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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 August 31, 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 - 32,685,496 outstanding shares as of October 6, 1998
Class B Common - 42,322,059 outstanding shares as of October 6, 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>
August 31,
1998 May 31,
(Unaudited) 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 294,847 $ 285,498
Accounts receivable less allowance for doubtful
accounts of $1,778 and $1,695, respectively 26,222 16,109
Prepaid expenses and other current assets 4,456 3,465
Net assets of discontinued operations 35,547 37,323
---------- ----------
Total current assets 361,072 342,395
Property, plant and equipment - net 563,087 565,965
Investment in marketable equity securities 37,972 52,451
Debt issuance costs, less accumulated amortization of $17,760
and $16,013, respectively 32,082 33,829
Cable television franchises, less accumulated amortization of $339,212
and $324,835, respectively 330,312 344,612
Excess of purchase price over value of net assets acquired, less
accumulated amortization of $40,598 and $40,612, respectively 162,636 166,570
Other assets 10,899 9,360
---------- ----------
$1,498,060 $1,515,182
========== ==========
</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>
August 31,
1998 May 31,
(Unaudited) 1998
------------ -------------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS'
DEFICIENCY
Current liabilities:
Current maturities of long-term debt $ 20,050 $ 20,050
Accounts payable 46,954 35,983
Accrued expenses and other current liabilities 94,436 97,499
----------- -----------
Total current liabilities 161,440 153,532
Long-term debt 2,014,271 2,009,052
Deferred income taxes 5,170 5,170
Minority interest in subsidiaries 70,894 67,030
Other deferred income 5,590 5,650
Commitments and contingencies (See Notes)
Common stockholders' deficiency:
Common stock, par value $.01 per share:
Class A, authorized 400,000,000 shares,
issued, 66,420,020 and 65,684,888 shares, respectively,
and outstanding 32,629,794 and 31,954,085 shares, respectively 664 657
Class B, authorized 300,000,000 shares, issued and outstanding 42,322,059
and 42,726,115 shares, respectively 423 427
Additional paid-in capital 178,481 176,179
Other, including 33,790,226 and 33,730,803 treasury shares, respectively (148,021) (132,501)
Accumulated deficit (790,852) (770,014)
----------- -----------
Total common stockholders' deficiency (759,305) (725,252)
----------- -----------
$ 1,498,060 $ 1,515,182
=========== ===========
</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 August 31,
--------------------------------------
1998 1997
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<S> <C> <C>
Revenues:
Service income $ 126,716 $ 119,564
---------------- -----------------
Costs and expenses:
Cost of services 27,153 26,216
Selling, general and administrative 29,128 30,445
Depreciation and amortization 39,609 38,314
---------------- -----------------
95,890 94,975
---------------- -----------------
Operating income 30,826 24,589
Gain on sale of assets 5,542 1,978
Interest expense 47,929 38,977
---------------- -----------------
Loss from continuing operations before income tax expense (benefit) and
minority interest (11,561) (12,410)
Income tax expense (benefit) 4,785 (40)
---------------- -----------------
Loss from continuing operations before minority interest (16,346) (12,370)
Minority interest in income of subsidiaries (4,492) (3,006)
---------------- -----------------
Loss from continuing operations (20,838) (15,376)
Loss from discontinued operations, net of income tax benefit of $1,971
and minority interest in losses of $4,580 in 1997 - (9,192)
---------------- -----------------
Net loss $ (20,838) $ (24,568)
================ =================
Dividend on discontinued subsidiary convertible
redeemable preferred stock $ - $ 1,259
================ =================
Net loss applicable to common shares $ (20,838) $ (25,827)
================ =================
Net loss per common share - basic and diluted:
Loss from continuing operations $ (.28) $ (.22)
Loss from discontinued operations - (.12)
---------------- -----------------
Net loss per common share - basic and diluted $ (.28) $ (.34)
================ =================
Weighted average number of common shares
outstanding during the period 74,775,000 75,782,000
================ =================
</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>
Three Months Ended August 31,
----------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from subscribers and others $ 150,159 $ 138,412
Cash paid to suppliers, employees and
governmental agencies (87,534) (82,478)
Interest paid (35,573) (36,423)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,052 19,511
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (23,412) (29,181)
Cable television franchise expenditures (77) (60)
Acquisition of other assets (1,792) (629)
Acquisition of cable television systems -- (1,120)
Sale of radio stations 11,538 --
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (13,743) (30,990)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings -- 45,000
Principal payments on long-term debt (7,000) (26,000)
Debt issuance costs -- (123)
Purchase of treasury stock (1,041) (4,116)
Issuance of common stock 2,305 372
--------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (5,736) 15,133
--------- ---------
NET INCREASE IN CASH AND SHORT-TERM
INVESTMENTS - CONTINUING OPERATIONS 7,573 3,654
CASH FLOWS OF DISCONTINUED OPERATIONS - NET 1,776 3,052
CASH AND SHORT-TERM INVESTMENTS - BEGINNING
OF PERIOD 285,498 151,947
--------- ---------
CASH AND SHORT-TERM INVESTMENTS - END OF PERIOD $ 294,847 $ 158,653
========= =========
</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>
Three Months Ended August 31,
---------------------------------
1998 1997
------------ --------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
NET LOSS $(20,838) $(24,568)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 39,609 38,314
Minority interest in income of subsidiaries - continuing operations 4,492 3,006
Deferred income taxes - decrease -- (1,500)
Non cash interest charges 13,923 7,264
Gain on sale and other (5,890) --
Loss from discontinued operations - net -- 9,193
Change in assets and liabilities net of effects of acquired
cable television systems:
Accounts receivable - (increase) (10,062) (11,920)
Prepaid expenses and other current assets - (increase)/decrease (1,019) 4,345
Accounts payable and accrued expenses - increase/(decrease) 6,837 (4,623)
-------- --------
Total adjustments 47,890 44,079
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 27,052 $ 19,511
======== ========
</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
August 31, 1998 and the results of its consolidated operations and cash flows
for the periods ended August 31, 1998 and 1997. The August 31, 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, 1998 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, 1998 is audited.
