<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 333-26853-03
CENCOM CABLE ENTERTAINMENT, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1258015
-------- ----------
(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
CENCOM CABLE ENTERTAINMENT, INC.
FORM 10-Q - FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Cencom Cable Entertainment, Inc.
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 Shareholder's Investment (Deficit)-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 10
Part II. Other Information
Item 1. Legal Proceedings 11
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 11
Signature Page 12
</TABLE>
2
<PAGE> 3
CENCOM CABLE ENTERTAINMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIP $ 113,898,852 $ 122,582,298
------------- -------------
$ 113,898,852 $ 122,582,298
============= =============
LIABILITIES AND SHAREHOLDER'S INVESTMENT (DEFICIT)
NOTES PAYABLE $ 82,000,000 $ 82,000,000
ACCRUED INTEREST ON NOTES PAYABLE 33,268,131 22,843,403
DEFERRED INCOME TAXES 55,500,000 55,500,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S INVESTMENT (DEFICIT):
Common stock, $1 par value, 300,000 shares
authorized; 245,973 shares issued and
outstanding 245,973 245,973
Additional paid-in capital 21,954,139 21,954,139
Accumulated deficit (79,069,391) (59,961,217)
-------------- -------------
Total shareholder's investment (deficit) (56,869,279) (37,761,105)
-------------- -------------
$ 113,898,852 $ 122,582,298
============== =============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE> 4
CENCOM CABLE ENTERTAINMENT, INC.
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 PARTNERSHIP $ (2,339,653) $ (7,372,239)
INTEREST EXPENSE (3,606,710) (3,199,538)
------------- --------------
Net loss $ (5,946,363) $ (10,571,777)
============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
CENCOM CABLE ENTERTAINMENT, INC.
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 PARTNERSHIP $ (8,683,446) $ (14,465,626)
INTEREST EXPENSE (10,424,728) (9,208,060)
-------------- ---------------
Net loss $ (19,108,174) $ (23,673,686)
============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
CENCOM CABLE ENTERTAINMENT, INC.
STATEMENT OF SHAREHOLDER'S INVESTMENT (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
----- ------- ------- -----
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 $245,973 $21,954,139 $(59,961,217) $(37,761,105)
Net loss -- -- (19,108,174) (19,108,174)
-------- ------------ ------------- -------------
BALANCE, September 30, 1997 $245,973 $21,954,139 $(79,069,391) $(56,869,279)
======== ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
CENCOM CABLE ENTERTAINMENT, INC.
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 $ (19,108,174) $(23,673,686)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Equity in loss of unconsolidated limited partnerships 8,683,446 14,465,626
Changes in assets and liabilities-
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
CENCOM CABLE ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Cencom Cable Entertainment, Inc. (CCE), a Delaware corporation, is a wholly
owned subsidiary of CCA Acquisition Corp. (CAC). CAC is a wholly owned
subsidiary of CCA Holdings Corp. (CCA Holdings). CCA Holdings is 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"), manager of Charter Communications Entertainment I, L.P.'s
(CCE-I) and Charter Communications Entertainment II, L.P.'s (CCE-II) cable
television systems.
In January 1995, CAC completed certain acquisitions, including stock and asset
acquisitions of CCE and cable television systems located in Connecticut from
Crown Media, Inc., a subsidiary of Hallmark Cards, Incorporated (the "Crown
Transaction"). CCE's assets were comprised primarily of cable television
systems serving communities in St. Louis County, Missouri (the "Missouri
System"). On September 29, 1995, CAC and CCT Holdings Corp. (CCT Holdings), an
entity affiliated with CCA Holdings by common ownership, entered into an Asset
Exchange Agreement whereby CAC exchanged a 1% undivided interest in all of its
assets (including CCE's 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 their assets to Charter Communications Entertainment,
L.P. (CCE, L.P.). CCE, L.P. immediately contributed the assets acquired under
the Crown Transaction to CCE-I and certain assets acquired in the Gaylord
acquisition to CCE-II.
The series of transactions representing the contribution of assets to CCE-I
acquired under the Crown Transaction is a reorganization of entities under
common control and has been accounted for in a manner similar to a pooling of
interests. Accordingly, CCE-I's financial statements reflect the activity of
these systems for the entire year. Thus, the net loss of CCE-I generated by
the Missouri system for the period prior to September 29, 1995, was allocated
entirely to CCE.
As a result of these transactions, CCE owns a 33% limited partnership interest
in CCE, L.P., CAC owns a 21% limited partnership in CCE, L.P. and CCT Holdings
owns a 44% limited partnership interest in CCE, L.P. In addition, CAC and CCT
Holdings each own a 1% general partnership interest in CCE, L.P.
The accompanying unaudited financial statements of CCE 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 the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The financial statements are unaudited; however, in the opinion of management,
such statements include all adjustments necessary for a fair presentation of
the financial position and results of operations for the periods presented.
These 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.
8
<PAGE> 9
3. LITIGATION:
CCE 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 CCE'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 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 at
this early stage to project the expenses which will be associated with the
actions or to predict any potential outcome or exposure.
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. CCE
is not able at this early stage to project the expense which will be associated
with this action or to predict any potential outcome or financial impact.
9
<PAGE> 10
CENCOM CABLE ENTERTAINMENT, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Since Cencom Cable Entertainment, Inc. (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 Corp.'s
quarterly report for the period ended September 30, 1997 filed on Form 10-Q for
additional information.
Equity in Loss of Unconsolidated Limited Partnership
Equity in loss of unconsolidated limited partnership pertains to the Company's
share of losses in Charter Communications Entertainment, L.P. ("CCE L.P.").
The Company maintains a 33% non-controlling investment in this entity. Equity
in loss of unconsolidated limited partnership decreased by 68.3% and 40.0% to
$2,339,653 and $8,683,446 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 L.P. 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 43.8% and 19.3% to $5,946,363 and $19,108,174 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 Charter Communications Entertainment, L. P. CCA Holdings and the Guarantors
are dependent primarily upon distributions from Charter Communications
Entertainment I, L.P. to service the Notes. The Company's guarantee cannot be
enforced until repayment in full and termination of CCE-I's credit facility.
10
<PAGE> 11
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. CCE
is not able at this early stage to project the expense which will be associated
with this action or to predict any potential outcome or financial impact.
Item 2. Change in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
27 Financial Data Schedule
B. Reports on form 8-K - None
11
<PAGE> 12
CENCOM CABLE ENTERTAINMENT, INC.
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.
CENCOM CABLE ENTERTAINMENT, INC.
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
12
<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> 113,898,852
<CURRENT-LIABILITIES> 0
<BONDS> 115,268,131
0
0
<COMMON> (56,869,279)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 113,898,852
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,339,653
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,606,710
<INCOME-PRETAX> 5,946,363
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,946,363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,946,363
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
