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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
1934 (NO FEE REQUIRED)
For the transition period from to
COMMISSION FILE NUMBER 33-57471
CONTINENTAL CABLEVISION, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 04-2370836
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
THE PILOT HOUSE
LEWIS WHARF
BOSTON, MA
(Address of principal 02110
executive offices) (Zip Code)
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617-742-9500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.*___
The aggregate market value of the voting stock of the registrant held by
non-affiliates is not applicable as no public market for the voting stock of the
registrant exists.
The number of shares of Common Stock outstanding as of March 15, 1997 was
100 shares.
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* Not applicable in that the registrant is a wholly owned subsidiary of U S
WEST, Inc. The registrant meets the conditions set forth in General
Instruction J (1) (a) and (b) of Form 10-K and is filing this Form with the
reduced disclosure format.
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CONTINENTAL CABLEVISION, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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Item 1. Business (1).............................................................. 3
Item 2. Properties (1)............................................................ 9
Item 3. Legal Proceedings......................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders (2)................... 9
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PART II
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Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters................................................................. 10
Item 6. Selected Consolidated Financial Information (2)........................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations (2) (See "Management's Discussion").......................... 10
Item 8. Consolidated Financial Statements and Supplementary Data.................. 14
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.............................................................. 39
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PART III
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Item 10. Directors and Executive Officers of the Registrant (2).................... 39
Item 11. Executive Compensation (2)................................................ 39
Item 12. Security Ownership of Certain Beneficial Owners and Management (2)........ 39
Item 13. Certain Relationships and Related Transactions (2)........................ 39
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PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 39
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(1) Abbreviated pursuant to General Instruction J (2)
(2) Omitted pursuant to General Instruction J (2)
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PART I
ITEM 1. BUSINESS.
(A) DEVELOPMENT OF BUSINESS.
Continental Cablevision, Inc. (the "Company" or "Continental", which
includes its consolidated subsidiaries unless the context indicates otherwise)
is a leading provider of broadband communications services. As of December 31,
1996, the Company's cable television systems and those of its U.S. affiliates
passed approximately 7.4 million homes and provided service to approximately 4.4
million basic cable subscribers, making the Company the third-largest cable
television system operator in the United States. In addition, Continental has
pursued investments in sectors that are complementary to its core business,
including interests in (i) international broadband communications; (ii)
telecommunications and technology, including competitive-access telephony and
direct broadcast satellite ("DBS") service; and (iii) programming services.
On November 15, 1996 (the "Merger Date"), Continental (the "Predecessor
Corporation") merged with and into Continental Merger Corporation, a wholly
owned subsidiary of U S WEST, Inc. ("U S WEST"), (the "Merger"). Continental
Merger Corporation changed its name to Continental Cablevision, Inc. (the
"Successor Corporation") on the Merger Date. The "Company" or "Continental"
refers to both the Successor Corporation and the Predecessor Corporation.
Continental is one of the multimedia businesses of U S WEST and is a member
of the U S West Media Group (the "Media Group"). The Media Group is comprised
of: (i) cable and telecommunications network businesses outside of the
Communications Group fourteen state region, (ii) domestic and international
wireless communications network businesses and (iii) domestic and international
directory and information services businesses. Media Group is one of two major
groups that make up U S WEST. The other major group, the Communications Group,
provides telecommunications services in fourteen western and midwestern states.
See the Notes to Consolidated Financial Statements for additional information
related to the Merger.
(B) DESCRIPTION OF BUSINESS.
U.S. CABLE TELEVISION BUSINESS
The Predecessor Corporation was incorporated in the State of Delaware in
1963 and has been providing cable television services since its inception.
Cable television is a service that delivers a wide variety of channels of
television programming, consisting primarily of video entertainment, sports and
news, as well as informational services, locally originated programming and
digital audio programming, to the homes of subscribers who pay a monthly fee for
the service. Television and radio signals are received by off-air antennas,
microwave relay systems, satellite earth stations and fiber-optic cables and
then distributed to subscribers' homes over networks of coaxial and fiber-optic
cables.
A customer generally pays an initial installation charge and fixed monthly
fees. Such monthly service fees constitute Continental's primary source of
revenues. In addition to these monthly revenues, Continental's systems currently
generate revenues from additional fees paid by customers for pay-per-view
programming of movies and special events and from the sale of available
advertising spots on advertiser-supported programming. Continental's systems
also offer home shopping services, from which Continental receives a share of
revenues from sales of merchandise in its service areas.
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The following table sets forth operating information pertaining to
Continental's U.S. systems as of December 31, 1996.
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HOMES NUMBER OF NUMBER OF
PASSED BASIC BASIC PREMIUM PREMIUM
CCI MANAGEMENT REGIONS BY CABLE SUBSCRIBERS PENETRATION SUBSCRIPTIONS PENETRATION
- ----------------------------------------------- ---------- ----------- ------------- ------------ -------------
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Northeast Region............................... 1,593,378 1,150,394 72.2% 866,782 75.3%
Western Region................................. 2,091,910 920,274 44.0% 894,398 97.2%
Southeast Region............................... 1,257,734 786,253 62.5% 621,256 79.0%
Midwest Region................................. 1,030,766 702,977 68.2% 551,715 78.5%
Central Region................................. 1,291,726 715,978 55.4% 616,917 86.2%
---------- ----------- --- ------------ ---
Consolidated Systems........................... 7,265,514 4,275,876 58.9% 3,551,068 83.1%
Affiliated Companies (1)....................... 138,056 78,411 56.8% 46,882 59.8%
---------- ----------- --- ------------ ---
Total...................................... 7,403,570 4,354,287 58.8% 3,597,950 82.6%
---------- ----------- --- ------------ ---
---------- ----------- --- ------------ ---
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(1) Affiliated Companies are those companies not majority-owned or controlled by
the Company. The systems held by Affiliated Companies consist of systems
held by three limited partnerships. The Company owns less than 50% of the
outstanding limited partnership interests of each such partnership. None of
the systems owned by Affiliated Companies are managed by the Company. In
reporting subscriber and other data for systems not controlled or managed by
the Company, only that portion of data corresponding to the Company's
percentage ownership is included.
During 1996, the Predecessor Corporation acquired the non-owned interests
in, and assumed certain liabilities of, Meredith/New Heritage Strategic
Partners, L.P. ("M/NH") for approximately $219,200,000. M/NH operates cable
systems in the Minneapolis/St. Paul area. The Predecessor Corporation also
purchased a small cable television system in California. In addition, the
Predecessor Corporation exchanged certain of its cable systems in and around St.
Louis County, Missouri for systems serving certain Massachusetts communities. In
1997, the Successor Corporation also obtained cable systems serving certain
Massachusetts communities in exchange for certain of its cable systems in
Virginia and Rhode Island. See the Notes to Consolidated Financial Statements
for additional information.
During 1995, the Predecessor Corporation purchased certain cable television
systems in Chicago, California and Michigan. The Predecessor Corporation also
acquired the cable television systems of the Providence Journal Company
("Providence Journal Merger") and purchased the non-owned interests in, and
discharged certain liabilities of, N-Com Limited Partnership II. See the Notes
to Consolidated Financial Statements for additional information.
As a result of the Merger, the Company is required by the Federal
Communications Commission ("FCC") to divest the cable television systems located
in the Communications Group telephone service territory. The Company may sell or
trade these systems for cable television systems in other geographic locations.
No assurances can be provided as to how these systems will be divested, and
accordingly, the Company continues to include these systems in its results of
operations in the accompanying consolidated financial statements.
INVESTMENTS
The Company owns a 10.4% interest in PrimeStar Partners, L.P. ("PrimeStar")
and acts as a local distributor of PrimeStar's DBS service. PrimeStar provided
DBS service to approximately 1.6 million customers nationwide as of December 31,
1996. PrimeStar acts as a wholesaler of DBS services, providing programming and
satellite transmission services to local distributors, including Continental and
its other cable partners, who in turn sell to, service, and collect monthly fees
from consumers. Continental served
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approximately 138,000 of PrimeStar's customers as of December 31, 1996. See the
Notes to Consolidated Financial Statements for additional information.
The Company also owns an interest in Teleport Communications Group ("TCG").
TCG and its affiliates are telecommunications companies which operate
fiber-optic networks in the United States. In July, 1996, TCG consummated an
initial public offering ("IPO") of shares of its common stock. In conjunction
with the IPO, TCG implemented a plan of reorganization and redeemed a portion of
the Predecessor Corporation's shares of TCG common stock. As a result of the
reorganization, the IPO and the redemption, the Company's economic interest in
TCG was approximately 11% as of December 31, 1996. In addition, as a result of
the Merger, U S WEST is required to dispose of its remaining interest in TCG by
December 31, 1998. See the Notes to Consolidated Financial Statements for
additional information.
Continental has also made investments in international broadband
communications networks, principally in Latin America and the Pacific Rim.
Continental owns an approximate 50% interest in Fintelco, S.A., one of the
largest cable television operators in Argentina, with subscribers in regional
system clusters in the Argentine provinces of Buenos Aires, Cordoba and Santa
Fe. In addition, Continental has a 25% equity interest in Singapore Cablevision
Pte Ltd ("SCV"), a joint venture that is constructing a high-capacity network to
provide cable television and a variety of interactive services to substantially
all of Singapore's households. Continental also has a 46.5% interest in Optus
Vision Pty Ltd, a joint venture which is providing cable television services to
customers in Australia's major markets. See the Notes to Consolidated Financial
Statements for additional information.
COMPETITION
CABLE TELEVISION COMPETITION. Continental's systems compete with other
communications and entertainment media, including conventional off-air
television broadcasting services, newspapers, movie theaters, live sporting
events and home video products. The extent to which cable television service is
competitive depends upon a cable television system's ability to provide, on a
cost-effective basis, a greater variety of programming than that available
off-air or through other alternative delivery sources.
In recent years, the FCC has initiated new policies and authorized new
technologies to provide a more favorable operating environment for certain
existing technologies and to create substantial additional competition to cable
television systems. These technologies include, among others, DBS services,
which transmit signals by satellite to receiving facilities located on
customers' premises. Cable television systems also may compete with wireless
program distribution services such as multi-channel, multi-point distribution
services ("MMDS"), which are licensed to serve specific areas. MMDS uses
low-power microwave frequencies to transmit television programming over-the-air
to subscribers.
Additional competition may come from satellite master antenna television
("SMATV") systems serving condominiums, apartment complexes and other private
residential developments. The operators of these private systems often enter
into exclusive agreements with apartment building owners or homeowners'
associations that preclude operators of franchised cable television systems from
serving residents of such private complexes.
The Company believes that as a result of its investment in technologically
advanced systems, it is well-positioned to offer new services such as on-line
services, data communications and telephony. Continental believes that the
ability to offer interactive services over a high-capacity, two-way network
provides a distinct competitive advantage over DBS and MMDS, which are currently
one-way services.
TELEPHONY COMPETITION. Local Exchange Carriers ("LECs") currently dominate
the two-way switched voice and data market. The LECs provide a full-range of
local telecommunications services and equipment to customers as well as
origination and termination access to their local networks to inter-exchange
carriers ("IXCs") and mobile radio service providers. Prior to enactment of the
Telecommunications Act of 1996
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(the "1996 Telecommunications Act"), the LECs had an exclusive franchise to
provide telephone service in many states. Consequently, the LECs have
established relationships with their customers and provide those customers with
various transmission and switching services that other potential
telecommunications service providers have not been permitted to offer.
The 1996 Telecommunications Act removed barriers to entry in the local
telephone market by preempting state and local laws that restrict competition
between cable companies, local telephone companies and IXC's. The 1996
Telecommunications Act also lifted the ban on cross-ownership between cable
television and telephone companies, thereby permitting the LECs to enter into
the cable business within their respective service regions so long as such entry
is not achieved through the purchase of existing cable companies, except in
rural communities. Continental is responding to this potential competition by
rebuilding and upgrading its U.S. systems to create advanced hybrid fiber-optic
and coaxial cable networks that will serve as the infrastructure for the
provision of enhanced video, high-speed data, telephony and other
telecommunications services.
LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies may materially affect the cable television
industry. The following is a summary of federal laws and regulations affecting
the growth and operation of the cable television industry and a description of
certain state and local laws.
The Cable Communications Policy Act of 1984 ("The 1984 Cable Act") created
uniform national standards and guidelines for the regulation of cable television
systems. Among other things, the 1984 Cable Act affirmed the right of
franchising authorities (state or local, depending on the practice in individual
states) to award one or more franchises within their jurisdictions. In
connection with new franchises, the 1984 Cable Act provided that in granting or
renewing franchises, franchising authorities may establish requirements for
cable-related facilities and equipment, but may not establish or enforce
requirements for video programming or information services other than in broad
categories. The 1996 Telecommunications Act preempted the ability of franchising
authorities to impose any oversight of cable operators' technical standards.
In October 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act") which amended the 1984 Cable
Act in many respects. The 1992 Cable Act allowed for a greater degree of
regulation of the cable industry with respect to, among other things: (i) cable
system rates for both the Basic Service Tier ("BST") and certain Cable
Programming Service ("CPS") tiers; (ii) programming access and exclusivity
arrangements; (iii) access to cable channels by unaffiliated programming
services; (iv) leased-access terms and conditions; (v) horizontal and vertical
ownership of cable systems; and (vi) subscription to tiers of service other than
the BST as a condition of purchasing premium services. Additionally, the 1992
Cable Act encouraged competition with existing cable television systems by:
allowing municipalities to own and operate their own cable television systems
without a franchise; preventing franchising authorities from granting exclusive
franchises or unreasonably refusing to award additional franchises covering an
existing cable system's service area; and prohibiting the common ownership of
cable systems and co-located MMDS or SMATV systems. The 1992 Cable Act also
precluded video programmers affiliated with cable television companies from
favoring cable operators over competitors and required such programmers to sell
their programming to other multi-channel video distributors.
As noted above, the 1996 Telecommunications Act was enacted into law in
February 1996. The 1996 Telecommunications Act modified various provisions of
the Communications Act of 1934, the 1984 Cable Act and the 1992 Cable Act, with
the intent of establishing a pro-competitive, deregulatory policy framework for
both video and telecommunications services. Continental at this time cannot
predict the full
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effect that the 1996 Telecommunications Act or the FCC implementing regulations
may have on its operations.
FCC REGULATION. The FCC is the principal federal agency with jurisdiction
over cable television. The FCC has promulgated regulations covering such areas
as the registration of cable television systems, cross-ownership between cable
television systems and other communications businesses, carriage of television
broadcast programming and the regulation of basic cable service rates in areas
where cable television systems are not subject to effective competition. The FCC
has the authority to enforce these regulations through the imposition of
substantial fines, the issuance of cease and desist orders and/or the imposition
of other administrative sanctions, such as the revocation of FCC licenses needed
to operate certain transmission facilities often used in connection with cable
operations.
RATE REGULATION. The 1992 Cable Act authorized the FCC to, among other
things, set standards for governmental authorities to regulate the rates for
certain cable television services and equipment and gave local broadcast
stations the option to elect mandatory carriage or require retransmission
consent.
Pursuant to authority granted under the 1992 Cable Act, the FCC in April
1993 promulgated rate regulations that established maximum allowable rates for
cable television services, except for services offered on a per-channel or
per-program basis. In February 1994, the FCC adopted a revised regulatory scheme
which included, among other things, interim cost-of-service standards and a new
benchmark formula to determine certain service rates. In creating the new
benchmark formula, the FCC mandated a further reduction in rates for certain
regulated services. Final cost-of-service rules were adopted in January 1996.
The FCC has issued a series of new rules covering such issues as increases
for inflation and external costs and the addition of new channels to regulated
CPS tiers (the "Going Forward Rules"); rules permitting a single annual rate
increase and allowing operators to anticipate twelve months of inflation and
known increases in external costs, while providing for an adjustment of costs
after twelve months; abbreviated cost-of-service rules for network upgrades; and
rules that limit the FCC's review of CPS-tier rates to the amount of the
increase only, thereby grandfathering all rates that were unregulated prior to
November 1995. The FCC has also proposed to allow cable operators to decrease
BST rates and increase CPS-tier rates to offset the lost revenue on the BST.
The FCC also publicly announced that it would consider "social contracts" as
an alternative form of rate regulation for cable operators. Continental's Social
Contract with the FCC was adopted by the FCC on August 3, 1995. The Social
Contract settled all of Continental's pending cost-of-service rate cases and all
of its benchmark CPS-tier rate cases. Benchmark BST cases will be resolved by
Continental and local franchise authorities. Under the Social Contract
Amendment, which was adopted on August 21, 1996 and incorporated the systems
acquired in the Providence Journal Merger and other recent acquisitions into the
Social Contract, CPS-tier rates may be increased by $1.00 per year per
subscriber plus inflation and allowable external costs. BST rates may increase
by inflation and external costs. The amended Social Contract governs
Continental's future rates. The Social Contract also provides for its
termination in the future if the laws and regulations applicable to services
offered in any Continental franchise change in a manner that would have a
material favorable financial impact on Continental. In that instance, the
Company may petition the FCC to terminate the Social Contract.
The 1996 Telecommunications Act, which provides for the deregulation of
CPS-tier rates after March 31, 1999, permits regulated equipment rates to be
computed by aggregating costs of broad categories of equipment at the franchise,
system, regional or Company level. The 1996 Telecommunications Act also
eliminated the right of individual subscribers to file rate complaints with the
FCC concerning CPS tiers, and instead requires that such complaints be filed by
a franchising authority.
The 1992 Cable Act provided that all rate regulation, for both the CPS tiers
and for the BST, is eliminated when a cable system is subject to "effective
competition" from another multi-channel video
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programming provider such as MMDS, DBS or a telephone company. The 1996
Telecommunications Act expanded the definition of "effective competition" to
include instances in which a local telephone company or its affiliate (or a
multi-channel video programming distributor using the facilities of a telephone
company or its affiliate) offers comparable video programming directly to
subscribers by any means (other than DBS) in the cable operator's franchise
area. Since telephone companies are providing or planning to provide video
services in several of Continental's franchise areas, this provision will allow
the Company greater flexibility in packaging and pricing its product in those
markets. The 1996 Telecommunications Act also eliminated the uniform rate
structure requirements of the 1992 Cable Act for cable operators in areas
subject to "effective competition" or as applied to video programming offered on
a per-channel or per-program basis and allowed non-uniform bulk discount rates
to be offered to multiple dwelling units.
The FCC also has adopted regulations in connection with its cost-of-service
proceedings which govern programming charges for affiliated entities. The cost
of programming to affiliated entities must be the prevailing company price,
based on the sale of programming to third parties, or a price equal to the lower
of the programming service's net book cost and its estimated fair market value.
The 1996 Telecommunications Act repealed the statutory ban on
cable-broadcast station cross-ownership to permit common ownership or control of
a television station and a cable system with overlapping service areas. The 1996
Telecommunications Act left in place, however, the cable system-television
station cross-ownership restriction contained in the FCC's rules and did not
mandate an outcome for the FCC's review of the regulation, which will occur this
year. The 1996 Telecommunications Act also directed the FCC to revise its
existing regulations concerning broadcast network-cable cross-ownership to
permit common control of both a television network and a cable system. The 1996
Telecommunications Act also removed the statutory ban on cable-MMDS
cross-ownership by any cable operator in a franchise area where one cable
operator is subject to "effective competition".
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number of
cable systems which a single cable operator can own. In general, no cable
operator can have an attributable interest in cable systems which pass more than
30% of all homes nationwide. Attributable interests for these purposes include
voting interests of 5% or more (unless there is another single holder of more
than 50% of the voting stock), officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of these rules
pending the outcome of the appeal from the United States District Court decision
holding the multiple-ownership limit provision of the 1992 Cable Act
unconstitutional.
The FCC has also adopted rules which limit the number of channels on a cable
system which may be occupied by programming in which the entity which owns the
cable system has an attributable interest to 40% of all activated channels.