NOTE 2. DISCONTINUED OPERATIONS
CENTENNIAL CELLULAR CORP.
On July 2, 1998, Centennial Cellular Corp. ("Centennial") and CCW Acquisition
Corp. ("Acquisition"), a Delaware corporation organized at the direction of
Welsh, Carson, Anderson & Stowe VIII, L.P. ("WCAS VIII"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") providing for the merger
of Acquisition with and into Centennial (the "Merger"). Centennial will continue
as the surviving corporation (the "Surviving Corporation") in the Merger.
Subject to the effects of proration, pursuant to the Merger Agreement,
outstanding Class A Common Stock of Centennial will be converted into the right
to receive $43.50 per share in cash or to receive common shares of the Surviving
Corporation (the "Surviving Corporation Shares") representing up to 7.1% of the
Surviving Corporation Shares outstanding immediately after the Merger. Class B
Common Stock of Centennial ("Class B Common Stock") will be converted into the
right to receive $43.50 per share in cash; provided, that if the aggregate
number of Surviving Corporation Shares elected to be received by Centennial's
existing stockholders is less than 7.1% of the common shares of the Surviving
Corporation outstanding immediately after the Merger, then a number of Class B
Common Stock equal to the pro rata portion of such shortfall will be converted
into Surviving Corporation Shares. All outstanding Convertible Redeemable
Preferred Stock of Centennial and Second Series Convertible Redeemable Preferred
Stock of Centennial will be converted into the right to receive $43.50 per share
in cash on an as converted basis.
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Because existing holders of common stock of Centennial must receive in the
Merger an amount of Surviving Corporation Shares equal to 7.1% of the common
shares of the Surviving Corporation outstanding immediately after the effective
time of the Merger (the "Effective Time"), Centennial stockholders who do not
elect to receive any shares may, due to proration, be required to receive some
Surviving Corporation Shares. In addition, Centennial stockholders who elect to
receive shares may, due to proration, receive Surviving Corporation Shares and
receive cash in amounts which vary from the amounts such holders elected.
In connection with the execution of the Merger Agreement, the Company,
Centennial's principal stockholder, entered into a Stockholder Agreement, dated
July 2, 1998, with Acquisition (the "Stockholder Agreement"). Pursuant to the
Stockholder Agreement, the Company agreed to vote its shares in favor of the
Merger so long as the Merger Agreement remains in effect. Because the Company
agreed to approve the Merger by written consent in lieu of meeting, and
controls, on a fully diluted basis, more than a majority of the outstanding
votes of Centennial required to approve the Merger, no further vote is necessary
to approve the Merger. Pursuant to the Stockholder Agreement, the Company has
agreed to terminate the Services Agreement between the Company and Centennial as
of the Effective Time of the Merger.
The consummation of the Merger is subject to certain conditions, including,
without limitation, Centennial obtaining a final order from the Federal
Communications Commission (the "FCC") approving the transfer of control of
Centennial to WCAS VIII and its affiliates and Acquisition obtaining financing
substantially on the terms contemplated by the commitment letters it received in
connection with the Merger Agreement. Centennial completed filing applications
seeking FCC transfer approvals of the Merger. The last of these applications
that are material to the transaction was placed on public notice by the FCC on
August 17, 1998 and was eligible for grant beginning September 17, 1998. On
October 9, 1998, the FCC approved the last of the applications. In addition,
Acquisition and Centennial submitted their Notification and Report Forms with
respect to the Merger on September 11, 1998 and on September 25, 1998,
Centennial's request for early termination of the waiting period under the
Hart-Scott-Rodino Act was granted.
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger, the Merger Agreement and the transactions
contemplated by the Merger Agreement shall be paid by the party incurring such
expenses. However, in the event Centennial or Acquisition shall have terminated
the Merger Agreement as a result of either Centennial entering into a definitive
written agreement with respect to any merger, consolidation or other business
combination, tender or exchange offer, recapitalization transaction, asset or
stock purchase or other similar transaction with a third party (an "Acquisition
Transaction") or the Board of Directors of Centennial having withdrawn, modified
or amended in any manner adverse to Acquisition or the stockholders of
Acquisition its approval or recommendation of the Merger Agreement or approved,
recommended or endorsed any proposal for an Acquisition Transaction, then
Centennial shall simultaneously reimburse Acquisition for documented fees and
expenses (subject to a maximum of $25,000) and pay Acquisition a termination fee
of $40,000.
In connection with the Merger, Acquisition has received a commitment from a
third party for financing for Acquisition and certain existing and future
subsidiaries of Centennial in the
7
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aggregate amount of approximately $1,600,000 in the form of senior secured
credit facilities and an unsecured bridge loan. Additionally, an affiliate of
WCAS VIII has agreed to purchase approximately $150,000 aggregate amount of
subordinated notes of the Surviving Corporation. Finally, WCAS VIII and other
equity investors have agreed to purchase approximately $350,000 of common stock
of the Surviving Corporation. It is anticipated that this funding will be used
to pay the merger consideration described above, repay or repurchase certain
indebtedness of Centennial and pay related fees and expenses. Additionally,
pursuant to the Merger Agreement, Centennial has agreed that, upon the request
of Acquisition, it will commence offers to repurchase its two outstanding
issuances of public debt (the "Debt Offers"). Pursuant to the Merger Agreement
and at the request of Acquisition, Centennial commenced the Debt Offers and
consent solicitations with respect to these two public debt issuances on
September 8, 1998. Through October 6, 1998, over 99% of Centennial's public debt
was tendered and consents were delivered to Centennial. As a condition to the
closing of the Merger, Centennial must redeem its two public debt issuances of
$350,000 in the aggregate, prior to the closing date of the Merger. The
estimated cost to Centennial of the redemption, including accrued interest is
approximately $406,000 based upon current market conditions, U.S. treasury
yields as of September 29, 1998 and an assumed payment date of October 15, 1998.
Centennial's obligation to accept for purchase, and to pay for, the public debt
validly tendered, is subject to certain conditions, including the consumation of
the Merger, which, in turn, is subject to certain other conditions.
