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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
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 0-16899
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 - 31,134,467 outstanding shares as of April 8, 1998
Class B Common - 43,326,115 outstanding shares as of April 8, 1998
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
February 28,
1998 May 31,
(Unaudited) 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 277,070 $ 151,947
Accounts receivable, less allowance for doubtful
accounts of $5,221 and $3,592, respectively 60,676 48,958
Prepaid expenses and other current assets 12,627 14,649
---------- ----------
Total current assets 350,373 215,554
Property, plant and equipment - net 804,510 715,418
Investment in marketable equity securities 46,761 45,118
Equity investments in cable television and wireless
telephone systems - net 107,456 102,097
Debt issuance costs, less accumulated amortization
of $19,739 and $13,270, respectively 44,221 31,735
Cable television franchises, less accumulated
amortization of $371,039 and $322,309, respectively 347,490 401,775
Wireless telephone licenses, less accumulated amortization
of $253,091 and $214,494, respectively 308,608 347,206
Excess of purchase price over value of net assets acquired,
less accumulated amortization of $65,400 and $58,920,
respectively 285,440 280,643
Other assets 14,882 14,685
---------- ----------
$2,309,741 $2,154,231
========== ==========
</TABLE>
See notes to consolidated financial statements
1
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CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
February 28,
1998 May 31,
(Unaudited) 1997
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current maturities of long-term debt $ 30,337 $ 15,011
Accounts payable 31,903 26,711
Accrued expenses and other current liabilities 171,679 150,407
----------- -----------
Total current liabilities 233,919 192,129
Long-term debt 2,464,553 2,186,981
Deferred income taxes 34,154 53,959
Minority interest in subsidiaries 98,662 133,518
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) 186,287 186,287
Common stockholders' deficiency:
Common stock, par value $.01 per share:
Class A, authorized 400,000,000 shares, issued 64,316,002 and 62,695,127
shares, respectively, and outstanding 30,594,894 and
30,968,289 shares, respectively 643 627
Class B, authorized 300,000,000 shares, issued
and outstanding 43,726,115 and 45,126,115 shares,
respectively 437 451
Additional paid-in capital 174,538 176,871
Other, including 33,721,108 and 31,726,838 treasury shares,
respectively (137,109) (127,549)
Accumulated deficit (746,343) (649,043)
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Total common stockholders' deficiency (707,834) (598,643)
----------- -----------
$ 2,309,741 $ 2,154,231
=========== ===========
</TABLE>
See notes to consolidated financial statements
2
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CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended February 28, Nine Months Ended February 28,
------------------------------- ------------------------------
1998 1997 1998 1997
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Cable service income $ 120,596 $ 113,493 $ 361,225 $ 341,301
Wireless telephone service income 59,179 39,174 171,166 106,898
Australian operations 8,313 8,298 27,814 24,766
------------ ------------ ------------ ------------
188,088 160,965 560,205 472,965
------------ ------------ ------------ ------------
Costs and expenses:
Cost of services - Cable 26,063 25,587 78,651 75,275
Cost of services - Wireless telephone 15,224 10,647 42,248 27,009
Selling, general and administrative 52,552 42,665 154,579 117,618
Australian expenses 7,710 7,292 26,399 21,856
Depreciation and amortization - domestic 69,403 57,531 199,198 172,947
Depreciation and amortization - Australia 1,063 3,904 9,822 14,120
Write-down of Australian assets, net -- -- 12,814 40,000
------------ ------------ ------------ ------------
172,015 147,626 523,711 468,825
------------ ------------ ------------ ------------
Operating income 16,073 13,339 36,494 4,140
------------ ------------ ------------ ------------
Gain on sale of assets -- 2,058 1,963 2,106
Interest expense 59,427 51,095 166,343 148,622
Other income 1,966 1,590 7,732 5,631
------------ ------------ ------------ ------------
Loss before income tax (benefit) and
minority interest (41,388) (34,108) (120,154) (136,745)
Income tax (benefit) (8,244) (6,045) (14,073) (23,619)
------------ ------------ ------------ ------------
Loss before minority interest (33,144) (28,063) (106,081) (113,126)
Minority interest in loss of subsidiaries 4,025 4,695 8,781 11,289
------------ ------------ ------------ ------------
Net loss $ (29,119) $ (23,368) $ (97,300) $ (101,837)
============ ============ ============ ============
Dividend on subsidiary convertible
redeemable preferred stock $ 1,259 $ 1,250 $ 3,777 $ 3,599
============ ============ ============ ============
Loss applicable to common shares $ (30,378) $ (24,618) $ (101,077) $ (105,436)
============ ============ ============ ============
Loss per common share $ (.41) $ (.33) $ (1.35) $ (1.42)
============ ============ ============ ============
Weighted average number of common shares
outstanding during the period 74,310,000 74,383,000 74,859,000 74,196,000
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
3
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CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended February 28,
------------------------------
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from subscribers and others $ 654,351 $ 555,799
Cash paid to suppliers, employees and
governmental agencies (392,813) (342,934)
Interest paid (128,534) (112,294)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 133,004 100,571
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INVESTING ACTIVITIES:
Capital expenditures (190,410) (111,422)
Cable television franchise expenditures (181) (965)
Acquisition of other assets (2,510) (7,241)
Acquisition of cable television and wireless
telephone systems (33,548) (34,908)
Distributions received from equity investments 10,051 6,863
Capital contributed to equity investments (65) (292)
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NET CASH USED IN INVESTING ACTIVITIES (216,663) (147,965)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 971,659 857,140
Principal payments on long-term debt (697,414) (847,050)
Debt issuance costs (18,955) (7,724)
Payment of subsidiary preferred stock dividends (12,191) (3,959)
Issuance of common stock 1,446 3,416
Capital contributed by minorities 182 --
Purchase of treasury stock, (including Centennial) (35,945) (1,618)
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 208,782 205
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 125,123 (47,189)
CASH AND SHORT-TERM INVESTMENTS -
BEGINNING OF PERIOD 151,947 164,592
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CASH AND SHORT-TERM INVESTMENTS -
END OF PERIOD $ 277,070 $ 117,403
========= =========
</TABLE>
See notes to consolidated financial statements
4
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CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended February 28,
------------------------------
1998 1997
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RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
NET LOSS $ (97,300) $(101,837)
--------- ---------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 209,020 187,067
Write-down of Australian assets, net 17,074 40,000
Deferred income taxes - decrease (19,805) (29,516)
Minority interest in loss of subsidiaries (8,781) (11,289)
Non-cash interest charges 27,302 16,607
Other (9,769) (10,209)
Change in assets and liabilities, net of effects of acquired, exchanged
and disposed cable television and wireless telephone systems
Accounts receivable - (increase) (17,361) (6,167)
Prepaid expenses and other current assets - decrease
(increase) 2,035 (12,822)
Accounts payable, accrued expenses,
and other current liabilities -increase 30,589 28,737
--------- ---------
Total adjustments 230,304 202,408
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 133,004 $ 100,571
========= =========
</TABLE>
See notes to consolidated financial statements
5
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CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(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 only normal
recurring accruals) necessary to present fairly the consolidated financial
position of Century Communications Corp. and subsidiaries (the "Company") as of
February 28, 1998 and the results of its consolidated operations and cash flows
for the periods ended February 28, 1998 and 1997. The February 28, 1998 and 1997
financial statements do not include all disclosures required by generally
accepted accounting principles. The statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's May 31, 1997 Annual Report on Form 10-K, which includes a summary of
significant accounting policies and other disclosures. Certain reclassifications
have been made to prior period balances to conform with the current period's
presentation. The consolidated balance sheet at May 31, 1997 is audited.
NOTE 2. WRITEDOWN OF AUSTRALIAN ASSETS
The Company's Australian pay television subsidiary, East Coast Pay Television
Pty Limited ("ECT"), has certain distribution, infrastructure utilization and
franchise agreements with Australis Media Limited ("Australis"), another pay
television company in Australia. ECT, in light of recent announcements by
Australis relating to Australis' deteriorating financial condition and aborted
business combination with Foxtel (a competitive cable television provider in
Australia), wrote down the remaining net book values of certain of its
intangible assets during the three months ended November 30, 1997. As a result,
the Company's consolidated financial statements reflect a writedown of
approximately $17,100 relating to these intangible assets, net of a gain of
approximately $4,300 related to the sale of certain of ECT's assets during the
nine months ended February 28, 1998.
NOTE 3. REVENUE RECOGNITION
Cable service income includes earned subscriber service revenue and charges for
installation and connections, net of programmers' share of pay television
revenue. Such programmers' share netted against service income amounted to
$96,411 and $84,777 for the nine months ended February 28, 1998 and 1997,
respectively.
Wireless telephone service income includes earned subscriber service revenue and
charges for installation and connections, net of land line charges of $26,410
and $20,678 for the nine months ended February 28, 1998 and 1997, respectively.
6
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NOTE 4. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the nine months ended February 28, 1997, the Company reclassified $14,966
of cable television franchises to excess of purchase price over value of net
assets acquired in relation to the acquisition of certain cable television
systems.
NOTE 5. ACQUISITIONS
On August 16, 1996, the Company entered into agreements to acquire two cable
television systems which served an aggregate of approximately 35,000 primary
basic subscribers, which agreements were subsequently assigned to a joint
venture in which each of the Company and Citizens Utilities Company ("Citizens
Utilities" or "Citizens") have a 50% interest (the "Century/Citizens Joint
Venture"). These systems are primarily located in Yorba Linda, Orange County and
Diamond Bar, California. Pursuant to the agreements, the aggregate purchase
price for these systems was approximately $69,500, subject to adjustment. On
October 15, 1997, the Century/Citizens Joint Venture completed the transaction
relating to the system located in Diamond Bar for a purchase price of
approximately $34,600. The purchase price for the Diamond Bar acquisition was
allocated approximately $11,300 to cable television franchises, $11,300 to
excess of purchase price over value of net assets acquired and $12,000 to
property, plant and equipment. The Diamond Bar system serves approximately
20,000 primary basic subscribers. The Company funded its share of the purchase
price for the Diamond Bar system, and currently expects to fund its share of the
purchase price for the Yorba Linda acquisition, using available credit
facilities. The purchase of the Yorba Linda system by the Century/Citizens Joint
Venture is subject to regulatory approvals. There is no assurance that the
Century/Citizens Joint Venture will obtain such approvals or that such
acquisition will be completed.
