<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------------
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 Numbers: 33-60776 and 333-55755-01
----------------------------------------------
FALCON COMMUNICATIONS, L.P.
FALCON FUNDING CORPORATION*
- --------------------------------------------------------------------------------
(Exact Names of Registrants as Specified in Their Charters)
California 95-4654565
California 95-4681480
- ------------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Numbers)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 90024
- ---------------------------------------- ----------------------------------
(Address of Principal Executive Offices) (Zip Code)
(310) 824-9990
--------------------------------------------------
(Registrants' Telephone Number, Including Area
Code)
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal
Year, if Changed Since Last Report.
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of common stock of Falcon Funding Corporation outstanding as of
November 9, 1999: 1,000.
* Falcon Funding Corporation meets the conditions set forth in General
Instruction H(1)(a) and (b) to the Form 10-Q and is therefore filing with
the reduced disclosure format.
<PAGE>
PART I - FINANCIAL INFORMATION
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
======================================================
<TABLE>
<CAPTION>
December 31, September 30,
1998* 1999
----------------- -----------------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 14,284 $ 4,196
Receivables:
Trade, less allowance of $670,000 and
$600,000 for possible losses 15,760 16,236
Affiliates 2,322 2,414
Other assets 16,779 30,422
Property, plant and equipment, less accumulated depreciation
and amortization of $320,209,000 and $366,232,000 505,894 549,476
Franchise cost, less accumulated
amortization of $226,526,000 and $263,777,000 397,727 372,322
Goodwill, less accumulated amortization
of $25,646,000 and $30,513,000 135,308 131,051
Customer lists and other intangible costs, less
accumulated amortization of $59,422,000 and $117,721,000 333,017 280,238
Deferred loan costs, less accumulated amortization
of $2,014,000 and $2,886,000 24,331 22,874
----------------- -----------------
$ 1,445,422 $ 1,409,229
================= =================
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES:
Notes payable $ 1,611,353 $ 1,681,454
Accounts payable 10,341 3,382
Accrued expenses 83,077 139,626
Customer deposits and prepayments 2,257 2,714
Deferred income taxes 8,664 1,681
Minority interest 403 546
----------------- -----------------
TOTAL LIABILITIES 1,716,095 1,829,403
----------------- -----------------
REDEEMABLE PARTNERS' EQUITY 133,023 424,280
----------------- -----------------
PARTNERS' EQUITY (DEFICIT):
General partner (408,369) (847,641)
Limited partners 4,673 3,187
----------------- -----------------
TOTAL PARTNERS' DEFICIT (403,696) (844,454)
----------------- -----------------
$ 1,445,422 $ 1,409,229
================= =================
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
===============================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Three months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
REVENUES $ 68,457 $ 108,023
---------------- -----------------
OPERATING COSTS AND EXPENSES:
Programming costs 13,364 25,020
Service costs 7,716 11,773
General and administrative expenses 20,226 18,474
Depreciation and amortization 34,278 58,498
---------------- -----------------
Total operating costs and expenses 75,584 113,765
---------------- -----------------
Operating loss (7,127) (5,742)
OTHER INCOME (EXPENSE):
Interest expense, net (25,045) (34,079)
Equity in net income (loss) of investee partnerships 67 (204)
Other expense, net (338) (1,681)
Income tax benefit (expense) (4,679) 563
---------------- -----------------
Net loss before extraordinary items (37,122) (41,143)
Extraordinary items (2,230) -
---------------- -----------------
NET LOSS $ (39,352) $ (41,143)
================ =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
=======================================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Nine months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
REVENUES $ 201,789 $ 320,228
---------------- -----------------
OPERATING COSTS AND EXPENSES:
Programming costs 39,297 72,253
Service costs 21,840 37,318
General and administrative expenses 44,742 58,253
Equity-based deferred compensation - 44,600
Depreciation and amortization 98,284 168,546
---------------- -----------------
Total operating costs and expenses 204,163 380,970
---------------- -----------------
Operating loss (2,374) (60,742)
OTHER INCOME (EXPENSE):
Interest expense, net (69,744) (98,931)
Equity in net loss of investee partnerships (199) (41)
Other income (expense), net (1,162) 8,126
Income tax benefit (expense) (2,848) 3,022
---------------- -----------------
Net loss before extraordinary items (76,327) (148,566)
Extraordinary items (30,642) -
---------------- -----------------
NET LOSS $ (106,969) $ (148,566)
================ =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
======================================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Nine months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
Net cash provided by operating activities $ 44,361 $ 71,585
---------------- -----------------
Cash flows from investing activities:
Acquisition of cable television systems (83,391) (26,320)
Capital expenditures (63,357) (102,626)
Increase in intangible assets (7,692) (3,333)
Cash retained by FHGLP (1,546) -
Proceeds from sale of system - 3,178
Other 37 (2,048)
---------------- -----------------
Net cash used in investing activities (155,949) (131,149)
---------------- -----------------
Cash flows from financing activities:
Borrowings from notes payable 2,357,607 93,500
Repayment of debt (2,225,120) (44,121)
Deferred loan costs (25,630) (70)
Other 83 167
---------------- -----------------
Net cash provided by financing activities 106,940 49,476
---------------- -----------------
Net decrease in cash
and cash equivalents (4,648) (10,088)
Cash and cash equivalents
at beginning of period 13,917 14,284
---------------- -----------------
Cash and cash equivalents
at end of period $ 9,269 $ 4,196
================ =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
==========================================================
NOTE 1 - BASIS OF PRESENTATION
Falcon Communications, L.P., a California limited partnership (the
"Partnership") and successor to Falcon Holding Group, L.P. ("FHGLP"), owns
and operates cable television systems serving small to medium-sized
communities and the suburbs of certain cities in 23 states. On September 30,
1998, pursuant to a Contribution and Purchase Agreement dated as of December
30, 1997, as amended (the "Contribution Agreement"), FHGLP acquired the
assets and liabilities of Falcon Video Communications, L.P. ("Falcon Video"),
in exchange for ownership interests in FHGLP. Simultaneously with the closing
of that transaction, in accordance with the Contribution Agreement, FHGLP
contributed substantially all of the existing cable television system
operations owned by FHGLP and its subsidiaries (including the Falcon Video
systems) to the Partnership and TCI Falcon Holdings, LLC ("TCI") contributed
certain cable television systems owned and operated by affiliates of TCI (the
"TCI systems") to the Partnership (the "TCI Transaction"). In March 1999,
AT&T and Tele-Communications, Inc. completed a merger under which
Tele-Communications, Inc. became a unit of AT&T called AT&T Broadband &
Internet Services, which is now the owner of TCI Falcon Holdings, LLC as a
result of the merger. As a result, AT&T Broadband and Internet Services holds
approximately 46% of the equity interests of the Partnership and FHGLP holds
the remaining 54% and serves as the managing general partner of the
Partnership. The TCI Transaction has been accounted for as a recapitalization
of FHGLP into the Partnership and the concurrent acquisition by the
Partnership of the TCI systems.
