<PAGE> 1
FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report : January 25, 2000
----------------
CHARTER COMMUNICATIONS, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or Other Jurisdiction of Incorporation or Organization)
000-27927 43-1857213
--------- ----------
(COMMISSION FILE NUMBER) (FEDERAL EMPLOYER
IDENTIFICATION NUMBER)
12444 Powerscourt Drive - Suite 400
St. Louis, Missouri 63131
- ----------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (314) 965-0555
<PAGE> 2
This Current Report on Form 8-K/A amends Charter Communications, Inc.'s
previous Current Report on Form 8-K (dated November 12, 1999 and filed on
November 29, 1999).
2
<PAGE> 3
ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS
On November 12, 1999, Charter Communications Holding Company, LLC
(Charter Holdco), managed by and 40.6% owned by Charter Communications, Inc.
(the "Company"), completed the acquisition of partnership interests in Falcon
Communications, L.P. (FCLP) from Falcon Holding Group, L.P. and TCI Falcon
Holdings, LLC, interests in a number of entities held by Falcon Cable Trust and
Falcon Holding Group, Inc., specified interests in Enstar Communications
Corporation and Enstar Finance Company, LLC held by Falcon Holding Group, L.P.
and specified interests in Adlink held by DHN Inc. (collectively referred to as
the "Falcon Acquisition" herein). Charter Investment, Inc., an affiliate of the
Company, entered into the Falcon Acquisition purchase agreement in May 1999 and
assigned its rights under the purchase agreement to Charter Holdco.
The purchase price for the Falcon Acquisition was $3.5 billion, subject
to adjustment, and was comprised of $1.3 billion in cash, $550 million in equity
of Charter Holdco and $1.7 billion in assumed debt. A portion of the proceeds
from the Company's initial public offering of Class A common stock were used to
fund the Falcon Acquisition.
The Falcon cable systems are located in California and the Pacific
Northwest, Missouri, North Carolina, Alabama and Georgia and serve approximately
1,005,000 customers. For the nine months ended September 30, 1999, the Falcon
cable systems had revenues of approximately $320.2 million. For the year ended
December 31, 1998, the Falcon cable systems had revenues of approximately $307.6
million.
(a) Pro forma financial information.
Pursuant to Article 11 of Regulation S-X, pro forma unaudited financial
statements are included herein.
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<PAGE> 4
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Pro Forma Financial Statements of Charter
Communications, Inc. are based on the historical financial statements of Charter
Communications Inc. Prior to the issuance and sale by Charter Communications,
Inc. of Class A common stock (the "Initial Public Offering"), Charter
Communications, Inc. was a holding company with no material assets or
operations. The net proceeds were used, directly or indirectly, by Charter
Communications, Inc. to purchase membership units in Charter Communications
Holding Company, LLC (Charter Communications Holdings Company), which used the
funds to pay a portion of the purchase prices of the cable systems of Fanch
Cablevision L.P. and affiliates (Fanch), Falcon Communications, L.P. (Falcon)
and Avalon Cable LLC (Avalon) acquisitions. As a result, Charter Communications,
Inc. consolidates the financial statements of Charter Communications Holding
Company. Charter Communications, Inc.'s consolidated financial statements will
include the assets and liabilities of Charter Communications Holding Company at
their historical carrying values since both Charter Communications, Inc. and
Charter Communications Holding Company were under the control of Paul G. Allen
before and after the Initial Public Offering. Since January 1, 1999, Charter
Communications Holding Company and Charter Communications Holdings, LLC,
(Charter Holdings) have closed numerous acquisitions. In addition, a subsidiary
of Charter Holdings merged with Marcus Cable Holdings, LLC (Marcus Holdings) in
April 1999. Charter Communications, Inc.'s consolidated financial statements are
adjusted on a pro forma basis to illustrate the estimated effects of the
acquisition of cable systems from InterMedia Capital Partners IV, L.P.,
InterMedia Partners and affiliates (collectively "InterMedia" herein), and the
Falcon acquisition as if these transactions had occurred on September 30, 1999
for the Unaudited Pro Forma Balance Sheet and to illustrate the estimated
effects of the following transactions as if they had occurred on January 1, 1998
for the Unaudited Pro Forma Statements of Operations:
(1) the acquisition of Charter Communications Holding Company on
December 23, 1998 by Mr. Allen;
(2) the acquisition of certain cable systems from Sonic
Communications Inc. on May 20, 1998 by Charter Holdings for an
aggregate purchase price net of cash acquired, of $228.4
million, comprised of $167.5 million in cash and $60.9 million
in a note payable to the seller;
(3) the acquisition of Marcus Cable Company, L.L.C. (Marcus Cable)
by Mr. Allen and Marcus Holdings' merger with and into Charter
Holdings effective March 31, 1999;
(4) the acquisitions and dispositions during 1998 by Marcus Cable;
(5) the acquisitions by Charter Communications Holding Company,
Charter Holdings and their subsidiaries completed from January
1, 1998 through October 1, 1999;
(6) the refinancing of all the debt of our subsidiaries through
the issuance of the March 1999 Charter Holdings senior notes
and senior discount notes and funding under Charter
Operating's credit facilities; and
(7) the completion of the Falcon acquisition, including the
repurchase of Falcon 8.375% senior debentures due 2010 and
9.285% senior discount debentures due 2010.
The Unaudited Pro Forma Balance Sheet also illustrates the effects of
the issuance and sale by us of 195.5 million shares of Class A common stock at a
price of $19.00, and the equity contribution of the net proceeds to Charter
Communications Holding Company. The net proceeds purchased 195.5 million common
membership units in Charter Communications Holding Company, representing a 47.3%
economic interest and a 100% voting interest, prior to the equity contributions
from Mr. Allen and the closing of any acquisitions by Charter Communications
Holding Company. Prior to the initial public offering, Charter Investment, Inc.
owned approximately 217.6 million common membership units of Charter
Communications Holding Company.
After considering additional membership units issued by Charter
Communications Holding Company to Mr. Allen, through Vulcan Cable III Inc., and
to the sellers of Rifkin Acquisition Partners, L.L.L.P. and Interlink
Communications Partners, LLLP (collectively "Rifkin" herein) and Falcon, the
economic interest held by Charter Communications, Inc. is reduced to 40.6%.
Based on the terms of the agreements with the sellers of Rifkin and Falcon, they
received 6.9 million and 20.8 million membership units, respectively, at a price
per membership unit of $19.19 and $26.32, respectively. Of the 20.8 million
membership units issued to certain Falcon sellers, 1.6 million units were put to
Mr. Allen. All remaining membership units were
4
<PAGE> 5
exchanged for Class A common stock of Charter Communications, Inc. Because of
possible violations of Section 5 of the Securities Act of 1933, as amended, the
holders of these equity interests may have unsecured creditor rights to require
us to repurchase all of these equity interests in connection with the issuance
of membership units. We have classified these potential obligations as
short-term debt in the Unaudited Pro Forma Balance Sheet. Accordingly, we have
decreased Charter Communications, Inc.'s equity interest in Charter
Communications Holding Company to 37.6%.
Mr. Allen, through Vulcan Cable III Inc., received 41.4 million
membership units in Charter Communications Holding Company for his $750 million
equity investment made at the time of the Initial Public Offering. Prior to the
Initial Public Offering, Mr. Allen contributed $1.325 billion in cash and equity
interests and received 63.9 million membership units in Charter Communications
Holdings Company. As such, the consolidated pro forma financial statements of
Charter Communications, Inc. reflect a minority interest equal to 62.4% of the
equity of Charter Communications Holding Company and depict 62.4% of the losses
being allocated to minority interest.
The Unaudited Pro Forma Financial Statements reflect the application of
the principles of purchase accounting to the transactions listed in items (1)
through (5) and (7) above. The allocation of certain purchase prices is based,
in part, on preliminary information, which is subject to adjustment upon
obtaining complete valuation information of intangible assets and post-closing
purchase price adjustments. We believe that finalization of the purchase prices
will not have a material impact on the results of operations or financial
position of Charter Communications, Inc.
