<PAGE>
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, 1995
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 33-57471
CONTINENTAL CABLEVISION, INC.
(Exact name of registrant as specified in its charter)
Delaware No. 04-2370836
(State of Incorporation) (I.R.S. Employer Identification No.)
The Pilot House, Lewis Wharf, Boston Massachusetts 02110
(Address of principal executive office) (Zip Code)
(617) 742-9500
(Telephone number, including area code)
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 NO X
Number of Common Shares outstanding at the latest practicable date,
November 8, 1995:
<TABLE>
<CAPTION>
Class Par Value Shares Outstanding
----- --------- ------------------
<S> <C> <C>
Class A Common Stock $.01 38,828,294
Class B Common Stock $.01 109,196,050
</TABLE>
<PAGE>
CONTINENTAL CABLEVISION, INC.
FORM 10-Q
September 30, 1995
INDEX
Page
PART I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1994 and
September 30, 1995
Condensed Statements of Consolidated Operations - Three and Nine
Months Ended September 30, 1994 and 1995
Condensed Statements of Consolidated Cash Flows - Nine Months Ended
September 30, 1994 and 1995
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition
PART II. Other Information
Item 4. Submission of Matters to a Vote of
Security-Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
A S S E T S
===========
December 31, September 30,
1994 1995
------------ -------------
(In Thousands)
<S> <C> <C>
Cash $ 11,564 $ 10,502
Accounts Receivable - net 58,212 74,019
Prepaid Expenses and Other 14,321 8,797
Supplies 62,517 78,367
Marketable Equity Securities 122,510 159,979
Investments 335,479 484,260
Property, Plant and Equipment - net 1,353,789 1,600,571
Intangible and Other Assets - net 525,247 589,420
----------- -----------
TOTAL $ 2,483,639 $ 3,005,915
=========== ===========
<CAPTION>
L I A B I L I T I E S A N D
S T O C K H O L D E R S' E Q U I T Y
(D E F I C I E N C Y)
=====================================
<S> <C> <C>
Accounts Payable $ 82,083 $ 56,149
Accrued Interest 82,040 44,435
Accrued and Other Liabilities 206,271 191,348
Debt 3,449,907 4,084,058
Deferred Income Taxes 116,482 104,981
Minority Interest in Subsidiaries 2,791 5,435
Redeemable Common Stock, $.01 par value;
16,684,150 shares outstanding 232,399 248,052
Stockholders' Equity (Deficiency):
Preferred Stock, $.01 par value; 198,857,142 shares
authorized; none outstanding - -
Series A Convertible Preferred Stock, $.01 par value;
1,142,858 shares authorized and outstanding;
liquidation preference - $487,776,000 and $517,331,000 11 11
Class A Common Stock, $.01 par value; 425,000,000
shares authorized; 8,585,500 and 8,581,300 shares
outstanding 86 86
Class B Common Stock, $.01 par value; 200,000,000
shares authorized; 90,291,375 and 92,616,500 shares
outstanding 903 926
Additional Paid-In Capital 583,181 612,685
Unearned Compensation (12,097) (48,666)
Net Unrealized Holding Gain on Marketable Equity Securities 47,996 72,961
Deficit (2,308,414) (2,366,546)
----------- -----------
Stockholders' Equity (Deficiency) (1,688,334) (1,728,543)
----------- -----------
TOTAL $ 2,483,639 $ 3,005,915
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- ------------------------
1994 1995 1994 1995
-------- -------- -------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Revenues $296,246 $342,445 $885,636 $992,493
Costs and Expenses:
Operating 101,459 117,296 300,077 342,142
Selling, General and Administrative 67,118 78,551 195,901 228,883
Restricted Stock Purchase Program 2,827 3,042 8,502 8,947
Depreciation and Amortization 71,277 82,156 206,800 230,568
-------- -------- -------- --------
Total 242,681 281,045 711,280 810,540
-------- -------- -------- --------
Operating Income 53,565 61,400 174,356 181,953
-------- -------- -------- --------
Other (Income) Expense:
Interest 84,498 86,248 232,408 252,562
Equity in Net Loss of Affiliates 4,606 12,702 14,413 38,519
Gain on Sale of Marketable Equity Securities - - (1,204) (23,032)
Gain on Sale of Investment - - - (1,035)
Minority Interest in Net Loss of Subsidiaries (78) (60) (83) (100)
Dividend Income (172) (247) (676) (566)
Other 30 401 (258) 1,026
-------- -------- -------- --------
Total 88,884 99,044 244,600 267,374
-------- -------- -------- --------
Loss Before Income Taxes (35,319) (37,644) (70,244) (85,421)
Income Tax Benefit 13,448 12,579 24,752 27,289
-------- -------- -------- --------
Net Loss (21,871) (25,065) (45,492) (58,132)
-------- -------- -------- --------
Preferred Stock Preferences (9,438) (10,208) (27,325) (29,555)
-------- -------- -------- --------
Loss Applicable to Common Stockholders $(31,309) $(35,273) $(72,817) $(87,687)
======== ======== ======== ========
Loss Per Common Share $(0.27) $(0.30) $(0.64) $(0.75)
======== ======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1994 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (45,492) $ (58,132)
Adjustments to Reconcile Net Loss to Net
Cash Provided from Operating Activities:
Depreciation and Amortization 206,800 230,568
Restricted Stock Purchase Program 8,502 8,947
Amortization of Deferred Financing Costs 3,928 6,673
Equity in Net Loss of Affiliates 14,413 38,519
Gain on Sale of Marketable Equity Securities (1,204) (23,032)
Gain on Sale of Investment - (1,035)
Minority Interest in Net Loss of Subsidiaries (83) (100)
Deferred Income Taxes (26,456) (28,330)
Accrued Interest (9,575) (37,605)
Accounts Payable, Accrued and Other Liabilities 19,945 (41,545)
Other Working Capital Changes (21,694) (25,432)
--------- ---------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 149,084 69,496
--------- ---------
FINANCING ACTIVITIES:
Proceeds from Borrowings 291,750 768,900
Repayment of Borrowings (158,408) (134,749)
Increase in Minority Interests 779 2,746
Repurchase of Common Stock and Redeemable Common Stock (4,755) -
--------- ---------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 129,366 636,897
--------- ---------
INVESTING ACTIVITIES:
Acquisitions, Net of Liabilities Assumed and Cash Acquired (47,990) (184,882)
Property, Plant and Equipment (183,818) (346,046)
Investments (157,587) (188,092)
Other Assets (424) (16,973)
Proceeds from Sale of Marketable Equity Securities 17,553 27,357
Proceeds from Sale of Investment - 1,181
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (372,266) (707,455)
--------- ---------
NET DECREASE IN CASH (93,816) (1,062)
BALANCE AT BEGINNING OF PERIOD 122,640 11,564
--------- ---------
BALANCE AT END OF PERIOD $ 28,824 $ 10,502
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements are unaudited,
but, in the opinion of management, include all adjustments of a normal recurring
nature necessary for a fair presentation of the results for such periods. The
results of operations and cash flows for any interim periods are not necessarily
indicative of results for a full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted in
this Form 10-Q pursuant to the rules and regulations of the Securities and
Exchange Commission. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission.