On May 26, 1999, the Partnership and Charter Communications
("Charter") announced a definitive agreement in which Charter will acquire
the Partnership in a cash and stock transaction valued at approximately $3.6
billion. Closing of the pending sale is anticipated to take place in the
fourth quarter of 1999.
NOTE 2 - INTERIM FINANCIAL STATEMENTS
The interim financial statements for the three and nine months ended
September 30, 1999 and 1998 are unaudited. These condensed interim financial
statements should be read in conjunction with the audited financial
statements and notes thereto included in the Partnership's latest Annual
Report on Form 10-K. In the opinion of management, such statements reflect
all adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation of the results of such periods. The results of
operations for the three and nine months ended September 30, 1999 are not
indicative of results for the entire year.
NOTE 3 - REDEEMABLE PARTNERS' EQUITY
Redeemable partners' equity has been adjusted as of September 30, 1999
based on the estimated redemption value to be recognized from the pending sale
to Charter, which is subject to final determination of working capital and debt
balances.
NOTE 4 - EQUITY-BASED DEFERRED COMPENSATION
In connection with the pending sale of the Partnership to Charter
discussed in Note 1, the Partnership recorded a non-cash charge of $42 million
during the three months ended June 30, 1999
-6-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
==========================================================
NOTE 4 - EQUITY-BASED DEFERRED COMPENSATION (CONTINUED)
related to both the 1993 Incentive Performance Plan ($17.2 million) and the
1999 Employee Restricted Unit Plan ($24.8 million). The estimated amounts
were determined based on the value of the underlying ownership units, as
established by the pending sale of the Partnership to Charter, and on
estimated closing working capital and debt balances of the Partnership.
Additional compensation related to the 1993 Incentive Performance Plan of
$2.6 million was recorded in the three months ended March 31, 1999 based on
management's estimate of the increase in value of the underlying ownership
interests since December 31, 1998. Payments under the plans are subject to
closing of the sale to Charter, will be determined based on the final working
capital and debt balances of the Partnership and will be paid from net sale
proceeds. The total recorded deferred compensation expense of $44.6 million
under these plans is included in accrued expenses.
In addition to the amounts expected to be paid pursuant to the
plans, management currently expects to pay from net sale proceeds additional
bonuses to certain employees in the aggregate amount of approximately $22
million contingent upon the closing of the sale to Charter. Such amounts will
be reflected in the condensed consolidated financial statements when the
closing of the sale to Charter has occurred.
NOTE 5 - ACQUISITIONS
In March 1998, the Partnership acquired substantially all of the
assets of Falcon Classic Cable Income Properties, L.P. As discussed in Note
1, on September 30, 1998 the Partnership acquired the TCI systems and the
Falcon Video systems in accordance with the Contribution Agreement. The
following unaudited condensed consolidated pro forma statement of operations
presents the consolidated results of operations of the Partnership as if the
acquisitions had occurred at January 1, 1998 and is not necessarily
indicative of what would have occurred had the acquisitions been made as of
that date or of results which may occur in the future.
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
September 30, September 30,
1998 1998
--------------------- ---------------------
(Dollars in Thousands)
<S> <C> <C>
Revenues $ 107,418 $ 321,058
Expenses (113,826) (335,064)
--------------------- ---------------------
Operating loss (6,408) (14,006)
Interest and other expenses (35,306) (98,127)
--------------------- ---------------------
Loss before extraordinary items $ (41,714) $ (112,133)
===================== =====================
</TABLE>
In January 1999, the Partnership acquired the assets of certain
cable systems serving approximately 591 customers in Oregon for $800,700. On
March 15, 1999, the Partnership acquired the assets of certain cable systems
serving approximately 7,928 customers in Utah for $6.8 million. On March 22,
1999, the Partnership acquired the assets of the Franklin, Virginia system in
exchange for the assets of its Scottsburg, Indiana systems and $8 million in
cash and recognized a gain of $8.5
-7-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
==========================================================
NOTE 5 - ACQUISITIONS (CONTINUED)
million. The Franklin system serves approximately 9,042 customers and the
Scottsburg systems served approximately 4,507 customers. The effects of this
transaction on results of operations are not material. On July 30, 1999, the
Partnership acquired the assets of certain cable systems serving
approximately 6,500 customers in Oregon for $9.5 million.