The unaudited pro forma adjustments are based upon available
information and certain assumptions that we believe are reasonable. In
particular, the pro forma adjustments assume the following:
- We will transfer to sellers of the InterMedia cable systems
the Indiana cable system that was retained at the time of the
InterMedia closing pending receipt of the necessary regulatory
approvals;
- We will repurchase the Falcon debentures at prices equal to
101% of their aggregate principal amount, plus accrued and
unpaid interest, or accreted value, as applicable, using a
portion of the net proceeds from the private placement of $1.5
billion of senior notes and senior discount notes (the
"January 2000 High Yield Notes"); and
- After the completion of the Falcon acquisition, 62.4% of the
membership units of Charter Communications Holding Company are
exchangeable for Class A and Class B common stock of Charter
Communications, Inc. at the option of the holders. We assume
none of these membership units have been exchanged for Charter
Communications, Inc.'s common stock.
The Unaudited Pro Forma Financial Statements of Charter Communications,
Inc. do not purport to be indicative of what our financial position or results
of operations would actually have been had the transactions described above been
completed on the dates indicated or to project our results of operations for any
future date.
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<PAGE> 6
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------------------
CHARTER RECENT FALCON OFFERING
COMMUNICATIONS,INC. ACQUISITIONS ACQUISITION ADJUSTMENTS
(NOTE A) (NOTE B) SUBTOTAL (NOTE B) (NOTE C) TOTAL
-------- -------- -------- -------- -------- -----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 970,362 $ 396,598 $ 1,366,960 $ 322,739 $ -- $ 1,689,699
----------- ----------- ----------- ------------ --------- ------------
Operating expenses:
Operating, general and
administrative..................... 505,041 201,163 706,204 156,962 -- 863,166
Depreciation and amortization........ 505,059 203,492 708,551 204,040 -- 912,591
Stock option compensation expense.... 59,288 -- 59,288 -- -- 59,288
Corporate expense charges (Note D)... 18,309 32,113 50,422 12,221 -- 62,643
Management fees...................... -- 6,878 6,878 70 -- 6,948
----------- ----------- ----------- ------------ --------- ------------
Total operating expenses........... 1,087,697 443,646 1,531,343 373,293 -- 1,904,636
----------- ----------- ----------- ------------ --------- ------------
Loss from operations.................... (117,335) (47,048) (164,383) (50,554) -- (214,937)
Interest expense........................ (310,650) (106,873) (417,523) (139,459) (9,387) (566,369)
Interest income......................... 2,284 501 2,785 -- -- 2,785
Other expense........................... (335) (440) (775) -- -- (775)
----------- ----------- ----------- ------------ --------- ------------
Loss before minority interest and
extraordinary item.............. (426,036) (153,860) (579,896) (190,013) (9,387) (779,296)
Minority interest....................... 380,369 -- 380,369 -- 105,912 486,281
----------- ----------- ----------- ------------ --------- ------------
Loss before extraordinary item.......... $ (45,667) $ (153,860) $ (199,527) $ (190,013) $ 96,525 $ (293,015)
=========== =========== =========== ============ ========= ============
Basic loss per share (Note E)........... $ (4.19)
============
Diluted loss per share (Note E)......... $ (4.19)
============
Weighted average shares outstanding:
Basic (Note F)....................... 69,914,573
Diluted (Note F)..................... 69,914,573
OTHER FINANCIAL DATA:
Adjusted EBITDA (Note G)................ $ 465,321 $ 195,435 $ 660,756 $ 165,777 $ 826,533
Adjusted EBITDA margin (Note H)......... 48.0% 49.3% 48.3% 51.4% 48.9%
</TABLE>
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<PAGE> 7
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NOTE A: Pro forma operating results for Charter Communications, Inc. consist of
the following (dollars in thousands):
<TABLE>
<CAPTION>
HISTORICAL
----------
1/1/99
THROUGH 1/1/99
9/30/99 THROUGH
CHARTER 3/31/99
COMMUNICATIONS, MARCUS PRO FORMA
INC. HOLDINGS (A) ADJUSTMENTS TOTAL
---- ----------- ----------- -----
<S> <C> <C> <C> <C>
Revenues............................................. $ 845,182 $ 125,180 $ -- $ 970,362
----------- ------------ ------------- -------------
Operating expenses:
Operating, general and administrative................ 436,057 68,984 -- 505,041
Depreciation and amortization........................ 441,391 51,688 11,980 (b) 505,059
Stock option compensation expense.................... 59,288 -- -- 59,288
Corporate expense charges............................ 18,309 -- -- 18,309
Management fees...................................... -- 4,381 (4,381) (c) --
----------- ------------ ------------- -------------
Total operating expenses.......................... 955,045 125,053 7,599 1,087,697
----------- ------------ ------------- -------------
Income (loss) from operations........................ (109,863) 127 (7,599) (117,335)
Interest expense..................................... (288,750) (27,067) 5,167 (d) (310,650)
Interest income...................................... 18,326 104 (16,146) (e) 2,284
Other expense........................................ (177) (158) -- (335)
----------- ------------ ------------- -------------
Loss before minority interest and
extraordinary item................................ (380,464) (26,994) (18,578) (426,036)
Minority interest.................................... 380,369 -- -- 380,369
----------- ------------ ------------- -------------
Loss before extraordinary item....................... $ (95) $ (26,994) $ (18,578) $ (45,667)
=========== ============ ============= =============
</TABLE>
(a) Marcus Holdings represents the results of operations of Marcus Cable
through March 31, 1999, the date of its merger with Charter Holdings.
(b) As a result of Mr. Allen acquiring a controlling interest in Marcus
Cable, a large portion of the purchase price was recorded as franchises
($2.5 billion) that are amortized over 15 years. This resulted in
additional amortization for the period from January 1, 1999 through
March 31, 1999. The adjustment to depreciation and amortization expense
consists of the following (dollars in millions):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
USEFUL LIFE DEPRECIATION/
FAIR VALUE (IN YEARS) AMORTIZATION
---------- ---------- ------------
<S> <C> <C> <C>
Franchises........................................... $2,500.0 15 $ 40.8
Cable distribution systems........................... 720.0 8 21.2
Land, buildings and improvements..................... 28.3 10 0.7
Vehicles and equipment............................... 13.6 3 1.0
-----------
Total depreciation and amortization.............. 63.7
Less-historical depreciation and amortization
of Marcus Holdings............................ (51.7)
-----------
Adjustment................................. $ 12.0
===========
</TABLE>
(c) Reflects the elimination of management fees.
(d) As a result of the acquisition of Marcus Cable by Mr. Allen, the
carrying value of outstanding debt was recorded at estimated fair
value, resulting in a debt premium that is to be amortized as an offset
to interest expense over the term of the debt. This resulted in a
reduction of interest expense. Interest expense was further reduced by
the effects of the
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<PAGE> 8
extinguishment of substantially all of our long-term debt in March
1999, excluding borrowings of our previous credit facilities, and the
refinancing of all previous credit facilities.
(e) Reflects the elimination of interest income on excess cash since we
assumed substantially all such cash was used to acquire InterMedia.
