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 November 30, 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 - 29,282,919 outstanding shares as of January 6, 1997
Class B Common - 45,126,115 outstanding shares as of January 10, 1997
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION> November 30 May 31,
<S> 1996 1996
ASSETS
Current assets: <C> <C>
Cash and short-term investments $ 114,424 $ 164,592
Accounts receivable, less allowance for doubtful
accounts of $3,378 and $3,008, respectively 55,417 41,002
Prepaid expenses and other current assets 14,858 6,632
Total current assets 184,699 212,226
Property, plant and equipment - net 667,222 651,607
Investment in marketable equity securities 52,449 53,069
Equity investments in cable television and cellular
telephone systems - net 107,654 108,256
Debt issuance costs, less accumulated amortization
of $14,616 and $11,652, respectively 27,752 28,352
Cable television franchises, less accumulated
amortization of $321,089 and $285,991, respectively 438,600 525,194
Wireless telephone licenses, less accumulated amortization
of $188,698 and $164,786, respectively 372,027 360,213
Excess of purchase price over value of net assets
acquired,less accumulated amortization of
$55,730 and $51,529, respectively 290,305 279,202
Other assets 32,413 16,790
$2,173,121 $2,234,909
</TABLE>
See notes to consolidated financial statements
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
<S> November 30, May 31,
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 1996 1996
<C> <C>
Current liabilities:
Current maturities of long-term debt $ 15,199 $ 15,084
Accounts payable 26,806 26,102
Accrued interest payable 27,145 22,921
Other accrued expenses 84,672 72,757
Customers' deposits and prepayments 20,138 19,370
Total current liabilities 173,960 156,234
Long-term debt 2,104,524 2,081,611
Deferred income taxes 78,362 99,474
Minority interest in subsidiaries 151,112 162,790
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) 186,287 182,813
Common stockholders' deficiency:
Common stock, par value $.01 per share:
Class A, authorized 400,000,000 shares,
issued and outstanding 60,551,390 and
59,946,280 shares, respectively
(includes treasury shares) 605 599
Class B, authorized 300,000,000 shares,
issued and outstanding 45,126,115 and
45,406,115 shares, respectively 451 454
Additional paid-in capital 176,165 175,804
Other, including 35,536,341 and 31,354,622
treasury shares, respectively (112,708) (117,702)
Accumulated deficit (585,637) (507,168)
Total common stockholders' deficiency (521,124) (448,013)
$2,173,121 $2,234,909
</TABLE>
See notes to consolidated financial statements
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
November 30, November 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue:
Cable service income $115,123 $91,156 $227,808 $180,861
Cellular service income 35,359 27,713 67,724 54,635
Australian operations 8,514 2,170 16,468 2,170
158,996 121,039 312,000 237,666
Costs and expenses:
Cost of services - Cable 25,343 19,612 49,688 39,583
Cost of services - Cellular 8,893 6,824 16,362 12,537
Selling, general and
administrative 39,059 29,190 74,953 58,619
Australian expenses 7,604 8,943 14,564 8,943
Depreciation and
amortization - domestic 59,280 47,175 115,416 94,900
Depreciation and amortization
- Australia 3,702 -- 10,216 --
Write-down of
Australian assets -- -- 40,000 --
143,881 111,744 321,199 214,582
Operating (loss) income 15,115 9,295 (9,199) 23,084
Gain on sale of assets -- 27 48 4,203
Interest expense 49,103 44,551 97,527 90,333
Other income 2,673 251 4,041 466
Loss before income tax
(benefit) and
minority interest (31,315) (34,978) (102,637) (62,580)
Income tax (benefit) (10,976) (7,251) (17,574) (12,057)
Loss before minority
interest (20,339) (27,727) (85,063) (50,523)
Minority interest in
loss of subsidiaries 3,082 6,579 6,594 7,458
Net loss $(17,257) $(21,148) $(78,469) $ (43,065)
Dividend requirement
on subsidiary convertible
redeemable preferred stock $ 1,251 $ 1,068 $ 2,349 $ 2,103
Loss applicable to
common shares $(18,508) $(22,216) $(80,818) $(45,168)
Loss per common share $ (.25) $ (.30) $ (1.09) $ (.61)
Weighted average number
of common shares
outstanding during
the period 74,141,000 73,679,000 74,105,000 73,631,000
See notes to consolidated financial statements
</TABLE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION> Six Months Ended November
30,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from subscribers and others $ 365,278 $273,548
Cash paid to suppliers, employees and
governmental agencies (217,464) (173,473)
Interest paid (82,139) (79,504)
NET CASH PROVIDED BY OPERATING ACTIVITIES 65,675 20,571
INVESTING ACTIVITIES:
Capital expenditures (73,947) (51,609)
Cable television franchise expenditures (540) (2,211)
Acquisition of other assets (16,774) (3,552)
Acquisition of cable television and wireless
telephone systems (38,909) (45,761)
Capital contributed to equity investments (236) (421)
Capital returned from equity investments 3,738 3,584
NET CASH (USED IN) INVESTING ACTIVITIES (126,668) (99,970)
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 579,116 268,500
Principal payments on long-term debt (567,050) (258,456)
Debt issuance costs (2,364) (5,023)
Issuance of common stock 2,713 995
Purchase of treasury stock (1,590) (96)
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,825 5,920
NET DECREASE IN CASH AND SHORT-TERM
INVESTMENTS (50,168) (73,479)
CASH AND SHORT-TERM INVESTMENTS -
BEGINNING OF PERIOD 164,592 228,764
CASH AND SHORT-TERM INVESTMENTS -
END OF PERIOD $ 114,424 $ 155,285
</TABLE>
See notes to consolidated financial statements
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Amounts in thousands)
<TABLE>
<CAPTION> Six Months Ended November 30,
1996 1995
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
NET LOSS $ (78,469) $ (43,065)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 125,632 94,900
Write-down of Australian assets 40,000 --
Gain on sale of assets -- (4,176)
Deferred income taxes - decrease (21,112) (13,000)
Minority interest in loss of subsidiaries (6,594) (12,924)
Non-cash interest charges 10,962 14,994
Other (3,499) (266)
Change in assets and liabilities,
net of effects of acquired, exchanged
and disposed cable television
and cellular telephone systems
Accounts receivable - (increase) (12,752) (13,510)
Prepaid expenses and other
current assets - (increase) (8,162) (5,035)
Accounts payable and accrued
expenses - increase 18,901 2,302
Customers' deposits and
prepayments - increase 768 351
Total adjustments 144,144 63,636
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 65,675 $ 20,571
</TABLE>
See notes to consolidated financial statements
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except subscriber, pop and share data)
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 November 30, 1996 and the results of its consolidated
operations and cash flows for the six months ended November 30, 1996 and
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, 1996 Annual Report on Form 10-K. Certain
reclassifications have been made to prior period balances to conform with
the current period's presentation.
During the six month period ended November 30, 1995, 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. WRITE-DOWN OF AUSTRALIAN ASSETS
Since commencement of its operations in the Australian Pay TV Business,
East Coast Pay Television Pty. Limited, an Australian Company ("ECT") has
been funded by capital contributions and short-term debt facilities from
its principal security holders (including the Company), and third party
bank financings. These debt facilities are currently payable upon
demand. There is no assurance that such funding will continue to be
available, or that the lenders (including the Company) will continue to
extend the maturity of the demand loans. On September 30, 1996, ECT was
notified that two of its debt facilities currently held by a third party
bank which aggregate approximately $9,600 which, had by their terms
matured, were in default. ECT is currently in negotiations to refinance
all or a portion of the facilities. There is no assurance that such
negotiations will be successful. In that regard, the Company's
Australian Holding Company has reserved against its short-term advances
to ECT in the aggregate amount of $40,000. As a result, the Company
recorded this reserve in the six months ended November 30, 1996, as a
write-down of its Australian assets in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No.