Centennial anticipates that as part of the financing necessary to effect the
Merger, certain of its subsidiaries will issue approximately $340,000 of debt
securities to qualified institutional buyers under two private placement
offerings pursuant to Rule 144A and Regulation S of the Securities Act of 1933,
as amended. There can be no assurance that Acquisition will receive the funding
referred to above and in the event that Acquisition must seek alternative
financing to consummate the Merger there can be no assurance that it will be
able to secure alternative financing on terms no less favorable than the terms
of the above commitments. Additionally, there can be no assurance that the Debt
Offers will be consummated.
On August 21, 1998, Centennial filed a Preliminary Information Statement with
the Securities and Exchange Commission (the "SEC") relating to the Merger and
anticipates filing a Registration Statement on Form S-4 with the SEC which
incorporates this Information Statement in the near future. The Information
Statement/Prospectus also constitutes the prospectus of the Surviving
Corporation for the issuance of shares of common stock in connection with the
transactions contemplated by the Merger Agreement.
The Company owns 8,561,819 shares of Class B Common Stock of Centennial. The
Company also owns 3,978 shares of Second Series Convertible Redeemable Preferred
Stock of Centennial. If such Class B Common Stock and Second Series Convertible
Redeemable Preferred Stock are fully exchanged for cash, the Company would
receive an aggregate consideration of approximately $377,473 as a result of the
conversion into cash.
The Company anticipates recording a net gain upon the disposition of Centennial
of approximately $220,000 during fiscal 1999, net of income taxes and the
Company's share of estimated losses through the date of disposition. The
Company's share of the estimated losses is not expected to be material. When the
Centennial disposition is completed, the Company expects
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to reduce its valuation allowance applied against its deferred tax assets by
approximately $80,000 to $90,000.
AUSTRALIAN OPERATIONS
On July 9, 1998, the Company and United International Holdings, Inc. ("UIH")
entered into an agreement pursuant to which UIH's UIH Asia/Pacific
Communications Inc. unit ("UAP") agreed to acquire the Company's 25% ownership
interest in XYZ Entertainment Pty. Limited ("XYZ") for approximately $24,600.
Approximately 95% of the sales price was payable in the form of UIH Series B
Convertible Preferred Stock which is convertible into UIH Class A stock at a
conversion price of $21.25 per share.
Also on July 9, 1998, East Coast Pay Television Pty. Limited ("ECT") agreed to
sell substantially all of its operating assets to Austar Entertainment Pty Ltd.
("Austar"), a wholly owned subsidiary of UAP, for approximately $6,100 in the
form of Austar preferred stock. ECT will utilize the $6,100 proceeds and its
other current assets of approximately $5,000 to liquidate its current
liabilities, which approximate $25,000. The Company anticipates recording an
immaterial gain as a result of the sale of its Australian assets. The sale of
these Australian assets are contingent, among other things, upon the receipt of
all appropriate regulatory and other customary approvals.
The consolidated financial statements and notes thereto reflect the discontinued
operations of Centennial and the Australian Operations. The net assets of these
discontinued operations have been separately classified in the accompanying
consolidated balance sheets at August 31, 1998 and May 31, 1998 under the
caption "Net Assets of Discontinued Operations".
Operating results of Centennial and the Australian Operations for the three
months ended August 31, 1997, are shown separately within the accompanying
consolidated statements of operations under the caption "Loss from Discontinued
Operations". The operating results of Centennial and the Australian Operations
for the three months ended August 31, 1997 consist of the following:
<TABLE>
<S> <C>
CENTENNIAL CELLULAR CORP.:
Revenue $ 52,853
Costs and expenses (54,981)
------------
Operating Loss (2,128)
Income from equity investments 4,206
Interest expense (10,705)
Gain on sale of assets 5
Income tax benefit 1,971
Minority interest in income of subsidiaries (135)
------------
Net Loss (a) $ (6,786)
============
</TABLE>
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<TABLE>
<S> <C>
AUSTRALIAN OPERATIONS:
Revenue $ 8,460
Costs and expenses (11,808)
------------
Operating Loss (3,348)
Interest expense (2,614)
Other loss (1,024)
------------
Net Loss (a) $ (6,986)
============
</TABLE>
(a) Prior to minority interest share of losses.
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
$35,586 and $30,878 for the three months ended August 31, 1998 and 1997,
respectively.
NOTE 4. ACQUISITIONS/DISPOSITIONS
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 Citizen 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. The aggregate
purchase price for these systems was approximately $68,440. On October 15, 1997,
the Century/Citizens Joint Venture completed the acquisition of the Diamond Bar
system for a purchase price of approximately $33,550. The Diamond Bar system
serves approximately 20,000 primary basic subscribers. On April 30, 1998, the
Century/Citizens Joint Venture completed the acquisition of the Yorba
Linda/Orange County systems for a purchase price of approximately $34,890. The
Yorba Linda/Orange County systems serve approximately 17,500 primary basic
subscribers. The Company funded its share of the purchase price for the Yorba
Linda/Orange County systems and the Diamond Bar system using available credit
facilities.
In August 1998, the Company entered into an agreement to acquire a cable
television system which serves approximately 19,000 primary basic subscribers in
Moreno Valley and Riverside County, California. The purchase price for this
system is approximately $33,000. The Company currently expects to fund the
acquisition using available credit facilities. The purchase of this system by
the Company is subject to regulatory approvals. There is no assurance that the
Company will obtain such approvals or that such acquisition will be consummated.
Dispositions
In June 1998, Century-ML Cable Venture, a 50% owned joint venture partnership
between the Company and ML Media Partners, L.P., sold substantially all of the
assets of its two radio stations for approximately $11,500. The Company recorded
a pre-tax gain of $5,542 in relation
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to the sale of these two radio stations during the three months ended August 31,
1998.
The summary pro forma information includes the results of the Company's
continuing operations and all of the above acquisitions, pending acquisitions
and dispositions, in each case as if such acquisitions/dispositions had been
completed as of June 1, 1997.