NOTE 6 - SALE OF SYSTEMS
On March 1, 1999, the Partnership contributed $2.4 million cash and
certain systems located in Oregon with a net book value of $5.6 million to a
joint venture with Bend Cable Communications, Inc., which manages the joint
venture. The Partnership owns 17% of the joint venture. These systems had
been acquired from Falcon Classic in March 1998, and served approximately
3,471 subscribers at March 1, 1999. On March 26, 1999, the Partnership sold
certain systems serving approximately 2,550 subscribers in Kansas for $3.2
million and recognized a gain of $2.5 million.
-8-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The Cable Television Consumer Protection and Competition Act of 1992
required the FCC to, among other things, implement extensive regulation of
the rates charged by cable television systems for basic and programming
service tiers, installation, and customer premises equipment leasing.
Compliance with those rate regulations has had a negative impact on our
revenues and cash flow. The Telecommunications Act of 1996 substantially
changed the competitive and regulatory environment for cable television and
telecommunications service providers. Among other changes, the
Telecommunications Act of 1996 ended regulation of cable programming service
tier rates on March 31, 1999. The FCC, Congress or other regulatory
authorities could take actions in the future that could negatively impact the
Partnership's business. Accordingly, the historical financial results
described below are not necessarily indicative of future performance.
REVENUE. Substantially all of our revenue is earned from subscriber
fees for cable television programming services, the sale of advertising,
commissions for products sold through home shopping networks, fees for
ancillary services (such as the rental of set top and remote control
devices), and installations.
OPERATING COSTS AND EXPENSES. Operating costs and expenses consist
of programming expenses, service costs, general and administrative expenses
and depreciation and amortization expense. Programming expenses have
historically increased at rates in excess of inflation due to system
acquisitions, as well as increases in the number, quality and costs of
programming services offered. Service costs primarily include expenses
related to wages and employee benefits of technical personnel, franchise
fees, copyright fees, property taxes, electricity, systems supplies and
vehicles. General and administrative expenses include wages and employee
benefits of customer service, accounting and administrative personnel,
marketing and advertising costs and expenses related to billing, payment
processing, office administration, insurance and corporate overhead.
Depreciation and amortization expense relates to depreciation of tangible
assets and the amortization of intangible costs.
This report includes certain forward looking statements regarding,
among other things, future results of operations, regulatory requirements,
acquisition transactions, competition, capital needs and general business
conditions applicable to us. Such forward looking statements involve risks
and uncertainties including, without limitation, the uncertainty of
legislative and regulatory changes and the rapid developments in the
competitive environment facing cable television operators such as us. In
addition to the information provided herein, reference is made to our annual
report on Form 10-K for the year ended December 31, 1998 and the other
periodic reports and registration statements filed by Falcon Holding Group,
L.P. and Falcon Communications, L.P. with the Securities and Exchange
Commission from time to time for additional information regarding such
matters and the effect thereof on our business.
-9-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following table sets forth the historical statement of operations
data and the components of net earnings and EBITDA expressed as a percentage of
revenue for the periods indicated.
<TABLE>
<CAPTION>
Unaudited
-----------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ---------------------------------
1998 1999 1998 1999
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue 100.0% 100.0% 100.0% 100.0%
--------------- --------------- -------------- ---------------
Operating costs and expenses:
Programming costs 19.5% 23.2% 19.5% 22.6%
Service costs 11.3% 10.9% 10.8% 11.7%
General and administrative expenses 29.5% 17.1% 22.2% 18.2%
Depreciation and amortization 50.1% 54.2% 48.7% 52.6%
Equity-based deferred compensation - - - 13.9%
--------------- --------------- -------------- ---------------
Total operating costs and expenses 110.4% 105.4% 101.2% 119.0%
--------------- --------------- -------------- ---------------
Operating loss (10.4%) (5.4%) (1.2%) (19.0%)
Interest expense, net (36.6%) (31.5%) (34.6%) (30.9%)
Other income (expense) (7.2%) (1.2%) (2.1%) 3.5%
--------------- --------------- -------------- ---------------
Net loss before extraordinary items (54.2%) (38.1%) (37.9%) (46.4%)
Extraordinary items (3.3%) - (15.2%) -
--------------- --------------- -------------- ---------------
Net Loss (57.5%) (38.1%) (53.1%) (46.4%)
=============== =============== ============== ===============
EBITDA 39.7% 48.8% 47.5% 33.7%
</TABLE>
Our revenues increased from $68.4 million to $108 million, or by
57.9%, and from $201.8 million to $320.2 million, or by 58.7%, for the three
and nine months ended September 30, 1999 compared to the corresponding
periods in 1998. Of the $39.6 million net increase in revenues for the three
months ended September 30, 1999 as compared to the corresponding period in
1998, $31 million was due to the acquisition in September 1998 of the TCI
systems, $8.9 million was due to the acquisition in September 1998 of the
Falcon Video systems and $1.2 million related to increases in regulated
service rates implemented during 1998 and 1999. These increases were
partially offset by decreases of $1.7 million related to reductions in the
number of regulated and premium subscriptions for cable service and a
$527,000 reduction in management fees. Of the $118.4 million net increase in
revenues for the nine months ended September 30, 1999 compared to the
corresponding period in 1998, $91.5 million was due to the acquisition of the
TCI systems, $25.6 million was due to the acquisition of the Falcon Video
systems, $4.6 million was due to the acquisition in March and July 1998 of
the Falcon Classic systems and $1.7 million was due to increases in regulated
service rates implemented during 1998 and 1999. These increases were
partially offset by decreases of $3.8 million related to reductions in the
number of regulated and premium subscriptions for cable service and a $1.8
million reduction in management fees. As of September 30, 1999, we had
approximately 1,009,000 basic subscribers and 267,000 premium service units.