121") which requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable and specifies the criteria for the determination and
measurement of an impairment loss. In addition to the occurrence of the
default under ECT's third party debt facilities, the write-down was based
upon changes in market conditions, development plans and other
considerations. For further discussion see Management's Discussion and
Analysis.
The Company determined to pursue a strategy to sell its investments in
its Australian operations. The Company is currently in discussion with
investment advisors with respect to the sale of these interests. The
Company has not as yet developed an estimate of the net proceeds to be
received on disposition or the expected period required for completion of
the disposition. As a result, the operating results for the Australian
operations have been reported as a component of continuing operations.
Once the Company has developed its formal plan for disposition, including
its estimate of the net proceeds upon disposition and the period expected
to be required for completion of the disposition, the Company anticipates
accounting for its Australian operations as discontinued operations.
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 $55,986 and $44,549 for the six months ended November 30,
1996 and November 30, 1995, respectively.
Cellular telephone service income includes service revenues and charges
for installation and connections, net of land line charges of $14,414
and $8,937 for the six months ended November 30, 1996 and November 30,
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 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 January 10, 1997, there was
$252,000 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.
As of January 10, 1997, there were 4,239,231 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 January 10, 1997, $400,000 remained available for
issuance.
NOTE 5. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
The table below summarizes non-cash reclassifications that occurred
during the six months ended November 30, 1996 and November 30, 1995. The
reclassifications result from the Company's acquisitions and exchanges
and consolidation of entities previously accounted for by the equity
method of accounting:
<TABLE>
<CAPTION> Six Months Ended November 30,
1996 1995
<S> <C> <C>
Current assets $ $11,635
Property, plant and equipment 11,042
Equity investments (92,549)
Cable television franchises (14,966) 110,054
Wireless telephone licenses 5,875
Goodwill 14,966 (4,060)
Other assets (987)
$ -- $ 42,010
Current liabilities $ (7,203) $ 26,209
Deferred taxes (1,454)
Minority interest 16,015
Additional paid in capital 1,240
Translation adjustments 7,203 --
$ -- $ 42,010
</TABLE>
NOTE 6. ACQUISITIONS
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 45,000
primary basic subscribers. The aggregate purchase price for the cable
television systems was $92,900 subject to adjustment. Citizens and the
Company own and operate the cable television systems in a joint venture
structure in which each company will have a 50% ownership interest. 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 21,000 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 May 31, 1996, the Company acquired the cable television systems
serving Anaheim, Hermosa Beach/Manhattan Beach, Fairfield and Rohnert
Park/Yountville, California for an aggregate purchase price of
approximately $287,600, subject to adjustment. Funds for this
acquisition were provided by an existing bank credit facility. At May
31, 1996, such cable television systems served an aggregate of
approximately 135,000 primary basic subscribers.
On August 16, 1996, the Company and Citizens entered into agreements to
acquire three cable television systems which serve an aggregate of
approximately 76,000 primary basic subscribers. These systems are
primarily located in Yorba Linda, Orange County, Diamond Bar, Oxnard and
Ventura County, California. The aggregate purchase price for these
systems is approximately $140,000 subject to adjustment. The
Century/Citizens Joint Venture currently expects to fund the acquisitions
using commercial bank facilities, the terms of which are currently being
negotiated.
Acquisitions, Exchanges, Dispositions - Centennial
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 94.3% 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 14.3% minority interest in the Elkhart, Indiana RSA, a market
in which the Company now has a 91.4% interest, and an additional 12.7%
equity investment interest in the Lake Charles, Louisiana MSA, a market
in which the Company now has a 25.1% interest, for a cash payment of
approximately $2,951.
In summary, during fiscal 1996, Centennial acquired 813,800 net pops,
additional minority interests in existing Centennial markets and $1,383,
in cash, in exchange for 1,002,500 net pops previously owned by
Centennial.
On September 12, 1996, Centennial acquired for approximately $34,000 in
cash, 100% of the ownership interests in the partnership owning the non-
wireline cellular telephone system serving the Benton Harbor, Michigan
MSA. The Benton Harbor market represents approximately 161,400 Net Pops.
Centennial has determined to pursue a strategy to sell or otherwise
dispose of its minority interests in cellular telephone systems
representing approximately 1,100,000 net pops. Centennial has not yet
made a final determination as to the estimated sale proceeds or the
timing of such disposition.
Centennial has withdrawn its application to participate in the FCC
auction of PCS frequency blocks D and E. Centennial is expected to
receive $11,000 in return of its deposit with the FCC related to these
auctions.
Centennial Personal Communications Services ("PCS")
Centennial was the successful bidder for one of two MTA licenses (granted
June 23, 1995) 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.
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.
<TABLE>
<CAPTION> Six Months Ended November 30,
1996 1995
<S> <C> <C>
Revenues $ 329,517 $ 285,170
Net loss (79,549) (59,461)
Net loss per common share (1.11) (.84)
</TABLE>
Pro forma net loss per common share for the six months ended November 30,
1996 and November 30, 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 7. LONG-TERM DEBT
(a) CCC-II, Inc. ("CCC-II"), a subsidiary of the Company, entered into a
credit agreement as amended August 12, 1996, that provides CCC-II 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 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 0% to 0.5% per annum
based upon certain conditions, or (b) the London Interbank Offering Rate
plus 0.75 to 1.375% 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.
(b) CCC-I, Inc. ("CCC-I"), a subsidiary of the Company, entered into a
credit agreement as amended August 12, 1996, that provides CCC-I a three
year $525,000 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 were used by the
Company to repay existing indebtedness and will be used for working
capital and general corporate purposes. The repayment by the Company on
August 7, 1995, of its existing indebtedness discharged all of the
Company's obligations under its then-existing $300,000 credit agreement
and, as a result, such agreement was terminated. The interest rates
payable on borrowings under the credit facility are based on, at the
election of CCC-I, (a) the base rate of interest announced by Citibank,
N.A. plus 0% to 0.625% per annum based upon certain conditions, or (b)
the London Interbank Offering Rate plus 0.75% to 1.625% 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.
(c) 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.
(d) On September 12, 1996, Centennial entered into a $50,000 credit
facility with Citibank, N.A. The facility terminates on March 20, 1998.
Approximately $34,000 of the facility was used to fund the Benton Harbor,
Michigan cellular telephone system acquisition (see acquisitions -
Centennial). The remainder will be used for working capital and general
corporate purposes. The interest rate payable on borrowings under the
new credit facility are based at the election of Centennial, on (a) the
"Base Rate", as defined, plus a margin of 2% or (b) the "Eurodollar
Rate", as defined, plus a margin of 3%. The facility is secured by the
stock of certain of Centennial's subsidiaries not otherwise subject to
restrictions under its Senior Note Indentures. The credit facility
restricts the incurrence of certain additional debt, limits Centennial's
ability to pay dividends and requires that certain operating tests be
met.
At November 30, 1996, the Company was in compliance with all covenants of
its respective credit facilities.
NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation", which will be adopted by the Company in
fiscal 1997 as required by the statement. The Company has elected to
continue to measure such compensation expense using the method prescribed
by Accounting principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", as permitted by SFAS No. 123. When adopted, SFAS
No. 123 will not have any effect on the Company's financial position or
results of operations, but will require the Company to provide expanded
disclosure regarding its stock-based employee compensation plans.
