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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 November 30, 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)
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<S> <C>
New Jersey 06-1158179
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 -- 32,832,362 outstanding shares as of January 8, 1999
Class B Common -- 42,322,059 outstanding shares as of January 8, 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>
November 30,
1998 May 31,
(Unaudited) 1998
------------ ----------
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ASSETS
Current assets:
Cash and short-term investments $ 278,938 $ 285,498
Accounts receivable less allowance for doubtful
accounts of $1,896 and $1,695, respectively 30,415 16,109
Prepaid expenses and other current assets 6,396 3,465
Net assets of discontinued operations 32,558 37,323
---------- ----------
Total current assets 348,307 342,395
Property, plant and equipment - net 563,724 565,965
Investment in marketable equity securities 41,763 52,451
Debt issuance costs, less accumulated amortization of $19,481
and $16,013, respectively 30,361 33,829
Cable television franchises, less accumulated amortization of $353,074
and $324,835, respectively 316,524 344,612
Excess of purchase price over value of net assets acquired, less
accumulated amortization of $41,911 and $40,612, respectively 161,324 166,570
Other assets 10,840 9,360
---------- ----------
$1,472,843 $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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November 30,
1998 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 46,402 35,983
Accrued expenses and other current liabilities 96,345 97,499
----------- -----------
Total current liabilities 162,797 153,532
Long-term debt 2,006,761 2,009,052
Deferred income taxes 5,170 5,170
Minority interest in subsidiaries 71,860 67,030
Other deferred income 5,530 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, 66,574,280 and 65,684,888 shares, respectively,
and outstanding 32,765,112 and 31,954,085 shares, respectively 666 657
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 180,307 176,179
Other, including 33,809,168 and 33,730,803 treasury shares, respectively (144,694) (132,501)
Accumulated deficit (815,977) (770,014)
----------- -----------
Total common stockholders' deficiency (779,275) (725,252)
----------- -----------
$ 1,472,843 $ 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 November 30, Six Months Ended November 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
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Revenues:
Service income $ 129,732 $ 121,322 $ 256,448 $ 240,886
------------ ------------ ------------ ------------
Costs and expenses:
Cost of services 28,311 26,372 55,464 52,588
Selling, general and administrative 29,475 32,056 58,603 62,501
Depreciation and amortization 42,965 38,701 82,574 77,015
------------ ------------ ------------ ------------
100,751 97,129 196,641 192,104
------------ ------------ ------------ ------------
Operating income 28,981 24,193 59,807 48,782
Gain (loss) on sale of assets (317) (70) 5,225 1,908
Interest expense - net 48,085 40,838 96,014 79,815
------------ ------------ ------------ ------------
Loss from continuing operations before income
tax (benefit) and minority interest (19,421) (16,715) (30,982) (29,125)
Income tax expense (benefit) 3,732 (106) 8,517 (146)
------------ ------------ ------------ ------------
Loss from continuing operations before minority interest (23,153) (16,609) (39,499) (28,979)
Minority interest in income of subsidiaries (1,972) (3,175) (6,464) (6,181)
------------ ------------ ------------ ------------
Loss from continuing operations (25,125) (19,784) (45,963) (35,160)
Loss from discontinued operations, net of income
tax benefit of $3,712 and $5,683 and minority
interest in losses of $6,515 and $11,095 for the three
and six months ended November 30, 1997, respectively -- (23,829) -- (33,021)
------------ ------------ ------------ ------------
Net loss $ (25,125) $ (43,613) $ (45,963) $ (68,181)
============ ============ ============ ============
Dividend on discontinued subsidiary convertible
redeemable preferred stock $ - $ 1,259 $ - $ 2,518
============ ============ ============ ============
Net loss applicable to common shares $ (25,125) $ (44,872) $ (45,963) $ (70,699)
============ ============ ============ ============
Net loss per common share - basic and diluted:
Loss from continuing operations $ (.33) $ (.28) $ (.61) $ (.50)
Loss from discontinued operations -- (.32) -- (.44)
------------ ------------ ------------ ------------
Net loss per common share - basic and diluted $ (.33) $ (.60) $ (.61) $ (.94)
============ ============ ============ ============
