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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A1
(Mark One)
|X| AMENDMENT NO. 1
TO ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-16899
CENTURY COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
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New Jersey 06-1158179
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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50 Locust Avenue
New Canaan, Connecticut 06840
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (203) 972-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, par value $.01
per share
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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. |X|
As of August 31, 1999, there were 33,701,226 shares of Class A Common
Stock outstanding and 42,322,059 shares of Class B Common Stock outstanding. The
aggregate market value of the Class A Common Stock held by non-affiliates of the
Company, based upon the last reported sale price of the Class A Common Stock on
The Nasdaq Stock Market on August 31, 1999 of $46.625 per share, was
$1,518,061,557.
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EXPLANATORY NOTE
This Form 10-K/A1 is being filed by Century Communications Corp., a New
Jersey corporation (the "Company"), as an amendment to its Annual Report on Form
10-K for the fiscal year ending May 31, 1999, (i) to include Items 10-13 of Part
III, (ii) to include an additional exhibit in Item 14 of Part IV and (iii) to
include revised financial statements in Item 14 of Part IV to reflect the
addition of Note 17 thereto.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the Directors of the Company who have been elected to serve
until the 1999 Annual Meeting of Shareholders and until their successors are
elected and qualified. Also set forth below is certain information, as of August
31, 1999, with respect to the beneficial ownership of Shares of Class A Common
Stock or Class B Common Stock by each such Director.
On March 5, 1999, the Company and Adelphia Communications Corporation
("Adelphia") jointly announced the signing of a definitive agreement (the
"Merger Agreement") for the merger ("Merger") of the Company with and into a
newly formed direct, wholly-owned subsidiary of Adelphia (the "Merger Sub"). The
Merger Sub will be the surviving corporation in the Merger. Upon the
consummation of the Merger, the Merger Sub's directors will be those persons
designated by the Merger Sub. For further discussion of the Merger and the
Merger Agreement, see Item 1. "Business".
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PRINCIPAL OCCUPATION,
DIRECTOR, AGE, YEAR OTHER BUSINESS EXPERIENCE NUMBER OF SHARES PERCENT
FIRST BECAME DIRECTOR(1) AND OTHER DIRECTORSHIPS(20) BENEFICIALLY OWNED(6) OF CLASS
----------------------- --------------------------- --------------------- --------
<S> <C> <C> <C>
John P. Cole, Jr................ Mr. Cole is a member of the Class A: 58,527(7) *
Age: 69 Washington, D.C. law firm of Cole
Director since 1997 Raywid & Braverman which serves as a
regulatory counsel to the Company.
Bernard P. Gallagher............ Mr. Gallagher has been the President Class A: 149,218(8) *
Age: 52 and Chief Operating Officer of the
Director since 1990 Company since October 1989. He was
Chairman of the Board and Chief Executive
Officer of Centennial Cellular Corp., a
Company engaged in the cellular telephone
and PCS business ("Centennial") from August
1991 to January 7, 1999, and director of
Centennial from March 1991 to January 7,
1999. From February 1990 to August 1991,
Mr. Gallagher was President and Chief
Operating Officer of Centennial. From 1979
to October 1989, he served in various
financial and executive capacities at
Comcast Corporation, a cable television and
cellular telephone company, and its
subsidiaries, including Vice President and
Treasurer from November 1984 to October
1989.
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<TABLE>
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PRINCIPAL OCCUPATION,
DIRECTOR, AGE, YEAR OTHER BUSINESS EXPERIENCE NUMBER OF SHARES PERCENT
FIRST BECAME DIRECTOR(1) AND OTHER DIRECTORSHIPS(20) BENEFICIALLY OWNED(6) OF CLASS
----------------------- --------------------------- --------------------- --------
<S> <C> <C> <C>
Michael G. Harris............... Mr. Harris has been the Senior Vice Class A: 99,918(9) *
Age: 53 President, Engineering and Chief
Director since 1997 Engineering Officer of the Company
since June 1991. Mr. Harris was also Senior
Vice President, Engineering, and Chief
Engineering Officer of Centennial from
August 1991 to January 7, 1999.
William M. Kraus (2)(3)(4)(5)... Mr. Kraus is the Chairman of Kraus Class A: 6,692(10) *
Age:73 Sikes, Inc., a publishing company,
Director since 1986 and has been such since 1985. From
Class A Director 1983 to 1985, he was a Vice
President of The Equitable Life Assurance
Society of the United States. From 1979 to
1983, Mr. Kraus held positions as the
Secretary of the Department of Development
of the State of Wisconsin and as Assistant
to the Governor of the State of Wisconsin.
Mr. Kraus was also a director of Centennial
from August 1991 to September 7, 1999.
David Ross Miller............... Mr. Miller was a Director of M & I Class A: 11,400(11) *
Age:73 Mid-State Bank, Stevens Point,
Director since 1997 Wisconsin from 1978 to 1997 the
Chairman of the Board from 1984 to 1997,
and is currently Director Emeritus. From
1965 to 1991 Mr. Miller was a Director of
Sentry Insurance, Stevens Point, Wisconsin
and from 1971 to 1991 Mr. Miller was the
president and a Director of Sentry
Investment Management, Inc. Mr. Miller was
previously (12/5/85 to 10/23/91) a Director
of the Company.
