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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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Commission file number 333-26853-02
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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
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
None
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
--- ---
Indicate by check mark if disclosure of delinquent filers Pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated into this Report by reference: CCA
Holdings Corp. Form 10-K for year ended December 31, 1997, incorporated by
reference into Part IV
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CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C>
Item 1. Business........................................................................................................3
Item 3. Legal Proceedings...............................................................................................5
Item 4. Submission of Matters to a Vote of Security Holders.............................................................5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...........................................6
Item 6. Selected Financial Data.........................................................................................7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...........................7
Item 8. Financial Statements and Supplementary Data.....................................................................8
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................8
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................................9
Item 11. Executive Compensation........................................................................................10
Item 12. Security Ownership of Certain Beneficial Owners and Management................................................10
Item 13. Certain Relationships and Related Transactions................................................................11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports Form 8-K..................................................15
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Charter Communications Entertainment, L.P. ("CCE-LP" or the "Company") commenced
operations in September 1995 and serves as a holding company for limited
partnership interests in Charter Communications Entertainment I, L.P. ("CCE-I")
and Charter Communications Entertainment II, L.P. ("CCE-II"), both of which own,
operate and develop cable television systems. CCE-LP's interests in CCE-I and
CCE-II are accounted for under the equity method for financial reporting
purposes. CCE-LP's two general partners are CCA Acquisition Corp. ("CAC") [which
is a wholly-owned subsidiary of CCA Holdings Corp. ("Holdings")] and CCT
Holdings Corp. ("CCT"). Holdings and CCT are commonly controlled affiliates.
CCE-LP maintains its principal executive offices at 12444 Powerscourt Drive,
Suite 400, St. Louis, Missouri 63131 and their telephone number is (314)
965-0555, and has no employees.
CCE-I owns, operates and develops cable television systems which lie principally
within two geographic areas: northeastern and western Connecticut and central
Massachusetts and the St. Louis, Missouri metropolitan area, including eastern
Missouri and southwestern Illinois, and CCE-II owns, operates and develops cable
television systems in the Los Angeles and Riverside metropolitan areas of
southern California. The cable assets of CCE-I and CCE-II are collectively
referred to herein as the "Systems".
The Company receives management services and administrative support for its
operations from Charter Communications, Inc. ("Charter") pursuant to the terms
of a management agreement. See "Item 13. Certain Relationships and Related
Transactions." Charter is a privately-held multi-system operator and manager of
cable television systems serving in excess of one million subscribers. Charter
has an equity interest in both Holdings and CCT. See "Item 12. Security
Ownership of Certain Beneficial Owners an Management."
Additional information on the business and operations of Holdings and CAC,
including the operations of CCE-I, can be found in the Form 10-K filings for the
year ended December 31, 1997 made with the Securities and Exchange Commission by
Holdings and CAC.
SIGNIFICANT TRANSACTIONS IN 1997
In connection with the issuance of subordinated notes by its parent, Holdings,
CAC issued a guarantee of such notes. On February 10, 1997, in connection with a
secondary offering of subordinated notes of Holdings outstanding since January
18, 1995, Holdings issued to the secondary purchasers $82,000,000 million
aggregate principal amount of Senior Subordinated Notes due 1999 (the "Notes")
pursuant to an Indenture with Harris Trust and Savings Bank (the "Indenture").
(See "Item 7. Management's Discussio and Analysis of Financial Condition and
Results of Operations.") The Notes were issued pursuant to a "Rule 144A"
transaction exempt from registration under the Securities Act of 1933 (the "1933
Act"). On August 28, 1997, Holdings exchanged the Notes for similar Notes
registered under the 1933 Act. The obligations on the Notes are guaranteed by
CAC, CCE-LP, and Cencom Cable Entertainment ("Cencom") (which is a limited
partner of CCE-LP and wholly-owned subsidiary of CAC). (See "Item 13. Certain
Relationships and Related Transactions.")
BACKGROUND AND OWNERSHIP STRUCTURE
CCE-LP was organized in 1995 as a Delaware limited partnership and has two
general partners, CAC (which is wholly owned by Holdings), and CCT. Ownership
interests in Holdings and CCT are held by Kelso Investments Associates V, L.P.
and its affiliate (collectively "Kelso") and certain other individuals, on the
one hand, and Charter, on the other hand, which maintain an 85% and 15%
interest, respectively. As a result of its investment, Kelso can exercise
effective control over the management and affairs of the Company
CCT, CAC and Cencom each hold limited partnership interests in CCE-LP. Each of
CCT and CAC also holds a 1% general partnership interest in CCE-LP. CAC also
holds a 1.22% general partnership interest in CCE-I, a 1.22% limited
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partnership interest in CCE-II, CCT also holds a 1.0% general partnership
interest in CCE-II, and a 1.0% limited partnership interest in CCE-I. CCE-LP
holds a 97.78% limited partnership interest in each of CCE-I and CCE-II. CCE-I
owns all of the equity interests in, and is the manager of, Cable Advertising
of St. Louis, LLP.
[FLOWCHART]
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Item 2. Properties
CCE-LP does not own any assets except for its equity interests in CCE-I and
CCE-II.
ITEM 3. LEGAL PROCEEDINGS
CCE-LP is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, no matters were submitted to the security
holders of CCE-LP.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
CCE-LP is privately held and, accordingly, there exists no public trading market
for its equity securities. (See "Item 12. Security Ownership of Certain
Beneficial Owners and Management." and "Item 13. Certain Relationships and
Related Transactions - The Notes and Stockholders' Agreement
During 1996 and 1997, CCE-LP did not make any distributions to its partners.
Because of applicable restrictions of the CCE-I and CCE-II bank credit
facilities, the provisions of the CCE-LP Partnership Agreement, and CCE-LP's
outstanding guarantee of the Notes, no distribution are expected to be paid by
CCE-LP in the future until the Notes and the CCE-I and CCE-II bank credit
facilities have been repaid. (See "Item 13. Certain Relationships and Related
Transactions. - The Partnership Agreements and Guarantees)
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
------------------------------------------------------------------
1997 1996 1995
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<S> <C> <C> <C>
Statement of Operations Data:
Equity in loss of unconsolidated
limited partnership $(44,722,548) $(45,968,911) $(34,730,760)
Interest Expense (14,076,009) (12,404,598) (10,438,805)
Interest Income 1,985,000 1,918,000 500,000
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Net Loss (56,813,557) (56,455,509) (44,669,565)
Balance Sheet Data:
Total Assets $264,535,242 $307,272,790 $351,323,701
Long-term Obligations, including
current maturities 118,919,412 104,843,403 92,438,805
Total Partners' Capital 145,615,830 202,429,387 258,884,896
Miscellaneous Data:
Ratio of Earnings to Fixed Charges1 -- -- --
</TABLE>
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(1) Ratio of earnings to fixed charges is calculated using income from
continuing operations adding back fixed charges; fixed charges include
interest expense and amortization expense for debt issuance costs.
Earnings for the years ended December 31, 1997, 1996 and 1995 were
insufficient to cover the fixed charges by $56,813,557, $56,455,509 and
$44,669,565, respectively. As a result of such insufficiencies, these
ratios are not presented above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Equity in Loss of Unconsolidated Limited Partnerships. Equity in loss of
unconsolidated limited partnerships pertains to CCE-LP's share of losses in
CCE-I and CCE-II. CCE-LP maintains a 97.78% non-controlling investment in each
of these entities. Equity in loss of unconsolidated limited partnerships was
$34.7 million for 1995, $46.0 million for 1996 and $44.7 million for 1997.