Weighted average number of common shares
outstanding during the period 75,010,000 74,612,000 74,892,000 75,130,000
============ ============ ============ ============
</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
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<CAPTION>
Six Months Ended November 30,
-----------------------------
1998 1997
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OPERATING ACTIVITIES:
Cash received from subscribers and others $ 309,767 $ 295,035
Cash paid to suppliers, employees and
governmental agencies (186,259) (167,280)
Interest paid (68,269) (58,889)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 55,239 68,866
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (51,546) (59,794)
Cable television franchise expenditures (151) (121)
Acquisition of other assets (1,982) (2,463)
Acquisition of cable television systems -- (33,548)
Sale of radio stations 11,538 --
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (42,141) (95,926)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings -- 415,000
Principal payments on long-term debt (27,050) (356,050)
Debt issuance costs -- (11,629)
Purchase of treasury stock (1,506) (12,039)
Issuance of common stock 4,133 514
--------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (24,423) 35,796
--------- ---------
NET (DECREASE) INCREASE IN CASH AND SHORT-TERM
INVESTMENTS - CONTINUING OPERATIONS (11,325) 8,736
CASH FLOWS OF DISCONTINUED OPERATIONS - NET 4,765 (26,801)
CASH AND SHORT-TERM INVESTMENTS - BEGINNING
OF PERIOD 285,498 151,947
--------- ---------
CASH AND SHORT-TERM INVESTMENTS - END OF PERIOD $ 278,938 $ 133,882
========= =========
</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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Six Months Ended November 30,
------------------------------
1998 1997
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RECONCILIATION OF NET LOSS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
NET LOSS $ (45,963) $ (68,181)
--------- ---------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 82,574 77,015
Minority interest in income of subsidiaries - continuing operations 6,464 6,181
Deferred income taxes - decrease -- (2,400)
Non cash interest charges 28,140 14,773
Gain on sale of assets and other (5,950) --
Loss from discontinued operations - net -- 33,021
Change in assets and liabilities net of effects of acquired
cable television systems:
Accounts receivable - (increase) (14,506) (6,237)
Prepaid expenses and other current assets - (increase) decrease (2,959) 2,688
Accounts payable and accrued expenses - increase/(decrease) 7,439 12,006
--------- ---------
Total adjustments 101,202 137,047
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 55,239 $ 68,866
========= =========
</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
November 30, 1998 and the results of its consolidated operations and cash flows
for the periods ended November 30, 1998 and 1997. The November 30, 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 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.
Centennial will continue to operate as an independent company under its current
name and management. As of the completion of the 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 $360,800 in cash. The Company currently intends on
utilizing these proceeds for general corporate purposes, including, but not
limited to, the financing of capital expenditures, investments, purchases of
the Company's securities and acquisitions.
The Company anticipates recording a net gain upon the disposition of Centennial
of approximately $200,000 during the three months ended February 28, 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.
6
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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 which is convertible into UIH Class A stock at a
conversion price of $21.25 per share.
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 Series B Convertible Preferred Stock. ECT is currently finalizing
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 the remaining assets of ECT will be
distributed among them and the Company will receive 5,652 units of UIH Series B
Convertible Preferred Stock and 92.4% of any remaining assets of ECT after the
board of ECT has completed in a timely manner all matters considered necessary
by the board to liquidate the remaining assets and the other outstanding
liabilities of ECT.
The Company anticipates recording a gain of approximately $18,000 as a result of
the sale of its Australian business segment during the three months ended
February 28, 1999.
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 November 30, 1998 and May 31, 1998 under the
caption "Net Assets of Discontinued Operations".