NOTE 9. SEGMENT INFORMATION
Information about the Company's operations in its three business segments
for the six months ended November 30, 1996 and 1995 is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
<S>
1996 1995
<C> <C>
Gross revenues:
Cable television $ 227,900 $ 180,947
Cellular telephone 67,724 54,635
Australian operations 16,468 2,170
Eliminations (92) (86)
$ 312,000 $ 237,666
Operating (loss) income:
Cable television $ 47,316 $ 39,700
Cellular telephone (8,111) (9,526)
Australian operations (48,312) (7,004)
Eliminations (92) (86)
$ (9,199) $ 23,084
Net loss:
Cable television $ (18,702) $(29,321)
Cellular telephone (12,228) (10,767)
Australian operations (55,811) (10,140)
Eliminations 8,272 7,163
$ (78,469) $(43,065)
Assets, at end of period
Cable television $1,557,355 $1,289,916
Cellular telephone 805,348 782,799
Australian operations 83,023 154,099
Eliminations (272,605) (256,322)
$2,173,121 $1,970,492
Depreciation and amortization:
Cable television $ 77,625 $ 59,359
Cellular telephone 37,791 35,541
Australian operations 10,216 --
$ 125,632 $ 94,900
Capital expenditures:
Cable television $ 31,197 $ 30,018
Cellular telephone 40,903 21,591
Australian operations 1,847 --
$ 73,947 $ 51,609
</TABLE>
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 31.8%
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 the consolidated
information.
NOTE 9 - CONTINUED
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
November 30, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Century
Communications
Corp. before
consolidation Centennial Reclassification
of Centennial Cellular Australian and
and Australia Corp. Operations Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-
term investments $ 85,961 $24,687 $ 3,776 $ -- $ 114,424
Accounts receivable
- net 22,148 21,018 12,146 105 55,417
Prepaid expenses and
other current assets 5,364 7,997 1,497 -- 14,858
Total current assets 113,473 53,702 17,419 105 184,699
Property, plant
& equipment - net 522,220 127,953 17,049 -- 667,222
Investment in
marketable equity
securities 52,449 -- -- -- 52,449
Investment in
Centennial Cellular
Corp., at cost 139,685 -- -- (139,685) --
Equity investment
in cable television
and cellular telephone
systems - net 143,627 98,641 950 (135,564) 107,654
Debt issuance
costs - net 20,058 7,694 -- -- 27,752
Cable television
franchises - net 391,622 -- 46,978 -- 438,600
Wireless telephone
licenses - net -- 372,027 -- -- 372,027
Excess of purchase
price over value
of net assets
acquired - net 158,439 131,866 -- -- 290,305
Other assets 15,782 13,465 627 2,539 32,413
$1,557,355 $805,348 $83,023 $(272,605) $2,173,121
</TABLE>
NOTE 9. CONTINUED
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
(CONTINUED)
November 30, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Century Communications
Corp. before
consolidation Centennial Reclassification
of 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 $ -- $ 15,149 $ -- $ 15,199
Accounts payable and
accrued expenses 81,513 31,828 25,282 -- 138,623
Customers' deposits
and prepayments 13,852 6,286 -- -- 20,138
Total current liabilities 95,415 38,114 40,431 -- 173,960
Long-term debt 1,724,524 380,000 -- -- 2,104,524
Deferred liability 5,000 2,200 -- (7,200) --
Deferred income taxes 26,882 51,480 -- -- 78,362
Minority interest
in subsidiaries 55,540 -- -- 95,572 151,112
Due to parent -- -- 143,627 (143,627) --
Convertible redeemable
preferred stock -- 186,287 -- -- 186,287
Second series convertible
redeemable preferred stock -- 7,252 -- (7,252) --
Common stockholders'
equity (deficiency):
Common stock, par
value $.01 per share:
Class A 605 165 -- (165) 605
Class B 451 105 -- (105) 451
Additional paid-in capital 87,140 375,770 -- (286,745) 176,165
Other (119,158) (4,801) 6,450 4,801 (112,708)
Accumulated deficit (319,044) (231,224) (107,485) 72,116 (585,637)
Total common stockholders'
equity (deficiency) (350,006) 140,015 (101,035) (210,098) (521,124)
$1,557,355 $805,348 $ 83,023 $(272,605) $2,173,121
</TABLE>
NOTE 9. CONTINUED
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS FINANCIAL DATA
Six Month Period Ended November 30, 1996
(Amounts in thousands)
<TABLE>
<CAPTION> Century
Communications
Corp. before
consolidation Centennial Reclassification
of Centennial Cellular Australian and
and Australia Corp. Operations Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenues $ 227,900 $67,724 $16,468 $ (92) $ 312,000
Costs and expenses:
Costs of services 49,688 16,362 -- -- 66,050
Selling, general
& administrative 53,271 21,682 -- -- 74,953
Depreciation and amortization 77,625 37,791 10,216 -- 125,632
Australian operations -- -- 14,564 -- 14,564
Australian write-down -- -- 40,000 -- 40,000
180,584 75,835 64,780 -- 321,199
Operating income/(loss) 47,316 (8,111) (48,312) (92) (9,199)
Income (loss) from
equity investments -- 8,084 (2,797) (5,287) --
Interest 78,066 14,759 4,702 -- 97,527
Gain on sale of assets -- 48 -- -- 48
Other (income)/loss 1,246 -- -- (5,287) (4,041)
Loss before income
tax provision benefit
and minority interest (31,996) (14,738) (55,811) (92) (102,637)
Income tax benefit (14,800) (2,774) -- -- (17,574)
Loss before minority interest (17,196) (11,964) (55,811) (92) (85,063)
Minority interest in
(income) loss of
subsidiaries (1,506) (264) -- 8,364 6,594
Net Loss $ (18,702) $(12,228) $(55,811) $ 8,272 $ (78,469)
</TABLE>
NOTE 10. Changes in stockholders' deficiency
<TABLE> Common Stock
<CAPTION> Class A Class B
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
Balance at June 1, 1995 59,484,685 $ 595 45,406,115 $ 454
Shares issued in connection with
employee incentive plans 461,595 4
Unrealized appreciation of
marketable securities
Foreign currency translation adjustment
Net paid-in capital contributed by
minority interests
Accretion in liquidation value of
subsidiary preferred stock
Vesting of subsidiary stock options
Net loss
Balance at May 31, 1996 59,946,280 599 45,406,115 454
Shares issued in connection with
employee incentive plans 300,110 3 25,000
Class A shares purchased by
the Company
Class B shares converted to
Class A shares 305,000 3 (305,000) (3)
Accretion in liquidation value of
subsidiary preferred stock and
preferred stock dividends
Foreign currency translation adjustment
Unrealized loss of marketable
equity securities
Net loss
Balance at November 30, 1996 60,551,390 $ 605 45,126,115 $ 451
</TABLE>
NOTE 10. Changes in stockholders' deficiency (continued)
<TABLE>
<CAPTION> Additional Paid-In (Accumulated
Capital Deficit) Other Total
<S> <C> <C> <C> <C>
Balance at June 1, 1995 $175,545 $(405,051) $(123,188) $(351,645)
Shares issued in connection with
employee incentive plans 2,971 (158) 2,817
Change in unrealized
appreciation of
marketable securities 6,397 6,397
Foreign currency
translation adjustment (753) (753)
Net paid-in capital
contributed by
minority interests 1,238 1,238
Accretion in liquidation value of
subsidiary preferred stock (4,256) (4,256)
Vesting of subsidiary
stock options 306 306
Net loss (102,117) (102,117)
Balance at May 31, 1996 175,804 (507,168) (117,702) (448,013)
Shares issued in connection with
employee incentive plans 2,710 2,713
Class A shares purchased by
the Company (1,590) (1,590)
Class B shares converted
to Class A shares --
Accretion in liquidation value of
subsidiary preferred stock and
preferred stock dividends (2,349) (2,349)
Foreign currency
translation adjustment 7,203 7,203
Change in unrealized appreication of
marketable equity securities (619) (619)
Net loss (78,469) (78,469)
Balance at November 30, 1996 $176,165 $(585,637) $(112,708) $(521,124)
Other stockholders' deficiency items November 30, 1996 May 31, 1996
Treasury stock, at cost $ (139,352) $ (137,762)
Unrealized appreciation of
marketable securities 20,194 20,813
Foreign currency translation adjustment 6,450 (753)
$ (112,708) $ (117,702)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (dollar amounts in thousands except subscriber, pop
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
31.8% 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 first quarter of the fiscal year ended May 31,
1996, the Company, for accounting and reporting purposes, consolidated
the operations of East Coast Pay Television Pty. Limited, an Australian
company ("ECT"). ECT was previously accounted for by the equity method
of accounting. There was no significant impact on the consolidated
statement of operations as a result of the change. 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. On August 23,1996, the FCC
released an Order seeking comment on a proposed resolution of pending
basic and cable programming service tier rate complaints in several Los
Angeles area cable systems served by the Company. The proposed
resolution also calls for the FCC to reconsider the Letter of Inquiry
ruling adopted by the FCC with respect to the Company's Los Angeles and
Beverly Hills, California systems in December 1994. If finally adopted
by the FCC, the proposed resolution would require the Company to adjust
its rates for its basic and cable programming services tiers and make
approximately $1,900 in subscriber refunds. Under the terms of the
proposed resolution, local franchising authorities could "opt out" of the
specified refunds and decide basic service tier refunds and rates based
on the terms of the Letter of Inquiry, as reconsidered.