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<CAPTION>
PRINCIPAL OCCUPATION,
DIRECTOR, AGE, YEAR OTHER BUSINESS EXPERIENCE NUMBER OF SHARES PERCENT
FIRST BECAME DIRECTOR(1) AND OTHER DIRECTORSHIPS(20) BENEFICIALLY OWNED(6) OF CLASS
----------------------- --------------------------- --------------------- --------
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David Z. Rosensweig(2)(5)....... Mr. Rosensweig has been the Class A: 29,958(12) *
Age: 74 Secretary of the Company since its Class B: 23,350,964(15)(17)(21) 55.2%
Director since 1982 incorporation in December 1985, and
of Century-Texas from 1982 to December
1985. Mr. Rosensweig has been a director
and Secretary of Centennial from 1988 to
September 7, 1999. He is a member of the
New York law firm of Leavy Rosensweig &
Hyman, which acts as general counsel to the
Company, and has been practicing law since
1948.
Scott N. Schneider.............. Mr. Schneider has been Chief Class A: 109,185(13) *
Age: 41 Financial Officer of the Company
Chief Director since 1994 since December 1996. He has been
Senior Vice President and Treasurer of the
Company since June 1991 and has been an
Assistant Secretary of the Company since
October 1986. He was a Vice President of
the Company from October 1986 to June 25,
1991 and was Controller of the Company from
December 1985 to June 25, 1991. He was
Controller of Century-Texas from December
1982 to December 1985. Mr. Schneider was
also Senior Vice President, Chief Financial
Officer and Treasurer of Centennial from
August 1991 to September 7, 1999. He was a
Vice President and Controller of Centennial
from the date of its incorporation in 1988
to August 1991. Mr. Schneider was a
director of Centennial from August 1991 to
September 7, 1999.
Claire L. Tow................... Mrs. Tow has been a Senior Vice Class A: 510,516(14)(15) 1.5%
Age: 69 President of the Company since Class B: 42,322,059(16)(17) 100
Director since 1988 August 1992 and was a Vice President
of the Company from February 1988 to
August 1992. She has been involved
in the operations of the Company
since its incorporation in December
1985 and in the operations of
Century-Texas since its
organization. Mrs. Tow has served as
a director of Citizens since June
1993. Claire Tow is the wife of
Leonard Tow.
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<CAPTION>
PRINCIPAL OCCUPATION,
DIRECTOR, AGE, YEAR OTHER BUSINESS EXPERIENCE NUMBER OF SHARES PERCENT
FIRST BECAME DIRECTOR(1) AND OTHER DIRECTORSHIPS(20) BENEFICIALLY OWNED(6) OF CLASS
----------------------- --------------------------- --------------------- --------
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Leonard Tow(3).................. Dr. Tow has been the Chairman of the Class A: 510,516(18) 1.5%
Age: 71 Board of the Company since 1989, and Class B: 42,322,059(16)(17)(19) 100
Director since 1973 has been the Chief Executive Officer
of the Company since its incorporation and
of Century-Texas since its organization in
1973 through December 1985. Dr. Tow also
served as the President and Chief Operating
Officer of the Company from the date of its
incorporation to October 1989, and as Chief
Financial Officer of the Company from the
date of its incor-poration to December
1996, and in both of said capacities for
Century-Texas from its organization in 1973
through December 1985. He has been active
in the cable television industry for 30
years. Dr. Tow has served as the Chairman
of the Board, Chief Executive Officer and
Chief Financial Officer of Citizens, 1.98%
of the stock of which is owned by the
Company, since 1990. He holds a Ph.D. from
Columbia University and is the husband of
Claire Tow.
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* Less than 1%.
(1) Year that the nominee, if currently a Director, first became a Director of
the Company or, if before December 5, 1985, of Century-Texas.
(2) Member of the Compensation Committee.
(3) Member of the Executive Committee.
(4) Member of the Audit Committee.
(5) Member of the Employee Stock Option and Equity Plan Committee.
(6) As used in this table, "beneficial ownership" means the sole or shared
power to vote, secure the right to vote, or direct the voting of, a
security, or the sole or shared investment power with respect to a security
(i.e., the power to dispose of, or to direct the disposition of, a
security). In addition, for purposes of this table, a person is deemed, as
of any date, to have "beneficial ownership" of any security that such
person has the right to acquire within 60 days after such date.
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(7) Mr. Cole is the record and beneficial owner of all of these shares.
Includes 400 shares that may be acquired pursuant to stock option grants
under the Company's 1993 Non-Employee Directors' Option Plan.
(8) Consists of 140,393 shares as to which Mr. Gallagher is the record and
beneficial holder and 8,825 shares held by Mr. Gallagher under the
Company's 401(K) Plan. Does not include 242,506 shares of Class A Common
Stock of which Mr. Gallagher's wife is the beneficial owner and in which
Mr. Gallagher disclaims any beneficial interest.