NOTE B: Pro forma operating results for our recent acquisitions and the
Falcon acquisition consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------------------------------
RECENT ACQUISITIONS-HISTORICAL
-------------------------------------------------------------------------------------
GREATER
AMERICAN MEDIA INTERMEDIA
RENAISSANCE(A) CABLE(A) SYSTEMS(A) HELICON(A) RIFKIN(A) SYSTEMS OTHER(A) TOTAL
-------------- -------- --------- ---------- --------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 20,396 $ 12,311 $ 42,348 $ 49,565 $ 152,364 $ 152,789 $ 11,303 $ 441,076
-------- --------- --------- --------- ------- ------- --------- ---------
Operating expenses:
Operating, general and
administrative............... 9,382 6,465 26,067 31,693 95,077 84,174 6,213 259,071
Depreciation and amortization.. 8,912 5,537 5,195 16,617 7,985 79,325 3,746 197,317
Management fees................ -- 369 -- 2,511 2,513 2,356 447 8,196
-------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses..... 18,294 12,371 31,262 50,821 175,575 165,855 10,406 464,584
-------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations.... 2,102 (60) 11,086 (1,256) (23,211) (13,066) 897 (23,508)
Interest expense................. (6,321) (3,218) (565) (20,682) (34,926) (17,636) (1,944) (85,292)
Interest income.................. 122 32 -- 124 -- 187 -- 465
Other income (expense)........... -- 2 (398) -- (12,742) (2,719) (30) (15,887)
-------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income tax
expense (benefit).............. (4,097) (3,244) 10,123 (21,814) (70,879) (33,234) (1,077) (124,222)
Income tax expense (benefit)..... (65) 5 4,535 -- (1,975) (2,681) -- (181)
-------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item............. $ (4,032) $ (3,249) $ 5,588 $ (21,814) $ (68,904) $ (30,553) $ (1,077) $(124,041)
======== ========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
FALCON ACQUISITION
-HISTORICAL
-----------
<S> <C>
Revenues................................................................................................ $ 320,228
------------
Operating expenses:
Operating, general and administrative................................................................ 167,824
Depreciation and amortization........................................................................ 168,546
Equity-based deferred compensation................................................................... 44,600
------------
Total operating expenses.......................................................................... 380,970
------------
Loss from operations.................................................................................... (60,742)
Interest expense........................................................................................ (98,931)
Other income............................................................................................ 8,085
------------
Loss before income tax benefit.......................................................................... (151,588)
Income tax benefit...................................................................................... (3,022)
-------------
Loss before extraordinary item.......................................................................... $ (148,566)
============
</TABLE>
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<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------------------------------
RECENT ACQUISITIONS
-----------------------------------------------------------------------------------------
PRO FORMA
-----------------------------------------------------------------------------------------
HISTORICAL ACQUISITIONS(B) DISPOSITIONS(C) ADJUSTMENTS TOTAL
---------- --------------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $ 441,076 $ 8,286 $ (49,436) $ (3,328) (e) 396,598
---------- -------- ---------- --------- ---------
Operating expenses:
Operating, general and
administrative................ 259,071 4,358 (23,566) (38,700) (e)(f) 201,163
Depreciation and amortization... 197,317 1,126 (20,845) 25,894 (g) 203,492
Equity-based deferred
compensation................... - - - - -
Corporate expense charges....... - - - 32,113 (f) 32,113
Management fees................. 8,196 395 (1,713) - 6,878
---------- -------- ---------- --------- ---------
Total operating expenses...... 464,584 5,879 (46,124) 19,307 443,646
---------- -------- ---------- --------- ---------
Income (loss) from operations..... (23,508) 2,407 (3,312) (22,635) (47,048)
Interest expense.................. (85,292) (1,366) 11 (20,226) (i) (106,873)
Interest income................... 465 36 - - 501
Other income (expense)............ (15,887) 9 (21) 15,459 (j) (440)
---------- -------- ---------- --------- ---------
Income (loss) before income
tax expense (benefit)........... (124,222) 1,086 (3,322) (27,402) (153,860)
Income tax expense (benefit)...... (181) (114) - 295 (k) -
---------- -------- ---------- --------- ---------
Income (loss) before
extraordinary item.............. $ (124,041) $ 1,200 $ (3,322) $ (27,697) $(153,860)
========== ======== ========== ========= =========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------------------------------
FALCON ACQUISITION
-----------------------------------------------------------------------------------------
PRO FORMA
-----------------------------------------------------------------------------------------
HISTORICAL ACQUISITIONS(B) DISPOSITIONS(D) ADJUSTMENTS TOTAL
---------- --------------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues ...................... $ 320,228 $ 2,968 $ (457) $ - $ 322,739
--------- ------- ------- -------- ----------
Operating expenses:
Operating, general and
administrative ............ 167,824 1,599 (240) (12,221) (f) 156,962
Depreciation and amortization 168,546 936 (195) 34,753 (g) 204,040
Equity-based deferred
compensation ............... 44,600 - - (44,600) (h) -
Corporate expense charges ... - - - 12,221 (f) 12,221
Management fees ............. - 70 - - 70
--------- ------- ------- -------- ----------
Total operating expenses .. 380,970 2,605 (435) (9,847) 373,293
--------- ------- ------- -------- ----------
Income (loss) from operations.. (60,742) 363 (22) 9,847 (50,554)
Interest expense .............. (98,931) (221) 2 (40,309) (i) (139,459)
Interest income ............... - - - - -
Other income (expense) ........ 8,085 73 (2,555) (5,603) (j) -
--------- ------- ------- -------- ---------
Income (loss) before income
tax expense (benefit) ....... (151,588) 215 (2,575) (36,065) (190,013)
Income tax expense (benefit) .. (3,022) - - 3,022 (k) -
--------- ------- ------- -------- ---------
Income (loss) before
extraordinary item .......... $(148,566) $ 215 $(2,575) $(39,087) $(190,013)
========= ======= ======= ======== =========
</TABLE>
(a) Renaissance represents the results of operations of Renaissance Media
Group LLC through April 30, 1999, the date of acquisition by Charter
Holdings. American Cable represents the results of operations of
American Cable Entertainment, LLC (American Cable) through May 7, 1999,
the date of acquisition by Charter Holdings. Greater Media Systems
represents the results of operations of cable systems of Greater Media
Cablevision, Inc. through June 30, 1999, the date of acquisition by
Charter Holdings. Helicon represents the results of operations of
Helicon Partners I, L.P. and affiliates through July 30, 1999, the date
of acquisition by Charter Holdings. Rifkin includes its results of
operations through September 13, 1999, the date of acquisition by
Charter Holdings. Other represents the results of operations of Vista
Broadband Communications, L.L.C. through July 30, 1999, the date of
acquisition by Charter Holdings and the results of operations of cable
systems of Cable Satellite of South Miami, Inc. through August 4, 1999,
the date of acquisition by Charter Holdings.
(b) Represents the historical results of operations for the period from
January 1, 1999 through the date of purchase for acquisitions completed
by Rifkin and Falcon. These acquisitions were accounted for using the
purchase method of accounting. The purchase price in millions and
closing dates for significant acquisitions are as follows:
<TABLE>
<CAPTION>
RIFKIN
------
<S> <C>
Purchase price............ $165.0
Closing date.............. February 1999
Purchase price............ $53.8
Closing date.............. July 1999
</TABLE>
(c) Represents the elimination of the operating results related to the
cable systems transferred to InterMedia as part of a swap of cable
systems in October 1999. The agreed value of our systems transferred to
InterMedia was $420.0 million. This number includes 30,000 customers
served by an Indiana cable system that we did not transfer at the time
of the InterMedia closing because some of the necessary regulatory
approvals were still pending. We are obligated to transfer this system
to InterMedia upon receipt of such regulatory approvals. We will have
to pay $88.2 million to InterMedia if we do not obtain timely
regulatory approvals for our transfer to InterMedia of the Indiana
cable system and we are unable to transfer replacement systems. No
material gain or loss is anticipated on the disposition as these
systems were recently acquired and recorded at fair value at that time.
(d) Represents the elimination of the operating results related to the
sale of a Falcon cable system sold in January 1999.
(e) Reflects the elimination of historical revenues and expenses
associated with an entity not included in the purchase by Charter.
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(f) Reflects a reclassification of expenses representing corporate
expenses that would have occurred at Charter Investment, Inc. totaling
$44.3 million and the elimination of stock compensation expenses that
were included in operating, general and administrative expense.
(g) Represents additional depreciation and amortization as a result of our
recent acquisitions and Falcon acquisition. A large portion of the
purchase price was allocated to franchises ($6.8 billion) that are
amortized over 15 years. The adjustment to depreciation and
amortization expense consists of the following (dollars in millions):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE DEPRECIATION/
FAIR VALUE USEFUL LIFE AMORTIZATION
---------- ----------- ------------
<S> <C> <C> <C>
Franchises................................................... $ 6,792.2 15 $ 295.9
Cable distribution systems................................... 1,108.9 8 97.6
Land, buildings and improvements............................. 34.6 10 2.3
Vehicles and equipment....................................... 57.1 3 11.7
------------
Total depreciation and amortization...................... 407.5
Less-historical depreciation and amortization............ (346.9)
-------------
Adjustment............................................ $ 60.6
============
</TABLE>
(h) Reflects the elimination of change in control payments under the terms
of Falcon's equity-based compensation plans that were triggered by the
acquisition of Falcon. These plans will be terminated and the
employees will participate in the option plan of Charter
Communications Holding Company. As such, these costs will not recur.