ACQUISITIONS, DISPOSITIONS - CENTENNIAL
On September 12, 1996, Centennial acquired 100% of the ownership interests in
the partnership owning the wireless telephone system serving the Benton Harbor,
Michigan MSA for approximately $35,000 in cash. The Benton Harbor market
represents approximately 161,400 Net Pops. Approximately, $33,429 of the
purchase price was allocated to wireless telephone licenses.
Centennial has determined to pursue a strategy to sell or otherwise dispose of
its minority equity investments in wireless 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 and believes the fair market value of its minority equity
investments exceeds the net book value of the recorded assets at February 28,
1998.
The Board of Directors of Centennial has determined to explore strategic
alternatives available to it. In connection with this exploration, Centennial
has retained the services of Donaldson, Lufkin & Jenrette.
7
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The summary pro forma information includes the results of the Company and all
acquisitions and pending acquisitions, in each case as if such acquisitions had
been completed as of June 1, 1996.
<TABLE>
<CAPTION>
Nine Months Ended February 28,
------------------------------
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Revenue $ 567,082 $ 484,856
Net loss (99,988) (103,661)
Net loss per common share (1.39) (1.45)
</TABLE>
Pro forma net loss per common share for the nine months ended February 28, 1998
and 1997 is calculated using the weighted average number of common shares
outstanding during the period.
NOTE 6. LONG-TERM DEBT
The Company and its subsidiaries had the following debt outstanding at February
28, 1998 and May 31, 1997.
<TABLE>
<CAPTION>
(Unaudited)
February 28, May 31,
1998 1997
-------------- --------------
<S> <C> <C>
CCC-I Credit Facility $ - $ 324,000
CCC-II Credit Facility - 165,000
Century 9 1/2% Senior Notes due 2000 150,000 150,000
Century 9 3/4% Senior Notes due 2002 200,000 200,000
Century Zero Coupon Senior Discount Notes due 2003 283,520 265,381
Century 9 1/2% Senior Notes due 2005 250,000 250,000
Century 8 7/8% Senior Notes due 2007 250,000 250,000
Century 8 3/4% Senior Notes due 2007 225,000 -
Century 8 3/8% Senior Notes due 2017 100,000 -
Century 8 3/8% Senior Notes due 2007 100,000 -
Century Senior Discount Notes due 2008, Series A 252,484 -
Centennial 8 7/8% Senior Notes due 2001 250,000 250,000
Centennial 10 1/8% Senior Notes due 2005 100,000 100,000
Centennial Credit Facility 5,000 5,000
Century-ML 9.47% Senior Secured Notes due 2002 100,000 100,000
Century Venture Corp. Credit Facility and Term Loan 56,500 53,500
CPRW Credit Facility 135,000 74,000
CCCTV Credit Facility 27,000 -
Other, including Australian Operations 10,386 15,111
------------ -------------
2,494,890 2,201,992
Current maturities 30,337 15,011
------------ -------------
$ 2,464,553 $ 2,186,981
============ =============
</TABLE>
8
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On January 7, 1998, the Company filed a shelf registration statement with the
SEC for $500,000 of the Company's debt securities, augmenting the remaining
$77,000 under the Company's 1997 shelf registration. The registration statement
became effective on January 28, 1998. The debt securities may be issued from
time to time, in series, on terms to be specified in one or more prospective
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 February 28, 1998, there was $577,000
available for issuance under this shelf registration.
On January 15, 1998, the Company issued $605,000 principal amount at maturity of
Senior Discount Notes due 2008, Series A ("Senior Discount Notes") to a
qualified institutional buyer under a private placement offering pursuant to
Rule 144A and Regulation S of the Securities Act of 1933, as amended (the
"Private Placement Offering"). The Senior Discount Notes were sold at a discount
of 41.266% from the principal amount due at maturity (the "Original Issue
Discount"). The Original Issue Discount began accruing on the Senior Discount
Notes on January 15, 1998 and will continue accruing during the period in which
the Senior Discount Notes remain outstanding. The Original Issue Discount
represents an annual yield to maturity of 9.05% based on the issue price of the
Senior Discount Notes. There will be no periodic payments of interest on the
Senior Discount Notes. The Senior Discount Notes are senior unsecured
obligations of the Company, may not be redeemed prior to maturity and will not
be entitled to the benefit of any sinking fund.
The Senior Discount Notes rank pari passu in right of payment with all existing
and future unsecured and unsubordinated indebtedness of the Company and are
senior in right of payment to all future subordinated indebtedness of the
Company. The Senior Discount Notes are effectively subordinated to all secured
indebteness of the Company to the extent of the assets securing such
indebtedness and to all existing and future indebtedness of the Company's
subsidiaries.
The net proceeds received by the Company from the sale of the Senior Discount
Notes were approximately $246,106. The Company used $96,000 of the net proceeds
from the sale of the Senior Discount Notes to temporarily repay portions of the
long-term debt outstanding under both the CCC-I and CCC-II credit agreements.
The remainder of the net proceeds are to be used for capital expenditures,
operations, acquisitions and other investments. Further borrowings may be made
under the CCC-I and CCC-II Credit Agreements until August 31, 1999 for general
corporate purposes, including, but not limited to, the financing of capital
expenditures, investments, purchases of the Company's securities and
acquisitions.
On March 2, 1998, the Company filed a registration statement with the SEC
relating to the exchange of all outstanding Senior Discount Notes for Senior
Discount Notes due 2008, Series B (the "Senior Discount Notes, Series B"). The
terms of the Senior Discount Notes, Series B are identical in all material
respects to the Senior Discount Notes, except that the Senior Discount Notes,
Series B will be registered under the Securities Act of 1933, as amended, and
therefore the transfer of the Senior Discount Notes, Series B will not be
restricted. This registration statement became effective on March 17, 1998.
9
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During the nine months ended February 28, 1998, the Company issued an aggregate
of $425,000 of public debt securities in three separate offerings, $100,000 of
which were issued during the three months ended February 28, 1998. The net
proceeds received by the Company from these issuances of $410,449 were used by
the Company to temporarily repay portions of the long-term debt outstanding
under the Company's CCC-I and CCC-II credit agreements.
At February 28, 1998, the Company's public debt securities of approximately
$1,811,000 in the aggregate (including the $252,484 of Senior Discount Notes),
have interest rates ranging from 8 3/8% to 9 3/4%, with remaining maturities
ranging from 2 1/2 to 19 3/4 years. These public debt securities were all issued
pursuant to shelf registrations of the Company's debt securities which were
filed with the SEC. The Company's public debt securities rank pari passu with
all existing and future Senior Indebtedness (as that term is defined in the
respective Indentures under which the public debt securities were issued) of the
Company, are senior in right of payment to all existing and future subordinated
indebtedness of the Company, and may not be redeemed prior to maturity.
Certain subsidiaries of the Company, excluding Centennial, have four credit
facilities (the CCC-I, CCC-II, Century Venture Corp. and CCCTV credit
facilities) with $1,155,000 of total potential credit availability at February
28, 1998, of which $83,500 was outstanding.
The Company entered into a three-year interest rate hedge agreement during
October 1997 in relation to certain of its fixed-rate bank debt. The hedge
agreement is structured such that the Company pays a variable rate of interest
based on the higher of the U.S. dollar six-month LIBOR or the U.S. dollar
six-month LIBOR Set in Arrears and receives a fixed rate of interest of 6.695%
based on a notional amount of $35,000. Subject to the terms of the hedge
agreement, if the six- month LIBOR is set at or below 4.75% at the beginning of
any period, the hedge agreement would terminate for that period alone and the
Company would receive a 50 basis points subsidy for that period alone.
On February 27, 1998, Centennial Puerto Rico Wireless Corporation, a wholly
owned subsidiary of Centennial ("CPRW"), amended its four-year revolving credit
facility (the "Puerto Rico Credit Facility") to increase the credit availability
from $130,000 to $180,000, an increase of $50,000. The interest rate payable by
CPRW on borrowings under the Puerto Rico Credit Facility is based, at the
election of CPRW, on (a) the Base Rate, as defined, plus a margin of 1.50% or
(b) the Eurodollar Base Rate, as defined, plus a margin of 2.25%, adjusted for
the maintenance of certain specified ratios, as applicable.
The interest rate payable on Centennial's $75,000 domestic revolving credit
facility (the "Centennial Credit Facility") is based, at the election of
Centennial, on (a) the Base Rate, as defined, plus a margin of 2% or (b) the
Eurodollar Base Rate, as defined, plus a margin of 2.5%.
Centennial also has two outstanding issuances of public debt securities, its
$250,000 8 7/8% Senior Notes due 2001 and its $100,000 10 1/8% Senior Notes due
2005, which bear interest at the rate of 8 7/8% per annum and 10 1/8% per annum,
respectively.
10
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The subsidiaries' credit facilities and the Company's and Centennial's public
debt securities, among other things, require the maintenance of certain
financial and operating covenants, restrict the use of proceeds from such
borrowing, limit the incurrence of additional indebtedness and limit the ability
to pay dividends and management fees.
At February 28, 1998, the Company and its subsidiaries were in compliance with
all covenants of their respective debt agreements.
NOTE 7. NEW ACCOUNTING PRONOUNCEMENTS
Effective with the quarter ended February 28, 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128"), which is effective for financial statements ending after
December 15, 1997. This statement supersedes Accounting Principles Board Opinion
No. 15 ("APB 15") and replaces the presentation of primary earnings per share
("EPS") and fully diluted EPS on the face of the statement of operations with
basic and diluted EPS. Basic EPS is calculated by dividing loss applicable to
common shares by weighted average common shares outstanding. Diluted EPS
reflects the potential dilution that could occur if potential common stock
instruments of the Company were exercised, converted or issued. The Company is
not currently required to present diluted EPS due to the anti-dilutive effect of
the Company's potential common stock instruments. Adoption of SFAS 128 did not
result in a change of EPS previously reported by the Company under APB 15.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 129, "Disclosure of Information about Capital
Structures", Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" in 1997.
