<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO__________
COMMISSION FILE NUMBER: 1-15427
CLASSIC COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION 74-2630019
OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
515 CONGRESS AVENUE, SUITE 2626
AUSTIN, TEXAS 78701
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (512) 476-9095
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. {X} Yes { } No
As of August 2, 2000, there were 10,310,061 shares of Class A Voting
Common Stock, 7,240,744 shares of Class B Voting Common Stock and 177,487 shares
of Nonvoting Common Stock outstanding.
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CLASSIC COMMUNICATIONS, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets (Unaudited).......................................................4
Consolidated Statements of Operations (Unaudited).............................................5
Consolidated Statements of Cash Flows (Unaudited).............................................6
Notes to Consolidated Financial Statements (Unaudited)........................................7
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.........9
Item 3 Quantitative and Qualitative Disclosures About Market Risk...................................11
PART II - OTHER INFORMATION
Item 1 Legal Proceedings............................................................................12
Item 2 Changes in Securities and Use of Proceeds....................................................12
Item 3 Defaults Upon Senior Securities..............................................................12
Item 4 Submission of Matters to a Vote of Security Holders..........................................12
Item 5 Other Information............................................................................12
Item 6 Exhibits and Reports on Form 8-K.............................................................12
SIGNATURES..............................................................................................13
</TABLE>
--------------------------
This Quarterly Report on Form 10-Q is for the quarter ended June 30, 2000. This
Quarterly Report modifies and supersedes documents filed prior to this Quarterly
Report. The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you directly to those documents. Information incorporated by reference
is considered to be part of this Quarterly Report. In addition, information that
we file with the SEC in the future will automatically update and supersede
information contained in this Quarterly Report. In this Quarterly Report,
"Classic," "we," "us" and "our" refer to Classic Communications, Inc. and its
subsidiaries.
You should carefully review the information contained in this Quarterly Report,
but should particularly consider any risk factors that we set forth in this
Quarterly Report and in other reports or documents that we file from time to
time with the SEC. The statements, other than statements of historical fact,
included in this Quarterly Report on Form 10-Q are forward-looking statements.
These statements include, but are not limited to:
o statements regarding our plans for future acquisitions;
o statements regarding integration of our cable systems and future acquired
systems;
o statements regarding our planned capital expenditures and system upgrades;
and
o statements regarding the offering of video and Internet access on our
systems.
Forward-looking statements generally can also be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate," "plan," "seek," or "believe." We believe that the
expectations reflected in such forward-looking statements are accurate. However,
we cannot assure you that such expectations will occur. Our actual future
performance could differ materially from such statements. Factors that could
cause such or contribute to such differences include, but are not limited to:
o the uncertainties and/or potential delays associated with integrating past
and future acquisitions;
o our ability to acquire additional cable systems on terms favorable to us;
o the passage of legislation or court decisions adversely affecting the cable
industry;
o our ability to repay or refinance our outstanding indebtedness;
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o the timing, actual cost and allocation of our capital expenditures and
system upgrades;
o our potential need for additional capital;
o competition in the cable industry; and
o the advent of new technology.
You should not unduly rely on these forward-looking statements, which speak only
as of the date of this Quarterly Report on Form 10-Q. Except as required by law,
we are not obligated to publicly release any revisions to these forward-looking
statements to reflect events or circumstances occurring after the date of this
Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated
events.