Operating results of Centennial and the Australian Operations for the three and
six months ended November 30, 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 and six months ended November 30, 1997 consist of the following:
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<CAPTION>
CENTENNIAL CELLULAR CORP. Three Months Six Months
Ended Ended
November 30, 1997 November 30, 1997
----------------- -----------------
<S> <C> <C>
Revenue $ 59,134 $ 111,987
Costs and expenses (64,508) (119,489)
-------------- ---------------
Operating Loss (5,374) (7,502)
Income from equity investments 3,246 7,452
Interest expense (11,096) (21,801)
Gain on sale of assets 7 12
Income tax benefit 3,712 5,683
Minority interest in income of subsidiaries (121) (256)
-------------- ---------------
Net Loss (a) $ (9,626) $ (16,412)
============== ===============
7
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</TABLE>
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<CAPTION>
AUSTRALIAN OPERATIONS: Three Months Six Months
Ended Ended
November 30, 1997 November 30, 1997
----------------- -----------------
<S> <C> <C>
Revenue $ 11,041 $ 19,501
Costs and expenses (28,454) (40,262)
-------- --------
Operating Loss (17,413) (20,761)
Interest expense (2,686) (5,300)
Other loss (619) (1,643)
-------- --------
Net Loss (a) $(20,718) $(27,704)
======== ========
</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
$72,135 and $62,406 for the six months ended November 30, 1998 and 1997,
respectively.
NOTE 4. 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 (1997 only) in addition to net loss as reported in the Company's
Consolidated Financial Statements. Comprehensive loss was $21,333 and $56,650
for the three and six months ended November 30, 1998, respectively, and $37,589
and $64,121 for the three and six months ended November 30, 1997, respectively.
NOTE 5. 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
8
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$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 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>
Six Months Ended November 30,
-----------------------------
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Revenue $ 259,790 $ 249,365
Loss from continuing operations $ (47,240) $ (37,756)
Net loss $ (47,240) $ (70,777)
Loss from continuing operations
per common share $ (.63) $ (.54)
Loss per common share - basic & diluted $ (.63) $ (.98)
</TABLE>
Pro forma net loss per common share for the six months ended November 30, 1998
and 1997 is calculated using the weighted average number of common shares
outstanding during the period.
Strategic Alternatives
The Board of Directors of the Company has determined to explore strategic
alternatives available to it. In connection with this exploration, the Company
has retained the services of Donaldson, Lufkin & Jenrette.
9
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NOTE 6. LONG-TERM DEBT
The Company and its subsidiaries had the following debt outstanding at November
30, 1998 and May 31, 1998.
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<CAPTION>
(Unaudited)
November 30, 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 302,948 289,870
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 269,813 258,132
Century-ML 9.47% Senior Secured Notes due 2002 80,000 100,000
Century Venture Corp. Credit Facility and Term Loan 52,000 54,000
CCCTV Credit Facility 47,000 52,000
Other 50 100
-------------- ---------------
Long-term debt -- continuing operations 2,026,811 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 157,000 150,000
Centennial Credit Facility - 10,000
-------------- ---------------
Long-term debt -- discontinued operations 517,546 520,546
-------------- ---------------
Total $ 2,544,357 $ 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>
At November 30, 1998, the Company's public debt securities of approximately
$1,847,761 in the aggregate have interest rates ranging from 8 3/8% to 9 3/4%,
with remaining maturities ranging from 1 3/4 to 19 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 November 30, 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
10
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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 November 30, 1998, the Company and its subsidiaries were in compliance with
all covenants of their respective debt agreements.
NOTE 7. 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 8. STOCK PURCHASES
During the six months ended November 30, 1997, the Company purchased 1,929,500
additional shares of Class A Common Stock in the open market for an aggregate
purchase price of $11,913 pursuant to previous authorizations by the Company's
Board of Directors. These shares were accounted for as treasury shares. During
the six months ended November 30, 1998, the Company did not purchase any shares
in the open market pursuant to these authorizations. As of January 8, 1999, 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 9. 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 243,000 customers in the area of Southern California. The
Company will contribute to the Partnership all the assets related to the
11
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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. 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 90,000 subscribers in the communities of San Pablo, Benicia,
Fairfield and Rohnert Park, California.
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. There is no
assurance that the Company will obtain such approvals or that such transactions
will be consummated.
NOTE 10. PUERTO RICO HURRICANE
In September 1998, the Commonwealth of Puerto Rico sustained damage as a result
of the effects of Hurricane Georges. The Company has evaluated the extent of
damage to its Puerto Rico cable systems and the impact the Hurricane has had on
the Company's Puerto Rico service revenue during the second quarter ended
November 30, 1998. The Company is in the process of finalizing its insurance
claim and the insurance carrier has acknowledged coverage. The ultimate
resolution of these claims is subject to further negotiations with the insurance
carrier. After consideration of expected insurance recoveries, the Company
believes it will not incur significant losses as a result of the effects of the
damage caused by Hurricane Georges. During the three months ended November 30,
1998, the Company recorded approximately $3,500 of insurance recoveries related
to subscriber refunds within revenue.