(i) Reflects additional interest expense on borrowings, which have been or
will be used to finance the acquisitions as follows (dollars in
millions):
<TABLE>
<S> <C>
$506.6 million 8% liability to sellers--Falcon................................................... $ 30.4
$133.3 million 8% liability to sellers--Rifkin................................................... 10.7
$1.0 billion of credit facilities at a composite current rate of 7.9%--CC VII-Falcon............. 59.1
$375.0 million 8.375% senior debentures--Falcon.................................................. 23.6
$435.3 million 9.285% senior discount debentures--Falcon......................................... 26.4
Interest expense for recent acquisitions prior to closing at composite current rate of 8.2%...... 96.1
---------
Total pro forma interest expenses........................................................... 246.3
Less-historical interest expense from acquired companies.................................... (185.8)
---------
Adjustment............................................................................... $ 60.5
=========
</TABLE>
An increase in the interest rate of 0.125% on all variable rate debt
would result in an increase in interest expense of $4.9 million.
(j) Represents the elimination of gain (loss) on sale of cable systems
whose results of operations have been eliminated in (c) and (d) above.
(k) Reflects the elimination of income tax expense (benefit) as a result
of expected recurring future losses. The losses will not be tax
benefited and no net deferred tax assets will be recorded.
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<PAGE> 11
NOTE C: The offering adjustment to interest expense of approximately
$9.4 million in higher interest expense consist of the following (dollars in
millions):
<TABLE>
<CAPTION>
INTEREST
DESCRIPTION EXPENSE
- ----------- -------
<S> <C>
$726.4 million of January 2000 High Yield Notes (at a blended rate of 10.5%)...................... $ 57.5
Amortization of debt issuance costs............................................................... 1.9
----------
Total pro forma interest expense............................................................... 59.4
Less-historical interest expense............................................................... (50.0)
----------
Adjustment................................................................................. $ 9.4
==========
</TABLE>
The offering adjustment to minority interest represents the allocation of 62.4%
of the net loss of Charter Communications Holding Company to the minority
interest.
NOTE D: Charter Investment, Inc. has provided corporate management and
consulting services to Charter Operating. In connection with the Initial Public
Offering, the existing management agreement was assigned to Charter
Communications, Inc. and Charter Communications, Inc. entered into a new
management agreement with Charter Communications Holding Company.
NOTE E: Basic loss per share assumed none of the membership units of
Charter Communications Holding Company are exchanged for Charter Communications,
Inc. common stock and none of the outstanding options to purchase membership
units of Charter Communications Holding Company that will be automatically
exchanged for Charter Communications, Inc. common stock are exercised. Basic
loss per share equals loss before extraordinary item divided by weighted average
shares outstanding. If all the membership units were exchanged or options
exercised, the effects would be antidilutive.
NOTE F: Represents 50,000 Class B shares purchased by Mr. Allen on
November 12, 1999 plus the number of shares issued in the Initial Public
Offering used to finance a portion of the Falcon acquisition.
NOTE G: Adjusted EBITDA represents loss before extraordinary item,
minority interest, income taxes, depreciation and amortization, stock option
compensation expense, corporate expense charges, management fees, and other
income (expense). Adjusted EBITDA is presented because it is a widely accepted
financial indicator of a cable company's ability to service indebtedness.
However, adjusted EBITDA should not be considered as an alternative to income
from operations or to cash flows from operating, investing or financing
activities, as determined in accordance with generally accepted accounting
principles. Adjusted EBITDA should also not be construed as an indication of a
company's operating performance or as a measure of liquidity. In addition,
because adjusted EBITDA is not calculated identically by all companies, the
presentation here may not be comparable to other similarly titled measures of
other companies. Management's discretionary use of funds depicted by adjusted
EBITDA may be limited by working capital, debt service and capital expenditure
requirements and by restrictions related to legal requirements, commitments and
uncertainties.
NOTE H: Adjusted EBITDA margin represents adjusted EBITDA as a
percentage of revenues.
11
<PAGE> 12
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------------
CHARTER
COMMUNICATIONS, MARCUS RECENT FALCON OFFERING
INC. HOLDINGS ACQUISITIONS ACQUISITION ADJUSTMENTS
(NOTE A) (NOTE B) (NOTE C) SUBTOTAL (NOTE C) (NOTE D)
--------- ---------- ---------- ------------ ----------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................. $ 601,953 $ 457,929 $ 597,471 $ 1,657,353 $ 427,118 $ -
--------- ---------- ---------- ------------ ----------- --------
Operating expenses:
Operating, general and administrative.. 304,555 236,595 291,989 833,139 211,651 -
Depreciation and amortization.......... 370,406 258,348 330,566 959,320 278,664 -
Stock option compensation expense...... 845 - - 845 - -
Corporate expense charges (Note E)..... 16,493 17,042 20,991 54,526 8,453 -
Management fees........................ - - 14,668 14,668 85 -
--------- ---------- ---------- ---------- ---------- ---------
Total operating expenses............. 692,299 511,985 658,214 1,862,498 498,853 -
--------- ---------- ---------- ---------- ---------- ---------
Loss from operations..................... (90,346) (54,056) (60,743) (205,145) (71,735) -
Interest expense......................... (200,794) (137,627) (239,681) (578,102) (184,471) (15,237)
Other income (expense)................... 518 - (5,825) (5,307) - -
--------- ---------- ---------- ---------- ---------- ---------
Loss before minority interest and
extraordinary item................... (290,622) (191,683) (306,249) (788,554) (256,206) (15,237)
Minority interest........................ 5,275 - - 5,275 - 656,163
--------- ---------- ---------- ---------- ---------- ---------
Loss before minority interest............ $(285,347) $ (191,683) $ (306,249) $ (783,279) $ (256,206) $ 640,926
========= ========== ========== ========== ========== =========
Basic loss per share (Note F)............
Diluted loss per share (Note F)..........
Weighted average shares outstanding:
Basic (Note G)........................
Diluted (Note G)......................
OTHER FINANCIAL DATA:
Adjusted EBITDA (Note H)................. $ 297,398 $ 221,334 $ 305,482 $ 824,214 215,467
Adjusted EBITDA margin (Note I).......... 49.4% 48.3% 51.1% 49.7% 50.4%
<CAPTION>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------
TOTAL
------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
Revenues................................. $ 2,084,471
------------
Operating expenses:
Operating, general and administrative.. 1,044,790
Depreciation and amortization.......... 1,237,984
Stock option compensation expense...... 845
Corporate expense charges (Note E)..... 62,979
Management fees........................ 14,753
------------
Total operating expenses............. 2,361,351
------------
Loss from operations..................... (276,880)
Interest expense......................... (777,810)
Other income (expense)................... (5,307)
------------
Loss before minority interest and
extraordinary item................... (1,059,997)
Minority interest........................ 661,438
------------
Loss before minority interest............ $ (398,559)
============
Basic loss per share (Note F)............ $ (5.70)
============
Diluted loss per share (Note F).......... $ (5.70)
============
Weighted average shares outstanding:
Basic (Note G)........................ 69,914,573
Diluted (Note G)...................... 69,914,573
OTHER FINANCIAL DATA:
Adjusted EBITDA (Note H)................. $ 1,039,681
Adjusted EBITDA margin (Note I).......... 49.9%
</TABLE>
12
<PAGE> 13
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NOTE A: Pro forma operating results for Charter Communications, Inc.