(9) Consists of 26,305 shares as to which Mr. Harris is the record and
beneficial holder and 73,613 shares that Mr. Harris has the right to
acquire pursuant to stock option grants under the Company's 1994 Employee
Stock Option Plan (the "1994 Option Plan"). Does not include 1,009 shares
of Class A Common Stock of which Mr. Harris' wife is the beneficial owner
and in which Mr. Harris disclaims any beneficial interest.
(10) Includes 3,892 shares as to which Mr. Kraus is the record and beneficial
holder and 2,800 shares that may be acquired pursuant to stock option
grants under the Company's 1993 Non-Employee Directors' Option Plan.
(11) David Ross Miller is the record and beneficial holder of all of these
shares. Includes 400 shares that may be acquired pursuant to stock option
grants under the Company's 1993 Non-Employee Directors' Option Plan.
(12) Consists of 18,856 shares as to which Mr. Rosensweig is the record and
beneficial holder, and 11,102 shares that Mr. Rosensweig has the right to
acquire pursuant to stock option grants under the 1994 Option Plan.
(13) Mr. Schneider is the record and beneficial owner of all of the shares.
(14) Consists of 20,766 shares of which Claire L. Tow is the record and
beneficial holder, and 113,613 shares that Claire L. Tow has the right to
acquire pursuant to stock option grants under the 1994 Option Plan.
Includes the 376,137 shares set forth in (18) below beneficially owned
solely by Leonard Tow, as to which shares she disclaims beneficial
ownership.
(15) By virtue of the definition of "beneficial ownership," each person who owns
shares of Class B Common Stock, which is convertible at any time into Class
A Common Stock, is deemed to own an equal number of shares of Class A
Common Stock. Thus, Leonard Tow, Claire L. Tow, David Z. Rosensweig, as
trustee, and all directors and executive officers as a group are deemed to
be beneficial owners, respectively, of 42,832,575, 42,832,575, 23,380,922
and 43,443,161 shares of Class A Common Stock. As a percent of Class A
Common Stock, assuming all shares of Class B Common Stock have been so
converted by the above-named persons, this ownership by the above-named
persons is deemed to be 56.1%, 56.1%, 30.6% and 56.9%, respectively.
(16) Consists of 2,813,365 shares of Class B Common Stock in which Mrs. Tow has
a beneficial interest, and 20,537,599 shares of Class B Common Stock as to
which she shares voting and investment power. Includes the 18,971,095
shares set forth in (19) below beneficially owned solely by Dr. Tow, as to
which shares she disclaims beneficial ownership.
(17) By virtue of the definition of "beneficial ownership," substantial
duplication is involved in the beneficial ownership of shares listed for
these stockholders. Eliminating duplication in the table, Dr. Tow owns of
record and beneficially 18,971,095 shares of Class B Common Stock, Dr. Tow,
Mrs. Tow and Mr. Rosensweig jointly own of record and beneficially
20,537,599 shares of Class B Common Stock as
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trustees, and Mr. Rosensweig and owns of record, as trustee, and Mrs. Tow
has a beneficial interest in 2,813,365 shares of Class B Common Stock as
trustee for the benefit of the adult children of Mr. and Mrs. Tow.
(18) Consists of 376,137 shares of which Leonard Tow is the record and
beneficial holder. Includes the 134,379 shares set forth in (14) above
beneficially owned solely by Claire L. Tow, as to which shares he disclaims
beneficial ownership.
(19) Consists of 18,971,095 shares of Class B Common Stock as to which Dr. Tow
has sole voting and investment power, and 20,537,599 shares of Class B
Common Stock as to which he shares voting and investment power. Includes
the 2,813,365 shares set forth in (16) above beneficially owned solely by
Mrs. Tow, as to which shares he disclaims beneficial ownership.
(21) Consists of 23,350,964 shares of Class B Common Stock as to which Mr.
Rosensweig, as trustee, shares voting and investment power and as to which
he disclaims beneficial ownership.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and each of the other four most highly compensated executive officers of
the Company (based on amounts reported as salary and bonus for fiscal 1999) for
each of the Company's last three fiscal years (collectively the "Named
Executives").