<TABLE>
<CAPTION>
Three Months Ended August 31,
-------------------------------
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
Revenue $ 128,371 $ 124,018
Loss from continuing operations $ (22,346) $ (17,346)
Net loss $ (22,346) $ (26,538)
Loss from continuing operations
per common share $ (.30) $ (.25)
Loss per common share - basic & diluted $ (.30) $ (.37)
</TABLE>
Pro forma net loss per common share for the three months ended August 31, 1998
and 1997 is calculated using the weighted average number of common shares
outstanding during the period.
NOTE 5. LONG-TERM DEBT
The Company and its subsidiaries had the following debt outstanding at August
31, 1998 and May 31, 1998.
<TABLE>
<CAPTION>
(Unaudited)
August 31, May 31,
1998 1998
-------------- -------------
<S> <C> <C>
CCC-I Credit Facility $ - $ -
CCC-II Credit Facility - -
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 296,312 289,870
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 225,000 225,000
Century 8 3/8% Senior Notes due 2017 100,000 100,000
Century 8 3/8% Senior Notes due 2007 100,000 100,000
Century Senior Discount Notes due 2008, Series B 263,909 258,132
Century-ML 9.47% Senior Secured Notes due 2002 100,000 100,000
Century Venture Corp. Credit Facility and Term Loan 52,000 54,000
CCCTV Credit Facility 47,000 52,000
Other 100 100
------------ -------------
Long-term debt - continuing operations 2,034,321 2,029,102
------------ -------------
Australian operations 10,546 10,546
Centennial 8 7/8% Senior Notes due 2001 250,000 250,000
Centennial 10 1/8% Senior Notes due 2005 100,000 100,000
CPRW Credit Facility 150,000 150,000
Centennial Credit Facility - 10,000
------------ -------------
Long -term debt-discontinued operations 510,546 520,546
------------ -------------
Total $ 2,544,867 $ 2,549,648
============ =============
Current maturities of long-term debt:
Continuing operations 20,050 20,050
Discontinued operations 10,546 10,546
------------ -------------
$ 30,596 $ 30,596
============ =============
</TABLE>
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At August 31, 1998, the Company's public debt securities of approximately
$1,835,221 in the aggregate have interest rates ranging from 8 3/8% to 9 3/4%,
with remaining maturities ranging from 2 to 19 1/4 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 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 August 31, 1998, of which $99,000 was
outstanding.
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used to manage well-defined
interest rate risks. The Company entered into a five-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 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, restrict the purchase or redemption of
its capital stock and limit the ability to pay dividends and management fees and
make capital expenditures.
At August 31, 1998, the Company and its subsidiaries were in compliance with all
covenants of their respective debt agreements.
NOTE 6. NEW ACCOUNTING PRONOUNCEMENTS
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,
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and other Postretirement Benefits" and Statement of Financial
Accounting Standards 133, "Accounting for Derivative Instruments and Hedging
Activities" in 1998. Additionally, during 1998 the AICPA's Accounting Standards
Executive Committee issued Statement of Position (SOP) 98-5 "Reporting on the
Cost of Start-up Activities". The Company believes these Statements will not
have a material impact on the consolidated financial statements of the Company
when adopted.
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NOTE 7. STOCK PURCHASES
During the three months ended August 31, 1997, the Company purchased 736,000
additional shares of Class A Common Stock in the open market for an aggregate
purchase price of $3,990 pursuant to previous authorizations by the Company's
Board of Directors. These shares were accounted for as treasury shares. During
the three months ended August 31, 1998 the Company did not purchase any shares
in the open market pursuant to these authorizations. As of October 6, 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.
NOTE 8. STRATEGIC PARTNERSHIP
On December 10, 1997, the Company and TCI Communications, Inc. ("TCI") signed a
letter of intent to establish a strategic partnership (the "Partnership"). TCI
will contribute to the Partnership all the assets related to the businesses of
certain cable television systems owned and operated by TCI serving approximately
245,000 customers in the area of Southern California. The Company will
contribute to the Partnership all the assets related to the businesses of
certain cable television systems owned and operated by the Company serving
approximately 500,000 customers in the area of Southern California, including
approximately 90,000 subscribers to be acquired in an exchange of cable systems
described below. The Company will manage the newly combined cable systems and
own approximately 75 percent of the Partnership.
As part of the Partnership Transaction, the Company and TCI have agreed to
exchange cable systems owned by the Company in certain communities in Northern
California for certain cable systems owned by TCI in Southern California,
allowing each of them to unify operations in existing service areas. TCI will
exchange its East San Fernando Valley cable system serving approximately 90,000
subscribers for the Company's Northern California cable systems, serving
approximately 90,000 subscribers in the communities of San Pablo, Benicia,
Fairfield and Rohnert Park, California.
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 signing of definitive agreements and all appropriate
regulatory and other approvals. There is no assurance that the Company will
obtain such approvals or that such transactions will be consumated.
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NOTE 9. CHANGES IN STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Common Stock
-------------------------------------
Class A Class B Additional
---------------- ----------------- Paid-in Accumulated
Shares Dollars Shares Dollars Capital Deficit Other Total
------ ------ ------ ------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1997 62,695,127 $627 45,126,115 $451 $176,871 $(649,043) $(127,549) $(598,643)
Share issued in connection
with employee incentive plans 589,761 6 4,533 4,539
Class A shares purchased by the
Company (12,576) (12,576)
Class B shares converted to Class A
shares 2,400,000 24 (2,400,000) (24) -
Subsidiary preferred stock dividends (5,225) (5,225)
Change in unrealized appreciation of
marketable securities 7,333 7,333
Foreign currency translation
transferred to discontinued
operations 291 291
Net loss (120,971) (120,971)
---------- ---- ---------- ---- -------- --------- --------- ---------
Balance at May 31, 1998 65,684,888 657 42,726,115 427 176,179 (770,014) (132,501) (725,252)
Shares issued in connection
with employee incentive plans 306,076 3 25,000 2,302 2,305
Class A shares purchased by the
Company (1,041) (1,041)
Class B shares converted to
Class A shares 429,056 4 (429,056) (4) --
Change in unrealized appreciation
of marketable securities (14,479) (14,479)
Net loss (20,838) (20,838)
---------- ---- ---------- ---- -------- --------- --------- ---------
Balance at August 31, 1998 66,420,020 $ 664 42,322,059 $ 423 $ 178,481 $ (790,852) $ (148,021) $(759,305)
========== ===== ========== ===== ========= =========== =========== =========
</TABLE>
OTHER STOCKHOLDERS' DEFICIENCY ITEMS:
- ------------------------------------
<TABLE>
<CAPTION>
August 31, 1998
(Unaudited) May 31, 1998
---------------- ------------
<S> <C> <C>
Treasury stock, at cost $ (153,738) $ (152,697)
Unrealized appreciation of marketable securities 5,717 20,196
------------ ----------
$ (148,021) $ (132,501)
============ ==========
</TABLE>
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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, 1998, 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 August 31, 1998, the Company owned and operated 72 cable
television systems in 25 states and Puerto Rico. At that date, the Company's
cable systems passed approximately 2,346,000 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
August 31, 1998, these 50%-owned systems passed approximately 624,000 homes and
served approximately 328,000 primary basic subscribers in the aggregate.
