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 February 29, 1996
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 1-9676
Century Communications Corp.
(Exact name of registrant as specified in its charter)
New Jersey 06-1158179
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Locust Avenue
New Canaan, CT 06840
(Address of principal executive offices, including zip code)
(203) 972-2000
(Registrant's 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 [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Class A Common - 28,489,745 outstanding shares as of April 5, 1996
Class B Common - 45,406,115 outstanding shares as of April 5, 1996
<TABLE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<CAPTION>
February 29, May 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 157,376 $ 228,764
Accounts receivable, less allowance for doubtful
accounts of $2,955 and $2,144, respectively 47,814 24,516
Prepaid expenses and other current assets 7,328 4,919
Total current assets 212,518 258,199
Property, plant and equipment - net 540,469 508,043
Investment in marketable equity securities 51,677 46,671
Equity investments in cable television and cellular
telephone systems - net 122,772 220,563
Debt issuance costs, less accumulated amortization
of $10,327 and $7,695, respectively 29,675 31,020
Cable television franchises, less accumulated
amortization of $269,365 and $236,409. respectively 355,837 246,455
Wireless telephone licenses, less accumulated
amortization of $153,722 and $146,305, respectively 366,928 394,184
Excess of purchase price over value of net
assets acquired, less accumulated amortization
of $49,485 and $46,629, respectively 265,439 277,616
Other assets 25,107 21,666
$ 1,970,422 $ 2,004,417
See notes to consolidated financial statements
</TABLE>
<TABLE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(Amounts in thousands, except share data)
<CAPTION>
February 29, May 31,
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current maturities of long-term debt $ 5,729 $ 7,450
Accounts payable 48,738 68,937
Accrued interest payable 37,795 29,068
Other accrued expenses 45,813 42,668
Customers' deposits and prepayments 13,149 13,203
Total current liabilities 151,224 161,326
Long-term debt 1,781,790 1,741,143
Deferred income taxes 99,681 126,235
Minority interest in subsidiaries 173,782 157,625
Preferred stock, par value $.01 per share
authorized 100,000,000 shares, none issued - -
Subsidiary convertible redeemable preferred stock (at
aggregate liquidation value), par value $.01 per share,
authorized, issued and outstanding 102,187 shares
(redemption value of $1,823.00 per share) 179,440 169,733
Common stockholders' deficiency:
Common stock, par value $.01 per share:
Class A, authorized 400,000,000 shares,
issued and outstanding 59,812,616 and
59,484,685 shares, respectively 598 595
Class B, authorized 300,000,000 shares, issued
and outstanding 45,406,115 shares 454 454
Additional paid-in capital 175,987 175,545
Unrealized appreciation of marketable securities 19,422 14,416
Cumulative translation adjustments (2,455) -
Accumulated deficit (471,739) (405,051)
(277,733) (214,041)
Less: Cost of 31,354,622 and 31,337,530 shares respectively,
of Class A common stock in treasury (137,762) (137,604)
Total common stockholders' deficiency (415,495) (351,645)
$ 1,970,422 $ 2,004,417
See notes to consolidated financial statements
</TABLE>
<TABLE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share data)
<CAPTION>
Three Months Ended February 29, 28, Nine Months Ended February 29, 28,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Cable service income $ 91,774 $ 84,162 $ 272,635 $ 246,857
Cellular service income 27,938 21,967 82,573 60,964
Australian operations 2,342 - 4,512 -
122,054 106,129 359,720 307,821
Costs and expenses:
Cost of services - Cable 20,869 20,997 60,452 61,027
Cost of services - Cellular 7,235 6,150 19,772 16,644
Selling, general and administrative 30,710 30,968 89,329 81,841
Depreciation and amortization 48,815 42,619 143,715 123,169
Australian operations 12,678 - 21,621 -
120,307 100,734 334,889 282,681
Operating income 1,747 5,395 24,831 25,140
Gain on sale of assets 15 - 4,218 -
Interest expense 43,693 33,876 134,026 99,543
Other expense 1,430 - 6,430 -
Loss before income tax (benefit) and
minority interest (43,361) (28,481) (111,407) (74,403)
Income tax (benefit) (10,025) (1,121) (22,082) (3,849)
Loss before minority interest (33,336) (27,360) (89,325) (70,554)
Minority interest in loss of
subsidiaries 9,713 7,302 22,637 18,922
Net loss $ (23,623) $ (20,058) $ (66,688) $ (51,632)
Dividend requirement on subsidiary convertible
redeemable preferred stock $ (1,068) $ (1,039) $ (3,171) $ (3,363)
Loss applicable to common shares $ (24,691) $ (21,097) $ (69,859) $ (54,995)
Loss per common share $ (.33) $ (.23) $ (.95) $ (.61)
Weighted average number of common shares
outstanding during the period 73,807,000 89,795,000 73,689,000 89,634,000
See notes to consolidated financial statements
</TABLE>
<TABLE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' DEFICIENCY
(Amounts in thousands, except share data)
<CAPTION>
Common Stock Additional Unrealized Cumulative
Class A Class B Paid-In Gain on Equity Translation (Accumulate Treasury
Shares Dollars Shares Dollars Capital Securities Adjustments Deficit) Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
June 1, 1994 34,687,013 $ 347 66,177,130 $ 662 $ 105,301 $ - $ $(322,426) $(27,512) $(243,628)
Shares issued
in connection
with employee
incentive plans 445,025 4 1,219 - 1,223
Class A shares
purchased
by the Company (110,092) (110,092)
Unrealized
appreciation
of marketable
securities 14,416 14,416
Class A shares
issued in
conjunction with
acquisitions 3,581,632 36 43,839 43,875
Class B shares
converted to
Class A shares 20,771,015 208 (20,771,015) (208) -
Net Paid in
Capital
contributed
by minority
interests 29,263 29,263
Accretion in
liquidation
value of
subsidiary (4,419) (4,419)
preferred stock
Vesting of
subsidary
stock options 342 342
Net loss (82,625) (82,625)
Balance at
May 31, 1995 59,484,685 595 45,406,115 454 175,545 14,416 - (405,051) (137,604) (351,645)
Shares issued
in connection
with employee
incentive plans 327,931 3 2,373 2,376
Class A shares
purchased
by the Company (158) (158)
Accretion in
liquidation value
of subsidiary
preferred stock (3,171) (3,171)
Net paid in capital
contributed by
minority interests 1,240 1,240
Foreign currency
translation
adjustment (2,455) (2,455)
Unrealized
appreciation of
marketable securities 5,006 5,006
Net loss (66,688) (66,688)
Balance at
February
29,1996 59,812,616 $ 598 45,406,115 $ 454 $ 175,987 $19,422 $(2,455) $ (471,739) $(137,762) $(415,495)
See notes to consolidated financial statements
</TABLE>
<TABLE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<CAPTION>
Nine Months Ended February 29, 28
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from subscribers and others $ 424,555 $ 356,673
Cash paid to suppliers, employees
and governmental agencies (269,265) (218,921)
Debt issuance costs (5,023) (4,326)
Interest paid (103,857) (80,021)
NET CASH PROVIDED BY OPERATING ACTIVITIES 46,410 53,405
INVESTING ACTIVITIES:
Capital expenditures (71,952) (79,244)
Cable television franchise expenditures (2,417) (472)
Acquisition of other assets (5,257) (10,505)
Acquisition of cable television and
wireless telephone systems (62,819) (90,409)
Purchase of marketable securities - (5,350)
Capital contributed to equity investments (433) (1,361)
Capital returned from equity investments 4,818 2,641
NET CASH USED IN INVESTING ACTIVITIES (138,060) (184,700)
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 301,500 244,672
Principal payments on long-term debt (283,456) (55,946)
Issuance of common stock 2,376 560
Purchase of treasury stock (158) (92)
Subsidiary common stock rights offering - 49,490
NET CASH PROVIDED BY
FINANCING ACTIVITIES 20,262 238,684
NET (DECREASE) INCREASE IN CASH AND SHORT-TERM
INVESTMENTS (71,388) 107,389
CASH AND SHORT-TERM INVESTMENTS - BEGINNING
OF PERIOD 228,764 67,779
CASH AND SHORT-TERM INVESTMENTS - END $ 157,376 $ 175,168
OF PERIOD
See notes to consolidated financial statements
</TABLE>
<TABLE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Amounts in thousands)
<CAPTION>
Nine Months Ended February 29, 28
1996 1995
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (66,688) $ (51,632)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 143,715 123,169
Gain on sale of assets (4,218) -
Deferred income taxes - decrease (23,500) (6,450)
Minority interest in loss of subsidiaries (22,637) (18,922)
Non cash interest charges 21,442 13,919
Debt issuance costs paid (5,023) (4,326)
Other (255) 1,542
Change in assets and liabilities, net
of effects of acquired, exchanged and disposed
cable television and cellular telephone systems
Accounts receivable - (increase) (11,951) (9,363)
Prepaid expenses and other current assets -
(increase) (2,290) (4,514)
Accounts payable and accrued expenses -
increase 17,096 7,690
Customer deposits and prepayments -
increase 719 2,292
Total adjustments 113,098 105,037
Net cash provided by operating activities $ 46,410 $ 53,405
See notes to consolidated financial statements
</TABLE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying interim unaudited
consolidated financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the consolidated
financial position of Century Communications Corp. and subsidiaries (the
"Company") as of February 29, 1996 and the results of its consolidated
operations and cash flows for the nine months ended February 29, 1996 and
February 28, 1995. It is suggested that the statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's May 31, 1995 Annual Report on Form 10-K.
During the nine month period ended February 29, 1996, certain
subsidiaries which were previously accounted for by the equity method
were consolidated. There was no significant impact on the consolidated
statement of operations as a result of this change.
NOTE 2. INVESTMENT IN MARKETABLE EQUITY SECURITIES
The Company adopted the provisions of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" effective June 1,
1994. Under SFAS 115, the Company must classify its debt and marketable
equity securities in one of three categories: trading, available-for-
sale, or held-to-maturity. The Company has classified equity securities
as "Available-for-Sale".
Unrealized holding gains and losses, net of the related income tax effect
on the available-for-sale securities are excluded from earnings and are
reported as a separate component of stockholders' deficiency until
realized. The Company recorded an unrealized gain of $5,006,000 and
$22,086,000 during the nine months ended February 29, 1996 and February
28, 1995, respectively.
A decline in the market value of any available-for-sale or held-to-
maturity security below cost that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis
for the security. The Company recorded such a writedown during the
fiscal year ended May 31, 1991 of $21,702,000.
NOTE 3. REVENUE RECOGNITION
Cable service income includes earned subscriber service revenues and
charges for installation and connections, net of programmers' share of
service revenues. Such programmers' shares netted against service income
amounted to $69,042,000 and $48,924,000 for the nine months ended
February 29, 1996 and February 28, 1995, respectively.
Cellular telephone service income includes service revenues and charges
for installation and connections, net of land line charges of $13,743,000
and $10,736,000 for the nine months ended February 29, 1996 and February
28, 1995, respectively.
NOTE 4. REGISTRATION STATEMENTS
On October 26, 1993, the Company filed a registration statement with the
Securities and Exchange Commission relating to the shelf registration of
$500,000,000 of the Company's debt securities, augmenting the remaining
$2,000,000 under a prior shelf registration. The registration statement
became effective July 14, 1994. The debt securities may be issued from
time to time in series on terms to be specified in one or more prospectus
supplements at the time of the offering. If so specified with respect to
any particular series, the debt securities may be convertible into shares
of the Company's Class A Common Stock. As of April 10, 1996, there was
$252,000,000 available for issuance under this registration.