Stock Dividend
--------------
On September 28, 1995, the stockholders approved an increase in the number
of authorized shares of common stock to 625,000,000 (425,000,000 Class A and
200,000,000 Class B, respectively) and preferred stock to 200,000,000. In
addition, the Company's Board of Directors approved a stock dividend of 24
shares of Class A or B common stock for each share of Class A or B common stock
held as of the record date. Due to the significance of this stock dividend to
the Company's capital structure, all share and per share information have been
restated to present this stock dividend as though it had occurred at the
beginning of the earliest period presented.
Supplies and Property, Plant and Equipment
------------------------------------------
Supplies are stated at the lower of cost (first-in, first-out method) or
market. Property, plant and equipment is stated at cost and includes $4,775,000
of interest capitalized during the nine months ended September 30, 1995.
Depreciation is provided using the straight-line group method over estimated
useful lives as follows: buildings, 25 to 40 years; reception and distribution
facilities, 3 to 15 years; and equipment and fixtures, 4 to 12-1/2 years.
<PAGE>
Intangible and Other Assets
---------------------------
Intangible assets consist primarily of franchise costs and goodwill recorded
in various acquisitions. Other assets represent deferred financing costs and
loans to employees (see Note 8). Intangible assets are amortized over 10 to 40
years. Accumulated amortization aggregated $791,242,000 at September 30, 1995.
Derivative Financial Instruments
--------------------------------
The Company uses derivative financial instruments as a means of managing
interest-rate risk associated with current debt or anticipated debt transactions
that have a high probability of being executed. Derivative financial
instruments used are primarily Interest Rate Exchange Agreements (Swaps) and
Interest Rate Cap Agreements (Caps). These instruments are matched with either
fixed or variable rate debt and periodic cash payments are accrued on a
settlement basis as an adjustment to interest expense. Derivative financial
instruments are not held for trading purposes. Any premiums associated with the
instruments are amortized over their term and realized gains or losses as a
result of the termination of the instruments are deferred and amortized over the
shorter of the remaining term of the instrument or the underlying debt. (See
Note 6)
Loss per Common Share
---------------------
Loss per common share is calculated by dividing the loss available to common
stockholders by the weighted average number of common shares outstanding of
114,011,000 and 117,342,000 for the three months and 114,060,000 and 117,531,000
for the nine months ended September 30, 1994 and 1995, respectively. Shares of
the Series A Convertible Preferred Stock were not assumed to be converted into
shares of common stock since the result would be anti-dilutive.
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The following represents non-cash investing and financing activities and
cash paid for interest and income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1994 1995
-------- --------
<S> <C> <C>
Accretion of Redeemable Common Stock $ 15,377 $ 15,653
======== ========
Accretion of Series A Convertible Preferred Stock $ 27,325 $ 29,555
======== ========
Cash Paid During the Period for Interest $236,411 $296,886
======== ========
Cash Paid During the Period for Income Taxes $ 2,342 $ 988
======== ========
</TABLE>
<PAGE>
3. ACQUISITIONS
The Company purchased several cable television systems in the Chicago,
Illinois area for approximately $168,000,000 in August 1995 and a cable
television system in California for approximately $17,000,000 in September 1995.
These acquisitions were accounted for by the purchase method. The accompanying
financial statements reflect the results of operations of the acquired
properties commencing on the acquisition dates. Subsequent to September 30,
1995, the Company purchased two cable television systems in Michigan for
approximately $155,000,000.
The Company is currently negotiating a purchase and sale agreement to
purchase additional cable television systems in Michigan for approximately
$88,000,000.
Subsequent to September 30, 1995, the Company, Providence Journal, King
Holding Corp., King Broadcasting Company and The Providence Journal consummated
a merger (the Merger) in which the Providence Journal (which at the time of the
Merger included only the Providence Journal cable businesses) merged with and
into the Company, and the Company purchased the cable television businesses and
assets of King Broadcasting Company (the King Cable Assets). The Company issued
30,142,394 shares of Class A common stock to stockholders of Providence Journal
in exchange for all shares of Providence Journal. The ascribed value of the
shares exchanged is approximately $584,769,000 and does not necessarily reflect
the price at which such shares will trade. In addition, the Company assumed
$410,000,000 of debt of Providence Journal, and purchased the King Cable Assets
for $405,000,000 in cash. Working capital adjustments will be settled in cash.
These acquisitions will be accounted for using the purchase method of
accounting.
4. MARKETABLE EQUITY SECURITIES
Marketable equity securities have an aggregate cost basis of $37,837,000 as
of September 30, 1995.
<PAGE>
5. INVESTMENTS
The Company's investments consist of the following components (in
thousands):
<TABLE>
<CAPTION>
Carrying Value
-------------------------------
Approximate December 31, September 30,
Ownership 1994 1995
----------- ------------ --------------
<S> <C> <C> <C>
Equity Method Investments:
Teleport Communications
Group, Inc. (TCG) and TCG Partners 20% $ 93,954 $101,256
Regional TCG Partnerships 10%-30% 34,609 44,580
Fintelco, S.A. 50% 146,040 179,039
Optus Vision Pty Ltd (Optus Vision) 47% - 79,383
Singapore Cablevision Private
Limited (SCV) 25% 8,484 16,069
PrimeStar Partners L.P. (PrimeStar) 10% 12,500 14,820
Other 20%-50% 6,717 10,958
-------- --------
302,304 446,105
Cost Method Investments 33,175 38,155
-------- --------
Total $335,479 $484,260
======== ========
</TABLE>
In addition to its equity investment, the Company has made commitments to
TCG to loan up to $69,920,000 through 2003, of which $53,800,000 was outstanding
as of September 30, 1995. TCG and its affiliates are telecommunications
companies which operate fiber optic networks in the United States.
As of September 30, 1995, the Company has invested $156,000,000 in cash to
Fintelco, S.A. which owns and operates cable television systems in Argentina. In
addition, the Company has recorded commitments to contribute an additional
$31,582,000 to Fintelco, S.A.
As of September 30, 1995, the Company has invested approximately $80,800,000
in Optus Vision, a joint venture which will create a broadband communications
network in Australia.
As of September 30, 1995, the Company has invested approximately $17,440,000
in SCV. The Company is committed to make additional capital contributions to
SCV of approximately $27,000,000 to be paid through 1996. In addition, the
Company has made commitments to SCV to loan up to approximately $45,000,000, if
third party debt financing cannot be obtained by SCV.
A wholly owned subsidiary of the Company has issued a standby letter of
credit of $56,250,000 on behalf of PrimeStar, a limited partnership that
provides direct broadcast satellite services. The standby letter of credit
guarantees a portion of the financing PrimeStar incurred to construct a
successor satellite system and is collateralized by marketable equity securities
with a carrying value of $159,979,000 as of September 30, 1995. As a result of
the commitments and other qualitative factors, the Company accounts for its
investment in PrimeStar using the equity method.
<PAGE>
The Company also has various investments in cable television companies which
are not individually material to the Company. The Company has approximately a
one-third ownership interest in these companies and therefore accounts for these
investments using the equity method.
