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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 SEPTEMBER 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 November 6, 2000, there were 10,377,061 shares of Class A Voting
Common Stock, 7,237,744 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 SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <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>
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This Quarterly Report on Form 10-Q is for the quarter ended September 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>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Assets
Cash and cash equivalents ................................................ $ 16,324 $ 168,388
Accounts receivable, net ................................................. 12,846 9,803
Prepaid expenses and other ............................................... 4,346 1,131
Property, plant and equipment ............................................ 344,241 274,864
Less accumulated depreciation ............................................ (88,489) (60,939)
------------- ------------
255,752 213,925
Deferred financing costs, net ............................................ 18,985 22,694
Intangible assets:
Customer relationships ................................................. 201,071 156,567
Franchise marketing rights ............................................. 205,004 158,105
Noncompete agreements .................................................. 27,475 25,425
Goodwill ............................................................... 109,876 102,261
------------- ------------
543,426 442,358
Less accumulated amortization .......................................... (128,645) (96,428)
------------- ------------
414,781 345,930
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Total assets ..................................................... $ 723,034 $ 761,871
============= ============
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable ....................................................... $ 3,894 $ 3,254
Subscriber deposits and unearned income ................................ 8,648 6,675
Other accrued expenses ................................................. 18,184 15,606
Accrued interest ....................................................... 7,051 11,125
Long-term debt, net .................................................... 543,012 525,037
Deferred taxes, net .................................................... 5,045 27,192
------------- ------------
Total liabilities ................................................ 585,834 588,889
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 -- 10,374,811
and 1999 -- 9,487,500 .................................................. 104 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 -- 7,239,994 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 .............................................. 306,703 292,036
Unearned compensation ................................................... (692) --
Accumulated deficit ..................................................... (168,990) (119,226)
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Total stockholders' equity ....................................... 137,200 172,982
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Total liabilities and stockholders' equity ....................... $ 723,034 $ 761,871
============= ============
</TABLE>
See notes to consolidated financial statements.
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Classic Communications, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues .............................. $ 45,416 $ 33,105 $ 133,841 $ 72,391
Operating expenses:
Programming ......................... 13,261 8,845 38,517 19,272
Plant and operating ................. 4,925 3,645 14,683 8,046
General and administrative .......... 7,009 5,518 20,902 11,273
Marketing and advertising ........... 845 503 2,615 955
Corporate overhead .................. 1,154 7,406 2,664 9,131
Depreciation and amortization ....... 22,703 14,209 64,845 32,305
---------- ---------- ---------- ----------
Total operating expenses .... 49,897 40,126 144,226 80,982
---------- ---------- ---------- ----------
Loss from operations .................. (4,481) (7,021) (10,385) (8,591)
Interest expense ...................... (13,540) (12,859) (41,858) (27,851)
Other income (expense) ................ 470 95 2,109 110
---------- ---------- ---------- ----------
Loss before income taxes and
extraordinary item .................. (17,551) (19,785) (50,134) (36,332)
Income tax benefit .................... 5,046 -- 15,137 --
---------- ---------- ---------- ----------
Loss before extraordinary item ........ (12,505) (19,785) (34,997) (36,332)
Extraordinary loss on
extinguishment of debt, net
of taxes of $7,010 in 2000 .......... -- (6,632) (14,767) (6,632)
---------- ---------- ---------- ----------
Net loss .............................. $ (12,505) $ (26,417) $ (49,764) $ (42,964)
========== ========== ========== ==========
Basic and diluted loss per share:
Loss per share before
extraordinary item .................. $ (0.71) $ (2.42) $ (1.98) $ (7.85)
Extraordinary loss on
extinguishment of debt .............. -- (0.81) (0.84) (1.43)
---------- ---------- ---------- ----------
Loss per share ........................ $ (0.71) $ (3.23) $ (2.82) $ (9.28)
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
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Classic Communications, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................................... $ (49,764) $ (42,964)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Provision for doubtful accounts .................................... 2,975 916
Depreciation ....................................................... 27,699 14,471
Amortization of intangibles ........................................ 37,146 17,834
Amortization of deferred financing costs ........................... 1,607 810
Discount accretion on long-term debt ............................... 507 6,517
Non-cash compensation .............................................. 80 1,920