During fiscal 1994, Centennial filed a shelf registration statement with
the SEC for up to 8,000,000 shares of Centennial's Class A Common Stock
that may be offered from time to time in connection with acquisitions.
At April 10, 1996, there were 4,465,896 shares available for issuance
under this registration statement.
Centennial on April 5, 1995, filed a shelf registration statement with
the SEC for the issuance of $500,000,000 of Centennial's debt securities.
The debt securities may be issued from time to time in series on terms to
be specified in one or more prospectus supplements at the time of the
offering. If so specified with respect to any particular series, the
debt securities may be convertible into shares of Centennial's Class A
Common Stock. As of April 10, 1996, $400,000,000 remained available for
issuance.
NOTE 5. FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is the
applicable local currency. The translation of the applicable foreign
currency into U.S. dollars is performed for the balance sheet accounts
using current exchange rates in effect at the balance sheet date and for
revenue and expense accounts using a weighted average exchange rate
during the period. The gains and losses, net of applicable deferred
income taxes, resulting from such translation are included in
stockholders' equity.
NOTE 6. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
The table below summarizes non-cash reclassifications that occurred
during the nine months ended February 29, 1996 and February 28, 1995.
The reclassifications result from the Company's acquisitions and
exchanges and consolidation of entities previously accounted for by the
equity method of accounting: (in thousands)
Nine Months Ended February 29,
28,
1996 1995
Current assets $ 11,479 $ --
Property, plant and equipment 10,420 --
Equity investments (91,200) --
Cable television franchises 105,637 --
Wireless telephone licenses 6,138 --
Goodwill (4,323) 34,384
Other assets (987) --
$ 37,164 $34,384
Current liabilities $ 23,915 $ --
Deferred taxes (1,454) 34,384
Minority interest 15,918 --
Additional paid in capital 1,240 --
Translation adjustments (2,455) --
$ 37,164 $34,384
NOTE 7. ACQUISITIONS, EXCHANGES, DISPOSITIONS
On March 2, 1993, the Company and Citizens ("the Century/Citizens Joint
Venture") entered into an agreement to acquire the assets of two cable
television systems which serve in the aggregate approximately 44,000
primary basic subscribers. The aggregate purchase price for the cable
television systems is $92,900,000 subject to adjustment. Citizens and
the Company have agreed that they will own and operate the cable
television systems in a joint venture structure in which each company
will have a 50% ownership interest. The obligations of the
Century/Citizens Venture and the seller under the agreement are subject
to the satisfaction of various closing conditions. On September 30,
1994, the Century/Citizens Joint Venture completed the acquisition of one
of these cable television systems serving approximately 24,000 primary
basic subscribers. On December 1, 1995, the second acquisition serving
approximately 20,000 primary basic subscribers was completed. The
purchase price of approximately $51,900,000 at September 30, 1994 and
$41,000,000 at December 1, 1995 was funded by the Company and Citizens
equally.
On November 28, 1994, the Company entered into an agreement to acquire
the cable television systems serving Anaheim, Hermosa Beach/Manhattan
Beach, Fairfield and Rohnert Park/Yountville, California for an aggregate
purchase price of $286,000,000, subject to adjustment, payable in cash.
At September 30, 1994, such cable television systems served an aggregate
of approximately 135,000 primary basic subscribers. The obligation of
the Company to consummate this transaction is subject to certain closing
conditions, including the approval of the relevant franchise authorities
and other regulatory approvals. The Company anticipates completing this
acquisition during the second calendar quarter of 1996.
On June 30, 1995, Centennial acquired the non-wireline cellular telephone
systems serving (a) Newtown, LaPorte, Starke, Pulaski, Jasper and White,
Indiana, (b) Kosciusko, Noble, Steuben and Lagrange, Indiana (c)
Williams, Definance, Henry and Paulding, Ohio and (d) Copiah, Simpson,
Lawrence, Jefferson Davis, Walthall and Marion, Mississippi, representing
an aggregate of approximately 608,100 Net Pops. The above-described
systems were acquired by Centennial in exchange for Centennials' non-
wireline cellular telephone systems serving the Roanoke, Virginia MSA,
the Lynchburg, Virginia MSA, North Carolina RSA #3 and Iowa RSA #5,
representing an aggregate of approximately 644,000 Net Pops.
Simultaneously with the consummation of the transaction described above,
Centennial sold its 72.2% interest in the non-wireline cellular telephone
system serving the Charlottesville, Virginia MSA, representing an
aggregate of approximately 94,700 Net Pops, for a cash purchase price of
approximately $9,914,000 subject to adjustment. The Company recognized a
gain of approximately $4,176,000 as a result of the sale.
Centennial was the successful bidder for one of two Metropolitan Trading
Area (MTA) licenses to provide broadband personal communications services
("PCS") in the Commonwealth of Puerto Rico and the U.S. Virgin Islands.
The licensed area represents approximately 3,623,000 Net Pops. The
amount of the final bid submitted and paid by Centennial was $54,672,000.
Centennial currently estimates that the cost to build out the
infrastructure of the systems will be approximately $75,000,000, in the
aggregate over the next three years. Centennial is exploring various
sources of external financing including but not limited to bank
financing, joint ventures, partnerships and placements of equity
securities of Centennial. Centennial used a portion of the net proceeds
from the sale of the 10 1/8% Notes to pay the balance of the purchase
price for the license.
On October 31, 1995, Centennial acquired (i) a 94% interest in the non-
wireline cellular telephone system serving the Lafayette, Louisiana MSA,
representing approximately 205,700 Net Pops, in exchange for Centennial's
non-wireline cellular telephone system serving the Jonesboro, Arkansas
RSA (comprising approximately 205,000 Net Pops), the license rights and
assets located in and covering Desoto and Red River Parishes of Louisiana
3 RSA (comprising approximately 34,700 Net Pops), the license rights and
assets located in and covering a section of Morehouse Parish of Louisiana
2 RSA (comprising approximately 24,100 Net Pops) and a cash payment by
Centennial of approximately $5,580,000, subject to adjustment, and (ii)
an additional 14% minority interest in the Elkhart, Indiana RSA and
additional 13% minority interest in the Lake Charles, Louisiana MSA for a
cash payment of approximately $2,951,000.
The summary pro forma information includes the accounts and operations of
the Company and all acquisitions and pending acquisitions described
above, in each case as if such acquisitions had been consummated as of
the beginning of each of the respective periods for the combined
statements of operations (amounts in thousands, except per share data and
unaudited).
Nine Months Ended February 29, 28,
1996 1995
Revenues $405,355 $380,051
Net loss (89,896) (75,844)
Loss per common share (1.22) (.81)
Pro forma loss per common share for the nine months ended February 29,
1996 and February 28, 1995 is calculated on a fully diluted basis using
the pro forma average number of common shares outstanding during the
period, including common stock equivalents.
NOTE 8. LONG-TERM DEBT
(a) On August 7, 1995, CCC-I, Inc. ("CCC-I"), a subsidiary of the
Company, entered into a three year, $525,000,000 unsecured revolving
credit facility which converts to a five year term loan. The proceeds of
the facility were used by CCC-I to repay existing indebtedness of CCC-I
and will be used for working capital and general corporate purposes. The
repayment by CCC-I of its existing indebtedness discharged all of CCC-
I's obligations under its then-existing credit agreement and, as a
result, such agreement was terminated. The Company incurred a non cash
charge of $2,647,000 reflecting the write off of debt issuance costs
associated with the replaced credit agreement. The interest rates
payable on borrowings under the new credit facility are based on, at the
election of CCC-I, (a) the base rate of interest announced by Citibank,
N.A. plus 1/8% to 7/8% per annum based upon certain conditions, (b) the
London Interbank Offering Rate plus 1 1/8% to
1 7/8% per annum based upon certain conditions, or (c) the average
consensus bid rates of certificate of deposit dealers for the purchase at
face value of certificates of deposit of Citibank, N.A. plus 1 1/4% to 2%
per annum based on certain conditions.
The agreement expires on August 31, 2003. The credit facility restricts
the incurrence of certain additional debt of CCC-I, limits the ability of
CCC-1 to pay dividends to the Company and requires that certain operating
tests be met.
(b) On July 31, 1995, a subsidiary of the Company, Century Venture Corp.
("CVC") entered into a three year, $80,000,000 revolving credit facility
which converts to a five year term loan. The proceeds of the facility
were used by CVC to repay existing indebtedness of CVC and will be used
for working capital and general corporate purposes. The repayment by
CVC of its existing indebtedness discharged all of CVC's obligations
under its then-existing credit agreement and, as a result, such agreement
was terminated. The interest rates payable on borrowings under the new
credit facility are based on, at the election of CVC, (a) "C/D Base Rate"
plus an applicable margin, as defined or (b)"Eurodollar Base Rate" plus
an applicable margin as defined or (c) "ABR" rate as defined.
The agreement expires on February 28, 2004. The credit facility
restricts the incurrence of certain additional debt of CVC, limits the
ability of CVC to pay dividends to the Company and requires that certain
operating tests be met.
NOTE 9. REGULATORY MATTERS
On February 1, 1996, Congress passed S.652, "The Telecommunications Act
of 1996" ("Act"), which was signed into law by the President. The new
law will alter federal, state and local laws and regulations regarding
telecommunications providers and services, including the cable television
industry. The Act substantially deregulates (except for basic service)
cable service rates over a three year period. Implementing regulations
of the Act are currently being written. The effect that the Act will
have on the Company cannot be determined at this time.
<TABLE>
NOTE 10. SEGMENT INFORMATION
Information about the Company's operations in its three business segments
for the nine months ended February 29, 1996 and February 28, 1995
is as follows (amounts in thousands):
<CAPTION>
Nine Months Ended February 29, 28, 1996 1995
<S> <C> <C>
Gross revenues:
Cable television $ 272,755 $ 246,988
Cellular telephone 82,573 60,964
Australian operations 4,512 -
Eliminations (120) (131)
$ 359,720 $ 307,821
Operating income (loss):
Cable television $ 58,618 $ 46,724
Cellular telephone (16,097) (21,453)
Australian operations (17,570) -
Eliminations (120) (131)
$ 24,831 $ 25,140
Net loss:
Cable television $ (39,406) $ (41,740)
Cellular telephone (19,574) (26,802)
Australian operations (25,035) -
Eliminations 17,327 16,910
$ (66,688) $ (51,632)
Assets, at end of period:
Cable television $ 1,310,912 $ 1,158,296
Cellular telephone 779,257 703,832
Australian operations 143,738 -
Eliminations (263,485) (131,900)
$ 1,970,422 $ 1,730,228
Depreciation and amortization:
Cable television $ 90,141 $ 76,522
Cellular telephone 53,574 46,647
Australian operations - -
$ 143,715 $ 123,169
Capital expenditures:
Cable television $ 45,059 $ 64,560
Cellular telephone 26,893 14,684
Australian operations - -
$ 71,952 $ 79,244
The Company's consolidated financial statements include three distinct
business segments. Century Communications owns, operates and
develops domestic cable television systems. Centennial Cellular Corp., a 32.7%
owned subsidiary, owns, operates and invests in wireless telephone systems.
The Company's Australian operations are currently in the development stage
and not yet fully operational. The Australian operations will operate and invest
in pay television services in Australia, including the development and
distribution of programming. The information provided below is that of Century
Communications before the consolidation of Centennial Cellular Corp. and Australia.
Centennial Cellular Corp, the Australian operations, as well as consolidated
information.