3
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- ---------
<S> <C> <C>
Assets
Cash and cash equivalents ................................................... $ 43,317 $ 168,388
Accounts receivable, net .................................................... 12,541 9,803
Prepaid expenses ............................................................ 2,590 1,131
Property, plant and equipment ............................................... 351,910 274,864
Less accumulated depreciation ............................................... (78,725) (60,939)
--------- ---------
273,185 213,925
Deferred financing costs, net ............................................... 19,379 22,694
Intangible assets:
Customer relationships .................................................... 175,873 156,567
Franchise marketing rights ................................................ 185,417 158,105
Noncompete agreements ..................................................... 30,787 25,425
Goodwill .................................................................. 127,125 102,261
--------- ---------
519,202 442,358
Less accumulated amortization ............................................. (120,644) (96,428)
--------- ---------
398,558 345,930
--------- ---------
Total assets ........................................................ $ 749,570 $ 761,871
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable .......................................................... $ 4,220 $ 3,254
Subscriber deposits and unearned income ................................... 8,816 6,675
Other accrued expenses .................................................... 15,964 15,606
Accrued interest .......................................................... 17,836 11,125
Long-term debt, net ....................................................... 543,018 525,037
Deferred taxes, net ....................................................... 10,091 27,192
--------- ---------
Total liabilities.................................................... 599,945 588,889
Stockholders' equity:
Preferred stock: $.01 par value; 10,000,000 shares
authorized, none issued and outstanding ................................... -- --
Class A voting common stock: $.01 par value; 120,000,000
shares authorized; issued and outstanding: 2000--
10,293,231 and 1999-- 9,487,500 ........................................... 103 95
Class B voting common stock, convertible to Class A voting
common stock: $.01 par value; 45,000,000 shares
authorized; issued and outstanding: 2000-- 7,257,574
and 1999-- 7,507,250 ..................................................... 73 75
Nonvoting common stock, convertible to voting common
stock: $.01 par value; 7,500,000 shares authorized;
issued and outstanding: 2000 and 1999-- 177,487 ........................... 2 2
Additional paid-in capital ................................................ 305,932 292,036
Accumulated deficit ....................................................... (156,485) (119,226)
--------- ---------
Total stockholders' equity .......................................... 149,625 172,982
--------- ---------
Total liabilities and stockholders' equity ........................................ $ 749,570 $ 761,871
========= =========
</TABLE>
See notes to consolidated financial statements.
4
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CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues .......................... $ 46,136 $ 19,710 $ 88,425 $ 39,286
Operating expenses:
Programming ..................... 13,138 5,196 25,256 10,427
Plant and operating ............. 5,404 2,095 9,758 4,401
General and administrative ...... 6,774 2,807 13,893 5,755
Marketing and advertising ....... 906 279 1,770 452
Corporate overhead .............. 911 869 1,510 1,725
Depreciation and amortization ... 22,351 9,141 42,142 18,096
-------- -------- -------- --------
Total operating expenses... 49,484 20,387 94,329 40,856
-------- -------- -------- --------
expenses
Loss from operations .............. (3,348) (677) (5,904) (1,570)
Interest expense .................. (14,123) (7,546) (28,318) (14,992)
Other income (expense) ............ 562 (2) 1,639 15
-------- -------- -------- --------
Loss before income taxes and
extraordinary item .............. (16,909) (8,225) (32,583) (16,547)
Income tax benefit ................ 5,045 -- 10,091 --
-------- -------- -------- --------
Loss before extraordinary item .... (11,864) (8,225) (22,492) (16,547)
Extraordinary loss on
extinguishment of debt, net
of taxes of $7,010 in 2000 ...... -- -- (14,767) --
-------- -------- -------- --------
Net loss .......................... $(11,864) $ (8,225) $(37,259) $(16,547)
======== ======== ======== ========
Basic and diluted loss per share:
Loss per share before
extraordinary item .............. $ (0.67) $ (2.89) $ (1.28) $ (5.85)
Extraordinary loss on
extinguishment of debt .......... -- -- (0.84) --
-------- -------- -------- --------
Loss per share .................... $ (0.67) $ (2.89) $ (2.12) $ (5.85)
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
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CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss .................................................................... $ (37,259) $ (16,547)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Provision for doubtful accounts ......................................... 1,706 386
Depreciation ............................................................ 17,926 7,509
Amortization of intangibles ............................................. 24,216 10,587
