENTS IN UNCONSOLIDATED LIMITED PARTNERSHIPS:
Summary financial information of CCE-I and CCE-II for the three and nine month
periods ended September 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Charter Communications Entertainment I, L.P.
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
------------- ------------- ------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service revenues $42,702,900 $ 36,773,541 $125,175,525 $104,604,289
Income (loss) from operations 4,670,001 (1,838,527) 12,598,709 (2,421,632)
Net loss $ 4,987,654 $(11,025,994) $(16,428,559) $(27,993,949)
<CAPTION>
Charter Communications Entertainment II, L.P.
---------------------------------------------
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
------------- ------------- ------------- -------------
1997 1996 1997 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-I provided cable television service to
approximately 346,700 basic subscribers in Connecticut, Illinois,
Massachusetts, Missouri, and New Hampshire, and CCE-II provided cable
television service to approximately 172,100 basic subscribers in southern
California.
4. LITIGATION:
The Partnership 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 the Partnership's 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
9
<PAGE> 10
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 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
Partnership is not able at this early stage to project the expenses which will
be associated with this action or to predict any potential outcome or financial
impact.
10
<PAGE> 11
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Since Charter Communications Entertainment, L.P. (the "Company") is a guarantor
of the $82.0 million Senior Subordinated Notes due 1999 (the "Notes"), an
obligation of CCA Holdings Corp. ("CCA Holdings"), it is required to record the
debt as a liability for financial reporting purposes. Refer to CCA Holdings
quarterly report for the period ended September 30, 1997 filed on Form 10-Q for
additional information.
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 I, L.P. ("CCE-I") and
Charter Communications Entertainment II, L.P. ("CCE-II"). The Company
maintains a 97.78% non-controlling investment in both these entities. Equity
in loss of unconsolidated limited partnerships decreased by 44.4% and 23.0% to
$7,586,107 and $27,802,222 for the three and nine months ended September 30,
1997, respectively, when compared to similar periods of 1996. These
fluctuations are due to results at CCE-I and CCE-II for the three and nine
months ended September 30, 1997.
Interest Expense
Interest expense increased by 12.7% and 13.2% to $3,606,710 and $10,424,728 for
the three and nine months ended September 30, 1997, respectively, when compared
to similar period of 1996. The increase is attributed to the semi-annual
compounding inherent in the $82.0 million Senior Subordinated Notes due 1999
(the "Notes").
Net Loss
Net loss decreased by 34.5% and 16.2% to $10,696,567 and $36,738,200 for the
three and nine months ended September 30, 1997 when compared to similar periods
of 1996. The decrease in net loss is primarily due to the decrease in the
equity in loss of unconsolidated limited partnerships, offset partially by an
increase in interest expense.
Liquidity and Capital Resources
The Company has issued a guarantee of payment to the holders of the Notes.
Accordingly, the Notes have been reflected as a liability of the Company for
financial reporting purposes. The Notes are also guaranteed by CCA Acquisition
Corp. ("CAC"), the parent of the Company and a wholly-owned subsidiary of CCA
Holdings, and Cencom Cable Entertainment, Inc. (including the Company and CAC,
collectively the "Guarantors" herein).
The Company has no operations or significant assets, other than its investment
in CCE-I and CCE-II, and a subordinated note and interest receivable from
CCE-II. CCA Holdings and the Guarantors are dependent primarily upon
distributions from CCE-I to service the Notes. The Company's guarantee cannot
be enforced until repayment in full and termination of CCE-I and CCE-II's
credit facilities.
11
<PAGE> 12
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 expenses 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
12
<PAGE> 13
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
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.
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
By: CCA Acquisition Corp.
its General Partner
By: /s/ Jerald L. Kent
--------------------------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Jerald L. Kent November 13, 1997
----------------------------------
Jerald L. Kent
President and
Chief Executive Officer
By: /s/Kent D. Kalkwarf November 13, 1997
----------------------------------
Kent D. Kalkwarf
Senior Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 280,959,318
<CURRENT-LIABILITIES> 0
<BONDS> 115,268,131
0
0
<COMMON> 165,691,187
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 280,959,318
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (7,586,107)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,606,710
<INCOME-PRETAX> (10,696,567)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,696,567)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,696,567)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