Centennial Cellular Corp. ("Centennial") and the Company's Australian
Operations, including ECT, are presented as discontinued operations within the
Company's consolidated financial statements (See Note 2 to the Company's
consolidated financial statements). Accordingly, the consolidated statements of
operations reflect their operating results as discontinued operations for the
three months ended August 31, 1998 and 1997 and the consolidated balance sheets
at August 31, 1998 and May 31, 1998 segregates the net assets of these
discontinued operations. The following discussion of results of operations and
financial condition is presented for continuing operations only.
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.
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.
THREE MONTHS ENDED AUGUST 31, 1998 AND AUGUST 31, 1997
Revenue from cable television operations increased by $7,152 or 6.0%, over the
corresponding three months ended August 31, 1997, principally as a result of
acquisitions, subscription price increases and increases in the number of cable
television subscriptions. Average primary basic cable television subscribers
("Basic Subscribers") for the twelve months ended August 31, 1998 were
approximately 1,304,000, as compared to approximately 1,258,000 Basic
Subscribers for the twelve-month period ended August 31, 1997, an increase of
3.7%. Acquisitions accounted for approximately 47.8% of the
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<PAGE>
increase. Average monthly revenue per Basic Subscriber, including programmers'
share of such revenue, was approximately $40.07 during the twelve months ended
August 31, 1998, as compared to approximately $38.30 during the comparable prior
twelve month period, an increase of 4.6%.
Cost of services of the Company's cable television operations increased by $937,
or 3.6%, while selling, general and administrative expenses decreased by $1,317,
or 4.3%. The principal reason for the increase in cost of services was the
increase in the variable component of the Company's cost structure which
increases in relation to increased revenue. The Company anticipates 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 television operations for
the three months ended August 31, 1998 increased by $1,295, or 3.4% over the
three months ended August 31, 1997.
As a result of the factors noted above, operating income for the three months
ended August 31, 1998 increased to $30,826 or $6,237 above the operating income
of $24,589 for the three months ended August 31, 1997.
Interest expense for the three months ended August 31, 1998 increased by $8,952,
or 23.0% as compared with the three months ended August 31, 1997, principally as
a result of increased borrowings. For the three months ended August 31, 1998,
the average debt outstanding was approximately $2,029,500 or $274,100 above the
average outstanding debt balance of $1,755,400 during the three months ended
August 31, 1997. The Company's weighted average interest rate excluding
borrowings of the Company's 50% owned joint ventures was approximately 9.6% in
the three months ended August 31, 1998, as compared to approximately 8.8% in the
three months ended August 31, 1997.
After income attributable to minority interests in subsidiaries for the three
months ended August 31, 1998, a consolidated pretax loss of $16,053 was
incurred, as compared to a pretax loss of $15,416 for the three months ended
August 31, 1997.
The loss from continuing operations for the three months ended August 31, 1998
of $20,838 represents an increase of $5,462 from the loss of $15,376 for the
three months ended August 31, 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 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 the Company's business
is capital intensive, the Company must continue to seek various sources of
financing to meet its needs, including growth in internally generated cash, bank
financing, joint ventures and partnerships and public and private placements of
debt and equity securities. In addition to an aggregate of $1,835,221 in public
debt instruments of the Company, certain subsidiaries of the Company have
entered into credit agreements with various bank
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groups and private lending institutions providing for an aggregate of
approximately $1,255,000 of potential borrowing capacity for cable operations.
At August 31, 1998 approximately $199,000 of that aggregate availability has
been drawn.
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 additional indebtedness.
During the three months ended August 31, 1998, the Company made capital
expenditures of $23,412. 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 1999. Various construction projects have been undertaken
to expand the operations of certain cable television systems into adjacent and
previously unbuilt areas and to rebuild and upgrade its existing cable system
plant. The Company is currently considering the further upgrade of its cable
television distribution systems in certain of its cable television markets to
expand its capability for the delivery of video, voice and data transmission.
Should the Company undertake such an upgrade plan, it would result in an
acceleration of capital expenditures which would otherwise be incurred in future
years. The Company has not yet determined the feasibility, timing or cost of
such projects. Funds for cable television capital projects and related equipment
are currently available from internally generated cash and other financing
resources.
For the three months ended August 31, 1998, earnings were less than fixed
charges by $16,346. However, such amount reflects non-cash charges totaling
$39,609, consisting of depreciation and amortization. Historically, cash
generated from operating activities has exceeded fixed charges. Based upon
current market conditions, the Company expects that cash flows from operations,
the sale of Centennial and funds from currently available credit facilities will
be sufficient to enable the Company 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
On July 2, 1998, Centennial and CCW Acquisition Corp. ("Acquisition"), a
Delaware corporation organized at the direction of Welsh, Carson, Anderson &
Stowe VIII, L.P. ("WCAS VIII") entered
17
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<PAGE>
into an Agreement and Plan of Merger (the "Merger Agreement") providing for the
merger of Acquisition with and into Centennial (the "Merger"). Centennial will
continue as the surviving corporation (the "Surviving Corporation") in the
Merger.