12
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NOTE 11. 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 460,336 5 25,000 4,128 4,133
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 (10,688) (10,688)
Net loss (45,963) (45,963)
---------- ------- ---------- ------- ---------- ----------- --------- ---------
Balance at November
30, 1998 66,574,280 $ 666 42,322,059 $ 423 $180,307 $(815,977) $(144,694) $(779.275)
========== ======= ========== ======= ========== =========== ========= =========
</TABLE>
OTHER STOCKHOLDERS' DEFICIENCY ITEMS:
<TABLE>
<CAPTION>
November 30, 1998
(Unaudited) May 31, 1998
----------------- ------------
<S> <C> <C>
Treasury stock, at cost $(154,202) $ (152,697)
Unrealized appreciation of marketable securities 9,508 20,196
----------------- ------------
$(144,694) $ (132,501)
================= =============
</TABLE>
13
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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 November 30, 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 2,350,000 homes and served a total of
approximately 1,332,000 primary basic subscribers. Certain of the Company's
cable systems are owned 50% by the Company and 50% by unaffiliated entities. At
November 30, 1998, these 50%-owned systems passed approximately 623,000 homes
and served approximately 332,000 primary basic subscribers in the aggregate.
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.
Centennial will continue to operate as an independent company under its current
name and management. As of the completion of the 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 $360,800 in cash. The Company currently intends on
utilizing these proceeds for general corporate purposes, including, but not
limited to, the financing of capital expenditures, investments, purchases of
the Company's securities and acquisitions.
The Company anticipates recording a net gain in relation to the disposition of
Centennial of approximately $200,000 during the three months ended February 28,
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.
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.
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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 for approximately $24,600. Approximately 95% of the sales price
was paid 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.
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 is currently finalizing 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 the remaining
assets of ECT will be distributed among them and the Company will receive 5,652
units of UIH Series B Convertible Preferred Stock and 92.4% of any remaining
assets of ECT after the board of ECT has completed in a timely manner all
matters considered necessary by the board to liquidate the remaining assets and
the other outstanding liabilities of ECT.
The Company anticipates recording a gain of approximately $18,000 as a result of
the sale of its Australian business segment during the three months ended
February 28, 1999.
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 and six months ended November
30, 1997 and the consolidated balance sheets at November 30, 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.
SIX MONTHS ENDED NOVEMBER 30, 1998 AND NOVEMBER 30, 1997
Revenue from cable television operations increased by $15,562 or 6.5%, over the
corresponding six months ended November 30, 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 November 30,
15
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<PAGE>
1998 were approximately 1,317,000, as compared to approximately 1,269,000 Basic
Subscribers for the twelve-month period ended November 30, 1997, an increase of
3.8%, of which acquisitions accounted for approximately 56.3%. Average monthly
revenue per Basic Subscriber, including programmers' share of such revenue, was
approximately $40.60 during the twelve months ended November 30, 1998, as
compared to approximately $38.64 during the comparable prior twelve month
period, an increase of 5.1%.
Cost of services of the Company's cable television operations increased by
$2,876, or 5.5%, while selling, general and administrative expenses decreased by
$3,898, or 6.2%. 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 six months ended November 30, 1998 increased by $5,559, or 7.2% over the six
months ended November 30, 1997.
As a result of the factors noted above, operating income for the six months
ended November 30, 1998 increased to $59,807 or $11,025 above the operating
income of $48,782 for the six months ended November 30, 1997.
Interest expense for the six months ended November 30, 1998 increased by
$16,199, or 20.3% as compared with the six months ended November 30, 1997,
principally as a result of increased borrowings. For the six months ended
November 30, 1998, the average debt outstanding was approximately $2,033,900 or
$226,200 above the average outstanding debt balance of $1,807,700 during the six
months ended November 30, 1997. The Company's weighted average interest rate
excluding borrowings of the Company's 50% owned joint ventures was approximately
9.6% in the six months ended November 30, 1998, as compared to approximately
8.9% in the six months ended November 30, 1997.