OTHER MATTERS. The FCC has adopted requirements for payment of annual
"regulatory fees." Cable television systems were required to pay regulatory fees
of $0.37 per subscriber, which, may be passed on to subscribers as "external
cost" adjustments to rates for basic cable service. This amount was increased to
$0.49 per subscriber in 1995 and $0.55 per subscriber in 1996. The FCC has
proposed maintaining the $0.55 per subscriber fee for 1997. Fees are also
assessed for other licenses, including licenses for business radio and cable
television-relay systems and earth stations, which, however, may not be
collected directly from subscribers. Beginning in 1995, no fee is assessed for
receive-only, cable-earth stations.
STATE AND LOCAL REGULATIONS. Because cable television systems use local
streets and rights-of-way, cable television systems are subject to state and
local regulation, typically imposed through the franchising process. State
and/or local officials are usually involved in franchise selection, system
design and construction, safety, service rates, consumer relations, billing
practices and community-related programming and services.
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ITEM 2. PROPERTIES.
The Company's principal physical assets consist of cable television systems,
including signal receiving, encoding and decoding apparatus, headends,
distribution systems, and subscriber house-drop equipment for each of its
systems. The signal receiving apparatus typically includes a tower, antenna,
ancillary electronic equipment, and earth stations for reception of satellite
signals. Headends, consisting of associated electronic equipment necessary for
the reception, amplification and modulation of signals, are located near the
receiving devices. The Company's distribution systems consist of coaxial and
fiber-optic cables and related electronic equipment. Subscriber equipment
consists of taps, house drops, converters, analog addressable converters and
remote controls. The Company owns its distribution system, various office and
studio fixtures, test equipment and service vehicles. The physical components of
Continental's systems require maintenance and periodic upgrading to keep pace
with technological advances.
The Company's coaxial and fiber-optic cables are generally attached to
utility poles under pole-rental agreements with local public utilities, although
in some areas the distribution cable is buried in underground ducts or trenches.
The FCC regulates pole-attachment rates under the Federal Pole Attachments Act.
The Company owns or leases parcels of real property for signal reception
sites (antenna towers and headends), microwave facilities and business offices.
The Company owns the building which houses its headquarters in Boston,
Massachusetts. The Company believes its properties, both owned and leased, are
in good operating condition and are suitable and adequate for its business
operations.
As a result of the Merger, the Company is required by the FCC to divest
itself of cable television systems located in the Communications Group telephone
service territory. The Company may sell or trade these systems for cable
television systems in other geographic locations. No assurances can be provided
as to how these systems will be divested, and accordingly, the Company continues
to include these systems in its results of operations in the accompanying
consolidated financial statements.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various lawsuits and administrative proceedings.
The relief sought in such lawsuits and proceedings include injunctions, damages
and penalties. Although the final results in these suits and proceedings cannot
be predicted with certainty, it is the present opinion of management, after
consulting with legal counsel, based on the Company's financial position and the
information available to date, that they will not have a material effect on the
Company's financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Intentionally Omitted.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
No established public trading market exists for the Successor Corporation's
common stock, and accordingly, no high and low bid information or quotations are
available with respect to the Successor Corporation's common stock. All of the
common shares outstanding as of December 31, 1996 are held by U S WEST.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION.
Intentionally Omitted.
ITEM 7. MANAGEMENT'S DISCUSSION
Continental Cablevision, Inc. ("Continental") is a leading provider of
broadband communications services. Continental's operations consist primarily of
U.S. cable television systems with complementary operations and investments in:
(i) international broadband communications; (ii) the telecommunications and
technology industries, including companies offering competitive-access telephony
and Direct Broadcast Satellite ("DBS") service; and (iii) programming services.
Substantially all of Continental's revenues are earned from customer fees
for basic cable programming and premium cable television services, the rental of
converters and remote control devices, and cable installation fees. Additional
revenues are generated by the sale of advertising, pay-per-view programming
fees, DBS service and payments received as a result of revenue-sharing
agreements for products sold through home shopping networks.
Continental's business is subject to regulations, including recently enacted
federal laws and regulations. Such laws and regulations limit Continental's
ability to increase or restructure its rates for certain services. See
"Business--Description of Business--Legislation and Regulation" and the Notes to
Consolidated Financial Statements.
MERGER WITH U S WEST, INC.
On November 15, 1996 (the "Merger Date"), Continental (the "Predecessor
Corporation") merged with and into Continental Merger Corporation, a wholly
owned subsidiary of U S WEST, Inc. ("U S WEST"), (the "Merger"). Continental
Merger Corporation changed its name to Continental Cablevision, Inc. (the
"Successor Corporation") on the Merger Date. The "Company" and "Continental"
refer to both the Predecessor Corporation and the Successor Corporation.
Continental is one of the multimedia businesses of U S WEST and is a member
of the U S West Media Group (the "Media Group"). The Media Group is comprised
of: (i) cable and telecommunications network businesses outside of the
Communications Group fourteen state region, (ii) domestic and international
wireless communications network businesses and (iii) domestic and international
directory and information services businesses. Media Group is one of two major
groups that make up U S WEST. The other major group, the Communications Group,
provides telecommunications services in fourteen western and midwestern states.
See the Notes to Consolidated Financial Statements for additional information
related to the Merger.
As a result of the Merger, U S WEST is required by the United States
Department of Justice to dispose of its remaining interest in Teleport
Communications Group, Inc. (TCG), a telecommunications company which operates
fiber optic networks. U S WEST is also required by the Federal Communications
Commission to divest the cable television systems located in the Communications
Group telephone service
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territory. The Company may sell or trade these systems for cable television
systems in other geographic locations. No assurances can be provided as to how
these systems will be divested, and accordingly, the Company continues to
include these systems in its results of operations in the accompanying
consolidated financial statements.
The Company has no commitment to advance additional funds to Optus Vision
Pty Ltd ("Optus Vision"). U S WEST is pursuing the possible sale or
restructuring of the Company's interest in Optus Vision. In conjunction with U S
WEST's preliminary allocation of the purchase price related to the Merger, no
amount has currently been allocated by U S WEST to the Company's investment in
Optus Vision. The results of any sale or restructuring will be considered in the
final determination of fair value.
The Merger resulted in a new basis of accounting and, as a result, the
Consolidated Financial Statements of the Predecessor Corporation are not
necessarily comparable with that of the Successor Corporation.
ACQUISITIONS
During 1996, the Predecessor Corporation acquired the non-owned interests
in, and assumed certain liabilities of, Meredith/New Heritage Strategic
Partners, L.P. ("M/NH") for approximately $219,200,000. M/NH operates cable
systems in the Minneapolis/St. Paul area. The Predecessor Corporation also
purchased a small cable television system in California. In addition, the
Predecessor Corporation exchanged certain of its cable systems in and around St.
Louis County, Missouri for systems serving certain Massachusetts communities. In
1997, the Successor Corporation also obtained cable systems serving certain
Massachusetts communities in exchange for certain of its cable systems in
Virginia and Rhode Island. See the Notes to Consolidated Financial Statements
for additional information.
During 1995, the Predecessor Corporation purchased certain cable television
systems in Chicago, California and Michigan. The Predecessor Corporation also
acquired the cable television systems of the Providence Journal Company
("Providence Journal Merger") and purchased the non-owned interests in, and
discharged certain liabilities of, N-Com Limited Partnership II. See the Notes
to Consolidated Financial Statements for additional information.
RESULTS OF OPERATIONS
The following table sets forth certain financial and non-financial
information for the Company.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED INCREASE (DECREASE)
DECEMBER 31,
-------------------------- ---------------------
<S> <C> <C> <C> <C>
1996 1995 $ %
------------ ------------ ---------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Basic cable service............................................. $ 1,360,104 $ 1,013,405 $ 346,699 34.2%
Premium cable service........................................... 315,511 269,069 46,442 17.3
Advertising..................................................... 103,571 73,389 30,182 41.1
Pay-per-view.................................................... 42,737 32,467 10,270 31.6
Other........................................................... 28,425 17,014 11,411 67.1
DBS............................................................. 68,878 37,048 31,830 85.9
------------ ------------ ---------- ---
Total......................................................... $ 1,919,226 $ 1,442,392 $ 476,834 33.1%
------------ ------------ ---------- ---
------------ ------------ ---------- ---
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
SUBSCRIBER DATA FOR U.S. CABLE SYSTEMS 1996 1995
- ---------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C> <C> <C>
Homes passed by cable................................................................... 7,404,000 7,191,000
Number of basic subscribers............................................................. 4,354,000 4,190,000
Basic penetration....................................................................... 58.8% 58.3%
Number of premium subscriptions......................................................... 3,598,000 3,770,000
Premium penetration..................................................................... 82.6% 90.0%
</TABLE>
TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1995. For purposes of this discussion, the twelve months ended
December 31, 1996 refers to the Predecessor Corporation for the period January
1, 1996 through November 14, 1996 combined with the Successor Corporation for
the period November 15, 1996 through December 31, 1996.
Revenues increased 33.1% (or $476.8 million) to $1,919.2 million. The
acquisition of cable television systems during 1995 and 1996 serving a total of
approximately 1,009,000 and 127,000 basic subscribers, respectively, as of the
acquisition dates, accounted for approximately $337.8 million of such revenue
increase. Excluding the effects of the foregoing acquisitions, revenues
increased 10.4% (or $139.0 million) as a result of an increase of approximately
2.0% in ending basic cable subscribers, an increase in cable revenue per average
basic subscriber and an increase in DBS service revenues. Excluding the
foregoing acquisitions and DBS-service revenues, monthly cable revenue per
average basic subscriber increased 5.7% from $36.28 to $38.35. The $2.07
increase in monthly cable revenue per average basic subscriber primarily
reflects the addition of new channels and increases in rates. The increase in
cable revenues (excluding the foregoing acquisitions and DBS service) also
includes an $18.6 million increase in advertising and home shopping revenues to
$102.1 million, a $3.1 million increase in pay-per-view revenues to $33.7
million and a $1.9 million decrease in premium cable service revenues. Revenues
from DBS service increased by $31.8 million to $68.9 million principally as a
result of a 73.8% increase in DBS-service customers to approximately 138,000 as
of December 31, 1996.
Operating, selling, general and administrative expenses increased 38.2% to
$1,156.7 million due to the foregoing acquisitions, the provision of DBS
service, increases in programming costs and wages, and increases in expenses
associated with the development of new businesses. Expenses associated with the
Restricted Stock Purchase Program ("RSPP") increased to $90.2 million from $12.0
million. Approximately $73.6 million of this increase reflects changes made in
connection with the Merger to both the repayment provisions of the RSPP-related
loans and the vesting requirements of the shares issued under the RSPP. See the
Notes to Consolidated Financial Statements.
Depreciation and amortization expenses increased 56.5% to $533.8 million due
to the foregoing acquisitions, increased levels of capital expenditures and an
increase in amortization expense of approximately $32.5 million resulting from
the Merger. Interest expense increased to $438.4 million as a result of an
increase in average debt outstanding prior to the Merger Date due to the
foregoing acquisitions and higher levels of capital expenditures and
investments. On the Merger Date, U S WEST repaid certain of the Company's
indebtedness which resulted in lower interest expense for the period November
15, 1996 through December 31, 1996. Equity in net loss of affiliates increased
from $70.4 million to $161.5 million primarily due to increasing losses from the
Company's investment in Optus Vision Pty Ltd., which continued its buildout of a
broadband network in Australia during 1996. The Company realized a gain of $68.9
million on the disposition of a portion of its equity method investment in TCG
and now accounts for its remaining shares of TCG as marketable equity
securities. Other (income) expense increased $31.4 million to $33.2 million
primarily due to expenses associated with the Merger.
The high level of depreciation and amortization expenses resulting from the
Company's capital expenditures, recent acquisitions and the Merger combined with
the interest costs related to financing activities have caused the Company to
report net losses. The Company believes that it will continue to
12
<PAGE>
generate significant losses as a result of the amortization of intangible assets
recorded in purchase accounting associated with the Merger and depreciation from
ongoing capital expenditures.
EBITDA. Based on its experience in the cable television industry, the
Company believes that earnings before interest, taxes, depreciation and
amortization ("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. EBITDA
should not be considered as an alternative to operating or net income (measured
in accordance with generally accepted accounting principles ("GAAP")) as an
indicator of the Company's performance or as an alternative to cash flows from
operating activities (measured in accordance with GAAP) as a measure of the
Company's liquidity. For the twelve months ended December 31, 1996, EBITDA
increased 26.0% to $762.5 million, as compared to the same period in 1995. DBS
service accounted for approximately $8.8 million and $4.3 million of EBITDA for
the twelve months ended December 31, 1996 and 1995, respectively.
13
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Independent Auditors' Report............................................................................... 15
Consolidated Balance Sheets as of December 31, 1995 and December 31, 1996.................................. 16
Statements of Consolidated Operations for the Twelve Months Ended December 31, 1994 and 1995, the period
January 1, 1996 through November 14, 1996 and the period November 15, 1996 through December 31, 1996..... 17
Statements of Consolidated Cash Flows for the Twelve Months Ended December 31, 1994 and 1995, the period
January 1, 1996 through November 14, 1996 and the period November 15, 1996 through December 31, 1996..... 18
Statements of Consolidated Stockholders' Equity (Deficiency) for the Twelve Months Ended December 31, 1994
and 1995 and the period January 1, 1996 through November 14, 1996........................................ 19
Statement of Consolidated Stockholder's Equity (Deficiency) for the period November 15, 1996 through
December 31, 1996........................................................................................ 20
Notes to Consolidated Financial Statements................................................................. 21
</TABLE>
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
Continental Cablevision, Inc.:
We have audited the accompanying consolidated balance sheet of Continental
Cablevision, Inc. (the "Company") as of December 31, 1996 and the related
consolidated statements of operations, changes in stockholder's equity, and cash
flows for the period November 15, 1996 (following the merger of the Company into
a wholly-owned subsidiary of U S WEST, Inc.) through December 31, 1996. We have
also audited the consolidated balance sheet of Continental Cablevision, Inc.
(the "Predecessor Corporation") as of December 31, 1995 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the twelve months ended December 31, 1994 and 1995, and the period
January 1, 1996 through November 14, 1996. Our audits also included the
financial statement schedule of the Company and the Predecessor Corporation
listed in the index as Item 14. These financial statements and financial
statement schedule are the responsibility of the Company and the Predecessor
Corporation management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, Continental Cablevision,
Inc. was acquired by
U S WEST, Inc. effective November 15, 1996. The transaction was accounted for
using the purchase method of accounting whereby the purchase price was allocated
to the assets acquired and liabilities assumed based on their respective fair
value. Accordingly, the balance sheet and the statements of operations, changes
in stockholders' equity and cash flows of the Predecessor Corporation for the
periods referred to in the first paragraph of this report are not comparable
with those presented for the Company.
In our opinion, such consolidated financial statements and financial
statement schedule present fairly, in all material respects, the financial
position of the Company as of December 31, 1996 and the results of their
operations and their cash flows for the period November 15, 1996 (following the
merger of the Company into a wholly-owned subsidiary of U S WEST, Inc.) through
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, the consolidated financial statements of the Predecessor
Corporation present fairly, in all material respects, the financial position of
the Predecessor Corporation at December 31, 1995 and the results of their
operations, and their cash flows for the twelve months ended December 31, 1994
and 1995, and the period January 1, 1996 through November 14, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the respective
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
As discussed in Note 2, in 1994 the Predecessor Corporation changed its
method of accounting for investments.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 12, 1997
15
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1995 1996
(PREDECESSOR) (SUCCESSOR)
------------- ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
ASSETS
- ----------------------------------------------------------------------
Cash.................................................................. $ 18,551 $ 36,407
Accounts Receivable--net.............................................. 110,132 120,596
Prepaid Expenses and Other............................................ 9,967 12,163
Supplies.............................................................. 88,687 125,264
Marketable Equity Securities.......................................... 151,378 715,367
Investments........................................................... 538,352 542,911
Property, Plant and Equipment--net.................................... 2,107,473 2,582,015
Intangible Assets--net................................................ 1,902,796 10,871,429
Other Assets--net..................................................... 153,257 52,437
------------- ------------
TOTAL......................................................... $ 5,080,593 $15,058,589
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
- ----------------------------------------------------------------------
Accounts Payable...................................................... $ 96,833 $ 114,955
Accrued Interest...................................................... 86,977 65,457
Accrued and Other Liabilities......................................... 238,343 277,723
Debt.................................................................. 5,285,159 2,845,981
Advances from U S WEST................................................ -- 86,174
Deferred Income Taxes................................................. 307,041 3,023,169
Minority Interest in Subsidiaries..................................... 26,056 18,358
Commitments and Contingencies.........................................
Redeemable Common Stock, $.01 par value; 16,684,150 shares outstanding
at December 31, 1995................................................ 256,135 --
Stockholders' Equity (Deficiency):
Predecessor:
Preferred Stock, $.01 par value; 198,857,142 shares authorized;
none outstanding at December 31, 1995............................ -- --
Series A Convertible Preferred Stock, $.01 par value; 1,142,858
shares authorized and outstanding at December 31, 1995;
liquidation preference--$527,578,000 at December 31, 1995........ 11 --
Class A Common Stock, $.01 par value; 425,000,000 shares
authorized; 38,780,694 shares outstanding at December 31, 1995... 388 --
Class B Common Stock, $.01 par value; 200,000,000 shares
authorized; 92,572,000 shares outstanding at December 31, 1995... 926 --
Additional Paid-in Capital........................................ 1,181,193 --
Unearned Compensation............................................. (45,851) --
Net Unrealized Holding Gains on Marketable Equity Securities...... 67,823 --
Deficit........................................................... (2,420,441) --
Successor:
Common Stock, $.01 par value; 100 shares authorized and
outstanding at December 31, 1996................................. -- --
Additional Paid-In Capital........................................ -- 8,666,031
Net Unrealized Holding Gains on Marketable Equity Securities...... -- 1,481
Deficit........................................................... -- (40,740 )
------------- ------------
Stockholders' Equity (Deficiency)............................... (1,215,951) 8,626,772
------------- ------------
TOTAL......................................................... $ 5,080,593 $15,058,589
------------- ------------
------------- ------------
</TABLE>
See Notes to Consolidated Financial Statements.