The Company owns 8,561,819 shares of Class B Common Stock of Centennial. The
Company also owns 3,978 shares of Second Series Convertible Redeemable Preferred
Stock of Centennial. If such Class B Common Stock and Second Series Convertible
Redeemable Preferred Stock are fully exchanged for cash, the Company would
receive an aggregate consideration of approximately $377,473 as a result of the
conversion into cash. The Company anticipates recording a net gain in relation
to the disposition of Centennial of approximately $220,000 during fiscal 1999,
net of income taxes and the Company's share of estimated losses through the date
of disposition. The Company's share of the estimated losses is not expected to
be material. When the Centennial disposition is completed, the Company expects
to reduce its valuation allowance applied against its deferred tax assets by
approximately $80,000 to $90,000 (See "Discontinued Operations" section
following).
At August 31, 1998, the Company's public debt securities of approximately
$1,835,221 in the aggregate, have interest rates ranging from 8 3/8% to 9 3/4%,
with remaining maturities ranging from 2 to 19 1/4 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, have four credit facilities with $1,155,000
of total potential credit availability at August 31, 1998, of which $99,000 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 has only limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used to manage well-defined
interest rate risks. The Company
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<PAGE>
entered into a five-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, restrict the purchase or redemption of
its capital stock and limit the ability to pay dividends and management fees and
make capital expenditures.
At August 31, 1998, the Company and its subsidiaries were in compliance with all
covenants of their respective debt agreements.
ACQUISITIONS/DISPOSITIONS
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 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
$68,440. On October 15, 1997, the Century/Citizens Joint Venture completed the
acquisition of the Diamond Bar system for a purchase price of approximately
$33,550. The Diamond Bar system serves approximately 20,000 primary basic
subscribers. On April 30, 1998, the Century/Citizens Joint Venture completed the
acquisition of the Yorba Linda/Orange County Systems for a purchase price of
approximately $34,890. The Yorba Linda/Orange County systems serve approximately
17,500 primary basic subscribers. The Company funded its share of the purchase
price for the Diamond Bar system and the Yorba Linda/Orange County systems using
available credit facilities.
On December 10, 1997, the Company and TCI Communications, Inc. ("TCI") signed a
letter of intent to establish a strategic partnership (the "Partnership"). TCI
will contribute to the Partnership all the assets related to the businesses of
certain cable television systems owned and operated by TCI serving approximately
245,000 customers in the area of Southern California. The Company will
contribute to the Partnership all the assets related to the businesses of
certain cable television systems owned and operated by the Company serving
approximately 500,000 customers in the area of Southern California, including
approximately 90,000 subscribers to be acquired in an exchange of cable systems
described below. The Company will manage the newly combined cable systems and
own approximately 75 percent of the Partnership.
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As part of the Partnership Transaction, the Company and TCI have agreed to
exchange cable systems owned by the Company in certain communities in Northern
California for certain cable systems owned by TCI in Southern California,
allowing each of them to unify operations in existing services areas. TCI will
exchange its East San Fernando Valley cable system serving approximately 90,000
subscribers for the Company's Northern California cable systems, serving
approximately 90,000 subscribers in the communities of San Pablo, Benicia,
Fairfield and Rohnert Park, California.
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 signing of definitive agreements and to all appropriate
regulatory and other approvals. There is no assurance that the Company will
obtain such approvals or that such transactions will be consummated.
In August 1998, the Company entered into an agreement to acquire a cable
television system which serves approximately 19,000 primary basic subscribers in
Moreno Valley and Riverside County, California. The purchase price for this
system is approximately $33,000. The Company currently expects to fund the
acquisition using available credit facilities. The purchase of this system by
the Company is subject to regulatory approvals. There is no assurance that the
Company will obtain such approvals or that such acquisition will be consummated.
Dispositions
In June 1998, Century-ML Cable Venture, a 50% owned joint Venture partnership
between the Company and ML Media Partners, L.P., sold substantially all of the
assets of its two radio stations for approximately $11,500. The Company recorded
a pre-tax gain of $5,542 in relation to the sale of these two radio stations
during the three months ended August 31, 1998.
DISCONTINUED OPERATIONS
On July 2, 1998, Centennial and Acquisition, entered into the Merger Agreement
providing for the merger of Acquisition with and into Centennial (the "Merger").
Centennial will continue as the surviving corporation (the "Surviving
Corporation") in the Merger.
Subject to the effects of proration, pursuant to the Merger Agreement,
outstanding Class A Common Stock of Centennial will be converted into the right
to receive $43.50 per share in cash or to receive common shares of the Surviving
Corporation representing up to 7.1% of the Surviving Corporation Shares
outstanding immediately after the Merger. Class B Common Stock will be converted
into the right to receive $43.50 per share in cash; provided, that if the
aggregate number of Surviving Corporation Shares elected to be received by
Centennial's existing stockholders is less than 7.1% of the common shares of the
Surviving Corporation outstanding immediately after the Merger, then a number of
Class B Common Stock equal to the pro rata portion of such shortfall will be
converted into Surviving Corporation Shares. All outstanding Convertible
Redeemable Preferred Stock of Centennial and Second Series Convertible
Redeemable Preferred Stock of Centennial will be converted into the right to
receive $43.50 per share in cash on an as converted basis.
Because existing holders of common stock of Centennial must receive in the
Merger an amount of Surviving Corporation Shares equal to 7.1% of the common
shares of the Surviving Corporation outstanding immediately after the Effective
Time, Centennial stockholders who do not elect to receive any
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shares may, due to proration, be required to receive some Surviving Corporation
Shares. In addition, Centennial stockholders who elect to receive shares may,
due to proration, receive Surviving Corporation Shares and receive cash in
amounts which vary from the amounts such holders elected.
In connection with the execution of the Merger Agreement, the Company,
Centennial's principal stockholder, entered into a Stockholder Agreement, dated
July 2, 1998, with Acquisition (the "Stockholder Agreement"). Pursuant to the
Stockholder Agreement, the Company agreed to vote its shares in favor of the
Merger so long as the Merger Agreement remains in effect. Because the Company
agreed to approve the Merger by written consent in lieu of meeting and controls,
on a fully diluted basis, more than a majority of the outstanding votes of
Centennial required to approve the Merger, no further vote is necessary to
approve the Merger. Pursuant to the Stockholder Agreement with Acquisition, the
Company has agreed to terminate the Services Agreement between the Company and
Centennial as of the effective time of the Merger.