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SUMMARY COMPENSATION TABLE
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Long Term Compensation
---------------------------------------------
Awards Payouts
Annual Compensation ---------------------------------------------
-------------------------------------------- Shares
Other Restricted Underlying
Fiscal Annual Stock Options/ LTIP
Name/Principal Position Year Salary($)(1) Bonus($) Compensation Award(s)($) SARs(#) Payouts($)
----------------------- ------ ------------ -------- ------------ ----------- ------- ----------
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Leonard Tow 1999 $ 2,112,660 $ 2,250,000 $ 560,642 (10) $ 0 0 --
Chairman of the Board 1998 2,052,070 500,000 479,716 (10) 3,753,125(3) 0 --
of Directors and Chief 1997 2,030,334 357,700 583,969 (10) 325,000(4) 0 --
Executive Officer
Bernard P. Gallagher 1999 427,438 1,300,000 25,368 (5) 0 0
President and Chief 1998 439,465 210,000 28,402 (5) 697,812(3) 0 --
Operating Officer 1997 430,992 150,000 27,095 (5) 227,500(4) 0 --
Scott N. Schneider 1999 273,860 1,300,000 0 0 0
Chief Financial Officer 1998 290,462 210,000 0 697,812(3) 0 --
and Treasurer 1997 266,886 150,000 145,443 (10) 227,500(4) 0 --
Michael G. Harris 1999 230,350 1,100,000 0 0 0 --
Senior Vice President, 1998 226,594 210,000 0 498,438(3) 0 --
Engineering and Chief 1997 217,508 150,000 70,246 (10) 162,500(4) 0 --
Engineering Officer
Clifford A. Bail 1999 204,756 50,000 0 0 0 --
Vice President-Legal 1998 201,417 30,000 90,086 (2) 0 0 --
Affairs and Corporate 1997 81,154 0 0 0 0 --
Counsel
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All Other
Name/Principal Position Compensation($)
----------------------- ---------------
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Leonard Tow 1999 $1,632,414 (6)
Chairman of the Board 1998 1,613,924 (6)
of Directors and Chief 1997 1,598,338 (6)
Executive Officer
Bernard P. Gallagher 1999 4,750 (7)
President and Chief 1998 4,750 (8)
Operating Officer 1997 4,750 (9)
Scott N. Schneider 1999 4,750 (7)
Chief Financial Officer 1998 4,750 (8)
and Treasurer 1997 4,750 (9)
Michael G. Harris 1999 4,750 (7)
Senior Vice President, 1998 4,750 (8)
Engineering and Chief 1997 4,750 (9)
Engineering Officer
Clifford A. Bail 1999 4,750 (7)
Vice President-Legal 1998 4,750 (8)
Affairs and Corporate 1997 4,750 (9)
Counsel
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(1) Includes for Dr. Tow, Mr. Gallagher and Mr. Schneider directors' fees of
$12,000, $27,750 and $30,000 respectively, paid by the Company in
connection with services, in the case of Dr. Tow, Mr. Gallagher and Mr.
Schneider, on the Board of Directors of the Company and, in the case of
Mr. Gallagher and Mr. Schneider, on the Board of Directors of Centennial,
in fiscal 1998. Includes for Dr. Tow, Mr. Gallagher and Mr. Schneider
directors' fees of $18,000, $34,500 and $37,500, respectively, paid by
the Company in connection with services, in the case of Dr. Tow, Mr.
Gallagher, and Mr. Schneider, on the Board of Directors of the Company
and, in the case of Mr. Gallagher and Mr. Schneider, on the Board of
Directors of Centennial, in fiscal 1997.
(2) Consists of relocation expenses in fiscal 1998.
(3) The value indicated is based on the closing price of the Class A Common
Stock on July 24, 1998 and, with respect to 50,000 of the shares granted
to Dr. Tow, August 4, 1998, the date of the grants. The aggregate number
and value (based on the closing price of the Class A Common Stock at May
31, 1999, the last trading day of fiscal 1999 ($53.25)) of the restricted
shares, assuming such shares had been issued and held by the named
executives at May 31, 1999 was: Dr. Tow -- 150,000, $7,987,500 and
50,000, $2,662,500; Mr. Gallagher -- 35,000, $1,863,750; Mr. Schneider --
35,000, $1,863,750; and Mr. Harris -- 25,000, $1,331,250. The Company has
employment agreements with each of Dr. Tow, Mr. Gallagher, Mr. Schneider
and Mr. Harris. The terms of these employment agreements expire on June
30, 2003, except that Dr. Tow's agreement continues for an additional
five-year advisory period. Subsequent to May 31, 1999, as permitted by
the terms of the employment agreements, each of the foregoing executive
officers has exercised his right to terminate his employment agreement
but has agreed to continue working for the Company through the closing of
the Merger. As a result of the termination of such employment agreements,
the restrictions of all shares of restricted stock held by each such
executive officer (Dr. Tow: 315,000 Class A shares and 25,000 Class B
shares, Mr. Gallagher: 111,000 Class A shares, Mr. Schneider: 83,000
Class A shares and Mr. Harris: 65,000 Class A shares) lapsed.
(4) The value indicated is based on the closing price of the Class A Common
Stock on September 8, 1997, the date of the grants. The aggregate number
and value (based on the closing price of the Class A Common Stock at May
31,
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1999, the last trading day of fiscal 1999($53.25)) of the restricted
shares assuming such shares had been issued and held by the Named
Executives at May 31, 1999 was: Dr. Tow -- 50,000, $2,662,500; Mr.
