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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, 1999
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)
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<S> <C>
New Jersey 06-1158179
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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 - 32,887,163 outstanding shares as of March 18, 1999
Class B Common - 42,322,059 outstanding shares as of March 18, 1999
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTURY COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
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<CAPTION>
February 28,
1999 May 31,
(Unaudited) 1998
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 628,162 $ 285,498
Accounts receivable less allowance for doubtful
accounts of $2,712 and $1,695, respectively 32,981 16,109
Prepaid expenses and other current assets 7,066 3,465
Net assets of discontinued operations -- 37,323
--------- ---------
Total current assets 668,209 342,395
Property, plant and equipment - net 564,415 565,965
Investment in marketable equity securities 63,776 52,451
Debt issuance costs, less accumulated amortization of $21,201
and $16,013, respectively 28,641 33,829
Cable television franchises, less accumulated amortization of $367,155
and $324,835, respectively 302,186 344,612
Excess of purchase price over value of net assets acquired, less
accumulated amortization of $43,064 and $40,612, respectively 160,170 166,570
Other assets 12,067 9,360
--------- ---------
$ 1,799,464 $ 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)
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<CAPTION>
February 28,
1999 May 31,
(Unaudited) 1998
------------ -----------
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LIABILITIES AND COMMON STOCKHOLDERS'
DEFICIENCY
Current liabilities:
Current maturities of long-term debt $ 20,050 $ 20,050
Accounts payable 42,160 35,983
Accrued expenses and other current liabilities 100,028 97,499
----------- -----------
Total current liabilities 162,238 153,532
Long-term debt 2,017,532 2,009,052
Deferred income taxes 3,278 5,170
Minority interest in subsidiaries 73,888 67,030
Other deferred income 5,470 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, 66,694,199 and 65,684,888 shares, respectively,
and outstanding 32,885,031 and 31,954,085 shares, respectively 667 657
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 181,103 176,179
Other, including 33,809,168 and 33,730,803 treasury shares, respectively (147,271) (132,501)
Accumulated deficit (497,864) (770,014)
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Total common stockholders' deficiency (462,942) (725,252)
----------- -----------
$ 1,799,464 $ 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)
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<CAPTION>
Three Months Ended February 28, Nine Months Ended February 28,
------------------------------- ------------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Service income $ 131,278 $ 120,725 $ 387,726 $ 361,611
----------- ----------- ---------- ----------
Costs and expenses:
Cost of services 29,820 26,063 85,284 78,651
Selling, general and administrative 29,093 30,175 87,696 92,676
Depreciation and amortization 43,290 39,546 125,864 116,561
----------- ----------- ---------- ----------
102,203 95,784 298,844 287,888
----------- ----------- ---------- ----------
Operating income 29,075 24,941 88,882 73,723
Gain (loss) on sale of assets (39) (19) 5,186 1,889
Interest expense 47,816 45,067 143,830 124,882
----------- ----------- ---------- ----------
Loss from continuing operations before income
tax (benefit) and minority interest (18,780) (20,145) (49,762) (49,270)
Income tax benefit (27,621) (400) (19,104) (546)
----------- ----------- ---------- ----------
Income (loss) from continuing operations
before minority interest 8,841 (19,745) (30,658) (48,724)
Minority interest in income of subsidiaries (2,870) (2,521) (9,334) (8,702)
----------- ----------- ---------- ----------
Income (loss) from continuing operations 5,971 (22,266) (39,992) (57,426)
----------- ----------- ---------- ----------
Discontinued operations:
Loss from discontinued operations, net of income
tax benefit of $7,844 and $13,527 and minority
interest in losses of $6,578 and $17,673 for the three
and nine months ended February 28, 1998, respectively -- (6,853) -- (39,874)
Gain on sale of discontinued operations (less
applicable income taxes of $28,255) 312,142 -- 312,142 --
----------- ----------- ---------- ----------
312,142 (6,853) 312,142 (39,874)
----------- ----------- ---------- ----------
Net income (loss) $ 318,113 $ (29,119) $ 272,150 $ (97,300)
=========== =========== ========== ==========
Dividend on discontinued subsidiary convertible
redeemable preferred stock $ -- $ 1,259 $ -- $ 3,777
=========== =========== ========== ==========
Net income (loss) applicable to common shares $ 318,113 $ (30,378) $ 272,150 $ (101,077)
=========== =========== ========== ==========
Net income (loss) per common share - basic
Income (loss) from continuing operations $ 0.08 $ (0.32) $ (0.53) $ (0.82)
Loss from discontinued operations -- (0.09) -- (0.53)
Gain on sale of discontinued operations 4.15 -- 4.16 --
----------- ----------- ---------- ----------
Net income (loss) per common share - basic $ 4.23 $ (0.41) $ 3.63 $ (1.35)
=========== =========== ========== ==========
Net income (loss) per common share - diluted
Income (loss) from continuing operations $ 0.08 $ (0.32) $ (0.53) $ (0.82)
Loss from discontinued operations -- (0.09) -- (0.53)
Gain on sale of discontinued operations 4.08 -- 4.16 --
----------- ----------- ---------- ----------
Net income (loss) per common share - diluted $ 4.16 $ (0.41) $ 3.63 $ (1.35)
=========== =========== ========== ==========
Weighted average number of common shares
outstanding during the period - basic 75,146,000 74,310,000 74,976,000 74,859,000
=========== =========== ========== ==========
Weighted average number of common shares
outstanding during the period - diluted 76,449,000 74,310,000 74,976,000 74,859,000
=========== =========== ========== ==========
</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,
------------------------------
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from subscribers and others $ 464,083 $ 448,577
Cash paid to suppliers, employees and
governmental agencies (285,569) (265,731)
Interest paid (102,846) (96,019)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 75,668 86,827
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INVESTING ACTIVITIES:
Capital expenditures (79,997) (86,432)