Fluctuations between years in the amount of loss recognized by CCE-LP are a
result of fluctuations in the net losses of CCE-I and CCE-II.
Interest Expense. Interest expense of CCE-LP is related to the semi-annual
compounding of the Notes, which had an initial principal amount of $82,000,000
in January 1995. Interest accrued on the Notes during 1997, 1996 and 1995 at a
rate of 13%, compounding on June 30 and December 31. Interest expense increased
from $10.4 million in 1995 to $12.4 million in 1996 to $14.1 million in 1997.
Interest Income. Interest income from unconsolidated limited partnership refers
to the accrued interest income recognized by CCE-LP on a subordinated note
receivable from CCE-II.
Net Loss. Net loss increased from $44.7 million for 1995 to $56.5 million for
1996, primarily as a result of the increase in equity in loss of unconsolidated
partnerships. Net loss increased from $56.5 million for 1996 to $56.8 million
for 1997, primarily as a result of an increase in interest expense.
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LIQUIDITY AND CAPITAL RESOURCES
CCE-LP has no operations or significant assets other than its investments in
CCE-I and CCE-II.
CCE-LP has issued a guarantee of payment to the holders of the Notes.
Accordingly, the Notes have been reflected as a liability of CCE-LP for
financial reporting purposes. The Notes are also guaranteed by CAC and Cencom
(with CCE-LP, collectively the "Guarantors"). The guarantee of CCE-LP cannot be
enforced until repayment in full and termination of both CCE-I's and CCE-II's
credit facilities and any other senior indebtedness of CCE-II. As of December
31, 1997, the total obligation for principal plus accrued interest for the Notes
was $118.9 million. See" "Item 13. Certain Relationships and Related
Transactions - The Guarantees."
The Guarantors are dependent primarily upon distributions from CCE-I to service
the Notes. To date, CCE-LP has received no distribution from either CCE-I or
CCE-II. At such time as CCE-LP does receive any distribution from CCE-I or
CCE-II, however, it is anticipated that the provisions of the CCE-LP Partnership
Agreement will result in only those distributions that CCE-LP receives from
CCE-I being available for CCE-LP's distribution to CAC and Cencom for ultimate
use toward repayment of the Notes. Any distributions received by CCE-LP from
CCE-II will not be available for servicing the Notes except in very limited
circumstances. See "Item 13. Certain Relationships and Related Transactions -
The Partnership Agreements."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements and Schedules" on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the fiscal year ended December 31, 1997, CCE-LP was not involved in any
disagreements with its independent certified public accountants on accounting
principles or practices or on financial disclosure.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
CCE-LP has no directors or executive officers. CAC and CCT, the general partners
of CCE-LP, jointly manage the business and affairs of, and have general
responsibility and ultimate authority in all matters affecting the business of
CCE-LP. The following table sets forth certain information, as of March 15,
1998, with respect to the executive officers, the chief financial officer and
directors of CAC and CCT.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH CAC AND CCT YEAR FIRST ELECTED
---- --- ------------------------- ------------------
<S> <C> <C> <C>
Jerald L. Kent 41 President, Chief Executive Officer
and Director 1994
Howard L. Wood 58 Vice Chairman and Director 1994
George E. Matelich 42 Director 1995
Frank T. Nickell 50 Director 1995
Thomas R. Wall IV 39 Director 1995
Barry L. Babcock 51 Chairman 1994
Kent D. Kalkwarf 38 Senior Vice President and Chief 1995
Financial Officer
</TABLE>
BUSINESS EXPERIENCE
Mr. Kent has been affiliated with Charter since 1993 and now holds the position
of President and Chief Executive Officer. Mr. Kent co-founded Charter
Communications Group ("CCG") in 1992. Prior to that time, he was associated with
Cencom Cable Associates, Inc. ("CCA") as Executive Vice President and Chief
Financial Officer of CCA from 1987 through November 1992.
Mr. Wood has been affiliated with Charter since 1993, now holding the position
of Vice Chairman of the Board of Charter. Mr. Wood also co-founded CCG in 1992.
Prior to that time, he was associated with CCA, which he joined in July 1987 as
Director; at CCA he held the position of President, Chief Executive Officer and
Director from January 1, 1989 to November 1992.
Mr. Matelich has been a Manager Director of Kelso & Company since 1990. Mr.
Matelich is also a director of Harris Specialty Chemicals, Inc., Humphreys Inc.,
MJD Communications, Inc., and a Trustee of The University of Puget Sound.
Mr. Nickell has been President and a director of Kelso & Company since March
1989. He is also a director of The Bear Stearns Companies Inc., Earle M.
Jorgensen Company and Peebles, Inc.
Mr. Wall has been a Managing Director of Kelso & Company since 1990. Mr. Wall is
also a director of AMF Bowling, Inc., Consolidated Vision Group, Inc., Cygnus
Publishing, Inc., Hillside Broadcasting, Inc., IXL Holdings, Inc., Mitchell
Supreme Fuel Company, Mosler Inc., Peebles Inc., 21st Century Newspapers, Inc.
and TransDigm, Inc.
Mr. Babcock has been affiliated with Charter since 1993 and now holds the
position of Chairman of the Board of Charter. Mr. Babcock also co-founded CCG in
1992. Prior to that time, he was associated with CCA as the Executive Vice
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president of CCA from February 1996 to November 1992, and as Chief Operating
Officer of CCA from May 1986 to November 1992. Mr. Babcock currently serves as
Chairman of the Board of Directors of the Cable Television Association (CATA),
and serves on the Board of Directors of National Cable Television Association
(NCTA) and Mercantile Bank-St. Louis.
Mr. Kalkwarf, a certified public accountant, joined Charter in 1995 and now
serves as Senior Vice President and Chief Financial Officer. Previously, Mr.
Kalkwarf was a senior tax manager for Arthur Andersen LLP.
The stockholders of Holdings (the parent of CAC) and of CCT have entered into an
agreement regarding the election of directors. See "Item 13. Certain
Relationships and Related Transactions - Stockholders' Agreements."
ITEM 11. EXECUTIVE COMPENSATION
During 1997, CCE-LP had no directors or officers, and neither CCE-LP nor its
general partners, CAC and CCT, had any employees. Furthermore, during 1997, none
of the executive officers or the chief financial officer of CAC, CCT, or
Holdings received any compensation in his or her capacity as an officer or
director of CAC, CCT, Holdings or as an employee of the CCE-I or CCE-II Systems
and none of such individuals expects to receive any compensation in such
capacity at any time in the future. Such individuals are compensated by Charter
in their capacities as officers and employees of Charter. Charter performs
management services for the Company and other companies pursuant to the terms of
management agreements including the management agreement between Charter and
CCE-I and Charter and CCE-II. See "Item 13. Certain Relationships and Related
Transactions - Management Agreements."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CCE-LP is beneficially owned by CAC (and therefore, also by CAC's sole
shareholder, Holdings) and by CCT, both of which own a general partnership
interest in CCE-LP. As a result of its ownership interest in CAC and CCT, Kelso
has effective control over the management and policies of CCE-LP. The following
table sets forth, as of December 31, 1997, the ownership of CCE-LP:
<TABLE>
<CAPTION>
% of Interest
Name of Beneficial Owner Type of Interest in CCE-LP
- ------------------------ ---------------- -------------
<S> <C> <C>
CCA Acquisition Corp. General Partner 1%
(and its beneficial owner, CCA Holdings Corp.) (1) Limited Partner 21%
CCT Holdings Corp. (1) General Partner 1%
Limited Partner 44%
Cencom Cable Entertainment, Inc. (1) Limited Partner 33%
</TABLE>
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(1) The business address for these entities is: 12444 Powerscourt Drive,
Suite 400, St. Louis, Missouri 63131.