After income attributable to minority interests in subsidiaries for the six
months ended November 30, 1998, a consolidated pretax loss of $37,446 was
incurred, as compared to a pretax loss of $35,306 for the six months ended
November 30, 1997.
The loss from continuing operations for the six months ended November 30, 1998
of $45,963 represents an increase of $10,803 from the loss of $35,160 for the
three months ended November 30, 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.
16
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THREE MONTHS ENDED NOVEMBER 30, 1998 AND NOVEMBER 30, 1997
Revenue from cable television operations increased by $8,410 or 6.9%, over the
corresponding six months ended November 30, 1997, principally as a result of
acquisitions, subscription price increases and increases in the number of cable
television subscriptions.
Cost of services of the Company's cable television operations increased by
$1,939, or 7.4%, while selling, general and administrative expenses decreased by
$2,581, or 8.1%. 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 November 30, 1998 increased by $4,264, or 11.0% over the
three months ended November 30, 1997.
As a result of the factors noted above, operating income for the three months
ended November 30, 1998 increased to $28,981 or $4,788 above the operating
income of $24,193 for the three months ended November 30, 1997.
Interest expense for the three months ended November 30, 1998 increased by
$7,247, or 17.7% as compared with the three months ended November 30, 1997,
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 9.6% in the three months ended November 30, 1998, as compared to
approximately 9.0% in the three months ended November 30, 1997.
After income attributable to minority interests in subsidiaries for the three
months ended November 30, 1998, a consolidated pretax loss of $21,393 was
incurred, as compared to a pretax loss of $19,890 for the three months ended
November 30, 1997.
The loss from continuing operations for the three months ended November 30, 1998
of $25,125 represents an increase of $5,341 from the loss of $19,784 for the
three months ended November 30, 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 $1,847,761 in
17
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<PAGE>
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 November 30, 1998, approximately
$179,000 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 six months ended November 30, 1998, the Company made capital
expenditures of $51,539. 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 six months ended November 30, 1998, earnings were less than fixed
charges by $30,982. However, such amount reflects non-cash charges totaling
$82,574, 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.
18
<PAGE>
<PAGE>
FINANCING AND CAPITAL FORMATION
At November 30, 1998, the Company's public debt securities of approximately
$1,847,761 in the aggregate, have interest rates ranging from 8 3/8% to 9 3/4%,
with remaining maturities ranging from 1 3/4 to 19 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 November 30, 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 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
19
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<PAGE>
purchase or redemption of its capital stock and limit the ability to pay
dividends and management fees and make capital expenditures.
At November 30, 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.
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.
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 243,000 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. 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.
20
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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 90,000 subscribers in the communities of San Pablo, Benicia,
Fairfield and Rohnert Park, California.
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. There is no
assurance that the Company will obtain such approvals or that such transactions
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.
STRATEGIC ALTERNATIVES
The Board of Directors of the Company has determined to explore strategic
alternatives available to it. In connection with this exploration, the Company
has retained the services of Donaldson, Lufkin & Jenrette.
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
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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.
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.
Year 2000 Costs
The Company currently plans to complete the Year 2000 Project by August 1999.
The total remaining cost of the Year 2000 Project is estimated at $2,000 which
is for new software and hardware purchases and 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. 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
22
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<PAGE>
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.
STOCK PURCHASES
During the six months ended November 30, 1997, the Company purchased 1,929,500
additional shares of Class A Common Stock in the open market for an aggregate
purchase price of $11,913 pursuant to previous authorizations by the Company's
Board of Directors. These shares have been accounted for as Treasury Shares.
During the six months ended November 30, 1998, the Company did not purchase any
shares in the open market pursuant to these authorizations. As of January 8,
1999, 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.
PUERTO RICO HURRICANE
In September 1998, the Commonwealth of Puerto Rico sustained damage as a result
of the effects of Hurricane Georges. The Company has evaluated the extent of
damage to its Puerto Rico cable systems and the impact the Hurricane has had on
the Company's Puerto Rico service revenue during the second quarter ended
November 30, 1998. The Company is in the process of finalizing its insurance
claim and the insurance carrier has acknowledged coverage. The ultimate
resolution of these claims is subject to further negotiations with the insurance
carrier. After consideration of expected insurance recoveries, the Company
believes it will not incur significant losses as a result of the effects of the
damage caused by Hurricane Georges. During the three months ended November 30,
1998, the Company recorded approximately $3,500 of insurance recoveries related
to subscriber refunds within revenue.