The consummation of the Merger is subject to certain conditions, including,
without limitation, Centennial obtaining a final order from the Federal
Communications Commission (the "FCC") approving the transfer of control of
Centennial to WCAS VIII and its affiliates and Acquisition obtaining financing
substantially on the terms contemplated by the commitment letters it received in
connection with the Merger Agreement. Centennial completed filing the
applications seeking FCC transfer approvals of the Merger. The last of these
applications that are material to the transaction was placed on public notice by
the FCC on August 17, 1998 and was eligible for grant beginning September 17,
1998. On October 9, 1998, the FCC approved the last of the applications. In
addition, Acquisition and Centennial submitted their Notification and Report and
Forms with respect to the Merger on September 11, 1998 and on September 25,
1998, Centennial's request for early termination of the waiting period under the
Hart-Scott-Rodino Act was granted.
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger, the Merger Agreement and the transactions
contemplated by the Merger Agreement shall be paid by the party incurring such
expenses. However, in the event Centennial or Acquisition shall have terminated
the Merger Agreement as a result of either Centennial entering into a definitive
written agreement with respect to any merger, consolidation or other business
combination, tender or exchange offer, recapitalization transaction, asset or
stock purchase or other similar transaction with a third party (an "Acquisition
Transaction") or the Board of Directors of Centennial having withdrawn, modified
or amended in any manner adverse to Acquisition or the stockholders of
Acquisition its approval or recommendation of the Merger Agreement or approved,
recommended or endorsed any proposal for an Acquisition Transaction, then
Centennial shall simultaneously reimburse Acquisition for documented fees and
expenses (subject to a maximum of $25,000) and pay Acquisition a termination fee
of $40,000.
In connection with the Merger, Acquisition has received a commitment from a
third party for financing for Acquisition and certain existing and future
subsidiaries of Centennial in the aggregate amount of approximately $1,600,000
in the form of senior secured credit facilities and an unsecured bridge loan.
Additionally, an affiliate of WCAS VIII has agreed to purchase approximately
$150,000 aggregate amount of subordinated notes of the Surviving Corporation.
Finally, WCAS VIII and other equity investors have agreed to purchase
approximately $350,000 of common stock of the Surviving Corporation. It is
anticipated that this funding will be used to pay the merger consideration
described above, repay or repurchase certain indebtedness of Centennial and pay
related fees and expenses. Additionally, pursuant to the Merger Agreement,
Centennial has agreed that, upon the request of Acquisition, it will commence
21
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offers to repurchase its two outstanding issuances of public debt (the "Debt
Offers"). Pursuant to the Merger Agreement and at the request of Acquisition,
Centennial commenced the Debt Offers and consent solicitations with respect to
these two public debt issuances on September 8, 1998. Through October 6, 1998,
over 99% of Centennial's public debt was tendered and consents were delivered to
Centennial. As a condition to the closing of the Merger, Centennial must redeem
its two public debt issuances of $350,000 in the aggregate, prior to the closing
date of the Merger. The estimated cost to Centennial of the redemption,
including accrued interest is approximately $406,000 based upon current market
conditions, U.S. treasury yields as of September 29, 1998 and an assumed payment
date of October 15, 1998. Centennial's obligation to accept for purchase, and to
pay for, the public debt validly tendered, is subject to certain conditions,
including the consumation of the Merger, which, in turn, is subject to certain
other conditions.
Centennial anticipates that as part of the financing necessary to effect the
Merger, certain of its subsidiaries will issue approximately $340,000 of debt
securities to qualified institutional buyers under two private placement
offerings pursuant to Rule 144A and Regulation S of the Securities Act of 1933,
as amended. There can be no assurance that Acquisition will receive the funding
referred to above and in the event that Acquisition must seek alternative
financing to consummate the Merger there can be no assurance that it will be
able to secure alternative financing on terms no less favorable than the terms
of the above commitments. Additionally, there can be no assurance that the Debt
Offers will be consummated.
On August 21, 1998, Centennial filed a Preliminary Information Statement with
the Securities and Exchange Commission (the "SEC") relating to the Merger and
anticipates filing a Registration Statement on Form S-4 with the SEC which
incorporates this Information Statement in the near future. The Information
Statement/Prospectus also constitutes the prospectus of the Surviving
Corporation for the issuance of shares of common stock in connection with the
transactions contemplated by the Merger Agreement.
The Company owns 8,561,819 shares of Class B Common Stock of Centennial. The
Company also owns 3,978 shares of Second Series Convertible Redeemable Preferred
Stock of Centennial. If such Class B Common Stock and Second Series Convertible
Redeemable Preferred Stock are fully exchanged for cash, the Company would
receive an aggregate consideration of approximately $377,473 as a result of the
conversion into cash. The Company anticipates recording a net gain upon the
disposition of Centennial of approximately $220,000 during fiscal 1999, net of
income taxes and the Company's share of estimated losses through the date of
disposition. The Company's share of the estimated losses is not expected to be
material. When the Centennial disposition is completed, the Company expects to
reduce its valuation allowance applied against its deferred tax assets by
approximately $80,000 to $90,000.
The Company had interests in businesses in the pay television industry in
Australia. The interests included investments in entities, which include East
Coast Pay Television Pty. Limited ("ECT") and XYZ Entertainment Pty. Limited
("XYZ"), which have the following: (i) programming arrangements and ownership of
a satellite subscription broadcast license which permits distribution of
programming via direct-to-home (DTH) satellite television broadcasting
throughout Australia; (ii) ownership of wireless cable distribution licenses
(MDS) in areas covering approximately 755,000 households; and (iii) programming
services.