The Company believes these Statements will not have a material impact on the
consolidated financial statements of the Company when adopted.
NOTE 8. STOCK PURCHASE
During the nine months ended February 28, 1998, the Company purchased 1,959,500
additional shares of Class A Common Stock in the open market for an aggregate
purchase price of $12,151 pursuant to previous authorizations by the Company's
Board of Directors. These shares have been accounted for as treasury shares.
Subsequent to February 28, 1998, the Company has not purchased any shares in the
open market. As of April 8, 1998, the Company is authorized to purchase
4,869,000 additional shares of Class A Common Stock after giving effect to the
shares purchased to date.
Subsequent to February 28, 1998, Centennial entered into an arrangement through
which a third party has acquired 273,200 shares of Centennial's Class A Common
Stock at a price of approximately $5,289. Centennial has a right and currently
intends to acquire those shares at an amount equal to the cost basis of the
shares plus the carrying cost of LIBOR plus 2.75%.
11
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During the nine months ended February 28, 1998, Centennial purchased 1,270,200
shares of its Class A Common Stock in the open market for an aggregate purchase
price of $23,524 pursuant to previous authorizations by Centennial's Board of
Directors. These shares have been accounted for as treasury shares. Subsequent
to February 28, 1998, Centennial has not directly purchased any additional
shares of common stock in the open market. As of April 8, 1998, Centennial was
authorized to directly purchase 2,729,800 additional shares of Class A Common
Stock in the open market after giving effect to the shares purchased to date.
NOTE 9. LETTER OF INTENT - STRATEGIC PARTNERSHIP
On December 10, 1997, the Company and TCI Communications, Inc. ("TCI") signed a
letter of intent to form a strategic partnership that would combine multiple
cable systems in Southern California. TCI would contribute to the partnership
cable systems serving approximately 245,000 subscribers and the Company would
contribute cable systems serving approximately 500,000 subscribers. The Company
would manage the newly combined markets and own approximately 75% of the
partnership while TCI would own approximately 25% of the partnership. The
Company and TCI have also agreed to the exchange of certain of the Company's
cable systems serving approximately 90,000 subscribers in Northern California
for certain of TCI's cable systems serving approximately 90,000 subscribers in
Southern California (which subscribers are included in the 500,000 subscribers
described above). The Company and TCI are currently involved in the due
diligence process and are continuing to negotiate with respect to these
transactions. These transactions are subject to the approval of the Company's
and TCI's Boards of Directors, the signing of definitive agreements and to all
appropriate regulatory approvals and other consents.
12
<PAGE>
<PAGE>
NOTE 10. SEGMENT INFORMATION - (UNAUDITED)
Information about the Company's operations in its three business segments for
the nine months ended February 28, 1998 and 1997 is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenue:
Cable television $ 361,611 $ 341,442
Wireless telephone 171,166 106,898
Australian operations 27,814 24,766
Eliminations (386) (141)
----------- -----------
$ 560,205 $ 472,965
=========== ===========
Operating (loss) income:
Cable television $ 73,723 $ 71,648
Wireless telephone (15,861) (16,157)
Australian operations (21,221) (51,210)
Eliminations (147) (141)
----------- -----------
$ 36,494 $ 4,140
=========== ===========
Net loss:
Cable television $ (57,427) $ (32,665)
Wireless telephone (26,082) (21,714)
Australian operations (31,464) (62,169)
Eliminations 17,673 14,711
----------- -----------
$ (97,300) $ (101,837)
=========== ===========
Assets, at end of period:
Cable television $ 1,720,821 $ 1,560,232
Wireless telephone 837,056 793,272
Australian operations 27,218 79,637
Eliminations (275,354) (273,553)
----------- -----------
$ 2,309,741 $ 2,159,588
=========== ===========
Depreciation and amortization:
Cable television $ 116,561 $ 113,981
Wireless telephone 82,637 58,966
Australian operations 9,822 14,120
----------- -----------
$ 209,020 $ 187,067
=========== ===========
Capital expenditures:
Cable television $ 86,438 $ 49,871
Wireless telephone 103,187 59,482
Australian operations 785 2,069
----------- -----------
$ 190,410 $ 111,422
=========== ===========
</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., an approximately 33% owned
subsidiary, owns, operates and invests in wireless telephone systems. The
Company has determined to pursue a strategy to sell its investments in the
Australian operations. The information provided below is that of Century
Communications (before the consolidation of Centennial Cellular Corp. and the
Australian operations), Centennial Cellular Corp., which comprises the Company's
wireless telephone business segment, the Company's Australian operations, as
well as consolidated information.
13
<PAGE>
<PAGE>
NOTE 10 - CONTINUED
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
FEBRUARY 28, 1998
(UNAUDITED)
(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 $ 258,046 $ 14,595 $ 4,429 $ -- $ 277,070
Accounts receivable - net 26,939 29,842 4,485 (590) 60,676
Prepaid expenses and other
current assets 6,261 5,740 626 -- 12,627
--------- --------- --------- -------- ---------
Total current assets 291,246 50,177 9,540 (590) 350,373
Property, plant & equipment - net 548,996 244,023 11,491 -- 804,510
Investment in marketable equity
securities 46,761 -- -- -- 46,761
Investment in Centennial Cellular
Corp., at cost 139,685 -- -- (139,685) --
Equity investment in cable television
and wireless telephone systems -
net 147,678 90,425 1,488 (132,135) 107,456
Debt issuance costs - net 35,115 9,106 -- -- 44,221
Cable television franchises - net 342,791 -- 4,699 -- 347,490
Wireless telephone licenses - net -- 308,608 -- -- 308,608
Excess of purchase price over value
of net assets acquired - net 158,249 127,191 -- -- 285,440
Other assets 10,300 7,526 -- (2,944) 14,882
----------- --------- -------- ------ ---------
$ 1,720,821 $ 837,056 $ 27,218 $(275,354) $ 2,309,741
=========== ========== ========= ======== ===========
</TABLE>
14
<PAGE>
<PAGE>
NOTE 10. CONTINUED
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
(CONTINUED)
FEBRUARY 28, 1998
(UNAUDITED)
(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 $ 20,050 $ -- $ 10,287 $ -- $ 30,337
Accounts payable 17,257 13,498 1,148 -- 31,903
Accrued expenses and other
current liabilities 93,406 58,831 20,032 (590) 171,679
---------- --------- --------- ------- -----------
Total current liabilities 130,713 72,329 31,467 (590) 233,919
Long-term debt 1,974,553 490,000 -- -- 2,464,553
Deferred liability 10,710 2,200 -- (12,910) --
Deferred income taxes 6,371 27,783 -- -- 34,154
Minority interest in subsidiaries 65,099 -- -- 33,563 98,662
Due to parent -- -- 147,678 (147,678) --
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 643 165 -- (165) 643
Class B 437 105 -- (105) 437
Additional paid-in capital 89,547 357,633 -- (272,642) 174,538
Other (138,036) (28,325) 927 28,325 (137,109)
Accumulated deficit (419,216) (278,373) (152,854) 104,100 (746,343)
------------- ---------- ----------- ---------- -----------
Total common stockholders'
equity (deficiency) (466,625) 51,205 (151,927) (140,487) (707,834)
------------- ---------- ----------- ---------- ----------
$1,720,821 $ 837,056 $ 27,218 $(275,354) $2,309,741
============= ========== =========== =========== ==========
</TABLE>
15
<PAGE>
<PAGE>
NOTE 10. CONTINUED
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS FINANCIAL DATA
NINE MONTH PERIOD ENDED FEBRUARY 28, 1998
(UNAUDITED)
(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>
Revenue $ 361,611 $ 171,166 $ 27,814 $ (386) $ 560,205
----------- ------------- --------- --------- ---------
Costs and expenses:
Cost of services 78,651 42,248 -- -- 120,899
Selling, general & administrative 92,676 62,142 -- (239) 154,579
Depreciation and amortization 116,561 82,637 9,822 -- 209,020
Australian operations -- -- 26,399 -- 26,399
Writedown of Australian Assets -- -- 12,814 -- 12,814
----------- --------- --------- ------- ---------
287,888 187,027 49,035 (239) 523,711
----------- --------- --------- -------- ---------
Operating income (loss) 73,723 (15,861) (21,221) (147) 36,494
----------- ---------- ---------- -------- ---------
Income from equity investments -- 9,843 -- (9,843) --
Interest expense 124,882 33,262 8,199 -- 166,343
Gain on sale of assets 1,955 8 -- -- 1,963
Other income (loss) (67) -- (2,044) 9,843 7,732
------------ ---------- --------- --------- --------
Loss before income tax
(benefit) and minority interest (49,271) (39,272) (31,464) (147) (120,154)
Income tax (benefit) (546) (13,527) -- -- (14,073)
------------ ---------- --------- --------- --------
Loss before minority interest (48,725) (25,745) (31,464) (147) (106,081)
Minority interest in (income) loss
of subsidiaries (8,702) (337) -- 17,820 8,781
------------ ---------- --------- --------- ----------
Net loss $ (57,427) $ (26,082) $ (31,464) $17,673 $ (97,300)
============ ========== ========= ========= ==========
</TABLE>
16
<PAGE>
<PAGE>
NOTE 11. CHANGES IN STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------
Class A Class B
------------------------- ----------------------
Shares Dollars Shares Dollars
--------- ------- ---------- -------
<S> <C> <C> <C> <C>
Balance at June 1, 1996 59,946,280 $ 599 45,406,115 $ 454
Shares issued in connection with
employee incentive plans 711,490 7 25,000
Class A shares purchased by
the Company
Class B shares converted to
Class A shares 305,000 3 (305,000) (3)
Class A shares issued in connection
with acquisitions 1,732,357 18
Subsidiary preferred stock dividends
Foreign currency translation adjustment
Change in unrealized appreciation of
marketable securities
Income tax benefit - subsidiary stock
options exercised
Net loss
---------- ----- ---------- ------
Balance at May 31, 1997 62,695,127 627 45,126,115 451
Shares issued in connection with
employee incentive plans 220,875 2 --
Class A shares purchased by the Company
Class B shares converted to Class A shares 1,400,000 14 (1,400,000) (14)
Subsidiary preferred stock dividends
Foreign currency translation adjustment
Change in unrealized appreciation of
marketable securities
Net loss
----------- ----- ---------- ------
Balance at February 28, 1998 - Unaudited 64,316,002 $ 643 43,726,115 $ 437
=========== ===== ========== ======
</TABLE>
17
<PAGE>
<PAGE>
NOTE 11. CHANGES IN STOCKHOLDERS' DEFICIENCY (CONTINUED)
<TABLE>
<CAPTION>
Additional Paid-In (Accumulated
Capital Deficit) Other Total
------------------ ----------- -------- -------
<S> <C> <C> <C> <C>