including the acquisition of us on December 23, 1998 by Mr. Allen and the
acquisition of Sonic Communications, Inc. (Sonic), consist of the following
(dollars in thousands):
<TABLE>
<CAPTION>
12/24/98 1/1/98
THROUGH THROUGH
12/31/98 1/1/98 THROUGH 12/23/98 5/20/98
-------- ----------------------- -------
CHARTER
CHARTER COMMUNICATIONS
COMMUNICATIONS, CCA CHARTERCOMM HOLDINGS
INC. GROUP HOLDINGS COMPANY SONIC ELIMINATIONS SUBTOTAL
--------- ---------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $ 13,713 $ 324,432 $ 196,801 $ 49,731 $ 17,276 $ - $ 601,953
--------- ---------- ---------- ---------- ---------- ------- ----------
Operating expenses:
Operating, general and
administrative................ 7,134 164,145 98,331 25,952 8,993 - 304,555
Depreciation and amortization.. 8,318 136,689 86,741 16,864 2,279 - 250,891
Stock option compensation
expense....................... 845 - - - - - 845
Management fees/corporate
expense charges............... 473 17,392 14,780 6,176 - - 38,821
--------- ---------- ---------- ---------- ---------- ------- ----------
Total operating expenses...... 16,770 318,226 199,852 48,992 11,272 - 595,112
Income (loss) from operations..... (3,057) 6,206 (3,051) 739 6,004 - 6,841
Interest expense.................. (2,353) (113,824) (66,121) (17,277) (2,624) 1,900 (c) (200,299)
Other income (expense)............ 133 4,668 (1,684) (684) (15) (1,900)(c) 518
Income (loss) before income taxes
and minority interest......... (5,277) (102,950) (70,856) (17,222) 3,365 - (192,940)
Provision for income taxes........ - - - - 1,346 - 1,346
--------- ---------- ---------- ---------- ---------- ------- ----------
Income (loss) before minority
interest...................... (5,277) (102,950) (70,856) (17,222) 2,019 - (194,286)
Minority interest................. 5,275 - - - - - 5,275
--------- ---------- ---------- ---------- ---------- ------- ----------
Income (loss) before extraordinary
item.......................... $ (2) $ (102,950) $ (70,856) $ (17,222) $ 2,019 $ - $ (189,011)
========= ========== ========== ========== ========== ======= ==========
<CAPTION>
PRO FORMA
----------------------------
ADJUSTMENTS TOTAL
----------- -----------
<S> <C> <C>
Revenues........................ $ - $ 601,953
-------- -----------
Operating expenses:
Operating, general and
administrative.............. - 304,555
Depreciation and
amortization................ 119,515 (a) 370,406
Stock option compensation
expense..................... - 845
Management fees/corporate
expense charges............. (22,328)(b) 16,493
-------- -----------
Total operating expenses.... 97,187 692,299
Income (loss) from operations... (97,187) (90,346)
Interest expense................ (495)(d) (200,794)
Other income (expense).......... - 518
Income (loss) before income taxes
and minority interest....... (97,682) (290,622)
Provision for income taxes...... (1,346)(e) -
-------- -----------
Income (loss) before minority
interest.................... (96,336) (290,622)
Minority interest............... - 5,275
-------- -----------
Income (loss) before extraordinary
item........................ $(96,336) $ (285,347)
======== ===========
</TABLE>
(a) Represents additional depreciation and amortization as a result of the
acquisition of us by Mr. Allen. A large portion of the purchase price
was allocated to franchises ($3.6 billion) that are amortized over 15
years. The adjustment to depreciation and amortization expense
consists of the following (dollars in millions):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE DEPRECIATION/
FAIR VALUE USEFUL LIFE (IN YEARS) AMORTIZATION
---------- ---------------------- -------------
<S> <C> <C> <C>
Franchises............................................ $ 3,600.0 15 $ 240.0
Cable distribution systems............................ 1,439.2 12 115.3
Land, buildings and improvements...................... 41.3 11 3.5
Vehicles and equipment................................ 61.2 5 11.6
------------
Total depreciation and amortization............ 370.4
Less-historical depreciation and amortization.. (250.9)
------------
Adjustment................................ $ 119.5
============
</TABLE>
(b) Reflects the reduction in corporate expense charges of approximately
$7.9 million to reflect the actual costs incurred. Management fees
charged to CCA Group and CharterComm Holdings, L.P., companies not
controlled by Charter Investment, Inc. at that time, exceeded the
allocated costs incurred by Charter Investment, Inc. on behalf of those
companies by $7.9 million. Also reflects the elimination of
approximately $14.4 million of change of control payments under the
terms of the then-existing equity appreciation rights plans. Such
payments were triggered by the acquisition of us by Mr. Allen. Such
payments were made by Charter Investment, Inc. and were not subject to
reimbursement by us, but were allocated to us for financial reporting
purposes. The equity appreciation rights plans were terminated in
connection with the acquisition of us by Mr. Allen, and these costs
will not recur.
(c) Represents the elimination of intercompany interest on a note payable
from Charter Holdings to CCA Group.
(d) Reflects additional interest expense on $228.4 million of borrowings
under our previous credit facilities used to finance the Sonic
acquisition offset by a reduction of interest expense related to the
extinguishment of substantially all of our long-term debt in March
1999, excluding borrowings of our previous credit facilities, and the
refinancing of all previous credit facilities.
13
<PAGE> 14
(e) Reflects the elimination of provision for income taxes, as a result of
future expected recurring losses. The losses will not be tax benefited
and no net deferred tax assets will be recorded.
NOTE B: Pro forma operating results for Marcus Holdings consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PRO FORMA
1998 ACQUISITIONS(A) DISPOSITIONS(B) ADJUSTMENTS TOTAL
---- --------------- --------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Revenues................................ $ 499,820 $ 2,620 $ (44,511) $ -- $ 457,929
------------- ---------- ------------ ----------- -----------
Operating expenses:
Operating, general and
administrative.................... 271,638 1,225 (20,971) (15,297)(c) 236,595
Depreciation and amortization....... 215,789 -- -- 42,559 (d) 258,348
Corporate expense charges........... -- -- -- 17,042 (c) 17,042
Management fees..................... 3,341 -- -- (3,341)(c) --
Transaction and severance costs..... 135,379 -- -- (135,379)(e) --
------------- ---------- ------------ ----------- -----------
Total operating expenses.......... 626,147 1,225 (20,971) (94,416) 511,985
------------- ---------- ------------ ----------- -----------
Income (loss) from operations........... (126,327) 1,395 (23,540) 94,416 (54,056)
Interest expense........................ (159,985) -- -- 22,358 (d) (137,627)
Other income (expense).................. 201,278 -- (201,278) -- --
------------- ---------- ------------ ----------- -----------
Income (loss) before
extraordinary item.................. $ (85,034) $ 1,395 $ (224,818) $ 116,774 $ (191,683)
============= ========== ============ =========== ===========
</TABLE>
(a) Represents the results of operations of acquired cable systems prior to
their acquisition in 1998 by Marcus Cable.
(b) Represents the elimination of operating results and the corresponding
gain on sale of cable systems sold by Marcus Cable during 1998.
(c) Represents a reclassification of expenses totaling $15.3 million from
operating, general and administrative to corporate expense charges.
Also reflects the elimination of management fees and the addition of
corporate expense charges of $1.7 million for actual costs incurred by
Charter Investment, Inc. on behalf of Marcus Holdings. Management fees
charged to Marcus Holdings exceeded the costs incurred by Charter
Investment, Inc. by $1.3 million.
(d) As a result of the acquisition of Marcus Holdings by Mr. Allen, a large
portion of the purchase price was recorded as franchises ($2.5 billion)
that are amortized over 15 years. This resulted in additional
amortization for year ended December 31, 1998. The adjustment to
depreciation and amortization expense consists of the following
(dollars in millions):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE DEPRECIATION/
FAIR VALUE USEFUL LIFE (IN YEARS) AMORTIZATION
---------- ---------------------- ------------
<S> <C> <C> <C>
Franchises................................................... $ 2,500.0 15 $ 167.2
Cable distribution systems................................... 720.0 8 84.5
Land, buildings and improvements............................. 28.3 10 2.7
Vehicles and equipment....................................... 13.6 3 4.0
------------
Total depreciation and amortization...................... 258.4
Less-historical depreciation and amortization............ (215.8)
------------
Adjustment............................................ $ 42.6
============
</TABLE>
Additionally, the carrying value of outstanding debt was recorded at estimated
fair value, resulting in a debt premium that is to be amortized as an offset to
interest expense over the term of the debt. This resulted in a reduction in
interest expense for the year ended December 31, 1998.
14
<PAGE> 15
(e) As a result of the acquisition of Marcus Holdings by Mr. Allen, Marcus
Holdings recorded transaction costs of approximately $135.4 million.
These costs were primarily comprised of approximately $90.2 million in
compensation paid to employees of Marcus Holdings in settlement of
specially designated Class B membership units, approximately $24.0
million of transaction fees paid to certain equity partners for
investment banking services and $5.2 million of transaction fees paid
primarily for professional fees. In addition, Marcus Holdings recorded
costs related to employee and officer stay-bonus and severance
arrangements of approximately $16.0 million.