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 services and so called
"external costs" as delineated in the rules. The bulk of such price
adjustments became effective during the first quarter of fiscal years
1996 and 1997.
On February 8, 1996, "The Telecommunications Act of 1996" ("Act") was
enacted into law. 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.
Six Months Ended November 30, 1996 and November 30, 1995
Revenue for the six months ended November 30, 1996 increased by $74,334
or 31.3 %, over the six months ended November 30, 1995. Revenue from
cable television operations increased by $46,947 or 26.0 %, over the
corresponding six months ended November 30, 1995 as a result of increases
in the number of cable television subscriptions and acquisitions.
Acquisitions of cable television systems accounted for $26,893 of the
increase or 57.3 %. Average primary basic cable television subscribers
("Basic Subscribers") for the twelve months ended November 30, 1996, were
approximately 1,158,000 as compared to approximately 1,046,000 Basic
Subscribers for the twelve-month period ended November 30, 1995, an
increase of 10.7 %. The impact of acquisitions of cable television
systems accounted for 65% of the increase. Average monthly revenue per
Basic Subscriber, including programmer's share of such revenue, was
approximately $36.92 during the twelve months ended November 30,
1996, as compared to approximately $34.01 during the comparable prior
twelve month period, an increase of 8.6%. The Australian operations
accounted for $14,298, or 19.2% of the total increase in revenue.
Revenue from cellular telephone operations for the six months ended
November 30, 1996 increased by $13,089 or 24 %, over the six months ended
November 30, 1995. The increase in revenue was the result of growth in
subscriptions to and the resulting increased usage of cellular telephone
service. Acquisitions accounted for increased revenue of $812 or 6.0 %
of the increase for the six months ended November 30, 1996.
Costs and expenses excluding depreciation and amortization and Australian
activities for the six months ended November 30, 1996 increased by
$30,264 or 27.4 % over the six months ended November 30, 1995. Cost of
services for the six months ended November 30, 1996 increased by $13,930
or 26.7% over the corresponding period in the prior year, while selling,
general and administrative expense increased by $16,334 or 27.9%.
Cost of services of the Company's cable television operations increased
by $10,105 or 25.5%, while selling, general and administrative expenses
of the Company's cable television operations increased by $10,735 or
25.2%. The Company's recent cable television acquisitions accounted for
$4,640 or 45.9% of the $10,105 increase in cost of services and $5,501 or
51.2% of the $10,735 increase in selling, general and administrative
expense. As a result, before giving effect to increased costs associated
with acquisitions, costs of services and selling, general and
administrative expenses increased by $5,465 and $5,234, respectively
during the six months ended November 30, 1996. The principal reason for
the increase in these costs was the increase in the variable component of
the Company's cost structure which increases in relation to increased
revenue.
Cost of services related to the cellular telephone operations during the
six months ended November 30, 1996 was $16,362, an increase of $3,825 or
30.5% as compared to the six months ended November 30, 1995. The reason
for the increase was a larger number of telephone units sold, the
variable costs associated with a larger revenue and subscription base and
increased cellular coverage areas resulting from the continued expansion
of Centennial's network. Included in cost of services during the quarter
ended November 30, 1996 were $1,081 of pre-operating costs associated
with the start-up of Centennial's Puerto Rico telecommunications
business.
Selling, general and administrative expenses related to the cellular
telephone operations rose to $21,682, an increase of $5,599 or 34.8%
above the $16,083 recorded during the six months ended November 30, 1995.
The increase resulted primarily from the variable costs associated with a
larger subscription and revenue base and an increase in Centennial's
managerial, customer service and sales staff to accommodate the larger
subscription and revenue base and the anticipated growth of its cellular
telephone business. Included in selling, general and administrative
expenses during the quarter ended November 30, 1996 were $1,939 of pre-
operating costs associated with the start-up of Centennial's Puerto Rico
telecommunications business.
The Company anticipates continued increases in the cost of services and
selling, general and administrative expenses as the growth of its cable
television and cellular telephone business continues. In addition, the
Company expects that the start-up and development of Centennial's
recently acquired wireless telephone markets and the Company's recent
cable television acquisitions will contribute to an increase in these
costs and expenses.
Depreciation and amortization (domestic) for the six months ended
November 30, 1996 increased by $20,516 or 21.6 % over the six months
ended November 30, 1995. The cellular telephone operations and
acquisitions accounted for $2,250 of this increase, while the cable
television operations accounted for $18,266. The principal reason for
the increase was acquisition of cable television properties which
accounted for 61% of the increase.
The Australian operations incurred expenses of $14,564 related to the
start-up and development of the Australian Pay TV market, while
depreciation and amortization expense, the result of its initial buildout
and license acquisition was $10,216.
Operating loss for the six months ended November 30, 1996 was $9,199 or
$32,283 above the operating loss for the six months ended November 30,
1995, principally as a result of the Company's $40,000 write-down of
Australian assets. (See Liquidity and Capital Resources - Australian Pay
Television). The cellular operating loss for the six months ended
November 30, 1996 of $8,111 decreased by $1,415 or 14.8% from the loss of
$9,526 for the six months ended November 30, 1995. Including the write-
down, the Australian operating loss for the six months ended November 30,
1996 was $48,312. The Company's operating income before the inclusion of
its cellular and Australian operations was $47,316 an increase of $7,616
or 19.2% over the six months ended November 30, 1995.
Other income represents primarily, the Company's proportionate share of
the net income or loss of minority investment interests accounted for by
the Company using the equity method of accounting. The Company has
recorded $2,797 and $5,000 of expense for the six months ended November
30, 1996 and 1995 for its minority investments in Australia, offset, in
part, by $8,084 and $5,466 of income for the six months ended November
30, 1996 and 1995 related to minority investments of the Company's
cellular telephone operations.
Interest expense for six months ended November 30, 1996 increased by
$7,194 or 8% as compared with the six months ended November 30, 1995.
Each of the Company's three business segments contributed to the
increase; Cable $4,658, Cellular ($1,792) and Australia $4,328. Interest
expense of the Company's Cable segment rose as a result of higher average
debt levels. For the six months ended November 30, 1996, the average
debt outstanding was approximately $1,717,214 or $328,668 above the
average outstanding debt balance of $1,388,546 during the six months
ended November 30, 1995. The increase in expense was partially offset by
a decline in interest rates. The Company's weighted average interest
rate excluding borrowings of Centennial, Australia and the Company's 50%
owned joint ventures was approximately 9.2% in the six months ended
November 30, 1996 as compared to approximately 10.5% in the six months
ended November 30, 1995. In addition, the Company increased the
proportion of floating rate bank debt in its capital structure. Short-
term interest rates of the Company's variable rate bank credit agreement
increased from 6.7% at November 30, 1995 to 7.2% at November 30, 1996.