</TABLE>
<TABLE>
NOTE 10. SEGMENT INFORMATION (continued)
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
February 29, 1996
(Amounts in thousands)
<CAPTION>
Century
Communications
Corp. before
consolidation of Centennial Reclassifications
Centennial Cellular Australian and
and Australia Corp. Operations Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term
investments $ 84,181 $ 72,501 $ 694 $ - $ 157,376
Accounts receivable - net 17,771 18,023 12,020 - 47,814
Prepaid expenses and
other current assets 5,081 2,247 - - 7,328
Total current assets 107,033 92,771 12,714 - 212,518
Property, plant and equipment -
net 442,504 80,717 17,248 - 540,469
Investment in marketable
equity securities 51,677 - - - 51,677
Investment in Centennial Cellular
Corp, at cost 139,418 - - (139,418) -
Equity investment in cable television
and cellular telephone systems
- net 133,991 101,486 13,453 (126,158) 122,772
Debt issuance costs - net 21,670 8,005 - - 29,675
Cable television franchises -
net 255,514 - 100,323 - 355,837
Wireless telephone licenses -
net - 366,928 - - 366,928
Excess of purchase price over
value of net assets
acquired - net 141,372 124,067 - - 265,439
Other assets 17,733 5,283 - 2,091 25,107
$ 1,310,912 $ 779,257 $ 143,738 $ (263,485) $ 1,970,422
</TABLE>
<TABLE>
NOTE 10. SEGMENT INFORMATION (continued)
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
(CONTINUED)
February 29, 1996
(Amounts in thousands)
<CAPTION>
Century
Communications
Corp. before
consolidation of Centennial Reclassifications
Centennial Cellular Australian and
and Australia Corp. Operations Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
Current liabilities:
Current maturities of
long-term debt $ 50 $ - $ 5,679 $ - $ 5,729
Accounts payable and
accrued expenses 86,808 26,596 18,942 - 132,346
Customers' deposits
and prepayments 8,553 4,596 - - 13,149
Total current liabilities 95,411 31,192 24,621 - 151,224
Long-term debt 1,431,790 350,000 - - 1,781,790
Deferred liability 5,000 3,140 - (8,140) -
Deferred income taxes 50,813 48,868 - - 99,681
Minority interest
in subsidiaries 53,971 - 15,016 104,795 173,782
Due to parent - - 133,991 (133,991) -
Convertible redeemable
preferred stock - 179,440 - - 179,440
Second series convertible
redeemable preferred stock - 6,985 - (6,985) -
Common stockholders'
equity (deficiency):
Common stock, par
value $.01 per share:
Class A 598 160 - (160) 598
Class B 454 105 - (105) 454
Additional paid-in capital 83,781 386,107 - (293,901) 175,987
Unrealized gain on investment
in equity securities 19,422 - - - 19,422
Translation adjustments - - (2,455) - (2,455)
Accumulated deficit (292,566) (221,939) (27,435) 70,201 (471,739)
(188,311) 164,433 (29,890) (223,965) (277,733)
Less: Cost of Class A common
shares in treasury (137,762) (1,801) - 1,801 (137,762)
Note receivable - (3,000) - 3,000 -
Total common stockholders'
equity (deficiency) (326,073) 159,632 (29,890) (219,164) (415,495)
$ 1,310,912 $ 779,257 $ 143,738 $ (263,485) $ 1,970,422
</TABLE>
<TABLE>
NOTE 10. SEGMENT INFORMATION (continued)
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS FINANCIAL DATA
NINE MONTH PERIOD ENDED FEBRUARY 29, 1996
(Amounts in thousands)
<CAPTION> Century
Communications
Corp. before
consolidation of Centennial Reclassification
Centennial Cellular Australian and
and Australia Corp. Operations Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenues: $ 272,755 $ 82,573 $ 4,512 $ (120) $ 359,720
Costs and expenses:
Costs of services 60,452 19,772 - - 80,224
Selling, general and
administrative 63,544 25,324 461 - 89,329
Depreciation and
amortization 90,141 53,574 - - 143,715
Australian operations - - 21,621 - 21,621
214,137 98,670 22,082 - 334,889
Operating income (loss) 58,618 (16,097) (17,570) (120) 24,831
Income from equity investment - 7,656 - (7,656) -
Interest 108,198 24,793 1,035 - 134,026
Gain on sale of assets - 4,218 - - 4,218
Other expense - - 6,430 - 6,430
Loss before income tax
provision benefit
and minority interest (49,580) (29,016) (25,035) (7,776) (111,407)
Income tax benefit (12,809) (9,273) - - (22,082)
Loss before minority
interest (36,771) (19,743) (25,035) (7,776) (89,325)
Minority interest in (income)
loss of subsidiaries (2,635) 169 - 25,103 22,637
Net Loss $ (39,406) $ (19,574) $ (25,035) $ 17,327 $ (66,688)
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations (Dollar Amounts in Thousands except subscriber and
share data)
Historically, the Company has earned its revenues primarily from
subscriber fees for services provided by its cable television systems and
from the operations of four radio stations. In addition, the Company's
32.7% owned subsidiary, Centennial Cellular Corp. ("Centennial"),
provides cellular telephone service to subscribers in three geographic
areas. Centennial also has minority investments in six cellular
telephone systems accounted for by Centennial under the equity method of
accounting. In accordance with Financial Accounting Standards Board
Statement No. 94, the accounts of Centennial are consolidated with those
of the Company for financial reporting purposes for all periods
presented. During the nine month period ended February 29, 1996, the
Company for accounting and reporting purposes, consolidated the
operations of East Coast Pay Television Pty. Limited, an Australian
Company ("ECT"). ECT is pursuing opportunities to own, operate and
invest in pay television services in Australia. (See Investments -
Australian Pay Television).
Due to actions by the Federal Communications Commission (the "FCC"),
relating to the reinstitution of rate regulation, as hereinafter
described, the rate structure of the cable television industry, including
the Company's business, has been negatively affected. In view of the
continuing changes and recently published revisions to the FCC rate
regulations, the Company is currently unable to assess the full impact of
the 1992 Cable Act upon its future financial results. The Company
implemented new rate and service offerings whereby subscribers are given
the choice of buying certain programming services individually on a per
channel basis or as part of a package of premium services at a discounted
price ("A La Carte Service Offerings"). Several of the Company's
systems, along with numerous other cable operators, received specific
inquiries from the FCC regarding their implementation of this method of
offering cable services. In its decisions on the inquiry letters, the FCC
admitted that previous guidelines which cable operators, including the
Company, relied upon may have been confusing. During December 1994, the
FCC responded to certain of the letters of inquiry related to A La Carte
Service Offerings. The FCC has, through such responses, effectively
determined that A La Carte Service Offerings limited to six channels or
less will be considered New Product Tiers under the FCC rules (see
Regulation). A La Carte Service Offerings in systems serving
approximately 84% of the Company's subscribers qualify as New Product
Tiers. A La Carte Service Offerings in excess of six channels have not
been given New Product Tier status and it is the intent of the FCC to
treat such offerings as regulated tiers of cable programming service,
retroactively to the date of initial regulation. Such treatment,
affecting approximately 16% of the Company's primary basic subscribers,
would result in further reductions in the Company's rates for such
services as well as refunds for previously provided services. The Company
has appealed this determination to the FCC. The outcome of such appeal
cannot be determined at this time.
During July and August 1994, further adjustments to the Company's rates
were made in certain of the Company's cable television systems pursuant
to the FCC's second revision to its rate formula. As a result, the
Company experienced a further decrease in the regulated portion of its
services for the fiscal year ended May 31, 1995. Under the regulatory
price cap mechanism established by the FCC, a portion of the decline was
offset in part, by allowable rate increases during fiscal 1995. Such
increases relate to adjustments for the annual change in the Gross
National Producers Price Index as well as certain increases in
programming fees, the addition of new channel service and so called
"external costs" as delineated in the rules. The bulk of such price
adjustments became effective during the first quarter of the current
fiscal year.
On February 1, 1996, Congress passed S.652, "The Telecommunications Act
of 1996" ("Act"), which was signed into law by the President. The new
law will alter federal, state and local laws and regulations regarding
telecommunications providers and services, including the cable television
industry. The Act substantially deregulates (except for basic service)
cable service rates over a three year period. Implementing regulations
of the Act are currently being written. The effect that the Act will
have on the Company cannot be determined at this time. See "Recent
Legislative Development".
Nine months Ended February 29, 1996 and February 28, 1995
Revenue for the nine months ended February 29, 1996 increased by $51,899
or 16.9%, over the nine months ended February 28, 1995. Revenue from
cable television operations increased by $30,290 or 12.3%, over the
corresponding nine months ended February 28, 1995 as a result of
increases in the number of cable television subscriptions. Acquisitions
of cable television systems accounted for $15,079 of the increase or
%. The increase was partially offset by a decline in revenues related to
the implementation of rate regulations established by the FCC pursuant to
the 1992 Cable Act. Average primary basic cable television subscribers
("Basic Subscribers") for the twelve months ended February 29, 1996, were
approximately 1,068,000 as compared to approximately 968,000 during the
twelve-month period ended February 28, 1995, an increase of 10.3%. The
impact of acquisitions of cable television systems accounted for 42.0% of
the increase. Average monthly revenue per Basic Subscriber, including
programmer's share of such revenue, was approximately $34.42 during the
twelve months ended February 29, 1996, as compared to approximately
$33.29 during the comparable prior twelve month period, an increase of
3.4%. The Australian operations accounted for $4,512 of the total
increase in revenue.
Revenue from cellular telephone operations for the nine months ended
February 29, 1996 increased by $21,609 or 35.4%, over the nine months
ended February 28, 1995. The increase in revenue was the result of
growth in subscriptions to and related increased usage of cellular
telephone service. Acquisitions of 6 cellular telephone markets
accounted for approximately $13,871 of the increase in cellular telephone
revenue. The increase more than offset the revenue which was associated
with cellular telephone markets sold or exchanged during the current nine
month period of $2,433..
Costs and expenses excluding depreciation and amortization for the nine
months ended February 29, 1996 increased by $10,041 or 6.3% over the nine
months ended February 28, 1995. Cost of services for the nine months
ended February 29, 1996 increased by $2,553 or 3.3% over the
corresponding period in the prior year, while selling, general and
administrative expense increased by $7,488 or 9.2%.
Cost of services of the Company's cable television operations declined by
$575 or 1.0%, while selling, general and administrative expenses of the
Company's cable television operations for the nine months ended February
29, 1996 increased to $64,005, an increase of $1,290 or 2.1% over the
$62,715 in the nine months ended February 28, 1995. However, the
Company's recent cable television acquisitions accounted for $3,211 or
249% of the $1,290 increase in selling, general and administrative
expense.
Cost of services related to the cellular telephone operations during the
nine months ended February 29, 1996 was $19,772 , an increase of $3,128
or 18.8% as compared to the nine months ended February 28, 1995. The
reason for the increase was an increase in the number of telephone units
sold and the variable costs associated with a larger revenue and
subscription base as well as increased cellular coverage areas resulting
from the continued expansion of Centennial's network and acquisitions
completed during the fiscal year ended May 31, 1995 and the nine months
ended February 29, 1996.
Selling, general and administrative expenses related to the cellular
telephone operations rose to $25,324, an increase of $6,198 or 32.4%
above the $19,126 recorded during the nine months ended February 28,
1995. Primarily, the variable costs associated with a larger revenue
base and acquisitions made during fiscal 1995 contributed to the
increase. Secondarily, the increase was the result of the Company
increasing its managerial, customer service and sales staff to
accommodate the current and anticipated growth of its wireless telephone
business.