16
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD PERIOD
JANUARY 1, NOVEMBER15,
TWELVE MONTHS TWELVE MONTHS 1996 1996
ENDED ENDED THROUGH THROUGH
DECEMBER 31, DECEMBER 31, NOVEMBER 14, DECEMBER 31,
1994 1995 1996 1996
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
-------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues............................................. $ 1,197,977 $ 1,442,392 $1,667,018 $ 252,208
Costs and Expenses:
Operating........................................ 405,535 498,239 596,083 92,648
Selling, General and Administrative.............. 267,349 339,002 395,447 72,549
Depreciation and Amortization.................... 283,183 341,171 421,634 112,197
Restricted Stock Purchase Program................ 11,316 12,005 90,242 --
-------------- -------------- ------------ ------------
Total........................................ 967,383 1,190,417 1,503,406 277,394
-------------- -------------- ------------ ------------
Operating Income (Loss).............................. 230,594 251,975 163,612 (25,186)
-------------- -------------- ------------ ------------
Other (Income) Expense:
Interest......................................... 315,541 363,826 416,241 22,203
Equity in Net Loss of Affiliates................. 25,002 70,364 153,775 7,716
Gain on Sale of Marketable Equity Securities..... (1,204) (23,032) -- --
Gain on Sale of Investments...................... -- (1,035) (68,889) --
Minority Interest in Net Income (Loss) of
Subsidiaries................................... (205) (39) 34 211
Dividend Income.................................. (824) (715) (625) (118)
Other............................................ 1,279 2,542 33,128 793
-------------- -------------- ------------ ------------
Total........................................ 339,589 411,911 533,664 30,805
-------------- -------------- ------------ ------------
Loss Before Income Taxes and Extraordinary Item...... (108,995) (159,936) (370,052) (55,991)
Income Tax Benefit................................... 40,419 47,909 79,929 15,251
-------------- -------------- ------------ ------------
Loss Before Extraordinary Item....................... (68,576) (112,027) (290,123) (40,740)
Extraordinary Item, Net of Income Taxes.............. (18,265) -- -- --
-------------- -------------- ------------ ------------
Net Loss............................................. (86,841) (112,027) (290,123) (40,740)
Preferred Stock Preferences.......................... (36,800) (39,802) (37,606) --
-------------- -------------- ------------ ------------
Loss Applicable to Common Stockholders............... $ (123,641) $ (151,829) $ (327,729) $ (40,740)
-------------- -------------- ------------ ------------
-------------- -------------- ------------ ------------
Loss Per Common Share:
Loss Before Extraordinary Item................... $ (.92) $ (1.22) $ (2.21)
Extraordinary Item............................... (.16) -- --
-------------- -------------- ------------
Net Loss......................................... $ (1.08) $ (1.22) $ (2.21)
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD PERIOD
TWELVE TWELVE JANUARY 1, NOVEMBER 15,
MONTHS MONTHS 1996 1996
ENDED ENDED THROUGH THROUGH
DECEMBER 31, DECEMBER 31, NOVEMBER 14, DECEMBER 31,
1994 1995 1996 1996
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss............................................. $ (86,841) $ (112,027) $ (290,123) $ (40,740)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities, Net of the effect
of Acquisitions:
Extraordinary Item............................... 18,265 -- -- --
Depreciation and Amortization.................... 283,183 341,171 421,634 112,197
Restricted Stock Purchase Program Amortization... 11,316 12,005 90,242 --
Amortization of Debt Issuance Costs and
Premiums....................................... 5,759 9,184 13,483 (4,106)
Equity in Net Loss of Affiliates................. 25,002 70,364 153,775 7,716
Gain on Sale of Marketable Equity Securities..... (1,204) (23,032) -- --
Gain on Sale of Investments...................... -- (1,035) (68,889) --
Minority Interest in Net Income (Loss) of
Subsidiaries................................... (205) (39) 34 211
Deferred Income Taxes............................ (42,272) (48,783) (81,605) 8,223
Accrued Interest................................. 9,632 4,937 35,590 (28,993)
Accounts Payable, Accrued and Other
Liabilities.................................... 66,142 5,515 21,771 12,495
Other Working Capital Changes.................... (52,473) (36,996) (43,355) 2,934
------------ ------------ ------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 236,304 221,264 252,557 69,937
------------ ------------ ------------ -------------
FINANCING ACTIVITIES:
Proceeds from Borrowings............................. 1,709,980 2,635,240 1,691,687 1,126
Repayment of Borrowings.............................. (1,456,061) (806,261) (918,669) (146)
Advances from U S WEST............................... -- -- -- 130,601
Repayments to U S WEST............................... -- -- -- (44,427)
Premium Paid on Extinguishment of Debt............... (20,924) -- -- --
Advances to (repayments from) Minority Interests..... 779 3,666 4,911 (12,354)
Issuance of Common Stock............................. 30,500 (8,111) 5 --
Repurchase of Common Stock and Redeemable Common
Stock.............................................. (4,755) -- -- --
------------ ------------ ------------ -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 259,519 1,824,534 777,934 74,800
------------ ------------ ------------ -------------
INVESTING ACTIVITIES:
Acquisitions, Net of Cash Acquired................... (114,990) (1,243,879) (139,969) --
Expenditures for Property, Plant and Equipment....... (300,511) (518,161) (644,758) (131,121)
Investments.......................................... (192,119) (280,142) (323,720) (1,580)
Proceeds from Sale of Investments-net................ -- 1,181 121,025 --
Purchase of Marketable Equity Securities............. -- -- (1,200) --
Proceeds from Sale of Marketable Equity Securities... 17,553 27,357 -- --
Other-net............................................ (16,832) (25,167) (31,402) (4,647)
------------ ------------ ------------ -------------
NET CASH USED IN INVESTING ACTIVITIES.................. (606,899) (2,038,811) (1,020,024) (137,348)
------------ ------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH........................ (111,076) 6,987 10,467 7,389
BALANCE AT BEGINNING OF PERIOD......................... 122,640 11,564 18,551 29,018
------------ ------------ ------------ -------------
BALANCE AT END OF PERIOD............................... $ 11,564 $ 18,551 $ 29,018 $ 36,407
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
See Notes to Consolidated Financial Statements.
18
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIENCY)
(PREDECESSOR, IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
SERIES A STOCK FOREIGN
CONVERTIBLE ------------ ADDITIONAL CURRENCY
PREFERRED CLASS CLASS PAID-IN UNEARNED TRANSLATION
STOCK A B CAPITAL COMPENSATION ADJUSTMENT
--------------- ----- ----- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994..................... $ 11 $ 62 $ 913 $ 577,076 $ (23,577) $ --
Change in Accounting Principle for
Marketable Equity Securities, Net of
Income Taxes of $56,434.................. -- -- -- -- -- --
Net Loss................................... -- -- -- -- -- --
Accretion of Redeemable Common Stock....... -- -- -- (19,932) -- --
Restricted Stock Purchase Program:
Stock Vested........................... -- -- -- -- 11,316 --
Stock Forfeited........................ -- -- -- (164) 164 --
Stock Exchanged for Loans.............. -- -- -- (611) -- --
Conversion of Class B to Class A
Common Stock............................. -- 8 (8) -- -- --
Stock Repurchased.......................... -- -- (2) (3,672) -- --
Issuance of Class A Common Stock........... -- 16 -- 30,484 -- --
Change in Unrealized Losses, Net of Income
Tax Benefit of $24,081................... -- -- -- -- -- --
--- ----- ----- ----------- ------------- ------
Balance, December 31, 1994................... 11 86 903 583,181 (12,097) --
Net Loss................................... -- -- -- -- -- --
Accretion of Redeemable Common Stock....... -- -- -- (23,736) -- --
Restricted Stock Purchase Program:
Stock Issued........................... -- -- 23 46,205 (46,228) --
Stock Vested........................... -- -- -- -- 12,005 --
Stock Forfeited........................ -- -- -- (469) 469 --
Stock Exchanged for Loans.............. -- -- -- (337) -- --
Issuance of Class A Common Stock in
Connection with Acquisition, Net of
Issuance Costs of $8,111................. -- 302 -- 576,349 -- --
Change in Unrealized Gains, Net of Income
Taxes of $13,364......................... -- -- -- -- -- --
--- ----- ----- ----------- ------------- ------
Balance, December 31, 1995................... 11 388 926 1,181,193 (45,851) --
Net Loss................................... -- -- -- -- -- --
Accretion of Redeemable Common Stock....... -- -- -- (25,286) -- --
Foreign Currency Translation Adjustment.... -- -- -- -- -- 4,160
Restricted Stock Purchase Program:
Stock Issued........................... -- -- 5 13,554 (13,554) --
Stock Vested........................... -- -- -- -- 57,211 --
Stock Forfeited........................ -- -- -- (2,194) 2,194 --
Stock Exchanged for Loans.............. -- -- -- (188) -- --
Issuances of Stock by Investees............ -- -- -- 21,054 -- --
Change in Unrealized Gains, Net of Income
Taxes of $178,795........................ -- -- -- -- -- --
--- ----- ----- ----------- ------------- ------
Balance, November 14, 1996................... $ 11 $ 388 $ 931 $1,188,133 $ -- $ 4,160
--- ----- ----- ----------- ------------- ------
--- ----- ----- ----------- ------------- ------
<CAPTION>
NET UNREALIZED
HOLDING
GAINS (LOSSES)
ON MARKETABLE
EQUITY
SECURITIES DEFICIT
--------------- ----------
<S> <C> <C>
Balance, January 1, 1994..................... $ -- $(2,221,573)
Change in Accounting Principle for
Marketable Equity Securities, Net of
Income Taxes of $56,434.................. 84,650 --
Net Loss................................... -- (86,841)
Accretion of Redeemable Common Stock....... -- --
Restricted Stock Purchase Program:
Stock Vested........................... -- --
Stock Forfeited........................ -- --
Stock Exchanged for Loans.............. -- --
Conversion of Class B to Class A
Common Stock............................. -- --
Stock Repurchased.......................... -- --
Issuance of Class A Common Stock........... -- --
Change in Unrealized Losses, Net of Income
Tax Benefit of $24,081................... (36,654) --
--------------- ----------
Balance, December 31, 1994................... 47,996 (2,308,414)
Net Loss................................... -- (112,027)
Accretion of Redeemable Common Stock....... -- --
Restricted Stock Purchase Program:
Stock Issued........................... -- --
Stock Vested........................... -- --
Stock Forfeited........................ -- --
Stock Exchanged for Loans.............. -- --
Issuance of Class A Common Stock in
Connection with Acquisition, Net of
Issuance Costs of $8,111................. -- --
Change in Unrealized Gains, Net of Income
Taxes of $13,364......................... 19,827 --
--------------- ----------
Balance, December 31, 1995................... 67,823 (2,420,441)
Net Loss................................... -- (290,123)
Accretion of Redeemable Common Stock....... -- --
Foreign Currency Translation Adjustment.... -- --
Restricted Stock Purchase Program:
Stock Issued........................... -- --
Stock Vested........................... -- --
Stock Forfeited........................ -- --
Stock Exchanged for Loans.............. -- --
Issuances of Stock by Investees............ -- --
Change in Unrealized Gains, Net of Income
Taxes of $178,795........................ 265,253 --
--------------- ----------
Balance, November 14, 1996................... $ 333,076 $(2,710,564)
--------------- ----------
--------------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
19
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED STOCKHOLDER'S EQUITY (DEFICIENCY)
(SUCCESSOR, IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
ADDITIONAL HOLDING GAINS
COMMON PAID- ON MARKETABLE
STOCK IN CAPITAL EQUITY SECURITIES DEFICIT
---------- ------------ ----------------- -----------
<S> <C> <C> <C> <C>
Initial Equity Contribution from U S WEST................ $ -- $ 8,666,031 $ -- $ --
Net Loss................................................. -- -- -- (40,740)
Change in Unrealized Gains, Net of Income Taxes of
$999................................................... -- -- 1,481 --
---------- ------------ ------ -----------
Balance, December 31, 1996............................... $ -- $ 8,666,031 $ 1,481 $ (40,740)
---------- ------------ ------ -----------
---------- ------------ ------ -----------
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND MERGER
ORGANIZATION
Continental Cablevision, Inc., and its subsidiaries, (Continental) is a
wholly owned subsidiary of U S WEST, Inc. (U S WEST). Continental is a provider
of broadband communications services with operations and investments
encompassing cable television systems, international broadband communication
ventures, telecommunications and technology ventures and programming services.
MERGER
On November 15, 1996 (the Merger Date), Continental (the Predecessor
Corporation) merged with and into Continental Merger Corporation, a wholly owned
subsidiary of U S WEST (the Merger). Continental Merger Corporation changed its
name to Continental Cablevision, Inc. (the Successor Corporation) on the Merger
Date. The "Company" refers to both the Predecessor Corporation and the Successor
Corporation.
The Successor Corporation is a member of the multimedia businesses of U S
WEST and is a member of the U S WEST Media Group (the Media Group). The Media
Group operates in four industry segments, as defined in Statement of Financial
Accounting Standards (SFAS) No. 14, "Financial Reporting for Segments of a
Business Enterprise", consisting of directory and information services, wireless
communications, cable and telecommunications and the capital assets segment,
which is held for sale. Media Group is one of two major groups that make up U S
WEST. The other major group, the Communications Group, provides
telecommunications services in fourteen western and midwestern states.
The aggregate consideration paid by U S WEST to the stockholders of the
Predecessor Corporation consisted of 150,615,000 shares of Media Group Common
Stock valued at $2.59 billion, 20,000,000 shares of U S WEST Series D Preferred
Stock with a market value of $920 million and $1.15 billion in cash. In
connection with the Merger, U S WEST also assumed all of the Predecessor
Corporation's outstanding indebtedness and other liabilities, which approximated
$7.0 billion on November 15, 1996, for a total purchase price of $11.7 billion.
As a result of the Merger, each class of the Predecessor Corporation's
outstanding common and preferred stock was retired. As of December 31, 1996, the
outstanding common stock of the Successor Corporation was the only stock issued
and outstanding (See Note 10).
As a result of the Merger, U S WEST is required by the United States
Department of Justice to dispose of its remaining interest in Teleport
Communications Group, Inc. (TCG), a telecommunications company which operates
fiber optic networks (See Note 16). U S WEST is also required by the Federal
Communications Commission (FCC) to divest the cable television systems located
in the Communications Group telephone service territory. These systems represent
approximately 7.0% of the Company's basic subscribers. The Company may sell or
trade these systems for cable television systems in other geographic locations.
No assurances can be provided as to how these systems will be divested, and
accordingly, the Company continues to include these systems in its results of
operations in the accompanying consolidated financial statements.
The Merger was accounted for as a purchase, and accordingly, the
accompanying consolidated financial statements include the operations of the
Successor Corporation for the period November 15, 1996 through December 31,
1996. The Company's Consolidated Balance Sheet at December 31, 1996 includes
estimates of the fair value of assets and liabilities acquired in connection
with the Merger. The $8.0 billion excess of the purchase price over the net
tangible assets acquired and the goodwill related to a
21
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND MERGER (CONTINUED)
deferred income tax liability of $3.3 billion are being amortized over 25 years.
Intangible assets allocated to equity method investments are being amortized
over 15 years (See Note 6). Amortization related to equity method investments is
being recorded as a component of equity losses in unconsolidated affiliates. The
intangible assets acquired consist principally of cable television franchises
and goodwill. All allocations are preliminary and the determination of the fair
value of assets and liabilities acquired will be made after appraisals and other
studies are completed. The impact of the Merger has been excluded from the
accompanying Statement of Consolidated Cash Flows for the period November 15,
1996 through December 31, 1996.
The preliminary allocation of the purchase price as of the Merger Date is as
follows (in thousands):
<TABLE>
<S> <C>
Marketable Equity Securities................................................... $ 713,000
Investments.................................................................... 566,000
Property, Plant and Equipment and Supplies-net................................. 2,635,000
Intangible Assets.............................................................. 10,913,000
Other Assets Including Current assets-net...................................... 219,000
-----------
$15,046,000
-----------
-----------
</TABLE>
Liabilities assumed in the Merger, based on their respective fair market
values, including deferred income taxes provided on temporary differences
arising from the Merger, are as follows (in thousands):
<TABLE>
<S> <C>
Long-term Debt (at market value)............................................... $6,525,000
Accounts Payable, Accrued and Other Liabilities................................ 523,000
Deferred Income Taxes.......................................................... 3,324,000
----------
$10,372,000
----------
----------
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Predecessor Corporation and the Successor Corporation. All significant
intercompany accounts and transactions have been eliminated. Certain prior
period amounts in the accompanying consolidated financial statements have been
reclassified to conform to their current presentation. The accompanying
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements of U S WEST (Securities and Exchange
Commission File No. 1-8611). The following accounting policies relate to the
Predecessor Corporation and the Successor Corporation unless otherwise
indicated.
ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at each balance sheet date and
during each reporting period. Significant estimates included in the consolidated
financial statements include the assigned useful lives of property, plant and
equipment and intangible assets, the
22
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
carrying value of cost method investments, certain accruals, and valuation
allowances for deferred tax assets. Actual results could differ from those
estimates.
SUPPLIES AND PROPERTY, PLANT AND EQUIPMENT
Supplies are stated at the lower of cost or market, using the first-in,
first-out method. Property, plant and equipment are stated at cost. Capitalized
interest included in additions to property, plant and equipment was $2,377,000,
$7,233,000, $5,177,000 and $1,216,000 for the twelve months ended December 31,
1994 and 1995, the period January 1, 1996 through November 14, 1996 and the
period November 15, 1996 through December 31, 1996, respectively. Depreciation
is provided using the straight-line group method over estimated useful lives as
follows: buildings, 25 to 40 years; reception and distribution facilities, 3 to
15 years; and equipment and fixtures, 4 to 12 1/2 years. Gains and losses on
retirements or sales of property, plant and equipment are charged to accumulated
depreciation. See Note 7 for additional information.
INTANGIBLE AND OTHER ASSETS
Intangible assets consist primarily of franchise costs and goodwill recorded
in various acquisitions. Prior to the Merger, such amounts were generally
amortized over 10 to 40 years. Preliminary estimates of franchise costs and
goodwill resulting from the Merger are being amortized over 25 years.
Accumulated amortization for intangible and other assets aggregated $807,644,000
and $53,249,000 as of December 31, 1995 and 1996, respectively.
COMPUTER SOFTWARE
Certain costs incurred by the Company to develop or obtain computer software
for internal use are capitalized and amortized over the estimated useful life of
the software. The capitalized software balance, net of accumulated amortization
of $600,000, was approximately $30,900,000 as of December 31, 1996.
IMPAIRMENT OF LONG-LIVED ASSETS
In 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of" which requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstance indicate that the carrying amount of an asset may not be
recoverable. The effect of adopting SFAS No. 121 was not material to the
consolidated financial statements.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts at December 31, 1995 and 1996 was
$12,476,000 and $16,890,000, respectively.
MARKETABLE EQUITY SECURITIES
Effective January 1, 1994, the Company adopted SFAS No. 115. All marketable
equity securities are classified as available-for-sale and, as such, these
securities are carried at estimated market value, with any unrealized gains or
losses, net of tax, reported as a separate component of stockholders' equity
(deficiency). Realized gains and losses are included in results of operations.
23
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
Investments in 20-50% owned affiliates, and other investments where the
Company owns less than 20% but has the ability to exert significant influence,
are generally accounted for using the equity method. The excess of the cost of
equity investments over the underlying value of the net assets of the investee
is being amortized over a period of approximately 15 years (10 years prior to
the Merger). Investments in less than 20% owned companies whose securities do
not have a readily determinable market value are generally accounted for using
the cost method.
DERIVATIVE FINANCIAL INSTRUMENTS
Prior to the Merger, the Predecessor Corporation used derivative financial
instruments (primarily interest rate exchange agreements (Swaps) and interest
rate cap agreements (Caps)) as a means of managing interest-rate risk associated
with debt balances or anticipated debt transactions that had a high probability
of being executed. These instruments were matched with either fixed-or
variable-rate debt and periodic cash payments were accrued on a settlement basis
as an adjustment to interest expense. Derivative financial instruments were not
purchased for trading purposes. Any premiums associated with the instruments
were amortized over their term and realized gains or losses as a result of the
termination of the instruments were deferred and amortized over the shorter of
the remaining term of the instrument or the underlying debt. Following the
Merger, U S WEST either restructured the derivative financial instruments to
make them instruments of U S WEST or closed the positions. These transactions
had no effect on the accompanying Statement of Consolidated Cash Flows. There
are no derivative financial instruments to which the Company is a party as of
December 31, 1996 (See Note 8).
INCOME TAXES
Deferred tax liabilities and assets are recognized for the future tax
consequences of temporary differences between the financial reporting and tax
bases of existing assets and liabilities. In addition, future tax benefits, such
as net operating losses and investment tax credit carryforwards, are recognized
to the extent realization of such benefits is more likely than not (See Note
12).
The Predecessor Corporation's policy was to reinvest earnings from its
foreign investments. The Successor Corporation's policy is to repatriate these
earnings, therefore deferred taxes are recorded for the future tax consequences
of foreign investments.
For federal income tax purposes, the Successor Corporation's operations are
included in a consolidated tax return filed by U S WEST. The allocation of
income tax consequences to the Successor Corporation is calculated under a tax
allocation agreement with U S WEST which provides that benefits or liabilities
relating to the Successor Corporation will be allocated to the extent the
benefits are usable or additional liabilities are incurred in the U S WEST
consolidated tax return. The Successor Corporation records an income tax
receivable for such benefits or an income tax payable for such liabilities. At
December 31, 1996, the Successor Corporation had an outstanding tax receivable
from U S WEST of $23,474,000.
For state income tax purposes inside the fourteen states in which U S WEST
Communications operates, the Company's operations are included in combined tax
returns filed by U S WEST. For years when the Successor Corporation has pretax
income, the allocation of state income tax consequences to the Successor
Corporation will be calculated under a tax allocation agreement with U S WEST
which provides
24
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
that liabilities created by the Successor Corporation will be allocated to the
extent additional liabilities are incurred in the U S WEST combined tax returns.