Cable television franchise expenditures (339) (181)
Acquisition of other assets (3,461) 1,454
Acquisition of cable television systems -- (33,548)
Sale of discontinued operations 360,115 --
Sale of radio stations 11,538 --
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES 287,856 (118,707)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings -- 775,659
Principal payments on long-term debt (29,050) (560,050)
Debt issuance costs -- (17,824)
Purchase of treasury stock (1,505) (12,421)
Issuance of common stock 4,930 1,361
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (25,625) 186,725
--------- ---------
NET (DECREASE) INCREASE IN CASH AND SHORT-TERM
INVESTMENTS - CONTINUING OPERATIONS 337,899 154,845
CASH FLOWS OF DISCONTINUED OPERATIONS - NET 4,765 (29,722)
CASH AND SHORT-TERM INVESTMENTS - BEGINNING
OF PERIOD 285,498 151,947
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CASH AND SHORT-TERM INVESTMENTS - END OF PERIOD $ 628,162 $ 277,070
========= =========
</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
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<CAPTION>
Nine Months Ended February 28,
------------------------------
1999 1998
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RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
NET INCOME (LOSS) $ 272,150 $ (97,300)
--------- ---------
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 125,864 116,561
Minority interest in income of subsidiaries - continuing operations 9,334 8,702
Deferred income taxes (1,892) (3,611)
Non cash interest charges 42,587 25,414
Gain on sale of discontinued operations (340,397) --
Gain on sale of assets and other (6,008) --
Loss from discontinued operations - net -- 39,874
Change in assets and liabilities net of effects of acquired cable
television systems:
Accounts receivable - (increase) (17,072) (5,714)
Prepaid expenses and other current assets - (increase) decrease (3,629) 2,610
Accounts payable and accrued expenses - increase/(decrease) (5,269) 291
--------- ---------
Total adjustments (196,482) 184,127
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 75,668 $ 86,827
========= =========
</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, 1999 and the results of its consolidated operations and cash flows
for the periods ended February 28, 1999 and 1998. The February 28, 1999 and 1998
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. AGREEMENT AND PLAN OF MERGER
On March 5, 1999, the Company and Adelphia Communications Corporation
("Adelphia") jointly announced the signing of a definitive agreement (the
"Merger Agreement") for the merger (the "Merger") of the Company with and into a
newly formed direct, wholly-owned subsidiary of Adelphia (the "Merger Sub"). The
Merger Sub will continue as the surviving company in the Merger. The Merger is
expected to close in the third calendar quarter of 1999. The consolidated
financial statements have been prepared on an historical basis and do not
include any adjustments that might result from the outcome of the Merger.
Pursuant to the Merger Agreement, the Company's Class A Common stockholders will
receive cash of approximately $9.16 per share and approximately 0.6122 shares of
Adelphia Class A Common Stock (for a total market value of the consideration of
$44.14 based on Adelphia's March 4, 1999 closing price on the Nasdaq National
Market of $57-1/8) for each share of the Company's Class A Common Stock that
they own, and the Company's Class B Common stockholders will receive
approximately $11.81 in cash and approximately 0.6360 shares of Adelphia Class A
Common Stock (for a total market value of the consideration of $48.14 based on
Adelphia's March 4, 1999 closing price on the Nasdaq National Market of $57 1/8)
for each share of the Company's Class B Common Stock that they own.
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 the Company enters into or consummates a merger,
consolidation or other business combination with a third party within
twenty-four months after the date of termination of the Merger Agreement, the
Company
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shall reimburse Adelphia's costs and expenses in connection with the Merger
Agreement (subject to a maximum of $10,000) and pay Adelphia a termination fee
of $100,000.
On or about March 10, 1999, a lawsuit was commenced by the filing of a class
action complaint (the "Complaint") by one of the Company's Class A Common
stockholders on behalf of himself and all others similarly situated naming the
Company's Class B Common stockholders and all of the Company's Directors as
defendants for alleged breaches of fiduciary duty in connection with approval
of the Merger consideration. The Company and Adelphia were also named as
defendants for allegedly aiding and abetting in the foregoing breaches of
fiduciary duty. The Complaint seeks damages in an unspecified amount and such
other relief as may be appropriate.
The closing of the Merger is subject to certain customary conditions, including
the approval of the Merger by the shareholders of the Company and Adelphia, each
party obtaining the required consents (including under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended) and all appropriate regulatory
and other approvals, including from the Federal Communications Commission and
local franchising authorities. There is no assurance that the Company will
obtain such approvals or that such transaction will be consummated.
NOTE 3. MERGER/SALE OF BUSINESS SEGMENTS
CENTENNIAL CELLULAR CORP.
On January 7, 1999, Centennial Cellular Corp. ("Centennial") completed the
previously announced merger of CCW Acquisition Corp., a company organized at the
direction of Welsh, Carson, Anderson & Stowe, with and into Centennial (the
"Centennial Merger"). As of the completion of the Centennial Merger, the
Services Agreement between the Company and Centennial was terminated. As a
holder of 8,561,819 shares of Class B Common Stock and 3,978 shares of Second
Series Convertible Preferred Stock of Centennial, the Company received for its
interest in Centennial approximately $360,100 in cash. The Company intends to
utilize these proceeds for general corporate purposes, including, but not
limited to, the financing of capital expenditures, investments and acquisitions.
The Company recorded a pre-tax gain upon the sale of Centennial of approximately
$322,000 during the three months ended February 28, 1999.
AUSTRALIAN OPERATIONS
The Company sold to UIH Asia/Pacific Communications Inc. ("UAP"), a unit of
United International Holdings, Inc. ("UIH"), the Company's 25% ownership
interest in XYZ Entertainment Pty. Limited ("XYZ") for approximately $24,600.