Deferred tax benefit ............................................... (22,147) --
Extraordinary loss ................................................. 21,777 6,632
Changes in working capital, net of acquisition amounts:
Change in accounts receivable ..................................... (6,018) (1,823)
Change in prepaid expenses and other .............................. (3,215) (98)
Change in other accruals and payables ............................. 5,291 (1,040)
Change in accrued interest ........................................ (4,074) 618
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Net cash provided by (used in) operating activities .................... 11,864 3,793
INVESTING ACTIVITIES
Acquisition of cable television systems ................................ (112,845) (291,942)
Purchases of property, plant and equipment ............................. (46,575) (15,971)
Payments for other intangibles ......................................... (2,201) (425)
---------- ----------
Net cash provided by (used in) investing activities .................... (161,621) (308,338)
FINANCING ACTIVITIES
Proceeds from long-term debt ........................................... 225,000 420,500
Repayments of long-term debt ........................................... (208,950) (187,377)
Financing costs ........................................................ (8,092) (18,704)
Sales of Common Stock .................................................. -- 95,704
Payment of premium on redeemed notes ................................... (10,265) (860)
---------- ----------
Net cash provided by (used in) financing activities .................... (2,307) 309,263
---------- ----------
Increase (decrease) in cash and cash equivalents ....................... (152,064) 4,718
Cash and cash equivalents at beginning of period ....................... 168,388 2,779
---------- ----------
Cash and cash equivalents at end of period ............................. $ 16,324 $ 7,497
========== ==========
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 September 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 nine
month periods ended September 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 nine months ended September 30,
2000 and September 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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Loss before extraordinary item................................ $ (12,505) $ (19,785) $ (34,997) $ (36,332)
Extraordinary loss............................................ -- (6,632) (14,767) (6,632)
---------- ---------- ---------- ----------
Net loss...................................................... $ (12,505) $ (26,417) $ (49,764) $ (42,964)
========== ========== ========== ==========
Weighted-average shares outstanding........................... 17,792 8,258 17,654 4,937
Less unvested portion of restricted stock..................... (64) (85) (21) (307)
---------- ---------- ---------- ----------
Adjusted weighted-average shares outstanding.................. 17,728 8,173 17,633 4,630
========== ========== ========== ==========
Basic and diluted loss per share:
Loss per share before extraordinary item...................... $ (0.71) $ (2.42) $ (1.98) $ (7.85)
Extraordinary loss on extinguishment of debt.................. -- (0.81) (0.84) (1.43)
---------- ---------- ---------- ----------
Loss per share................................................ $ (0.71) $ (3.23) $ (2.82) $ (9.28)
========== ========== ========== ==========
</TABLE>
Warrants to purchase 153,210 and 335,853 shares of common stock at $.001
per share outstanding at September 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 2,574,996 and 1,708,996
shares of common stock at a weighted average exercise price of $16.96 and $19.86
per share at September 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.
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 $111 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>
NINE MONTHS ENDED SEPTEMBER 30
2000 1999
---------- ----------
<S> <C> <C>
Revenues................................... $ 136,996 $ 135,925
Loss before extraordinary item............. (32,715) (49,116)
Loss before extraordinary item per share... (1.84) (2.77)
Net loss................................... (38,216) (53,209)
Basic and diluted loss per share........... (2.15) (3.00)
</TABLE>
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 September 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................................... 12
----------
$ 543,012
==========
</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 began 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.
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.
The 1999 credit facility was amended in February 2000 and September 2000 to
(a) allow for the Star acquisition, (b) allow for certain transactions related
to Cable's tower portfolio, (c) modify some of the covenants in the credit
facility, (d) restructure the term loan A to allow Cable to reborrow against it
through February 2001, subject to certain conditions, and (e) 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 amendments also increased the applicable margins associated with the
facility's interest calculations as well as the range of potential quarterly
commitment fees. The quarterly commitment fees can range from 0.375% to 0.750%
per annum on the unused loan commitments.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 VS. SEPTEMBER 30, 1999
Revenues increased $12.3 million, or 37%, 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 $30.10 to $31.66
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 $9.8 million, or 24%, in 2000. Programming
expenses increased $4.4 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 $2.8 million, or
30%, as a result of the additional costs associated with the systems acquired in
1999 and 2000. Depreciation and amortization expense in 2000 was $22.7 million,
an increase of $8.5 million over the same period in 1999. The increase
represents the effect of acquisitions and capital expenditures.