Balance at June 1, 1996 $ 175,804 $ (507,168) $(117,702) $(448,013)
Shares issued in connection with
employee incentive plans 3,948 3,955
Class A shares purchased by the Company (2,359) (2,359)
Class B shares converted to Class A shares --
Class A shares issued in connection with acquisition (18) --
Subsidiary preferred stock dividends (4,850) (4,850)
Foreign currency translation adjustment 462 462
Change in unrealized appreciation of
marketable securities (7,950) (7,950)
Income tax benefit - subsidiary stock
options exercised 1,987 1,987
Net loss (141,875) (141,875)
---------- -------- --------- --------
Balance at May 31, 1997 176,871 (649,043) (127,549) (598,643)
Shares issued in connection with
employee incentive plans 1,444 1,446
Class A shares purchased by the Company (12,421) (12,421)
Class B shares converted to Class A shares --
Subsidiary preferred stock dividends (3,777) (3,777)
Foreign currency translation adjustment 1,218 1,218
Change in unrealized appreciation of
marketable securities 1,643 1,643
Net loss (97,300) (97,300)
---------- --------- ----------- --------
Balance at February 28, 1998 - Unaudited $ 174,538 $ (746,343) $ (137,109) $(707,834)
========== =========== ============ ========
OTHER STOCKHOLDERS' DEFICIENCY ITEMS: February 28, 1998
(Unaudited) May 31, 1997
---------------- ------------
Treasury stock, at cost $ (152,542) $ (140,121)
Unrealized appreciation of marketable securities 14,506 12,863
Foreign currency translation adjustment 927 (291)
------------- -----------
$ (137,109) $ (127,549)
============= ===========
</TABLE>
18
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in this Part I, Item 2 updates, and should be read in
conjunction with, information set forth in Part II, Items 7 and 8, in the
Company's Annual Report on form 10-K for the fiscal year ended May 31, 1997, in
addition to the interim consolidated financial statements and accompanying notes
presented in Part I, Item 1 of this Form 10-Q.
RESULTS OF OPERATIONS (dollar amounts in thousands except subscriber, homes
passed and share data)
The Company is primarily engaged in the ownership and operation of cable
television systems in the United States and earns its revenues primarily from
subscriber fees. At February 28, 1998, the Company owned and operated 71 cable
television systems in 25 states and Puerto Rico. At that date, the Company's
cable systems passed approximately 2,303,405 homes and served a total of
approximately 1,314,000 primary basic subscribers. Certain of the Company's
cable systems are owned 50% by the Company and 50% by unaffiliated entities. At
February 28, 1998, these 50%-owned systems passed approximately 593,000 homes
and served approximately 308,000 primary basic subscribers in the aggregate.
The Company has a common stock interest of approximately 33% and, through
ownership of a class of common stock which has disproportionate votes per share
(15 votes per share), a voting interest of approximately 74% in Centennial
Cellular Corp. ("Centennial"). The Company also provides management services to
Centennial. Centennial is engaged in the ownership and operation of wireless
telephone systems, primarily in four geographic areas in the United States and
Puerto Rico. The market value of this interest, based solely on the equivalent
number of publicly-traded shares of Class A Common Stock of Centennial, was
$159,464 on February 28, 1998. In accordance with Financial Accounting Standards
Board Statement No. 94, the accounts of Centennial are consolidated with those
of the Company for reporting purposes for all periods presented.
Certain of the Company's cable television systems are subject to rate regulation
which has negatively affected the Company's business. The Company has
implemented new rate and service offerings which give subscribers 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. Several of the
Company's systems, along with numerous other cable operators, received specific
inquiries from the Federal Communications Commission (the "FCC") regarding their
implementation of this method of offering cable services. A proposed resolution
of the inquiry which is based, in part, upon pending basic and cable programming
service tier rate complaints in several Los Angeles area cable systems served by
the Company, requires the Company to adjust its rates for its basic and cable
programming services tiers and make subscriber refunds.
The Telecommunications Act of 1996 (the "Act") which was enacted in February
1996, alters federal, state and local laws and regulations regarding
telecommunications providers and services, including the cable television
industry. The Act deregulates (except for basic service) cable service rates
over a three-year period. Implementing regulations of the Act are currently
being promulgated. The effect that the Act will have on the Company's cable
television business cannot be determined at this time.
19
<PAGE>
<PAGE>
NINE MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
The following discussion describes the Company's three business segments: cable
television, wireless telephone investment and Australian investments.
Cable Television
Consolidated revenue for the nine months ended February 28, 1998 increased by
$87,240 or 18.4%, over the nine months ended February 28, 1997. Revenue from
cable television operations increased by $19,924 or 5.8%, over the corresponding
nine months ended February 28, 1997, principally as a result of increasing
subscription fees and increases in the number of cable television subscriptions.
Average primary basic cable television subscribers ("Basic Subscribers") for the
twelve months ended February 28, 1998 were approximately 1,283,000, as compared
to approximately 1,193,000 Basic Subscribers for the twelve-month period ended
February 28, 1997, an increase of 7.5%. Acquisitions accounted for approximately
71% of the increase. Average monthly revenue per Basic Subscriber, including
programmers' share of such revenue, was approximately $39.17 during the twelve
months ended February 28, 1998, as compared to approximately $36.63 during the
comparable prior twelve month period, an increase of 6.9%.
Cost of services of the Company's cable television operations increased by
$3,376, or 4.5%, while selling, general and administrative expenses of the
Company's cable television operations increased by $11,899, or 14.8%. 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. The Company anticipates continued increases in the cost of
services and selling, general and administrative expenses as the growth of its
businesses continues.
Depreciation and amortization of the Company's cable and wireless operations for
the nine months ended February 28, 1998 increased by $26,251, or 15.2% over the
nine months ended February 28, 1997. Depreciation and amortization of the cable
television operations increased by $2,580 or 2.3%.
Consolidated operating income for the nine months ended February 28, 1998
increased to $36,494 or $32,354 above the operating income of $4,140 for the
nine months ended February 28, 1997, principally as a result of the Company's
$40,000 write-down of Australian assets during the nine months ended February
28, 1997, compared to the writedown of $12,814 during the nine months ended
February 28, 1998 (See Liquidity and Capital Resources - Investments -
Australian Pay Television). The wireless telephone operations contributed
$15,861 and $16,157 of operating losses for the nine months ended February 28,
1998 and 1997, respectively. The Company's operating income related to its cable
television operations was $73,576, an increase of $2,069, or 2.9% above the nine
months ended February 28, 1997.
Consolidated 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 $2,044
and $3,787 of expense for the nine months ended February 28, 1998 and 1997,
respectively, for its minority investments in Australia, offset, in part, by
20
<PAGE>
<PAGE>
$9,843 and $10,873 of income for the nine months ended February 28, 1998 and
1997, respectively, related to minority wireless telephone investments held by
Centennial.
Consolidated interest expense for the nine months ended February 28, 1998
increased by $17,721, or 11.9% as compared with the nine months ended February
28, 1997, principally as a result of increased borrowings. Interest expense of
the Company's cable segment increased by $7,030. For the nine months ended
February 28, 1998, the average debt outstanding of the cable segment was
approximately $1,896,211 or $177,211 above the average outstanding debt balance
of $1,719,000 during the nine months ended February 28, 1997. The increase in
borrowings was partially offset by a decline in interest rates. The Company's
weighted average interest rate excluding borrowings of Centennial, the
Australian investments and the Company's 50%-owned joint ventures was
approximately 8.8% in the nine months ended February 28, 1998, as compared to
approximately 9.2% in the nine months ended February 28, 1997.
After losses attributable to minority interests in subsidiaries for the nine
months ended February 28, 1998, a consolidated pretax loss of $111,373 was
incurred, as compared to a pretax loss of $125,456 for the nine months ended
February 28, 1997. The income tax benefit of $14,073 for the nine months ended
February 28, 1998 represents a reduction of the deferred tax liability by the
tax effect of the current period losses of the Company, offset by current state
and local taxes for the period. These tax benefits are non-cash in nature.
During the current fiscal year, the Company began recording limited tax benefits
resulting from operating losses.
The consolidated net loss for the nine months ended February 28, 1998 of $97,300
represents a decrease of $4,537 from the loss of $101,837 for the nine months
ended February 28, 1997. The Company expects net losses to continue until such
time as the cable television systems and investments in plant associated with
rebuilds and extensions of its cable television systems and expansion of
Centennial's wireless telephone system infrastructure generate sufficient
earnings to offset the associated costs of acquisitions and operations.
Wireless Telephone Investment
Centennial's revenue increase accounted for 73.7% of the total increase in the
revenue of the Company. Revenue from wireless telephone operations for the nine
months ended February 28, 1998 increased by $64,268, or 60.1%, over the nine
months ended February 28, 1997. The increase in revenue was principally the
result of growth in subscriptions to, and the resulting increased usage of,
wireless telephone service, partially offset by lower reciprocal per minute
roaming rates with other cellular carriers. Centennial's Puerto Rico PCS and
alternative access businesses (the "Puerto Rico Wireless Telephone System")
contributed $34,431 or 53.6% of Centennial's increase in revenue.