The major components of all equity method investees' combined financial
position and results of operations are as follows (the Company's proportionate
share for the periods which the investments are owned is reflected in
thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1994 1995
------------ -------------
<S> <C> <C>
Total Assets $495,000 $683,000
Total Liabilities 387,000 489,000
Equity 108,000 193,000
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1994 1995
------------ -------------
<S> <C> <C>
Revenues $ 99,000 $182,000
Depreciation and Amortization 23,000 29,000
Operating Income (300) (6,000)
Net Loss (15,000) (39,000)
</TABLE>
6. DEBT
Total debt outstanding is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1994 1995
------------ -------------
<S> <C> <C>
Bank Indebtedness $1,373,790 $2,032,200
Insurance Company Notes 150,000 125,750
Senior Notes and Debentures 1,400,000 1,400,000
Subordinated Debt 500,000 500,000
Other 26,117 26,108
---------- ----------
Total $3,449,907 $4,084,058
========== ==========
</TABLE>
<PAGE>
Bank Indebtedness represents a $2,200,000,000 unsecured reducing revolving
credit agreement (Reducing Revolver) under which credit availability will
decrease annually commencing December 31, 1997 with a final maturity in October
2003. Borrowings under the Reducing Revolver bear interest at a rate between the
agent bank's prime rate and prime plus 1/2%, depending on certain financial
tests. At the Company's option, borrowings may bear interest at spreads over
LIBOR. The Company's obligations under the Reducing Revolver are guaranteed by
the Restricted Subsidiaries, which primarily represent the Company's owned and
operated cable systems. The Restricted Subsidiaries will not include the
Providence Journal cable systems and Michigan cable systems purchased or to be
purchased subsequent to September 30, 1995. Prepayments are required from the
proceeds of certain sales of Restricted Subsidiaries' assets.
Certain of the Company's subsidiaries have entered into a $1,200,000,000
unsecured reducing revolving credit agreement to finance the Merger with
Providence Journal (including the purchase of the King Cable Assets) and certain
other acquisitions in Michigan which have closed or are expected to close in
1995.
The Insurance Company Notes are unsecured, bear interest at 10.12%, require
increasing semi-annual repayments through July 1, 1999, and rank pari passu in
right of payment with the Reducing Revolver.
The Company's unsecured Senior Notes and Debentures rank pari passu in right
of payment with the Insurance Company Notes and Reducing Revolver (collectively,
Senior Debt) and are non-redeemable prior to maturity, except for the 9-1/2%
Senior Debentures. The 9-1/2% Senior Debentures are redeemable at the Company's
option at par plus declining premiums beginning in 2005. In addition, at any
time prior to August 1996, the Company may redeem a portion of the 9-1/2% Senior
Debentures at a premium with the proceeds from any offering by the Company of
its capital stock. No sinking fund is required for any of the Senior Notes and
Debentures. The Senior Notes and Debentures consist of the following (in
thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1994 1995
---------- ----------
<S> <C> <C>
8-1/2% Senior Notes,
Due September 15, 2001 $ 200,000 $ 200,000
8-5/8% Senior Notes,
Due August 15, 2003 100,000 100,000
8-7/8% Senior Debentures,
Due September 15, 2005 275,000 275,000
9% Senior Debentures,
Due September 1, 2008 300,000 300,000
9-1/2% Senior Debentures,
Due August 1, 2013 525,000 525,000
---------- ----------
Total $1,400,000 $1,400,000
========== ==========
</TABLE>
<PAGE>
The Company's Senior Debt limits the Restricted Group with respect to, among
other things, payment of dividends, the repurchase of capital stock, the
creation of liens and additional indebtedness, property dispositions,
investments and leases, and requires certain minimum ratios of cash flow to debt
and cash flow to related fixed charges.
The Company's Subordinated Debt is redeemable at the Company's option at par
plus declining premiums at various dates, and is subordinated to the Company's
Senior Debt. Subordinated Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1994 1995
------------ -------------
<S> <C> <C>
10-5/8% Senior Subordinated Notes,
Due June 15, 2002 $100,000 $100,000
Senior Subordinated Floating Rate
Debentures, Due November 1, 2004 100,000 100,000
11% Senior Subordinated
Debentures, Due June 1, 2007 300,000 300,000
-------- --------
Total $500,000 $500,000
======== ========
</TABLE>
The Senior Subordinated Floating Rate Debentures bear interest at LIBOR plus
3% through November 1996, increasing over time to LIBOR plus 6.5%.
The Company has Swaps pursuant to which it pays fixed interest rates
averaging approximately 9.0% on notional amounts of $900,000,000 (expiring 1996
through 2000) and variable interest rates on notional amounts of $1,575,000,000
(expiring 1998 through 2003). The variable interest rates are based on six month
LIBOR. In addition, the Company has $800,000,000 of Caps expiring in 1996 and
1997, which limit six month LIBOR to approximately 8%. The Company's exposure,
if the other parties fail to perform under these agreements, would be limited to
the impact of variable interest rate fluctuations and the periodic settlement of
amounts due under these agreements.
The variable-rate Swaps include $325,000,000 of Swaps that may be extended
by the counterparty at a certain time in the future at the existing contracted
rates. The Company entered into such Swaps to further manage its interest rate
risk. Such Swaps are related to specific portions of the Company's fixed-rate
debt and are with counterparties that are lenders to the Company under the
Reducing Revolver. Premium income or expense is amortized over the life of the
agreement and is included in the Company's results of operations.
<PAGE>
7. REDEEMABLE COMMON STOCK
Pursuant to a Stock Liquidation Agreement with certain stockholders (the
Selling Stockholders), the Company has committed to repurchase 16,684,150 shares
of its common stock (Redeemable Common Stock) in December 1998 or January 1999
at a defined purchase price (Purchase Price). The Purchase Price is the greater
of the estimated amount of net proceeds per share from an underwritten public
offering of the Company's common stock or, the net proceeds per share from the
liquidation of the Company less a 22.5% discount.
The initial estimated repurchase cost for the Redeemable Common Stock has
been adjusted by periodic accretions through the repurchase dates, based on the
interest method, of the difference between the initial estimate and the
subsequent estimates of the Purchase Price.
In the event the Company is unable to meet its commitments under the Stock
Liquidation Agreement, the Selling Stockholders may cause the sale of all or
substantially all of the assets of the Company.
8. STOCKHOLDERS' EQUITY (DEFICIENCY)
At September 30, 1995, there were 8,635,900 and 109,246,050 shares of Class
A and Class B common stock outstanding, respectively. Stockholders' Equity
(Deficiency) reflects only 8,581,300 and 92,616,500 shares of Class A and Class
B common stock outstanding, respectively, due to the classification of
16,684,150 shares as Redeemable Common Stock. Class A common stock has one vote
per share and Class B common stock has ten votes per share.
Each share of Series A Convertible Preferred stock (Convertible Preferred)
is entitled to ten votes per share, shares equally with each common share in all
dividends and distributions, and is convertible into one share of common stock,
at any time, at the option of the holder. The Convertible Preferred
stockholders have the right to sell their shares in a public offering by causing
the Company to register such shares under the Securities Act of 1933. Certain
other stockholders of the Company have similar registration rights.
The Convertible Preferred has a liquidation preference equal to the greater
of its Accreted Value or the amount which would be distributed to common
stockholders, assuming conversion of the Convertible Preferred. The Accreted
Value assumes a yield of 8% per annum, compounded semi-annually in arrears on
the $350 purchase price per share. During the period, the carrying value of the
Convertible Preferred has been increased by $29,555,000 to reflect the Accreted
Value of $517,331,000 as of September 30, 1995.