For years when the Successor Corporation has pretax losses, any tax benefit
resulting from the filing of combined state income tax returns inside the U S
WEST Communications' fourteen state region are generally retained by U S WEST.
State income taxes on a combined basis for states outside the U S WEST
Communications' fourteen state region are allocated to the Successor Corporation
based on its contribution to the total U S WEST presence in those states.
Income tax benefit for the period November 15, 1996 through December 31,
1996, computed by the Successor Corporation on a stand-alone basis, is not
materially different from the expense recorded in the consolidated financial
statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting data to develop the estimates
of fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
transaction. The use of different market assumptions and/or valuation
methodologies may have a material effect on the estimated fair value amounts.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1995 and 1996. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these consolidated financial statements since that date, and current
estimates of fair value may differ significantly from the amounts presented
herein.
The following is a summary of the estimated fair value and carrying value of
certain of the Company's financial instruments:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1995 1996
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cost Method Investments (See
Note 6)..................... $ 35,663 $ 54,221 $ 197,234 $ 197,234
Total Debt, Swaps and Caps
(See Note 8)................ 5,285,159 5,418,137 2,845,981 2,809,000
Redeemable Common Stock (See
Note 9)..................... 256,135 353,704 -- --
</TABLE>
At December 31, 1995 and 1996, the carrying amounts for the Company's other
financial instruments, including cash, accounts receivable and accounts payable,
approximated fair value.
LOSS PER COMMON SHARE
Loss per common share is calculated by dividing the loss available to common
stockholders by the weighted average number of common shares outstanding of
114,334,000, 124,882,000, 148,580,000 for the twelve months ended December 31,
1994 and 1995 and the period from January 1, 1996 through November 14, 1996,
respectively (See Note 10).
25
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of international investments are translated at
year-end exchange rates, and statement of operations items are translated at
average exchange rates for the year. Resulting translation adjustments are
recorded as a separate component of stockholders' equity (deficiency).
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The following represents non-cash investing and financing activities and
cash paid for interest and income taxes. The effect of the Merger is not
reflected below.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED PERIOD PERIOD
DECEMBER 31, JANUARY 1, 1996 NOVEMBER 15, 1996
-------------------------- THROUGH THROUGH
1994 1995 NOVEMBER 14, 1996 DECEMBER 31, 1996
------------ ------------ ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Acquisitions:
Fair Value of Assets Acquired.............. $ 114,990 $ 2,135,941 $ 230,178 $ --
Deferred Taxes and Minority Interest
Assumed.................................. -- (257,946) -- --
Net Liabilities Assumed.................... -- (49,354) (90,209) --
Fair Value of Class A Common Stock
Issued................................... -- (584,762) -- --
------------ ------------ ----------------- -----------------
Cash Paid for Acquisitions................. $ 114,990 $ 1,243,879 $ 139,969 $ --
------------ ------------ ----------------- -----------------
------------ ------------ ----------------- -----------------
Accretion of Redeemable Common Stock........... $ 19,932 $ 23,736 $ 25,286 $ --
------------ ------------ ----------------- -----------------
------------ ------------ ----------------- -----------------
Accretion of Series A Convertible Preferred
Stock........................................ $ 36,800 $ 39,802 $ 37,606 $ --
------------ ------------ ----------------- -----------------
------------ ------------ ----------------- -----------------
Cash Paid for Interest......................... $ 299,115 $ 369,436 $ 441,307 $ 21,812
------------ ------------ ----------------- -----------------
------------ ------------ ----------------- -----------------
Cash Paid for Income Taxes..................... $ 2,411 $ 1,070 $ 1,310 $ --
------------ ------------ ----------------- -----------------
------------ ------------ ----------------- -----------------
</TABLE>
4. ACQUISITIONS
All acquisitions discussed below have been accounted for as purchases.
Results of operations of the companies and businesses acquired have been
included in the accompanying consolidated financial statements from their
respective dates of acquisition.
During 1996, the Predecessor Corporation acquired the non-owned interests
in, and assumed certain liabilities of, Meredith/New Heritage Strategic
Partners, L.P. (M/NH) for approximately $219,200,000.
M/NH operates cable systems in the Minneapolis/St. Paul area. The Predecessor
Corporation also purchased a small cable television system in California.
In addition, the Predecessor Corporation exchanged its cable systems in and
around St. Louis County, Missouri, for TCI Cable Partners of St. Louis L.P.'s
systems serving certain Massachusetts communities. The systems of each party
serve approximately 100,000 basic subscribers. In 1997, the Successor
Corporation exchanged its cable systems serving certain Virginia and Rhode
Island communities for cable systems of Cox Communications, Inc. serving certain
Massachusetts communities. The systems of each party serve
26
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITIONS (CONTINUED)
approximately 48,000 basic subscribers. These transactions were treated as
non-monetary exchanges and, as such, gains or losses on these exchanges were not
recognized.
During 1995, the Predecessor Corporation purchased cable television systems
in the Chicago, Illinois area for approximately $168,500,000, cable television
systems in Michigan for approximately $155,000,000 and cable television systems
in California for approximately $17,000,000. The Predecessor Corporation also
acquired the cable television systems of the Providence Journal Company
(Providence Journal Cable), for total consideration of $405,000,000 in cash, the
repayment of approximately $410,000,000 of existing indebtedness and the
issuance of 30,142,394 shares of the Predecessor Corporation's Class A common
stock at an ascribed value of $584,762,000. In addition, the Predecessor
Corporation purchased, for $88,000,000 in cash, the non-owned interests in, and
discharged certain liabilities of, N-Com Limited Partnership II (N-Com), which
owns and operates cable television systems in Michigan.
The summarized unaudited pro forma results of operations for the twelve
months ended December 31, 1995, assuming the acquisitions that closed during
1995 had occurred as of January 1, 1995, are as follows. The pro forma effect of
1996 acquisitions is not significant, and accordingly, pro forma results of
operations for 1996 are not presented.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------------------------------
<S> <C>
Revenues............................................................................................ $ 1,732,311
Depreciation and Amortization....................................................................... 440,109
Operating Income.................................................................................... 263,768
Net Loss............................................................................................ (184,671)
Net Loss per Common Share........................................................................... $ (1.27)
</TABLE>
5. MARKETABLE EQUITY SECURITIES
Information related to the Company's marketable equity securities is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cost.............................................. $ 37,837 $712,887
Gross Unrealized Holding Gains.................... 113,541 13,395
Gross Unrealized Holding Losses................... -- (10,915)
-------- --------
Estimated Fair Value.............................. $151,378 $715,367
-------- --------
-------- --------
Gross Realized Gain............................... $ 23,032 $ --
-------- --------
-------- --------
</TABLE>
Cost at December 31, 1996 represents the estimated fair value of these
securities on the Merger Date. In addition, in July 1996, TCG consummated an
initial public offering (IPO) of shares of its common stock. In conjunction with
the IPO, TCG implemented a plan of reorganization under which the Predecessor
Corporation exchanged a $53,800,000 loan it had previously made to TCG and
contributed its interests in TCG partnerships to TCG for additional shares of
TCG common stock. As a result of the IPO, the Predecessor Corporation recorded
an increase in investments, additional paid-in capital and deferred income taxes
of $30,714,000, $18,735,000 and $11,979,000, respectively, representing its
proportionate share of the increase in TCG's equity. Subsequent to the IPO, TCG
also redeemed approximately
27
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. MARKETABLE EQUITY SECURITIES (CONTINUED)
7,976,000 shares of TCG common stock from the Predecessor Corporation for net
cash proceeds of approximately $121,025,000 from which the Predecessor
Corporation realized a pre-tax gain of approximately $68,889,000. As a result of
the reorganization, the IPO and the redemption, the Company's economic interest
in TCG was approximately 11% as of December 31, 1996, and, accordingly, the
Company accounts for its remaining shares of TCG as marketable equity
securities. As of December 31, 1995, the Predecessor Corporation accounted for
its investment in TCG using the equity method (See Note 6).
6. INVESTMENTS
The Company's investments consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Equity Method Investments:
Total Cost Basis.............................. $502,689 $515,342
Fair Market Value Adjustments................. -- (169,665)
-------- --------
Carrying Value................................ $502,689 $345,677
-------- --------
Cost Method Investments:
Total Cost Basis.............................. $ 35,663 $ 41,734
Fair Market Value Adjustments................. -- 155,500
-------- --------
Carrying Value................................ $ 35,663 $197,234
-------- --------
Carrying Value of Total Investments....... $538,352 $542,911
-------- --------
-------- --------
</TABLE>
As a result of the Merger, all investments were recorded at their estimated
fair market values as of November 15, 1996. The purchase price assigned to these
ventures is preliminary. Excess amounts over the Company's proportionate share
in the investee's net assets at November 15, 1996 are being amortized over 15
years.
Cost method investments include investments in cable television companies
and certain cable programming services in which the Company owns less than a 20%
interest.
The Company holds several domestic and international investments which are
accounted for using the equity method. The Company has a 50% interest in
Fintelco, S.A., which owns and operates cable television systems in Argentina.
Commitments to contribute an additional $12,570,000 to Fintelco, S.A. have also
been recorded. In addition, the Company has a 25% interest in Singapore
Cablevision Pte Ltd (SCV), which owns and operates a cable television system in
Singapore. The Company is committed to make future capital contributions to SCV
of approximately $27,000,000 and has made a commitment to SCV to loan up to
approximately $45,000,000 if third-party debt financing cannot be obtained by
SCV.
The Company also has a 46.5% interest in Optus Vision Pty Ltd ("Optus
Vision"), a joint venture which is providing cable television services to
customers in Australia's major markets. The Company has no commitment to advance
additional funds to Optus Vision. U S WEST is pursuing the possible sale or
restructuring of the Company's interest in Optus Vision. In conjunction with U S
WEST's preliminary
28
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS (CONTINUED)
allocation of the purchase price related to the Merger, no amount has currently
been allocated by U S WEST to the Company's investment in Optus Vision. The
results of any sale or restructuring will be considered in the final
determination of fair value.
Other investments accounted for using the equity method include a 10.4%
interest in PrimeStar Partners L.P. (PrimeStar) (a direct broadcast satellite
service). A wholly owned subsidiary of the Company has issued two standby
letters of credit totaling approximately $98,125,000 on behalf of PrimeStar to
guarantee a portion of a financing incurred by PrimeStar to construct a
satellite system and a lease for additional satellite capacity. The standby
letters of credit are guaranteed by U S WEST. As a result of these commitments
and other qualitative factors, the Company accounts for its investment in
PrimeStar using the equity method. The Company also has various investments in
other companies which are not individually material to the Company. Based on its
ownership interest, the Company also accounts for these investments using the
equity method.
The major components of all equity method investees' combined financial
position and results of operations are as follows (reflects the Company's
proportionate share for the period which the investments are owned):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Property, Plant and Equipment..................... $387,000 $681,000
Total Assets...................................... 748,000 919,000
Total Liabilities................................. 464,000 537,000
Equity............................................ 284,000 382,000
</TABLE>
<TABLE>
<CAPTION>
PERIOD PERIOD
TWELVE MONTHS JANUARY 1, 1996 NOVEMBER 15, 1996
ENDED DECEMBER 31, THROUGH THROUGH
1994 1995 NOVEMBER 14, 1996 DECEMBER 31, 1996
---------- ---------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.......................................... $ 146,000 $ 235,000 $ 188,000 $ 32,000
Depreciation and Amortization..................... 27,000 38,000 34,000 12,000
Operating Loss.................................... (4,000) (39,000) (126,000) (28,000)
Net Loss.......................................... (28,000) (61,000) (134,000) (20,000)
</TABLE>
29
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1995 1996
------------ ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Land and Buildings.......................................................... $ 84,254 $ 72,056
Reception and Distribution Facilities....................................... 2,897,745 2,369,020
Equipment and Fixtures...................................................... 377,657 200,345
------------ ------------
Total................................................................... 3,359,656 2,641,421
Less--Accumulated Depreciation.............................................. 1,252,183 59,406
------------ ------------
Property, Plant and Equipment--net...................................... $ 2,107,473 $ 2,582,015
------------ ------------
------------ ------------
</TABLE>
As a result of the Merger, the property, plant and equipment balances as of
the Merger Date reflect certain preliminary adjustments and allocations.
Accordingly, the balances as of December 31, 1996 are not comparable to December
31, 1995. In addition, the property, plant and equipment balances may change
when the appraisal and evaluation activity, currently in process, is completed.
8. DEBT
Total debt outstanding is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1995 1996
------------ ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
1994 Credit Facility........................................................ $ 1,586,200 $ --
1995 Credit Facility........................................................ 1,039,000 --
Insurance Company Notes..................................................... 125,750 98,500
Senior Notes and Debentures................................................. 2,000,000 2,000,000
Subordinated Debt........................................................... 500,000 400,000
Other....................................................................... 34,209 29,069
------------ ------------
Sub-total............................................................... 5,285,159 2,527,569
Debt Premium................................................................ -- 318,412
------------ ------------
Total................................................................... $ 5,285,159 $ 2,845,981
------------ ------------
------------ ------------
</TABLE>
As of the Merger Date, U S WEST repaid all amounts outstanding under the
1994, 1995 and 1996 credit facilities together with accrued interest thereon
totaling approximately $3,657,000,000. The facilities were canceled following
this repayment. This repayment was excluded from the accompanying Statement of
Consolidated Cash Flows.
The 1994 Credit Facility and the 1995 Credit Facility were unsecured
revolving credit facilities which bore interest at rates between the agent
bank's prime rate (8 1/2% as of December 31, 1995) and prime plus 1/2% depending
on certain financial tests. At the Predecessor Corporation's option, most
borrowings under these credit facilities bore interest at spreads over LIBOR.
30
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEBT (CONTINUED)
In July 1996, the Predecessor Corporation arranged a short-term unsecured
revolving credit facility (the 1996 Credit Facility). Maximum availability under
the 1996 Credit Facility was $1,000,000,000. The terms and conditions of the
1996 Credit Facility were similar to those of the 1994 Credit Facility.
The Insurance Company Notes are unsecured, bear interest at 10.12%, require
increasing semi-annual repayments through July 1, 1999 and rank PARI PASSU in
right of payment with the Senior Notes and Debentures. As a result of the
Merger, U S WEST guaranteed repayment of amounts outstanding under these notes.
The Company's unsecured Senior Notes and Debentures rank PARI PASSU in right
of payment with the Insurance Company Notes and are non-redeemable prior to
maturity, except for the 9 1/2% Senior Debentures. The 9 1/2% Senior Debentures
are redeemable at the Company's option at par plus declining premiums beginning
in 2005. No sinking fund is required for any of the Senior Notes and Debentures.
The Senior Notes and Debentures limit the Company with respect to, among other
things, payment of dividends, the creation of liens and additional indebtedness,
property dispositions, investments and leases, and require a minimum ratio of
cash flow to debt.
The Senior Notes and Debentures consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1995 1996
------------ ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
8 1/2% Senior Notes, Due September 15, 2001........................................... $ 200,000 $ 200,000
8 5/8% Senior Notes, Due August 15, 2003.............................................. 100,000 100,000
8 7/8% Senior Debentures, Due September 15, 2005...................................... 275,000 275,000
8 3/10% Senior Notes, Due May 15, 2006................................................ 600,000 600,000
9% Senior Debentures, Due September 1, 2008........................................... 300,000 300,000
9 1/2% Senior Debentures, Due August 1, 2013.......................................... 525,000 525,000
------------ ------------
Total............................................................................. $ 2,000,000 $ 2,000,000
------------ ------------
------------ ------------
</TABLE>
The Subordinated Debt is redeemable at the Company's option at par plus
declining premiums at various dates, and is subordinated to the Insurance
Company Notes and Senior Notes and Debentures. Subordinated Debt consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1995 1996
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
10 5/8% Senior Subordinated Notes, Due June 15, 2002...................................... $ 100,000 $ 100,000
Senior Subordinated Floating Rate Debentures, Due November 1, 2004........................ 100,000 --
11% Senior Subordinated Debentures, Due June 1, 2007...................................... 300,000 300,000
---------- ----------
Total................................................................................. $ 500,000 $ 400,000
---------- ----------
---------- ----------
</TABLE>
In February 1996, the Predecessor Corporation redeemed the Senior
Subordinated Floating Rate Debentures for a price equal to the principal amount
plus accrued interest thereon. The Senior Subordinated Floating Rate Debentures
bore interest at LIBOR plus 3%.
31
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEBT (CONTINUED)
Debt premium results from adjusting the Company's outstanding debt to fair
market value as of the Merger Date. This premium is being amortized to interest
expense over the life of the related debt using the interest method.
In November 1994, the Predecessor Corporation redeemed $325,000,000 of
12 7/8% Senior Subordinated Debentures for a price equal to 106.438% of their
principal amounts plus accrued interest thereon. As a result of the redemption
and the write-off of $7,176,000 of unamortized deferred financing costs, the
Predecessor Corporation recorded an extraordinary loss of $28,100,000, less an
income tax benefit of $9,835,000.
Derivative financial instruments were used by the Predecessor Corporation to
manage interest rates. These derivative instruments included fixed to floating
rate swaps, floating to fixed rate swaps and interest rate cap agreements.
Following the Merger, U S WEST either restructured the derivative financial
instruments to make them instruments of U S WEST or closed the positions. These
transactions were excluded from the accompanying Statement of Consolidated Cash
Flows. There are no derivative financial instruments to which the Company is a
party as of December 31, 1996.
The components of the fair value of total debt, swaps and caps, based on
recent trades and dealer quotes, are estimated as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1995 1996
------------ ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Carrying Value of Debt...................................................... $ 5,285,159 $ 2,845,981
Unrealized (Gain) Loss on Debt.............................................. 85,195 (36,981)
Unrealized Loss on Floating to Fixed Rate Swaps............................. 41,495 --
Unrealized Loss on Fixed to Floating Rate Swaps............................. 6,177 --
Unrealized (Gain) Loss on Interest Rate Cap Agreements...................... 111 --
------------ ------------
Total................................................................... $ 5,418,137 $ 2,809,000
------------ ------------
------------ ------------
</TABLE>
Annual maturities of debt for the five years subsequent to December 31, 1996
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1997.................................................................................... $ 38,393
1998.................................................................................... 36,276
1999.................................................................................... 39,633
2000.................................................................................... 13,267
2001.................................................................................... 200,000
Thereafter.............................................................................. 2,200,000
--------------
Total............................................................................... $ 2,527,569
--------------
--------------
</TABLE>
9. REDEEMABLE COMMON STOCK
Prior to the Merger, pursuant to a Stock Liquidation Agreement with certain
stockholders, the Predecessor Corporation committed to repurchase certain shares
of its common stock (Redeemable
32
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. REDEEMABLE COMMON STOCK (CONTINUED)
Common Stock) in December 1998 or January 1999 at a defined purchase price. As a
result of the Merger, there were no shares of Redeemable Common Stock
outstanding as of December 31, 1996.
Through the Merger Date, the initial estimated repurchase cost for the
Redeemable Common Stock was adjusted by periodic accretions based on the
interest method of the difference between the initial estimate and the
subsequent estimates of the purchase price.
10. STOCKHOLDERS' EQUITY (DEFICIENCY)
At December 31, 1996, the Successor Corporation had 100 shares of common
stock issued and outstanding. Such common stock, having a par value of $.01 per
share, was issued during 1996. All 100 shares are owned by U S WEST.
Additional paid-in capital as of December 31, 1996 consisted of capital
contributions from U S WEST totaling $8,666,000,000. Contributions of
approximately $3,632,000,000 were used to repay outstanding indebtedness of the
Successor Corporation under the 1994, 1995 and 1996 credit facilities (See Note
8).
As of December 31, 1995, the Predecessor Corporation had 1,142,858 shares of
Series A Convertible Preferred Stock (Convertible Preferred) authorized and
outstanding. As a result of the Merger, the Convertible Preferred shares were
purchased by U S WEST and accordingly, there were no Convertible Preferred
shares outstanding as of December 31, 1996. The Convertible Preferred had a
liquidation preference equal to the greater of its accreted value or the amount
which would be distributed to common stockholders, assuming conversion of the
Convertible Preferred shares. The accreted value assumed a yield of 8% per
annum, compounded semi-annually in arrears.