Amortization of deferred financing costs ................................ 1,079 421
Discount accretion on long-term debt .................................... 507 4,267
Non-cash compensation ................................................... -- 663
Deferred tax benefit .................................................... (17,101) --
Extraordinary loss ...................................................... 21,777 --
Changes in working capital, net of acquisition amounts:
Change in accounts receivable .......................................... (4,444) (48)
Change in prepaid expenses ............................................. (1,459) (917)
Change in other accruals and payables .................................. 3,564 (442)
Change in accrued interest ............................................. 6,711 (152)
--------- ---------
Net cash provided by (used in) operating activities ......................... 17,223 5,727
INVESTING ACTIVITIES
Acquisition of cable television systems ..................................... (113,592) --
Purchases of property, plant and equipment .................................. (25,341) (8,008)
Payments for other intangibles .............................................. (1,194) (513)
--------- ---------
Net cash provided by (used in) investing activities ......................... (140,127) (8,521)
FINANCING ACTIVITIES
Proceeds from long-term debt ................................................ 225,000 5,500
Repayments of long-term debt ................................................ (208,944) (4,317)
Financing costs ............................................................. (7,958) (530)
Payment of premium on redeemed notes ........................................ (10,265) --
--------- ---------
Net cash provided by (used in) financing activities ......................... (2,167) 653
--------- ---------
Increase (decrease) in cash and cash equivalents ............................ (125,071) (2,141)
Cash and cash equivalents at beginning of period ............................ 168,388 2,779
--------- ---------
Cash and cash equivalents at end of period .................................. $ 43,317 $ 638
========= =========
Non-cash financing activities:
Stock issued as partial payment for cable television purchase $ 13,889 $ --
</TABLE>
See notes to consolidated financial statements.
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CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Classic
Communications, Inc. have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In our opinion, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and six
month periods ended June 30, 2000 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2000.
For further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 1999 included in our Form
10-K.
2. INCOME TAXES
The effective tax rates for the three and six months ended June 30, 2000 and
June 30, 1999 differ from the statutory rates primarily due to the impact of
permanent differences and increases in the valuation allowance on deferred tax
assets. We believe it is more likely than not that such deferred tax assets will
not be utilized in the near term.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Loss before extraordinary item ................... $ (11,864) $ (8,225) $ (22,492) $ (16,547)
Extraordinary loss ............................... -- -- (14,767) --
----------- ----------- ----------- -----------
Net loss ......................................... $ (11,864) $ (8,225) $ (37,259) $ (16,547)
=========== =========== =========== ===========
Weighted-average shares outstanding .............. 17,728 3,249 17,585 3,249
Less unvested portion of restricted stock ........ -- (400) -- (419)
----------- ----------- ----------- -----------
Adjusted weighted-average shares outstanding ..... 17,728 2,849 17,585 2,830
=========== =========== =========== ===========
Basic and diluted loss per share:
Loss per share before extraordinary item ......... $ (0.67) $ (2.89) $ (1.28) $ (5.85)
Extraordinary loss on extinguishment of debt ..... -- -- (0.84) --
----------- ----------- ----------- -----------
Loss per share ................................... $ (0.67) $ (2.89) $ (2.12) $ (5.85)
=========== =========== =========== ===========
</TABLE>
Warrants to purchase 153,210 and 335,853 shares of common stock at $.001
per share outstanding at June 30, 2000 and 1999, respectively, were not included
in the computation of diluted earnings per share as the effect of their exercise
would be antidilutive. Options to purchase 1,716,996 shares of common stock at a
weighted average exercise price of $19.88 per share at June 30, 2000 were not
included in the computation of diluted earnings per share as the effect of their
exercise would be antidilutive. No options were outstanding at June 30, 1999.
4. STAR ACQUISITION
In February 2000, a wholly owned subsidiary purchased substantially all of
the assets of Star Cable Associates ("Star"), which operates cable television
systems in Texas, Louisiana and Ohio, for an aggregate purchase price of
approximately $110 million in cash and 555,555 shares of our Class A Voting
Common Stock ("Class A Common Stock"). The purchase was financed from proceeds
of the $225 million private debt offering of 10.5% Senior Subordinated Notes due
2010 and available cash of our wholly owned subsidiary, Classic Cable, Inc.
("Cable"). The acquisition was accounted for using the purchase method and,
accordingly, the operating results of the systems acquired have been included in
our consolidated financial statements since the date of acquisition.