-10-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
RESULTS OF OPERATIONS (CONTINUED)
Management and consulting fees decreased from $937,000 to $411,000
and from $3 million to $1.2 million for the three and nine months ended
September 30, 1999 compared to the corresponding periods in 1998 primarily
due to our acquisition of cable systems we had previously managed. Of the
total reduction for the three and nine months ended September 30, 1999 as
compared to the corresponding periods in 1998, $425,000 and $1.2 million
related to the acquisition of the Falcon Video systems, $100,000 and $342,000
was due to a reduction in the amounts received from Enstar Communications
Corporation, the general partner of partnerships owning approximately 93,000
subscribers that we manage, and $191,000 for the nine month period only
related to the acquisition of the Falcon Classic systems.
Programming costs increased from $13.4 million to $25 million, or by
86.6%, and from $39.3 million to $72.3 million, or by 84%, for the three and
nine months ended September 30, 1999 compared to the corresponding periods in
1998. Of the $11.6 million and $33 million increase in programming fees paid
to programming suppliers (including primary satellite fees) for the three and
nine months ended September 30, 1999 compared to the corresponding periods in
1998, $9 million and $26.4 million related to the acquisition of the TCI
systems, $2 million and $5.5 million related to the acquisition of the Falcon
Video systems and $936,000 for the nine month period only related to the
acquisition of the Falcon Classic systems.
Service costs increased from $7.7 million to $11.8 million, or by
53.2%, and from $21.8 million to $37.3 million, or by 71.1%, for the three
and nine months ended September 30, 1999 compared to the corresponding
periods in 1998. Service costs represent costs other than programming costs
that are directly attributable to providing cable services to customers. Of
the $4.1 million and $15.5 million increase in service costs for the three
and nine months ended September 30, 1999 compared to the corresponding
periods in 1998, $4.5 million and $12.3 million related to the acquisition of
the TCI systems, $920,000 and $2.9 million related to the acquisition of
Falcon Video systems and $709,000 for the nine months period only related to
the acquisition of the Falcon Classic systems. These increases were partially
offset by decreases in a number of categories, primarily franchise and
copyright fees.
General and administrative expenses decreased from $20.2 million to
$18.5 million, or by 8.4%, for the three months ended September 30, 1999 and
increased from $44.8 million to $58.3 million, or by 30.1%, for the nine
months ended September 30, 1999 compared to the corresponding periods in
1998. The $1.7 million decrease for the three months ended September 30, 1999
compared to the corresponding period in 1998 was principally caused by the
absence in 1999 of $7.7 million of compensation expense related to the TCI
transaction recorded during the third quarter 1998, partially offset by
increases related to the acquisition of the TCI systems and Falcon Video
systems ($4.9 million and $1.0 million, respectively) and to an $893,000
increase in worker's compensation insurance expense in 1999. Of the $13.5
million increase for the nine months ended September 30, 1999, $19.4 million
related to the acquisitions of the TCI systems, Falcon Video systems and
Falcon Classic systems ($15.4 million, $3.4 million and $607,000,
respectively) and $1.3 million related to an increase in worker's
compensation insurance expense. These increases were partially offset by the
absence in 1999 of the $7.7 million of compensation expense recorded during
1998.
As discussed in Note 4 to the financial statements, we recorded a
non-cash charge of $44.6 million during the nine months ended September 30,
1999 related to both the 1993 Incentive
-11-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
RESULTS OF OPERATIONS (CONTINUED)
Performance Plan ($19.8 million) and the 1999 Employee Restricted Unit Plan
($24.8 million). Payments under the plans are subject to closing of our
pending sale to Charter, will be determined based on the final working
capital and debt balances of the Partnership, and will be paid from net sales
proceeds.
Depreciation and amortization expense increased from $34.3 million
to $58.5 million, or by 70.6%, and from $98.3 million to $168.5 million, or
by 71.4%, for the three and nine months ended September 30, 1999 compared to
the corresponding periods in 1998. Of the $24.2 million and $70.2 million
increase in depreciation and amortization expense for the three and nine
months ended September 30, 1999 compared to the corresponding periods in
1998, $18.8 million and $54 million related to the acquisition of the TCI
systems, $8.3 million and $18 million related to the acquisition of the
Falcon Video systems and $2.9 million for the nine month period only related
to the acquisition of the Falcon Classic systems. These increases were
partially offset by accelerated depreciation related to asset retirements.
Operating loss decreased from $7.1 million to $5.7 million and
increased from $2.4 million to $60.8 million, for the three and nine months
ended September 30, 1999 compared to the corresponding periods in 1998. The
$1.4 million decrease for the three months ended September 30, 1999 was
principally due to the compensation expense related to the TCI Transaction
discussed above. The $58.4 million increase for the nine months ended
September 30, 1999 was primarily due to the equity-based deferred
compensation expense discussed above and to the depreciation and amortization
expense associated with the acquisition of the TCI, Falcon Video and Falcon
Classic systems (which had a combined operating loss of $9.6 million and
$21.5 million for the three and nine month periods in 1999).