Cost of services related to Centennial's wireless telephone operations, which
accounted for 34.9% of the total cost of services for the Company during the
nine months ended February 28, 1998, was $42,248, an increase of $15,239 or
56.4% as compared to the nine months ended February 28, 1997. The increase was
due in part to a larger number of telephone units sold, the variable costs
associated with a larger revenue and subscription base and increased wireless
telephone coverage areas resulting from the continued expansion of Centennial's
network, and the commencement of PCS telephone
21
<PAGE>
<PAGE>
service in Puerto Rico. Cost of services for the Puerto Rico Wireless Telephone
System were $10,940 and $2,095 for the nine months ended February 28, 1998 and
1997, respectively.
Selling, general and administrative expenses related to Centennial's wireless
telephone operations, representing 40.2% of the total amount for the Company,
rose to $62,142, an increase of $25,062 or 67.6% above the $37,080 recorded
during the nine months ended February 28, 1997. 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 wireless telephone business as well as the commencement of PCS telephone
service in Puerto Rico. Selling, general and administrative expenses for
Centennial's Puerto Rico Wireless Telephone System were $19,746 and $5,086 for
the nine months ended February 28, 1998 and 1997, respectively.
The wireless telephone operations accounted for $23,671, or 90.2% of the
increase in the Company's domestic depreciation and amortization during the nine
months ended February 28, 1998.
Centennial's wireless telephone operating loss for the nine months ended
February 28, 1998 of $15,861 declined by $296, or 1.8% from the loss of $16,157
for the nine months ended February 28, 1997. The operating loss for the Puerto
Rico Wireless Telephone System was $16,628 and $5,688 for the nine months ended
February 28, 1998 and 1997, respectively.
Centennial's interest expense for the nine months ended February 28, 1998
increased by $9,664 or 41.0% as compared to the nine months ended February 28,
1997. Interest expense for the nine months ended February 28, 1997 was reduced
by $2,752 of capitalized interest charges related to the acquisition cost of
Centennial's PCS license during the pre-operational stage of the business. Gross
interest costs of the wireless segment for the nine months ended February 28,
1998 and February 28, 1997 were $33,262 and $26,350, respectively. The increase
was the result of additional borrowings for acquisitions, working capital and
debt service. Centennial's average debt outstanding during the nine months ended
February 28, 1998 was $461,106, an increase of $92,351 as compared to the
average debt level of $368,755 during the nine months ended February 28, 1997.
The increase in average debt outstanding was principally related to borrowings
for the Puerto Rico Wireless Telephone System. Centennial's weighted average
interest rate increased to 9.6% for the nine months ended February 28, 1998 from
9.5% for the nine months ended February 28, 1997.
The Company expects net losses in Centennial's wireless operations to continue
for the foreseeable future until such time as the operations of the wireless
telephone systems and expansion of the wireless telephone system infrastructure
generate sufficient earnings to offset the associated costs of acquisitions and
operations.
THREE MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
Cable Television
Consolidated revenue for the three months ended February 28, 1998 increased by
$27,123 or 16.9%, over the three months ended February 28, 1997. Revenue from
cable television operations increased
22
<PAGE>
<PAGE>
by $7,103 or 6.3% over the corresponding three months ended February 28, 1997,
principally as a result of increasing subscription fees and increases in the
number of cable television subscriptions.
Cost of services of the Company's cable television operations increased by $476,
or 1.9%, while selling, general and administrative expenses of the Company's
cable television operations increased by $2,828 or 10.4%. 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.
The Company anticipates continued increases in the cost of services and selling,
general and administrative expenses as the growth of its businesses continue.
Depreciation and amortization of the Company's cable and wireless operations for
the three months ended February 28, 1998 increased by $11,872, or 20.6% over the
three months ended February 28, 1997. Depreciation and amortization of the cable
television operations increased by $3,190, or 8.8%.
Consolidated operating income for the three months ended February 28, 1998
increased to $16,073 or $2,734 above the operating income of $13,339 for the
three months ended February 28, 1997. The wireless telephone operations
contributed $8,359 of operating losses. The Company's operating income related
to its cable television operations was $24,892, an increase of $609, or 2.5%
above the three months ended February 28, 1997.
The Company has recorded $1,966 and $1,590 of other income for the three months
ended February 28, 1998 and 1997, respectively, primarily representing certain
minority investments in Australia and Centennial accounted for by the Company
using the equity method of accounting. The Company has recorded $401 and $990 of
expense for the three months ended February 28, 1998 and 1997, respectively, for
its minority investments in Australia, offset, in part, by $2,391 and $2,789 of
income for the three months ended February 28, 1998 and 1997, respectively,
related to minority wireless telephone investments held by Centennial.
Consolidated interest expense for the three months ended February 28, 1998
increased by $8,332, or 16.3% as compared with the three months ended February
28, 1997, principally as a result of increased borrowings. The Company's
weighted average interest rate excluding borrowings of Centennial and the
Company's 50% owned joint ventures was approximately 9.2% in the three months
ended February 28, 1998, as compared to approximately 9.3% in the three months
ended February 28, 1997.
After losses attributable to minority interests in subsidiaries for the three
months ended February 28, 1998, a consolidated pretax loss of $37,363 was
incurred, as compared to a pretax loss of $29,413 for the three months ended
February 28, 1997. The income tax benefit of $8,244 for the three months ended
February 28, 1998 represents a reduction of the deferred tax liability by the
tax effect of the current period losses of the Company, offset by current state
and local taxes for the period. These tax benefits are non-cash in nature.
During the current fiscal year, the Company began recording limited tax benefits
resulting from operating losses.
The consolidated net loss for the three months ended February 28, 1998 of
$29,119 represents an increase of $5,751 from the loss of $23,368 for the three
months ended February 28, 1997. The Company expects net losses to continue until
such time as the cable television systems and
23
<PAGE>
<PAGE>
investments in plant associated with rebuilds and extensions of its cable
television systems and expansion of Centennial's wireless telephone system
infrastructure generate sufficient earnings to offset the associated costs of
acquisitions and operations.
Wireless Telephone Investment
Centennial's revenue increase for the three months ended February 28, 1998
accounted for 73.8% of the total increase in the revenue of the Company. Revenue
from wireless telephone operations for the three months ended February 28, 1998
increased by $20,005, or 51.1%, over the three months ended February 28, 1997.
The increase in revenue was principally the result of growth in subscriptions
to, and the resulting increased usage of, wireless telephone service, partially
offset by lower reciprocal per minute roaming rates with other cellular
carriers. Centennial's Puerto Rico Wireless Telephone System contributed $14,171
or 70.8% of Centennial's increase in revenue.
Cost of services related to Centennial's wireless telephone operations, which
accounted for 36.9% of the total cost of services for the Company during the
three months ended February 28, 1998, was $15,224, an increase of $4,577 or
43.0% as compared to the three months ended February 28, 1997. The increase was
due in part to a larger number of telephone units sold, the variable costs
associated with a larger revenue and subscription base and increased wireless
telephone coverage areas resulting from the continued expansion of Centennial's
network, and the commencement of PCS telephone service in Puerto Rico, partially
offset by a decrease in the cost of cellular equipment purchased. Cost of
services for the Puerto Rico Wireless Telephone System were $4,424 and $1,014
for the three months ended February 28, 1998 and 1997, respectively.
Selling, general and administrative expenses related to Centennial's wireless
telephone operations, representing 42.7% of the total amount for the Company,
rose to $22,457, an increase of $7,059 or 45.8% above the expenses of $15,398
recorded during the three months ended February 28, 1997. 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 wireless telephone business as well as the
commencement of PCS telephone service in Puerto Rico. Selling, general and
administrative expenses for Centennial's Puerto Rico Wireless Telephone System
were $7,261 and $3,147 for the three months ended February 28, 1998 and 1997,
respectively.
The wireless telephone operations accounted for $8,682, or 73.1% of the increase
in the Company's domestic depreciation and amortization during the three months
ended February 28, 1998.
Centennial's wireless telephone operating loss for the three months ended
February 28, 1998 of $8,359 increased by $313, or 3.9% from the loss of $8,046
for the three months ended February 28, 1997. The operating loss for the Puerto
Rico Wireless Telephone System was $5,330 and $2,668 for the three months ended
February 28, 1998 and 1997, respectively.
Centennial's interest expense for the three months ended February 28, 1998
increased by $2,622 or 29.7% as compared to the three months ended February 28,
1997. The increase is the result of additional borrowings for acquisitions,
working capital and debt service. Centennial's average debt
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outstanding during the three months ended February 28, 1998 was $480,777, an
increase of $104,333 as compared to the average debt level of $376,444 during
the three months ended February 28, 1997. Centennial's weighted average interest
rate decreased to 9.5% for the three months ended February 28, 1998 from 9.6%
for the three months ended February 28, 1997.
The Company expects net losses in Centennial's wireless operations to continue
for the foreseeable future until such time as the operations of the wireless
telephone systems and expansion of the wireless telephone system infrastructure
generate sufficient earnings to offset the associated costs of acquisitions and
operations.
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. Since both the cable
television and wireless telephone activities are capital intensive, the Company,
including Centennial, must continue to seek various sources of financing to meet
their respective needs, including growth in internally generated cash, bank
financing, joint ventures and partnerships and public and private placements of
debt and equity securities. Certain subsidiaries of the Company (other than
Centennial) have entered into credit agreements with various bank groups and
private lending institutions providing for an aggregate of approximately
$1,255,000 of potential borrowing capacity for cable operations. Centennial and
subsidiaries of Centennial have entered into credit agreements with various bank
groups which furnish approximately $255,000 of potential borrowing capacity for
wireless telephone operations at February 28, 1998, which indebtedness is
non-recourse to the Company.
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.