11. RESTRICTED STOCK PURCHASE PROGRAM
Prior to the Merger, the Predecessor Corporation maintained a Restricted
Stock Purchase Program (the RSPP) under which certain employees of the
Predecessor Corporation, selected by the Board of Directors, were permitted to
buy shares of the Predecessor Corporation's common stock at the par value of one
cent per share. The shares remained wholly or partly subject to forfeiture for
up to seven years, during which time a pro rata portion of the shares became
vested over time. Upon termination of employment, an employee was required to
resell, for the price paid by the employee, the employee's shares which were not
vested. Prior to the Merger, the difference between the purchase price of the
Predecessor Corporation's common stock and the fair market value at the date of
issuance (as determined by the Board of Directors) was recorded as additional
paid-in capital and unearned compensation. Compensation expense was recorded as
the shares vested. Shares of common stock issued under the program for the
twelve months ended December 31, 1994 and 1995 and the period January 1, 1996
through November 14, 1996 were none, 2,382,925 and 603,775, respectively. At
December 31, 1995, 2,496,025 shares were not yet vested.
In connection with the RSPP, a wholly owned subsidiary of the Predecessor
Corporation had loaned approximately $27,746,000, at December 31, 1995, to the
participating employees to fund their individual tax liabilities. These loans
were due through 2001, bore interest at a range from 5% to 8% and were included
in other assets in the accompanying Consolidated Balance Sheet.
As a result of changes made in connection with the Merger to the repayment
provisions of the loans and the vesting requirements of the shares issued under
the RSPP, the loan balances were effectively forgiven and the remaining RSPP
vesting periods were accelerated such that future services were
33
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RESTRICTED STOCK PURCHASE PROGRAM (CONTINUED)
insignificant. As a result, the carrying amount of the loans and the remaining
unearned compensation related to the RSPP were recorded as expense during 1996
by the Predecessor Corporation. Such amounts aggregated approximately
$73,600,000 and are included as a component of the RSPP expense in the
accompanying Statements of Consolidated Operations.
12. INCOME TAXES
The benefit for income taxes is comprised of:
<TABLE>
<CAPTION>
TWELVE MONTHS PERIOD PERIOD
ENDED DECEMBER 31, JANUARY 1, 1996 NOVEMBER 15, 1996
---------------------- THROUGH THROUGH
1994 1995 NOVEMBER 14, 1996 DECEMBER 31, 1996
---------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal................................................ $ (196) $ (238) $ -- $ (23,474)
State.................................................. 2,049 1,112 1,676 --
Deferred:
Federal................................................ (35,549) (42,416) (66,198) 10,523
State.................................................. (6,723) (6,367) (15,407) (2,300)
---------- ---------- -------- --------
Total................................................ $ (40,419) $ (47,909) $ (79,929) $ (15,251)
---------- ---------- -------- --------
---------- ---------- -------- --------
Extraordinary Item--Deferred............................. $ (9,835) $ -- $ -- $ --
---------- ---------- -------- --------
---------- ---------- -------- --------
</TABLE>
Differences between the effective income tax rate and the federal statutory
rate are summarized as follows:
<TABLE>
<CAPTION>
PERIOD PERIOD
JANUARY 1, NOVEMBER 15,
YEAR ENDED YEAR ENDED 1996 1996
DECEMBER DECEMBER THROUGH THROUGH
31, 31, NOVEMBER 14, DECEMBER 31,
1994 1995 1996 1996
----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Federal Statutory Rate...................................... (35.0)% (35.0)% (35.0)% (35.0)%
Non-Deductible Equity in Net Losses of Foreign Affiliates... -- 6.5 11.3 --
Goodwill Amortization....................................... -- -- -- 10.0
State Income Tax, Net of Federal Income Tax Benefit......... (2.2) (2.4) (2.4) (2.7)
Merger-Related Costs........................................ -- -- 2.4 --
Other....................................................... .5 .9 2.1 0.5
----- ----- ----- -----
Total................................................... (36.7)% (30.0)% (21.6)% (27.2)%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
34
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1995 1996
----------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Liabilities:
Property, Plant and Equipment and Intangibles....................................... $ (801,068) $ (3,077,280)
Marketable Equity Securities........................................................ (45,717) (225,512)
Investments......................................................................... -- (109,963)
Other............................................................................... (15,790) (27,827)
Deferred Tax Assets:
Net Operating Loss Carryforwards.................................................... 570,739 572,657
Tax Credit Carryforwards............................................................ 57,492 57,024
Debt................................................................................ -- 118,975
Equity.............................................................................. -- 19,164
Investments......................................................................... 14,306 --
Accrued and Other Liabilities....................................................... -- 14,340
Other............................................................................... 54,423 78,612
Valuation Allowances................................................................ (141,426) (443,359)
----------- -------------
Net Deferred Tax Liability............................................................ $ (307,041) $ (3,023,169)
----------- -------------
----------- -------------
</TABLE>
The Company and its subsidiaries have net operating loss carryforwards of
approximately $1,164,000 for federal income tax purposes, expiring through 2011,
and investment tax credit carryforwards of approximately $50,000,000 expiring
through 2005.
Valuation allowances have been established for uncertainties in realizing
transitional investment tax credit carryforwards, the tax benefit of certain
limited use federal net operating losses and certain state net operating losses.
As a result of the Merger, certain limitations restrict the ability of the
Successor Corporation to utilize the net operating losses of the Predecessor
Corporation. Accordingly, an increase of $340,000,000 in the valuation allowance
was recorded as of the Merger Date. If in future periods the realization of tax
credit and net operating loss carryforwards acquired as a result of business
combinations (including the Merger) becomes more likely than not, the valuation
allowance will be allocated to reduce goodwill and other intangible assets. The
net change of the valuation allowance during 1995 and during the period January
1, 1996 through November 14, 1996 was a decrease of $11,600,000 and $36,530,000,
respectively. The decreases were due primarily to the expiration of state net
operating loss carryforwards and investment tax credit carryforwards.
13. RETIREMENT AND MATCHED SAVINGS PLANS
The Company has a non-contributory defined benefit plan covering
substantially all employees. Benefits under the plan are determined based on
formulas which reflect employees' years of service and the average of the five
consecutive years of highest compensation. The Company's policy is to make
contributions sufficient to meet the minimum funding requirements of ERISA.
35
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. RETIREMENT AND MATCHED SAVINGS PLANS (CONTINUED)
As a result of the Merger, U S WEST assumed the Company's obligations under
this plan, and the plan, together with related assets, has been merged into a U
S WEST sponsored retirement plan. At November 14, 1996 plan assets were
approximately $23,500,000, and the accrued pension liability was approximately
$9,300,000. Effective January 1, 1997, benefits changed to a defined lump sum
formula that expresses benefits as a lump sum payable at retirement or
termination of employment.
The Company also has a Supplemental Executive Retirement Plan ("SERP") which
provides additional retirement benefits for any employee of Continental whose
accrued benefits under the Continental Retirement Plan are limited by the
Internal Revenue Code's (the "Code") limit on compensation which may be taken
into account under that plan or by the Code's Section 415 limit on the size of
retirement benefits which may be funded under that plan. The SERP is an
unfunded, non tax-qualified plan. As a result of the Merger, U S WEST assumed
the Company's obligations under this plan. The Company had accrued approximately
$1,300,000 as of November 14, 1996 for the SERP.
Amounts charged to operations for the retirement plan and the SERP for the
twelve months ended December 31, 1994 and 1995, the period January 1, 1996
through November 14, 1996 and the period November 15, 1996 through December 31,
1996 were $3,413,000, $3,728,000, $4,766,000 and $692,000, respectively.
The Company also sponsors a defined contribution Matched Savings Plan
covering substantially all of its employees. The Company's contribution for this
plan is based on a percentage of each participant's salary. Total costs for the
twelve months ended December 31, 1994 and 1995, the period January 1, 1996
through November 14, 1996 and the period November 15, 1996 through December 31,
1996 were approximately $2,652,000, $2,907,000, $4,454,000 and $639,000,
respectively.
14. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have entered into various operating lease
agreements, with total commitments of $57,305,000 as of December 31, 1996.
Commitments under such agreements for the years 1997-2001 approximate
$11,937,000, $9,828,000, $8,463,000, $6,005,000 and $4,665,000, respectively.
The Company and its subsidiaries also rent pole space from various companies
under agreements which are generally terminable on short notice. Lease and
rental costs charged to operations for the twelve months ended December 31, 1994
and 1995, the period January 1 through November 14, 1996 and the period November
15 through December 31, 1996 were $20,113,000, $21,696,000, $23,353,000 and
$3,336,000, respectively.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such legal proceedings and claims will not have a material effect
on the consolidated financial position and results of operations of the Company.
36
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. LEGISLATION AND REGULATION
Pursuant to the Cable Television Consumer Protection and Competition Act of
1992, the FCC, in April 1993, promulgated rate regulations that establish
maximum allowable rates for cable television services, except for services
offered on a per-channel or per-program basis. The FCC's regulations require
rates for equipment and installations to be cost-based, and require reasonable
rates for regulated cable television services to be established based on, at the
election of the cable television operator, either application of the FCC's
benchmark formula or a cost-of-service showing pursuant to standards adopted by
the FCC. In addition, the FCC regulations limit future rate increases for
regulated services.
On August 3, 1995, a Social Contract between the Company and the FCC (the
Social Contract) was adopted. The Social Contract is a six-year agreement
covering all of the Company's existing franchises, including those that were
unregulated, and settled the Company's pending cost-of-service rate cases and
benchmark cable programming service tier (CPS) rate cases. Benchmark Basic
Service Tier (BST) cases will be resolved by the Company and local franchising
authorities. The Social Contract was amended on August 21, 1996 to include
systems recently acquired by the Company. As part of the resolution of these
cases, the Company agreed to, among other things, (i) invest at least
$1,700,000,000 in domestic system rebuilds and upgrades through the year 2000 to
expand channel capacity and improve system reliability and picture quality, of
which approximately $870,000,000 remains at December 31, 1996, (ii) create low
cost BST rates in most systems with a revenue neutral increase in CPS rates; and
(iii) make in-kind and cash refunds to affected subscribers with a value of
approximately $9,500,000 and $1,600,000 at December 31, 1995 and 1996,
respectively. These refunds were made by December 31, 1996. In 1995, the Company
adjusted the revenue reserve recorded in 1994 to reflect the impact of the
Social Contract. The resolution of pending rate cases was without any finding by
the FCC of any wrongdoing by the Company.
The Social Contract also provides for its termination in the future if the
laws and regulations applicable to services offered in any Continental franchise
change in a manner that would have a material favorable financial impact on
Continental. In that instance, the Company may petition the FCC to terminate the
Social Contract.
In February 1996, the Telecommunications Act of 1996 was enacted, which
deregulates CPS rates after March 31, 1999.
16. SUBSEQUENT EVENTS
A total of approximately 4,100,000 shares of the Company's investment in TCG
were sold in January and February 1997, yielding proceeds of approximately
$120,000,000. The approximate 13,800,000 shares of TCG remaining are expected to
be sold by December 31, 1998.
The Successor Corporation has entered into an agreement with Booth American
Company ("Booth") to purchase certain of Booth's cable television systems
serving approximately 40,000 subscribers in Michigan. This transaction is
expected to be completed during 1997.
17. RELATED PARTIES
Following the Merger, U S WEST advances monies to the Successor Corporation
to fund general corporate purposes. As of December 31, 1996, amounts owed to U S
WEST resulting from such advances were $86,174,000. The advances from U S WEST
bear interest at 7.5%. The Successor Corporation recorded interest expense of
$453,000 related to these advances for the period November 15, 1996 through
December 31, 1996.
37
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. RELATED PARTIES (CONTINUED)
The Company has programming agreements with certain affiliates of Time
Warner Entertainment Company L.P., in which U S WEST has a 25% interest. The
Successor Corporation charged approximately $12,300,000 to expense for the
period November 15, 1996 through December 31, 1996 related to these programming
services.
The Predecessor Corporation paid aggregate fees and underwriting discounts
to Lazard Freres & Company (Lazard) of approximately $9,000,000 and $20,000,000
during the twelve months ended December 31, 1995 and the period January 1, 1996
through November 14, 1996, respectively, in connection with certain investment
banking services. Two directors of the Predecessor Corporation are general
partners of Lazard and managing directors of Corporate Partners, L.P., which, in
1995, purchased 728,953 shares of the Convertible Preferred on the same terms as
all other purchasers of the Convertible Preferred.
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly results of operations for 1995 and 1996 are summarized below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1995
Revenues......................................................... $ 318,576 $ 331,472 $ 342,445 $ 449,899
Depreciation and Amortization.................................... 74,422 73,990 82,156 110,603
Restricted Stock Purchase Program................................ 2,850 3,055 3,042 3,058
Operating Income................................................. 59,192 61,361 61,400 70,022
Net Loss......................................................... (6,902) (26,165) (25,065) (53,895)
Loss Applicable to Common Stockholders........................... $ (16,505) $ (35,909) $ (35,273) $ (64,142)
Net Loss Per Common Share........................................ $ (0.14) $ (0.30) $ (0.30) $ (0.44)
</TABLE>
<TABLE>
<CAPTION>
PERIOD
OCTOBER 1, 1996
FIRST SECOND THIRD THROUGH
QUARTER QUARTER QUARTER NOVEMBER 14, 1996
---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
1996
Revenues.................................................. $ 466,384 $ 476,546 $ 471,047 $ 253,041
Depreciation and Amortization............................. 113,029 118,667 120,583 69,355
Restricted Stock Purchase Program......................... 3,994 4,660 3,993 77,595
Operating Income (Loss)................................... 72,350 73,870 68,412 (51,020)
Net Loss.................................................. (51,671) (58,515) (49,207) (130,730)
Loss Applicable to Common Stockholders.................... $ (62,173) $ (69,054) $ (60,250) $ (136,252)
Net Loss Per Common Share................................. $ (0.42) $ (0.46) $ (0.41) $ (0.92)
</TABLE>
38
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Intentionally Omitted.
ITEM 11. EXECUTIVE COMPENSATION.
Intentionally Omitted.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Intentionally Omitted.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Intentionally Omitted.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements:
The following consolidated financial statements of the Company and the
Independent Auditors' Report relating thereto are filed under Item 8 in Part II
of this report:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1995 and December 31,
1996
Statements of Consolidated Operations for the Twelve Months Ended
December 31, 1994 and 1995, the period January 1, 1996 through November
14, 1996 and the period November 15, 1996 through December 31, 1996
Statements of Consolidated Stockholders' Equity (Deficiency) for the
Twelve Months Ended December 31, 1994 and 1995 and the period January 1,
1996 through November 14, 1996
Statement of Consolidated Stockholder's Equity (Deficiency) for the
period November 15, 1996 through December 31, 1996
Statements of Consolidated Cash Flows for the Twelve Months Ended
December 31, 1994 and 1995, the period January 1, 1996 through November
14, 1996 and the period November 15, 1996 through December 31, 1996
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules:
The following financial statement schedules of the Company and the Independent
Auditors' Report relating thereto are filed as part of this report:
Schedule II--Valuation and Qualifying Accounts and Reserves
Financial Statement Schedules not included are omitted due to the lack
of conditions under which they are required.
(a)(3) Exhibits filed as part of this report: As listed in the Exhibit Index
beginning on page 41 hereof.
(b) Reports on Form 8-K. None.
39
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAD DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CONTINENTAL CABLEVISION, INC.
BY: /S/ AMOS B. HOSTETTER, JR.
-----------------------------------------
Amos B. Hostetter, Jr.
Chief Executive Officer
Dated: March 28, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ AMOS B. HOSTETTER, JR. Chief Executive Officer
- ------------------------------ March 28, 1997
Amos B. Hostetter, Jr.
Executive Vice President
/s/ DOUGLAS D. HOLMES for Finance and Strategy
- ------------------------------ (principal financial March 28, 1997
Douglas D. Holmes officer)
/s/ CHARLES M. LILLIS Director
- ------------------------------ March 28, 1997
Charles M. Lillis
40
<PAGE>
INDEX TO EXHIBITS
Listed below are the exhibits which are filed as part of this report
(according to the number assigned to them in Item 601 of Regulation S-K). Each
exhibit marked(1) is incorporated by reference to the Company's Registration
Statement No. 33-46510 (as amended), declared effective by the Securities and
Exchange Commission (the "Commission") on June 15, 1992, each exhibit marked
by(2) is incorporated by reference to the Company's Registration Statement No.
33-59806, declared effective by the Commission on May 27, 1993, each exhibit
marked by(3) is incorporated by reference to the Company's Registration
Statement No. 33-65798, declared effective by the Commission on August 6, 1993,
each exhibit marked by(4) is incorporated by reference to the Company's
Registration Statement No. 33-57471, declared effective by the Commission on
August 31, 1995, each exhibit marked by(5) is incorporated by reference to the
Company's Registration Statement No. 33-63529 filed with the Commission on
October 19, 1995 and each exhibit marked by(6) is incorporated by reference to
the Company's Form 10-K filed with the Commission on March 27, 1996. Exhibit
numbers in parentheses refer to the exhibit numbers in Registration Statements.
Each exhibit marked by a pound sign (#) is a management contract or compensatory
plan.
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE NO.
- ----------- ---------
<C> <S> <C>
3.1 Certificate of Incorporation of Continental Merger Corporation...Filed herewith as
Exhibit 3.1.
3.2 By-Laws of the Company...Filed herewith as Exhibit 3.2.
3.3 Certificate of Merger merging Continental Cablevision, Inc. into Continental Merger
Corporation...Filed herewith as Exhibit 3.3
4.1 Indenture dated as of June 22, 1992 between the Company and Morgan Guaranty Trust
Company of New York as Trustee, pertaining to the Company's 10 5/8 Senior Subordinated
Notes due 2002(1)(4.1)
4.2 Indenture, dated as of June 22, 1992 between the Company and Morgan Guaranty Trust
Company of New York as Trustee, pertaining to the Company's 11% Senior Subordinated
Debentures due 2007.(1)(4.2)
4.3 Amended and Restated Note Agreement dated as of October 17, 1994 by and among the
Company and certain of its direct and indirect Subsidiaries as Guarantors and The
Prudential Insurance Company of America.(4)(4.5)
4.4 Indenture dated as of June 1, 1993 between the Company and The First National Bank of
Chicago, as Trustee, pertaining to the Company's 8 5/8 Senior Notes due 2003.(2)(4.10)
4.5 Indenture dated as of June 1, 1993 between the Company and The First National Bank of
Chicago, as Trustee, pertaining to the Company's 9% Senior Debentures due 2008.(2)(4.11)
4.6 Indenture dated as of August 1, 1993 between the Company and the Bank of New York, as
Trustee, pertaining to the Company's 8 7/8 Senior Debentures due 2005.(3)(4.11)
4.7 Indenture dated as of August 1, 1993 between the Company and the Bank of New York, as
Trustee, pertaining to the Company's 9 1/2% Senior Debentures due 2013.(3)(4.12)
4.8 Indenture dated as of August 1, 1993 between the Company and the Bank of New York, as
Trustee, pertaining to the Company's 8 1/2 Senior Notes due 2001.(3)(4.13)
</TABLE>
41
<PAGE>
<TABLE>
<C> <S> <C>
4.9 Indenture dated December 13, 1995 between the Company and the Bank of Montreal, as
Trustee, pertaining to the Company's 8 3/10% Senior Notes due 2006.(6)(4.9)
10.1 Agreement and Plan of Merger between US WEST, Inc. and Continental Cablevision, Inc.
dated as of February 27, 1996.(6)(2.2)
10.2 Optus Vision Joint Venture-Optus Vision Shareholders Agreement dated May 19, 1995 by and
among Continental Cablevision of Australia, Inc., Optus Communications Pty Limited, Pay
TV Holdings Pty Limited, Tallglen Pty Limited, Optus Vision Pty Limited, Optus Networks
Pty Limited and Optus Administration Pty Limited.(4)(10.12)
10.3 Management Incentive Plan.#(4)(10.13)
10.4 Supplemental Executive Retirement Plan.#(4)(10.15)
10.5 Form of Restricted Stock Purchase Agreements for 1995.#(4)(10.17)
10.6 First Amendment to the Purchase Agreement dated March 24, 1995 by and among Columbia
Associates, L.P., Columbia Cable of Michigan, Inc., and Continental Cablevision of
Manchester, Inc.(4)(10.19)
10.6A Second Amendment to the Purchase Agreement dated September 30, 1995, by and among
Columbia Associates, L.P., Columbia Cable of Michigan, Inc. and Continental Cablevision
of Manchester.(5)(10.19A)
10.7 Asset Exchange Agreement dated December 20, 1995 by and between Continental Cablevision
of St. Louis County, Inc. and TCI Cable Partners of St. Louis, L.P.(6)(10.25)
10.8 Forms of Amendment to Restricted Stock Purchase Agreements and related
agreements.#...Filed herewith as Exhibit 10.8.