Interest expense, net, including the effects of interest rate
hedging agreements, increased from $25 million to $34.1 million, or by 36.4%,
and from $69.7 million to $98.9 million, or by 41.9%, for the three and nine
months ended September 30, 1999 compared to the corresponding periods in
1998. The increases were primarily due to higher average debt balances
outstanding, partially offset by the effect of lower average interest rates
(7.8% and 7.6% during the three and nine months ended September 30, 1999
compared to 9.3% and 9.2% during the corresponding periods in 1998). Non-cash
interest expense associated with our senior discount debentures amounted to
$7 million and $20.7 million for the three and nine months ended September
30, 1999. Interest rate hedging agreements resulted in additional interest
expense of $924,000 and $4.1 million during the three and nine months ended
September 30, 1999 compared to additional interest expense of $104,000 and
$319,000 during the corresponding periods in 1998.
Other expense, net, increased from $338,000 to $1.7 million for the
three months ended September 30, 1999 and changed from $1.2 million of
expense to $8.1 million of income for the nine months ended September 30,
1999 compared to the corresponding periods in 1998. We recorded $1.4 million
of expenses during the third quarter of 1999 related to our pending sale to
Charter. The change for the nine months ended September 30, 1999 as compared
to the corresponding period in 1998 was primarily related to the recognition
of $11 million gain from the exchange of cable systems located in Indiana
($8.5 million) and Kansas ($2.5 million) during the first quarter of 1999,
partially offset by a $2.2 million of expenses related to pending sale to
Charter.
-12-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
RESULTS OF OPERATIONS (CONTINUED)
Due to the factors described above, our net loss increased from $39.4
million to $41.2 million, or by 4.6%, and from $106.9 million to $148.5 million,
or by 38.9% for the three and nine months ended September 30, 1999 compared to
the corresponding periods in 1998.
Based on our experience in the cable television industry, we believe
that operating income before depreciation and amortization, commonly referred
to as "EBITDA", and related measures of cash flow serve as important
financial analysis tools for measuring and comparing cable television
companies in several areas, such as liquidity, operating performance and
leverage. In addition, the covenants in our primary debt instruments use
EBITDA-derived calculations as a measure of financial performance. EBITDA is
not a measurement determined under generally accepted accounting principles
and does not represent cash generated from operating activities in accordance
with these accounting principles. EBITDA should not be considered by the
reader as an alternative to net income as an indicator of our financial
performance or as an alternative to cash flows as a measure of liquidity. In
addition, our definition of EBITDA may not be identical to similarly titled
measures used by other companies. EBITDA increased from $27.1 million to
$52.7 million, or by 94.5% and from $95.9 million to $107.8 million, or by
12.4%. EBITDA as a percentage of revenues increased from 39.7% to 48.8% for
the three months ended September 30, 1999 and decreased from 47.5% to 33.7%
for the nine months ended September 30, 1999 compared to the corresponding
periods in 1998. The decrease for the nine months was primarily caused by the
deferred compensation costs described above and by the impact of the systems
acquired from TCI (which had an EBITDA margin of 40.5% and 40.8% for the
three and nine month 1999 periods). Absent the impact of the equity-based
deferred compensation adjustments, EBITDA for the nine months ended September
30, 1999 would have been $152.4 million and EBITDA as a percentage of
revenues would have been 47.6%.
LIQUIDITY AND CAPITAL RESOURCES
Historically, our primary need for capital has been to acquire cable
systems, to finance plant extensions, rebuilds and upgrades and to add
addressable set top devices to certain of our cable systems. We spent $96.4
million during 1998 on capital expenditures. Our 1999 plan called for capital
expenditures of approximately $190 million, consisting of approximately $111
million to rebuild and upgrade certain cable systems and $79 million for line
extensions and other new equipment. Due to various factors, we do not
currently anticipate spending that much, and for the nine months ended
September 30, 1999 we spent $56.7 million to rebuild and upgrade certain
cable systems and $47.8 million for line extensions and other new equipment.
We plan to finance capital expenditures with cash flow from operations and
borrowings under our bank credit facility, subject to our ability to remain
in compliance with certain covenants of the bank credit facility and the
indenture for our outstanding debentures. The restriction on incurring
indebtedness contained in our partnership agreement was waived pending the
completion of our pending sale to Charter. Our proposed spending plans are
frequently reviewed and revised with respect to changes in technology,
acceptable leverage parameters (including those specified in our debt
agreements), franchise requirements, competitive circumstances and other
factors.
The bank credit facility entered into on June 30, 1998 provides for
maximum committed available borrowings of $1.15 billion, reducing to $827.5
million at December 31, 2004. As of September 30, 1999, the amount
outstanding under the bank credit facility was $975.75 million and,
-13-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
subject to complying with covenants, we had available additional committed
borrowing capacity (excluding the supplemental credit facility) of
approximately $166.6 million. The bank credit facility requires that interest
be tied to the ratio of consolidated total debt to consolidated annualized
cash flow, and further requires that we maintain hedging arrangements with
respect to at least 50% of the outstanding borrowings thereunder plus any of
our additional borrowings, including the debentures, for a two-year period.
As of September 30, 1999 borrowings under the bank credit facility bore
interest at an average rate of 7.2% (including the effect of interest rate
hedging agreements). We have entered into fixed interest rate hedging
agreements with an aggregate notional amount at September 30, 1999 of $1.4
billion. Agreements in effect at September 30, 1999 totaled $820 million,
with the remaining $535 million to become effective as certain of the
existing contracts mature during 1999 through October of 2004. The agreements
serve as a hedge against interest rate fluctuations associated with our
variable rate debt. These agreements expire at various times through October
2006.