Approximately 95% of the sales price was paid in the form of UIH Series B
Convertible Preferred Stock ("UIH Convertible Stock") which is convertible at
any time into approximately ten shares of UIH Class A Common Stock for each
share of UIH Convertible Stock, at a conversion price of $21.25 per share. The
Company may not sell, assign, pledge, transfer or otherwise convey any UIH
securities prior to September 11, 1999.
7
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On July 9, 1998, East Coast Pay Television Pty. Limited ("ECT") sold
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 UIH Convertible Stock. ECT has finalized the shutdown of its operations,
including the liquidation of its current liabilities. On December 16, 1998, the
creditors of ECT entered into an Intercreditor Agreement pursuant to which
substantially all of the remaining assets of ECT have been distributed among
them and the Company has received 5,652 units of UIH Convertible Stock. The
Company will receive 92.4% of any additional remaining assets of ECT. Such
amounts are not expected to be material.
At March 18, 1999, the closing price of the UIH Class A Common Stock on the
Nasdaq National Market was $40 1/8.
The Company recorded a pre-tax gain of approximately $18,300 as a result of the
sale of its Australian business segment during the three months ended February
28, 1999.
The Company reduced its valuation allowance applied against its deferred tax
assets by approximately $103,000 as a result of the sale of Centennial and the
Australian Operations.
The net assets of Centennial and the Australian Operations have been classified
in the accompanying May 31, 1998 consolidated balance sheet under the caption
"Net Assets of Discontinued Operations".
Operating results of Centennial and the Australian Operations for the three and
nine months ended February 28, 1998 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 and nine months ended February 28, 1998 consist of the following:
<TABLE>
<CAPTION>
CENTENNIAL CELLULAR CORP. Three Months Nine Months
Ended Ended
February 28,1998 February 28,1998
---------------- ----------------
<S> <C> <C>
Revenue $ 59,179 $ 171,166
Costs and expenses (67,538) (187,027)
------------ -------------
Operating Loss (8,359) (15,861)
Income from equity investments 2,391 9,843
Interest expense (11,461) (33,262)
Gain (loss) on sale of assets (4) 8
Income tax benefit 7,844 13,527
Minority interest in income of subsidiaries (81) (337)
------------ -------------
Net Loss (a) $ (9,670) $ (26,082)
============ =============
</TABLE>
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<TABLE>
<CAPTION>
AUSTRALIAN OPERATIONS: Three Months Nine Months
Ended Ended
February 28, 1998 February 28, 1998
----------------- -----------------
<S> <C> <C>
Revenue $ 8,313 $ 27,814
Costs and expenses (8,773) (49,035)
-------- --------
Operating Loss (460) (21,221)
Interest expense (2,899) (8,199)
Other loss (401) (2,044)
-------- --------
Net Loss (a) $ (3,760) $(31,464)
======== ========
</TABLE>
(a) Prior to minority interest share of losses.
NOTE 4. 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
$39,310 and $111,445 for the three and nine months ended February 28, 1999,
respectively, and $34,005 and $96,411 for the three and nine months ended
February 28, 1998, respectively.
NOTE 5. INCOME TAXES
As discussed in Note 3, the Company sold Centennial and the Company's Australian
Operations in the quarter ended February 28, 1999, resulting in a pre-tax gain
of approximately $340,000. Consequently, in the three months ended February 28,
1999, the Company was able to recognize a tax benefit from the losses incurred
from continuing operations for the first nine months of fiscal 1999. The Company
will recognize a tax benefit for the losses from continuing operations incurred
in the fourth quarter of fiscal 1999 and will reduce the adjustment to the tax
valuation allowance by a like amount.
NOTE 6. INCOME (LOSS) PER COMMON SHARE
The Company applies the provisions of Statement of Financial Accounting
Standards No.128, "Earnings Per Share" ("SFAS 128"). Under SFAS 128, Basic
Earnings Per Share is calculated by dividing income (loss) applicable to common
shares by weighted average common shares outstanding. Diluted Earnings Per Share
reflects the potential dilution that could occur if potential common stock
instruments of the Company were exercised, converted or issued. The calculation
of Diluted Earnings Per Share for the three months ended February 28, 1999
included common share equivalents of 1,303,000 in the determination of common
shares outstanding utilized in the calculation.
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NOTE 7. SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS No.
131 establishes standards for reporting information on operating segments in the
financial statements. In accordance with this standard, the Company has
determined that it currently operates in one business segment, the ownership and
operation of cable television systems in the United States.
NOTE 8. COMPREHENSIVE INCOME (LOSS)
The Company has adopted the provisions of the Financial Accounting Standards
Board's Statement of Accounting Standards No. 130, "Reporting Comprehensive
Income". Comprehensive Income (loss) for the Company includes unrealized
appreciation of marketable securities and foreign currency translation
adjustments (1998 only) in addition to net income (loss) as reported in the
Company's Consolidated Financial Statements. Comprehensive income was $315,536
and $258,885 for the three and nine months ended February 28, 1999,
respectively, and comprehensive loss was $30,318 and $94,439 for the three and
nine months ended February 28, 1998, respectively.
NOTE 9. ACQUISITIONS/DISPOSITIONS - CONTINUING OPERATIONS
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 has 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 $69,650. On October 15, 1997,
the Century/Citizens Joint Venture completed the acquisition of the Diamond Bar
system for a purchase price of approximately $34,160. 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 $35,490. 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.
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 $5,506 in relation to the sale of these two radio stations
during the nine months ended February 28, 1999.
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The summary pro forma information includes the results of the Company's
continuing operations and the above acquisitions and disposition, in each case
as if such acquisitions and disposition had been completed as of June 1, 1997.
<TABLE>
<CAPTION>
Nine Months Ended February 28,
-------------------------------
1999 1998
--------- ----------
(Unaudited)
<S> <C> <C>
Revenue $ 387,698 $ 365,411
Loss from continuing operations $ (40,062) $ (59,977)
Net income (loss) $ 272,080 $ (99,851)
Loss from continuing operations
per common share - basic & diluted $ (.53) $ (.85)
Income (loss) per common share - basic & diluted $ 3.63 $ (1.38)
</TABLE>
Pro forma net loss per common share for the nine months ended February 28, 1999
and 1998 is calculated using the weighted average number of common shares
outstanding during the period.