The Company anticipates continued increases in the cost of services and
selling, general and administrative expenses as the growth of its
cellular telephone business continues. In addition, the Company expects
that the start-up and development of its recently acquired wireless
telephone markets will contribute to an increase in these costs and
expenses.
Depreciation and amortization for the nine months ended February 29, 1996
increased by $20,546 or 16.7% over the nine months ended February 28,
1995. The cellular telephone operations and acquisitions accounted for
$6,927 of this increase, the cable television operations accounted for
$13,619.
The Australian operations incurred expenses of $21,621, including $11,909
of depreciation and amortization.
Operating income for the nine months ended February 29, 1996 declined by
$309 or 1.2% below the nine months ended February 28, 1995. The cellular
operating loss for the nine months ended February 29, 1996 of $16,067
decreased by $5,356 or 25% from the loss of $21,453 for the nine months
ended February 28, 1995. The Australian operating loss for the nine
months ended February 29, 1996 was $17,109.
The Company has recorded $6,430 of other expense which represents certain
minority investments in Australia accounted for by the Company using the
equity method of accounting.
Interest expense for the nine months ended February 29, 1996 increased by
$34,483 or 34.6% as compared with the nine months ended February 28, 1995
reflecting higher average debt levels and secondarily, higher interest
rates in effect during the nine months ended February 29, 1996. In
addition, the Company incurred a non cash charge of $2,647 reflecting the
write off of debt issuance costs associated with a bank credit agreement
refinanced during the nine months ended February 29, 1996. For the nine
months ended February 29, 1996, the average debt outstanding was
approximately $1,745,000 or $360,000 above the average outstanding debt
balance of $1,385,000 during the nine months ended February 28, 1995.
The cellular operations accounted for $100,000 or 27.8% of the increase.
The Company's weighted average interest rate excluding borrowings of
Centennial and the Company's 50% owned joint ventures was approximately
10.4% in the nine months ended February 29, 1996 as compared to
approximately 9.8% in the nine months ended February 28, 1995. The
increase in such rates is primarily the result of a one time non cash
charge of $2,647 of deferred debt issuance costs as a result of the
Company's refinancing of a bank credit facility (see Financing and
Capital Formation - The Company). Secondarily, short-term interest rates
of the Company's variable rate bank credit agreements increased from 6.6%
at February 28, 1995 to 6.8% at February 29, 1996. Additionally, as
described below interest expense related to the Company's interest rate
hedge agreements declined during the nine months ended February 29, 1996.
During the nine months ended February 29, 1996, the Company incurred
interest expense of $741 in respect of the interest rate hedge
transactions compared to interest expense of $2,372 in respect of the
interest rate hedge transactions in the nine months ended February 28,
1995. All of the Company's obligations under interest rate hedge
agreements expired during the nine months ended February 29, 1996. See
"Liquidity and Capital Resources". Centennial's weighted average
interest rate increased to 9.5% for the nine months ended February 29,
1996 from 9.1% for the nine months ended February 28, 1995.
After losses attributable to minority interests in subsidiaries for the
nine months ended February 29, 1996, a pretax loss of $88,770 was
incurred, as compared to a pretax loss of $55,481 for the nine months
ended February 28, 1995. The income tax benefit of $22,082 for the nine
months ended February 29, 1996 represents an adjustment to the deferred
tax liability of the Company, offset by current state and local taxes for
the period. These tax benefits are non-cash in nature and are
attributable to the Company's acquisitions and results of operations,
calculated in accordance with the Financial Accounting Standards Board
Statement No. 109 for the nine months ended February 29, 1996 and
February 28, 1995.
The net loss for the nine months ended February 29, 1996 of $66,688
represents an increase of $15,056 or 29.2% over the loss for the nine
months ended February 28, 1995. The Company expects net losses to
continue until such time as the operations of the cellular telephone
systems, Australian operations, cable television systems and investments
in plant associated with rebuilds and extensions of its cable television
systems and expansion of the cellular telephone system infrastructure
generate sufficient earnings to offset the associated costs of
acquisitions and operations described above.
Three Months Ended February 29, 1996 and February 28, 1995
Revenue for the three months ended February 29, 1996 increased by $15,925
or 15% over the three months ended February 28, 1995. Revenue from cable
television operations increased by $9,954 or 11.8% over the corresponding
prior three month period as a result of increases in the number of cable
television subscriptions and the acquisition of cable television systems
(see Acquisitions - Cable Television). The Australian operations
accounted for $2,342 of the increase.
Revenue from cellular telephone operations for the three month period
ended February 29, 1996 increased by $5,971 or 27.2% over the three
months ended February 28, 1995, primarily as a result of acquisitions and
growth in subscriptions to cellular telephone services. The increase
more than offset revenue which was associated with cellular telephone
markets sold or exchanged during the current nine month period.
Costs and expenses excluding depreciation and amortization for the three
month period ended February 29, 1996 increased by $699 or 1.2% over the
three months ended February 28, 1995. The cellular telephone operations
accounted for $2,759 or all of the consolidated increase. Costs of
services for the three months ended February 29, 1996 in the Company's
cable operations declined by $128, while expenses increased by $1,085 in
the cellular telephone operations. As a result, on a consolidated basis,
cost of services increased by $957 over the corresponding period in the
prior year. Selling, general and administrative expenses of the
Company's cable operations declined by $1,932 while the cellular
operations increased by $1,674 resulting in a consolidated decline of
$258, below the three months ended February 28, 1995. Depreciation and
amortization expense for the three months ended February 29, 1996
increased by $6,196 or 14.5% over the comparable period in the prior
year. The cellular telephone operations accounted for $1,411 of this
increase.
During the three months ended February 29, 1996, The Australian
operations incurred expenses of $12,678. Such expenses include $6,039 of
depreciation and amortization.
Operating income for the three months ended February 29, 1996 decreased
by $3,648 or 67.6% below the corresponding three months ended February
28, 1995. The cellular operating loss for the three months ended
February 29, 1996 of $6,571 decreased by $1,801 or 21.5% below the
corresponding 1995 three month period.
The Company has recorded $1,430 of other expense which represents certain
minority investments in Australia accounted for by the Company using the
equity method of accounting.
Interest expense for the three months ended February 29, 1996 increased
by $9,817 or 29.0% as compared with the three months ended February 28,
1995 reflecting higher debt levels. The Company's weighted average
interest rate excluding borrowings of Centennial and the Company's 50%
owned joint ventures, increased to 10.0% for the three months ended
February 29, 1996 from 9.7% for the three months ended February 28, 1995.
Centennial's weighted average interest rate was 9.5% for the three months
ended February 29, 1996 and 9.1% for the three months ended February 28,
1995.
After losses attributable to minority interests in subsidiaries for the
three months ended February 29, 1996, a pretax loss of $33,648 was
incurred, as compared to a pretax loss of $21,179 in the three months
ended February 28, 1995. The income tax benefit of $10,025 for the three
months ended February 29, 1996 represents an adjustment to the deferred
tax liability of the Company offset by current state and local taxes for
the period. These tax benefits are non-cash in nature and are
attributable to the Company's acquisitions and results of operations,
calculated in accordance with the Financial Accounting Standards Board
Statement No. 109 for the three months ended February 29, 1996. The tax
benefit of $1,121 for the three months ended February 28, 1995 was
calculated in accordance with Financial Accounting Standards Board
Statement No. 109.
The net loss of $23,623 for the three months ended February 29, 1996
represents an increase of $3,565 or 17.8% over the loss for the
corresponding three month period in the prior fiscal year. The Company
expects net losses to continue until such time as operations of cellular
telephone systems, Australian operations, cable telephone systems and
investments in plant associated with rebuilds and extensions of its cable
television systems and expansion of the cellular telephone system
infrastructure generate sufficient earnings to offset the associated
costs of the acquisitions and operations described above.
Liquidity and Capital Resources (Dollar Amounts in Thousands except Share
Data)
The Company has grown through acquisitions as well as upgrading,
extending and rebuilding its existing cable television systems. In
addition, Centennial, since August of 1988, has acquired 28 cellular
telephone markets which it owns and manages, all of which are considered
to be in the early development phase of operations. Centennial has also
acquired equity investment interests in certain other cellular telephone
systems. On March 13, 1995, Centennial successfully bid for one of two
Metropolitan Trading Area (MTA) licenses to provide broadband personal
communications services ("PCS") in the Commonwealth of Puerto Rico and
the U.S. Virgin Islands. Since both the cable television and wireless
telephone activities are capital intensive, the Company and Centennial
continue to seek various sources of financing to meet their needs,
including growth in internally generated cash, bank financing, joint
ventures and partnerships and public and private placements of debt and
equity securities of the Company and its subsidiaries. Subsidiaries of
the Company have entered into credit agreements with various bank groups
and private lending institutions providing for an aggregate of
approximately $955,000 of potential borrowing capacity as of April 10,
1996.
The Company's internally-generated cash along with third party financing,
primarily bank borrowings and the issuance of public debentures, has
enabled it to fund its working capital requirements, capital expenditures
for property, plant and equipment, acquisitions, investments and debt
service. In addition, Centennial has funded certain of its obligations
through the sale and issuance of its equity securities to third parties.
The Company has funded the principal obligations on its long-term
borrowings by refinancing the principal with expanded bank lines of
credit, through the issuance of debt securities in the public market and
through private institutions as well as internally generated cash flow.
Although to date the Company has been able to obtain financing on
satisfactory terms, there can be no assurance that this will continue to
be the case in the future. Certain of the debt instruments to which the
Company and its subsidiaries are a party impose restrictions on the
incurrence of indebtedness.
The Company's future commitments for property, plant and equipment
consist of usual upgrades, extensions, betterments and replacements of
cable plant and equipment and expenditures for the wireless telephone
systems. During the nine months ended February 29, 1996, the Company
made capital expenditures of $71,952 as compared to $79,244 for the
corresponding prior nine month period ended February 28, 1995. During
the nine months ended February 29, 1996, Centennial made capital
expenditures of $26,893 or 37.4% of the Company's total capital
expenditures. As the Company completes capital projects started in prior
fiscal years, it is anticipated that the level of capital expenditures
for its cable television systems exclusive of those related to
acquisitions described herein will decline from the prior fiscal year to
an annualized rate of approximately $70,000. Various construction
projects have been undertaken to expand the operations of certain cable
television systems into adjacent and previously unbuilt areas and to
rebuild and upgrade its existing cable system plant. The Company is
currently considering the further upgrade of its cable television
distribution systems in certain of its cable television markets to expand
its capability for the delivery of video, voice and data transmission.
Should the Company undertake such an upgrade plan, it would result in an
acceleration of capital expenditures which would otherwise be incurred in
future years. The Company has not yet determined the feasibility, timing
or cost of such projects. Cellular telephone capital projects include
the addition of cell sites for greater coverage areas as well as
enhancements to the existing infrastructure of the cellular system.
Centennial expects capital expenditures for its cellular telephone
markets of $20,000 during the current fiscal year. Centennial during
fiscal 1996 began construction of its PCS network in Puerto Rico.
Centennial currently estimates that the cost to build out the
infrastructure of its PCS network will be approximately $75,000 in the
aggregate over the next three years, approximately $25,000 of which is
expected to be incurred during fiscal 1996. Funds for cable television
capital projects and related equipment are available from internally
generated cash and other financing resources. Funds for Centennial's
capital expenditure requirements may be provided by other bank
borrowings, debt or equity issuances or other financing resources.
For the nine months ended February 29, 1996, earnings were less than
fixed charges by $114,578. However, such amount reflects non-cash
charges totaling $146,886, consisting of depreciation and amortization of
$143,715 and non-cash subsidiary preferred stock dividends of $3,171.