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On July 9, 1998, the Company and United International Holdings, Inc. ("UIH")
entered into an agreement pursuant to which UIH's UIH Asia/Pacific
Communications Inc. unit ("UAP") agreed to acquire the Company's 25% ownership
interest in XYZ for approximately $24,600. Approximately 95% of the sales price
was payable in the form of UIH Series B Convertible preferred Stock which is
convertible into UIH Class A stock at a conversion price of $21.25 per share.
Also on July 9, 1998, ECT agreed to sell substantially all of its operating
assets to Austar Entertainment Pty. Ltd., ("Austar") a wholly owned subsidiary
of UAP, for approximately $6,100 in the form of Austar preferred stock. ECT will
utilize the $6,100 proceeds and its other current assets of approximately $5,000
to liquidate its current liabilities, which approximate $25,000.
The Company anticipates recording an immaterial gain as a result of the sale of
its Australian assets. The sale of these Australian assets are contingent, among
other things, upon the receipt of all appropriate regulatory and other customary
approvals.
YEAR 2000
During fiscal 1998, the Company began a review of its computer systems and
related software to identify systems and software which might malfunction due to
a misidentification of the Year 2000. A committee consisting of members of
senior management from various disciplines within the Company has been formed
and is meeting regularly to discuss the steps that must be taken to deal with
any potential Year 2000 issues. The Company is utilizing both internal and
external resources to identify, correct or reprogram, and test systems for Year
2000 readiness.
Most of the Company's customer-related computer systems and data bases,
including its billing systems, are managed by third parties under contractual
arrangements. The Company has requested those third parties to advise the
Company as to whether they anticipate difficulties in addressing Year 2000
problems and, if so, the nature of such difficulties. The Company is also
working with others in the industry using the same or similar systems to
determine the appropriate steps necessary to address the anticipated
difficulties.
The Company has completed an inventory of all local equipment used in the
transmission and reception of all signals and is in the process of identifying
items that need to be upgraded or replaced. The Company is also monitoring
industry-wide efforts with respect to signal delivery to its cable distribution
plant and is working with others in the industry to address potential solutions.
Management of the Company has not finally determined the cost associated with
its Year 2000 readiness efforts and the related potential impact on the
Company's results of operations. Amounts expended to date have not been
material. There can be no assurance that the Company's systems or systems of
other companies on which the Company relies will be converted in time or that
any such failure to convert by the Company or another company will not have an
adverse effect on the Company's financial condition or position.
After evaluating its internal compliance efforts as well as the compliance of
third parties as described above by the end of calendar year 1998, the Company
will develop during 1999 appropriate contingency plans to address situations in
which various systems of the Company, or of third parties with which the Company
does business, are not Year 2000 compliant. In addition, the Company is
currently participating
23
<PAGE>
<PAGE>
in an industry wide effort to address Year 2000 issues with similarly situated
companies, the goal of which is to develop contingency plans which address not
only the Company's issues but that of the industry as a whole.
STOCK PURCHASES
During the three months ended August 31, 1997, the Company purchased 736,000
additional shares of Class A Common Stock in the open market for an aggregate
purchase price of $3,990 pursuant to previous authorizations by the Company's
Board of Directors. These shares have been accounted for as Treasury Shares.
During the three months ended August 31, 1998, the Company did not purchase any
shares in the open market pursuant to these authorizations. As of October 6,
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.
* * * * *
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; 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
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, 1998 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.
24
<PAGE>
<PAGE>
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 -
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Each exhibit identified below is filed as part of this report.
a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
---------- -----------
<C> <S>
Exhibit 11 Statement re: computation of per share earnings
Exhibit 27 Financial Data Schedule (EDGAR filing only)
</TABLE>
b) Reports on Form 8-K
None
25
<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: October 13, 1998
/s/ Scott N. Schneider
------------------------------------
Scott N. Schneider
Chief Financial Officer,
Senior Vice President and Treasurer
(Principal Accounting Officer)
26
<PAGE>
<PAGE>
EXHIBIT 11
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-Q
FOR THE THREE MONTHS ENDED
AUGUST 31, 1998 AND 1997
COMPUTATION OF LOSS PER COMMON SHARE
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
August 31, August 31,
1998 1997
------------ --------
<S> <C> <C>
Net Loss $ (20,838) $ (24,568)
Subsidiary preferred stock dividends - (1,259)
----------- -------------
Loss applicable to common shares $ (20,838) $ (25,827)
============ =============
Average number of common shares and
common share equivalents outstanding
Average number of common shares
outstanding during the period 74,775,000 75,782,000
Add common share equivalents -
options to purchase common shares - net 1,862,000 8,000
----------- ------------
Average number of common shares and
common share equivalents 76,637,000 (A) 75,790,000 (A)
=========== ============
Loss per common share $ (.27)(A) $ (.34) (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 reduction of earnings per share is anti-dilutive.
Therefore, loss per 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.
27
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAY-31-1998 MAY-31-1997
<PERIOD-END> AUG-31-1998 AUG-31-1997
<CASH> 294,847 158,653
<SECURITIES> 0 0
<RECEIVABLES> 26,222 61,625
<ALLOWANCES> 1,778 4,484
<INVENTORY> 0 0
<CURRENT-ASSETS> 361,072 232,415
<PP&E> 563,087 733,169
<DEPRECIATION> 458,962 460,953
<TOTAL-ASSETS> 1,498,060 2,150,045
<CURRENT-LIABILITIES> 161,440 186,112
<BONDS> 2,014,271 2,232,380
<COMMON> 1,087 1,079
0 186,287
0 0
<OTHER-SE> (760,392) (631,177)
<TOTAL-LIABILITY-AND-EQUITY> 1,498,060 2,150,045
<SALES> 126,716 119,564
<TOTAL-REVENUES> 126,716 119,564
<CGS> 27,153 26,216
<TOTAL-COSTS> 95,890 94,975
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 47,929 38,977
<INCOME-PRETAX> (11,561) (12,410)
<INCOME-TAX> 4,785 (40)
<INCOME-CONTINUING> (16,346) (15,376)
<DISCONTINUED> 0 (9,192)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (20,838) (24,568)
<EPS-PRIMARY> (.28) (.34)
<EPS-DILUTED> (.28) (.34)
</TABLE>