* * * * *
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.
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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
a) Registrant's annual meeting of shareholders was held on October 29,
1998.
b) The following persons were elected as directors at said meeting
pursuant to the following votes:
<TABLE>
<CAPTION>
Directors Number of Votes
--------- ----------------------------------------
For Withheld
------------ --------
<S> <C> <C>
Bernard P. Gallagher 474,243,745 631,896
William M. Kraus 31,022,924 632,127
David Z. Rosensweig 474,223,514 652,127
Scott N. Schneider 474,243,845 631,796
John P. Cole, Jr. 474,243,645 631,996
David Ross Miller 474,323,514 552,127
Michael G. Harris 474,243,845 631,796
Claire Tow 474,233,767 641,874
Leonard Tow 474,233,836 641,805
</TABLE>
c) The following matter was voted upon at said meeting:
1. The shareholders approved a proposal to ratify the selection
by the Board of Directors of Deloitte & Touche LLP as
independent accountants for the Registrant for the fiscal year
ending May 31, 1999. The following sets forth the number of
votes on this proposal.
<TABLE>
<CAPTION>
For Against Abstain
----------- ------- -------
<S> <C> <C>
474,831,932 38,055 5,654
</TABLE>
25
<PAGE>
<PAGE>
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
----------- -----------
<S> <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 October 13, 1998 relating to the press
release of Centennial Cellular Corp. issued on
October 13, 1998.
26
<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: January 13, 1999
/s/ Scott N. Schneider
---------------------------------
Scott N. Schneider
Chief Financial Officer
Senior Vice President and Treasurer
(Principal Accounting Officer)
27
<PAGE>
<PAGE>
Exhibit 11
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-Q
For the Six Months Ended
November 30, 1998 and 1997
COMPUTATION OF LOSS PER COMMON SHARE
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
November 30, November 30,
1998 1997
--------------- --------------
(Unaudited)
<S> <C> <C>
Net Loss $ (45,963) $ (68,181)
Subsidiary preferred stock dividends -- (2,518)
------------- -----------
Loss applicable to common shares $ (45,963) $ (70,699)
============= ===========
Average number of common shares and
common share equivalents outstanding
Average number of common shares
outstanding during this period 74,892,000 75,130,000
Add common share equivalents -
options to purchase common shares - net 1,970,000 451,000
------------- -----------
Average number of common shares and
common share equivalents 76,862,000 (A) 75,581,000 (A)
============= ===========
Loss per common share $ (.60)(A) $ (.94)(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.
28
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> MAY-31-1998 MAY-31-1997
<PERIOD-END> NOV-30-1998 NOV-30-1997
<CASH> 278,938 133,882
<SECURITIES> 0 0
<RECEIVABLES> 30,415 63,505
<ALLOWANCES> 1,896 4,790
<INVENTORY> 0 0
<CURRENT-ASSETS> 348,307 212,563
<PP&E> 563,724 787,424
<DEPRECIATION> 486,429 494,622
<TOTAL-ASSETS> 1,472,843 2,175,101
<CURRENT-LIABILITIES> 162,797 229,847
<BONDS> 2,006,761 2,284,405
<COMMON> 1,089 1,080
0 186,287
0 0
<OTHER-SE> (780,364) (677,848)
<TOTAL-LIABILITY-AND-EQUITY> 1,472,843 2,175,101
<SALES> 256,448 240,886
<TOTAL-REVENUES> 256,448 240,886
<CGS> 55,464 52,588
<TOTAL-COSTS> 196,641 192,104
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 96,014 79,815
<INCOME-PRETAX> (30,982) (29,125)
<INCOME-TAX> 8,517 (146)
<INCOME-CONTINUING> (45,963) (35,160)
<DISCONTINUED> 0 (33,021)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (45,963) (68,181)
<EPS-PRIMARY> (.61) (.94)
<EPS-DILUTED> (.61) (.94)
</TABLE>