During the nine months ended February 28, 1998, the Company made capital
expenditures of $190,410, of which 54.2% were made by Centennial. The Company's
future commitments for property, plant and equipment in its cable television
business consist of usual upgrades, extensions, betterments and replacements of
cable plant and equipment. As the Company completes capital projects started in
prior fiscal years, it anticipates an annualized rate of approximately $120,000
for cable television capital expenditures in fiscal 1998. 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
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expenditures which would otherwise be incurred in future years. The Company has
not yet determined the feasibility, timing or cost of such projects. Funds for
cable television capital projects and related equipment are currently available
from internally generated cash and other financing resources.
For the nine months ended February 28, 1998, consolidated earnings were less
than fixed charges by $123,931. However, such amount reflects non-cash charges
totaling $212,797, consisting of depreciation and amortization and subsidiary
preferred stock dividends. Historically, cash generated from operating
activities has exceeded fixed charges. The Company believes that, through fiscal
1999, 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.
Centennial's wireless telephone capital projects include the addition of cell
sites for greater coverage areas, as well as enhancements to the existing
infrastructure of the wireless system. Centennial expects capital expenditures
for its domestic wireless telephone markets of $40,000 during fiscal 1998.
During the nine months ended February 28, 1998 Centennial made capital
expenditures of $71,824 related to its Puerto Rico Wireless Telephone System.
These capital expenditures included $45,129 to continue the buildout of
Centennial's Puerto Rico PCS network infrastructure and $26,695 to purchase
telephone units which remain the property of Centennial while in use by
subscribers. Centennial currently estimates that the cost to continue the
build-out of its Puerto Rico network infrastructure through fiscal 1999 will be
approximately $50,000. This expenditure level primarily relates to an
acceleration of expenditures that would otherwise take place in future years.
This acceleration is related to the growth the Company has experienced in its
Puerto Rico Wireless Telephone System. Funds for Centennial's capital
expenditure requirements may be provided by other bank borrowings, debt or
equity issuances or other financing resources.
It is anticipated that, through fiscal 1999, cash generated from Centennial's
wireless telephone operations will not fully cover required capital
expenditures, 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.
Based upon current market conditions, the Company expects that cash flows from
operations and funds from currently available credit facilities will be
sufficient to enable the Company and Centennial to meet required cash
commitments through the next twelve month period.
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.
FINANCING AND CAPITAL FORMATION - THE COMPANY
On January 7, 1998, the Company filed a shelf registration statement with the
SEC for $500,000 of the Company's debt securities, augmenting the remaining
$77,000 under the Company's 1997 shelf registration. The registration statement
became effective on January 28, 1998. The debt securities may
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be issued from time to time, in series, on terms to be specified in one or
more prospective supplements at the time of the offering. If so specified with
respect to any particular series, the debt securities may be convertible into
shares of the Company's Class A Common Stock. As of April 8, 1998, there was
$577,000 available for issuance under this shelf registration.
On January 15, 1998, the Company issued $605,000 principal amount at maturity of
Senior Discount Notes due 2008, Series A ("Senior Discount Notes") to a
qualified institutional buyer under a private placement offering pursuant to
Rule 144A and Regulation S of the Securities Act of 1933, as amended (the
"Private Placement Offering"). The Senior Discount Notes were sold at a discount
of 41.266% from the principal amount due at maturity (the "Original Issue
Discount"). The Original Issue Discount began accruing on the Senior Discount
Notes on January 15, 1998 and will continue accruing during the period in which
the Senior Discount Notes remain outstanding. The Original Issue Discount
represents an annual yield to maturity of 9.05% based on the issue price of the
Senior Discount Notes. There will be no periodic payments of interest on the
Senior Discount Notes. The Senior Discount Notes are senior unsecured
obligations of the Company, may not be redeemed prior to maturity and will not
be entitled to the benefit of any sinking fund.
The Senior Discount Notes rank pari passu in right of payment with all existing
and future unsecured and unsubordinated indebtedness of the Company and are
senior in right of payment to all future subordinated indebtedness of the
Company. The Senior Discount Notes are effectively subordinated to all secured
indebteness of the Company to the extent of the assets securing such
indebtedness and to all existing and future indebtedness of the Company's
subsidiaries.
The net proceeds received by the Company from the sale of the Senior Discount
Notes were approximately $246,106. The Company applied $96,000 of the net
proceeds from the sale of the Senior Discount Notes to repay temporarily
portions of the long-term debt outstanding under both the CCC-I and CCC-II
credit agreements. The remainder of the net proceeds are to be used for capital
expenditures, operations, acquisitions and other investments that would
otherwise have been paid for under the CCC-I and CCC-II credit agreement.
Further borrowings may be made under the CCC-I and CCC-II Credit Agreements
until August 31, 1999 for general corporate purposes, including, but not limited
to, the financing of capital expenditures, investments, purchases of the
Company's securities, and acquisitions.
On March 2, 1998, the Company filed a registration statement with the SEC
relating to the exchange of all outstanding Senior Discount Notes for Senior
Discount Notes due 2008, Series B (the "Senior Discount Notes, Series B"). The
terms of the Senior Discount Notes, Series B are identical in all material
respects to the Senior Discount Notes, except that the Senior Discount Notes,
Series B will be registered under the Securities Act of 1933, as amended, and
therefore the transfer of the Senior Discount Notes, Series B will not be
restricted. This registration statement became effective on March 17, 1998.
During the nine months ended February 28, 1998, the Company issued an aggregate
of $425,000 of public debt securities in three separate offerings, $100,000 of
which were issued during the three months ended February 28, 1998. The net
proceeds received by the Company from these issuances of
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$410,449 were used by the Company to repay temporarily the long-term debt
outstanding under the Company's CCC-I and CCC-II credit agreements.
At February 28, 1998, the Company's public debt securities of approximately
$1,811,000 in the aggregate (including the $252,484 of Senior Discount Notes),
have interest rates ranging from 8 3/8% to 9 3/4%, with remaining maturities
ranging from 2 1/2 to 19 3/4 years. These public debt securities were all issued
pursuant to shelf registrations of the Company's debt securities which were
filed with the SEC. The Company's public debt securities rank pari passu with
all existing and future Senior Indebtedness (as that term is defined in the
respective Indentures under which the public debt securities were issued) of the
Company, are senior in right of payment to all existing and future subordinated
indebtedness of the Company, and may not be redeemed prior to maturity.
Certain subsidiaries of the Company, excluding Centennial, have four credit
facilities with $1,155,000 of total potential credit availability at February
28, 1998, of which $83,500 was outstanding. The interest rates payable on
borrowings under the respective credit facilities are as follows:
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.
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.
At the election of Citizens Century Cable Television Venture ("CCCTV"),
either the Base Rate, or the Eurodollar Rate, plus the applicable margin
(as defined in the facility).
At the election of Century Venture Corp. ("CVC"), (a) the C/D Base Rate
plus an applicable margin, as defined or (b) the Eurodollar Base Rate plus
an applicable margin, as defined or (c ) the ABR Rate, as defined.
The Company entered into a three-year interest rate hedge agreement during
October 1997 in relation to certain of its fixed rate bank debt. The hedge
agreement is structured such that the Company pays a variable rate of interest
based on the higher of the U.S. dollar six month LIBOR or the U.S. dollar six
month LIBOR Set in Arrears and receives a fixed rate of interest of 6.695% based
on a notional amount of $35,000. Subject to the terms of the hedge agreement, if
the six month LIBOR is set at or below 4.75% at the beginning of any period, the
hedge agreement would terminate for that period alone and the Company would
receive a 50 basis points subsidy for that period alone.
The subsidiaries' credit facilities and the Company's public debt instruments,
among other things, require the maintenance of certain financial and operating
covenants, restrict the use of proceeds from such borrowing, limit the
incurrence of additional indebtedness and limit the ability to pay dividends and
management fees.
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At February 28, 1998, the Company and its subsidiaries were in compliance with
all covenants of their respective debt agreements.
FINANCING AND CAPITAL FORMATION - CENTENNIAL
Centennial, since August 1988, has acquired licenses for 29 wireless telephone
markets in the United States that it owns and manages, some of which are
considered to be in the early development phase of operations. Centennial also
owns minority equity investment interests in certain other wireless 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. The Puerto Rico Wireless Telephone System is in the start-up and
construction stage.
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 outstanding common
equity of Centennial. In connection with an amendment to a 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 30, 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 30, 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 shall receive cash dividends at
the rate of 8.5% per annum when, and as declared by the Board of Directors of
Centennial, at its discretion. Assuming no change in the number of shares of
such classes outstanding, the annual dividend that may be declared and made
payable, which commenced in fiscal 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.
As of February 28, 1998, Centennial has paid five quarterly cash dividends to
Citizens and Century of $3,959 and $154, respectively. Centennial will determine
the timing, amount, or distribution (if any) of additional preferred stock
dividends.
During fiscal 1994, Centennial filed a shelf registration statement with the SEC
for up to 8,000,000 shares of Centennial's Class A Common Stock that may be
offered from time to time in connection with acquisitions. At April 8, 1998,
4,239,231 shares were 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
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Centennial's Class A Common Stock. At April 8, 1998, $400,000 aggregate amount
of debt securities remained available for issuance.
On February 27, 1998, Centennial Puerto Rico Wireless Corporation, a wholly
owned subsidiary of Centennial ("CPRW"), amended its four year revolving credit
facility (the "Puerto Rico Credit Facility") to increase the credit availability
from $130,000 to $180,000, an increase of $50,000. The interest rate payable by
CPRW on borrowings under the Puerto Rico Credit Facility is based, at the
election of CPRW, on (a) the Base Rate, as defined, plus a margin of 1.50% or
(b) the Eurodollar Base Rate, as defined, plus a margin of 2.25%, adjusted for
the maintenance of certain specified ratios, as applicable.
The interest rate payable on Centennial's $75,000 domestic revolving credit
facility (the "Centennial Credit Facility") is based, at the election of
Centennial, on (a) the Base Rate, as defined, plus a margin of 2% or (b) the
Eurodollar Base Rate, as defined, plus a margin of 2.50%.