Interest expense increased $0.7 million, or 5%, 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 $0.4 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.
In 1999, we redeemed a portion of our outstanding 9.875% senior
subordinated notes due 2008, which resulted in an extraordinary loss from the
early extinguishment of debt equal to $6.6 million.
As a result of the above described fluctuations in our results of
operations, the net loss of $12.5 million in 2000 decreased by $13.9 million, as
compared to the net loss of $26.4 million in 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. SEPTEMBER 30, 1999
Revenues increased $61.5 million, or 85%, 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 5% from $29.69 to $31.15 period to period.
Operating expenses increased $63.2 million, or 78%, in 2000. Programming
expenses increased $19.2 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
$16.3 million, or 84%, as a result of the additional costs associated with the
systems acquired in 1999 and 2000. Depreciation and amortization expense in 2000
was $64.8 million, an increase of $32.5 million over the same period in 1999.
The increase represents the effect of acquisitions and capital expenditures.
Interest expense increased $14.0 million, or 50%, 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 $2.0 million in 2000. This increase is primarily the
result of increased interest income on cash reserves.
The income tax benefit was $15.1 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.
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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). In 1999, we
redeemed a portion of our outstanding 9.875% senior subordinated notes due 2008,
which resulted in an extraordinary loss from the early extinguishment of debt
equal to $6.6 million.
As a result of the above described fluctuations in our results of
operations and extraordinary losses recognized in 2000, the net loss of $49.8
million in 2000 increased by $6.8 million, as compared to the net loss of $43.0
million in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations for the nine months ended September 30
increased $8.1 million from period to period. Cash used in investing activities
decreased $146.7 million to $161.6 million, driven primarily by the Buford
acquisition. In 2000, our financing activities resulted in a net cash outflow of
$2.3 million. This compares to a net cash inflow of $309.3 million in 1999.
Earnings before interest, taxes, depreciation and amortization, or EBITDA,
increased 130% or $30.7 million to $54.5 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 and
acquisition related compensation expenses incurred in connection with the Buford
acquisition of $7.4 million. Without the non-cash operating charges, EBITDA for
the nine months ended September 30, 1999 would have been $31.1 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 $111 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 February 2000 and September 2000, Cable entered into amendments to its
senior credit facility which (1) allowed for the offering of the 10.5% Senior
Subordinated Notes and the Star acquisition, (2) allowed for certain
transactions related to Cable's tower portfolio, (3) 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), (4) 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 (5) 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 $414.8 million, 57.4% 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.
11
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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
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Exhibit
-------------- -------
<S> <C> <C>
10.1 -- Employment Agreement dated as of April 24, 2000 by and between Classic
Communications, Inc., Classic Cable, Inc. and Dale R. Bennett.
10.2 -- Amendment and Waiver No. 3 to the Amended and Restated Credit Agreement
dated September 29, 2000 among Classic Cable, Inc., as Borrower, the
Lenders Parties thereto, Goldman Sachs Credit Partners, L.P., as Lead
Arranger and Syndication Agent, and The Chase Manhattan Bank, as
Documentation Agent, and Union Bank of California, N.A., as
Administrative Agent.
10.3 -- Employee Loan/Stock Purchase Incentive Plan of Classic Communications, Inc.
27 -- Financial Data Schedule
</TABLE>
(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: November 13, 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> <C>
10.1 -- Employment Agreement dated as of April 24, 2000 by and between
Classic Communications, Inc., Classic Cable, Inc. and Dale R.
Bennett.
10.2 -- Amendment and Waiver No. 3 to the Amended and Restated Credit
Agreement dated September 29, 2000 among Classic Cable, Inc.,
as Borrower, the Lenders Parties thereto, Goldman Sachs Credit
Partners, L.P., as Lead Arranger and Syndication Agent, and
The Chase Manhattan Bank, as Documentation Agent, and Union
Bank of California, N.A., as Administrative Agent.
10.3 -- Employee Loan/Stock Purchase Incentive Plan of Classic
Communications, Inc.
27 -- Financial Data Schedule
</TABLE>