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The following summarized unaudited pro forma financial information assumes
the Star acquisition, the acquisition of Buford Group, Inc., all related
financing and changes to our debt structure had occurred on January 1, 2000 and
1999, respectively. The following pro forma information is not necessarily
indicative of the results that would have occurred had the transactions been
completed at the beginning of the periods indicated, nor is it indicative of
future operating results (in thousands, except per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
2000 1999
---------- ----------
<S> <C> <C>
Revenues .................................... $ 91,580 $ 90,118
Loss before extraordinary item .............. (21,131) (26,030)
Loss before extraordinary item per share .... (1.19) (1.47)
Net loss .................................... (26,632) (30,123)
Basic and diluted loss per share ............ (1.50) (1.70)
</TABLE>
The allocation of the Star purchase price reflected in the June 30, 2000
consolidated balance sheet is preliminary. We have arranged to obtain an
independent valuation of the Star property, plant and equipment and intangible
assets. We expect to receive the completed report during the third quarter of
2000.
In conjunction with the Star acquisition, a fee for financial advisory
services in the amount of $1.3 million was paid to an affiliate of our majority
owner, Brera Classic, in addition to approximately $200,000 for reimbursement of
certain related expenses.
5. LONG-TERM DEBT
Our long-term debt consists of the following as of June 30, 2000 (in
thousands):
<TABLE>
<S> <C>
1999 credit facility:
Term loan B ............................... $ 86,842
Term loan C ............................... 78,158
10.5% Senior Subordinated Notes ............. 225,000
9.375% Senior Subordinated Notes ............ 150,000
9.875% Senior Subordinated Notes ............ 3,000
Other ....................................... 18
--------
$543,018
========
</TABLE>
In January 2000, we redeemed all outstanding 13.25% senior discount notes at
a redemption price equal to 113.25% of the accreted value of the notes. This
resulted in an extraordinary loss of $13.3 million ($9.3 million, net of taxes).
In February 2000, Cable issued $225 million of 10.5% Senior Subordinated
Notes due 2010. Interest payments on these notes begin in September 2000. The
proceeds of the offering have been used to fund a portion of the acquisition of
Star, repay a portion of the 1999 credit facility and repurchase approximately
$36 million of the 9.875% Senior Subordinated Notes due 2008. In addition, the
1999 credit facility was amended to (a) allow for the Star acquisition, (b)
modify some of the covenants in the credit facility, (c) restructure the term
loan A to allow Cable to reborrow against it through February 2001, subject to
certain conditions, and (d) increase the term loan A facility so that an
additional $25 million may be made available under that facility. The amendment
of the 1999 credit facility resulted in an extraordinary loss of $8.5 million
($5.5 million, net of taxes).
The amendment also increased the range of potential quarterly commitment
fees. These fees can range from 0.375% to 0.750% per annum on the unused loan
commitments.
The Senior Subordinated Notes are unsecured and are subordinated to all
existing and future senior indebtedness of Cable. The notes rank without
preference with all existing and future senior subordinated indebtedness of
Cable. The Senior Subordinated Notes may be redeemed contingent on certain
events and/or the passage of time at the redemption price, which may include a
premium. Restrictive covenants associated with these notes limit our ability to
enter into certain transactions.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 VS. JUNE 30, 1999
Revenues increased $26.4 million, or 134%, in 2000. Revenues increased
primarily due to increased subscribers resulting from acquisitions and basic
rate increases. The Buford Group acquisition added approximately 170,000
subscribers in July 1999 and the Star acquisition added approximately 57,000
subscribers in February 2000. There was a rate increase of approximately 6%
affecting approximately two-thirds of our customers in February 2000, resulting
in an increase in basic revenues per subscriber of 5% from $29.77 to $31.19
period to period. We have historically increased rates in February in order to
offset increases in operating costs such as programming which occur primarily in
January of each year.