After June 1997, if the value of the common stock is greater than 137.5% of
the then Accreted Value, the Company will have the right to convert each
outstanding share of Convertible Preferred into one share of common stock.
<PAGE>
In June 2002, each outstanding share of Convertible Preferred may be
converted at the option of the holder or the Company into a number of common
shares which will have a value equal to the Accreted Value. The Company may, at
its sole option, purchase for cash at the Accreted Value all or part of the
Convertible Preferred instead of accepting or requiring conversion.
The Company maintains a Restricted Stock Purchase Program under which
certain employees of the Company, selected by the Board of Directors, are
permitted to buy shares of the Company's common stock at the par value of one
cent per share. The shares remain wholly or partly subject to forfeiture for
five to seven years, during which a pro rata portion of the shares become
"vested" at six-month intervals. Upon termination of employment with the
Company, an employee must resell to the Company, for the price paid by the
employee, the employee's shares which are not then vested. For financial
statement presentation, the difference between the purchase price and the fair
market value at the date of issuance is recorded as additional paid-in capital
and unearned compensation, and charged to operations through 2001 as the shares
vest. At September 30, 1995, 2,918,850 shares were not yet vested. During the
nine months ended September 30, 1995, the Company sold an additional 2,370,425
shares under this program. In connection with the Restricted Stock Purchase
Program, a wholly-owned subsidiary of the Company has loaned approximately
$25,243,000 to the participating employees to fund their individual tax
liabilities. These loans are due through 2001 and are included in Other Assets
in the accompanying financial statements.
Changes in Stockholders' Equity (Deficiency) during the nine months ended
September 30, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
Series A Net Unrealized
Convertible Common Stock Additional Holding Gain on
Preferred Class Class Paid-In Unearned Marketable Equity
Stock A B Capital Compensation Securities Deficit
----------- ----- ----- ---------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995 $11 $86 $903 $583,181 $(12,097) $47,996 $(2,308,414)
Net Loss - - - - - - (57,132)
Accretion of Redeemable
Common Stock - - - (15,653) - - -
Restricted Stock Purchase
Program:
Stock Issued - - 23 45,963 (45,985) - -
Stock Vested - - - - 8,947 - -
Stock Forfeited - - - (469) 469 - -
Stock Exchanged for
Loans - - - (337) - - -
Change in Unrealized Gain,
net of income taxes
of $16,827 - - - - - 24,965 -
--- --- ---- -------- -------- ------- -----------
September 30, 1995 $11 $86 $926 $612,685 $(48,666) $72,961 $(2,365,546)
=== === ==== ======== ======== ======= ===========
</TABLE>
<PAGE>
9. LEGISLATION AND REGULATION
Pursuant to the Cable Television Consumer Protection and Competition Act
of 1992, the FCC has promulgated rate regulations that establish maximum
allowable rates for cable television services, except for services offered on a
per-channel or per-program basis. The FCC's regulations require rates for
equipment and installations to be cost-based, and require reasonable rates for
regulated cable television services to be established based on, at the election
of the cable television operator, either application of the FCC's benchmark
formula or a cost-of-service showing pursuant to interim standards adopted by
the FCC. In addition, the FCC regulations limit future rate increases for
regulated services.
Under current FCC regulations, a rate complaint or certification of a
local franchising authority is required to regulate a system. In accordance with
the regulations, the Company either reduced rates under the FCC's benchmark
methodology or supported current rates by cost-of-service showings for these
regulated franchises. Certain positions taken by the Company in its cost-of-
service filings were based on provisions of the FCC's interim cost-of-service
rules that allow certain "presumptions" in the rules to be overcome on a case-
by-case basis. While the Company believed that its showings in this regard were
sufficient, the results of these cases were unknown. As a result, during 1994
the Company recorded a revenue reserve.
On August 3, 1995, a Social Contract between Continental and the FCC (the
Social Contract) was adopted. The Social Contract is a six-year agreement
covering all of the Company's existing franchises, including those that are
currently unregulated, and settles the Company's pending cost-of-service rate
cases and benchmark cable programming service tier (CPS) rate cases. Benchmark
broadcast service tier (BBT) cases will be resolved by the Company and local
franchising authorities. As part of the resolution of these cases, the Company
agrees to, among other things, (i) invest at least $1.35 billion in domestic
system rebuilds and upgrades in the next six years to expand channel capacity
and improve system reliability and picture quality, (ii) reduce its BBT service
rates and (iii) make in-kind refunds to affected subscribers totaling a retail
value of approximately $9.5 million (this amount is fully reserved). The
resolution of pending rate cases is without any finding by the FCC of any
wrongdoing by Continental.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Condensed Consolidated Financial
Statements of the Company for the three and nine month periods ended
September 30, 1994 and 1995.
RECENT ACQUISITIONS
In June and November 1994, the Company acquired cable television systems
serving approximately 44,000 basic subscribers in Manchester, New Hampshire (the
"New Hampshire Acquisition") and 34,000 basic subscribers in Jacksonville,
Florida (the "Florida Acquisition") for approximately $48.0 million and $67.0
million, respectively.
The Company purchased several cable television systems serving
approximately 88,000 basic subscribers near Chicago, Illinois (the "Chicago
Acquisition") for approximately $168.5 million in August 1995 and 12,000 basic
subscribers in Northern California (the "California Acquisition") for
approximately $17.0 million in September 1995.
Subsequent to September 30, 1995, the Company, Providence Journal Company,
King Holding Corp., King Broadcasting Company and The Providence Journal Company
consummated a merger (the "Merger") in which the Providence Journal Company
(which at the time of the merger included only the cable television businesses
and assets of Providence Journal Company) merged with and into the Company, and
the Company purchased the cable television businesses and assets of King
Broadcasting Company (the "King Cable Assets"). The Company issued 30,142,394
shares of Class A Common Stock to stockholders of Providence Journal Company in
exchange for all the shares of Providence Journal Company. The ascribed value of
the shares exchanged is approximately $584.8 million and does not necessarily
reflect the price at which such shares will trade. In addition, the Company
assumed $410.0 million of indebtedness and purchased the King Cable Assets for
$405.0 million in cash.
Subsequent to September 30, 1995, the Company also purchased cable
television systems serving approximately 74,000 basic subscribers in Michigan
(the Columbia Acquisition") for approximately $155.0 million.
The Company is currently negotiating an agreement to acquire the remaining
ownership interests of N-Com Limited Partnership II (the "Pending N-Com
Buyout"), which owns and operates cable television systems serving approximately
56,000 basic subscribers in Michigan for approximately $88.0 million. The
Company currently owns a 33.8% interest in N-Com Limited Partnership II and
anticipates that the Pending N-Com Buyout will close in the fourth quarter of
1995.