Historically, cash generated from operating activities has exceeded fixed
charges. The Company believes that its cable television operations will
continue to generate sufficient cash to meet the debt service obligations
under the debt instruments applicable to its cable television businesses.
It is anticipated that in the next fiscal year, cash generated from
cellular telephone operations will not fully cover required capital
expenditures and the debt service under its credit agreements and
preferred stock dividends. It is currently anticipated that any
shortfall will be made up either through cash on hand, equity issuances
or additional borrowing.
The following table sets forth, for the periods indicated, the Company's
net cash provided by operating activities before interest payments ("net
cash provided") and the Company's principal uses of such cash.
Nine months Ended February 29, 28,
1996 1995
Amount % Amount %
Net cash provided by
operating activities $46,410 29.9 % $ 53,405 38.8 %
Interest paid (including
debt issuance costs) 108,880 70.1 84,347 61.2
Net cash provided $155,290 100.0% $137,752 100.0 %
Principal uses of
net cash provided:
Interest paid (including
debt issuance costs) $108,880 70.1 % $ 84,347 61.2 %
Property, plant and
equipment (excluding
acquisitions) 71,952 46.3 79,244 57.5
Total $180,832 116.4 % $163,591 118.7
Cash required $(25,542) (16.4)% $(25,839) (18.7)%
Net cash provided by operating activities of $155,290 for the nine months
ended February 29, 1996 and cash on hand were sufficient to fund the
Company's expenditures for property, plant and equipment, debt service as
well as funds used in financing and investing activities. The Company
will continue to rely on internally generated cash as well as various
financing activities to fund these requirements.
The following table sets forth the primary sources and uses of funds from
financing and investing activities for the periods indicated:
Nine Months Ended February
29, 28,
1996 1995
Proceeds from long-term borrowings $ 301,500 $ 244,672
Principal payments on long-term debt (283,456) (55,946)
Subsidiary common stock rights offering -- 49,490
Issuance and purchase of common stock 2,218 468
Cash provided by financing activities 20,262 238,684
Net capital returned from equity
investments 4,385 1,280
Acquisition of and investments in cable
television, cellular telephone systems,
marketable securities and other assets (70,493) (106,736)
Cash (required from) available for
operating activities or cash on hand $ (45,846) $ 133,228
Financing and Capital Formation; The Company
On June 30, 1994, CCC-II, Inc. ("CCC-II"), a subsidiary of the Company
that owns the Company's interest in certain cable television systems that
accounted for approximately 45% of the Company's consolidated operating
cash flows in the year ended May 31, 1994, entered into a three year
$350,000 unsecured revolving credit facility which converts to a five
year term loan with a syndicate of banks led by Citibank, N.A. as agent
for the syndicate. The proceeds of the facility may be used for
acquisitions, working capital and general corporate purposes. The
interest rates payable on borrowings under the credit facility are based
on, at the election of CCC-II, (a) the base rate of interest announced by
Citibank, N.A. plus 1/8% to 3/4% per annum based upon certain conditions,
(b) the London Interbank Offering Rate plus 1 1/8% to 1 3/4% per annum
based upon certain conditions, or (c) the average consensus bid rates of
certificate of deposit dealers for the purchase at face value of
certificates of deposit of Citibank, N.A. plus 1 1/4% to 1 7/8% per
annum based upon certain conditions. The credit facility restricts the
incurrence of certain additional debt by CCC-II, limits the ability of
CCC-II to pay dividends to the Company and requires that certain
operating tests be met. The Company is in compliance with the terms of
the credit facility.
On August 7, 1995, CCC-I paid in full the balance due on its existing
$300,000 credit facility with proceeds from a three year $525,000
unsecured revolving credit facility. The new credit agreement converts
to a five year term loan on August 7, 1998. The repayment by CCC-I of
its existing indebtedness discharged all of CCC-I's obligations under its
then-existing credit agreement and, as a result, such agreement was
terminated. The interest rates payable on borrowings under the new
credit facility are based on, at the election of CCC-I, (a) the base rate
of interest announced by Citibank, N.A. plus 1/8% to 7/8% per annum based
upon certain conditions, (b) the London Interbank Offering Rate plus 1
1/8% to 1 7/8% per annum based upon certain conditions, (c) the average
of consensus bid rates of certificate of deposit dealers for the purchase
at face value of certificates of deposit of Citibank, N.A. plus 1 1/4% to
2% per annum based upon certain conditions. The credit facility
restricts the incurrence of certain additional debt of CCC-I, limits the
ability of CCC-I to pay dividends to the Company and requires that
certain operating tests be met. The Company is in compliance with the
terms of the credit facility.
In connection with the terms and covenants of certain of the Company's
bank credit facilities, certain of the Company's subsidiaries were
required to enter into various interest rate hedge agreements (the "Hedge
Agreements"). During the current fiscal year, all of the Company's
obligations with respect to Hedge Agreements expired. Based upon current
market conditions and the current mix of fixed and floating rate debt
securities of the Company and the elimination of any future hedge
requirements in its current bank credit facilities, the Company currently
has no plans to renew, extend or replace the expired Hedge Agreements.
On October 26, 1993, the Company filed a registration statement with the
Securities and Exchange Commission relating to the shelf registration of
$500,000 of the Company's debt securities, augmenting the remaining
$2,000 under a prior shelf registration. The registration statement
became effective July 14, 1994. The debt securities may be issued from
time to time in series on terms to be specified in one or more prospectus
supplements at the time of the offering. If so specified with respect to
any particular series, the debt securities may be convertible into shares
of the Company's Class A Common Stock. As of April 10, 1996, there was
$252,000 available for issuance under this registration.
On July 31, 1995, a subsidiary of the Company, Century Venture Corp.
("CVC") entered into a three year , $80,000 revolving credit facility
which converts to a five year term loan. The proceeds of the facility
were used by CVC to repay existing indebtedness of CVC and will be used
for working capital and general corporate purposes. The repayment by CVC
of its existing indebtedness discharged all of CVC's obligations under
its then-existing credit agreement and, as a result, such agreement was
terminated. The interest rates payable on borrowings under the new
credit facility are based on, at the election of CVC, (a) "C/D Base Rate"
plus an applicable margin, as defined or (b) "Eurodollar Base Rate" plus
an applicable margin as defined or (c) "ABR" rate as defined.
The agreement expires on February 28, 2004. The credit facility
restricts the incurrence of certain additional debt of CVC, limits the
ability of CVC to pay dividends to the Company and requires that certain
operating tests be met.
Financing and Capital Formation; Centennial
On August 30, 1991, Citizens Cellular Company merged with and into
Centennial, and in connection with the merger, Centennial issued to
Citizens Utilities Company ("Citizens"), Convertible Redeemable Preferred
Stock valued at $128,450 and Class B Common Stock representing 18.8% of
the then common equity of Centennial. In connection with an amendment to
the Services Agreement with the Company, Centennial issued its Second
Series Convertible Redeemable Preferred Stock valued at $5,000 to the
Company. Although the Convertible Redeemable Preferred Stock and the
Second Series Convertible Redeemable Preferred Stock carry no cash
dividend requirement during the first five years, the shares accrete
liquidation preference and redemption value at the rate of 7.5% per
annum, compounded quarterly, in each of years one through five. Assuming
no change in the number of shares of such classes outstanding, the fully
accreted liquidation preference and redemption value of the Convertible
Redeemable Preferred Stock and the Second Series Convertible Redeemable
Preferred Stock, in years six through fifteen, will be $186,287 and
$7,252, respectively. Beginning in year six through year fifteen, the
holders of the Convertible Redeemable Preferred Stock and the Second
Series Convertible Redeemable Preferred Stock will be entitled to receive
cash dividends at the rate of 8.5% per annum. Assuming no change in the
number of shares of such classes outstanding, the annual dividend
payments, commencing in 1997, to be made in respect of the Convertible
Redeemable Preferred Stock and the Second Series Convertible Redeemable
Preferred Stock will be $15,834 and $616, respectively. The Convertible
Redeemable Preferred Stock and the Second Series Convertible Redeemable
Preferred Stock have mandatory redemption provisions at the end of
fifteen years.
It is anticipated that cash generated from Centennial's cellular
telephone operations will not be sufficient in the next several years to
cover interest, the preferred stock dividend requirements that commence
in fiscal 1997 and required capital expenditures and that any shortfall
will be made up either through debt and equity issuances or additional
financing arrangements that may be entered into by Centennial.
Centennial continues to seek various sources of external financing to
meet its current and future needs, including bank financing, joint
ventures and partnerships, and public and private placements of debt and
equity securities of Centennial. Although to date, Centennial has been
able to obtain financing on satisfactory terms, there is no assurance
that this will be the case in the future. In that regard, Centennial on
July 22, 1994, successfully completed its rights offering involving the
distribution to holders of record of Centennial's Class A Common Stock
("Centennial Stock") outstanding on July 7, 1994 (the "Record Date")
transferable subscription rights (the "Rights") to subscribe for and
purchase an aggregate of 3,098,379 additional shares of Centennial Stock
based on 6,887,287 shares of Centennial Stock outstanding on the Record
Date for a subscription price of $14.00 per share. Record date
stockholders received 0.45 Right for each share of Centennial Stock owned
by them and were entitled to purchase one share of Centennial Stock for
each full Right held. Holders of Rights purchased an aggregate of
2,988,478 of the 3,098,379 shares of Class A Common Stock. The remaining
shares were sold pursuant to the oversubscription privilege and were
distributed pro rata among the holders of Rights who requested an
aggregate of 235,746 additional shares pursuant to the oversubscription
privilege.
Centennial also distributed to the Company and Citizens, the holders of
record of all of the shares of Centennial Class B Common Stock
outstanding as of the Record Date, nontransferable subscription rights
(the "Class B Rights") to subscribe for and purchase an aggregate of
approximately 3,272,311 additional shares of Centennial Class B Common
Stock. The Company and Citizens each exercised all of the Class B Rights
distributed to them. The Company's obligation with respect to the
exercise was $37,200. Such amount was paid by the Company on July 22,
1994. The net proceeds of approximately $86,500 from the rights offering
(after deducting soliciting fees and expenses of approximately $2.7
million) were used by Centennial for general corporate purposes including
the financing of working capital, capital expenditures and acquisitions.
During fiscal 1994, Centennial filed a shelf registration statement with
the SEC for up to 8,000,000 shares of Centennial's Class A Common Stock
that may be offered from time to time in connection with acquisitions.
At April 10, 1996, there were 4,465,896 shares available for issuance
under this registration statement.
Centennial on April 5, 1995, filed a shelf registration statement with
the SEC for the issuance of $500,000 of Centennial's debt securities.
The debt securities may be issued from time to time in series on terms to
be specified in one or more prospectus supplements at the time of the
offering. If so specified with respect to any particular series, the
debt securities may be convertible into shares of Centennial's Class A
Common Stock. As of April 10, 1996, $400,000 remained available for
issuance.
On November 15, 1993, Centennial issued $250,000 eight year unsecured
senior notes at an interest rate of 8 7/8% (the "8 7/8% Notes").
Centennial used $182,700 of the net proceeds to retire in full all
principal amounts outstanding under the bank credit facility then in
effect. The remaining amount of approximately $62,600 (after debt
issuance costs) was used for general corporate purposes, including those
described above. On May 11, 1995, Centennial issued $100,000 of ten year
unsecured Senior Notes at an interest rate of 10 1/8% (the "10 1/8%
Notes"). At May 31, 1995, the net proceeds of approximately $95,600 were
available for general corporate purposes. Both debt instruments contain
similar limitations on certain "restricted payments" included, but not
limited to, dividends and investments in unrestricted subsidiaries and
other persons. Further, the debt securities contain restrictions on the
incurrence of certain additional debt and limitations on Centennial's
ability to incur liens with respect to additional indebtedness.