NOTE 10. PENDING ACQUISITION
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.
NOTE 11. LONG-TERM DEBT
At February 28, 1999, the Company's public debt securities of approximately
$1,860,532 in the aggregate have interest rates ranging from 8 3/8% to 9 3/4%,
with remaining maturities ranging from 1 1/2 to 18 3/4 years. 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 February 28, 1999, of which $97,000 was
outstanding. Approximately $825,000 of borrowing capacity terminates under the
CCC-I and CCC-II credit facilities on August 31, 1999.
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
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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
.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. So long as applicable financial and other covenants,
including certain interest expense ratio tests, are met in connection with the
Merger, the Merger may be accomplished without creating a default under the
indentures applicable to the Company's public debt securities. If any issue of
the Company's public debt securities is downgraded to designated levels at the
time of the Merger, the holders of such issue could require the Company to
repurchase such debt securities at a price equal to 101% of the principal
amount thereof.
At February 28, 1999, the Company and its subsidiaries were in compliance with
all covenants of their respective debt agreements.
NOTE 12. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and other
Postretirement Benefits" and Statement of Financial Accounting Standards No.
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.
NOTE 13. 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 were accounted for as treasury shares. During
the nine months ended February 28, 1999, the Company did not purchase any shares
in the open market pursuant to these authorizations.
NOTE 14. STRATEGIC PARTNERSHIP
On November 18, 1998, the Company and TCI Communications, Inc. ("TCI") entered
into a definitive agreement 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
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owned and operated by TCI serving approximately 243,400 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 528,700 customers in the area of
Southern California, including approximately 94,400 subscribers to be acquired
in an exchange of cable systems described below as well as approximately 19,000
subscribers related to the Company's pending acquisition of the cable television
system serving Moreno Valley and Riverside, California (See Note 8). The Company
will manage the newly combined cable systems and own approximately 69.5 percent
of the Partnership. The cable systems contributed by each party will be valued
based upon annualized cash flow of such contributed systems as of the closing
date of the transaction, subject to certain fees and expenses.
The Company is expected to manage the Partnership in return for a management fee
payable by the Partnership calculated based on a percentage of the annual total
gross revenues of the Partnership, in addition to payment of certain fees and
expenses. However, under the Agreement of Limited Partnership, the Partnership
may not, among other things, without the approval of the TCI partner or the
unanimous vote of all the members of the Partnership committee, enter into
certain transactions with affiliates, issue any Partnership or other equity
interest, permit any subsidiary to issue any equity interest, effectuate certain
mergers or other business combinations or incur in excess of certain levels of
indebtedness.
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 94,400
subscribers for the Company's Northern California cable systems, serving
approximately 95,900 subscribers in the communities of San Pablo, Benicia,
Fairfield and Rohnert Park, California.
It is anticipated that the Partnership will be funded by approximately $900,000
of indebtedness. There is no assurance that such financing will be available to
the Partnership or that the Partnership will be able to obtain such financing on
terms favorable to the Partnership.
The closing of the foregoing transactions is subject to, among other things,
each party obtaining the required consents (including under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and all
appropriate regulatory and other approvals, including from the Federal
Communications Commission and local franchising authorities. In connection with
the Partnership Transaction, the Company has completed filing the material
applications seeking transfer of the Company's applicable franchise licenses
with the FCC and local franchising authorities. There is no assurance that the
Company will obtain such approvals or that such transactions will be
consummated.
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NOTE 15. 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)
Shares 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 580,255 6 25,000 4,924 4,930
Class A shares purchased by the
Company (1,505) (1,505)
Class B shares converted to
Class A shares 429,056 4 (429,056) (4) --
Change in unrealized appreciation
of Marketable securities (13,265) (13,265)
Net income 272,150 272,150
---------- ---- ---------- ---- -------- --------- --------- ---------
Balance at February 28, 1999 66,694,199 $667 42,322,059 423 $181,103 $(497,864) $(147,271) $(462,942)
---------- ---- ---------- ---- -------- --------- --------- ---------
---------- ---- ---------- ---- -------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
OTHER STOCKHOLDERS' DEFICIENCY ITEMS: February 28, 1999
(Unaudited) May 31, 1998
-------------- ------------
<S> <C> <C>
Treasury stock, at cost $ (154,202) $ (152,697)
Unrealized appreciation of marketable securities 6,931 20,196
-------------- ------------
$ (147,271) $ (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 February 28, 1999, 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 2,358,000 homes and served a total of
approximately 1,338,000 primary basic subscribers. Certain of the Company's
cable systems are owned 50% by the Company and 50% by unaffiliated entities. At
February 28, 1999, these 50%-owned systems passed approximately 628,000 homes
and served approximately 336,000 primary basic subscribers in the aggregate.
On March 5, 1999, the Company and Adelphia Communications Corporation
("Adelphia") jointly announced the signing of a definitive agreement (the
"Merger Agreement") for the merger (the "Merger") of the Company with and into a
newly formed direct, wholly-owned subsidiary of Adelphia (the "Merger Sub"). The
Merger Sub will continue as the surviving company in the Merger. The Merger is
expected to close in the third calendar quarter of 1999. The consolidated
financial statements have been prepared on an historical basis and do not
include any adjustments that might result from the outcome of the Merger.
Pursuant to the Merger Agreement, the Company's Class A Common stockholders will
receive cash of approximately $9.16 per share and approximately 0.6122 shares of
Adelphia Class A Common Stock (for a total market value of the consideration of
$44.14 based on Adelphia's March 4, 1999 closing price on the Nasdaq National
Market of $57-1/8) for each share of the Company's Class A Common Stock that
they own, and the Company's Class B Common stockholders will receive
approximately $11.81 in cash and approximately 0.6360 shares of Adelphia Class A
Common Stock (for a total market value of the consideration of $48.14 based on
Adelphia's March 4, 1999 closing price on the Nasdaq National Market of $57-1/8)
for each share of the Company's Class B Common Stock that they own.