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The following table sets forth, as of December 31, 1997, the ownership of
Holdings and CCT. Kelso and certain other individuals, on the one hand, and
Charter, on the other hand, own 85% and 15%, respectively, of the outstanding
capital stock of Holdings.
<TABLE>
<CAPTION>
Name and Address Interest in each of % of
of Beneficial Owners Holdings and CCT Common Stock
-------------------- ------------------- ------------
<S> <C> <C>
KELSO INVESTMENT ASSOCIATES V, L.P. ("KIA V") (1) .............. Common Stock 85.0%(2)
320 Park Avenue, 24th Floor
New York, New York 10022
CHARTER COMMUNICATIONS, INC. ................................... Common Stock 15.0%
12444 Powerscourt Drive, Suite 400
St. Louis, Missouri 63131
</TABLE>
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(1) The General partner of KIA V is Kelso partners V, L.P., the general partners
of which are: Frank T. Nickell, George E. Matelich, Thomas R. Wall, IV and
Joseph S. Schuchert, all of whom may be deemed to beneficially own all the
shares held of record by KIA V, all of whom disclaim such beneficial
ownership, and three of whom, Messrs. Nickell, Matelich and Wall, are
directors of each of Holdings and CCT.
(2) The percentage of Common Stock includes shares owned by another limited
partnership which is an affiliate of KIA V and certain unaffiliated
designees of KIA V. KIA V does not beneficially own the shares of Common
Stock owned by such designees.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE PARTNERSHIP AGREEMENTS
The Partnership Agreements of CCE-I and CCE-II each provide for, among other
things, distributions to the partners of CCE-I and CCE-II, respectively, in
accordance with their respective interests in such partnerships. Accordingly,
97.78% of all distributions by CCE-I and CCE-II will be made to CCE-LP. Through
CAC, Holdings has a 1% general partnership interest in CCE-LP and a 1.22%
general partnership interest in CCE-I. CCT holds a 1% general partnership
interest in CCE-LP and a 1% general partnership interest in CCE-II. Certain
distributions as permitted pursuant to the terms of the applicable credit
facilities will be made by CCE-I and CCE-II directly to CAC and Cencom, and such
amounts may be distributed by CAC and Cencom to Holdings.
Distributions received by CCE-LP from CCE-I and CCE-II, in turn, can be
distributed to the partners of CCE-LP pursuant to the terms of the CCE-LP
Partnership Agreement. The CCE-LP Partnership Agreement essentially directs the
distributions it receives from CCE-I to CAC and Cencom, and directs the
distributions received from CCE-II to CCT until the respective partners have
received distributions sufficient in amount to cover such partner's non-bank
acquisition indebtedness outstanding in connection with acquisition of assets
now held by CCE-I and CCE-II, respectively. The Partnership Agreement of CCE-LP
provides for, among other things, (i) "Preferred Capital Accounts" for CAC and
Cencom, on the one hand, and CCT, on the other hand, the amounts of which
correspond to the amounts owing pursuant to the Notes and the seller note
executed by CCT in 1995 in connection with CCE-II's acquisition of its
California Systems (the "California Note"), respectively; (ii) "Preferred
Returns" for those partners with Preferred Capital Accounts, such Preferred
Returns to (be equal to the interest accruing during the relevant period on the
Notes and the California Note, respectively; and (iii) distributions of cash or
other property such that (A) to the extent each of CAC, Cencom and CCT has a
positive balance in its Preferred Capital Account, (1) amounts distributed to
CCE-LP by CCE-I will be distributed to CAC and Cencom to the extent of and pro
rata in accordance with the positive balances in their respective Preferred
Capital Accounts and (2) amounts distributed to CCE-LP by CCE-II will be
distributed to CCT to the extent of the positive balance in its Preferred
Capital Account and (B) to the extent that any partner in CCE-LP has a positive
balance in its Preferred Capital Account, distributions will be made to such
partner to the extent of and in accordance with such positive Preferred Capital
Account balance. Accordingly, while any amounts remain outstanding under both
the Notes and the California
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Note, distributions to CCE-LP from CCE-I will be used solely to make
distributions to CAC and Cencom and distributions to CCE-LP from CCE-II will be
used solely to make distributions to CCT. If the California Note is repaid prior
to payment in full of all amounts payable under the Notes, then all
distributions to CCE-LP from both CCE-I and CCE-II will be used to make
distributions to CAC and Cencom, and vice versa. Subject to certain
restrictions, CCE-LP may establish new CCE-LP subsidiaries from time to time
which could have financing arrangements that result in the sharing with other
creditors of distributions to CCE-LP from CCE-II and/or such new CCE
subsidiaries. In connection with the creation of new CCE-LP subsidiaries, the
CCE-LP Partnership Agreement's distribution provisions may be amended.
THE GUARANTEES
In conjunction with the issuance of the Notes pursuant to the Indenture, each of
CAC, Cencom and CCE-LP (collectively, the "Guarantors") has irrevocably
guaranteed on a subordinated basis the obligations on the Notes on substantially
the same terms as the Indenture. These guarantees are limited by their terms to
the proceeds of distributions received by the Guarantors from CCE-I. The CCE-LP
guarantee cannot be enforced until the indefeasible repayment in full in cash of
and termination of commitments to lend under the CCE-I Credit Facility, the
CCE-II bank credit facility, any other senior indebtedness of CCE-II and senior
indebtedness of any new CCE-LP subsidiaries. The CAC guarantee and the Cencom
guarantee cannot be enforced until the indefeasible repayment in full of and
termination of commitments to lend under the CCE-I credit facility.
STOCKHOLDERS' AGREEMENTS
Holdings, Charter and Kelso have entered into a stockholders' agreement
("Stockholders' Agreement") restricting the transfer by Charter and Kelso of the
common stock of Holdings held by them except under certain circumstances. The
Stockholders' Agreement provides Charter with certain rights to sell common
stock if Kelso sells common stock to a third party, and provides Kelso with
certain rights to cause Charter to sell its common stock to a third party if
Kelso sells all of its common stock to such third party. Pursuant to the
Stockholders' Agreement, Holdings has a right of first refusal to purchase
shares in connection with a proposed sale of common stock by Charter to a third
party, and Charter has a right of first negotiation pursuant to which it may
make an offer to purchase common stock owned by Kelso before Kelso negotiates
with a third party with respect to a sale of its common stock. In the event that
the management Agreement (defined below) is terminated, or the term of the
management Agreemen ends without being extended by the parties, Charter has the
right to cause Holdings to purchase its shares of common stock, and Holdings has
the right to cause Charter to sell its shares of common stock to Holdings. The
Stockholders' Agreement provides that, in the event of a sale of all of the
common stock of Holdings by Charter and Kelso, or the sale of all of the assets
of Holdings, any cash to be paid or distributed to Charter and Kelso shall be
allocated based upon the ownership percentages of Charter.