Gallagher -- 35,000, $1,863,750; Mr. Schneider -- 35,000, $1,863,750; and
Mr. Harris -- 25,000, $1,331,250. Subsequent to May 31, 1999, as
permitted by the terms of the employment agreements, each of Dr. Tow and
Messrs. Gallagher, Schneider and Harris has exercised his right to
terminate his employment agreement but has agreed to continue working for
the Company through the closing of the Merger. As a result of the
termination of such employment agreements, the restrictions of all shares
of restricted stock held by each such executive officer (Dr. Tow: 315,000
Class A shares and 25,000 Class B shares, Mr. Gallagher: 111,000 Class A
shares, Mr. Schneider: 83,000 Class A shares and Mr. Harris: 65,000 Class
A shares) lapsed.
(5) Includes $25,368, $28,402 and $27,095 for fiscal years 1999, 1998 and
1997, respectively, representing interest that would have been paid on
the amounts outstanding during the year under the interest-free loans
made to Mr. Gallagher by the Company if interest had been accrued at the
rate of 5% per year.
(6) Consists of life insurance premiums paid on behalf of Leonard Tow and his
wife on the split-dollar life insurance agreement that is described below
under "Life Insurance Agreement." The Company will be reimbursed for the
total life insurance premiums paid upon the death of the last to die of
Leonard Tow and his wife.
(7) Consists of matching contributions made by the Company on behalf of the
Named Executives in fiscal 1999 under the Company's Retirement Investment
Plan.
(8) Consists of matching contributions made by the Company on behalf of the
Named Executives in fiscal 1998 under the Company's Retirement Investment
Plan.
(9) Consists of matching contributions made by the Company on behalf of the
Named Executives in fiscal 1997 under the Company's Retirement Investment
Plan.
(10) Includes for Leonard Tow reimbursement for income and gift taxes
attributed to him and his wife as a result of the split-dollar life
insurance agreement that is described below under "Life Insurance
Agreement." Includes for Dr. Tow, Mr. Schneider and Mr. Harris amounts
paid with respect to tax liabilities in connection with certain employee
benefit plans.
EMPLOYMENT AGREEMENTS
Leonard Tow is employed as the Company's Chief Executive Officer until
June 30, 2003 pursuant to an employment agreement with the Company dated as of
July 1, 1997. For his services, Dr. Tow receives an annual Base Salary (as
defined) as of July 1, 1998 of $2,116,590, increased each year by the percentage
increase in the United States Labor Department consumer price index for such
year over such index for the last month of the preceding year. The employment
agreement provides that, for the five-year period (the "Advisory Period")
beginning July 1, 2003, Dr. Tow will act as a consultant and advisor to the
Company at an annual compensation equal to 25% of his total compensation for the
immediately preceding year and that Dr. Tow will be the highest ranking officer
of the Company and a director at all times during the term of the employment
agreement. Additionally, the employment agreement permits the granting of
bonuses to Dr. Tow at the discretion of the Board of Directors and grants Dr.
Tow certain rights to have the Company register all of his and his family
members' shares of Common Stock at any time prior to July 1, 2003. The
employment agreement also confirmed the Company's obligations under its
split-dollar insurance arrangement with Dr. Tow under date of July 30, 1992, and
provides that on termination of his employment agreement, the premiums on the
policies underlying this arrangement will be paid in full.
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Under the employment agreement, Dr. Tow's employment terminates upon
his death or permanent disability for more than 12 consecutive months, in which
case Dr. Tow or his estate, as the case may be, will receive (i) an amount equal
to three times (four times if such death or incapacity occurs during the second
year of the term) the annual salary to which Dr. Tow was entitled in the year of
termination, including bonus paid in the year prior to termination; and (ii) the
amounts payable during the Advisory Period. If at any time Dr. Tow is removed
from an office without his consent or if the Company's principal offices are
moved from Fairfield County, Connecticut or the New York metropolitan area, he
will have the right to terminate the employment agreement, in which case Dr. Tow
will be entitled to continue to receive all salary and other payments and
benefits under the employment agreement that he would have received as well as
the differential between the option price and the value of shares underlying
such options, or, at his option, the then present value of all such payments and
benefits. The employment agreement also provides that in the event of a change
of control or threatened change of control of the Company, as defined, Dr. Tow
may terminate the employment agreement, in which event he is entitled to the
payments provided for above.
Dr. Tow also serves as Chairman of the Board and Chief Executive
Officer of Citizens Utilities Company ("Citizens"). The Board of Directors of
the Company has approved such service. Dr. Tow receives additional compensation
from Citizens for serving in such capacities.
Subsequent to May 31, 1999, as permitted by the terms of his employment
agreement, Dr. Tow has exercised his right to terminate his employment agreement
but has agreed to continue working for the Company through the closing of the
Merger. As a result of the termination of his employment agreement, compensation
(including bonus) for the balance of Dr. Tow's employment agreement was
accelerated, the restrictions of all shares of restricted stock held by Dr. Tow
lapsed (315,000 Class A shares and 25,000 Class B shares) and all of his
unvested Company stock options vested and became exercisable (165,000 options).