<PAGE>
Three Months Ended September 30, 1995 Compared To
Three Months Ended September 30, 1994
=================================================
Revenues increased 15.6% (or $46.2 million) to $342.4 million. The cable
television systems purchased in the Florida Acquisition, the Chicago Acquisition
and the California Acquisition served a total of approximately 134,000 basic
subscribers as of the acquisition dates and accounted for $9.7 million of such
revenue increase. Excluding the effects of such acquisitions, revenues increased
12.3% (or $36.5 million) as a result of a 3.1% increase in ending basic
subscribers, an increase in monthly cable revenue per average basic subscriber
and increases in DBS service revenues. Excluding the acquisitions and DBS
service revenue, monthly cable revenue per average basic subscriber increased
from $33.70 to $36.60. The $2.90 increase in monthly cable revenue per average
basic subscriber reflects: (i) basic rate reductions and the recording of non-
cash revenue reserves during the three months ended September 30, 1994 in
connection with the FCC's rate regulations; (ii) increases in basic rates during
the nine months ended September 30, 1995, and; (iii) an increase in premium and
other revenue categories. Revenues from premium cable services increased by $.5
million (excluding the foregoing acquisitions and DBS services)to $61.7 million
due primarily to a 2.2% increase in premium subscriptions. The increase in
revenues (excluding the foregoing acquisitions and DBS services) was also due to
a $1.9 million increase in advertising revenues to $14.6 million, a $2.0 million
increase in home shopping revenues to $4.2 million and a $4.8 million increase
in pay-per-view revenues to $10.9 million. Revenues from DBS services increased
by $8.5 million to $9.8 million principally as a result of an increase in DBS
service subscribers from approximately 9,000 to over 63,000 as of September 30,
1995.
Operating, selling, general and administrative expenses increased 16.1% to
$195.8 million due to the foregoing acquisitions, the provision of DBS service,
and increases in programming costs and wages. Depreciation and amortization
expenses increased 15.3% to $82.2 million due to the foregoing acquisitions and
increased levels of capital expenditures. Operating income increased 14.6% to
$61.4 million. Interest expense increased 2.1% to $86.2 million as a result of a
19.7% increase in average debt outstanding. The effective interest rate
decreased from 10.4% to 8.8%. Other (income) expenses included equity in net
loss of affiliates, which increased from $4.6 million to $12.7 million primarily
due to the Company recording its proportionate share of losses from Teleport
Communications Group, Inc. ("TCG"), the Golf Channel and its international
investments in Argentina, Singapore and Australia. As a result of such factors,
the net loss before extraordinary item for the three months ended September 30,
1995 compared to September 30, 1994 increased by $3.2 million to $25.1 million.
Nine Months Ended September 30, 1995 Compared to
Nine Months Ended September 30, 1994
================================================
Revenues increased 12.1% (or $106.9 million) to $992.5 million. The cable
television systems acquired in the New Hampshire Acquisition, the Florida
Acquisition, the Chicago Acquisition and the California Acquisition served a
total of approximately 178,000 basic
<PAGE>
subscribers as of the acquisition dates and accounted for $22.9 million of such
revenue increase. Excluding the effects of such acquisitions, revenues increased
9.5% (or $84.0 million) as a result of a 3.1% increase in ending cable
subscribers, an increase in basic cable revenue per average basic subscriber and
increases in DBS service revenues. Excluding the acquisitions and DBS
service revenue, monthly cable revenue per average basic subscriber increased
from $35.20 to $36.28. The $1.08 increase in monthly cable revenue per average
basic subscriber reflects: (i) both the basic rate reductions and the recording
of non-cash revenue reserves during the nine months ended September 30, 1994 in
connection with the FCC's rate regulations; (ii) increases in basic rates during
the nine months ended September 30, 1995, and; (iii) an increase in premium and
other revenue categories. Revenues from premium cable services increased by $2.9
million to $185.9 million (excluding the foregoing acquisitions and DBS
services) due primarily to a 2.2% increase in premium subscriptions. The
increase in revenues (excluding the foregoing acquisitions and DBS services) was
also due to a $4.6 million increase in advertising revenues to $44.9 million, a
$3.1 million increase in home shopping revenues to $12.6 million and a $5.0
million increase in pay-per-view revenues to $23.9 million. Revenues from DBS
services increased by $21.8 million to $24.0 million principally as a result of
an increase in DBS service subscribers from approximately 9,000 to over 63,000
as of September 30, 1995.
Operating, selling, general and administrative expenses increased 15.1% to
$571.0 million due to the foregoing acquisitions, the provision of DBS service,
and increases in programming costs and wages. Depreciation and amortization
expenses increased 11.5% to $230.6 million due to the foregoing acquisitions and
increased levels of capital expenditures. Operating income increased 4.4% to
$182.0 million. Interest expense increased 8.7% to $252.6 million as a result of
a 16.0% increase in average debt outstanding. The effective interest rate
decreased from 9.6% to 9.1%. Other (income) expenses included a gain of $23.0
million from the sale of the Company's investment in QVC, Inc. and equity in net
loss of affiliates, which increased from $14.4 million to $38.5 million
primarily due to the Company recording its proportionate share of losses from
TCG, the Golf Channel and its international investments in Argentina, Singapore
and Australia. As a result of such factors, the net loss before extraordinary
item for the nine months ended September 30, 1995 compared to September 30, 1994
increased by $12.6 million to $58.1 million.
EBITDA. Based on its experience in the cable television industry, the
Company believes that EBITDA and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable television
companies in several areas, such as liquidity, operating performance and
leverage. EBITDA should not be considered as an alternative to operating or net
income (measured in accordance with GAAP) as an indicator of the Company's
performance or as an alternative to cash flows from operating activities
(measured in accordance with GAAP) as a measure of the Company's liquidity. For
the nine months ended September 30, 1995, EBITDA increased 8.1% to $421.4
million, as compared to the same period in 1994, primarily as a result of
increases in revenue. DBS service accounted for ($1.3) million and $2.1 million
of EBITDA for the nine months ended September 30, 1994 and 1995, respectively.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain items from the Company's Condensed
Statement of Consolidated Cash Flows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1995
------------------
<S> <C>
NET CASH PROVIDED FROM
OPERATING ACTIVITIES $ 69,496
=========
NET CASH PROVIDED FROM
FINANCING ACTIVITIES:
Net borrowings $ 634,151
Other 2,746
---------
Total $ 636,897
=========
NET CASH PROVIDED FROM (USED FOR)
INVESTING ACTIVITIES:
Acquisitions (net) $(184,882)
Property, plant and equipment (346,046)
Investments (188,092)
Other assets (16,973)
Proceeds from sale of marketable equity securities 27,357
Proceeds from sale of investment 1,181
---------
Total $(707,455)
=========
</TABLE>
Recent Financing Activities. On October 17, 1994, the Company entered into
----------------------------
its 1994 Credit Facility, which represents an amendment and restatement of the
1990 Credit Agreement (the "1994 Credit Facility"). The 1994 Credit Facility is
an unsecured, reducing revolving credit facility with maximum credit
availability of $2.2 billion. Credit availability under the
<PAGE>
1994 Credit Facility will decrease annually commencing December 31, 1997 with a
final maturity in October 2003. As of September 30, 1995, the Company had credit
availability of $167.8 million under the 1994 Credit Facility. The Company
arranged the 1994 Credit Facility on behalf of certain of its subsidiaries,
which primarily represent certain owned and operated cable systems in the United
States (the "Restricted Subsidiaries"). The Restricted Subsidiaries do not
include the cable systems acquired or to be acquired in connection with the
Merger, the Columbia Acquisition and the Pending N-Com Buyout. The Restricted
Subsidiaries as a group are subject to the covenants and obligations imposed by
the Company's credit agreements (excluding the 1995 Credit Facility) to the same
extent as the Company, and their relevant financial measures are taken into
account in computing the various ratios and tests imposed by such agreements.