The Stockholders' Agreement provides that, until the earliest of January 18,
2005, the closing of an initial public offering or the termination of the
Management Agreement, three of the five members of the board of directors of
Holdings will be chosen by KIA V and two will be chosen by Charter.
A separate stockholders' agreement entered into between CCT, Charter and Kelso,
is in effect with respect to CCT. This second agreement contains provisions
similar to the CCA Stockholders' Agreement with respect to the choice of CCT's
directors.
HOLDINGS REGISTRATION RIGHTS AGREEMENT
Holdings, Charter and Kelso have entered into a registration rights agreement
("Registration Rights Agreement") pursuant to which Charter and Kelso have
certain rights with respect to the registration of the shares of common stock of
Holdings. The Registration Rights Agreement provides that any stockholder that
owns 50% or more of the "Registrable Securities" of Holdings (defined as common
stock of Holdings beneficially owned by Charter, Kelso or their successors or
assignees) has the right to make four requests that Holdings effect registration
under the Securities Act of the Registrable Securities held by such stockholder.
Kelso owns more than 50% of the stock of Holdings. The Registration Rights
Agreement also provides that at any time after an initial public offering of
equity securities of Holdings, Charter will have the right to make up to two
requests that Holdings effect registration under the Securities Act of any of
the Registrable Securities held by Charter. In the event that Holdings proposes
to register any of its equity securities under the Securities Act, the
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Registration Rights Agreement provides that Holdings must give notice to all
holders of Registrable Securities and, upon request of any such holder, use its
best efforts to effect the registration of the Registrable Securities held by
such person, subject to customary cut-back provisions.
CONTINGENT PAYMENT AGREEMENT
Pursuant to an agreement entered into among Cencom Cable Television, Inc. (the
"Gaylord Affiliate"), CCE-LP and CCT (the "Contingent Payment Agreement") in
connection with the California Note, until such time as the California Note is
paid in full, the holder of the California Note is entitled to certain
protections upon the occurrence of certain of the following events. The
Contingent Payment Agreement provides for payments to be made to the Gaylord
Affiliate if the California Note remains unpaid and CC receives a distribution
from CCE-LP, CCE-I or CCE-II that is not used by CCT to pay outstanding
principal on the California Note or certain expenses. The Contingent Payment
Agreement also provides that if Kelso or Charter sells any equity securities of
CCT, or if CCT or Holdings sells any assets, including the partnership interests
of either in subsidiary partnerships, then CCE-LP will be required to pay the
Gaylord Affiliate an amount determined according to formulas set forth in the
Contingent Payment Agreement. The ability of CCE-LP to make any of the foregoing
payments to the Gaylord Affiliate is limited by the terms of the Indenture,
which precludes certain distributions by CCE-LP and CCE-I until the CCE-I Credit
Facility and the Notes are paid in full. The Contingent Payment Agreement
further provides that upon an initial public offering by CCT, CCE-LP or
Holdings, the Gaylord Affiliate will receive certain amounts of the
publicly-offered securities.
MANAGEMENT AGREEMENT
Pursuant to a management agreement entered into between CCE-I and Charter (the
"Management Agreement"), Charter is responsible for managing the day-to-day
operations of the CCE-I systems. The term of the Management Agreement is 10
years, subject to earlier termination for Cause (as defined in the Management
Agreement) or upon the sale of the CCE-I systems which are the subject of the
Management Agreement. Annual management fees paid to Charter by CCE-I with
respect to the year ended December 31, 1997 were $4.8 million. In addition, as
of December 31, 1997, Charter had earned an accrued but unpaid bonus from CCE-I
of approximately $4.0 million, of which $1.9 million was recorded during 1997.
The payment of the bonuses payable by CCE-I is deferred until termination of the
CCE-I Credit Facility. The base amount of annual management fees pursuant to the
CCE-I Management Agreement payable to Charter was $4,845,000 as of December 31,
1997.
CCE-II and Charter are parties to a management agreement, which, like the CCE-I
Management Agreement, provides for payment of management fees to Charter. Annual
management fees paid to Charter by CCE-II with respect to the year ended
December 31, 1997 were $3.2 million. In addition, as of December 31, 1997,
Charter had earned an accrued but unpaid bonus from CCE-II of approximately
$161,000, $12,000 of which was recorded during 1997. The payment of the bonuses
payable by CCE-II is deferred until termination of the CCE-II bank credit
facility. The base amount of annual management fees pursuant to the CCE-II
Management Agreement payable to Charter was $3.2 million as of December 31,
1997.
TRANSACTION AND ADVISORY FEES
In connection with specific acquisitions and financing transactions by CCE-I and
CCE-II, Kelso & Company (an affiliate of Kelso) and Charter are typically each
paid financial advisory and investment banking fees. Such fees are calculated as
a percentage of the transaction, based upon the size of the transaction. Neither
Kelso and Company nor Charter received any investment banking fees during the
year ended December 31, 1997 from CCE-I or CCE-II. The financial advisory fees
paid to Kelso & Company by CCE-I were approximately $553,000 with respect to the
year ended December 31, 1997. The financial advisory fees paid to Kelso &
Company by CCE-II were approximately $400,000 with respect to the year ended
December 31, 1997.
LONG BEACH INVESTMENT BY CCE-II
On May 23, 1997, CCE-II made a $25.0 million investment (the "Long Beach
Investment") in Long Beach Acquisition Corp. ("LBAC"), in connection with the
acquisition of LBAC by an affiliate of CCT and Holdings. LBAC owns cable
- 13 -
<PAGE> 14
television systems serving communities in Long Beach, California. The Long
Beach Investment was in the form of a note convertible into 27.5% of the stock
of LBAC. In connection with the Long Beach Investment, CCE-II and LBAC became
jointly and severally liable under the CCE-II credit facility.
- 14 -
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
See Index to Financial Statements and Schedules on page F-1 of this
Report.
2. Financial Statement Schedules:
See Index to Financial Statements and Schedules on page F-1 of this
Report.
3. Exhibits:
See Index on Page E-1 of this Report.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1997.
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
By: CCA Acquisition Corp, its General Partner
By: /s/ Jerald L. Kent
--------------------------------------------------
Name: Jerald L. Kent
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities (as to the General Partner) and on the date indicated.