Centennial also has two outstanding issuances of public debt securities, its
$250,000 8 7/8% Senior Notes due 2001 and its $100,000 10 1/8% Senior Notes due
2005, which bear interest at the rate of 8 7/8% per annum and 10 1/8% per annum,
respectively.
The Centennial Credit Facility, the Puerto Rico Credit Facility and Centennial's
public debt instruments, among other things, require the maintenance of certain
financial and operating covenants, restrict the use of proceeds from such
borrowing, limit the incurrence of additional indebtedness and limit the ability
to pay dividends and management fees.
Centennial and CPRW were in compliance with all covenants of their respective
debt agreements at February 28, 1998.
In order to meet its obligations with respect to its operating needs, capital
expenditures, debt service 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 continued the
development of its managerial, administrative and marketing functions, and is
continuing the construction of wireless 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 has been and is expected to
continue to be capital intensive, requiring additional network infrastructure
buildout costs of approximately $50,000 through fiscal 1999. 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 wireless telephone providers as well as other MTA PCS license holders.
There is no assurance that the PCS business will generate cash flow or reach
profitability. Even if Centennial's operating cash flow does increase, it is
anticipated that cash generated from Centennial's wireless telephone operations
and PCS business will not be sufficient in the next several years to cover
interest, the preferred stock dividend requirements that commenced in the prior
fiscal year, and required capital expenditures. Centennial continues to seek
various sources
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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.
ACQUISITIONS - CABLE TELEVISION
On August 16, 1996, the Company entered into agreements to acquire two cable
television systems which served an aggregate of approximately 35,000 primary
basic subscribers, which agreements were subsequently assigned to a joint
venture in which each of the Company and Citizens Utilities Company have a 50%
interest (the "Century/Citizens Joint Venture"). These systems are primarily
located in Yorba Linda, Orange County and Diamond Bar, California. Pursuant to
the agreements, the aggregate purchase price for these systems was approximately
$69,500, subject to adjustment. On October 15, 1997, the Century/Citizens Joint
Venture completed the transaction relating to the system located in Diamond Bar
for a purchase price of approximately $34,600. The Diamond Bar system serves
approximately 20,000 primary basic subscribers. The Company funded its share of
the purchase price for the Diamond Bar system, and currently expects to fund its
share of the purchase price for the Yorba Linda acquisition, using available
credit facilities. The purchase of the Yorba Linda system by the
Century/Citizens Joint Venture is subject to regulatory approvals. There is no
assurance that the Century/Citizens Joint Venture will obtain such approvals or
that such acquisition will be completed.
ACQUISITIONS, DISPOSITIONS - CENTENNIAL
On September 12, 1996, Centennial acquired for approximately $35,000 in cash,
100% of the ownership interests in the partnership owning the wireless telephone
system serving the Benton Harbor, Michigan MSA. The Benton Harbor market
represents approximately 161,400 Net Pops. "Net Pops" means a market's Pops
multiplied by the percentage interest that Centennial owns in an entity licensed
by the FCC to construct or operate a cellular telephone system (or to provide
personal communications services) in that market and "Pops" means the population
of a market based upon the final 1990 Census Report of the Bureau of the Census,
United States Department of Commerce.
Centennial has determined to pursue a strategy to sell or otherwise dispose of
substantially all of its minority interests in wireless telephone systems
representing approximately 1,100,000 Net Pops and has retained an investment
banker to assist in such disposition. Centennial has not yet made a final
determination as to the estimated sale proceeds or timing of such disposition.
The Board of Directors of Centennial has determined to explore strategic
alternatives available to it. In connection with this exploration, Centennial
has retained the services of Donaldson, Lufkin & Jenrette.
INVESTMENTS
Australian Pay Television
Since fiscal 1994, the Company has invested, through a wholly-owned subsidiary,
approximately $151,000 in the Australian Pay TV industry, including
approximately $126,000 in East Coast Pay
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Television Pty Limited ("ECT"). The Company's investment in ECT 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.
The Company also holds a 25% interest in XYZ Entertainment Pty Limited ("XYZ"),
a joint venture which provides programming to ECT and other pay television
services in Australia. 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.
ECT has certain distribution, infrastructure utilization and franchise
agreements with Australis Media Limited ("Australis"), another pay television
company in Australia. ECT, in light of announcements by Australis relating to
Australis' deteriorating financial condition and aborted business combination
with Foxtel (a competitive cable television provider in Australia), wrote down
the remaining net book value of certain of its intangible assets during the
three months ended November 30, 1997. As a result, the Company's consolidated
financial statements reflect a writedown of approximately $17,100 relating to
these intangible assets, net of a gain of approximately $4,300 related to the
sale of certain of ECT's assets during the nine months ended February 28, 1998.
Prior to June 1, 1997, the Company had written down $50,000 of its Australian
investments.
The Company is pursuing a strategy to sell its investments in its Australian
operations and has retained an investment banker to assist in the separate sale
of ECT and XYZ. It has also determined to make no further investments in ECT.
Once the Company has developed its formal plan for disposition, including the
means to complete that plan and the period expected to be required for
completion of the disposition, the Company anticipates accounting for its
Australian operations as discontinued operations.
The Company is currently unable to predict the ultimate resolution of these
matters. At February 28, 1998, the Company's investments in the various aspects
of the Australian pay television industry have been fully written-down as a
result of the aforementioned write-downs of Australian assets and the Company's
percentage of cumulative losses of ECT and XYZ.
STOCK PURCHASES
During the nine months ended February 28, 1998, the Company purchased 1,959,500
additional shares of Class A Common Stock in the open market for an aggregate
purchase price of $12,151 pursuant to previous authorizations by the Company's
Board of Directors. These shares have been accounted for as Treasury Shares.
Subsequent to February 28, 1998, the Company has not purchased any shares in the
open market. As of April 8, 1998, the Company is authorized to purchase
4,869,000 additional shares of Class A Common Stock after giving effect to the
shares purchased to date.
Subsequent to February 28, 1998, Centennial entered into an arrangement through
which a third party has acquired 273,200 shares of Centennial's Class A Common
Stock at a price of approximately
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$5,289. Centennial has a right and currently intends to acquire those shares at
an amount equal to the cost basis of the shares plus the carrying cost of LIBOR
plus 2.75%.
During the nine months ended February 28, 1998, Centennial purchased 1,270,200
shares of Class A Common Stock in the open market for an aggregate purchase
price of $23,524 pursuant to previous authorizations by Centennial's Board of
Directors. These shares have been accounted for as Treasury Shares. Subsequent
to February 28, 1998, Centennial has not directly purchased any additional
shares of common stock in the open market. As of April 8, 1998, Centennial is
authorized to directly purchase 2,729,800 additional shares of Class A Common
Stock in the open market after giving effect to the shares purchased to date.
The Company is currently in the process of evaluating its computer software and
data bases to determine whether modifications will be required to prevent
problems related to the Year 2000, including its billing and collection
activities. These problems, which have been widely reported in the media, could
cause malfunctions in certain software and data bases with respect to dates on
or about 2000. Most of the Company's customer related computer systems and data
bases are managed by third parties under contractual arrangements. The Company
has requested that such third parties advise the Company as to whether or not
they anticipate any difficulties for clients in addressing Year 2000 problems
and, if so, whether or not the Company would be adversely affected by any such
problems. Until such time as its service providers respond to the Company, the
impact of Year 2000 on the Company's future operations and financial condition
cannot be assessed. The Company will continue to monitor the Year 2000 issue and
will work with its service providers to remedy problems that arise.
* * * * *
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains or incorporates by reference forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Where any such forward-looking statement includes a statement of the assumptions
or bases underlying such forward-looking statement, the Company cautions that
assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material,
depending upon the circumstances. Where, in any forward-looking statement, the
Company or its management expresses an expectation or belief as to future
results, there can be no assurance that the statement of expectation or belief
will result or be achieved or accomplished. The words "believe", "expect",
"estimate", "anticipate", "project" and similar expressions may identify
forward-looking statements.
Taking into account the foregoing, the following are identified as important
factors that could cause actual results to differ materially from those
expressed in any forward-looking statement made by, or on behalf of, the
Company: the Company's net losses and stockholders' deficiency; the Company's
debt structure: the competitive nature of the cable television and wireless
telephone industries; risks associated with Year 2000; regulation; restrictive
covenants and consequences of default contained in the Company's financing
arrangements; control by certain of the Company's stockholders; the recovery of
the Company's Australian investment; operating hazards and uninsured risks;
refinancing and interest rate exposure risks; and potential for changes in
accounting standards. A more detailed
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discussion of each of the foregoing factors can be found in the Company's Annual
Report on Form 10-K for the Fiscal Year ended May 31, 1997 under the heading
"CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995" in Item 7 of such Form 10-K.
Other factors may be detailed from time to time in the Company's filings with
the SEC. The Company assumes no obligation to update its forward looking
statements or to advise of changes in the assumptions and factors on which they
are based.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than routine litigation
incidental to the business, to which the Company or any of its subsidiaries is a
party to or which any of their property is subject.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION -
ISSUANCE OF 8 3/8% SENIOR NOTES DUE 2007, SENIOR DISCOUNT NOTES DUE 2008 AND THE
RELATED EXCHANGE OFFERING
On December 10, 1997, the Company issued 8 3/8% Senior Notes due 2007 (the
"Senior Notes due 2007") in the principal amount of $100,000, which mature on
December 15, 2007, pursuant to the Company's 1997 shelf registration statement.
The Senior Notes due 2007 bear interest at 8 3/8% payable semiannually on June
15 and December 15 of each year commencing June 15, 1998. The Senior Notes due
2007 may not be redeemed prior to maturity.
The Senior Notes due 2007 rank pari passu with all existing and future Senior
Indebtedness (as that term is defined in the indenture under which the Senior
Notes due 2007 were issued) of the Company,
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and will be senior in right of payment to existing and future subordinated
indebtedness of the Company.