10.9 Purchase Agreement dated as of March 15, 1996 among Meredith/New Heritage Partnership
and New Heritage Associates and the Company.(6)(10.27)
11.1 Schedule of computation of earnings per share....Filed herewith as Exhibit 11.1.
27.1 Financial Data Schedule for the period January 1, 1996 through November 14,
1996....Filed herewith as Exhibit 27.1.
27.2 Financial Data Schedule for the period November 15, 1996 through December 31,
1996....Filed herewith as Exhibit 27.2.
</TABLE>
42
<PAGE>
SCHEDULE II
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND AT END
DESCRIPTIONS OF PERIOD EXPENSES DEDUCTIONS (A) OTHER (B) OF PERIOD
- ------------------------------------------------------------ ----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Twelve Months Ended December 31, 1994....................... $ 9,435 $ 12,791 $ (12,798) $ 343 $ 9,771
Twelve Months Ended December 31, 1995....................... 9,771 14,244 (13,017) 1,478 12,476
Period January 1, 1996 through November 14, 1996............ 12,476 17,987 (14,210) 195 16,448
Period November 15, 1996 through December 31, 1996.......... $ 16,448 $ 3,080 $ (2,638) $ -- $ 16,890
</TABLE>
- --------------------------
(A) Amounts written off, net of recoveries.
(B) Other represents acquisitions in 1994, 1995 and 1996.
See Notes to Consolidated Financial Statements.
43
<PAGE>
CERTIFICATE OF INCORPORATION
OF
CONTINENTAL MERGER CORPORATION
The undersigned natural person of the age of eighteen years or more,
acting as incorporator of a corporation under the Delaware General
Corporation Law, as amended, adopts the following Certificate of
Incorporation:
ARTICLE ONE. The name of the corporation is Continental Merger
Corporation (the "Corporation").
ARTICLE TWO. The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the Delaware
General Corporation Law, as from time to time amended.
ARTICLE THREE. The aggregate number of shares of stock which the
Corporation shall have authority to issue is one hundred shares of common
stock with par value of $.01 per share.
ARTICLE FOUR. The number of directors of the Corporation shall be fixed
in the manner provided in the Bylaws. The number of directors constituting
the initial Board of Directors of the Corporation is one. The name and
address of the person who is to serve as sole director until the first annual
meeting of the shareholders or until his successor is elected and qualified
is:
NAME ADDRESS
Charles M. Lillis 7800 E. Orchard Rd. Suite 200
Englewood, CO 80111
ARTICLE FIVE. The address of the Corporation's initial registered
office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware
19801. The name of the Corporation's initial registered agent at such
address is The Corporation Trust Company.
ARTICLE SIX. The provisions as to the management of the business and
the conduct of the affairs of the Corporation shall be set forth in the
Bylaws of the Corporation or as approved by the Board of Directors of the
Corporation from time to time, and the same shall be in furtherance of and
not in limitation or exclusion of the powers conferred by the law.
ARTICLE SEVEN. A director of the Corporation shall not be personally
liable either to the Corporation or to any stockholder for monetary damages
for breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, or (ii)
for acts or omission which are not in good faith or which involve intentional
<PAGE>
misconduct or knowing violation of the law, or (iii) for any matter in
respect of which such director shall be liable under Section 174 of Title 8
of the Delaware General Corporation Law or any amendment thereto or successor
provision thereto, or (iv) for any transaction from which the director shall
have derived an improper personal benefit. Neither amendment nor repeal of
this paragraph nor the adoption of any provision of the Certificate of
Incorporation inconsistent with this paragraph shall eliminate or reduce the
effect of this paragraph in respect of any matter occurring, or any cause of
action, suit or claim that, but for this paragraph, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE EIGHT. The Corporation shall indemnify, to the full extent
permitted by Section 145 of the Delaware General Corporation Law, as amended
from time to time, all persons whom it may indemnify pursuant thereto.
ARTICLE NINE. In furtherance and not in limitation of the powers
conferred by the Delaware General Corporation Law, the Board of Directors of
the Corporation is expressly authorized and empowered to adopt, amend and
repeal the Bylaws of the Corporation. Election of Director need not be by
written ballot.
ARTICLE TEN. The name and address of the incorporator is Stephen E.
Brilz; 7800 E. Orchard Rd., Suite 480; Englewood, CO 80111.
IN WITNESS WHEREOF, I have executed this Certificate of Incorporation
this 12th day of June 1996.
/s/ Stephen E. Brilz
----------------------
Stephen E. Brilz
STATE OF COLORADO )
) ss.
COUNTY OF JEFFERSON )
Before me, Shirley K. Jantz, a Notary Public in and for said County and
State, personally appeared Stephen E. Brilz, who acknowledged before me that
he signed the foregoing Certificate of Incorporation as the incorporator and
that the facts contained therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 12th day
of June,1996
/s/ Shirley K. Jantz
---------------------
Notary Public
My Commission Expires: March 31, 2000
<PAGE>
Exhibit 3.2
BYLAWS
OF
CONTINENTAL CABLEVISION, INC.
As Adopted on June 14, 1996
And Amended on November 15, 1996
<PAGE>
BYLAWS
OF
CONTINENTAL CABLEVISION, INC.
ARTICLE ONE
Offices
The principal office of the corporation shall be designated from time to
time by the corporation and may be within or outside of Delaware.
The corporation may have such other offices, either within or outside of
Delaware, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
The registered office of the corporation required by the Delaware
General Corporation Law to be maintained in Delaware may be, but need not be,
identical with the principal office, and the address of the registered office
may be changed from time to time by the Board of Directors.
ARTICLE TWO
Stockholders
Section 1. Annual Meeting. The annual meeting of the stockholders
shall be held on the First Friday in March in each year beginning in 1997, at
an hour to be named in the notice of the meeting, or at such other date and
time as the Board of Directors shall determine, for the purpose of electing
Directors of the corporation and for the transaction of such other business
as may come before the meeting. If the annual meeting is not held on the day
designated, or at any adjournment thereof, the Board of Directors shall cause
a meeting in lieu thereof to be held as soon thereafter as is convenient.
Section 2. Special Meetings. Special meetings of the stockholders may
be called for any purpose. Such meetings may be called by the President or
by the Board of Directors, and shall be called by the President at the
request of holders of shares representing at least ten percent (10%) of all
of the votes entitled to be cast on any issue proposed to be considered at
the meeting.
Section 3. Place of Meeting. The Board of Directors may designate any
place either within or outside Delaware as the place of meeting for any
annual meeting or for any special meeting. If no designation is made, or if
a special meeting is called other than by the Board of Directors, the place
of the meeting shall be the principal office of the corporation.
1
<PAGE>
Section 4. Notice of Meeting. Written notice stating the place, date,
and hour of the meeting shall be given delivered not less than ten (10) days
nor more than sixty (60) days before the date of the meeting, except that,
(i) if the authorized shares are to be increased, at least thirty (30) days'
notice shall be given, or (ii) any other longer notice period is required by
the Delaware General Corporation Law. Notice of a special meeting shall
include a description of the purpose or purposes of the meeting. Notice
shall be given personally or by U.S. mail (postage prepaid), private carrier,
telegraph, teletype, electronically transmitted facsimile or other form of
wire or wireless communication by or at the direction of the President, the
Secretary, or the officer or persons calling the meeting, to each stockholder
of record entitled to vote at such meeting.
Section 5. Record Date. For the purpose of determining stockholders
entitled to (i) notice of or to vote at any meeting of stockholders or any
adjournment thereof, (ii) receive distributions or share dividends, or (iii)
demand a special meeting, or to make a determination of stockholders for any
other proper purpose, the Board of Directors shall fix, in advance, a date as
the record date for the determination of stockholders. Such date shall be
not more than sixty (60) days, and for a meeting of stockholders, not less
than ten (10) days prior to the date on which the particular action requiring
such determination of stockholders is to be taken. When a determination of
stockholders entitled to vote at any meeting of stockholders is made as
provided in this Section, such determination shall apply to any adjournment
thereof unless the Board of Directors fixes a new record date, which it must
do if the meeting is adjourned to a date more than one hundred twenty (120)
days after the date fixed for the original meeting.
Notwithstanding the above, the record date for determining the
stockholders entitled to take action without a meeting or entitled to be
given notice of action so taken shall be the date a writing upon which the
action is taken is first received by the corporation.
Section 6. Quorum. A majority of the votes entitled to be cast on a
matter by a voting group shall constitute a quorum of that voting group for
action on that matter. If a quorum is present, the affirmative vote of the
majority of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the stockholders, unless the vote of a
greater proportion or number is required by law or the Articles of
Incorporation. If a quorum is not represented at any meeting of the
stockholders, such meeting may be adjourned for a period not to exceed one
hundred twenty (120) days for any one adjournment.
Section 7. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy by signing an appointment form or similar writing, either
personally or by his duly authorized attorney-in-fact. The proxy appointment
form or similar writing shall be filed with the Secretary of the corporation
before or at the time of the meeting. The appointment of a proxy is
effective when received by the corporation and is valid for eleven (11)
months unless a different period is expressly provided in the appointment
form or similar writing.
Section 8. Informal Action by Stockholders. Any action required or
permitted to be taken at any meeting of stockholders may, except as otherwise
required by law or the Certificate of Incorporation, be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of record
of the issued and outstanding capital stock of the corporation having the
votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled
2
<PAGE>
to vote thereon were presented and voted, and the writing or writings are
filed with the permanent records of the corporation. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be give to those stockholders who have not consented in
writing.
ARTICLE THREE
Board of Directors
Section 1. General Powers. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the corporation
shall be managed under the direction of its Board of Directors, except as
otherwise provided in the Delaware General Corporation Law or the Articles of
Incorporation.
Section 2. Number, Tenure and Qualifications. The Board of Directors
shall consist of one person of the age of eighteen years or older who need
not be stockholders of the corporation or residents of Delaware. A Director
of the corporation shall be elected at the annual meeting of the stockholders
and shall serve until the next succeeding annual meeting and thereafter until
his successor shall have been elected and qualified.
Section 3. Vacancies. A vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the stockholders or
the Board of Directors. If the Directors remaining in office constitute
fewer than a quorum of the Board, the Directors may fill the vacancy by the
affirmative vote of a majority of all the Directors remaining in office.
Whether elected by the Directors or the stockholders, a Director shall hold
office until the next annual stockholders' meeting at which Directors are
elected.
Section 4. Regular Meetings. A regular meeting of the Board of
Directors shall be held without notice immediately after and at the same
place as the annual meeting of stockholders and at such other times as shall
be fixed by the Board. The Board of Directors may designate any place,
either within or outside Delaware, as the place of meeting for any regular
meeting.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called at any time by or at the request of the President or
any of the Directors. The person or persons authorized to call special
meetings of the Board may fix any place, either within or outside Delaware,
as the place for holding any special meeting.
Section 6. Notice. Notice need not be given of regular meetings of the
Board of Directors, nor need notice be given of adjourned meetings. Notice
of special meetings shall be given at least two (2) days prior to the meeting
by written notice either personally delivered or mailed to each Director at
his business address, or by notice transmitted by telegraph, telex,
electronically transmitted facsimile or other form of wire or wireless
communication. If mailed, such notice shall be deemed to be given and to be
effective on the earlier of (i) three (3) days after such notice is deposited
in the U.S. mail (postage prepaid), or (ii) the date
3
<PAGE>
shown on the return receipt, if mailed by registered or certified mail return
receipt requested. If notice is given by telex, electronically transmitted
facsimile or other similar form of wire or wireless communication, such
notice shall be deemed to be given and to be effective when sent.
A Director may waive notice of a meeting before or after the time and
date of the meeting by a writing signed by such Director. Such waiver shall
be delivered to the corporation for filing with the corporate records.
Further, attendance of the Director at a meeting shall constitute a waiver of
notice of that meeting, except when the Director attends for the express
purpose of objecting to the transaction of any business at that the meeting
because the meeting was not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice of such
meeting.
Section 7. Quorum and Voting. A majority of the number of Directors
fixed by these Bylaws shall constitute a quorum for the transaction of
business, and the acts of a majority of Directors present at a meeting at
which a quorum is present shall constitute the acts of the Board of
Directors. If, at any meeting of the Board of Directors, less than a quorum
is present, a majority of those present may adjourn the meeting from time to
time without further notice, for a period not to exceed sixty (60) days at
any one adjournment.
Section 8. Compensation. Directors shall be entitled to receive from
the corporation such compensation and reimbursement for expenses as the Board
of Directors may determine from time to time.
Section 9. Committees. The Board of Directors may, by resolution
adopted by a majority of the Board in office when the action is taken,
designate from among its members an executive committee and one or more other
committees, each of which, to the extent provided in the resolution, shall
have all the authority of the Board of Directors; except that no such
committee shall have the authority to (i) declare dividends or distributions,
(ii) approve or propose to stockholders actions or proposals required by the
Delaware General Corporation Law to be approved by stockholders, (iii) fill
vacancies on the Board of Directors or any committee thereof, (iv) amend the
Articles of Incorporation, (v) adopt, amend or repeal the Bylaws,
(vi) approve a plan of merger not requiring stockholder approval,
(vii) reduce earned or capital surplus, (viii) authorize or approve the
reacquisition of shares unless pursuant to a general formula or method
specified by the Board of Directors, or (ix) authorize or approve the
issuance or sale of, or any contract to issue or sell, shares or designate
the terms of a series of a class of shares. The Board of Directors shall
have the power at any time to fill vacancies in, to change the size or
membership of, and to discharge any such committee.
Neither the designation of any such committee, the delegation of
authority to such committee, nor any action by such committee pursuant to its
authority shall alone constitute compliance by any member of the Board of
Directors or a member of the committee in question with his responsibility to
conform to the standard of care set forth in Article Three, Section 12 of
these Bylaws.
4
<PAGE>
Section 10. Informal Action by Directors. Any action required or
permitted to be taken at a meeting of the Directors or any committee
designated by the Board of Directors may be taken without a meeting if a
written consent (or counterparts there) that sets forth the action so taken
is signed by all of the Directors entitled to vote with respect to the action
taken. Such consent shall have the same force and effect as a unanimous vote
of the Directors or committee members and may be stated as such in any
document. Unless the consent specifies a different effective date, action
taken under this Section 10 is effective at the time the last Director signs
a writing describing the action taken, unless, before such time, any Director
has revoked his consent by a writing signed by the Director and received by
the President or the Secretary of the corporation.
Section 11. Telephonic Meetings. Members of the Board of Directors or
any committee designated by such Board may participate in a meeting of the
Board or committee by means of communication by which all persons
participating in the meeting can hear each other during the meeting. Such
participation shall constitute presence at the meeting.
Section 12. Standard of Care. A member of the Board of Directors, or a
member of any committee designated by the Board of Directors, shall, in the
performance of his duties, be fully protected in relying in good faith upon
the records of the corporation and upon such information, opinions, reports
or statements presented to the corporation by any of the corporation's
officers or employees, or committees of the Board of Directors, or by any
other person as to matters the member reasonably believes are within such
other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the corporation.
ARTICLE FOUR
Officers
Section 1. Enumeration of Offices. The corporation shall have as
officers a President, one or more Vice Presidents, a Secretary, and a
Treasurer, each of whom shall be elected by the Board of Directors. The
corporation may also have a Chief Financial Officer, a General Counsel, and a
Controller as the Board may elect. Such other officers as may be deemed
necessary may also be elected by the Board of Directors. One person may hold
more than one office. In all cases where the duties of any officer is not
prescribed by the Bylaws or by the Board of Directors, such officer shall
follow the orders and instruction of the President of the corporation.
Section 2. Term of Office. The officers of the corporation shall be
elected by the Board of Directors at each annual meeting of the Board held
after each annual meeting of the stockholders or as soon thereafter as
conveniently may be. Each officer shall hold office until a successor is
elected and qualified or until such officer's resignation, death or removal.
Section 3. Removal. Any officer may be removed at any time with or
without cause by action of the shareholders, the Board of Directors or an
officer(s) authorized by the Board.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors, or
by an officer(s) authorized by the Board, for the unexpired portion of the
officer's term.
5
<PAGE>
Section 5. President; Powers and Duties. Subject to the direction and
supervision of the Board of Directors, the President shall be the chief
executive officer of the corporation, and shall have general and active
control of its affairs and business and general supervision of its officers,
agents and employees. The President shall preside at all meetings of the
stockholders and the Board of Directors. Any document may be signed by the
President or any other person who may be thereunto authorized by the
President or the Board of Directors (said authorization to be in writing and
filed with the Secretary of the corporation).
Section 6. Vice Presidents; Powers and Duties. Each Vice President
shall have such powers and perform such duties as may be assigned by the
Board of Directors or the President. In case of the absence or disability of
the President, or a vacancy in the office, a Vice President designated by the
President or the Board of Directors shall exercise all the powers and perform
all the duties of the President.
Section 7. Secretary and Assistant Secretaries. The Secretary shall
attend all meetings of the stockholders and the Board of Directors and shall
keep the minutes for such meetings in one or more books provided for that
purpose. The Secretary shall be custodian of the corporate records, except
those required to be in the custody of the Treasurer or the Controller, shall
keep the seal of the corporation and shall execute and affix the seal of the
corporation to all documents duly authorized for execution under seal on
behalf of the corporation, and shall perform all of the duties incidental to
the office of Secretary, as well as such other duties as may be assigned by
the President or the Board of Directors.
The Assistant Secretaries shall perform such of the Secretary's duties
as the Secretary shall from time to time direct. In case of the absence or
disability of the Secretary, or a vacancy in the office, an Assistant
Secretary designated by the President or the Board of Directors, if the
office is not vacant, shall perform the duties of the Secretary.
Section 8. Treasurer and Assistant Treasurers; Powers and Duties. The
Treasurer shall have care and custody of the funds and securities of the
corporation, shall deposit such funds in the name and to the credit of the
corporation with such depositories as the Treasurer shall approve, shall
disburse the funds of the corporation for proper expenses and dividends, and
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements. The Treasurer shall perform all of the duties incident to the
office of Treasurer, as well as such other duties as may be assigned by the
President or the Board of Directors. In the event there is no Chief
Financial Officer, the Treasurer shall perform the duties of Chief Financial
Officer. In the event there is no Controller, the Treasurer shall also be
the principal accounting officer of the corporation and shall perform the
duties incident to the office of Controller.
The Assistant Treasurers shall perform such of the Treasurer's duties as
the Treasurer shall from time to time direct. In case of the absence or
disability of the Treasurer, or a vacancy in the office, an Assistant
Treasurer designated by the President or the Board of Directors, if the
office is not vacant, shall perform the duties of the Treasurer.
Section 9. Chief Financial Officer; Powers and Duties. The Chief
Financial Officer shall be responsible for maintaining the financial
integrity of the corporation, shall prepare the financial plans for the
corporation and shall monitor the financial performance of the corporation
and its subsidiaries, as well as performing such other duties as may be
assigned by the President or the Board of Directors.