<TABLE>
<CAPTION>
Signature and Title Date
- ------------------- ----
<S> <C>
By: /s/ Jerald L. Kent March 27, 1998
------------------------------------------------------------------
Jerald L. Kent
President, Chief Executive Officer and Director
By: /s/ Howard L. Wood March 27, 1998
------------------------------------------------------------------
Howard L. Wood
Chairman and Director
By: /s/ Kent D. Kalkwarf March 27, 1998
------------------------------------------------------------------
Kent D. Kalkwarf
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
By: /s/ George E. Matelich March 27, 1998
------------------------------------------------------------------
George E. Matelich
Director
By: /s/ Frank T. Nickell March 27, 1998
------------------------------------------------------------------
Frank T. Nickell
Director
By: /s/ Thomas R. Wall IV March 27, 1998
------------------------------------------------------------------
Thomas R. Wall IV
Director
</TABLE>
S-1
<PAGE> 17
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
REGISTRANT'S FINANCIAL STATEMENTS: F-2
Report of Independent Public Accountants F-3
Balance Sheets as of December 31, 1997 and 1996 F-4
Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-5
Statements of Partners' Capital (Deficit) for the years ended
December 31, 1997, 1996 and 1995 F-6
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995 F-7
Notes to Financial Statements
CHARTER COMMUNICATIONS ENTERTAINMENT I, L.P. FINANCIAL STATEMENTS: (1)
Report of Independent Public Accountants
Balance Sheets as of December 31, 1997 and 1996
Statements of Operations for the years ended December 31, 1997, 1996, and
1995
Statements of Partners' Capital (Deficit) for the years ended December 31,
1997, 1996 and 1995
Statement of Cash Flows for the years ended December 31, 1997, 1996, and
1995
Notes to Financial Statements
CHARTER COMMUNICATIONS ENTERTAINMENT II, L.P. FINANCIAL STATEMENTS: (1)
Report of Independent Public Accountants
Balance Sheets as of December 31, 1997 and 1996
Statements of Operations for the years ended December 31, 1997 and 1996 and
the period from inception (April 20, 1995) to December 31, 1995
Statements of Partners' Capital (Deficit) for the years ended December 31,
1997 and 1996 and the period from inception (April 20, 1995) to December
31, 1995
Statements of Cash Flows for the years ended December 31, 1997 and 1996, and
the period from inception (April 20, 1995) to December 31, 1995
Notes to Financial Statements
FINANCIAL STATEMENT SCHEDULES FOR ENTITIES LISTED ABOVE:
None required
- --------------------
(1) All of these financial statements are incorporated by reference from the
Form 10-K for the year ended December 31, 1997 as filed by CCA Holdings
Corp.
F-1
<PAGE> 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Charter Communications Entertainment, L.P.:
We have audited the accompanying balance sheets of Charter Communications
Entertainment, L.P. (a Delaware limited partnership) as of December 31, 1997 and
1996, and the related statements of operations, partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Charter Communications
Entertainment, L.P. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 6, 1998
F-2
<PAGE> 19
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
BALANCE SHEETS - DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
ASSETS
------
<S> <C> <C>
INVESTMENTS IN UNCONSOLIDATED LIMITED PARTNERSHIPS $235,132,242 $279,854,790
SUBORDINATED NOTE RECEIVABLE FROM UNCONSOLIDATED LIMITED PARTNERSHIP
25,000,000 25,000,000
INTEREST RECEIVABLE FROM UNCONSOLIDATED LIMITED PARTNERSHIP
4,403,000 2,418,000
------------ ------------
$264,535,242 $307,272,790
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
NOTE PAYABLE $ 82,000,000 $ 82,000,000
ACCRUED INTEREST ON NOTE PAYABLE 36,919,412 22,843,403
PARTNERS' CAPITAL (DEFICIT):
General partners (3,836,797) 624,614
Limited partners-
Ordinary Capital Accounts (64,759,988) 10,543,510
Preferred Capital Account 214,212,615 191,261,263
------------ ------------
Total partners' capital 145,615,830 202,429,387
------------ ------------
$264,535,242 $307,272,790
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 20
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
EQUITY IN LOSS OF UNCONSOLIDATED LIMITED PARTNERSHIPS $(44,722,548) $(45,968,911) $(34,730,760)
INTEREST EXPENSE (14,076,009) (12,404,598) (10,438,805)
INTEREST INCOME - UNCONSOLIDATED LIMITED PARTNERSHIP 1,985,000 1,918,000 500,000
------------ ------------ ------------
Net loss (56,813,557) (56,455,509) (44,669,565)
PREFERRED RETURN (22,951,352) (20,492,278) (5,081,095)
------------ ------------ ------------
(79,764,909) (76,947,787) (49,750,660)
------------ ------------ ------------
NET LOSS ALLOCATION:
General partners (4,461,411) (4,303,844) (2,782,632)
Limited partners - Preferred Capital Account - - -
------------ ------------ ------------
(4,461,411) (4,303,844) (2,782,632)
------------ ------------ ------------
NET LOSS APPLICABLE TO LIMITED PARTNERS -
ORDINARY CAPITAL ACCOUNTS $(75,303,498) $(72,643,943) $(46,968,028)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 21
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Limited Partners
-----------------------------
Ordinary Preferred
General Capital Capital
Partners Accounts Account Total
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1995 $ - $ - $ - $ -
Partners' capital contributions 7,711,090 130,155,481 165,687,890 303,554,461
Net loss (2,498,438) (42,171,127) - (44,669,565)
Preference allocation (284,194) (4,796,901) 5,081,095 -
----------- ------------ ------------ ------------
BALANCE, December 31, 1995 4,928,458 83,187,453 170,768,985 258,884,896
Net loss (3,157,670) (53,297,839) - (56,455,509)
Preference allocation (1,146,174) (19,346,104) 20,492,278 -
----------- ------------ ------------ ------------
BALANCE, December 31, 1996 624,614 10,543,510 191,261,263 202,429,387
Net loss (3,177,696) (53,635,861) - (56,813,557)
Preference allocation (1,283,715) (21,667,637) 22,951,352 -
----------- ------------ ------------ ------------
BALANCE, December 31, 1997 $(3,836,797) $(64,759,988) $214,212,615 $145,615,830
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 22
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(56,813,557) $56,455,509) $ 44,669,565)
Adjustments to reconcile net loss to net cash provided by
operating activities- Equity in loss of unconsolidated
limited partnerships 44,722,548 45,968,911 34,730,760
Changes in assets and liabilities-
Interest receivable from unconsolidated limited partnership (1,985,000) (1,918,000) (500,000)
Accrued interest on note payable 14,076,009 12,404,598 10,438,805
------------ ----------- ------------
Net cash provided by operating activities - - -
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in unconsolidated limited partnerships - - (360,554,461)
------------ ----------- ------------
Net cash used in investing activities - - (360,554,461)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
General partners' contributions - - 7,711,090
Limited partners' contributions - - 295,843,371
Issuance of note receivable to unconsolidated limited partnership - - (47,000,000)
Payments on note receivable from unconsolidated limited partnership - - 22,000,000
Proceeds from note payable - - 82,000,000
------------ ----------- ------------
Net cash provided by financing activities - - 360,554,461
------------ ----------- ------------
CASH, beginning and end of year $ - $ - $ -
============ =========== ============
CASH PAID FOR INTEREST $ - $ - $ -
============ =========== ============
CASH PAID FOR TAXES, net of refunds $ - $ - $ -
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 23
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
In connection with a reorganization under common control, the assets of certain
cable television systems located in Connecticut and Missouri were contributed
from CCA Acquisition Corp. (CAC) and its wholly owned subsidiary, Cencom Cable
Entertainment, Inc. (CCE), respectively, to Charter Communications
Entertainment, L.P. (CCE, L.P. or 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 approximately 85%
owned 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 cable television systems. This series of transactions 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
ended December 31, 1995.
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"). In September 1995, CCT
Holdings Corp. (CCT Holdings) acquired certain cable television systems from
Gaylord Entertainment Company, Inc. (Gaylord). On September 29, 1995, CAC and
CCT Holdings, an entity affiliated by common ownership with CCA Holdings Corp.