The decline in interest expense of the Company's cellular segment is the
result of the capitalization of $2,598 of interest charges related to the
acquisition cost of Centennial's PCS license. Gross interest costs of
cellular for the six months ended November 30, 1996 and 1995 were $17,357
and $16,551. The increase is the result of additional borrowings for
acquisitions, working capital and debt service. Centennial's average
debt outstanding during the six months ended November 30, 1996 was
$365,000, an increase of $15,000 as compared to the average debt level of
$350,000 during the six months ended November 30, 1995. Centennial's
weighted average interest rate increased to 9.6% for the six months ended
November 30, 1996 from 9.5% for the six months ended November 30, 1995.
After losses attributable to minority interests in subsidiaries for the
six months ended November 30, 1996, a pretax loss of $96,043 was
incurred, as compared to a pretax loss of $55,122 for the six months
ended November 30, 1995. The income tax benefit of $17,574 for the six
months ended November 30, 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 six months ended November 30, 1996 and November
30, 1995.
The net loss for the six months ended November 30, 1996 of $78,469
represents an increase of $35,404 from the loss of $43,065 for
the six months ended November 30, 1995, principally as a result of the
Company's $40,000 write-down of Australian assets. (See Liquidity and
Capital Resources - Australian Investment). The Company expects net
losses to continue until such time as the operations of the wireless
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 wireless telephone system
infrastructure generate sufficient earnings to offset the associated
costs of acquisitions and operations described above.
Three Months Ended November 30, 1996 and November 30, 1995
Revenue for the three months ended November 30, 1996 increased by $37,957
or 31.4% over the three months ended November 30, 1995. Revenue from
cable television operations increased by $23,967 or 26.3% 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 $6,344 of the consolidated increase.
Revenue from cellular telephone operations for the three month period
ended November 30, 1996 increased by $7,646 or 27.6% over the three
months ended November 30, 1995, primarily as a result of growth in
subscriptions and increased usage of cellular telephone services. In
addition, the acquisition of one cellular telephone system accounted for
$812 of the increase in revenue.
Costs and expenses excluding depreciation and amortization and Australian
activities for the three month period ended November 30, 1996 increased
by $17,669 or 31.8% over the three months ended November 30, 1995. The
cellular telephone operations accounted for $5,737 or 32.5% of this
increase. Costs of services for the three months ended November 30, 1996
in the Company's cable operations increased by $5,731, while cost of
services increased by $2,069 in the cellular telephone operations. As a
result, cost of services increased by $7,800 over the corresponding
period in the prior year. Selling, general and administrative expenses
increased by $9,869 over the three months ended November 30, 1995. The
cellular telephone operations accounted for $3,668 or 37.2% of the
increase. Depreciation and amortization expense - domestic for the three
months ended November 30, 1996 increased by $12,105 or 25.7% over the
comparable period in the prior year. The cellular telephone operations
accounted for $1,799 of this increase. Australian operations incurred
expenses of $11,306. Such expenses include $3,702 of depreciation and
amortization.
Operating income for the three months ended November 30, 1996 increased
by $5,820 or 62.6% over the corresponding three months ended November 30,
1995. The cellular operating loss for the three months ended November
30, 1996 of $4,712 decreased by $110 or 2.3% below the corresponding 1995
three month period.
The Company has recorded $2,673 of other income which represents certain
minority investments in Australia and Centennial accounted for by the
Company using the equity method of accounting.
Interest expense for the three months ended November 30, 1996 increased
by $4,552 or 10.2% as compared with the three months ended November 30,
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 9.08% for the three months ended
November 30, 1996 from 10.1% for the three months ended November 30,
1995. Centennial's weighted average interest rate was 9.7% for the three
months ended November 30, 1996 and 9.5% for the three months ended
November 30, 1995.
After losses attributable to minority interests in subsidiaries for the
three months ended November 30, 1996, a pretax loss of $28,233 was
incurred, as compared to a pretax loss of $28,399 in the three months
ended November 30, 1995. The income tax benefit of $10,976 and $7,251
for the three months ended November 30, 1996 and 1995, respectively,
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 November 30, 1996.
The net loss of $17,257 for the three months ended November 30, 1996
represents a decrease of $3,891 or 18.3% below the comparable loss of
$21,148 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 twenty eight
cellular telephone markets which it owns and manages, all of which are
considered to be in the early development phase of operations.
Centennial also owns minority equity investment interests in certain
other cellular telephone systems. Centennial successfully bid on March
13, 1995, 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. Subsidiaries of the Company
have entered into credit agreements with various bank groups and private
lending institutions providing for an aggregate of approximately $1,105
of potential borrowing capacity as of January 10, 1997.
The Company's internally-generated cash along with third party financing,
primarily bank borrowings and the issuance of debt securities to the
public, have enabled it to fund its working capital requirements, capital
expenditures for property, plant and equipment, acquisitions, investments
and debt service. 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 start-up expenditures for the wireless
telephone systems. During the six months ended November 30, 1996, the
Company made capital expenditures of $73,947. Centennial made capital
expenditures of $40,903 or 55.3% of the Company's total capital
expenditures. As the Company completes capital projects started in prior
fiscal years, it anticipates an annualized rate of approximately $70,000
for cable television capital expenditures in fiscal 1997. 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 $35,000 during the current fiscal year.
Centennial, during fiscal 1996, began construction of its PCS network in
Puerto Rico spending approximately $30,000 through November 30, 1996.
Centennial currently estimates that the remaining cost to complete the
build-out of the infrastructure of its PCS network will be approximately
$45,000, to be expended through fiscal 1998. 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 six months ended November 30, 1996, earnings were less than fixed
charges by $104,986. However, such amount reflects non-cash charges
totaling $127,981, consisting of depreciation and amortization of
$125,632 and non-cash subsidiary preferred stock dividends of $2,349.
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. Although to date, Centennial has been able to
obtain financing on satisfactory terms, there is no assurance that this
will continue to be the case in the future. It is currently anticipated
that any shortfall will be made up either through equity issuances or
additional borrowing. Both classes of Centennial's preferred stock are
subject to mandatory redemption in fiscal 2007. Any unpaid dividends
continue to accumulate without additional cost to Centennial.
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.
<TABLE>
<CAPTION>
Six months Ended November 30,
1996 1995
Amount % Amount %
<S> <C> <C> <C> <C>
Net cash provided by
operating activities $ 65,675 44.4 % $ 20,571 20.6 %
Interest paid 82,139 55.6 79,504 79.4
Net cash provided $147,814 100.0 % $100,075 100.0 %
Principal uses of
net cash provided:
Interest paid $ 82,139 55.6 % $ 79,504 79.4 %
Property, plant and
equipment(excluding
acquisitions) 73,947 50.0 % 51,609 51.6
Total $156,086 105.6 % $131,113 131.0 %
Cash (required) $ (8,272) (5.6)% (31,038) (31.0)%
</TABLE>
Cash on hand was sufficient to fund the Company's expenditures for
property, plant and equipment and 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:
<TABLE>
<CAPTION>
Six months Ended November 30,
1996 1995
<S> <C> <C>
Proceeds from long-term borrowings $579,116 $268,500
Principal payments on long-term debt (567,050) (258,456)
Debt issuance costs (2,364) (5,023)
Purchase of treasury stock (1,590) (96)
Issuance of common stock 2,713 995
Cash used in financing activities: 10,825 5,920
Net capital returned from equity investments 3,502 3,163
Acquisition of and investments in cable
television, wireless telephone systems,
marketable securities and other assets (56,223) (51,524)
Cash required from operating
activities/cash on hand $(41,896) $(42,441)
</TABLE>
Financing and Capital Formation; The Company
CCC-II, Inc. ("CCC-II"), a subsidiary of the Company, entered into a
credit agreement as amended August 12, 1996, that provides CCC-II 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 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 0% to 0.5% per annum
based upon certain conditions, or (b) the London Interbank Offering Rate
plus 0.75% to 1.375% 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.