On July 18, 1995, certain of the Company's subsidiaries entered into a new
unsecured, reducing revolving credit facility (the "1995 Credit Facility"). The
maximum credit availability under the 1995 Credit Facility is $1.2 billion which
will decrease annually commencing December 31, 1998, with a final maturity in
September 2004. Such facility has other terms and conditions which are similar
in certain respects to those contained in the 1994 Credit Facility. In October
1995, a subsidiary of the Company borrowed approximately $815.0 million under
the 1995 Credit Facility to fund the Merger (including the purchase of the King
Cable Assets) and approximately $155.0 million for the Columbia Acquisition.
Subsequent borrowings under the 1995 Credit Facility will be used to fund the
Pending N-Com Buyout for approximately $88.0 million in the fourth quarter of
1995 and for general corporate purposes, which would include capital
expenditures of these acquired cable systems.
On October 19, 1995, the Company filed a registration statement with the
Securities and Exchange Commission for a public offering of shares of its Class
A common stock (the "Offering"). The Company anticipates offering these shares
in the first quarter of 1996, subject to market conditions. The Offering is
anticipated to generate net proceeds to the Company of between $282.5 million
and $325.0 million depending on whether the underwriters exercise the over-
allotment option. The Company intends to use the net proceeds from the Offering
for general corporate purposes, including capital expenditures, investments and
acquisitions. Pending such uses, the Company plans to use proceeds from the
Offering to repay amounts outstanding under the 1994 Credit Facility.
The Offering will trigger the rights of each of the holders of the $100.0
million Floating Rate Debentures to require that the Company redeem all of such
holders' Floating Rate Debentures at the principal amount plus accrued interest
and certain other amounts relating to breakage costs and taxes. To the extent
that any such holders tendered their Floating Rate Debentures, the Company would
borrow funds under the 1994 Credit Facility to fund such redemptions. The
maximum amount that the Company would be currently required to pay in the event
that all such holders tendered their Floating Rate Debentures would be
approximately $102.0 million. The Floating Rate Debentures currently bear
interest at a rate per annum of approximately 8.9% (three-month LIBOR plus
3.0%). The interest spread increases to 4.5% in November 1996 and over time to
6.5%.
Credit Arrangements of the Company. On September 30, 1995, the Company had
-----------------------------------
cash on hand of $10.5 million and the following credit arrangements: (i)
$2,032.2 million outstanding under the 1994 Credit Facility; (ii) $125.8 million
of 10.12% Senior Notes Due 1999 to the Prudential Life Insurance Company (the
"Prudential Notes"); (iii) $200.0 million of 8-1/2% Senior Notes Due 2001;
(iv) $100.0 million of 8-5/8% Senior Notes Due 2003; (v) $275.0 million of
8-7/8% Senior Debentures Due 2005; (vi) $300.0 million of 9% Senior Debentures
Due 2008; (vii) $525.0 million of 9-1/2% Senior Debentures Due 2013; (viii)
$100.0 million of 10-5/8% Senior Subordinated Notes Due 2002; (ix) $100.0
million of Senior Subordinated Floating Rate Debentures Due 2004 (the "Floating
Rate Debentures"); and (x) $300.0 million of 11% Senior Subordinated Debentures
Due 2007. Other miscellaneous debt was $26.1 million as of September 30, 1995.
In addition, a subsidiary of the Company has issued a standby letter of
credit of $56.3 million on behalf of PrimeStar Partners L.P. ("PrimeStar"),
which guarantees a portion of the financing PrimeStar incurred to construct a
successor satellite system. The Company anticipates that the obligations under
such letter of credit will increase next year up to a maximum of $70.6 million.
The letter of credit is secured by certain marketable equity securities with a
fair market value of $159.9 million as of September 30, 1995.
The annual maturities of the Company's indebtedness for the years ending
December 31,
<PAGE>
1995, 1996, 1997, 1998 and 1999 will be $24.3 million, $27.3 million, $30.6
million, $195.4 million and $365.0 million, respectively.
Capital Expenditures and Domestic Acquisitions. The Company's expenditures
-----------------------------------------------
for property, plant and equipment totaled $346.0 million for the nine months
ended September 30, 1995 (approximately $46.2 million of which was related to
the provision of DBS service). The Company anticipates that it will spend
approximately $375.0 million for capital expenditures for its existing cable
systems during 1995 (excluding the Merger, the Columbia Acquisition and the
Pending N-Com Buyout). In addition, the Company anticipates spending
approximately $55.0 million in 1995 for DBS home-premises equipment in
connection with its role as a distributor for PrimeStar. The anticipated
increase in capital expenditures for 1995 as compared to 1994 is due to the
Company's intention (i) to further deploy addressable technology and to expand
channel capacity in its systems and (ii) to provide PrimeStar's DBS service. The
Company anticipates funding its capital expenditures in 1995 with borrowings
from the 1994 Credit Facility and cash provided from operating activities. In
accordance with the recently adopted Social Contract with the FCC, the Company
has agreed to invest a minimum of $1.35 billion in system rebuilds and upgrades
in the United States from 1995 to 2000, to expand channel capacity and improve
system reliability and picture quality (see Recent Legislation).
<PAGE>
The Company funded the Chicago Acquisition and the California Acquisition with
borrowings under the 1994 Credit Facility. The Company funded the Merger
(including the purchase of the King Cable Assets) with borrowings under the 1995
Credit Facility as well as through the issuance of 30,142,394 shares of Class A
Common Stock. The Company funded the Columbia Acquisition and anticipates
funding the Pending N-Com Buyout with borrowings under the 1995 Credit Facility.
Investments. For purposes of the Condensed Statements of Consolidated Cash
------------
Flows, the Company's investments include international investments,
telecommunications and technology investments, and other investments.
International Investments. As of September 30, 1995, the Company has
--------------------------
invested US$156.0 million to Fintelco S.A. ("Fintelco"), a company which owns
and operates cable television systems serving approximately 620,000 subscribers
in Argentina. The Company currently holds an approximate 50% interest in
Fintelco. In addition, the Company has recorded commitments to contribute an
additional US$31.6 million to Fintelco in order to finance a portion of certain
acquisitions of Argentine cable television systems. The Company anticipates
funding such commitments with borrowings from the 1994 Credit Facility and cash
provided from operating activities. Fintelco is in the process of arranging an
aggregate of approximately US$180.0 million in senior credit facilities,
including a US$140.0 million credit facility. Proceeds from such facilities will
be used to refinance existing short-term indebtedness and for general corporate
purposes, including capital expenditures. Such facilities may reduce the amount
of future advances from Fintelco's shareholders, including the Company. As of
November 10, 1995, Fintelco had received commitments, which are subject to final
documentation, in excess of US$200.0 million for the US$140.0 million credit
facility. No assurance can be given at this time that such facilities will be
successfully arranged.