Our earnings are affected by changes in short-term interest rates
applied to the portion of our debt that is not protected by hedging
agreements. Because most of our debt is protected by hedging agreements, a 1%
change in average interest rates would have an immaterial impact on our
reported interest expense for the nine months ended September 30, 1999.
The bank credit facility also contains various restrictions relating
to, among other things, mergers and acquisitions, a change in control and the
incurrence of additional indebtedness and also requires compliance with
certain financial covenants. We believe that we were in compliance with all
such requirements as of September 30, 1999. We believe that borrowings under
the credit facility together with cash flow from operations will be adequate
to meet our liquidity needs for the foreseeable future.
We have outstanding $375 million aggregate principal amount of
senior debentures and $435.2 million aggregate principal amount at maturity
of senior discount debentures. Semiannual interest payments with respect to
the senior debentures are approximately $15.7 million. Interest on the senior
discount debentures accrete semiannually until April 15, 2003, unless we
elect to pay cash interest. After April 15, 2003, semiannual cash interest
payments will be approximately $35.9 million in the aggregate. We anticipate
that cash flow from operations and, if necessary, borrowings under the bank
credit facility (or a successor credit facility) will continue to be adequate
to meet our interest payment obligations under the debentures.
Falcon Communications is a separate, stand-alone holding company
which employs all of the management personnel for its cable television
systems. All of the Falcon systems are owned by the subsidiaries of Falcon
Communications. Accordingly, to fund our operations and to pay our expenses,
including interest expense, we are financially dependent on the receipt of
funds from our subsidiaries, management fees from domestic cable ventures,
and the reimbursement of specified expenses by Enstar Communications
Corporation. Expected increases in funding requirements combined with
limitations on our sources of cash could create liquidity issues in the
future. The bank credit facility permits our subsidiaries to remit to us no
more than 4.5% of their net cable revenues in any year. For the nine months
ended September 30, 1999, our credit agreements permitted our subsidiaries to
remit approximately $14.2 million to us, and $14.2 million was actually
remitted. As a result of the 1998 acquisition of the Falcon Video and Falcon
Classic systems, we no longer receive management fees
-14-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
and reimbursed expenses from Falcon Classic or management fees from Falcon
Video. Receivables from Enstar Communications Corporation for services and
reimbursements described above amounted to approximately $2.4 million at
September 30, 1999. We intend to pay approximately $67 million to employees
at closing upon completion of our acquisition by Charter as discussed in Note
4 to the financial statements, and all of these payments will be funded with
sale proceeds.
We have historically pursued a strategy of seeking to acquire
attractive acquisition candidates, with an emphasis on the acquisition of
systems which can be integrated with our existing operations. Over the past
few years, we have emphasized the acquisition of our affiliated systems due
to our familiarity with these assets and because, in many cases, these assets
were already operationally integrated with our systems located nearby.
In October 1998, we reinstated third-party insurance coverage
against damage to its cable distribution plant and subscriber connections and
against business interruptions resulting from such damage. Although this
coverage is subject to a significant annual deductible, the policy is
intended to insure us against catastrophic losses, if any, in future periods.
CASH FLOWS
Cash provided by operating activities (including interest expense
and management fee income) increased from $44.4 million to $71.6 million, or
by 61.3% for the nine months ended September 30, 1999 compared to the
corresponding period in 1998, an increase of $27.2 million. The increase
resulted primarily from a net increase of $19.2 million in other operating
items (receivables, other assets, payables, accrued expenses and subscriber
deposits and prepayments) and to an increase of $8 million in non-cash
interest expense recorded in 1999 related to the senior discount debentures.
Cash used in investing activities decreased from $155.9 million to
$131.1 million, or by 15.9%, for the nine months ended September 30, 1999
compared to the corresponding period in 1998. The $24.8 million decrease was
primarily due to the 1998 acquisition of the Falcon Classic assets for $83.4
million, to a decrease in intangible assets of $4.4 million, to $3.2 million
of cash proceeds received during the third quarter of 1999 in connection with
the sale of Kansas systems and to $1.5 million cash retained by our general
partners during 1998. These decreases were partially offset by increases of
$39.3 million in capital expenditures, $26.3 million related to the 1999
acquisition of certain cable systems located in Virginia, Utah and Oregon and
a $2.4 million investment in a joint venture with Bend Cable Communications,
Inc.
Cash from financing activities decreased from $106.9 million to
$49.5 million, or by 53.7%, for the nine months ended September 30, 1999
compared to the corresponding period in 1998. The decrease was primarily
related to a reduction in net borrowings of approximately $83.1 million from
the 1998 nine month period related to the bank credit facility, partially
offset by the expenditure of $25.6 million in 1998 on deferred loan costs.
-15-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
YEAR 2000
During the third quarter of 1999, we continued identification,
evaluation and remediation of our Year 2000 business risks associated with
operations directly under our control and those risks that are dependent on
third parties related to our exposure to computer systems, to operating
equipment which is date sensitive and to the interface systems of our vendors
and service providers. The evaluation has focused on identification,
assessment and remediation of systems and equipment that may fail to
distinguish between the year 1900 and the year 2000 and, as a result, may
cease to operate or may operate improperly when dates after December 31, 1999
are introduced. Most of our exposure to Year 2000 issues is dependent in
large part on third parties. Failure to identify and remediate a critical
Year 2000 issue could result in an interruption of services to customers or
in the interruption of critical business functions, either of which could
result in a material adverse impact on our financial results.