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 the Company enters into or consummates a merger,
consolidation or other business combination with a third party within
twenty-four months after the date of termination of the Merger Agreement, the
Company shall reimburse Adelphia's costs and expenses in connection with the
Merger Agreement (subject to a maximum of $10,000) and pay Adelphia a
termination fee of $100,000.
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On or about March 10, 1999, a lawsuit was commenced by the filing of a class
action complaint (the "Complaint") by one of the Company's Class A Common
stockholders on behalf of himself and all others similarly situated naming the
Company's Class B Common stockholders and all of the Company's Directors as
defendants for alleged breaches of fiduciary duty in connection with approval of
the Merger consideration. The Company and Adelphia were also named as defendants
for allegedly aiding and abetting in the foregoing breaches of fiduciary duty.
The Complaint seeks damages in an unspecified amount and such other relief as
may be appropriate.
The closing of the Merger is subject to certain customary conditions, including
the approval of the Merger by the shareholders of the Company and Adelphia, each
party obtaining the required consents (including under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended) and all appropriate regulatory
and other approvals, including from the Federal Communications Commission and
local franchising authorities. There is no assurance that the Company will
obtain such approvals or that such transaction will be consummated.
On January 7, 1999, Centennial Cellular Corp. ("Centennial") completed the
previously announced merger of CCW Acquisition Corp., a company organized at the
direction of Welsh, Carson, Anderson & Stowe, with and into Centennial (the
"Centennial Merger"). Centennial will continue to operate as an independent
company under its current name and management. As of the completion of the
Centennial Merger, the Services Agreement between the Company and Centennial was
terminated. As a holder of 8,561,819 shares of Class B Common Stock and 3,978
shares of Second Series Convertible Preferred Stock of Centennial, the Company
received for its interest in Centennial approximately $360,100 in cash. The
Company intends to utilize these proceeds for general corporate purposes,
including, but not limited to, the financing of capital expenditures,
investments, purchases and acquisitions.
The Company recorded a pre-tax gain in relation to the sale of Centennial of
approximately $322,000 during the three months ended February 28, 1999.
The Company has 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.
The Company sold to UIH Asia/Pacific Communications Inc. ("UAP"), a unit of
United International Holdings, Inc. ("UIH"), the Company's 25% ownership
interest in XYZ Entertainment Pty. Limited ("XYZ") for approximately $24,600.
Approximately 95% of the sales price was paid in the form of UIH Series B
Convertible Preferred Stock ("UIH Convertible Stock") which is convertible at
any time into approximately ten shares of UIH Class A Common Stock for each
share of UIH Convertible Stock, at a conversion price of $21.25 per share. The
Company may not sell, assign, pledge, transfer or otherwise convey any UIH
securities prior to September 11, 1999.
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On July 9, 1998, ECT sold 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 UIH Series B Convertible Preferred Stock.
ECT has finalized the shutdown of its operations, including the liquidation of
its current liabilities. On December 16, 1998, the creditors of ECT entered into
an Intercreditor Agreement pursuant to which substantially all of the remaining
assets of ECT have been distributed among them and the Company has received
5,652 units of UIH Convertible Stock. The Company will receive 92.4% of any
additional remaining assets of ECT. Such amounts are not expected to be
material.
At March 18, 1999, the closing price of the UIH Class A Common Stock on the
Nasdaq National Market was $40 1/8.
The Company recorded a pre-tax gain of approximately $18,300 as a result of the
sale of its Australian business segment during the three months ended February
28, 1999.
The Company reduced its valuation allowance applied against its deferred tax
assets by approximately $103,000 as a result of the sale of Centennial and the
Australian Operations.
The consolidated statements of operations reflect the operating results of
Centennial and the Company's Australian Operations, including ECT, as
discontinued operations for the three and nine months ended February 28, 1998
and the May 31, 1998 consolidated balance sheet segregates the net assets of
these discontinued operations. The following discussion of results of operations
and financial condition is presented for continuing operations only and does not
reflect the impact of the Merger or changes in capital structure or business
plans associated with the Merger.
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 deregulated (except for basic service) cable service rates on
March 31, 1999.
NINE MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
Revenue from cable television operations increased by $26,115 or 7.2%, over the
corresponding nine months ended February 28, 1998, principally as a result of
subscription price increases, acquisitions and increases in the number of cable
television subscribers. Average primary basic cable television subscribers
("Basic Subscribers") for the twelve months ended February 28, 1999 were
approximately 1,323,000, as compared to approximately 1,283,000 Basic
Subscribers for the twelve-month period ended February 28, 1998, an increase of
3.1%, of which acquisitions accounted for approximately 60%. Average monthly
revenue per Basic Subscriber, including programmers' share of such revenue, was
approximately $41.42 during the twelve months ended February 28, 1999, as
compared to approximately $39.17 during the comparable prior twelve month
period, an increase of 5.7%.
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Cost of services of the Company's cable television operations increased by
$6,633, or 8.4%, while selling, general and administrative expenses decreased by
$4,980, or 5.4%. 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 nine months ended February 28, 1999 increased by $9,303, or 8.0% over the
nine months ended February 28, 1998.
As a result of the factors noted above, operating income for the nine months
ended February 28, 1999 increased to $88,882 or $15,159 above the operating
income of $73,723 for the nine months ended February 28, 1998.