The net proceeds received by the Company from the sale of the Senior Notes due
2007 of approximately $97,234 were used to temporarily repay a portion of the
long-term debt outstanding under both the CCC-I Credit Agreement and the CCC-II
Credit Agreement.
On January 15, 1998, the Company issued $605,000 principal amount at maturity of
Senior Discount Notes due 2008, Series A ("Senior Discount Notes") to a
qualified institutional buyer under a private placement offering pursuant to
Rule 144A and Regulation S of the Securities Act of 1933, as amended (the
"Private Placement Offering"). The Senior Discount Notes were sold at a discount
of 41.266% from the principal amount due at maturity (the "Original Issue
Discount"). The Original Issue Discount began accruing on the Senior Discount
Notes on January 15, 1998 and will continue accruing during the period in which
the Senior Discount Notes remain outstanding. The Original Issue Discount
represents an annual yield to maturity of 9.05% based on the issue price of the
Senior Discount Notes. There will be no periodic payments of interest on the
Senior Discount Notes. The Senior Discount Notes may not be redeemed prior to
maturity and will not be entitled to the benefit of any sinking fund.
The Senior Discount Notes are senior unsecured obligations of the Company and
rank pari passu in the right of payment with all existing and future unsecured
and unsubordinated indebtedness of the Company and are senior in right of
payment to all future subordinated indebtedness of the Company. The Senior
Discount Notes are effectively subordinated to all secured indebteness of the
Company to the extent of the assets securing such indebtedness and to all
existing and future indebtedness of the Company's subsidiaries.
The net proceeds received by the Company from the sale of the Senior Discount
Notes were approximately $246,106. The Company applied $96,000 of the net
proceeds from the sale of the Senior Discount Notes to repay temporarily
portions of the long-term debt outstanding under both the CCC-I and CCC-II
credit agreements. The remainder of the net proceeds are to be used for capital
expenditures, operations, acquisitions and other investments that would
otherwise have been paid for under the CCC-I and CCC-II credit agreements.
Further borrowings may be made under the agreements until August 31, 1999 for
general corporate purposes, including, but not limited to, the financing of
capital expenditures, investments, purchases of the Company's securities, and
acquisitions.
On March 2, 1998, the Company filed a registration statement with the SEC
relating to the exchange of all outstanding Senior Discount Notes for Senior
Discount Notes due 2008, Series B (the "Senior Discount Notes, Series B"). The
terms of the Senior Discount Notes, Series B are identical in all material
respects to the Senior Discount Notes, except that the Senior Discount Notes,
Series B will be registered under the Securities Act of 1933, as amended, and
therefore the transfer of the Senior Discount Notes, Series B will not be
restricted. This registration statement became effective on March 17, 1998.
35
<PAGE>
<PAGE>
SHELF REGISTRATION
On January 7, 1998, the Company filed a shelf registration statement with the
SEC for $500,000 of the Company's debt securities, augmenting the remaining
$77,000 under the Company's 1997 shelf registration. The registration statement
became effective on January 28, 1998. The debt securities may be issued from
time to time, in series, on terms to be specified in one or more prospective
supplements at the time of the offering. If so specified with respect to any
particular series, the debt securities may be convertible into shares of the
Company's Class A Common Stock. As of April 8, 1998, there was $577,000
available for issuance under this shelf registration.
LETTER OF INTENT - STRATEGIC PARTNERSHIP
On December 10, 1997 the Company and TCI Communications, Inc. ("TCI") signed a
letter of intent to form a strategic partnership that would combine multiple
cable systems in Southern California. TCI would contribute to the partnership
cable systems serving approximately 245,000 subscribers and the Company would
contribute cable systems serving approximately 500,000 subscribers. The Company
would manage the newly combined markets and own approximately 75% of the
partnership while TCI would own approximately 25% of the partnership. The
Company and TCI have also agreed to the exchange of certain of the Company's
cable systems serving approximately 90,000 subscribers in Northern California
for certain of TCI's cable systems serving approximately 90,000 subscribers in
Southern California (which subscribers are included in the 500,000 subscribers
described above). The Company and TCI are currently involved in the due
diligence process and are continuing to negotiate with respect to these
transactions. These transactions are subject to the approval of the Company's
and TCI's Boards of Directors, the signing of definitive agreements and to all
appropriate regulatory approvals and other consents.
STOCK PURCHASES
During the nine months ended February 28, 1998, the Company purchased 1,959,500
additional shares of Class A Common Stock in the open market for an aggregate
purchase price of $12,151 pursuant to previous authorizations by the Company's
Board of Directors. These shares have been accounted for as Treasury Shares.
Subsequent to February 28, 1998, the Company has not purchased any shares in the
open market. As of April 8, 1998, the Company is authorized to purchase
4,869,000 additional shares of Class A Common Stock after giving effect to the
shares purchased to date.
Subsequent to February 28, 1998, Centennial entered into an arrangement through
which a third party has acquired 273,200 shares of Centennial's Class A Common
Stock at a price of approximately $5,289. Centennial has a right and currently
intends to acquire those shares at an amount equal to the cost basis of the
shares plus the carrying cost of LIBOR plus 2.75%.
During the nine months ended February 28, 1998, Centennial purchased 1,270,200
shares of its Class A Common Stock in the open market for an aggregate purchase
price of $23,524 pursuant to previous authorizations by Centennial's Board of
Directors. These shares have been accounted for as Treasury Shares. Subsequent
to February 28, 1998, Centennial has not directly purchased any additional
shares of common stock in the open market. As of April 8, 1998, Centennial is
authorized to directly
36
<PAGE>
<PAGE>
purchase 2,729,800 additional shares of Class A Common Stock in the open market
after giving effect to the shares purchased to date.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Each exhibit identified below is filed as part of this report.
a) Exhibits
Exhibit No. Description
Exhibit 11 Statement re: computation of per share earnings
Exhibit 27 Financial Data Schedule (EDGAR filing only)
Exhibit 99 Press Release of Centennial Cellular Corp.
dated April 14, 1998
b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on December
10, 1997. The Current Report was filed with respect to a
press release issued by the Company on December 9, 1997
regarding cable system trades and the formation of a
partnership with TCI Communications, Inc. involving cable
television systems in the San Francisco Bay Area and
Southern California.
37
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTURY COMMUNICATIONS CORP.
Date: April 14, 1998
/s/ Scott N. Schneider
---------------------------------
Scott N. Schneider
Chief Financial Officer,
Senior Vice President and Treasurer
(Principal Accounting Officer)
38
<PAGE>
<PAGE>
EXHIBIT 11
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-Q
FOR THE NINE MONTHS ENDED
FEBRUARY 28, 1998 AND 1997
COMPUTATION OF LOSS PER COMMON SHARE
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
February 28, February 28,
1998 1997
------------ -----------
<S> <C> <C>
Primary fully diluted:
Net Loss $ (97,300) $ (101,837)
Subsidiary preferred stock dividend (3,777) (3,599)
------------- -----------
Loss applicable to co.mmon shares $ (101,077) $ (105,436)
============= ============
Average number of common shares and
common share equivalents outstanding
Average number of common shares
outstanding during the period 74,859,000 74,196,000
Add common share equivalents -
Options to purchase common shares - net 948,000 45,000
------------- ------------
Average number of common shares and
common share equivalents 75,807,000 (A) 74,241,000 (A)
============= ============
Loss per common share $ (1.33)(A) $ (1.42)(A)
============= ============
</TABLE>
- ----------
(A) In accordance with SFAS No. 128 the inclusion of common share
equivalents in the computation of earnings per share need not be
considered if the effect is anti-dilutive. Therefore, loss per common
share and common share equivalents as shown on the Consolidated
Statements of Operations for the periods presented do not include the
common share equivalents as their effect is anti-dilutive.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 277,070
<SECURITIES> 0
<RECEIVABLES> 60,676
<ALLOWANCES> 5,221
<INVENTORY> 0
<CURRENT-ASSETS> 350,373
<PP&E> 804,510
<DEPRECIATION> 526,417
<TOTAL-ASSETS> 2,309,741
<CURRENT-LIABILITIES> 233,919
<BONDS> 2,464,553
<COMMON> 1,080
186,287
0
<OTHER-SE> (708,914)
<TOTAL-LIABILITY-AND-EQUITY> 2,309,741
<SALES> 560,205
<TOTAL-REVENUES> 560,205
<CGS> 120,899
<TOTAL-COSTS> 523,711
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166,343
<INCOME-PRETAX> (120,154)
<INCOME-TAX> (14,073)
<INCOME-CONTINUING> (106,081)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (97,300)
<EPS-PRIMARY> (1.35)
<EPS-DILUTED> 0
<PAGE>
<PAGE>
Exhibit 99
CENTENNIAL CELLULAR CORP.
PRESS RELEASE
From: W.M. Kraus Company Contact:
946 Spaight St. Scott N. Schneider, Senior Vice President
Madison, WI 53703 and Chief Financial Officer
(203) 972-2002
For: Centennial Cellular Louis Friedman, Managing Director
(NASDAQ SYMBOL: CYCL) Donaldson Lufkin & Jenrette
(212) 892-3545
FOR IMMEDIATE RELEASE
CENTENNIAL CELLULAR ANNOUNCES EXPLORATION
OF STRATEGIC ALTERNATIVES
New York, NY. April 14, 1998 - Centennial Cellular Corp. today
announced that its board of directors has determined to explore strategic
alternatives available to the Company. The Company has engaged the services of
Donaldson, Lufkin & Jenrette to assist it in exploring these various available
strategic alternatives.
Centennial Cellular Corp. acquires, operates and invests in wireless
telephone systems throughout the continental United States and the Commonwealth
of Puerto Rico. The Company's current wireless telephone interests represent
approximately 10.1 million Net Pops. Approximately 6.5 million of these Net Pops
are represented by the Company's wireless telephone systems located in the
continental United States, including approximately 1.1 million Net Pops related
to the Company's minority equity investments in partnerships owning wireless
telephone systems. The balance of approximately 3.6 million Net Pops represents
the Company's interest in its wireless telephone systems in Puerto Rico.