We have concluded that certain of our internal information systems
were not Year 2000 compliant and elected to replace such software and
hardware with applications and equipment certified by the vendors as Year
2000 compliant. Replacement costs are capitalized in accordance with
generally accepted accounting principles and amortized over the lives of the
assets. Maintenance costs are expensed as incurred. We installed the new
systems in the first quarter of 1999. We are continuing to utilize internal
and external resources to extend the functionality of the new systems. The
total anticipated cost, including replacement software and hardware, is
expected to be approximately $2.7 million and is being funded through
operating cash flow. As of September 30, 1999, we had spent approximately
$2.65 million. We do not believe that any other significant information
technology projects affecting us have been delayed due to efforts to identify
or address Year 2000 issues.
Additionally, we continue to inventory internal operating and
revenue generating equipment to identify items that need to be upgraded or
replaced and survey cable equipment manufacturers to determine which of their
models require upgrade or replacement to become Year 2000 compliant.
Identification and evaluation, while ongoing, are substantially completed and
a plan has been developed to remediate or replace non-compliant equipment.
All potentially non-compliant items have been identified. Approximately 8.5%
of non-compliant items are in the remediation planning phase and 91.5% are in
the implementation stage. We have conducted limited testing of our systems,
software and equipment in the third quarter of 1999 and place significant
reliance on test results provided by AT&T Broadband & Internet Services. The
cost of such replacement or remediation is currently estimated to be $1.7
million, of which $1.6 million had been incurred as of September 30, 1999. We
have also substantially completed the assessment and replacement or
remediation of the majority of our internal equipment containing embedded
computer chips.
We continue to survey our significant third party vendors and
service suppliers to determine the extent to which our interface systems are
vulnerable should those third parties fail to solve their own Year 2000
problems on a timely basis. We are heavily dependent on third parties and
these parties are themselves heavily dependent on technology. For example, in
a situation impacting the entire cable industry, much of our headend
equipment that controls cable set-top devices was not Year 2000 compliant.
The manufacturers have been working with cable industry groups to develop
solutions that we are installing in our head-end equipment. We currently
believe that these solutions were substantially implemented as of the end of
the third quarter of 1999. In addition, if a television broadcaster or cable
programmer encounters Year 2000 problems that impede its ability to
-16-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
YEAR 2000 (CONTINUED)
deliver its programming, we will be unable to provide that programming to our
cable customers, which would result in a loss of revenues, although we would
attempt to provide our customers with alternative program services. Virtually
all of our most critical equipment vendors have responded to the surveys
regarding the Year 2000 compliance of their products and indicated that they
are already compliant or have indicated their intent to be compliant.
Additional compliance information has been obtained for specific products
from vendor Web sites, interviews, on-site visits, system interface testing
and industry group participation. Among the most significant third party
service providers upon which we rely are programming suppliers, power and
telephone companies, various banking institutions and our customer billing
service. We have satisfied ourselves that the third parties on which we are
heavily reliant are Year 2000 compliant and have developed and published
satisfactory contingency plans, or that alternative means of meeting our
business requirements are available. However, we can predict neither the
likelihood of successful compliance nor the direct or indirect costs to us of
non-compliance by those third parties or of securing such services from
alternate compliant third parties.
We believe that we have established an effective program to resolve
all significant Year 2000 issues in our control in a timely manner. Although
we have substantially completed all phases of our program, we are dependent
on third parties whose progress is not within our control. Disruptions
experienced by third parties with which we do business as well as by the
economy generally could also materially and adversely affect us. The amount
of potential liability and lost revenue cannot be reasonably estimated at
this time.
We have focused our efforts on identification and remediation of
Year 2000 exposures and have developed specific contingency plans in the
event we do not successfully complete our remaining remediation as
anticipated or experience unforeseen problems. Considerable effort has been
directed toward distinguishing between those contingencies with a greater
probability of occurring from those whose occurrence is considered remote,
and on those systems whose failure poses a material risk to our results of
operations and financial condition. We are also examining our business
interruption strategies to evaluate whether they would satisfactorily meet
the demands of failures arising from Year 2000 related problems.
INFLATION
Certain of our expenses, such as those for wages and benefits,
equipment repair and replacement, and billing and marketing generally
increase with inflation. However, we do not believe that our financial
results have been, or will be, adversely affected by inflation in a material
way, provided that we are able to increase our service rates periodically, of
which there can be no assurance.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 2., "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
-17-
<PAGE>
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT 10.39 - Second Amendment to Purchase
and Contribution Agreement, dated as of
October 27, 1999, Charter Communications,
Inc., Falcon Communications, L.P., Falcon
Holding Group, L.P., TCI Holdings, LLC,
Falcon Cable Trust, Falcon Holding Group,
Inc. and DHN,
Inc.
EXHIBIT 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the
quarter for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
FALCON COMMUNICATIONS, L.P.
By: Falcon Holding Group, L.P.
General Partner
By: Falcon Holding Group, Inc., its
General Partner
Date: November 11, 1999 By: /s/ Michael K. Menerey
------------------------------------
Michael K. Menerey, Executive
Vice President, Secretary and
Chief Financial Officer
FALCON FUNDING CORPORATION
Date: November 11, 1999 By: /s/ Michael K. Menerey
------------------------------------
Michael K. Menerey, Chief
Financial Officer and Secretary
<PAGE>
Exhibit 10.39
SECOND AMENDMENT TO
PURCHASE AND CONTRIBUTION AGREEMENT
THIS SECOND AMENDMENT TO PURCHASE AND CONTRIBUTION AGREEMENT
("Second Amendment") is made and entered into as of October 27, 1999 by and
among Charter Investment, Inc., a Delaware corporation formerly known as
Charter Communications, Inc. ("CII"), Charter Communications Holding Company,
LLC, a Delaware limited liability company ("Charter LLC"), Falcon
Communications, L.P., a California limited partnership ("Falcon"), Falcon
Holding Group, L.P., a Delaware limited partnership ("FHGLP"), TCI Falcon
Holdings, LLC, a Delaware limited liability company ("TCI"), Falcon Cable
Trust, a California trust ("FC Trust"), Falcon Holding Group, Inc., a
California corporation ("FHGI"), and DHN Inc., a California corporation
("DHN") (FHGLP, TCI, FC Trust, FHGI and DHN are sometimes referred to herein
as "Sellers").