The Company and Optus Communications Pty Limited ("Optus"), a provider of
long distance and cellular telephone services in Australia, have formed a joint
venture to create a broadband communications network in Australia. The venture,
called Optus Vision, is owned 46.5% by the Company, 46.5% by Optus, 5% by
Publishing and Broadcasting Limited ("Nine"), the parent company of Kerry
Packer's Nine Network, and 2% by Seven Network Limited ("Seven"). Each of Nine
and Seven has an option to increase its shareholdings at fair market value to
20% and 15%, respectively, at any time prior to July 1, 1997. Optus Vision is
providing cable television, and will provide local telephone and a variety of
advanced broadband interactive services to business and residential customers in
Australia's major markets.
As of September 30, 1995 the Company had invested approximately US$80.1
million in Optus Vision. Optus Vision anticipates at this time that the future
required funding needs of the project will total approximately US$1.4 billion
(based upon exchange rates as of September 30, 1995) through 1999, which will be
provided by a combination of equity from the joint venture partners and third-
party debt. The Company anticipates funding its share of the equity
contributions to Optus Vision with borrowings from the 1994 Credit Facility,
cash provided from operating activities and other capital transactions which
could include the issuance of new
<PAGE>
indebtedness and/or equity. The Company's funding requirements would be reduced
if either or both of Nine and Seven exercise their options to increase their
equity interests in Optus Vision to 20% and 15%, respectively. There can be no
assurances that Nine and/or Seven will exercise their options.
In September 1994, the Company acquired a 25% equity interest in Singapore
Cablevision Private Limited ("SCV"), which is constructing a cable television
system in Singapore. SCV has the exclusive right, through June 2002, to provide
traditional cable television service in Singapore. As of September 30, 1995, the
Company had made capital contributions of US$17.4 million and committed to
contribute up to approximately US$27.0 million (based on exchange rates as of
September 30, 1995) in additional capital. In addition, the Company has
committed to loan up to approximately US$45.0 million (based on exchange rates
as of September 30, 1995) to SCV if third-party debt financing is unavailable.
The Company anticipates funding such commitments with borrowings from the 1994
Credit Facility and cash provided from operating activities. SCV has arranged an
aggregate of S$106.0 million in senior credit facilities with certain financial
institutions and is in the process of arranging an additional S$100.0 million of
senior credit facilities. Such facilities may reduce the amount of future
advances from SCV's shareholders, including the Company. No assurance can be
given at this time that such additional facilities will be successfully
arranged.
Investments in Telecommunications and Technology. The Company has made
------------------------------------------------
numerous investments which are related to its ownership interests in TCG and
PrimeStar.
In 1993, the Company purchased 20% of TCG for a purchase price of $66.0
million. In addition, the Company has committed to lend up to $69.9 million to
TCG through 2003, of which $53.8 million was advanced as of September 30, 1995.
The Company has also invested $50.5 million in joint ventures involving TCG and
other cable operators and may in the future make additional investments in TCG
and joint ventures involving TCG. Such future possible investment cannot be
quantified at this time and will be evaluated by the Company on a project-by-
project basis. On May 22, 1995, TCG entered into a $250.0 million revolving
credit facility with a group of financial institutions. Borrowings under the
facility may be used for general corporate purposes of TCG, including capital
expenditures. Such facility may reduce the amount of future advances from TCG's
shareholders, including the Company.
The Company also owns an approximate 10.4% partnership interest in
PrimeStar. As of September 30, 1995, the Company had made cash investments
totalling $24.6 million to fund PrimeStar's ongoing operations and may in the
future make additional investments in PrimeStar. The Company anticipates funding
any additional investment in PrimeStar with cash provided from operating
activities and borrowings under the 1994 Credit Facility.
Other Financing and Investment Activities. In January 1995, the Company
------------------------------------------
sold its shares of QVC common stock in a tender offer for approximately $27.4
million and sold a portion of its investment in National Cable Communications,
L.P. for approximately $1.2 million. The proceeds from these sales were used to
repay amounts outstanding under the 1994 Credit Facility. In exchange for its
5.7 million shares of Turner stock, the Company will
<PAGE>
receive approximately 4.4 million shares of Time Warner Inc. common stock if the
proposed merger between Turner and Time Warner Inc. is consummated.
Other Assets increased by $16.9 million during the nine months ended
September 30, 1995 due primarily to approximately $13.0 million of loans to
certain employees to cover tax obligations in connection with the Company's
Restricted Stock Purchase Program (see Note 8 to the Company's Condensed
Consolidated Financial Statements).
1998-1999 Share Repurchase Program. The Company is a party to a liquidity
----------------------------------
agreement (the "Stock Liquidation Agreement") with certain stockholders,
including H. Irving Grousbeck (a co-founder of the Company), and the partners of
certain general investment limited partnerships managed by Burr, Egan, Deleage &
Co. (collectively, the "Subject Stockholders"). Since 1989, the Company has
repurchased approximately 9.7 million shares of Common Stock, which are subject
to the Stock Liquidation Agreement (the "Redeemable Common Stock"), for an
aggregate purchase price of approximately $139.6 million. In addition, in a
series of negotiated transactions, the Company has converted approximately 11.9
million shares of Redeemable Common Stock into the same number of shares of
common stock. As a result, the Company's remaining obligation under the Stock
Liquidation Agreement has been reduced to the repurchase of approximately 16.7
million shares (currently representing approximately 8.1% of its outstanding
shares of common stock on a fully diluted basis, assuming conversion of the
outstanding shares of the Company's Series A Participating Convertible Preferred
Stock) of Redeemable Common Stock held by the Subject Stockholders, as well as
by the other stockholders who elected to participate in this aspect of the
liquidity program (collectively, the "Selling Stockholders"), on December 15,
1998 (or January 15, 1999, at each Selling Stockholder's election). The purchase
price for such redemption is equal to the greater of (i) the dollar amount that
a holder of common stock would receive per share of common stock upon a sale of
the Company as a whole pursuant to a merger or a sale of stock or, if greater,
the dollar amount a holder of common stock would then receive per share of
common stock derived from the sale of the Company's assets and subsequent
distribution of the proceeds therefrom (net of corporate taxes, including sales
and capital gains taxes in connection with such sale of assets), in either case
less a discount of 22.5% or (ii) the dollar amount equal to the net proceeds
which would be expected to be received by a stockholder of the Company from the
sale of a share of common stock in an underwritten public offering at the time
the shares are to be repurchased after, under certain circumstances, being
reduced by pro forma expenses and underwriting discounts. In the event the
Company is unable to perform its obligation to complete the 1998-1999 Share
Repurchase Program within six months of the payment date therefor, the Company
is obligated, at the request made within such six-month period by any one or
more Subject Stockholders or transferees holding an aggregate of at least 2.5
million shares of such transferred shares of Redeemable Common Stock, to use its
best efforts (subject to compliance with applicable laws and regulations) to
cause the sale of all or substantially all of the assets of the Company and,
following the consummation of such sale, to liquidate the Company.
Capital Resources. Historically, cash generated from the Company's
------------------
operating activities in conjunction with borrowings and, to a lesser extent,
proceeds from private equity issuances, have been sufficient to meet its debt
service requirements, stock repurchase obligations and to
<PAGE>
make capital expenditures, investments and acquisitions. The Company believes
that cash generated from operating activities, together with borrowings from
existing and future credit facilities and net proceeds from the Offering and
future equity issuances, will be sufficient to fund its future debt service
requirements and stock repurchase obligations and to make anticipated capital
expenditures, investments and acquisitions. However, there can be no assurance
in this regard. There can be no assurance that the terms available for any
future debt or equity financing would be favorable to the Company.