In order to meet its obligations with respect to its debt and preferred
stock obligations, it is important that Centennial continue to improve
operating cash flow. In order to do so, Centennial's revenues must
increase at a faster rate than operating expenses. Increases in revenues
will be dependent upon continuing growth in the number of subscribers and
maximizing revenue per subscriber. Centennial has substantially completed
the development of its managerial, administrative and marketing
functions, and is continuing the construction of cellular systems in its
existing and recently acquired markets in order to achieve these
objectives. There is no assurance that growth in subscribers or revenue
will occur. In addition, Centennial's participation in the PCS business
is expected to be capital intensive, requiring network buildout costs of
approximately $75,000 over the next three years. Further, due to the
start-up nature of the PCS business, Centennial expects the PCS business
to require additional cash investment to fund its operations over the
next several years. The PCS business is expected to be highly
competitive with the two existing cellular telephone providers as well as
the other MTA PCS license holder. There is no assurance that the PCS
business will generate cash flow or reach profitability. Even if
operating cash flow does increase, it is anticipated that cash generated
from Centennial's cellular telephone operations and PCS business will not
be sufficient in the next several years to cover interest, the preferred
stock dividend requirements that commence in fiscal 1997 and required
capital expenditures. Centennial anticipates that shortfalls may be made
up either through debt and equity issuances or additional financing
agreements that may be entered into by Centennial.
Acquisitions - Cable Television
On March 2, 1993, the Company and Citizens ("the Century/Citizens Joint
Venture") entered into an agreement to acquire the assets of two cable
television systems which serve in the aggregate approximately 44,000
primary basic subscribers. The aggregate purchase price for the cable
television systems is $92,900 subject to adjustment. Citizens and the
Company have agreed that they will own and operate the cable television
systems in a joint venture structure in which each company will have a
50% ownership interest. The obligations of the Century/Citizens Venture
and the seller under the agreement are subject to the satisfaction of
various closing conditions. On September 30, 1994, the Century/Citizens
Joint Venture completed the acquisition of one of these cable television
systems serving approximately 24,000 primary basic subscribers. On
December 1, 1995, the second acquisition serving approximately 20,000
primary basic subscribers was completed. The purchase price of
approximately $51,900 at September 30, 1994 and $41,000 at December 1,
1995 was funded by the Company and Citizens equally.
On March 1, 1995, the Company acquired cable television systems located
in California, Colorado, Idaho, Montana and Washington for a purchase
price consisting of approximately $56,000 (subject to adjustment) in cash
($18,000 of which was paid to the sellers and $38,000 of which was used
to satisfy certain liabilities related to the acquired cable television
systems) and the issuance of 3,581,632 shares of Class A Common Stock of
the Company (valued at $12.25 per share, subject to post-closing
adjustment based on the price performance of the Class A Common Stock).
The cash portion of the purchase price was funded by available bank lines
of credit. At February 28, 1995, these cable television systems served
an aggregate of approximately 45,000 basic subscribers.
On November 28, 1994, the Company entered into an agreement to acquire
the cable television systems serving Anaheim, Hermosa Beach/Manhattan
Beach, Fairfield and Rohnert Park/Yountville, California for an aggregate
purchase price of $286,000, subject to adjustment, payable in cash.
Funds are currently available for this acquisition under an existing bank
credit facility. At September 30, 1994, such cable television systems
served an aggregate of approximately 135,000 primary basic subscribers.
The obligation of the Company to consummate this transaction is subject
to certain closing conditions, including the approval of the relevant
franchise authorities and other regulatory approvals. The Company
anticipates completing this acquisition during the second calendar
quarter of 1996.
Acquisitions, Exchanges, Dispositions - Centennial
On June 29, 1994, Centennial acquired the non-wireline cellular telephone
system serving Jonesboro, Arkansas, representing approximately 201,000
Net Pops. The purchase price for this acquisition was $18,500 subject to
adjustment, consisting of approximately $4,500 in cash and 700,670
registered shares of Centennial Class A Common Stock valued at
approximately $14,000.
On June 30, 1994, Centennial acquired the non-wireline cellular telephone
system serving Iberville, Louisiana, representing approximately 131,000
Net Pops. The purchase price for this acquisition was $12,100 consisting
of approximately $750 in cash and 639,055 registered shares of Centennial
Class A Common Stock valued at approximately $11,350.
On August 23, 1994, Centennial acquired the cellular telephone systems
serving Louisiana RSA #3, Louisiana RSA #4 and Mississippi RSA #8,
representing an aggregate of approximately 381,500 Net Pops. The
purchase price for the acquisition was $45,500, subject to adjustment,
consisting of approximately $8,000 in cash and 2,345,953 registered
shares of Centennial's Class A Common Stock valued at $37,500.
On September 21, 1994, Centennial acquired the non-wireline cellular
telephone system serving Jackson, Iowa, representing approximately
107,800 Net Pops. The purchase price for this acquisition was $15,500
consisting of approximately $5,000 in cash and 611,354 shares of
Centennial Class A Common Stock valued at approximately $10,500.
On September 30, 1994, Centennial acquired the non-wireline cellular
telephone license serving the Huntington-Marion, Indiana market
representing approximately 145,200 Net Pops. The purchase price for this
acquisition was approximately $18,400 consisting of approximately $4,500
in cash and 844,863 registered shares of Centennial Class A Common Stock
valued at approximately $13,900.
On October 24, 1994, Centennial acquired the non-wireline cellular
telephone system serving Louisiana RSA #7, representing approximately
170,900 Net Pops. The purchase price for the acquisition was $17,000,
consisting of approximately 998,167 registered shares of Centennial Class
A Common Stock valued at $17,000.
On April 18, 1995, Centennial acquired the non-wireline cellular
telephone systems serving Michigan RSA #6 and Michigan RSA #7
representing an aggregate of approximately 352,600 Net Pops. The
aggregate purchase price for these markets was $42,960, subject to
adjustment, consisting of 898,000 registered shares of Centennial Class A
Common Stock (valued at $20 per share, subject to post-closing adjustment
based on the price performance of the Centennial Class A Common Stock)
and approximately $25,000 in cash.
In summary, during fiscal 1995, Centennial acquired 10 markets covering
1,489,900 Net Pops. The aggregate purchase price for these acquisitions
was $173,860. The purchases were funded with cash in the amount of
$51,761 and 7,023,383 shares of Centennial Class A Common shares valued
at $122,099.
On June 30, 1995, Centennial acquired the non-wireline cellular telephone
systems serving (a) Newtown, LaPorte, Starke, Pulaski, Jasper and White,
Indiana, (b) Kosciusko, Noble, Steuben and Lagrange, Indiana, (c)
Williams, Defiance, Henry and Paulding, Ohio and (d) Copiah, Simpson,
Lawrence, Jefferson Davis, Walthall and Marion, Mississippi, representing
an aggregate of approximately 608,100 Net Pops. The above-described
systems were acquired by Centennial in exchange for Centennial's non-
wireline cellular telephone systems serving the Roanoke, Virginia MSA,
the Lynchburg, Virginia MSA, North Carolina RSA #3 and Iowa RSA #5,
representing an aggregate of approximately 644,000 Net Pops.
Simultaneously with the consummation of the transaction described above,
Centennial sold its 72.2% interest in the non-wireline cellular telephone
system serving the Charlottesville, Virginia MSA, representing an
aggregate of approximately 94,700 Net Pops, for a cash purchase price of
approximately $9,914 subject to adjustment. The Company recognized a
gain of approximately $4,176 as a result of the sale.
On October 31, 1995, Centennial acquired (I) a 94% interest in the non-
wireline cellular telephone system serving the Lafayette, Louisiana MSA,
representing approximately 205,700 Net Pops, in exchange for Centennial's
non-wireline cellular telephone system serving the Jonesboro, Arkansas
RSA (comprising approximately 205,000 Net Pops), the license rights and
assets located in and covering Desoto and Red River Parishes of Louisiana
3 RSA (comprising approximately 34,700 Net Pops), the license rights and
assets located in and covering a section of Morehouse Parish of Louisiana
2 RSA (comprising approximately 24,100 Net Pops) and a cash payment by
Centennial of approximately $5,580, subject to adjustment, and (ii) an
additional 14% minority interest in the Elkhart, Indiana RSA and
additional 13% minority interest in the Lake Charles, Louisiana MSA for a
cash payment of approximately $2,951.
Centennial Personal Communications Services ("PCS")
Centennial was the successful bidder for one of two Metropolitan Trading
Area (MTA) licenses to provide broadband personal communications services
in the Commonwealth of Puerto Rico and the U.S. Virgin Islands. The
licensed area represents approximately 3,623,000 Net Pops. The amount of
the final bid submitted by Centennial was $54,672. A non-refundable
deposit of $10,934, representing approximately 20% of the purchase price,
was made in connection with the bid, and the balance of $43,738, was paid
on June 29, 1995. Centennial currently estimates that the cost to build
out the infrastructure of the systems will be approximately $75,000, in
the aggregate over the next three years. Centennial is exploring various
sources of external financing including but not limited to bank
financing, joint ventures, partnerships and placement of equity
securities of Centennial. Centennial used a portion of the net proceeds
from the sale of the 10 1/8% Notes to pay the balance of the purchase
price for the license.
Centennial also plans to participate in the alternative access business
in Puerto Rico pursuant to FCC requirements for interstate service and
pursuant to an authorization issued to Centennial in December 1994 by the
Public Service Commission of the Commonwealth of Puerto Rico for
intrastate service. The issuance of the authorization is being
challenged by the local telephone service provider based on a claim to a
statutory monopoly in the provision of intrastate telecommunications
services. Centennial is actively defending the authorization against the
challenge. There is no assurance that the matter will be decided in
Centennial's favor.
Centennial's participation in the PCS business is expected to be capital
intensive, requiring network buildout costs of approximately $75,000 over
the next three years. In addition, due to the start-up nature of the PCS
business, the Company expects the PCS business to require additional cash
investment to fund its operations over the next several years. The PCS
business is expected to be highly competitive with the two existing
cellular telephone providers as well as the other MTA PCS license holder.
There is no assurance that the PCS business will generate cash flow or
reach profitability.
Investments
Australian Pay Television
Since fiscal 1994, the Company has invested through a wholly-owned
subsidiary in East Coast Pay Television Pty. Limited, an Australian
company ("ECT"), which is pursuing opportunities to own, operate and
invest in pay television services in Australia (which is an emerging pay
television market). Such investment was effected through the acquisition
by the Company of convertible debentures and ordinary shares of ECT
representing a 76.2% economic interest in ECT. In conjunction with such
interest, the Company has the right to designate five of the seven
directors of ECT and to approve certain corporate transactions. The
Company has also entered into management agreements with ECT and has
agreed to fund up to an aggregate of $20,000 for certain costs and
working capital requirements.
ECT, through a wholly owned subsidiary, owns Satellite Subscription
Broadcast License A ("Satellite License A"), one of only three licenses
which may be granted by Australian authorities prior to July 1997 for
direct-to-home ("DTH") satellite television broadcasting and which allows
ECT to offer four channels of programming via DTH satellite. Australis
Media Limited ("Australis"), another pay television company in Australia,
owns Satellite Subscription Broadcast License B, the second of the three
licenses currently available in Australia for DTH satellite television
broadcasting, which allows it to offer four channels of programming via
DTH satellite. ECT and Australis have entered into agreements pursuant
to which ECT will offer its four channels of programming (the "License A
Package") for distribution individually as a single four channel package
or as part of Australis' multi-channel basic programming package known as
the GALAXY Package. The programming is distributed via DTH satellite,
microwave multi-point distribution system ("MDS") and other transmission
technologies. The Company's arrangements with Australis contemplate that
the GALAXY Package will be distributed by Australis through its
distribution facilities in the six largest capital cities in Australia
and in regional Western Australia and by its franchisees (one of which is
ECT) to substantially all of the remaining population of Australia.