PRELIMINARY STATEMENT
A. CII, Falcon, and Sellers entered into the Purchase and
Contribution Agreement on May 26, 1999 (the "Purchase and Contribution
Agreement"), which was amended and modified by a First Amendment to Purchase
and Contribution Agreement dated as of June 22, 1999 ("First Amendment").
B. The parties hereto desire to modify the Purchase and Contribution
Agreement in certain respects as described herein. Section 11.9 of the
Purchase and Contribution Agreement provides that the Purchase and
Contribution Agreement may be amended; provided that any such amendment will
be binding on the parties prior to Closing only if set forth in a writing
executed by them.
C. Section 8.1(a)(1) of the Purchase and Contribution Agreement
provides that the Closing shall take place on the date specified therein or
on such earlier or later date as FHGLP and CII shall mutually agree. FHGLP,
CII and Charter LLC desire to designate a certain date for the Closing in
certain events as specified herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Except as otherwise provided in this Second Amendment, all
capitalized terms used herein and not otherwise defined herein shall have the
same meanings assigned to them in the Purchase and Contribution Agreement, as
amended and modified by the First Amendment.
2. For purposes of this Second Amendment, "Charter IPO" means the
initial public offering of shares of Class A Common Stock of Charter
Communications, Inc. that is described in the Preliminary Prospectus dated
October 18, 1999.
3. In the event FHGLP would be authorized to specify a date for the
Closing that is on or before November 11, 1999 in accordance with Section
8.1(a)(1) of the Purchase and Contribution Agreement and FHGLP has heretofore
specified, or after the date hereof specifies, such a date for the Closing,
then, notwithstanding any such specification, FHGLP agrees to
<PAGE>
postpone the date for the Closing to the earlier of (A) the date on which the
Charter IPO is consummated (in which event the Closing will occur
concurrently with the consummation of the Charter IPO) and (B) November 19,
1999; and FHGLP, CII and Charter LLC agree to consummate the Closing on such
earlier date in such event. If the date for the Closing is determined
pursuant to the preceding sentence, such date shall be deemed determined in
accordance with Section 8.1(a)(1) of the Purchase and Contribution Agreement
for all purposes of the Purchase and Contribution Agreement (including, but
not limited to, Section 9). Accordingly, consummation of the Closing remains
subject to satisfaction or, to the extent permitted by law, waiver, of the
closing conditions described in Section 7 and subject to Sections 8.1(a)(2),
8.1(a)(3) and 8.1(a)(4) of the Purchase and Contribution Agreement, and the
proviso at the end of Section 8.1(a)(1) shall still apply. In the event FHGLP
would not be authorized to specify a date for the Closing that is on or
before November 11, 1999 in accordance with Section 8.1(a)(1) of the Purchase
and Contribution Agreement or FHGLP does not specify such a date for the
Closing, the date for the Closing shall be determined in accordance with the
provisions of the Purchase and Contribution Agreement without regard to this
Second Amendment.
4. The parties hereby agree that the Purchase and Contribution
Agreement, as amended and modified by the First Amendment, is hereby deemed
further amended in all respects necessary to give effect to the consents,
agreements and waivers contained in this Second Amendment, whether or not a
particular Section or provision of the Purchase and Contribution Agreement
has been referred to in this Second Amendment. Except as amended hereby, the
Purchase and Contribution Agreement, as amended and modified by the First
Amendment, shall remain unchanged and in full force and effect, and this
Second Amendment shall be governed by and subject to the terms of the
Purchase and Contribution Agreement, as amended and modified by the First
Amendment and this Second Amendment. From and after the date of this Second
Amendment, each reference in the Purchase and Contribution Agreement to "this
Agreement," "hereof," "hereunder" or words of like import, and all references
to the Purchase and Contribution Agreement in any and all agreements,
instruments, documents, notes, certificates and other writings of every kind
and nature (other than in this Second Amendment or as otherwise expressly
provided) shall be deemed to mean the Purchase and Contribution Agreement, as
amended and modified by the First Amendment and as further amended and
modified by this Second Amendment, whether or not such First Amendment or
Second Amendment is expressly referenced. This Second Amendment may be signed
in one or more counterparts, each of which shall constitute an original but
which when taken together shall constitute one instrument.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1999, AND THE STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001060530
<NAME> FALCON FUNDING CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,196
<SECURITIES> 0
<RECEIVABLES> 19,250
<ALLOWANCES> 600
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 915,708
<DEPRECIATION> 366,232
<TOTAL-ASSETS> 1,409,229
<CURRENT-LIABILITIES> 145,722
<BONDS> 1,681,454
0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 1,409,229
<SALES> 0
<TOTAL-REVENUES> 320,228
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<TOTAL-COSTS> 377,963
<OTHER-EXPENSES> (8,085)
<LOSS-PROVISION> 3,007
<INTEREST-EXPENSE> 98,931
<INCOME-PRETAX> (151,588)
<INCOME-TAX> (3,022)
<INCOME-CONTINUING> (148,566)
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