Interest expense for the nine months ended February 28, 1999 increased by
$18,948, or 15.2% as compared with the nine months ended February 28, 1998, as a
result of increased borrowings and higher interest rates. For the nine months
ended February 28, 1999, the average debt outstanding was approximately
$2,032,400 or $136,189 above the average outstanding debt balance of $1,896,211
during the nine months ended February 28, 1998. The Company's weighted average
interest rate excluding borrowings of the Company's 50% owned joint ventures was
approximately 9.5% in the nine months ended February 28, 1999, as compared to
approximately 8.8% in the nine months ended February 28, 1998.
After income attributable to minority interests in subsidiaries for the nine
months ended February 28, 1999, a consolidated pre-tax loss from continuing
operations of $59,096 was incurred, as compared to a pre-tax loss from
continuing operations of $57,972 for the nine months ended February 28, 1998. As
a result of the Company's sale of Centennial and the Company's Australian
Operations in the quarter ended February 28, 1999, the Company recorded a
pre-tax gain of approximately $340,000 and consequently was able to recognize a
net tax benefit of $19,104 in the nine months ended February 28, 1999 for the
losses from continuing operations for the first nine months of fiscal 1999. The
Company will recognize a tax benefit for the losses from continuing operations
incurred in the fourth quarter of fiscal 1999 and will reduce the adjustment to
the tax valuation allowance by a like amount. These tax benefits are non-cash in
nature.
The loss from continuing operations for the nine months ended February 28, 1999
of $39,992 represents a decrease of $17,434 from the loss of $57,426 for the
nine months ended February 28, 1998. The Company expects losses from continuing
operations before income tax benefits 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.
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THREE MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
Revenue from cable television operations increased by $10,553 or 8.7%, over the
corresponding three months ended February 28, 1998, principally as a result of
subscription price increases, acquisitions and increases in the number of cable
television subscribers.
Cost of services of the Company's cable television operations increased by
$3,757, or 14.4%, while selling, general and administrative expenses decreased
by $1,082, or 3.6%. 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 February 28, 1999 increased by $3,744, or 9.5% over the
three months ended February 28, 1998.
As a result of the factors noted above, operating income for the three months
ended February 28, 1999 increased to $29,075 or $4,134 above the operating
income of $24,941 for the three months ended February 28, 1999.
Interest expense for the three months ended February 28, 1999 increased by
$2,749, or 6.1% as compared with the three months ended February 28, 1998,
principally as a result of increased borrowings. The Company's weighted average
interest rate excluding borrowings of the Company's 50% owned joint ventures was
approximately 9.5% in the three months ended February 28, 1999, as compared to
approximately 9.2% in the three months ended February 28, 1998.
After income attributable to minority interests in subsidiaries for the three
months ended February 28, 1999, a consolidated pre-tax loss from continuing
operations of $21,650 was incurred, as compared to a pre-tax loss from
continuing operations of $22,666 for the three months ended February 28, 1998.
As a result of the Company's sale of Centennial and the Company's Australian
Operations in the quarter ended February 28, 1999, the Company recorded a
pre-tax gain of approximately $340,000 and consequently was able to recognize a
net tax benefit of $27,621 in the three months ended February 28, 1999 for the
losses from continuing operations for the first nine months of fiscal 1999. The
Company will recognize a tax benefit for the losses from continuing operations
incurred in the fourth quarter of fiscal 1999 and will reduce the adjustment to
the tax valuation allowance by a like amount. These tax benefits are non-cash in
nature.
The income from continuing operations for the three months ended February 28,
1999 of $5,971 represents an increase of $28,237 from the loss of $22,266 for
the three months ended February 28, 1998. The Company expects losses from
continuing operations (before income tax benefits) to continue until such time
as the cable television systems and investments in plant
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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. In addition to an aggregate of
$1,860,532 in public debt instruments of the Company, certain subsidiaries of
the Company have entered into credit agreements with various bank groups and
private lending institutions providing for an aggregate of approximately
$1,235,000 of potential borrowing capacity for cable operations. At February 28,
1999, approximately $177,000 of that aggregate availability has been drawn.
Approximately $825,000 of this borrowing capacity terminates under two credit
facilities on August 31, 1999.
The Company's internally-generated cash, along with third party financing,
primarily 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 the issuance of debt securities in the public market and through
private institutions as well as internally generated cash flow and the sale of
certain business segments. The debt instruments to which the Company and its
subsidiaries are a party impose restrictions on the incurrence of additional
indebtedness.
During the nine months ended February 28, 1999, the Company made capital
expenditures of $79,997. 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 nine months ended February 28, 1999, earnings were less than fixed
charges by $49,762. However, such amount reflects non-cash charges totaling
$125,864, 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 proceeds received from 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.
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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, cash on hand, as well as various
financing activities to fund these requirements.
FINANCING AND CAPITAL FORMATION
At February 28, 1999, the Company's public debt securities of approximately
$1,860,532 in the aggregate, have interest rates ranging from 8 3/8% to 9 3/4%,
with remaining maturities ranging from 1 1/2 to 18 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 have four credit facilities with $1,155,000
of total potential credit availability at February 28, 1999, of which $97,000
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.
Approximately $825,000 of borrowing capacity terminates under the CCC-I and
CCC-II credit facilities on August 31, 1999.
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
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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. So long as applicable financial and other covenants,
including certain interest expense ratio tests, are met in connection with the
Merger, the Merger may be accomplished without creating a default under the
indentures applicable to the Company's public debt securities. If any issue of
the Company's public debt securities is downgraded to designated levels at the
time of the Merger, the holders of such issue could require the Company to
repurchase such debt securities at a price equal to 101% of the principal
amount thereof.
At February 28, 1999, the Company and its subsidiaries were in compliance with
all covenants of their respective debt agreements.
ACQUISITIONS/DISPOSITIONS - CONTINUING OPERATIONS
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
$69,650. On October 15, 1997, the Century/Citizens Joint Venture completed the
acquisition of the Diamond Bar system for a purchase price of approximately
$34,160. 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 $35,490. 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.