CCC-I, Inc. ("CCC-I"), a subsidiary of the Company, entered into a credit
agreement as amended August 12, 1996, that provides CCC-I a three year
$525,000 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 were used by the Company
to repay existing indebtedness and will be used for working capital and
general corporate purposes. The repayment by the Company on August 7,
1995, of its existing indebtedness discharged all of the Company's
obligations under its then-existing $300,000 credit agreement and, as a
result, such agreement was terminated. The interest rates payable on
borrowings under the credit facility are based on, at the election of
CCC-I, (a) the base rate of interest announced by Citibank, N.A. plus 0%
to 0.625% per annum based upon certain conditions, or (b) the London
Interbank Offering Rate plus 0.75% to 1.625% 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 fiscal year ended May 31, 1996, 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 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 January 10, 1997, 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. The Company is in compliance with the terms of the credit
facility.
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. The preferred stock carried no cash dividend requirements
through August 31, 1996 but the shares accreted liquidation preference
and redemption value at the rate of 7.5% per annum, compounded quarterly
until then. The fully accreted liquidation preference and redemption
value of the Convertible Redeemable Preferred Stock and the Second Series
Convertible Redeemable Preferred Stock, held by Citizens and Century at
August 31, 1996 was $186,287 and $7,252, respectively. Beginning
September 1, 1996, the holders of the Convertible Redeemable Preferred
Stock and the Second Series Convertible Redeemable Preferred Stock are
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. Both classes of Preferred Stock are subject to mandatory
redemption in fiscal 2007. Any unpaid dividends continue to accumulate
without additional cost to Centennial. On December 19, 1996, Centennial
paid cash dividends to Citizens and Century of $3,959 and $154,
respectively. Centennial has not made a determination regarding the
timing, amount, or distribution (if any) of additional preferred stock
dividends.
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 the current fiscal year 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.
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 January 10, 1997, there were 4,239,231 shares available for issuance
under this registration statement.
Centennial, on April 6, 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 January 10, 1997, $400,000 remained available for
issuance.
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"). Centennial's debt instruments contain
similar limitations on certain "restricted payments" including, 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.
On September 12, 1996, Centennial entered into a $50,000 credit facility
with Citibank, N.A. The facility terminates on March 20, 1998.
Approximately $34,000 of the facility was used to fund the Benton Harbor,
Michigan cellular telephone system acquisition (see Acquisitions,
Exchanges, Dispositions - Centennial). The remainder will be used for
working capital and general corporate purposes. The interest rate
payable on borrowings under the new credit facility are based on, at the
election of Centennial, (a) "Base Rate" plus a margin of 2% or (b)
"Eurodollar Rate" plus a margin of 3%. The facility is secured by the
stock of certain of Centennial's subsidiaries not otherwise subject to
restrictions under Centennial's Senior Note Indentures. The credit
facility restricts the incurrence of certain additional debt of
Centennial, limits Centennial's ability to pay dividends and requires
that certain operating tests be met.
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
in Puerto Rico is expected to be capital intensive, with remaining
network buildout costs of approximately $45,000 over fiscal 1997 and
1998. 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 the current fiscal year, 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 45,000
primary basic subscribers. The aggregate purchase price for the cable
television systems was $92,900 subject to adjustment. Citizens and the
Company own and operate the cable television systems in a joint venture
structure in which each company will have a 50% ownership interest. 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 21,000 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 May 31, 1996, the Company acquired the cable television systems
serving Anaheim, Hermosa Beach/Manhattan Beach, Fairfield and Rohnert
Park/Yountville, California for an aggregate purchase price of
approximately $287,000, subject to adjustment. Funds for this
acquisition were provided by an existing bank credit facility. At May
31, 1996, such cable television systems served an aggregate of
approximately 135,000 primary basic subscribers.
On August 16, 1996, the Company and Citizens entered into agreements to
acquire three cable television systems which serve an aggregate of
approximately 76,000 primary basic subscribers. These systems are
primarily located in Yorba Linda, Orange County, Diamond Bar, Oxnard and
Ventura County, California. The aggregate purchase price for these
systems is approximately $140,000. The Century/Citizens Joint Venture
currently expects to fund the acquisitions using commercial bank
facilities, the terms of which are currently being negotiated.
Acquisitions, Exchanges, Dispositions - Centennial
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. Centennial recognized a gain
of approximately $4,176 as a result of the sale.
On October 31, 1995, Centennial acquired (i) a 94.3% 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 14.3% minority interest in the Elkhart, Indiana RSA, a market
in which Centennial now has a 91.4% interest, and an additional 12.7%
equity investment interest in the Lake Charles, Louisiana MSA, a market
in which Centennial now has a 25.1% interest, for a cash payment of
approximately $2,951.
In summary, during fiscal 1996, Centennial acquired 813,800 Net Pops,
additional minority interests in existing Centennial markets and $1,383,
in cash (net), in exchange for 1,002,500 Net Pops previously owned by
Centennial.
On September 12, 1996, Centennial acquired for approximately $34,000 in
cash, 100% of the ownership interests in the partnership owning the non-
wireline cellular telephone system serving the Benton Harbor, Michigan
MSA. The Benton Harbor market represents approximately 161,400 Net Pops.
Centennial has determined to pursue a strategy to sell or otherwise
dispose of its minority interests in cellular telephone systems
representing approximately 1,100,000 net pops. Centennial has not yet
made a final determination as to the estimated sale proceeds or timing of
such disposition.
Centennial Personal Communications Services ("PCS")
Centennial was the successful bidder for one of two 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. Approximately, $15,500 of capital expenditures
were incurred during fiscal 1996 and approximately $15,700 during the six
months ended November 30, 1996. Centennial's participation in the PCS
business is expected to be capital intensive, requiring network buildout
costs of approximately $45,000 over fiscal years 1997 and 1998. In
addition, 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. Centennial is exploring various sources of external
financing including but not limited to bank financing, joint ventures,
partnerships and placement of debt and 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.
On July 31, 1996, Centennial filed applications to participate in an
upcoming FCC auction for broadband personal communications services
frequency D and E. Centennial listed Basic Trading Areas ("BTAs"), the
market designation for PCS license areas, that related to its cellular
operations. Centennial submitted a required refundable deposit of
$11,000 in order to maintain its bidding eligibility for the PCS licenses
in which it was interested. During the current fiscal quarter Centennial
withdrew from the auction. Centennial anticipates the refund of its
deposit at the close of the auction process.
Investments
Australian Pay Television
During fiscal 1994, 1995 and 1996 the Company invested, through a wholly-
owned subsidiary, approximately $145,000 in its Australian Pay TV
investments, including approximately $125,000 in East Coast Pay
Television Pty Limited, an Australian company ("ECT"). Since the fourth
fiscal quarter of 1996, the Company has written down $50,000 of this
investment (see below). The Company has determined to pursue a strategy
to sell its investments in its Australian operations. The Company is
currently in discussion with investment advisors with respect to the sale
of these interests. The Company has not as yet developed an estimate of
the net proceeds to be received on disposition or the expected period
required for completion of the disposition. As a result, the operating
results for the Australian operations have been reported as a component
of continuing operations. Once the Company has developed its formal plan
for disposition, including its estimate of the net proceeds upon
disposition and the period expected to be required for completion of the
disposition, the Company anticipates accounting for its Australian
operations as discontinued operations. ECT has been pursuing
opportunities to own operate and invest in, pay television services in
Australia. Australia is considered to be an emerging pay television
market. The 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. 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 long-term management
agreements with ECT.