(CCA Holdings), the parent company of CAC, 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. Upon execution of the Asset Exchange 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. 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").
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 recognize the Partnership's share of net earnings or losses as they
occur and distributions when received.
F-7
<PAGE> 24
Income Taxes
Income taxes are the responsibility of the partners and as such are not provided
in the accompanying financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. INVESTMENTS IN UNCONSOLIDATED LIMITED PARTNERSHIPS:
Summary financial information of CCE-I and CCE-II as of December 31, 1997 and
1996, and for the years then ended and for the year ended December 31, 1995, for
CCE-I, and the period from inception (April 20, 1995) to December 31, 1995, for
CCE-II, which is not consolidated with the operating results of the Partnership,
is as follows:
<TABLE>
<CAPTION>
CCE-I
------------------------------
As of December 31
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Current assets $ 8,654,394 $ 8,999,959
Noncurrent assets - primarily investment in
cable television properties 629,918,900 657,011,095
------------ ------------
Total assets $638,573,294 $666,011,054
============ ============
Current liabilities $ 50,343,028 $ 28,518,335
Long-term debt 437,295,000 462,120,000
Other long-term liabilities 5,502,274 2,848,479
Partners' capital 145,432,992 172,524,240
------------ ------------
Total liabilities and partners'capital $638,573,294 $666,011,054
============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Service revenues $169,324,522 $143,023,261 $ 99,689,410
============ ============ ============
Income (loss) from continuing operations $ 11,619,225 $ 1,106,166 $ (6,946,137)
============ ============ ============
Net loss $(27,091,248) $(35,552,609) $(31,423,151)
============ ============ ============
</TABLE>
As of December 31, 1997, CCE-I provided cable television service to
approximately 350,300 basic subscribers in Connecticut, Illinois, Massachusetts,
Missouri and New Hampshire.
F-8
<PAGE> 25
<TABLE>
<CAPTION>
CCE-II
------------------------------
As of December 31
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Current assets $ 5,482,625 $ 10,904,830
Noncurrent assets - primarily investment in
cable television properties 362,850,452 338,316,421
------------ ------------
Total assets $368,333,077 $349,221,251
============ ============
Current liabilities $ 14,269,423 $ 12,949,304
Long-term debt 228,500,000 194,000,000
Other long-term liabilities 29,888,353 27,949,964
Partners' capital 95,675,301 114,321,983
------------ ------------
Total liabilities and partners' capital $368,333,077 $349,221,251
============ ============
</TABLE>
<TABLE>
<CAPTION>
Period Ended December 31
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Service revenues $ 96,659,228 $ 90,368,332 $ 21,156,209
============ ============ ============
Income from operations $ 1,603,828 $ 5,039,834 $ 983,638
============ ============ ============
Net loss $(18,646,682) $(11,459,982) $ (3,458,535)
============ ============ ============
</TABLE>
As of December 31, 1997, CCE-II provided cable television service to
approximately 173,000 basic subscribers in southern California.
3. SUBORDINATED NOTE RECEIVABLE FROM UNCONSOLIDATED LIMITED PARTNERSHIP:
In conjunction with the Gaylord acquisition, the Partnership issued a Promissory
Note (the "CCE-II Note") to CCE-II in the amount of $47.0 million. Immediately
upon closing of the acquisition, CCE-II used proceeds from borrowings under its
revolving credit and term loan facility (the "CCE-II Credit Agreement") to repay
$22.0 million on the CCE-II Note. All principal or interest amounts due under
the CCE-II Note are subordinated with respect to the CCE-II Credit Agreement.
The CCE-II Note matures on March 31, 2005. The CCE-II Note bears interest at an
annual rate equal to the weighted average interest rate payable on the loans
outstanding under the CCE-II Credit Agreement which was 7.82% and 7.66% during
1997 and 1996, respectively. The interest rates ranged from 7.00% to 7.96% and
7.19% to 7.75% at December 31, 1997 and 1996, respectively. At December 31, 1997
and 1996, the principal amount due under the CCE-II Note is included in
Subordinated note receivable from unconsolidated limited partnership and accrued
interest related to the CCE-II Note is included in Interest receivable from
unconsolidated limited partnership on the accompanying balance sheet.
F-9
<PAGE> 26
4. NOTE PAYABLE:
In connection with the Crown Transaction, the Partnership issued a guarantee of
payment to the holder of the HC Crown Note. Accordingly, the debt has been
reflected as a liability of the Partnership in the accompanying financial
statements. The HC Crown Note is also guaranteed by CAC and CCE. The HC Crown
Note is an unsecured obligation. The HC Crown Note is limited in aggregate
principal amount to $82.0 million and has a stated maturity date of December 31,
1999 (the "Stated Maturity Date"). Interes accrues at 13% per annum, compounded
semiannually, but is not due and payable until the Stated Maturity Date. If
principal plus accrued interest is not paid at the Stated Maturity Date, or if
there are any other events of default, the annual rate at which interest accrues
will initially increase to 18% and will increase by an additional 2% on each
successive anniversary of the Stated Maturity Date (up to 26%) until the HC
Crown Note is repaid; in addition, a 3% default rate of interest can, in certain
instances, be in effect simultaneously with the stated rate of interest on the
HC Crown Note. The HC Crown Note is redeemable in whole or in part at the option
of CCA Holdings at any time, without premium or penalty, provided that accrued
interest is paid on the portion of the HC Crown Note so redeemed.
Borrowings under the HC Crown Note are subject to certain financial and
nonfinancial covenants and restrictions, including the maintenance of a ratio of
debt (excluding the HC Crown Note) to adjusted consolidated annualized operating
cash flow, as defined, not to exceed 6.75 to 1 at December 31, 1997. In addition
to the subordination in right of payment provisions contained in the HC Crown
Note, the HC Crown Note is subject to a subordination agreement in favor of
senior bank debt of CCE-I. Pursuant to the subordination agreement,
substantially all rights and remedies under the HC Crown Note, including the
rights to accelerate the maturity upon an event of default (including a payment
of default), are suspended until the obligations under CCE-I's Credit Agreement
(the "CCE-I Credit Agreement") are paid in full.
The HC Crown Note is subordinated to the CCE-I Credit Agreement. Pursuant to the
terms of the CCE-I Credit Agreement, payments on the HC Crown Note are
prohibited until the indefeasible payment in full in cash, and the termination
of commitments to lend under the CCE-I Credit Agreement. The HC Crown Note will
not have the benefit of any distributions from CCE-II until repayment in full of
the CCE-II Credit Agreement and the Gaylord Note.
The obligations owing on the HC Crown Note are guaranteed by CAC, CCE and CCE,
L.P. (collectively referred to as the "Guarantors"). The CCE, L.P. guarantee
cannot be enforced until the repayment in full and termination of the CCE-I
Credit Agreement and the CCE-II Credit Agreement. The CAC and CCE guarantees
cannot be enforced until the repayment in full and termination of the CCE-I
Credit Agreement. The guarantees, by their terms, are limited to the proceeds of
distributions received from CCE-I and income, if any, generated by the
Guarantors. CCA Holdings and the Guarantors are dependent primarily upon
distributions from CCE-I to service the HC Crown Note.
The fair value of the HC Crown Note plus accrued interest, based upon trading
activity, was approximately $118.6 million and $89.5 million at December 31,
1997 and 1996, respectively.