NOTE C: Pro forma operating results for our recently completed and
Falcon acquisition consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------------
RECENT ACQUISITIONS-HISTORICAL
--------------------------------------------------------------------------------------
GREATER
AMERICAN MEDIA INTERMEDIA
RENAISSANCE CABLE SYSTEMS HELICON RIFKIN(A) SYSTEMS OTHER TOTAL
----------- ----- --------- -------- --------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 41,524 $ 15,685 $ 78,635 $ 75,577 $ 124,382 $ 176,062 $ 15,812 $ 527,677
--------- --------- --------- --------- --------- --------- --------- ---------
Operating expenses:............
Operating, general and
administrative........... 21,037 7,441 48,852 40,179 63,815 86,753 7,821 275,898
Depreciation and
amortization............. 19,107 6,784 8,612 24,290 47,657 85,982 4,732 197,164
Management fees............. -- 471 -- 3,496 4,106 3,147 -- 11,220
Total operating expenses 40,144 14,696 57,464 67,965 115,578 175,882 12,553 484,282
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations.. 1,380 989 21,171 7,612 8,804 180 3,259 43,395
Interest expense............... (14,358) (4,501) (535) (27,634) (30,482) (25,449) (4,023) (106,982)
Interest income................ 158 122 -- 93 -- 341 -- 714
Other income (expense)......... -- -- (493) -- 36,279 23,030 5 58,821
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income tax expense.......... (12,820) (3,390) 20,143 (19,929) 14,601 (1,898) (759) (4,052)
Income tax expense (benefit)... 135 -- 7,956 -- (4,178) 1,623 -- 5,536
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item.......... $ (12,955) $ (3,390) $ 12,187 $ (19,929) $ 18,779 $ (3,521) $ (759) $ (9,588)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
FALCON ACQUISITION
-HISTORICAL
-----------
<S> <C>
Revenues...................................................................................... $ 307,558
-------------
Operating expenses:
Operating, general and administrative...................................................... 161,233
Depreciation and amortization.............................................................. 152,585
-------------
Total operating expenses.............................................................. 313,818
-------------
Income from operations........................................................................ (6,260)
Interest expense.............................................................................. (102,591)
Other income (expense)........................................................................ (3,093)
--------------
Loss before income tax expense................................................................ (111,944)
Income tax expense............................................................................ 1,897
-------------
Loss before extraordinary item................................................................ $ (113,841)
=============
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------
RECENT ACQUISITIONS
------------------------------------------------------------------------
PRO FORMA
-----------------------------------------------------------
HISTORICAL ACQUISITIONS(B) DISPOSITIONS(C) ADJUSTMENTS TOTAL
----------- -------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................. $ 527,677 $ 127,429 $ (57,635) $ - $ 597,471
----------- ----------- ----------- --------- -----------
Operating expenses:
Operating, general
and administrative... 275,898 66,641 (29,559) (20,991)(e) 291,989
Depreciation and
amortization......... 197,164 31,262 (35,025) 137,165 (f) 330,566
Corporate expense
Charges.............. - - - 20,991 (e) 20,991
Management fees........ 11,220 4,042 (594) - 14,668
----------- ----------- ----------- --------- -----------
Total operating
expenses......... 484,282 101,945 (65,178) 137,165 658,214
----------- ----------- ----------- --------- -----------
Income (loss) from
operations............. 43,395 25,484 7,543 (137,165) (60,743)
Interest expense......... (106,982) (30,354) 16,923 (119,268)(g) (239,681)
Interest income.......... 714 323 - - 1,037
Other income (expense)... 58,821 (178) 235 (65,740)(h) (6,862)
----------- ----------- ----------- --------- -----------
Income (loss) before
income tax expense
(benefit).............. (4,052) (4,725) 24,701 (322,173) (306,249)
Income tax expense
(benefit).............. 5,536 2,431 10 (7,977)(i) -
----------- ----------- ----------- --------- -----------
Income (loss) before
extraordinary item..... $ (9,588) $ (7,156) $ 24,691 $(314,196) $ (306,249)
=========== =========== =========== ========= ===========
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------
FALCON ACQUISITION
-----------------------------------------------------------------------------
PRO FORMA
----------------------------------------------------------------
HISTORICAL ACQUISITIONS(B) DISPOSITIONS(D) ADJUSTMENTS TOTAL
---------- --------------- --------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues................. $ 307,558 $ 121,650 $ (2,090) $ - $ 427,118
---------- --------- ------------- --------- ---------
Operating expenses:
Operating, general
and administrative... 161,233 56,997 (979) (5,600)(e) 211,651
Depreciation and
amortization......... 152,585 31,234 (956) 95,801 (f) 278,664
Corporate expense
Charges.............. - 2,853 - 5,600 (e) 8,453
Management fees........ - 123 (38) - 85
---------- --------- ------------ --------- ---------
Total operating
expenses......... 313,818 91,207 (1,973) 95,801 498,853
---------- --------- ------------ --------- ---------
operations............. (6,260) 30,443 (117) (95,801) (71,735)
Interest expense......... (102,591) (12,985) 4 (68,899)(g) (184,471)
Interest income.......... - - - - -
Other income (expense) (3,093) 5,088 - (1,995)(h) -
---------- --------- ------------ --------- ---------
Income (loss) before
income tax expense
(benefit).............. (111,944) 22,546 (113) (166,695) (256,206)
Income tax expense
(benefit).............. 1,897 - - (1,897)(i) -
---------- --------- ----------- --------- ---------
Income (loss) before
extraordinary item..... $ (113,841) $ 22,546 $ (113) $(164,798) $(256,206)
========== ========= =========== ========= =========
</TABLE>
(a) Rifkin includes the results of operations of Rifkin Acquisition
Partners, L.L.L.P., as follows (dollars in thousands):
<TABLE>
<CAPTION>
RIFKIN
ACQUISITION OTHER TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Revenues............................................................... $ 89,921 $ 34,461 $ 124,382
Income from operations................................................. 1,040 7,764 8,804
Income (loss) before extraordinary item................................ 24,419 (5,640) 18,779
</TABLE>
(b) Represents the historical results of operations for the period from
January 1, 1998 through the date of purchase for acquisitions
completed by Renaissance, the InterMedia systems, Helicon, Rifkin, and
Falcon in 1998, and for the year ended December 31, 1998 for
acquisitions completed in 1999.
These acquisitions were accounted for using the purchase method of accounting.
Purchase prices and the closing dates for significant acquisitions are as
follows (dollars in millions):
<TABLE>
<CAPTION>
INTERMEDIA
RENAISSANCE SYSTEMS HELICON RIFKIN FALCON
----------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Purchase price.... $309.5 $29.1 $26.1 $165.0 $86.2
Closing date...... April 1998 December 1998 December 1998 February 1999 July 1998
Purchase price.... $53.8 $158.6
Closing date...... July 1999 September 1998
Purchase price.... $513.3
Closing date...... September 1998
</TABLE>
The InterMedia acquisition above was part of a "swap".
(c) Represents the elimination of the operating results primarily related
to the cable systems transferred to InterMedia as part of a swap of
cable systems in October 1999. The fair value of the systems
transferred to InterMedia was $420.0 million. This number includes
30,000 customers served by an Indiana cable system that we did not
transfer at the time of the InterMedia closing because some of the
necessary regulatory approvals were still pending. We are obligated to
transfer this system to InterMedia upon receipt of such regulatory
approvals. We will have to pay $88.2 million to InterMedia if we do not
obtain timely regulatory approvals for our transfer to InterMedia of
the Indiana cable system and we are unable to transfer replacement
systems. No material gain or loss is anticipated on the disposition as
these systems were recently acquired and recorded at fair value at that
time.
(d) Represents the elimination of the operating results related to the sale
of a Falcon cable system sold in January 1999.
16
<PAGE> 17
(e) Reflects a reclassification of expenses representing corporate expenses
that would have occurred at Charter Investment, Inc.