ECT, through a wholly-owned subsidiary, owns Satellite Subscription
Broadcast License A ("License A"), one of three such licenses that may be
granted by Australian authorities prior to July 1997. The license allows
for Direct-To-Home ("DTH") satellite television broadcasting and allows
ECT to offer four channels of programming via DTH. Australis Media
Limited ("Australis"), another pay television company in Australia, owns
Satellite Subscription Broadcast License B ("License B"), the second of
the three licenses currently available for DTH services, allowing for the
DTH broadcast of four channels of programming. ECT and Australis have
entered into agreements pursuant to which ECT will offer its four License
A channels for distribution individually or as part of a combined package
with License B programming in a package of services known as the Galaxy
Package. License A and License B programming are to be distributed via
DTH, Microwave Multipoint Distribution Systems ("MDS") and via cable.
The Galaxy package will be distributed by Australis through DTH and MDS
in the six largest so-called capital cities in Australia (as well as
Western Australia) and in distinct regional areas outside the capital
cities by its franchisees. ECT is a franchisee of Australis in regions
covering approximately 755,000 households.
The License A and License B programming are distributed over common
infrastructure subject to a long term agreement between ECT and Australis
("The Infrastructure Utilization Agreement" or the "IUA"). Among other
terms, the IUA provides ECT with a participation in, and the right to
maintain a 25% interest in the net cash flow (as defined therein) of
Australis. The initial interest of 25% ("the Interest") was determined
based upon the proportional relationship of each company's investment in
Australian pay TV at that time (A$300 million, Australis and A$100
million ECT). The Interest may be adjusted proportionately downward
depending upon the extent to which ECT (at its sole option) elects to
fund a specified portion (i.e. up to its then Interest) of those funds
expended by Australis in the pay television business in Australia.
Before ECT is required to make such an election (and any resulting
contribution or recalculation of the interest) certain conditions
precedent must be met.
It is ECT's position that it is not yet required to make an election to
make a contribution toward such expenditures since certain conditions
precedent have not been met by Australis. Australis has asserted that as
of January 1996, ECT's interest has decreased from 25% to approximately
10% due to ECT's failure to contribute funds (approximately $136,000).
There can be no assurance that this dispute will be resolved in ECT's
favor, or that, after reviewing the relevant information, ECT will elect
to contribute its share, or any portion of the share, of the funding.
To the extent ECT elects to contribute its share of the funding under the
IUA, funds from various sources of external financing would be required.
There is no assurance that if ECT would otherwise elect to make such a
contribution, that such external financing would be available, and if so
available, would be on terms favorable to ECT.
ECT, Australis and Australis' other Franchisee 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 (the "Franchise
Agreement") pursuant to which it has the exclusive right (and is
obligated) for at least a fifteen 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. The ECT Franchise Areas contain approximately
755,000 households or approximately 12% of all Australian households.
Programming for the License A Package is provided by 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. ("UIH"), a leading international provider of
pay television services which holds interests in the two other
Franchisees of Australis. The above noted structure is pursuant to a
series of agreements entered into by the Company, UIH and Foxtel, a joint
venture between Telstra Corporation Limited, the government-owned
Australian national telecommunications carrier, and The News Corporation
Limited, a major international media and entertainment company.
Programming provided by XYZ includes the Discovery Channel, a documentary
channel; Red, a music video channel; Nickelodeon, a children's and family
channel; and Arena, a general entertainment channel. In addition, XYZ is
developing two additional channels (channels 5 and 6) which it will seek
to have included in the Galaxy package.
ECT has entered into a long-term agreement with Foxtel (a competitive
cable television provider) pursuant to which Foxtel has agreed to
distribute the License A Package, as well as channels 5 and 6 throughout
Australia over Foxtel's cable television network. ECT receives a monthly
per subscriber fee from Foxtel for the License A Package. Foxtel, owns
the remaining 50% of XYZ. Pursuant to arrangements between ECT and
Foxtel, ECT is prohibited from granting any third party the right to
distribute the License A Package and Channels 5 and 6 by cable television
in Australia without the prior consent of Foxtel. However, ECT has
retained the non-exclusive right to distribution of the License A Package
by cable television in the East Coast Franchise areas. In addition, if
Foxtel supplies any Foxtel channels for distribution by Galaxy, Foxtel
must authorize Galaxy to provide the same Channels to the Franchisees for
distribution by MDS transmission and DTH satellite in the franchise
areas. These arrangements with Foxtel provide for fixed per subscriber
prices as well as minimum subscribers by January 1, 2001. Foxtel is
presently meeting the minimum guarantee.
The Company has also acquired an approximate 2% economic interest in
Australis for approximately $10,000. During the fourth quarter of fiscal
1996, the investment was written off by the Company based upon its then
assessment of the financial position of Australis (see below).
ECT's principal uses of capital have been to invest in and develop its
pay TV infrastructure and to fund operating losses. Specifically, ECT
has (i) invested approximately $104,721 to acquire its interest in
Satellite License A, (ii) invested approximately $11,279 to acquire
certain MDS licenses covering the geographic areas located in the ECT
Franchise Areas, and (iii) invested approximately $22,577 to build out
the network infrastructure and establish offices in its principal areas
of operation. In addition, since fiscal 1994, ECT has required
approximately $15,000 for operating activities.
ECT has generated negative cash flow from operating activities as a
result of startup costs associated with constructing and marketing
multichannel television and telecommunications service as well as
establishing the organizational infrastructure required for the operation
of the Australian Pay TV Business.
In order to generate operating cash flow, ECT's revenue must exceed
operating expenses. Increases in revenue will be dependent upon
continued growth in the number of subscriptions and maximizing revenue
per subscriber. The ability of ECT to continue the process of developing
its core managerial, administrative and marketing functions and the
construction of its pay TV network in its existing markets is subject to
the availability of additional financing. The Australian Pay TV Business
is expected to be highly competitive with two potential cable television
providers having announced plans for distribution of video services
throughout continental Australia. There can be no assurance that such
financing will be available or that ECT will generate sufficient cash
flow to meet its needs and, accordingly, there can be no assurance that
profitability will be achieved in the foreseeable future.
ECT requires substantial capital to operate, construct, expand and to
invest in the Australian Pay TV Business as well as funding operating
losses and debt service. All of ECT's Australian Pay TV Business
activities are considered to be in the start-up or early development
phase of operations. ECT must continue to seek various sources of
external financing to meet its current and future financial needs, which
may include bank financing, joint ventures and partnerships, investments
by third parties and public and private placements of debt and equity
securities. Absent such financing, there can be no assurance that ECT
will be in a position to fully exploit its market potential.
The Company expects that the Australian Pay TV Business will continue to
be capital intensive. At November 30, 1996, ECT had $17,049 of property,
plant and equipment placed in service. ECT believes it would need to
spend approximately $125,000 over the next five years to expand its MDS
and satellite networks, and market and distribute services in the ECT
Franchise Areas. In order to fund these commitments, ECT must raise
additional capital either from public or private placements of its equity
or debt securities, investments by third parties, joint ventures and
partnerships or bank borrowing. Although ECT has been able to obtain
financing for its operations to date, there is no assurance such
financings will be available to it in the future, or if available, on
terms favorable to ECT.
Since commencement of its operations in the Australian Pay TV Business,
ECT has been funded by capital contributions and short-term debt
facilities from its principal security holders (including the Company),
and third party bank financings. These debt facilities are currently
payable upon demand. There is no assurance that such funding will
continue to be available, or that the lenders (including the Company)
will continue to extend the maturity of the demand loans. On September
30, 1996, ECT was notified that two of its debt facilities currently held
by a third party bank which aggregate approximately $9,600 which, had by
their terms matured, were in default. ECT is currently in negotiations
to refinance all or a portion of the facilities. There is no assurance
that such negotiations will be successful, failing same ECT may not be
able to continue its operations. In that regard, the Company's
Australian Holding Company has reserved against its short-term advances
to ECT in the aggregate amount of $40,000. As a result, the Company has
recorded this reserve in the six months ended November 30, 1996, as a
write-down of its Australian assets in accordance with Statement of
Financial Accounting Standards No. 121. In addition to the occurrence of
the default under ECT's third party debt facilities, the write-down was
based upon changes in market conditions, development plans and other
considerations regarding the events described below with respect to
Australis.