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
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stations for approximately $11,500. The Company recorded a pre-tax gain of
$5,506 in relation to the sale of these two radio stations during the nine
months ended February 28, 1999.
PENDING ACQUISITION
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.
STRATEGIC PARTNERSHIP
On November 18, 1998, the Company and TCI Communications, Inc. ("TCI") entered
into a definitive agreement 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 243,400 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 528,700 customers in the area of Southern California,
including approximately 94,400 subscribers to be acquired in an exchange of
cable systems described below as well as approximately 19,000 subscribers
related to the Company's pending acquisition of the cable television system
serving Moreno Valley and Riverside, California. The Company will manage the
newly combined cable systems and own approximately 69.5 percent of the
Partnership. The cable systems contributed by each party will be valued based
upon annualized cash flow of such contributed systems as of the closing date of
the transaction, subject to certain fees and expenses.
The Company is expected to manage the Partnership in return for a management fee
payable by the Partnership calculated based on a percentage of the annual total
gross revenues of the Partnership, in addition to payment of certain fees and
expenses. However, under the Agreement of Limited Partnership, the Partnership
may not, among other things, without the approval of the TCI partner or the
unanimous vote of all the members of the Partnership committee, enter into
certain transactions with affiliates, issue any Partnership or other equity
interest, permit any subsidiary to issue any equity interest, effectuate certain
mergers or other business combinations or incur in excess of certain levels of
indebtedness.
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 94,400
subscribers for the Company's Northern California cable systems, serving
approximately 95,900 subscribers in the communities of San Pablo, Benicia,
Fairfield and Rohnert Park, California.
23
<PAGE>
<PAGE>
It is anticipated that the Partnership will be funded by approximately $900,000
of indebtedness. There is no assurance that such financing will be available to
the Partnership or that the Partnership will be able to obtain such financing on
terms favorable to the Partnership.
The closing of the foregoing transactions is subject to, among other things,
each party obtaining the required consents (including under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and all
appropriate regulatory and other approvals, including from the Federal
Communications Commission and local franchising authorities. In connection with
the Partnership Transaction, the Company has completed filing the material
applications seeking transfer of the Company's applicable franchise licenses
with the FCC and local franchising authorities. There is no assurance that the
Company will obtain such approvals or that such transactions will be
consummated.
YEAR 2000
The Company has undertaken a comprehensive program to address the issue of
computer software and embedded microchips which are unable to distinguish
between the year 1900 and the year 2000 within the Company and in the products
and services purchased from its material suppliers (the "Year 2000 Project").
The Company has established a Year 2000 team.
The Company is using a multi-step approach in conducting its Year 2000 Project.
These steps are: inventory, assessment, remediation and testing, and contingency
planning. The first step, an inventory of all systems and devices with potential
Year 2000 problems, was completed in December 1998. The next step, completed in
December 1998, was to conduct an initial assessment of the inventory to
determine the state of its Year 2000 readiness. As part of the assessment phase,
remediation strategies were identified and remediation cost estimates were
developed. The Company will utilize primarily internal resources to remediate
and test for Year 2000 readiness. The Company is in the process of replacing and
testing its most critical business systems; signal delivery, accounting, and
telephone answering systems. The Company has initiated formal communications
with the suppliers with which it has active contracts ("Trading Partners") to
determine the extent to which the Company is vulnerable to those third parties'
failure to remediate their own Year 2000 issue. The Company cannot predict the
outcome of other companies' remediation efforts. The Company is reliant on
outside suppliers for signal delivery, customer billing, payroll and utility
service. The Company is also consulting with other cable television multiple
system operators which utilize similar technology to assess the nature of any
risks and possible remediation.
Since August 1998, periodic reports have been submitted to and discussed with
senior executives of the Company, including the Chief Operating Officer and
Chief Financial Officer. In October of 1998, a progress report was discussed
with the Company's Board of Directors' Audit Committee. The Company plans to
continue such periodic reporting to its senior officers and its Board of
Directors.
24
<PAGE>
<PAGE>
Year 2000 Costs
The Company currently plans to complete the Year 2000 Project by September 1999.
Through February 28, 1999, the Company has spent less than $1,000 in connection
with the Year 2000 Project. The total remaining cost of the Year 2000 Project is
estimated at $2,000 which is for new software and hardware purchases. The
majority of these remaining costs will be capitalized. The costs of the project
and the date on which the Company plans to complete the Year 2000 modifications
are based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third parties' Year 2000 readiness and other factors.
Risks
The failure to address a material Year 2000 issue could result in an
interruption in, or a failure of, certain normal business activities or
operations. Due to the decentralized nature of the Company's operations, there
are few systems the failure of which would have a material adverse effect on the
Company as a whole. Nonetheless, the Company relies upon an external billing
service, utility companies, satellite program service providers, satellite
delivery systems, an external payroll service, the United States postal service,
the financial service industry and other suppliers outside of its control and
there can be no assurance that such suppliers or other third parties will not
suffer a Year 2000 business disruption. The most reasonably likely worst case
scenario would involve a failure of the nation's satellite delivery systems
and/or widespread prolonged utility outages. If such a scenario occurred and it
affected a large portion of the United States for a period exceeding 30 days,
the Company's operating results would be negatively impacted. Failures in other
systems would not be expected to have an adverse effect on the Company's
consolidated financial position. In addition, the Company is in the process of
upgrading or replacing certain of its software to comply with Year 2000
readiness. Although the implementation of software may be accompanied with risks
of incompatibilities, the Company believes that the risks associated with these
incompatibilities will not have a material effect on the Company's' operations.
Due to the general uncertainty inherent in the Year 2000 issue, resulting in
part from the uncertainty of the Year 2000 readiness of its Trading Partners and
its Trading Partners' customers, the Company is unable to determine at this time
whether the consequences of Year 2000 failures will have a material impact on
the Company's consolidated financial condition or results of operations. The
Year 2000 Project is expected to significantly reduce the Company's level of
uncertainty about the Year 2000 issue and, in particular, about the Year 2000
compliance and readiness of its material Trading Partners. The Company believes
that, with the implementation of new business systems and completion of the Year
2000 Project as scheduled, the possibility of significant interruptions of
normal operations should be greatly reduced.