In addition, Dr. Tow is entitled to receive certain benefits associated with his
life insurance arrangement with the Company, and certain tax reimbursement as
well as additional benefits (or the monetized equivalent thereof) associated
with and provided to him during the course of his employment, including the
right to receive a cash payment from the Company equal to the difference of the
fair market value and the exercise price of his unexercised options.
Effective January 1997, the Company entered into employment agreements
and effective June 1, 1998, the Company modified its employment agreements with
Bernard P. Gallagher, President and Chief Operating Officer, Scott N. Schneider,
Chief Financial Officer, Senior Vice President and Treasurer and Michael G.
Harris, Senior Vice President, Engineering. Effective January 6, 1997, the
Company entered into an employment agreement with Clifford A. Bail, Vice
President-Legal Affairs and Corporate Counsel. A summary of each employment
agreement is set forth below.
The agreement between the Company and Mr. Gallagher, as modified,
provides for the employment by the Company of Mr. Gallagher as its chief
operating officer for a term of six and one-half years commencing on January 1,
1997. The base salary provided for in the agreement is $400,000 per year,
subject to annual increases based upon the percentage increase in the United
States Labor Department consumer price index. Mr. Gallagher is also eligible to
receive a cash bonus or any award or grant of stock options, shares of the
Company's stock, or any other incentive or stock related awards awarded or
granted by the Board of Directors of the Company or the applicable committee
thereof. In the event of Mr. Gallagher's death during the term of the agreement,
payments of the base salary shall
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continue to be made for the balance of the term, and in the event of Mr.
Gallagher's permanent disability during such term, payments of the base salary
shall continue for the balance of the term or twelve months, whichever is
longer. If the agreement is terminated without "cause" (as defined in the
agreement) by the Company prior to the expiration of the term, Mr. Gallagher
will receive the base salary, an annual cash bonus for the remainder of the term
equal to the most recently awarded cash bonus, the opportunity to exercise any
stock options for the remainder of the original term of such options, whether or
not fully exercisable, the availability of medical insurance, the use of an
office for a one year period, and any restrictions on shares of stock previously
issued to Mr. Gallagher shall be deemed inoperative and of no further effect. In
addition, on the occurrence of a change or threatened change of control, as
defined, Mr. Gallagher may terminate his agreement and receive the payments and
benefits provided for above.
The agreement between the Company and Mr. Schneider provides for the
employment by the Company of Mr. Schneider as its chief financial officer and in
charge of its fiscal, accounting and financial affairs for a term of six and
one-half years commencing on January 1, 1997. The base salary provided for in
the agreement is $250,000 per year, subject to annual increases based upon the
percentage increase in the United States Labor Department consumer price index.
Mr. Schneider is also eligible to receive a cash bonus or any award or grant of
stock options, shares of the Company's stock, or any other incentive or stock
related awards awarded or granted by the Board of Directors of the Company or
the applicable committee thereof. In the event of Mr. Schneider's death during
the term of the agreement, payments of the base salary shall continue to be made
for the balance of the term and, in the event of Mr. Schneider's permanent
disability during such term, payments of the base salary shall continue for the
balance of the term or twelve months, whichever is longer. If the agreement is
terminated without "cause" (as defined in the agreement) by the Company prior to
the expiration of the term, Mr. Schneider will receive the base salary, an
annual cash bonus for the remainder of the term equal to the most recently
awarded cash bonus, and the opportunity to exercise any stock options previously
awarded, whether or not fully exercisable, the availability of medical
insurance, the use of an office for a one year period, and any restrictions on
shares of stock previously issued to Mr. Schneider shall be deemed inoperative
and of no further effect. In addition, on the occurrence of a change or
threatened change of control, as defined, Mr. Schneider may terminate his
agreement and receive the payments and benefits provided for above.
The agreement between the Company and Mr. Harris provides for the
employment by the Company of Mr. Harris as its chief engineering officer and in
charge of its engineering operations and for administration of the engineering
and technical activities of the Company for a term of six and one-half years
commencing on January 1, 1997. The base salary provided for in the agreement is
$225,000 per year, subject to annual increases based upon the percentage
increase in the United States Labor Department consumer price index. Mr. Harris
is also eligible to receive a cash bonus or any award or grant of stock options,
shares of the Company's stock, or any other incentive or stock related awards
awarded or granted by the Board of Directors of the Company or the applicable
committee thereof. In the event of Mr. Harris's death during the term of the
agreement, payments of the base salary shall continue to be made for the balance
of the term and, in the event of Mr. Harris's permanent disability during such
term, payments of the base salary shall continue for the balance of the term or
twelve months, whichever is longer. If the agreement is terminated without
"cause" (as defined in the agreement) by the Company prior to the expiration of
the term, Mr. Harris will receive the base salary, an annual cash bonus for the
remainder of the term equal to the most recently awarded cash bonus, and the
opportunity to exercise any stock options previously awarded, whether or not
fully exercisable, the
-12-
<PAGE>
availability of medical insurance, the use of an office for a one year period,
and any restrictions on shares of stock previously issued to Mr. Harris shall be
deemed inoperative and of no further effect. In addition, on the occurrence of a
change or threatened change of control, as defined, Mr. Harris may terminate his
agreement and receive the payments and benefits provided for above.