6
<PAGE>
Section 10. General Counsel; Powers and Duties. The General Counsel
shall be a licensed attorney at law and shall be the chief legal officer of
the corporation. The General Counsel shall have such power and exercise such
authority and provide such counsel to the corporation as deemed necessary or
desirable to enforce the rights and protect the property and integrity of the
corporation, shall also have the power, authority, and responsibility for
securing for the corporation all legal advice, service and counseling, and
shall perform all of the duties incident to the office of General Counsel, as
well as such other duties as may be assigned by the President or the Board of
Directors.
Section 11. Controller and Assistant Controllers; Powers and Duties.
The Controller shall be the chief accounting officer of the corporation and
shall keep and maintain in good and lawful order all accounts required by law
and shall have sole control over, and ultimate responsibility for, the
accounts and accounting methods of the corporation and the compliance of the
corporation with all systems of accounts and accounting regulations
prescribed by law. The Controller shall audit, to such extent and at such
times as may be required by law or as the Controller may think necessary, all
accounts and records of corporate funds or property, by whomsoever kept, and
for such purposes shall have access to all such accounts and records. The
Controller shall make and sign all necessary and proper accounting statements
and financial reports of the corporation, and shall perform all of the duties
incident to the office of Controller, as well as such other duties as may be
assigned by the President or the Board of Directors.
The Assistant Controllers shall perform such of the Controller's duties
as the Controller shall from time to time direct. In case of the absence or
disability of the Controller, or a vacancy in the office, an Assistant
Controller designated by the President or the Board of Directors, if the
office is not vacant, shall perform the duties of the Controller.
Section 12. Salaries. The salaries of all officers of the corporation
shall be fixed by or in the manner provided by the Board of Directors. If
authorized by a resolution of the Board, the salary of any officer other than
the President may be fixed by the President or a committee of the Board. No
officer shall be disqualified from receiving a salary by reason of also being
a Director of the corporation.
ARTICLE FIVE
Stock Certificates
The shares of the corporation shall be represented by certificates in
such form and shall contain such information consistent with law as shall be
approved by the Board of Directors. Such certificates shall be signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer
or by the Secretary or an Assistant Secretary of the corporation and may be
sealed with the seal of the corporation or a facsimile thereof. Any or all
of the signatures upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
corporation itself or an employee of the corporation. If any officer who has
signed or whose facsimile signature has been placed upon such certificate has
ceased to be such officer before the certificate is issued, it may be issued
by the corporation with the same effect as if such person were such officer
at the date of its issue.
7
<PAGE>
ARTICLE SIX
Indemnification of Officers,
Directors, Employees and Agents
Section 1. Indemnification
(a) The Corporation shall provide indemnification to and shall hold
harmless any person who was or is a party or is threatened to be made a party
to or is involved (as a party, witness or otherwise) in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the Corporation) by reason of the fact that he is or was director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, to the
fullest extent permitted by the Delaware General Corporation Law, as it may
be amended or interpreted from time to time, against all expenses, liability
and loss (including attorneys' fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred or suffered by him in connection
with investigating, defending, being a witness in, or participating in
(including on appeal), or preparing for any such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interest of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interest of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) The Corporation shall also indemnify and hold harmless any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
or suffered by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation and
except that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the Corporation
unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in
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this Section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith. The rights provided to
any person by this Article 6 shall be enforceable against the Corporation by
such person who shall be presumed to have relied upon it in serving or
continuing to serve as an officer, director, employee or agent as described
above.
Section 2. Authorization. Any indemnification under Section 1 of this
Article 6 (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in this
Article 6. Such determination shall be made: (a) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties
to such action, suit or proceeding, or (b) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by a
majority vote of the stockholders.
Section 3. Expense Advance. Expenses (including attorneys' fees)
incurred by a director, officer, employee or agent of the Corporation in
defending any civil, administrative, investigative or criminal action, suit
or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board of
Directors in the manner provided in Section 2 of this Article 6 upon receipt
of an undertaking by or on behalf of the director, officer, employee or agent
to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the Corporation as provided in this Article 6.
Any obligation to reimburse the Corporation for expense advances shall be
unsecured and no interest shall be charged thereon.
Section 4. Non-exclusivity. The indemnification provided by this
Article 6 shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under these By-Laws, or any
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit
of the heirs, executors and administrators of such person.
Section 5. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the Corporation would
have the power to indemnify him against such liability under the provisions
of this Article 6.
Section 6. Settlement of Claims. The Corporation shall not be liable
to indemnify any officer, director, employee or agent under this Article 6
for any amounts paid in settlement of any action or claim effected without
the Corporation's written consent, which consent shall not be unreasonably
withheld, or for any judicial award if the Corporation was not given a
reasonable and timely opportunity, at its expense, to participate in the
defense of such action.
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Section 7. Effect of Amendment. Any amendment, repeal, or modification
of this Article 6 shall not adversely affect any right or protection of any
officer, director, employee or agent existing at the time of such amendment,
repeal, or modification.
Section 8. Subrogation. In the event of payment under this Article 6,
the Corporation shall be subrogated to the extent of such payment to all of
the rights of recovery of the officer, director, employee or agent, who shall
execute all papers required and shall do everything that may be necessary to
secure such rights, including the execution of such documents necessary to
enable the Corporation effectively to bring suit to enforce such rights.
Section 9. No Duplication of Payments. The Corporation shall not be
liable under this Article 6 to make any payment in connection with any claim
made against the officer, director, employee or agent to the extent such
officer, director, employee or agent has otherwise actually received payment
(under any insurance policy, agreement, vote, otherwise) of the amounts
otherwise indemnifiable hereunder.
Section 10. "The Corporation". For the purposes of this Article 6,
references to "the Corporation" shall include, in addition to the resulting
corporation, and at the election of the Board of Directors of the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was
a director, officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (but only to the extent the Board of
Directors of the resulting corporation so decides) shall stand in the same
position under the provisions of this Article 6 with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
Section 11. Other Enterprises. For purposes of this Article 6,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as a director, officer,
employee or agent of the Corporation which imposes duties on, or involves
services by, such director, officer, employee or agent with respect to an
employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner not opposed to the best interests
of the Corporation" as referred to in this Article 6.
Section 12. Continuation of Indemnification. The indemnification and
advancement of expenses, provided by, or granted pursuant to, these By-laws
shall, unless otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
a person.
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ARTICLE SEVEN
Miscellaneous
Section 1. Corporate Seal. The official seal for the corporation shall
be circular in form and shall contain the name of the corporation and the
words, "Corporate Seal" and "Delaware."
Section 2. Fiscal Year. The fiscal year of the corporation shall be as
established by the Board of Directors.
Section 3. Waiver of Notice. When any notice is required to be given
to any stockholder or Director of the corporation under the provisions of
these Bylaws or under the provisions of the Articles of Incorporation or
under the provisions of the Delaware General Corporation Law, a waiver
thereof, in writing, signed by the person entitled to such notice whether
before, at, or after the time stated therein, shall be equivalent to the
giving of such notice.
Section 4. Adoption or Amendment of Bylaws. The Board of Directors
shall have power, to the maximum extent permitted by the Delaware General
Corporation Law, to make, amend and repeal the Bylaws of the corporation at
any regular or special meeting of the Board unless the stockholders, in
making, amending or repealing a particular bylaw, expressly provide that the
Directors may not amend or repeal such bylaw. The stockholders also shall
have the power to make, amend or repeal the Bylaws of the corporation at any
annual meeting or at any special meeting called for that purpose.
Section 5. Gender. The masculine gender is used in these Bylaws as a
matter of convenience only and shall be interpreted to include the feminine
and neuter genders as the circumstances indicate.
Section 6. Conflicts. In the event of any irreconcilable conflict
between these Bylaws and either the corporation's Articles of Incorporation
or applicable law, the latter shall control.
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State of Delaware
Secretary of State
Division of Corporations
Filed 05:50 PM 11/14/1996
960332910 - 2633658
CERTIFICATE OF MERGER
MERGING
CONTINENTAL CABLEVISION, INC.
INTO
CONTINENTAL MERGER CORPORATION
UNDER SECTION 251 OF THE
GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
Pursuant to Section 251(e) of the General Corporation Law of the State
of Delaware, Continental Merger Corporation, a Delaware corporation ("Sub"),
a wholly owned subsidiary of U S WEST, Inc., a Delaware corporation ("U S
WEST"), hereby certifies the following information relating to the merger of
Continental Cablevision, Inc., a Delaware corporation ("Continental"), with
and into Sub (the "Merger").
1. The names and states of incorporation of Sub and Continental, which
are the constituent corporations in the Merger (the "Constituent
Corporations"), are:
Name State
------------------------------ ---------
Continental Merger Corporation Delaware
Continental Cablevision, Inc. Delaware
2. The Agreement and Plan of Merger, dated as of February 27, 1996, as
amended and restated as of June 27, 1996 and as further amended as of October
7, 1996 (the "Merger Agreement"), among U S WEST, Sub and Continental, setting
forth the terms and conditions of the Merger, has been approved, adopted,
certified, executed and acknowledged by each of the Constituent Corporations
in accordance with the provisions of Section 251 of the General Corporation
Law of the State of Delaware.
3. The corporation surviving the Merger shall be Continental Merger
Corporation and shall be known as "Continental Cablevision, Inc." (the
"Surviving Corporation").
4. The Certificate of Incorporation of Continental Merger Corporation
shall be the Certificate of Incorporation of the Surviving Corporation except
that the text of ARTICLE ONE thereof shall be amended to read as follows:
<PAGE>
"ARTICLE ONE. The name of the Corporation is Continental Cablevision,
Inc. (the "Corporation")."
5. The executed Merger Agreement is on file at the principal place of
business of the Surviving Corporation at The Pilot House, Lewis Wharf, Boston,
Massachusetts 02110.
6. A copy of the Merger Agreement will be furnished by the Surviving
Corporation, on request and without cost, to any stockholder of either of the
Constituent Corporations.
7. This certificate shall be effective at 8:30 a.m. on November 15,
1996.
IN WITNESS WHEREOF, Sub has caused this Certificate of Merger to be
executed on the 14th day of November 1996.
CONTINENTAL MERGER CORPORATION
/s/ Douglas D. Holmes
-----------------------------
Name: Douglas D. Holmes
Title: Vice President & Treasurer
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FORM OF
AMENDMENT TO RESTRICTED STOCK PURCHASE AGREEMENT IV
Agreement (this "Agreement") made as of February 28, 1996, by and
between Continental Cablevision, Inc., a Delaware corporation ("CCI"), and
First_name Last_name (the "Employee").
WITNESSETH THAT:
WHEREAS, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") dated as of February 27, 1996 between CCI and U S WEST, Inc., a
Delaware corporation ("Acquiror"), CCI will merge with and into Acquiror or
its designee, with Acquiror or its designee continuing as the surviving
corporation (the "Merger") (defined terms used in this Agreement and not
herein defined shall have the meaning given to them in the Merger Agreement);
WHEREAS, CCI and Employee are parties to a Restricted Stock Purchase
Agreement IV made as of January 10, 1992 (the "RSPA");
WHEREAS, in the Merger the Employee will receive Media Stock and Series
D Preferred Stock in exchange for the shares of CCI stock to which the RSPA
applies;
WHEREAS, the Employee and CCI each desire that the Media Stock and
Series D Preferred Stock shall constitute Subject Stock as defined by the
RSPA, that the RSPA shall be amended as provided herein, and that, after the
consummation of the Merger, the Acquiror and the Employee shall be bound by
the RSPA as so amended;
NOW THEREFORE, the Employee and CCI, in consideration of these premises
and other good and valuable consideration, do hereby mutually agree as
follows:
<PAGE>
1. The RSPA, as amended by this Agreement, shall inure to the benefit
of and be binding upon each of the Employee and the Acquiror in accordance
with its terms, as of the Effective Time.
2. The Media Stock and Series D Preferred Stock which is to be
received by the Employee in the Merger in exchange for the Subject Stock
under the RSPA shall be Subject Stock under such RSPA as amended herein.
3. Section 1.1 of the RSPA shall be deleted and all references to a
"Permitted Transferee" in the RSPA shall be stricken.
4. Section 4.2 of the RSPA shall be amended by substituting the
following therefor: 4.2 The Employee hereby agrees that he will not make or
purport to make, except to CCI, any sale, pledge, or transfer (whether
voluntarily, by operation of law, by bequest or otherwise) of Unvested
Subject Stock.
5. Sections 5.2 and 5.4 of the RSPA shall be stricken.
6. Section 5.3 of the RSPA shall be renumbered as Section 5.2, and the
parenthetical in the second line shall be changed to read: "(unless
otherwise mutually agreed and unless other reasonable processes are then in
effect)."
7. Section 6 of the RSPA shall be amended by substituting the following
therefor:
6. COVENANT AGAINST COMPETITIVE ACTIVITY. The
Employee understands that the business in which CCI and
its Subsidiaries are engaged is the acquisition of
existing telecommunications systems and the obtaining of
franchises (or the renewal of existing franchises,
licenses, and other rights) for the construction and
operation of telecommunications systems to provide voice,
data and video
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services in communities throughout the United States of America
and in certain foreign countries and the investment in and
participation in the operation of other telecommunications
and cable programming ventures. The Employee expressly agrees
that during his employment by CCI or its Subsidiary, and for a
further period of one year following termination of any such
employment (unless termination occurs after December 31,
2001, in which case CCI hereby expressly agrees that said
restriction shall cease), the employee (alone or with
others) will not without the written consent of CCI
engage in any activity in the telecommunications business
(which shall include, but not be limited to, the
provision of video, voice and data services), directly or
indirectly (whether as an employee, officer, Director,
agent, consultant, proprietor, partner, principal
stockholder or otherwise), other than as required for the
performance of his employment by CCI or by a Subsidiary.
8. Section 10(c) of the RSPA shall be amended by adding at the end
thereof: "(other than its laws concerning choice of law)."
9. Notwithstanding the other provisions of the RSPA, the Subject Stock
shall become Vested Subject Stock in its entirety in accordance with the
terms of the RSPA or, if earlier, upon the first to occur of the following
events if CCI has, no later than the date of such event, merged with and into
Acquiror:
(1) The Employee's death;
(2) The Employee's termination of employment by reason of disability;
(c) In the case of a Pilot-House based corporate Employee, the
Employee's
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termination of employment by reason of the Employee's
involuntary relocation to a place of employment that is more than
25 miles from Pilot House, or the relocation of the headquarters
of the merged CCI operations from Pilot House.
(d) The Employee's termination of employment within twenty-four
months of the Effective Time, other than in connection with the
sale, swap or other disposition of the system or other business
unit in which the Employee is employed, if such termination is:
(i) By reason of a diminution in the Employee's
compensation, including a material adverse change in
employee benefits;
(ii) By reason of the assignment by Acquiror to the Employee
of duties and responsibilities which are materially
less than the Employee's duties and responsibilities as
of the Effective Time; or
(iii) An involuntary termination of the Employee's employment
other than by reason of a Termination for Cause.
"Termination for Cause" shall mean termination because of
the Employee's (A) refusal or failure (other than for
reasons of illness, incapacity due to physical or mental
illness or physical injury) to perform, or persistent and
material deficiencies in performing, duties assigned during
employment by Acquiror, provided such duties are
substantially similar to duties assigned by CCI prior to the
4
<PAGE>
Effective Time, and further provided that the Acquiror shall
provide the Employee with written notice of the reason(s)
for his proposed termination and Employee shall have thirty
(30) days from the date of such notice within which to cure
any failure or material deficiency; (B) misappropriation of
any CCI or Acquiror funds or property; or (C) conduct which
could reasonably result in the Employee's conviction of a
felony; or (D) conduct which could reasonably result in
termination of the Employee's employment due to violation of
published policies of CCI or the Acquiror.
For purposes of this Section 9, "termination of employment" means that the
Employee is not employed by CCI, Acquiror, or any corporation or entity in
which, at the time in question, CCI or Acquiror owns (directly or indirectly
through other corporations or entities) a majority of the voting shares or
ownership interests, or which entity owns such a majority interest in CCI or
Acquiror.
10. Employee hereby waives his or her rights to appraisal under Section
262 of the Delaware General Corporation Law with respect to any shares of
Subject Stock owned by him or her in connection with the transactions
contemplated by the Merger Agreement.
11. All disputes arising under the RSPA and this Agreement shall be
subject to binding arbitration before the American Arbitration Association
("AAA"). The arbitration shall be conducted in Boston, Massachusetts before
a single arbitrator in accordance with the rules of the AAA governing
resolution of commercial disputes. The parties shall bear the costs and fees
of the arbitration equally, and the arbitrator shall have no power to award
attorneys' fees, or
5
<PAGE>
multiple, punitive or exemplary damages. By signing this Agreement, Employee
voluntarily, knowingly and intelligently waives any right he or she may
otherwise have to seek remedies in court or other forums, including the right
to a jury trial and the right to seek punitive damages on any common law
and/or contract claims.
12. Except as amended herein, the RSPA shall continue in full force and
effect.
IN WITNESS WHEREOF, CCI, by its officer hereunto duly authorized, and
the Employee have duly executed and delivered this Agreement in duplicate
counterpart copies as of the date first hereinafter written.
CONTINENTAL CABLEVISION, INC. The Employee:
By:__________________________ By:___________________________
6
<PAGE>
FORM OF
AMENDMENT TO PROMISSORY NOTES
THIS AMENDMENT, dated as of February 28, 1996, is entered into by and
between CONTINENTAL CABLEVISION INVESTMENTS, INC. ("the Payee"), a Delaware
corporation, and EMPLOYEE_NAME ("Maker").
WHEREAS, Maker delivered to Payee three Promissory Notes in the total
original principal amount of LOAN on December 29, 1992 (which Promissory Notes
are referred to herein as the "Notes"); and
WHEREAS, the parties hereto have agreed to amend the Notes to extend
their stated maturity dates and the events upon which such maturity dates may
be accelerated on the terms hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows with
respect to each Note:
1. DEFINED TERMS. Except as otherwise expressly provided herein, all
defined terms in the Note shall have the same meanings as in the
Restricted Stock Purchase Agreement executed in connection with the
Note.
2. MATURITY DATE. The maturity date of the Note set forth therein
(currently December 31, 1996) is hereby amended to January 2, 2002.
3. ACCELERATION EVENTS. The entire unpaid principal hereof shall
immediately become due and payable, without further demand or notice
of any kind, in the event that (a) a default shall exist in the
payment of principal of the Note, or (b) the maker sells or transfers,
other than to a Permitted Transferee, any of the Unvested Subject
Stock.
4. NO OTHER AMENDMENTS. Except as expressly provided in this Amendment,
all of the terms and conditions of the Note shall remain in full
force and effect and are hereby ratified and confirmed.
5. MISCELLANEOUS. This Amendment shall be deemed to be a contract under
the laws of the Commonwealth of Massachusetts and for all purposes
shall be construed in accordance with and governed by the laws of
said Commonwealth or of the United States of America, as applicable.
<PAGE>
IN WITNESS WHEREOF, the Payee, by its officer hereunto duly authorized,
and the Maker have each caused this Amendment to be executed as a sealed
instrument as of the date first written above.
CONTINENTAL CABLEVISION
INVESTMENTS, INC.
Witness:
_____________________ By:___________________________
Name: Name:
Title:
MAKER:
Witness:
_____________________ ___________________________
Name: Name:
2
<PAGE>
FORM OF
SPECIAL TAX LIABILITY FINANCING AGREEMENT
Agreement made this November 8, 1996, by and between Continental
Cablevision Investments, Inc., a Delaware corporation ("Investments") and
(the "Employee").