Operating expenses increased $29.1 million, or 143%, in 2000. Programming
expenses increased $7.9 million due to increases in rates charged by programming
vendors, the addition of new channels to our existing channel lineups as well as
an increase in the subscriber base over the same period in 1999. Plant and
operating and general and administrative expenses increased $7.3 million, or
148%, as a result of the additional costs associated with the systems acquired
in 1999 and 2000. Depreciation and amortization expense in 2000 was $22.4
million, an increase of $13.2 million over the same period in 1999. The increase
represents the effect of acquisitions and capital expenditures.
Interest expense increased $6.6 million, or 87%, in 2000. This increase is
primarily the result of the debt issued in conjunction with the July 1999 Buford
Group acquisition and the February 2000 Star acquisition.
Other income increased $0.6 million in 2000. This increase is primarily the
result of increased interest income on cash reserves.
The income tax benefit was $5.0 million in 2000. No tax benefit was
recognized in 1999. The effective tax rates for 2000 and 1999 differ from the
statutory rates primarily due to increases in the valuation allowance on
deferred tax assets.
As a result of the above described fluctuations in our results of
operations, the net loss of $11.9 million in 2000 increased by $3.6 million, as
compared to the net loss of $8.2 million in 1999.
SIX MONTHS ENDED JUNE 30, 2000 VS. JUNE 30, 1999
Revenues increased $49.1 million, or 125%, in 2000. Revenues increased
primarily due to increased subscribers resulting from acquisitions and basic
rate increases. Rate increases resulted in an increase in basic revenues per
subscriber of 3% from $29.35 to $30.19 period to period.
Operating expenses increased $53.5 million, or 131%, in 2000. Programming
expenses increased $14.8 million due to increases in rates charged by
programming vendors, the addition of new channels to our existing channel
lineups as well as an increase in the subscriber base over the same period in
1999. Plant and operating and general and administrative expenses increased
$13.5 million, or 133%, as a result of the additional costs associated with the
systems acquired in 1999 and 2000. Depreciation and amortization expense in 2000
was $42.1 million, an increase of $24.0 million over the same period in 1999.
The increase represents the effect of acquisitions and capital expenditures.
Interest expense increased $13.3 million, or 89%, in 2000. This increase is
primarily the result of the debt issued in conjunction with the July 1999 Buford
Group acquisition and the February 2000 Star acquisition.
Other income increased $1.6 million in 2000. This increase is primarily the
result of increased interest income on cash reserves.
The income tax benefit was $10.1 million in 2000. No tax benefit was
recognized in 1999. The effective tax rates for 2000 and 1999 differ from the
statutory rates primarily due to increases in the valuation allowance on
deferred tax assets.
In January 2000, the senior discount notes were redeemed resulting in an
extraordinary loss on early redemption of $13.3 million ($9.3 million, net of
taxes). In February 2000, the 1999 credit facility was amended resulting in an
extraordinary loss of $8.5 million ($5.5 million, net of taxes).
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As a result of the above described fluctuations in our results of
operations and extraordinary losses recognized in 2000, the net loss of $37.3
million in 2000 increased by $20.7 million, as compared to the net loss of $16.5
million in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations for the six months ended June 30 increased
$11.5 million from period to period. Cash used in investing activities increased
$131.6 million to $140.1 million, driven primarily by the Star acquisition, as
well as by increased levels of capital spending. In 2000, our financing
activities resulted in a net cash outflow of $2.2 million. This compares to a
net cash inflow of $0.7 million in 1999. Earnings before interest, taxes,
depreciation and amortization, or EBITDA, increased 119% or $19.7 million to
$36.2 million due primarily to the acquisition of cable systems in 2000 and
1999. EBITDA for 1999 has been reduced by non-cash operating charges consisting
of compensation on stock awards of $0.7 million. Without the non-cash operating
charges, EBITDA for the six months ended June 30, 1999 would have been $17.2
million. EBITDA is presented because we believe it is a widely accepted
financial indicator of a company's ability to incur and service debt. We believe
that EBITDA is not intended to be a performance measure that should be regarded
as an alternative to, or more meaningful than, either operating income or net
income as an indicator of operating performance or to the statement of cash
flows as a measure of liquidity; is not intended to represent funds available
for dividends, reinvestment or other discretionary uses and should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with generally accepted accounting principles. EBITDA as presented
may not be comparable to similarly titled measures presented by other companies.