(f) Represents additional depreciation and amortization as a result of our
recently completed acquisitions and Falcon acquisition. A large portion
of the purchase price was allocated to franchises ($6.8 billion) that
are amortized over 15 years. The adjustments to depreciation and
amortization expense consists of the following (dollars in millions):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE DEPRECIATION/
FAIR VALUE USEFUL LIFE (IN YEARS) AMORTIZATION
---------- ---------------------- ------------
<S> <C> <C> <C>
Franchises................................................... $ 6,792.2 15 $ 447.1
Cable distribution systems................................... 1,108.9 8 141.6
Land, building and improvements.............................. 34.6 10 3.3
Vehicles and equipment....................................... 57.1 3 17.2
------------
Total depreciation and amortization....................... 609.2
Less-historical depreciation and amortization............. (376.2)
------------
Adjustment............................................ $ 233.0
============
</TABLE>
(g) Reflects additional interest expense on borrowings which have been or
will be used to finance the acquisitions as follows (dollars in
millions):
<TABLE>
<S> <C>
$2.7 billion of credit facilities at composite current rate of 8.2%...................................... $ 217.9
$114.4 million 10% senior discount notes--Renaissance.................................................... 10.7
$133.3 million 8% liability to sellers--Rifkin........................................................... 11.0
$506.6 million 8% liability to sellers--Falcon........................................................... 40.6
$1.0 billion of credit facilities at composite current rate of 7.9%--CC VII - Falcon..................... 80.1
$375.0 million 8.375% senior debentures--Falcon.......................................................... 31.4
$435.3 million 9.285% senior discount debentures--Falcon................................................. 32.5
---------
Total pro forma interest expenses.................................................................... 424.2
Less-historical interest expense from acquired companies............................................. (236.0)
---------
Adjustment........................................................................................ $ 188.2
=========
</TABLE>
An increase in the interest rate on all variable rate debt of 0.125% would
result in an increase in interest expense of $6.6 million.
(h) Represents the elimination of gain (loss) on the sale of cable
television systems whose results of operations have been eliminated in
(c) and (d) above.
(i) Reflects the elimination of income tax expense (benefit) as a result of
expected recurring future losses. The losses will not be tax benefited
and no net deferred tax assets will be recorded.
NOTE D: The offering adjustment to interest expense of approximately
$15.2 million in higher interest expense consist of the following (dollars in
millions):
<TABLE>
<CAPTION>
INTEREST
DESCRIPTION EXPENSE
- ----------- -------
<S> <C>
$726.4 million of January 2000 High Yield Notes (at a blended rate of 10.5%).......................... $ 76.6
Amortization of debt issuance costs................................................................... 2.5
--------
Total pro forma interest expense................................................................ 79.1
Less-historical interest expense ............................................................... (63.9)
--------
Adjustment.............................................................................. $ 15.2
========
</TABLE>
The offering adjustment to minority interest represents the allocation of 62.4%
of the net loss of Charter Communications Holding Company to minority interest.
17
<PAGE> 18
NOTE E: Charter Investment, Inc. provided corporate management and
consulting services to Charter Operating in 1998 and to Marcus Holdings
beginning in October 1998.
NOTE F: Basic loss per share assumed none of the membership units of
Charter Communications Holding Company are exchanged for Charter Communications,
Inc. common stock and none of the outstanding options to purchase membership
units of Charter Communications Holding Company that will be automatically
exchanged for Charter Communications, Inc. common stock are exercised. Basic
loss per share equals loss before extraordinary item divided by weighted average
shares outstanding. If all the membership units were exchanged or options
exercised, the effects would be antidilutive.
NOTE G: Represents 50,000 Class B shares purchased by Mr. Allen on
November 12, 1999 plus the number of shares issued in the Initial Public
Offering used to finance a portion of the Falcon acquisition.
NOTE H: Adjusted EBITDA represents loss before minority interest,
interest, depreciation and amortization, stock option compensation expense,
corporate expense charges, management fees and other income (expense). Adjusted
EBITDA is presented because it is a widely accepted financial indicator of a
cable company's ability to service indebtedness. However, adjusted EBITDA should
not be considered as an alternative to income from operations or to cash flows
from operating, investing or financing activities, as determined in accordance
with generally accepted accounting principles. Adjusted EBITDA should also not
be construed as an indication of a company's operating performance or as a
measure of liquidity. In addition, because adjusted EBITDA is not calculated
identically by all companies, the presentation here may not be comparable to
other similarly titled measures of other companies. Management's discretionary
use of funds depicted by adjusted EBITDA may be limited by working capital, debt
service and capital expenditure requirements and by restrictions related to
legal requirements, commitments and uncertainties.
NOTE I: Adjusted EBITDA margin represents adjusted EBITDA as a
percentage of revenues.
18
<PAGE> 19
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1999
---------------------------------------------------------------------------------------------
HISTORICAL RECENT FALCON OFFERING
CHARTER ACQUISITIONS ACQUISITION ADJUSTMENTS
COMMUNICATIONS, INC. (NOTE A) SUBTOTAL (NOTE A) (NOTE B) TOTAL
-------------------- -------- -------- -------- -------- -----
(DOLLARS IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 434,183 $ (392,367) $ 41,816 $ 4,196 $ 3,015,498 $ 3,061,510
Accounts receivable, net........ 48,470 2,230 50,700 16,236 -- 66,936
Prepaid expenses and other...... 27,374 920 28,294 30,422 -- 58,716
-------------- ---------- ------------ ----------- ------------- ------------
Total current assets......... 510,027 (389,217) 120,810 50,854 3,015,498 3,187,162
Property, plant and equipment... 2,279,489 145,949 2,425,438 549,476 -- 2,974,914
Franchises...................... 8,268,021 771,585 9,039,606 3,084,626 -- 12,124,232
Other assets.................... 177,654 (51,882) 125,772 3,387 25,087 154,246
Total assets................. $ 11,235,191 $ 476,435 $ 11,711,626 $ 3,688,343 $ 3,040,585 $ 18,440,554
============== ========== ============ =========== ============= ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Short-term debt................. $ 133,312 $ -- $ 133,312 $ 1,207,848 $ (701,272) $ 639,888
Accounts payable
and accrued expenses......... 380,530 11,441 391,971 147,949 -- 539,920
Pending acquisition payable..... -- -- -- 1,276,372 (1,276,372) --
Payables to manager of cable
systems...................... 10,071 -- 10,071 -- -- 10,071
Total current liabilities.... 523,913 11,441 535,354 2,632,169 (1,977,644) 1,189,879
Long-term debt.................. 6,244,632 464,994 6,709,626 1,012,750 726,359 8,448,735
Deferred management fees........ 17,004 -- 17,004 -- -- 17,004
Other long-term liabilities..... 68,648 -- 68,648 -- -- 68,648
Minority interest............... 4,380,192 -- 4,380,192 -- 1,031,675 5,411,867
Stockholders' equity............ 802 -- 802 43,424 3,260,195 3,304,421
-------------- ---------- ------------ ----------- ------------- ------------
Total liabilities
and stockholders' equity.. $ 11,235,191 $ 476,435 $ 11,711,626 $ 3,688,343 $ 3,040,585 $ 18,440,554
============== ========== ============ =========== ============= ============
</TABLE>
19
<PAGE> 20
NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET
NOTE A: Pro forma balance sheets for our recently completed InterMedia
Systems and the Falcon acquisitions consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------------------------------------------------------------------------------
INTERMEDIA SYSTEMS ACQUISITION FALCON ACQUISITION
------------------------------------------------------- -----------------------------------------
PRO FORMA PRO FORMA
--------------------------------------------- ---------------------------
HISTORICAL DISPOSITIONS(A) ADJUSTMENTS TOTAL HISTORICAL ADJUSTMENTS TOTAL
---------- ---------------- ----------- ----- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents...... $ - $ (4,819) $(387,548)(b) $ (392,367) $ 4,196 $ - $ 4,196
Accounts receivable, net....... 14,971 (1,590) (11,151)(c) 2,230 16,236 - 16,236
Receivable from related party.. 7,966 - (7,966)(d) - 2,414 (2,414)(d) -
Prepaid expenses and other..... 1,286 (366) - 920 30,422 - 30,422
-------- --------- --------- ----------- ------- ---------- ----------
Total current assets......... 24,223 (6,775) (406,665) (389,217) 53,268 (2,414) 50,854
Property, plant and equipment.. 228,676 (82,727) - 145,949 549,476 - 549,476
Franchises..................... 214,182 (334,137) 891,540 (e) 771,585 372,322 2,712,304 (e) 3,084,626
Deferred income taxes.......... 15,279 - (15,279)(f) - - - -
Other assets................... 544 (424) (52,002)(g) (51,882) 434,163 (430,776)(g) 3,387
-------- --------- --------- ----------- ----------- ---------- ----------
Total assets................. $482,904 $(424,063) $ 417,594 $ 476,435 $ 1,409,229 $2,279,114 $3,688,343
======== ========= ========= =========== =========== ========== ==========
Short-term debt................ $ - $ - $ - $ - $ - $1,207,848 (i) $1,207,848
Accounts payable and accrued
expenses..................... 15,504 (4,063) - 11,441 147,949 - 147,949
Current deferred revenue....... 11,151 - (11,151)(c) - - - -
Note payable to related party.. 2,265 - (2,265)(h) - - - -
Pending acquisition payable.... - - - - - 1,276,372 (i) 1,276,372
Other current liabilities...... - - - - - - -
-------- --------- --------- ----------- ----------- ---------- ----------
Total current liabilities.... 28,920 (4,063) (13,416) 11,441 147,949 2,484,220 2,632,169
Deferred revenue............... 3,583 - (3,583)(c) - - - -
Long-term debt................. - (420,000) 884,994 (i) 464,994 1,681,454 (668,704)(i) 1,012,750
Note payable to related party,
including accrued interest... 406,975 - (406,975)(h) - - - -
Other long-term liabilities,
including redeemable
preferred shares............. 14,934 - (14,934)(j) - 424,280 (424,280)(j) -
Equity (deficit)............... 28,492 - (28,492)(k) - (844,454) 887,878 (k) 43,424
-------- --------- --------- ----------- ----------- ---------- ----------
Total liabilities and equity
(deficit).................. $482,904 $(424,063) $ 417,594 $ 476,435 $ 1,409,229 $2,279,114 $3,688,343
======== ========= ========= =========== =========== ========== ==========
</TABLE>
(a) Represents the historical assets and liabilities as of September 30,
1999 of cable systems transferred to InterMedia on October 1, 1999 and
one Indiana cable system we are required to transfer to InterMedia as
part of a swap of cable systems. The cable system being swapped will
be accounted for at fair value. No material gain or loss is
anticipated in conjunction with the swap.