The distribution arrangements are subject to an agreement with Australis,
pursuant to which ECT has the right to receive 25% of Australis' adjusted
net cash flow from broadcasting services and operations. Subject to
certain rights of approval in ECT with respect to expenditures and
budgets, such percentage may be adjusted downward depending upon whether
ECT elects to fund a specified portion of any funds raised and expended
by Australis to establish transmission, subscriber management, customer
service and certain other facilities as provided for in the agreement.
The parties are presently in discussion with respect to whether funding
is currently required by ECT under the agreement.
ECT, Australis and its other two franchisees have acquired control of
substantially all of the currently issued licenses which can be used for
transmission of pay television programming via MDS in Australia. ECT
owns or controls all of the currently issued licenses which entitle it to
transmit pay television programming via MDS in most of coastal New South
Wales and all of Tasmania (including Wollongong, Hobart and Newcastle,
Australia and surrounding areas) (the "ECT Franchise Areas") and has
entered into a franchise agreement with Australis pursuant to which it
has the exclusive right (and is obligated) for at least a ten year period
(with an option to renew for an additional ten years) to deliver in each
of the ECT Franchise Areas any subscription broadcast service supplied by
Australis, including the GALAXY Package. As of December 1994, the ECT
Franchise Areas contained approximately 717,000 households or
approximately 13% of all Australian households.
Programming for the License A Package is provided by XYZ Entertainment
Pty. Limited ("XYZ"), a joint venture in which the Company holds a 25%
interest. The Company's 25% interest in XYZ is derived through the
Company's joint venture with United International Holdings, Inc., a
leading international provider of pay television services which holds
interests in the two other franchisees of Australis. Foxtel, a joint
venture between Telstra Corporation Limited ("Telstra"), the government-
owned Australian national telecommunications carrier, and The News
Corporation Limited ("News"), a major international media and
entertainment company, owns the remaining 50% of XYZ. Programming
provided by XYZ includes Discovery Australia, a documentary, adventure,
history, and lifestyle channel; Red, a music video channel; Max/Classic
Max, a children and family channel; and Arena, a general entertainment
channel.
The Company has also acquired an approximate 2% economic interest in
Australis for approximately $10,000.
ECT has entered into a long-term agreement with FOXTEL pursuant to which
FOXTEL has agreed to distribute the License A Package as well as two
additional channels throughout Australia over a proposed cable television
network. FOXTEL has entered into a similar arrangement with Australis
for the License B channels.
Australis has announced that a proposed merger between it and Foxtel
which would have provided Australis with financial resources, has been
abandoned. The company has become aware that Australis is now
negotiating an alternate funding arrangement with News, Tel-
Communications, Inc. ("TCI") and Lenfest Communications, Inc. ("Lenfest")
pursuant to which News, TCI and Lenfest will guarantee certain loans to
be made to Australis in exchange for warrants to purchase equity in
Australis. The other provisions of such potential arrangement are not
known to the Company. The effect on ECT and XYZ of the potential
arrangements among TCI, Lenfest and Australis, if finalized and later
consummated, cannot now be ascertained.
The Australian operations described above are expected to be capital
intensive requiring funds for the buildout of the franchise
infrastructure, maintenance of the satellite distribution business, and
the development of programming. In order to meet such requirements, ECT
is currently evaluating various financing alternatives including bank
borrowings, debt or equity issuances in the public and private markets
and other financing resources, including funding from the Company. There
is no assurance ECT will be successful in obtaining such funding on
favorable terms. The Company has invested $123,000 in the Austrian Pay
TV ventures.
Stock Repurchase
On March 10, 1995, the Company purchased 20,000,000 shares of its Class B
Common Stock from Sentry Insurance a Mutual Company, of Stevens Point,
Wisconsin ("Sentry Insurance"), at an aggregate price of $110,000
utilizing existing credit lines. Upon acquisition, the Class B shares
were converted automatically to Class A shares. For the present, the
acquired shares will be held in the Company's treasury. Prior to this
acquisition, 65,406,115 shares of the Company's Class B Common Stock were
outstanding of which 23,134,056 were held by Sentry Insurance.
On December 21, 1994, Centennial announced that its Board of Directors
authorized the repurchase, from time to time, of up to 1,000,000 shares
of Centennial's Class A Common Stock, depending on prevailing market
conditions. Centennial has made no such purchases to date.
RECENT LEGISLATIVE DEVELOPMENT
The Telecommunications Act of 1996
The Telecommunications Act of 1996 ("Act"), was enacted into law on
February 8, 1996. This new law will alter federal, state and local laws
and regulations regarding telecommunications providers and services,
including the Company and the cable television and other
telecommunications services provided by the Company. The following is a
summary of certain provisions of the Act which could materially affect
the growth and operation of the cable television industry and the cable
and telecommunications services provided by the Company. As noted below,
there are numerous rulemakings to be undertaken by the Federal
Communications Commission ("FCC") which will interpret and implement the
provisions discussed below. It is not possible at this time to predict
the outcome of such rulemakings.
Cable Rate Regulation
Rate regulation of the Company's cable television services is
divided between the FCC and local units of government such as states,
counties or municipalities. The FCC's jurisdiction extends to the cable
programming service tier ("CPST"), which consists largely of satellite-
delivered programming (excluding basic tier programming and programming
offered on a per channel or per program basis). Local units of
governments (commonly referred to as local franchising authorities or
"LFAs") are primarily responsible for regulating rates for the basic tier
of cable service ("BST"), which will typically contain at least the local
broadcast stations and Public Access, Educational and Government ("PEG")
channels. Equipment rates are also regulated by LFAs. The FCC retains
appeal jurisdiction from LFA decisions. Cable services offered on a per
channel or per program only basis remain unregulated.
The Act eliminates CPST rate regulation as of March 31, 1999. In
the interim, CPST rate regulation can be triggered only by an LFA
complaint to the FCC. An LFA complaint must be based upon more than one
subscriber complaint. Prior to the Act, an FCC review of CPST rates
could be occasioned by a single subscriber complaint to the FCC. The Act
does not disturb existing or pending CPST rate settlements between the
Company and the FCC. The Company's BST rates remain subject to LFA
regulation under the Act.
Existing law precludes rate regulation entirely wherever a cable
operator faces "effective competition." The Act expands the definition
of effective competition to include any franchise area where a local
exchange carrier (or affiliate) provides video programming services to
subscribers by any means other than through direct broadcast satellite
(DBS), or any multichannel video provider using the facilities of a local
exchange carrier or other multichannel video provider provides such
service. There is no penetration minimum for the local exchange carrier
to qualify as an effective competitor, but it must provide "comparable"
programming services (at least 12 channels including some television
broadcast signals) in the franchise area.
Under the Act, the Company will be allowed to aggregate, on a
franchise, system, regional or company level, its equipment costs into
broad categories, such as converter boxes, regardless of the varying
levels of functionality of the equipment within each such broad category.
The Act will allow the Company to average together costs of different
types of converters (including non-addressable, addressable, and
digital). The statutory changes will also facilitate the rationalizing
of equipment rates across jurisdictional boundaries. These favorable
cost-aggregation rules do not apply to the limited equipment used by "BST-
only" subscribers.
Cable Uniform Rate Requirements. The Act immediately relaxes the
"uniform rate" requirements by specifying such requirements do not apply
where the operator faces "effective competition," and by exempting bulk
discounts to multiple dwelling units, although complaints about
"predatory" pricing may be made to the FCC. Upon a prima facie showing
that there are reasonable grounds to believe that the discounted price is
predatory, the cable system operator will have the burden of proving
otherwise.
System Sales. The Act eliminates the existing three-year holding
requirement with respect to the sale of cable television systems.
Cable System Definition. The Act changes the definition of a "cable
system" so that competitive providers of video services will only be
regulated and franchised as a cable system if they use public rights-of-
way.
Cable Pole Attachments
Under the Act, investor-owned utilities must make poles and conduits
available to cable systems under delineated terms. Electric utilities
are given the right to deny access to particular poles on a
nondiscriminatory basis for lack of capacity, safety, reliability, and
generally accepted engineering purposes. The current method for
determining rates charged by telephone and utility companies for cable
delivery of cable and non-cable services will continue for five years.
However, the Act directs the FCC to establish a new formula for the
rental rate for poles used by cable operators who provide
telecommunications services which will result in higher pole rental rates
for such cable operators. Any increases pursuant to this formula may not
begin for 5 years and will be phased in equal increments over years 5
through 10. This new FCC formula does not apply in states which certify
they regulate pole rents. Pole owners must impute pole rentals to
themselves if they offer telecommunications or cable services. Cable
operators need not pay future "make-ready" on poles currently contacted
if the make-ready is required to accommodate the attachments of another
user, including the pole owner.
Cable Entry Into Telecommunications
The Act declares that no state or local laws or regulations may
prohibit or have the effect of prohibiting the ability of any entity to
provide any interstate or intrastate telecommunications service. States
are authorized to impose "competitively neutral" requirements regarding
universal service, public safety and welfare, service quality, and
consumer protection. The Act further provides that cable operators and
affiliates providing telecommunications services are not required to
obtain a separate franchise from LFAs for such services. The Act
prohibits LFAs from requiring cable operators to provide, or prohibiting
them from providing, telecommunications service or facilities as a
condition of a grant of a franchise, franchise renewal, or franchise
transfer, except that LFAs can seek "institutional networks" as part of
such franchise negotiations.
The Act states that traditional cable franchise fees may only be
based on revenues related to the provision of cable television services.
Interconnection and Other Telecommunications Carrier Obligations.
To facilitate the entry of new telecommunications providers (including
cable operators), the Act imposes interconnection obligations on all
telecommunications carriers. All carriers must interconnect their
networks with other carriers and may not deploy network features and
functions that interfere with interoperability. Existing local exchange
carriers ("LECs") also have the following obligations: (1) good faith
negotiation with those seeking interconnection; (2) unbundling, equal
access and non-discrimination requirements; (3) resale of services,
including "resale at wholesale rates" (with an exception for certain low-
priced residence services to business customers); (4) notice of changes
in the network that would affect interconnection and interoperability;
and (5) physical collocation unless shown that practical technical
reasons, or space limitations, make physical collocation impractical.
The FCC has six months from the date of enactment to "complete all
actions necessary to establish regulations" needed to effectuate this
section. The Act also directs the FCC, within one year of enactment, to
adopt regulations for existing LECs to share infrastructure with
"qualifying" carriers.
Under the Act, individual interconnection rates must be just and
reasonable, based on cost, and may include a reasonable profit. Cost of
interconnection will not be determined in a rate of return proceeding.
Traffic termination charges shall be "mutual and reciprocal." The Act
contemplates that interconnection agreements will be negotiated by the
parties and submitted to a state public service commission ("PSC") for
approval. A PSC may become involved, at the request of either party, if
negotiations fail. If the state regulator refuses to act, the FCC may
determine the matter. If the PSC acts, an aggrieved party's remedy is to
file a case in federal district court.
The Act requires that all telecommunications providers (including
cable operators that provide telecommunications services) must contribute
equitably to a Universal Service Fund ("USF"), although the FCC may
exempt an interstate carrier or class of carriers if their contribution
would be minimal under the USF formula. The Act allows states to
determine which intrastate telecommunications providers contribute to the
USF.