WITNESSETH THAT:
WHEREAS, Continental Cablevision, Inc. ("CCI"), has authorized a
restricted stock purchase program for the benefit of selected key employees
of CCI or of its subsidiaries (meaning any corporation or other entity
controlled by CCI directly or through another subsidiary of CCI), whereby the
Employee (as one of such selected key employees) has purchased ___ shares of
the Class B Common Stock of CCI from CCI at their one cent per share par
value, but subject to various restrictions and repurchase rights, all as set
forth in the Restricted Stock Purchase Agreement, as amended on February 28,
1996 ("RSPA"), which the Employee has entered into with CCI under this
program (said shares, to the extent the Employee has not filed a proper
election with respect thereto pursuant to Section 83(b) of the Internal
Revenue Code (an "83(b) Election") are hereinafter referred to as the
"Subject Stock");
WHEREAS, CCI recognizes that the Employee may incur substantial
additional income tax liabilities on account of such favorable purchase of
its Class B Common Stock as shares of the Subject Stock become vested and
wishes to assist the Employee in satisfying such liabilities; and
<PAGE>
WHEREAS, Investments is a subsidiary of CCI;
NOW THEREFORE, Investments and the Employee hereby mutually agree as
follows:
1.0 Investments shall lend to the Employee amounts which the Employee
shall from time to time request in writing with respect to each calendar year
from 1995 through 1999, not to exceed an amount (the "Maximum Loan Amount")
equal to the sum of the federal, state and local income and employment tax
liability which the Employee would have incurred solely as a result of the
Employee's purchase of the Subject Stock had he filed an 83(b) Election
(assuming for purposes of such hypothetical election that each share of
Subject Stock had a value of $19.40 at the time of the Employee's purchase
thereof), such an amount not to exceed _____. If Investments determines in
its reasonable judgment that the Merger (as defined in the RSPA) will not
occur, no further amounts will be lent to the Employee.
1.1 With respect to no calendar year shall the Employee borrow an
amount (a) which exceeds one-third of the Maximum Loan Amount or (b) which
causes the total outstanding principal amount hereunder to exceed the
Employee's total federal, state and local income tax and employment liability
incurred through the end of such calendar year with respect to Subject Stock
as to which no 83(b) Election was filed provided, however, that the
"one-third" limitation in clause (a) shall not apply if the vesting of shares
of Subject Stock is accelerated in accordance with the provisions of the RSPA
as amended on February 28, 1996 and, in the event of such acceleration, the
Employee may request in writing, and Investments will disburse within 30 days
after such request, an amount equal to the difference between the Maximum
Loan Amount and the total principal amount which the Employee had previously
borrowed hereunder.
<PAGE>
1.2 The loan shall be evidenced by a Promissory Note or Notes in the
form attached hereto, providing for repayment in full on or before January 2,
2002.
1.3 The loan shall be collaterally secured by a pledge to Investments
of all of the Subject Stock. At the Employee's request, he may substitute an
equal number of other vested shares of Common Stock of CCI for the pledged
shares of Subject Stock. After the consummation of the Merger, upon written
application by the Employee, Investments shall release from such pledge
shares of vested Subject Stock, provided that at the time of such release
there remain subject to such pledge a number of shares of vested Subject
Stock having a fair market value (as determined based on the closing price
for such shares on the day prior to such application) at least equal to 125%
of the outstanding principal amount of the loan. The Employee may make no
more than one such application during each 12 month period ending on the
anniversary of consummation of the Merger. If the Employee requests any
amount to be disbursed under the loan after any shares of vested Subject
Stock have been released from the pledge, the Employee shall (as a condition
to receiving such additional disbursement) pledge to Investments additional
shares of vested Subject Stock to the extent necessary to insure that after
such disbursement there remain subject to the pledge a number of shares of
vested Subject Stock having a fair market value (as determined based on the
closing price for such shares on the day prior to such disbursement) equal to
at least 125% of the outstanding principal amount of the loan. If the Merger
occurs, all of the shares of U S WEST Media Group Common Stock, par value
$.01 per share, of U S WEST, Inc. (the "Media Stock") and shares of Series D
Convertible Preferred Stock, par value $1.00 per share, of U S WEST, Inc.
(the "Series D Preferred Stock") that the Employee receives in the Merger
(the "Media Securities") shall be substituted for the Subject Stock as
security for the loan, and the terms of this Section 1.3 shall apply to such
Media Securities as if
<PAGE>
they were Subject Stock. If, at any time after any shares of vested Subject
Stock have been released from the pledge, the fair market value of the
remaining shares of vested Media Securities that secure an Employee's loan is
less than 125% of the outstanding principal amount of the loan, the Employee
agrees to pledge as additional collateral additional shares of vested Subject
Stock, shares of Series D Preferred Stock or Media Stock that are owned by
the Employee or such other collateral as Investments may reasonably request
so that the total value of vested and pledged collateral is equal to such
125%. At the time of any release of shares of vested Subject Stock pursuant
to this Section 1.3, the Employee and CCII shall mutually agree to the terms
and conditions of such release, which terms may be in addition to or may
modify the terms set forth herein.
The Employee acknowledges and agrees that, with respect to each share of
unvested Subject Stock, the Employee will receive solely shares of Media
Stock in the Merger pursuant to the terms of the Agreement and Plan of Merger
dated as of February 27, 1996 between CCI and U S WEST, Inc., as amended.
1.4 Except as otherwise provided in Section 1.1, the loan shall be
disbursed with respect to each calendar year (a) at the time of income tax
withholding with respect to the vesting of Subject Stock but, in each such
case, not in an amount exceeding the amount of the income tax withholding at
such date and (b) as requested in writing by the Employee, in a disbursement
made by Investments after the close of such calendar year no later than the
January 31 following the end of such calendar year or (if later) within 30
days after the Employee's request.
1.5 If and when the Merger occurs, the then outstanding principal
amount of the loan shall be forgiven and further disbursements shall be
forgiven as the loan is disbursed, provided, however, that the loan shall be
payable by the Employee in full (including any amounts previously forgiven)
in the case of any violation by the Employee
<PAGE>
of the covenant contained in Section 6 of the RSPA. Notwithstanding the
foregoing, the loan shall be forgiven in full upon the Employee's death.
2 The Employee herewith delivers to Investments the stock certificate
representing the Subject Stock, together with a stock assignment duly
endorsed in blank.
3 This Agreement constitutes the entire understanding and agreement of
Investments and the Employee as to the subject matter hereof, and may not be
modified or amended except by a further written agreement duly signed by each
of the parties hereto.
4 All disputes arising under this Agreement shall be subject to binding
arbitration before the American Arbitration Association ("AAA"). The
arbitration shall be conducted in Boston, Massachusetts before a single
arbitrator in accordance with the rules of the AAA governing resolution of
commercial disputes. The parties shall bear the costs and fees of the
arbitration equally, and the arbitrator shall have no power to award
attorneys' fees, or multiple, punitive or exemplary damages.
IN WITNESS WHEREOF, Investments, by its officer hereunto duly
authorized, and the Employee have made this Agreement as of the date first
hereinabove written.
CONTINENTAL CABLEVISION
INVESTMENTS, INC.
By:___________________________
P. Eric Krauss
The Employee:
______________________________
Signature
______________________________
Address
<PAGE>
FORM OF
RESTATED TAX LIABILITY FINANCING AGREEMENT
Agreement made this October 29, 1996, by and between Continental
Cablevision Investments, Inc., a Delaware corporation ("Investments") and
First_name Last_name (the "Employee").
WITNESSETH THAT:
WHEREAS, Continental Cablevision, Inc. ("CCI"), has authorized a
restricted stock purchase program for the benefit of selected key employees
of CCI or of its subsidiaries (meaning any corporation or other entity
controlled by CCI directly or through another subsidiary of CCI), whereby the
Employee (as one of such selected key employees) has purchased total_va
shares of the Common Stock of CCI from CCI at their one cent per share par
value, but subject to various restrictions and repurchase rights, all as set
forth in the Restricted Stock Purchase Agreement, as most recently amended
(the "RSPA"), which the Employee has entered into with CCI under this program
(said shares are hereinafter referred to as the "Subject Stock");
WHEREAS, CCI has recognized that the Employee may incur substantial
additional income tax liabilities on account of such favorable purchase of
its Common Stock;
WHEREAS, Investments is a subsidiary of CCI and Investments and the
Employee have previously entered into a Tax Liability Financing Agreement
dated TLFA_VA_DATE (the "TLFA") as amended; and
WHEREAS, Investments and the Employee wish now to amend and restate the
TLFA;
1
<PAGE>
NOW THEREFORE, Investments and the Employee hereby mutually agree as
follows:
1. Upon receipt of a true copy of the Employee's valid and binding
election with respect to the Subject Stock pursuant to Section 83(b) of the
Internal Revenue Code (an "83(b) Election"), Investments shall lend to the
Employee any amount which he shall from time to time request in writing, not
to exceed an amount equal to the sum of the portions of his federal, state
and local income and employment tax liability for 1996 incurred solely as a
result of his purchase of the Subject Stock and his filing of an 83(b)
Election with respect thereto, such sum to be determined by computing the
total amount of the Employee s actual income and employment tax liability for
1996 and subtracting therefrom the amount of such liability had he not
purchased the Subject Stock and filed the 83(b) Election, subject to the
following terms and conditions:
1.1 The loan shall be evidenced by a Promissory Note or Notes in the
form attached hereto, providing for repayment in full on or before January 2,
2002.
1.2 The loan initially shall be collaterally secured by a pledge
to Investments of all of the Subject Stock. If the Merger (as that term is
defined in the RSPA) is consummated, upon written application by the
Employee, Investments shall release from such pledge shares of vested Subject
Stock, provided that at the time of such release there remain subject to such
pledge a number of shares of vested Subject Stock having a fair market value
(as determined based on the closing price for such shares on the day prior to
such application) at least equal to 125% of the outstanding principal amount
of the loan. The Employee may make no more than one such application during
each 12 month period ending on the anniversary of consummation of the Merger.
1.3 Amounts under the loan shall be disbursed from time to time as
required to meet the Employee's income tax liabilities incurred solely as a
result of his purchase of the Subject Stock and his filing of an 83(b)
Election with respect thereto, including the amount required to satisfy his
employer's tax withholding obligations with
2
<PAGE>
respect to such liabilities. If the Employee requests any amount to be
disbursed under the loan after any shares of vested Subject Stock have been
released from the pledge referred to in Section 1.2, the Employee shall (as a
condition to receiving such additional disbursement) pledge to Investments
additional shares of vested Subject Stock to the extent necessary to insure
that after such disbursement there remain subject to the pledge a number of
shares of vested Subject Stock having a fair market value (as determined
based on the closing price for such shares on the day prior to such
disbursement) equal to at least 125% of the outstanding principal amount of
the loan. If the Merger occurs, all of the shares of U S WEST Media Group
Common Stock, par value $.01 per share, of U S WEST, Inc. (the "Media Stock")
and shares of Series D Convertible Preferred Stock, par value $1.00 per
share, of U S WEST, Inc. (the "Series D Preferred Stock") that the Employee
receives in the Merger (the "Media Securities") shall be substituted for the
Subject Stock as security for the loan, and the terms of this Section 1.3
shall apply to such Media Securities as if they were Subject Stock. If, at
any time after any shares of vested Subject Stock have been released from the
pledge, the fair market value of the remaining shares of vested Media
Securities that secure an Employee's loan is less than 125% of the
outstanding principal amount of the loan, the Employee agrees to pledge as
additional collateral additional shares of vested Subject Stock, shares of
Series D Preferred Stock or Media Stock that are owned by the Employee or
such other collateral as Investments may reasonably request so that the total
value of vested and pledged collateral is equal to such 125%. At the time of
any release of shares of vested Subject Stock pursuant to this Section 1.3,
the Employee and CCII shall mutually agree to the terms and conditions of
such release, which terms may be in addition to or may modify the terms set
forth herein.
The Employee acknowledges and agrees that, with respect to each share of
unvested Subject Stock, the Employee will receive solely shares of Media
Stock in the Merger pursuant to the terms of the Agreement and Plan of Merger
dated as of February 27, 1996 between CCI and U S WEST, Inc., as amended.
3
<PAGE>
1.4. The outstanding principal amount of the loan shall be forgiven
on January 2, 2002 if the Merger has been consummated and the Employee has
not experienced a "termination of employment" as defined below. Except in
the case of a termination of employment specified in Section 1.5(b), if the
Employee has experienced a termination of employment before such date and the
Merger has been consummated prior to such termination of employment, and the
Employee has not violated the covenant contained in Section 6 of the RSPA,
then the outstanding principal amount of the loan shall be forgiven on
January 2, 2002 as follows: (a) in its entirety if the termination of
employment occurred after January 1, 1999; (b) if the termination occurred
before January 2, 1999 and after January 1, 1998, two-thirds of such amount
shall be forgiven; and (c) if the termination occurred before January 2, 1998
and after January 1, 1997, one-third of such amount shall be forgiven. For
purposes of this Section 1.4 and Section 1.5, "termination of employment"
means that the Employee is not employed by CCI, Acquiror, or any corporation
or entity in which, at the time in question, CCI or Acquiror owns (directly
or indirectly through other corporations or entities) a majority of the
voting shares or ownership interests, or which entity owns such a majority
interest in CCI or Acquiror.
1.5. Notwithstanding Section 1.4, but subject to the last sentence
of this Section 1.5, the loan shall be forgiven in full upon the later to
occur of: (a) the expiration of the period (if any) during which the covenant
contained in Section 6 of the RSPA applies to the Employee, without any
violation of said covenant having occurred, and (b) the occurrence of any of
the following events if the Merger has been consummated no later than the
date of such event:
(i) The Employee's death.
(ii) The Employee's termination of employment by reason of
disability.
4
<PAGE>
(iii) In the case of a Pilot-House based corporate
Employee, the Employee's termination of employment by reason of
the Employee's involuntary relocation to a place of employment
that is more than 25 miles from Pilot House, or the relocation of
the headquarters of the merged CCI operations from Pilot House.
(iv) The Employee's termination of employment within
twenty-four months of the Effective Time (as that term is defined
in the Merger Agreement), other than in connection with the sale,
swap or other disposition of the system or other business unit in
which the Employee is employed, if such termination is:
(A) By reason of a diminution in the Employee's
compensation, including a material adverse change in
employee benefits;
(B) By reason of the assignment by Acquiror to the
Employee of duties and responsibilities which are
materially less than the Employee's duties and
responsibilities as of the Effective Time; or
(C) An involuntary termination of the Employee's
employment other than by reason of a Termination for
Cause. "Termination for Cause" shall mean termination
because of the Employee's (I) refusal or failure (other
than for reasons of illness, incapacity due to physical
or mental illness or physical injury) to perform, or
persistent and material deficiencies in performing,
duties assigned during employment by Acquiror, provided
such duties are substantially similar to duties
assigned by
5
<PAGE>
CCI prior to the Effective Time, and further provided
that the Acquiror shall provide the Employee with
written notice of the reason(s) for his
proposed termination and Employee shall have thirty
(30) days from the date of such notice within which to
cure any failure or material deficiency; (II)
misappropriation of any CCI or Acquiror funds or
property; or (III) conduct which could reasonably
result in the Employee's conviction of a felony; or
(IV) conduct which could reasonably result in
termination of the Employee's employment due to
violation of published policies of CCI or the Acquiror.
2. The Employee:
(a) on TLFA_VA_DATE requested that Investments lend him an amount
equal to $5.43 per share of the Subject Stock (28% of $19.40 per
share), to be disbursed to his employer to meet its federal
income tax withholding obligations arising in connection with the
Employee's purchase of the Subject Stock, and such further sums
as he may from time to time request pursuant to Section 1 hereof;
(b) again affirms to Investments that he has submitted an 83(b)
Election; and
(c) has delivered to Investments the stock certificate representing
the Subject Stock, together with a stock assignment duly endorsed
in blank.
6
<PAGE>
(d) acknowledges that interest income on the outstanding balance of
the loan may be imputed to him under Internal Revenue Code
Section 7872 and, in such case, will be so reported by his
employer.
3. All disputes arising under this Agreement shall be subject to
binding arbitration before the American Arbitration Association ("AAA"). The
arbitration shall be conducted in Boston, Massachusetts before a single
arbitrator in accordance with the rules of the AAA governing resolution of
commercial disputes. The parties shall bear the costs and fees of the
arbitration equally, and the arbitrator shall have no power to award
attorneys' fees, or multiple, punitive or exemplary damages. By signing this
Agreement, Employee voluntarily, knowingly and intelligently waives any right
he or she may otherwise have to seek remedies in court or other forums,
including the right to a jury trial and the right to seek punitive damages on
any common law and/or contract claims.
4. The parties hereto agree that the Employee may substitute an equal
number of other vested shares of Common Stock of CCI (or shares received
therefor in the Merger which become Subject Stock) for the pledged shares of
Subject Stock.
5. This Agreement constitutes the entire understanding and agreement of
Investments and the Employee as to the subject matter hereof, replaces the
previous version of the TLFA, and may not be modified or amended except by a
further written agreement duly signed by each of the parties hereto.
7
<PAGE>
IN WITNESS WHEREOF, Investments, by its officer hereunto duly authorized,
and the Employee have made this Agreement as of the date first hereinabove
written.
CONTINENTAL CABLEVISION
INVESTMENTS, INC.
By___________________________
P. Eric Krauss
The Employee:
______________________________
Signature
______________________________
Address
8
<PAGE>
EXHIBIT 11.1
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
COMPUTATION OF LOSS PER SHARE
<TABLE>
<CAPTION>
PERIOD PERIOD
JANUARY 1, NOVEMBER 15,
TWELVE MONTHS ENDED 1996 1996
DECEMBER 31, THROUGH THROUGH
------------------------ NOVEMBER 14, DECEMBER 31,
1994 1995 1996 1996
----------- ----------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Loss Before Extraordinary Item............................ $ (68,576) $ (112,027) $ (290,123) $ (40,740)
Extraordinary Item, Net of Income Taxes................... (18,265) -- -- --
----------- ----------- ------------ ------------
Net Loss.................................................. $ (86,841) $ (112,027) $ (290,123) $ (40,740)
Preferred Stock Preferences............................... (36,800) (39,802) (37,606) --
----------- ----------- ------------ ------------
Loss Applicable to Common Stockholders.................... $ (123,641) $ (151,829) $ (327,729) $ (40,740)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Primary Loss per Common Share:
Loss Before Extraordinary Item.......................... $ (.92) $ (1.22) $ (2.21) $ (407,400)
Extraordinary Loss...................................... (.16) -- -- --
----------- ----------- ------------ ------------
Primary Loss per Common Share......................... $ (1.08) $ (1.22) $ (2.21) $ (407,400)
----------- ----------- ------------ ------------
Fully Dilutive Loss per Common Share:
Loss Before Extraordinary Item.......................... $ (.92) $ (1.22) $ (2.21) $ (407,400)
Extraordinary Loss...................................... (.16) -- -- --
----------- ----------- ------------ ------------
Fully Dilutive Loss per Common Stock.................. $ (1.08) $ (1.22) $ (2.21) $ (407,400)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Average number of Common Shares used:
In Primary Calculation.................................. 114,334 124,882 148,580 *
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
In Fully Diluted Calculation............................ 114,334 124,882 148,580 *
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
- ------------------------
* 100 Shares outstanding as of December 31, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> NOV-14-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 1,667,018
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,503,406
<OTHER-EXPENSES> 533,664
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 416,241
<INCOME-PRETAX> (370,052)
<INCOME-TAX> (79,929)
<INCOME-CONTINUING> (290,123)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (290,123)
<EPS-PRIMARY> (2.21)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> NOV-15-1996
<PERIOD-END> DEC-31-1996
<CASH> 36,407
<SECURITIES> 715,367
<RECEIVABLES> 120,596
<ALLOWANCES> 16,890
<INVENTORY> 125,264
<CURRENT-ASSETS> 0
<PP&E> 2,582,015
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,058,589
<CURRENT-LIABILITIES> 0
<BONDS> 2,845,981
0
0
<COMMON> 0
<OTHER-SE> 8,626,772
<TOTAL-LIABILITY-AND-EQUITY> 15,058,589
<SALES> 252,208
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 277,394
<OTHER-EXPENSES> 30,805
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,203
<INCOME-PRETAX> (55,991)
<INCOME-TAX> (15,251)
<INCOME-CONTINUING> (40,740)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,740)
<EPS-PRIMARY> (407,400)
<EPS-DILUTED> 0
</TABLE>