Australis experienced liquidity problems in the first half of 1996 and,
as a result, implemented a recapitalization plan pursuant to which it
raised additional debt and equity. ECT is unable to determine if such
financing is sufficient to fund Australis' capital requirements. In
August 1996, Australis announced that it had entered into an agreement
with OptusVision, pursuant to which, on June 1, 1997, Australis will (I)
transfer its subscriber equipment and DTH infrastructure necessary to
provide management and operations services to a newly created entity and
(ii) transfer certain contractual rights and obligations related to its
branch network assets and customer service assets to a second newly
created entity, jointly owned by Australis and OptusVision. ECT and
another franchisee have initiated separate proceedings to challenge the
Autralis/OptusVision agreement. In addition, the proceedings instituted
by ECT incorporates causes and action claiming breach by Australis of the
Franchise Agreement and the IUA and for breach of an agreement among
Australis, a subsidiary of ECT and Optus Networks Pty Limited relating to
access to certain satellite transponders.
Further, if Australis were to become insolvent, and as a result, were not
able to provide infrastructure services, subscriber management systems
and other related services for ECT, ECT would need to develop such
services on its own, which could be on economic terms to ECT less
favorable than those now available from Australis. Under the Franchise
Agreement and IUA, ECT is dependent on the efforts of Australis in the
development of the pay television industry in Australia. ECT's financial
position (and as a result, the Company's investment in ECT) may be
materially and adversely affected if Australis were to become insolvent.
The Company's pay television subscriber business is dependent on
acceptance of the Galaxy package as a well-known national product as well
as the infrastructure established by Australis, including the national
marketing and subscriber management service.
In addition, ECT understands that under this circumstance, ECT may be
required to seek replacement programming currently provided by Australis
which may be on less favorable terms than those provided by Australis.
Additionally, ECT could be required to continue to provide the License A
Package to Australis, while the obligation of Australis to provide the
License B Package, either by itself or as part of the Galaxy package, to
ECT as a Franchisee could be avoided, and certain agreements, including
the IUA and the Franchise Agreement, could be modified or voided by a
bankruptcy liquidation if determined to be "unprofitable". Existing
obligations of Australis under these agreements could be subject to
reorganization claims and preferences. Moreover, if Australis were
unable to expand its subscriber base, the distribution of ECT's License
Package A throughout Australia may be inhibited. Further in the event of
any such insolvency ECT may be required to pay Australis' portion of the
satellite lease payments for the transmission of the License A and B
Packages since ECT is jointly and severally liable for those payments.
The incremental cost to ECT for the Australis portion of their obligation
would be approximately $6,250 per annum.
The Company is currently unable to predict the ultimate resolution of
these matters. At November 30, 1996 the remaining net book value of its
investments in the various aspects of Australian Pay TV after giving
effect to the aforementioned write-down of Australian assets, aggregated
approximately $35,000. The Company will continue to assess the impact,
if any, of the above noted matters on the carrying value of its
investments in the Australian Pay TV businesses.
Foreign Currency Exchange Rate Risks; Hedging
The Company's monetary assets and liabilities are subject to foreign
currency exchange risk as certain equipment purchases and payments for
certain operating expenses, such as programming expenses, are denominated
in currencies other than their own functional currency. In addition,
certain of the Company's subsidiaries have notes payable and notes
receivable which are denominated in a currency other than their own
functional currency or intercompany loans payable linked to the U. S.
dollar.
In general, the Company does not execute hedge transactions to reduce its
exposure to foreign currency exchange rate risks. Accordingly, the
Company may experience economic loss and a negative impact on earnings
with respect to its holdings solely as a result of foreign currency
exchange rate fluctuations, which include foreign currency devaluations
against the dollar. The Company may also experience economic loss and a
negative impact on earnings related to these monetary assets and
liabilities. In general, exchange rate risk to the Company's commitments
for equipment purchases and operating expenses is generally limited due
to the insignificance of the related monetary asset and liability
balances; however, exchange rate risk to the Company of these notes
payable and notes receivable and debt linked to the U. S. dollar have and
will continue to impact its reported earnings.
Australia generally does not restrict the removal or conversion of local
or foreign currency; however, there is no assurance this position will
continue.
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.
PART II - OTHER INFORMATION
ITEM 4. Vote of Security Holders
a) Registrant's annual meeting of shareholders was held on
October 29, 1996.
b) The following persons were elected as directors at said
meeting pursuant to the following votes:
<TABLE>
<CAPTION>
Number of Votes
Directors For Withheld
<S> <C> <C>
Bernard P. Gallagher 472,600,899 2,705,251
William M. Kraus 21,503,269 2,541,731
David Z. Rosensweig 472,606,186 2,699,964
Scott N. Schneider 472,600,082 2,706,068
Robert D. Siff 472,686,486 2,619,664
Peter J. Solomon 472,688,617 2,617,533
Andrew Tow 472,065,382 3,240,768
Claire Tow 472,600,246 2,705,904
Leonard Tow 472,601,746 2,704,404
c) The following matters were voted upon at said meeting:
1. The shareholders approved a proposal to ratify the
selection by the Board of Directors of Deloitte &
Touche LLP as independent accountants for the
Registrant for the fiscal year ending May 31, 1997.
The following sets forth the number of votes on this
proposal:
For Against Abstain
475,248,678 19,624 37,848
ITEM 5. Other Information - None.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits
i) Exhibit 11 - Statement re computation of per share
earnings
ii) Exhibit 27 - Financial Data Schedule (EDGAR filing
only)
b) Reports on Form 8-K
None.
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: January 13, 1997 /s/ Scott N. Schneider
_______________________________
Scott N. Schneider
Senior Vice President, Treasurer,
Chief Financial Officer
(On behalf of Registrant and as
Principal Accounting Officer)
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-Q
For the Six Months Ended
November 30, 1996 and November 30, 1995
COMPUTATION OF LOSS PER COMMON SHARE
(Amounts in thousands, except share data)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
November 30, November 30,
1996 1995
<S> <C> <C>
Primary fully diluted:
Net Loss $(78,469) $(43,065)
Accretion in liquidation value of
subsidiary preferred stock (2,349) (2,103)
Loss applicable to common shares $(80,818) $(45,168)
Average number of common shares and
common share equivalents outstanding
Average number of common shares
outstanding during the period 74,105,000 73,631,000
Add common share equivalents -
Options to purchase common shares - net 232,000 733,000
Average number of common shares and
common share equivalents 74,337,000(A) 74,364,000(A)
Loss per common share $ (1.09)(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 Statement
of Operations for the periods presented do not include the common share
equivalents as their effect is anti-dilutive.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 114,424
<SECURITIES> 52,449
<RECEIVABLES> 55,417
<ALLOWANCES> 3,378
<INVENTORY> 0
<CURRENT-ASSETS> 184,699
<PP&E> 667,222
<DEPRECIATION> 478,580
<TOTAL-ASSETS> 2,173,121
<CURRENT-LIABILITIES> 173,960
<BONDS> 0
<COMMON> 1,056
0
186,287
<OTHER-SE> (522,180)
<TOTAL-LIABILITY-AND-EQUITY> 2,173,121
<SALES> 312,000
<TOTAL-REVENUES> 312,000
<CGS> 66,050
<TOTAL-COSTS> 321,199
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,527
<INCOME-PRETAX> (102,637)
<INCOME-TAX> (17,574)
<INCOME-CONTINUING> (85,063)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (78,469)
<EPS-PRIMARY> (1.09)
<EPS-DILUTED> 0
</TABLE>