Recent Legislation
- ------------------
Under current FCC regulations, a rate complaint or certification of a local
franchising authority is required to regulate a system. In accordance with the
regulations, the Company either reduced rates under the FCC's benchmark
methodology or supported current rates by cost-of-service showings for these
regulated franchises. Certain positions taken by the Company in its cost-of-
service filing were based on provisions of the FCC's interim cost-of-service
rules that allow certain "presumptions" in the rules to be overcome on a case-
by-case basis. While the Company believes that its showings in this regard were
sufficient, the results of these cases were unknown at the time. As a result,
the Company recorded a non-cash revenue reserve in 1994.
The Company has settled all of its pending cost-of-service rate cases and
all of its benchmark Cable Programming Service tier rate cases through the
recently adopted Social Contract with the FCC. Benchmark Basic Broadcast Tier
("BBT") cases will continue to be resolved by the Company and local franchising
authorities. The Social Contract was adopted on August 3, 1995, and covers all
of the Company's existing franchises, including those that are currently
unregulated. It is the first comprehensive rate agreement involving cable
television ever approved by the FCC. The Social Contract is designed to: (1)
assure fair and reasonable rates for the Company's cable service customers; (2)
improve the Company's cable service by substantially upgrading the channel
capacity and technical reliability of its domestic cable systems; and (3) reduce
the administrative burden and costs of regulation for local governments, the FCC
and the Company. As part of the Social Contract, the Company agrees to, among
other things, (i) invest at least $1.35 billion in domestic system rebuilds and
upgrades from 1995 through 2000 to expand channel capacity and improve system
reliability and picture quality, (ii) make in-kind refunds to affected
subscribers with a retail value of approximately $9.5 million ( which is
currently fully reserved) and (iii) reduce all of its BBT regulated and
unregulated rates. The resolution of pending rate cases is without any finding
by the FCC of any wrongdoing by the Company.
The Company has the right to petition the FCC to incorporate future
acquisitions of cable television systems under the Social Contract. No
determination has been made at this time on whether or not to seek to include
the systems acquired in the Merger and the other acquisitions (recently closed
or pending) under the Social Contract.
<PAGE>
PART II
OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
A special meeting of the stockholders of the Company was held, following
due notice, on September 28, 1995 to approve the following proposals:
(1) A proposal to approve and adopt the Agreement and Plan of Merger,
dated as of November 18, 1994, as amended and restated as of August 1, 1995 (the
"Merger Agreement"), by and among Continental, Providence Journal Company
("Providence Journal"), The Providence Journal Company (a subsidiary of
Providence Journal formed to hold the non-cable businesses and assets of
Providence Journal), King Holding Corp. and King Broadcasting Company.
(2) A proposal to approve and adopt an increase in the number of
authorized shares of Class A Common Stock from 7,500,000 to 425,000,000.
(3) A proposal to approve and adopt an increase in the number of
authorized shares of Class B Common Stock from 7,500,000 to 200,000,000.
(4) A proposal to approve and adopt an increase in the number of
authorized shares of Preferred Stock from 2,700,000 to 200,000,000.
(5) The election of Amos B. Hostetter, Jr. and Lester Pollack as Class C
Directors of Continental to serve a three-year term.
(6) The ratification of the appointment by the Board of Directors of
Deloitte & Touche LLP as Continental's independent auditors for the current
fiscal year ending December 31, 1995.
All of the foregoing proposals were acted upon by a vote of 49,813,828
votes (representing 89.83% of the total authorized votes), with no votes cast
against or abstaining and no broker non-votes.
In addition to Messrs. Hostetter and Pollack, the terms of the following
directors continued after the meeting:
The term of the Class A Directors, Messrs. Henry F. McCance, Roy F.
Coppedge, III, Michael J. Ritter and Robert B. Luick, will expire at the 1996
Annual Meeting of Stockholders. The term of the Class B Directors, Messrs.
Timothy P. Neher, Vincent J. Ryan and Jonathan H. Kagan, will expire at the
1997 Annual Meeting of Stockholders. The terms of two additional Class C
directors, Stephen Hamblett and Trygve Myhren, began on October 5, 1995 and will
continue until the 1998 Annual Meeting of Stockholders.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Computation of Earnings (Loss) Per Share
(b) Reports on Form 8-K.
A report on Form 8-K was filed by the Company on October 18, 1995
(Item 2) regarding the consummation of the transactions contemplated
by the Merger Agreement and the merger of Providence Journal with and
into the Company.
27 Financial Data Schedules
-29-
<PAGE>
CONTINENTAL CABLEVISION, INC.
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 duly authorized.
CONTINENTAL CABLEVISION, INC.
(Registrant)
DATE November 14, 1995 BY /s/ P. Eric Krauss
P. Eric Krauss, Vice President
and Treasurer
DATE November 14, 1995 BY /s/ Richard A. Hoffstein
Richard A. Hoffstein, Senior Vice
President and Corporate Controller
<PAGE>
EXHIBIT 11.1
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF LOSS PER SHARE
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1994 1995 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Loss $(21,878) $(25,065) $(45,492) $(58,132)
Preferred Stock Preferences (9,438) (10,208) (27,375) (29,555)
-------- -------- -------- --------
Loss Applicable to Common Stockholders $(31,309) $(35,273) $(72,817) $(87,687)
======== ======== ======== ========
Loss Per Common Share $ (.27) $ (.30) $ (.64) $ (.75)
======== ======== ======== ========
Weighted Average Number of Shares
Outstanding During the Period 114,011 117,342 114,060 117,531
======== ======== ======== ========
</TABLE>
- -----------
(1) For purposes of calculating loss per common share for the three and nine
months ended September 30, 1994 and 1995, shares of the Series A Convertible
Preferred Stock were not assumed to be converted into shares of Common Stock
since the result would be anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JUN-30-1995
<PERIOD-END> SEP-30-1995 SEP-30-1995
<CASH> 10,502 11,564
<SECURITIES> 159,979 122,510
<RECEIVABLES> 74,019 58,212
<ALLOWANCES> 12,685 9,771
<INVENTORY> 78,367 62,517
<CURRENT-ASSETS> 0 0
<PP&E> 1,600,571 1,353,789
<DEPRECIATION> 1,241,611 1,114,095
<TOTAL-ASSETS> 3,005,915 2,483,639
<CURRENT-LIABILITIES> 0 0
<BONDS> 4,084,058 3,449,907
<COMMON> 1,012 989
0 0
11 11
<OTHER-SE> (1,729,566) (1,689,334)
<TOTAL-LIABILITY-AND-EQUITY> 3,005,915 2,483,639
<SALES> 0 0
<TOTAL-REVENUES> 992,493 342,445
<CGS> 0 0
<TOTAL-COSTS> 342,142 117,296
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 252,562 86,248
<INCOME-PRETAX> (85,421) (37,644)
<INCOME-TAX> 27,289 12,579
<INCOME-CONTINUING> (58,132) (25,065)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (58,132) (25,065)
<EPS-PRIMARY> (.75) (.30)
<EPS-DILUTED> 0 0
</TABLE>