Subsequent to May 31, 1999, as permitted by the terms of their
employment agreements, each of Messrs. Gallagher, Schneider and Harris has
exercised their right to terminate their employment agreements but has agreed to
continue working for the Company through the closing of the Merger. As a result
of the termination of their employment agreements, the restrictions of all
shares of restricted stock held by these executive officers lapsed (259,000
Class A shares) and all of their unvested Company stock options vested and
became exercisable (260,000 options) and each of the officers will receive
benefits provided for in his employment agreement (or the monetized equivalent
thereof).
The agreement between the Company and Clifford A. Bail, dated as of
January 6, 1997, provides for the employment by the Company of Mr. Bail as its
internal corporate legal counsel until December 31, 1999. The base salary
provided for in the agreement is $200,000 per year, subject to annual increases
based upon the percentage increase in the United States Labor Department
consumer price index. Mr. Bail is also eligible to receive a cash bonus or any
award or grant of stock options, shares of the Company's stock, or any other
incentive or stock related awards awarded or granted by the Board of Directors
of the Company or the applicable committee thereof. In the event of Mr. Bail's
death during the term of the agreement, payments of the base salary shall
continue to be made for the balance of the term and, in the event of Mr. Bail's
permanent disability during such term, payments of the base salary shall
continue for the balance of the term or twelve months, whichever is longer. If
the agreement is terminated without "cause" (as defined in the agreement) by the
Company prior to the expiration of the term, Mr. Bail will receive the base
salary, an annual cash bonus for the remainder of the term equal to the most
recently awarded cash bonus, the opportunity to exercise any stock options
previously awarded, whether or not fully exercisable, and any restrictions on
shares of stock previously issued to Mr. Bail shall be deemed inoperative and of
no further effect.
LIFE INSURANCE AGREEMENT
The Company's Chairman and Chief Executive Officer, Leonard Tow, as of
August 31, 1999, is the sole record owner and holder of 19,347,232 shares of the
Company's Common Stock. The Company has been advised that on the death of the
last to die of Leonard Tow and his wife, Claire L. Tow (a director and a Senior
Vice President of the Company), the estate of such last to die may be required
to publicly sell a substantial portion of such shares to satisfy estate tax
obligations. The public sale of such number of shares in all probability would
destabilize the market for the Company's publicly traded stock. Accordingly, in
July 1992, an agreement was entered into (commonly known as a split-dollar life
insurance agreement) under the terms of which the Company will pay (i) the
premiums for certain survivorship life insurance policies with an aggregate face
value of $80,000,000 on the lives of Mr. and Mrs. Tow and (ii) the amount of
taxes attributed to Leonard and Claire Tow as a result of the arrangement.
Insurance benefits become payable when both have died, and the Company will have
an interest in the insurance benefits equal to the amount of premiums it has
paid with the balance payable to a trust created by Leonard Tow (the "Trust").
The Trust has also obtained insurance payable on the first-to-die of
Leonard and Claire Tow. The premiums are paid and taxes are reimbursed in a
manner similar to that described above for the last-to-die insurance. The
proceeds of the first-to-die insurance policy will be paid to the Company to
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<PAGE>
the extent of the total premiums previously paid on such policy by the Company
and the balance and any income earned thereon, until the same is exhausted, will
be paid to the Trust and used by it to pay the term life insurance portion of
the premiums of the last-to-die insurance, thereby reducing the continuing cash
outlay by the Company on the last-to-die insurance.
As a result of the termination of his employment agreement with the
Company, Dr. Tow is entitled to receive certain benefits associated with his
life insurance arrangement with the Company.
STOCK OPTIONS
No options to acquire shares of the Company's Common Stock were granted
to any of the Named Executives with respect to fiscal 1999.
Subsequent to May 31, 1999, as permitted by the terms of his employment
agreement, each of Dr. Tow and Messrs. Gallagher, Schneider and Harris has
exercised his right to terminate his employment agreement but has agreed to
continue working for the Company through the closing of the Merger. As a result
of the termination of such employment agreements, all unvested Company stock
options held by Messrs. Gallagher, Schneider and Harris vested and became
exercisable (260,000 options). Additionally, as a result of the termination of
his employment agreement in connection with the Merger, Dr. Tow is entitled to
receive a cash payment from the Company equal to the difference of the fair
market value and the exercise price of his unexercised options. This cash
payment is, in part, in lieu of acceleration of the vesting of a portion of his
options, which acceleration would otherwise be afforded to him under the Merger
Agreement.
The table below summarizes the exercise of stock options during fiscal
1999 by the Named Executives and provides information as to the unexercised
stock options held by them at the end of the fiscal year.