(b) Represents Charter Communications, Inc.'s historical cash used to
finance a portion of the InterMedia acquisition.
(c) Represents the offset of advance billings against accounts receivable
to be consistent with Charter Communications, Inc.'s accounting policy
and the elimination of deferred revenue.
(d) Reflects assets retained by the seller.
(e) Substantial amounts of the purchase price have been allocated to
franchises based on estimated fair values. This results in an
allocation of purchase price as follows (dollars in thousands):
<TABLE>
<CAPTION>
INTERMEDIA
SYSTEMS FALCON TOTAL
------- ------ -----
<S> <C> <C> <C>
Working capital................................................... $ (13,110) $ (97,095) $ (110,205)
Property, plant and equipment..................................... 145,949 549,476 695,425
Franchises........................................................ 771,585 3,084,626 3,856,211
Other............................................................. (424) 3,387 2,963
------------ ------------- --------------
$ 904,000 $ 3,540,394 $ 4,444,394
============ ============= ==============
</TABLE>
20
<PAGE> 21
The sources of cash for the InterMedia Systems and Falcon acquisitions
are as follows (dollars in millions):
<TABLE>
<S> <C> <C> <C>
Current liabilities:
8% liability to sellers--Falcon.................................... $ 506.6
Publicly held debt, at fair market value:
8.375% senior debentures--Falcon............................... 378.8
9.285% senior discount debentures--Falcon...................... 322.5 $ 1,207.9
-------------
Long-term liabilities:
Credit facilities drawn down upon close of
acquisition - CC VII-Falcon.................................... 1,012.8
Credit facilities drawn down--Charter
Operating...................................................... 903.9 1,916.7 $ 3,124.6
------------- -------------
Funded equity contributions:
Net proceeds related to Initial Public Offering.................... 1,276.4
Falcon sellers' equity put to Mr. Allen............................ 43.4
-------------
$ 4,444.4
=============
</TABLE>
(f) Represents the elimination of deferred income tax assets and
liabilities.
(g) Represents the elimination of the unamortized historical cost of
various assets based on the allocation of purchase price (see (e)
above) as follows (dollars in thousands):
<TABLE>
<S> <C>
Subscriber lists........................................................................ $ (208,716)
Noncompete agreements................................................................... (5,869)
Deferred financing costs................................................................ (23,578)
Goodwill................................................................................ (291,287)
Other assets............................................................................ (56,931)
--------------
(586,381)
Less-accumulated amortization........................................................... 103,603
--------------
$ (482,778)
==============
(h) Represents liabilities retained by the seller.
(i) Represents the following (dollars in millions):
Long-term debt not assumed.............................................................. $ (759.2)
Helicon notes (called).................................................................. (115.0)
Rifkin notes (tendered)................................................................. (125.0)
Falcon debentures (to be put)........................................................... (701.3)
--------------
Total pro forma debt not assumed.................................................. (1,700.5)
Short-term debt:
8% liability to sellers--Falcon ..................................................... 506.6
8.375% senior debentures--Falcon..................................................... 378.8
9.285% senior discount debentures--Falcon............................................ 322.5
--------------
Total short-term debt........................................................... 1,207.9
Long-term debt:
Credit facilities:
Charter Operating................................................................. 903.9
CC VII-Falcon..................................................................... 1,012.8
--------------
Total long-term debt................................................................. 1,916.7
Pending acquisition payable............................................................. 1,276.4
--------------
$ 2,700.5
==============
</TABLE>
21
<PAGE> 22
The liabilities to the Falcon and Rifkin sellers represent the
potential obligations to repurchase equity interests issued to the sellers
arising from possible violations of the Securities Act in connection with the
issuance of equity interests to these sellers. The pending acquisition payable
represents a portion of the purchase price of the Falcon acquisition funded by a
portion of the proceeds of the Initial Public Offering.
(j) Represents the elimination of historical liabilities retained by the
seller and the elimination of Falcon's historical redeemable preferred
shares.
(k) Represents the elimination of historical deficit of $816.0 million
related to the Falcon and InterMedia transfers.
NOTE B: Offering adjustments represent the issuance and sale by Charter
Communications, Inc. of Class A common stock for net proceeds of $3.5 billion,
the issuance and sale by Charter Communications Holding Company of a the January
2000 High Yield Notes used to repurchase the Falcon debentures, and the addition
to other assets of a portion of the estimated expenses paid in connection with
the issuance and sale of the the January 2000 High Yield Notes which were
capitalized and will be amortized over the term of the related debt. The excess
cash recorded in the pro forma balance sheet represents proceeds from the sale
of common stock which was later used to finance a portion of the purchase of
Avalon and Fanch and will be used to finance a portion of the purchase of
Bresnan. Also included as an offering adjustment is the effect of consolidating
Charter Communications Holding Company into Charter Communications, Inc., using
historical carrying values based on Charter Communications, Inc.'s purchase of
membership units, in Charter Communications Holding Company. This results in the
$5.4 billion of members' equity in Charter Communications Holding Company
becoming minority interest in the consolidated balance sheet of Charter
Communications, Inc.
<TABLE>
<S> <C>
Minority interest is calculated as follows (dollars in thousands):
Charter Communications Holding Company historical member's equity................. $ 4,380,994
Proceeds from Initial Public Offering............................................. 4,291,870
--------------
Pro forma members' equity.................................................... 8,672,864
Minority interest percentage................................................. 62.4%
--------------
Minority interest............................................................... $ 5,411,867
==============
</TABLE>
Certain equity interests in Charter Communications Holding Company are
exchangeable into common stock of Charter Communications, Inc. We assume no such
equity interests have been exchanged. If all equity holders (other than Charter
Communications, Inc.) in Charter Communications Holding Company exchanged all of
their units for common stock, total stockholders' equity would increase by $5.4
billion and minority interest would decrease by $5.4 billion.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Charter Communications, Inc. has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
CHARTER COMMUNICATIONS, INC.,
registrant
Dated January 25, 2000 By: /s/ KENT D. KALKWARF
---------------------------------------------------
Name: Kent D. Kalkwarf
Title: Senior Vice President and Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)
23