5. PARTNERSHIP INTERESTS:
Under the terms of the Partnership Agreement, the profits and losses for income
tax reporting purposes are allocated among the partners in accordance with their
percentage interests subject to any adjustments required by the Internal Revenue
Code and Treasury Regulations.
For financial reporting purposes, profits and losses, and the preferred return
(described below) are allocated in accordance with the liquidation provisions in
the Partnership Agreement.
F-10
<PAGE> 27
Proceeds from the liquidation of the Partnership shall be distributed as
follows: (i) to the payment of liquidation expenses; (ii) to the payment of
creditors of the Partnership and the establishment of reserves to provide for
contingent liabilities; (iii) to CCT Holdings, equal to the amount of its
Preferred Capital Account; (iv) to each partner to the extent of such positive
balance in the ratio in which its respective ordinary capital account balance
bears to all such ordinary capital account balances and (v) the remaining
balance to the partners in accordance with their percentage interests at the
time of liquidation.
CCT Holdings is entitled to an annual preferred return computed in accordance
with the provisions in the Partnership Agreement.
Pursuant to the Partnership Agreement, while any amounts remain outstanding
under both the HC Crown Note and the Gaylord Note, distributions to the
Partnership by CCE-I will be distributed by the Partnership to CAC and CCE (pro
rata) for use solely to service the HC Crown Note and distributions to the
Partnership by CCE-II will be distributed by the Partnership to CCT Holdings to
service the Gaylord Note. If the Gaylord Note is repaid prior to payment in full
of the HC Crown Note, then all distributions to the Partnership from both CCE-I
and CCE-II will be used to service the HC Crown Note. If the HC Crown Note is
repaid prior to payment in full of the Gaylord Note, then all distributions to
the Partnership from both CCE-I and CCE-II will be used to service the Gaylord
Note.
6. COMMITMENTS AND CONTINGENCIES:
Litigation
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 entities managed by 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 believed 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, the effect of which narrowed the
remaining issues significantly. The plaintiff filed a motion to alter or amend
the court's order which was denied. 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.
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 th lawsuit to be without merit and intends
to defend the action vigorously. CCE-I 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.
The Partnership is also a party to lawsuits which are generally incidental to
its business. In the opinion of management after consulting with legal counsel,
the outcome of these lawsuits will not have a material adverse effect on the
Partnership's financial position or results of operations.
F-11
<PAGE> 28
7. RATE REGULATION IN THE CABLE TELEVISION INDUSTRY:
The cable television industry is subject to extensive regulation at the federal,
local and, in some instances, state levels. In addition, recent legislative and
regulatory changes and additional regulatory proposals under consideration may
materially affect the cable television industry.
Congress enacted the Cable Television Consumer Protection and Competition Act of
1992 (the "1992 Cable Act"), which became effective on December 4, 1992. The
1992 Cable Act generally allows for a greater degree of regulation of the cable
television industry. Under the 1992 Cable Act's definition of effective
competition, nearly all cable systems in the United States are subject to rate
regulation of basic cable services, provided the local franchising authority
becomes certified to regulate basic servic rates. The 1992 Cable Act and the
Federal Communications Commission's (FCC) rules implementing the 1992 Cable Act
have generally increased the administrative and operational expenses of cable
television systems and have resulted in additional regulatory oversight by the
FCC and local franchise authorities.
While management believes that CCE-I and CCE-II have complied in all material
respects with the rate provisions of the 1992 Cable Act, in jurisdictions that
have not yet chosen to certify, refunds covering a one-year period on basic
services may be ordered upon future certification if CCE-I and CCE-II are unable
to justify their rates through a benchmark or cost-of-service filing pursuant to
FCC rules. Management is unable to estimate at this time the amount of refunds,
if any, that may be payable by CCE-I and CCE-II in the event certain of their
rates are successfully challenged by franchising authorities or found to be
unreasonable by the FCC. Management does not believe that the amount of any such
refunds would have a material adverse effect on the financial position or
results of operations of the Partnership.
During 1996, Congress passed and the President signed into law the
Telecommunications Act of 1996 (the "Telecommunications Act"), which alters
federal, state, and local laws and regulations pertaining to cable television,
telecommunications and other services. Under the Telecommunications Act,
telephone companies can compete directly with cable operators in the provision
of video programming.
Certain provisions of the Telecommunications Act could materially affect the
growth and operation of the cable television industry and the cable services
provided by CCE-I and CCE-II. Although the new legislation may substantially
lessen regulatory burdens, the cable television industry may be subject to
additional competition as a result thereof. There are numerous rule-makings to
be undertaken by the FCC which will interpret and implement the
Telecommunications Act's provisions. In addition, certain provisions of the
Telecommunications Act (such as the deregulation of cable programming rates) are
not immediately effective. Further, certain of the Telecommunications Act's
provisions have been and are likely to be subject to judicial challenges.
Management is unable at this time to predict the outcome of such rule-makings or
litigation or the substantive effect of the new legislation and the rule-makings
on the financial position or results of operations of the Partnership.
8. INCOME TAXES:
The book value of the Partnership's net assets is less than its tax reporting
basis by $11,196,317 and $4,912,673 as of December 31, 1997 and 1996,
respectively.
9. SIGNIFICANT NONCASH TRANSACTIONS:
The Partnership engaged in the following significant noncash financing
transactions during 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Preference allocation - Preferred Capital Account
(see Note 5) $22,951,352 $20,492,278 $5,081,095
</TABLE>
F-12
<PAGE> 29
EXHIBIT INDEX
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
No. Description Pages
------- ----------- ------------
<S> <C> <C>
3.7 Certificate of Limited Partnership of Charter Communications
Entertainment, L.P. , filed as Exhibit 3.7 to the Registration
Statement on Form S-4, File No. 333-26853-02, and incorporated
herein by reference. N/A
3.8 Amendment to Certificate of Limited Partnership of Charter
Communications Entertainment, L.P. , filed as Exhibit 3.8 to the
Registration Statement on Form S-4, File No. 333-26853-02, and
incorporated herein by reference. N/A
3.9 Agreement of Limited Partnership of Charter Communications
Entertainment, L.P. , filed as Exhibit 3.9 to the Registration
Statement on Form S-4, File No. 333-26853-02, and incorporated
herein by reference. N/A
4.1 Indenture, dated February 13, 1997, between CCA Holdings Corp. and
Harris Trust and Savings Bank, as Trustee, filed as Exhibit 4.1
to the Registration Statement on Form S-4, File No. 333-26853-02,
and incorporated herein by reference. N/A
4.2 Second Amended and Restated Guaranty, dated February 13, 1997,
issued by CCA Acquisition Corp., filed as Exhibit 4.2 to the
Registration Statement on Form S-4, File No. 333-26853-02, and
incorporated herein by reference. N/A
4.3 Second Amended and Restated Guaranty, dated February 13, 1997,
issued by Cencom Cable Entertainment, Inc., filed as Exhibit 4.3
to the Registration Statement on Form S-4, File No. 333-26853-02,
and incorporated herein by reference. N/A
4.4 Second Amended and Restated Guaranty, dated February 13, 1997,
issued by Charter Communications Entertainment, L.P., filed as
Exhibit 4.4 to the Registration Statement on Form S-4, File No.