25
<PAGE>
<PAGE>
* * * * *
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 consummation of the Merger; the consummation of the Partnership
Transaction; 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; operating hazards and
uninsured risks; refinancing and interest rate exposure risks; and potential for
changes in accounting standards. A more detailed discussion of a majority 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.
26
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about March 10, 1999, Robert Lowinger, on behalf of himself and all others
similarly situated (the "Plaintiff") commenced an action by filing a Class
Action Complaint (the "Complaint") in the Superior Court of Connecticut,
Judicial District of Stamford/Norwalk against the Company, all of its directors,
and Adelphia Communications Corporation ("Adelphia"). The Plaintiff, claiming
that he owns shares of Class A Common Stock of the Company alleges that in
connection with the proposed merger of the Company with Adelphia, holders of
Class B Common Stock of the Company (which has superior voting rights to the
Class A Common Stock of the Company) will receive consideration for their shares
that exceeds by $4.00 per share the consideration to be paid to the Company's
Class A shareholders resulting in the Company's Class B shareholders receiving
approximately $170,000 more than if they held the equivalent number of the
Company's Class A shares. The Plaintiff claims that the individual defendants
breached their fiduciary duties of loyalty, good faith, and due care to the
Company's Class A shareholders by approving the higher payment to the Company's
Class B shareholders and that the Company and Adelphia aided and abetted these
alleged breaches of fiduciary duty. The Plaintiff seeks certification of a class
of the Company's Class A shareholders and seeks recovery on behalf of himself
and the class of unspecified damages, profits, and special benefits alleged to
have been wrongfully obtained by the defendants, as well as all costs, expenses
and attorney's fees. No defendant has yet responded to the Complaint.
The Company is also subject to various legal proceedings and claims that arise
in the ordinary course of business. Management currently believes that resolving
these matters will not have a material adverse impact on the Company's financial
position or its results of operations.
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
27
<PAGE>
<PAGE>
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
----------- -----------
<S> <C> <C>
Exhibit 11 Statement re: computation of per share earnings
Exhibit 27 Financial Data Schedule (EDGAR filing only)
</TABLE>
b) Reports on Form 8-K
Form 8-K dated November 18, 1998 relating to the Company's
execution of a definitive agreement with TCI
Communications, Inc., the cable television arm of
Tele-Communications, Inc., to combine cable systems in
Southern California and to exchange certain cable systems
in Northern and Southern California .
Form 8-K dated November 30, 1998 relating to the Press
Release of Centennial Cellular Corp. issued on November
30, 1998.
Form 8-K dated December 16, 1998 relating to the Press
Release of the Company issued on December 16, 1998.
Form 8-K dated March 5, 1999 relating to the Company's
announcement of its pending acquisition by Adelphia
Communications Corporation ("Adelphia") pursuant to an
Agreement and Plan of Merger dated as of March 5, 1999, by
and among Adelphia, Adelphia Acquisition Subsidiary, Inc.
and the Registrant in a press release issued on March 5,
1999.
28
<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 2, 1999
/s/ Scott N. Schneider
_______________________
Scott N. Schneider
Chief Financial Officer
Senior Vice President and Treasurer
(Principal Accounting Officer)
-29-
<PAGE>
<PAGE>
Exhibit 11
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-Q
For the Nine Months Ended
February 28, 1999 and 1998
COMPUTATION OF LOSS PER COMMON SHARE
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
February 28, February 28,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Net income (loss) $ 272,150 $ (97,300)
Subsidiary preferred stock dividends - (3,777)
---------- -----------
Income (loss) applicable to common shares $ 272,150 $ (101,077)
========== ===========
Average number of common shares and
common share equivalents outstanding
Average number of common shares
outstanding during this period 74,976,000 74,859,000
Add common share equivalents -
options to purchase common shares - net 1,197,000 569,000
----------- -----------
Average number of common shares and
common share equivalents 76,173,000 (A) 75,428,000 (A)
=========== ===========
Income (loss) per common share $ 3.57 (A) $ (1.34)(A)
=========== ===========
</TABLE>
(A) In accordance with SFAS 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 and common share equivalents as shown on the Consolidated
Statements of Operations for the periods presented do not include certain
common share equivalents as their effect is anti-dilutive.
30
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> MAY-31-1999 MAY-31-1998
<PERIOD-END> FEB-28-1999 FEB-28-1998
<CASH> 628,162 277,070
<SECURITIES> 0 0
<RECEIVABLES> 32,981 60,676
<ALLOWANCES> 2,712 5,221
<INVENTORY> 0 0
<CURRENT-ASSETS> 668,209 350,373
<PP&E> 564,415 804,510
<DEPRECIATION> 510,129 526,417
<TOTAL-ASSETS> 1,799,464 2,309,741
<CURRENT-LIABILITIES> 162,238 233,919
<BONDS> 2,017,532 2,464,553
<COMMON> 1,090 1,080
0 186,287
0 0
<OTHER-SE> (464,032) (708,914)
<TOTAL-LIABILITY-AND-EQUITY> 1,799,464 2,309,741
<SALES> 387,726 361,611
<TOTAL-REVENUES> 387,726 361,611
<CGS> 85,284 78,651
<TOTAL-COSTS> 298,844 287,888
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 143,830 124,882
<INCOME-PRETAX> (49,762) (49,270)
<INCOME-TAX> (19,104) (546)
<INCOME-CONTINUING> (39,992) (57,426)
<DISCONTINUED> 312,142 (39,874)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 272,150 (97,300)
<EPS-PRIMARY> 3.63 (1.35)
<EPS-DILUTED> 3.63 (1.35)
</TABLE>