In December 1999, we completed an initial public offering of 7,250,000
shares of our Class A Common Stock. Some of our stockholders sold an additional
2,237,500 shares. We raised approximately $168.9 million of proceeds in the
offering. We used the proceeds from the offering to pay offering expenses, to
redeem all of our outstanding 13.25% senior discount notes and to finance part
of the Star acquisition.
In February 2000, a wholly owned subsidiary purchased substantially all of
the assets of Star, which operates cable television systems in Texas, Louisiana
and Ohio, for an aggregate purchase price of approximately $110 million in cash
and 555,555 shares of our Class A Common Stock.
In February 2000, our wholly owned subsidiary, Classic Cable, completed its
private offering of $225 million of 10.5% Senior Subordinated Notes due 2010.
The proceeds of the offering were used to fund a portion of the Star
acquisition, repay approximately $100 million of indebtedness under its senior
credit facility and repurchase approximately $36 million of its 9.875% Senior
Subordinated Notes due 2008.
In connection with the offering, Cable entered into a second amendment to
its senior credit facility, which (1) allowed for the offering of the 10.5%
Senior Subordinated Notes, (2) modified some of the covenants in the credit
facility to provide it with more flexibility (i.e., maximum total debt ratio,
total interest coverage ratio, maximum capital expenditures, limitations on
investments, permitted acquisitions and lines of business), (3) restructured the
term loan A facility so that following a prepayment in full of the term loan A
facility, and subject to certain additional conditions, it has the ability to
reborrow in one or more advances under the term loan A facility until February
10, 2001 and (4) increased the term loan A facility so that an additional $25
million may be made available under that facility.
INTANGIBLES
We have recorded net intangible assets of $399 million, 53% of total
assets. These assets arose during the acquisition of cable systems throughout
our history. These intangible assets are amortized over their estimated useful
lives. We review the valuation and amortization periods of these intangibles on
a periodic basis, taking into consideration any events or circumstances that
might result in diminished fair value or revised useful life. No events or
circumstances have occurred to warrant a diminished fair value or reduction in
the useful life of the intangible assets.
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YEAR 2000 COMPLIANCE
We experienced no adverse year 2000 related issues on January 1, 2000. We
recognize that there may be residual effects related to year 2000 issues. Our
assessment of our year 2000 readiness will be ongoing as we continue to develop
our operating systems and rely on our vendors' or their vendors' systems. We do
not have any way to assess the costs related to remediation of any residual year
2000 effect. We intend to use internal resources for such remediation where
possible. We may in the future identify a significant internal or external year
2000 related residual issue which, if not remedied in a timely manner, could
have a material adverse effect on our business, financial condition and results
of operations.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk including changes in interest rates. To
manage the volatility relating to these exposures, we enter into various
derivative transactions pursuant to our policies in areas such as counterparty
exposure and hedging practices. Positions are monitored using techniques
including market value and sensitivity analyses. We do not hold or issue any
derivative financial instruments for trading purposes and are not a party to
leveraged instruments. The credit risks associated with our derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although we may be exposed to losses in
the event of nonperformance by the counterparties, we do not expect such losses,
if any, to be significant.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There are no material pending legal proceedings to which we are a party or
to which any of our respective properties are subject.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on June 28, 2000, the following
proposals were adopted by the margins indicated:
1. To elect to the Board of Directors Steven E. Seach as a Class I
Director.
Number of shares
For 8,396,729
Withheld 15,553
2. To ratify the selection of PricewaterhouseCoopers as independent
auditors for 2000.
Number of shares
For 8,397,164
Against 12,470
Abstain 2,648
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number Exhibit
27 -- Financial Data Schedule
(b) Reports on Form 8-K.
None
12
<PAGE> 13
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.
CLASSIC COMMUNICATIONS, INC.
Date: August 14, 2000 /s/ STEVEN E. SEACH
--------------------------------------
Steven E. Seach
President and Chief Financial Officer
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
27 -- Financial Data Schedule
</TABLE>