333-26853-02, and incorporated herein by reference. N/A
4.5 Second Amended and Restated Subordination Agreement between
Harris Trust and Savings Bank, as Trustee, CCA Holdings Corp.
and Toronto Dominion (Texas), Inc., as Administrative Agent, dated
February 13, 1997, filed as Exhibit 4.5 to the Registration
Statement on Form S-4, File No. 333-26853-02, and incorporated
herein by reference. N/A
10.1 Amended and Restated Loan Agreement dated as of September 29, 1995
(the "CCE-I Loan Agreement") among Chartsr Communications
Entertainment I, L.P., as Borrower, Toronto Dominion (Texas), Inc.
and Chemical Bank, as Documentation Agents, Toronto Dominion
(Texas), Inc., Chemical Bank, CIBC Inc., Credit Lyonnais Cayman
Island Branch and Nationsbank, N.A. (Carolinas), as Managing
Agents, Banque Paribas and Union Bank, as Co-Agents, the Signatory
Banks thereto, and Toronto Dominion (Texas), Inc., a Administrative
Agent, filed as Exhibit 10.1 to the Registration Statement on Form
S-4, File No. 333-26853-0s, and incorporated herein by reference. s
s s s s N/A s 10.2 First Amendment to the CCE-I Loan Agreement
dated as of October 31, 1995, filed as Exhibit 10.2 to the
Registration Statement on Form S-4, File No. 333-26853-02, and
incorporated herein by reference. N/A
10.3 Second Amendment to the CCE-I Loan Agreement dated
January 16, 1996, filed as Exhibit 10.3 to the Registration
Statement on Form S-4, File No. 333-26853-02, and incorporated
herein by reference. N/A
10.4 Third Amendment to the CCE-I Loan Agreement dated as of
March 29, 1966, filed as Exhibit 10.4 to the Registration
Statement on Form S-4, File No. 333-26853-02, and incorporated
herein by reference. N/A
</TABLE>
E-1
<PAGE> 30
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
No. Description Pages
------- ----------- ------------
<S> <C> <C>
10.5 Fourth Amendment to the CCE-I Loan Agreement dated as of
May 24, 1996, filed as Exhibit 10.5 to the Registration
Statement on Form S-4, File No. 333-26853-02, and incorporated
herein by reference. N/A
10.6 Fifth Amendment to the CCE-I Loan Agreement dated as of
November 29, 1996, filed as Exhibit 10.6 to the Registration
Statement on Form S-4, File No. 333-26853-02, and incorporated
herein by reference. N/A
10.7 Sixth Amendment to the CCE-I Loan Agreement dated as of
February 7, 1997, filed as Exhibit 10.7 to the Registration
Statement on Form S-4, File No. 333-26853-02, and incorporated
herein by reference. N/A
10.9 Amended and Restated Management Agreement dated as of
September 29, 1995 between Charter Communications Entertainment
I, L.P. and Charter Communications, Inc., filed as Exhibit 10.9 to
the Registration Statement on Form S-4, File No. 333-26853-02, and
incorporated herein by reference. N/A
10.10 Amendment Number One to Amended and Restated Management Agreement
dated as of October 31, 1995 between Charter Communications
Entertainment I, L.P. and Charter Communications, Inc., filed as
Exhibit 10.10 to the Registration Statement on Form S-4, File No.
333-26853-02, and incorporated herein by reference. N/A
10.11 Amendment Number Two to Amended and Restated Management Agreement
dated as of March 29, 1996 between Charter Communications
Entertainment I, L.P. and Charter Communications, Inc., filed as
Exhibit 10.11 to the Registration Statement on Form S-4, File No.
333-26853-02, and incorporated herein by reference. N/A
10.12 Amendment Number Three to Amended and Restated management
Agreement dated as of November 29, 1996 between Charter
Communications Entertainment I, L.P. and Charter Communications,
Inc., filed as Exhibit 10.12 to the Registration Statement on Form
S-4, File No. 333-26853-02, and incorporated herein by reference. N/A
10.13 Certificate of Limited Partnership of Charter Communications
Entertainment I, L.P., filed as Exhibit 10.13 to the
Registration Statement on Form S-4, File No. 333-26853-02, and
incorporated herein by reference. N/A
10.14 Amendment to the Certificate of Limited Partnership of Charter
Communications Entertainment I, L.P., filed as Exhibit 10.14 to
the Registration Statement on Form S-4, File No. 333-26853-02, and
incorporated herein by reference. N/A
10.15 Agreement of Limited Partnership of Charter Communications
Entertainment I, L.P., filed as Exhibit 10.15 to the
Registration Statement on Form S-4, File No. 333-26853-02, and
incorporated herein by reference. N/A
10.16 Certificate of Limited Partnership of Charter Communications
Entertainment II, L.P., filed as Exhibit 10.16 to the
Registration Statement on Form S-4, File No. 333-26853-02, and
incorporated herein by reference. N/A
10.17 Agreement of Limited Partnership of Charter Communications
Entertainment II, L.P., filed as Exhibit 10.17 to the
Registration Statement on Form S-4, File No. 333-26853-02, and
incorporated herein by reference. N/A
10.18 Contingent Payment Agreement dated as of September 29, 1995 among
Charter Communications Entertainment, L.P., CCT Holdings Corp.
and Cencom Cable Television, Inc., filed as Exhibit 10.18 to the
Registration Statement on Form S-4, File No. 333-26853-02, and
incorporated herein by reference. N/A
*12.2 Charter Communications Entertainment, L.P.. and subsidiaries,
Ratio of Earnings to Fixed Charges Calculation
21.1 List of Subsidiaries of Registrant, filed as Exhibit 21.1 to the
Registration Statement on Form S-4, File No. 333-26853, and
incorporated herein by reference. N/A
*27.4 Financial Data Schedule Charter Communications
Entertainment, L.P
</TABLE>
E-2
*Filed herewith
<PAGE> 1
EXHIBIT 12.2
CHARTER COMMUNICATIONS ENTERTAINMENT, L.P.
RATIO OF EARNINGS TO FIXED CHARGES CALCULATION
(In Thousands, Except Ratios)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Earnings
- --------
Net loss(2) (12,091) (10,487) (9,939)
Fixed Charges 14,076 12,405 10,439
------- ------- ------
Earnings 1,985 1,918 500
======= ======= ======
Fixed Charges
- -------------
Interest Expense 14,076 12,405 10,439
Interest Element of Rentals - - -
Amortization of debt costs - - -
------- ------- ------
Total Fixed Charges 14,076 12,405 10,439
======= ======= ======
Ratio of Earnings to Fixed Charges (1) - - -
</TABLE>
(1) Earnings for the year ended December 31, 1997, 1996 and 1995 were
insufficient to cover fixed charges by $12,091, $10,487 and $9,939,
respectively. As a result of such deficiencies, the ratios are not
presented above.
(2) Net loss excludes equity in loss of unconsolidated limited partnerships.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 264,535,242
<CURRENT-LIABILITIES> 0
<BONDS> 118,919,412
0
0
<COMMON> 0
<OTHER-SE> 145,615,830
<TOTAL-LIABILITY-AND-EQUITY> 264,535,242
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (44,722,548)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (14,076,009)
<INCOME-PRETAX> (56,813,557)
<INCOME-TAX> 0
<INCOME-CONTINUING> (56,813,557)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (56,813,557)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