Telephone Company Entry Into Cable Television
The Act allows telephone companies to compete directly with cable
operators by repealing the telephone company-cable cross-ownership ban
and the FCC's video dialtone regulations. This will allow LECs,
including the Bell Operating Companies, to compete with cable both inside
and outside their telephone service areas. If a LEC provides video via
radio waves, it is subject to Title III broadcast jurisdiction. If a LEC
provides common carrier channel service it is subject to Title II common
carrier jurisdiction. A LEC providing video programming to subscribers
is otherwise regulated as a cable operator (including franchising, leased
access, and customer services requirements), unless the LEC elects to
provide its programming via an "open video system." LEC owned
programming services will also be fully subject to program access
requirements.
The Act replaces the FCC's video dialtone rules with an "open video
system" ("OVS") plan by which LECs can provide cable service in their
telephone service area. LECs complying with FCC OVS regulations will
receive relaxed oversight. The Act requires the FCC to act on any such
OVS certification within ten days of its filing. Only the program
access, negative option billing prohibition, subscriber privacy, EEO,
PEG, must-carry and retransmission consent provisions of the
Communications Act of 1934 will apply to LEC provided OVS. Franchising,
rate regulation, consumer service provisions, leased access and equipment
compatibility will not apply. Cable copyright provisions will apply to
programmers using OVS. LFAs may require OVS operators to pay "franchise
fees" only to the extent that the OVS provider or its affiliates provide
cable services over the OVS. OVS operators will be subject to LFA
general right-of-way management regulators. Such fees may not exceed the
franchise fees charged to cable operators in the area, and the OVS
provider may pass through the fees as a separate subscriber bill item.
The Act requires the FCC to adopt, within six months from the date
of enactment, regulations prohibiting an OVS operator from discriminating
among programmers, and ensuring that OVS rates, terms, and conditions for
service are reasonable and nondiscriminatory. Further, the FCC is to
adopt regulations prohibiting a LEC-OVS operator, or its affiliates, from
occupying more than one-third of the system's activated channels when
demand for channels exceeds supply, although there are no numeric limits.
The Act also mandates OVS regulations governing channel sharing;
extending the FCC's sports exclusivity, network nonduplication, and
syndex regulations: and controlling the positioning of programmers on
menus and program guides. The Act does not require LECs to use separate
subsidiaries to provide incidental interLATA video or audio programming
services to subscribers or for their own programming ventures.
Buyouts. While there remains a general prohibition on LEC buyouts
of cable systems (any ownership interest exceeding 10 percent), cable
operator buyouts of LEC systems, and joint ventures between cable
operators and LECs in the same market, the Act provides exceptions. A
rural exemption permits buyouts where the purchased system serves an area
with fewer than 35,000 inhabitants outside an urban area. Where a LEC
purchases a cable system, that system plus any other system in which the
LEC has an interest may not serve 10% or more of the LEC's telephone
service area. Additional exceptions are also provided for such buyouts.
The Act also provides the FCC with the power to grant waivers of the
buyout provisions in cases where (I) the cable operator or LEC would be
subject to undue economic distress; (2) the system or facilities would
not be economically viable; or (3) the anticompetitive effects of the
proposed transaction are clearly outweighed by the effect of the
transaction in meeting community needs. The LFA must approve any such
waiver.
Electric Utility Entry into Telecommunications
The Act provides that registered utility holding companies and
subsidiaries may provide telecommunications (including cable)
notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating
authority. It is
anticipated that large utility holding companies will become significant
competitors to both cable television and other telecommunications
providers.
Miscellaneous Reforms
Cross-Ownership; Must Carry. The Act eliminates broadcast/cable
cross-ownership restrictions, but leaves in place FCC regulations
prohibiting local cross-ownership between television stations and cable
systems and directs the FCC to reexamine the need for these rules. The
Act repeals the network/cable cross-ownership rules, but empowers the FCC
to adopt rules to ensure carriage, channel positioning and non-
discriminatory treatment of non-affiliated broadcast stations by cable
systems affiliated with a broadcast network. The satellite master
antenna television and multichannel multipoint distribution system cable
cross-ownership restrictions have been eliminated for cable operators
subject to effective competition.
The Act preserves must carry rights for local television
broadcasters, and establishes new audience standards based on commercial
publications which delineate television markets based on viewing
patterns. The FCC is directed to grant or deny must carry requests
within 120 days of a complaint being filed with the FCC.
Cable Equipment Compatibility; Scrambling Requirements. The Act
directs an FCC equipment compatibility rulemaking emphasizing that (1)
narrow technical standards, mandating a minimum degree of common design
among televisions, VCRs, and cable systems, and relying heavily on the
open marketplace, should be pursued; (2) competition for all converter
features unrelated to security descrambling should be maximized; and (3)
adopted standards should not affect unrelated telephone and computer
features. The Act directs the FCC to adopt regulations which assure the
competitive availability of converters ("navigation devices") from
vendors other than cable operators. The Act provides that the FCC's
rules may not impinge upon signal security concerns or theft of service
protections. Waivers will be possible where the cable operator shows the
waiver is necessary for the introduction of new services. Once the
equipment market becomes competitive, FCC regulations in this area will
be terminated.
The Act requires cable operators, upon subscriber request, to fully
scramble or block at no charge the audio and video portion of any channel
not specifically subscribed to by a household. Further, the Act provides
that sexually explicit programming must be fully scrambled or blocked.
If the cable operator cannot fully scramble or block its signal, it must
restrict transmission to those hours of the day when children are
unlikely to view the programming. This requirement has been stayed
pending judicial review.
Cable Provision of Internet Services. Transmitting indecent
material via the Internet is made criminal by the Act. However, on-line
access providers are exempted from criminal liability for simply
providing interconnection service; they are also granted an affirmative
defense from criminal or other action where in "good faith" they restrict
access to indecent materials. The Act further exempts on-line access
providers from civil liability for actions taken in good faith to
restrict access to obscene, excessively violent or otherwise
objectionable material.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
On January 13, 1988, five residents of Colorado Springs, Colorado brought
a class action lawsuit against Colorado Springs Cablevision, Inc.
("CSCI"), an indirect 50% subsidiary of the Company, and other parties in
the Colorado District Court of El Paso County, Colorado. The complaint
alleged that the defendants violated provisions of the Colorado Springs
Municipal Code prohibiting service discrimination and unreasonable rate
differences, and of the Colorado Unfair Practices Act prohibiting
predatory pricing and the imposition of different rates for the purpose
of destroying competition, by charging lower rates for its services in
one portion of Colorado Springs than it charged in the remainder of the
City. The named plaintiffs requested certification to represent a class
of CSCI subscribers charged the higher rates and sought recovery of three
times the difference between those rates and the lower rates charged
other subscribers with interest and costs from approximately April 1,
1986 to the date of judgment. On August 12, 1988, the District Court for
El Paso County, Colorado granted CSCI's motion and dismissed the
plaintiffs' complaint in its entirety with prejudice. The Court held
that there is no private right of action under the Colorado Springs
Municipal Code and that the plaintiffs lacked standing to pursue their
claims under the Colorado Unfair Practices Act. On May 3, 1990, the
Colorado Court of Appeals affirmed the lower court's ruling dismissing
the complaint in its entirety. The Colorado Supreme Court agreed to
review the decision of the Court of Appeals and subsequently on April 13,
1992 reversed the dismissal of the complaint and remanded the case back
to the Court of Appeals for further proceedings to determine whether the
complaint is subject to dismissal on other grounds.
On November 5, 1992, the Court of Appeals issued a decision denying
dismissal of the complaint and denied rehearing on January 7, 1993. CSCI
sought review of this and related issues in the Colorado Supreme Court by
petition for writ of certiorari, which was denied by order dated July 12,
1993. The Court of Appeals entered its Amended Mandate on July 16, 1993,
by which this case was returned to the El Paso County District Court for
further proceedings. Plaintiffs filed an Amended Complaint seeking to
alter their theories of recovery in certain respects and CSCI responded
to that complaint. In March 1994, plaintiffs filed an amended motion for
class certification. In June 1994, venue of the case was transferred
from the El Paso County District Court to the District Court for the City
and County of Denver.
By order dated December 2, 1994, the District Court denied plaintiffs'
amended motion for class certification in its entirety. This ruling had
the effect of limiting the case to the claims of the four remaining
individual plaintiffs. The parties notified the Court on April 19, 1995,
that they were engaged in serious settlement negotiations.
On August 25, 1995, the parties filed a joint stipulation for dismissal
of this case with prejudice and informed the Court that they had entered
into a settlement agreement resolving all claims in this litigation. By
order dated September 6, 1995, the Court dismissed this case with
prejudice. The settlement became fully effective on October 24, 1995, in
accordance with the terms of the settlement agreement. The terms of the
settlement will not have a material effect on the consolidated financial
statements of the Company.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits
i) Exhibit 11 - Statement re computation of per
share earnings
b) Reports on Form 8-K
None.
<TABLE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-Q
For the Nine Months Ended
February 29, 1996 and February 28, 1995
COMPUTATION OF LOSS PER COMMON SHARE
(Amounts in thousands, except per share data)
<CAPTION>
Nine Months Ended
February 29, February 28,
1996 1995
<S> <C> <C>
Primary fully diluted:
Net Loss $ (66,688) $ (51,632)
Accretion in liquidation value of subsidiary
preferred stock (3,171) (3,363)
Loss applicable to common shares $ (69,859) $ (54,995)
Average number of common shares and common
share equivalents outstanding
Average number of common shares
outstanding during the period 73,689,000 89,634,000
Add common share equivalents - Options
to purchase common shares - net 702,000 556,000
Average number of common shares and common
share equivalents outstanding 74,391,000 (A) 90,190,000 (A)
Loss per common share $ (.94) (A) $ (.61) (A)
(A) In accordance with Accounting Principles Board Opinion No. 15, the inclusion of
common share equivalents in the computation of earnings per share need not
be considered if the reduction of earnings per share is less than 3% or the effect is
anti-dilutive. Therefore, loss per common share and common share equivalents as
shown on the Consolidated Statements of Operations for the periods presented do
not include the common share equivalents as their effect is anti-dilutive.
</TABLE>
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.
CENTURY COMMUNICATIONS CORP.
Date: April 12, 1996
________________________________
Bernard P. Gallagher
President and Chief Operating Officer
(On behalf of Registrant)
Date: April 12, 1996
_______________________________
Scott N. Schneider
Senior Vice President and Treasurer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> May-31-1996
<PERIOD-END> Feb-29-1996
<CASH> 157,376
<SECURITIES> 51,677
<RECEIVABLES> 47,814
<ALLOWANCES> 2,955
<INVENTORY> 0
<CURRENT-ASSETS> 212,518
<PP&E> 540,469
<DEPRECIATION> 424,337
<TOTAL-ASSETS> 1,970,422
<CURRENT-LIABILITIES> 151,224
<BONDS> 0
<COMMON> 1,052
0
179,440
<OTHER-SE> (416,547)
<TOTAL-LIABILITY-AND-EQUITY> 1,970,422
<SALES> 359,720
<TOTAL-REVENUES> 359,720
<CGS> 80,224
<TOTAL-COSTS> 334,889
<OTHER-EXPENSES> 6,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,026
<INCOME-PRETAX> (111,407)
<INCOME-TAX> (22,082)
<INCOME-CONTINUING> (89,325)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (66,688)
<EPS-PRIMARY> (.95)
<EPS-DILUTED> 0
</TABLE>