-14-
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1999
AND FISCAL YEAR-END 1999 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
MAY 31, 1999(#)(1) MAY 31, 1999($)(1)
VALUE ------------------ ------------------
SHARES ACQUIRED ON REALIZED($) EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) (2) UNEXERCISABLE UNEXERCISABLE
---- ----------- --- ------------- -------------
<S> <C> <C> <C> <C>
Leonard Tow............ 0 $ 0 730,437/165,000(2) 33,813,516/7,561,125(2)
Bernard P. Gallagher... 517,701 19,357,626 20,666/126,000 970,969/5,877,000
0
Scott N. Schneider..... 800 42,800 145,813/67,000 6,838,211/3,126,500(2)
Michael G. Harris...... 0 0 109,613/67,000 5,139,311/3,126,500
Clifford A. Bail....... 6,000 158,346 0/9,000 0/432,144
</TABLE>
- ---------------------------
(1) Calculated by determining the difference between the exercise price and
the closing price on the exercise date or May 31, 1999, as the case may be.
(2) Reflects the number and value of unexercised options to purchase Class A
Common Stock of the Company held by each of the Named Executives at
May 31, 1999.
DIRECTOR COMPENSATION
The Company's Directors (other than Dr. Tow and Messrs. Gallagher,
Schneider and Harris) each received quarterly retainers of $3,000 plus a uniform
fee of $750 for each board and committee meeting attended during the 1999 fiscal
year. In addition, annually, beginning in 1994 on the date of the meeting of
Directors held on the same date as the stockholder's meeting, each Director who
is neither an employee nor an officer of the Company is entitled to receive an
option to acquire 1,000 shares of the Company's Class A Common Stock under the
Company's 1993 Non-Employee Directors' Stock Option Plan. The Company believes
that such compensation is consistent with compensation paid to directors in
comparable public companies.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, the members of the Compensation Committee were
David Z. Rosensweig and William M. Kraus. Mr. Rosensweig also serves as
Secretary of the Company and Century-Texas.
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<PAGE>
Mr. Rosensweig is a member of Leavy Rosensweig & Hyman, which acts as general
counsel to the Company and Centennial. During fiscal 1999, the Company paid
approximately $1,743,000 for legal services and disbursements to Leavy
Rosensweig & Hyman. During fiscal 1999, through January 7, 1999, Centennial paid
a total of approximately $288,000 for legal services and disbursements to Leavy
Rosensweig & Hyman. Mr. Rosensweig is also a trustee of certain trusts (see
"Principal Stockholders").
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company is committed to being a premier provider of cable
television and related telecommunications services. To support this objective
and to compete in these dynamic and keenly competitive businesses, the Company
must attract, retain and motivate skilled and dedicated executive talent. The
Compensation Committee makes recommendations to the Board of Directors with
respect to the base salary and cash bonus compensation to be paid to the
Company's Chief Executive Officer. The Compensation Committee determines the
base salary and cash bonus compensation to be paid to the President and Chief
Operating Officer, the Senior Vice President and President of the Cable
Television Division, the Senior Vice President, Treasurer, and Chief Financial
Officer and the Senior Vice President, Engineering. The Stock Option and Equity
Plan Committee make recommendations to the full Board with respect to grants
under the option plans and the Equity Plan.
The Compensation Committee awarded a cash bonus of $1,300,000 for
services rendered during the year ended May 31, 1999 to each of Bernard P.
Gallagher, President and Chief Operating Officer and Scott N. Schneider, Chief
Financial Officer, Senior Vice President and Treasurer, and a cash bonus of
$1,100,000 to Michael G. Harris, Senior Vice-President, Engineering. The cash
award to Mr. Harris was based on the recommendations of the Chief Executive
Officer and the Chief Operating Officer while the awards to Bernard P. Gallagher
and to Scott N. Schneider, the Chief Financial Officer, were based on the
recommendation of the Chief Executive Officer. The Compensation Committee took
into account that for fiscal year 1998, under the Equity Plan, each of Bernard
P. Gallagher and Scott N. Schneider was awarded 35,000 shares and Michael G.
Harris was awarded 25,000 shares of the Company's Class A Common Stock and that
no award of options or shares were made or permitted to be made by the Stock
Option and Equity Plan Committees for fiscal 1999 under and pursuant to the
terms of the merger agreement among the Company, Adelphia Communications
Corporation ("Adelphia") and a subsidiary of Adelphia (the "Merger Agreement").
The cash bonus awards took into account the inability of the Company to grant or
award options or shares of stock to these officers.
Leonard Tow is the Chief Executive Officer of the Company. His base
salary, $2,116,590 for the 1999 fiscal year, is set by an employment agreement
with the Company approved by the Board of Directors and effective July 1, 1997,
and expiring on June 30, 2003. See "Employment Agreements." For fiscal 1999,
the Compensation Committee recommended an award to Dr. Tow of a cash bonus of
$2,250,000 taking into account, among other things, that for fiscal 1998
Dr. Tow was awarded 50,000 shares of the Company's Class A Common Stock and
the inability of the Company to make any grants or awards of options or shares
of Common Stock for fiscal 1999 by reason of the restrictions set forth in
the Merger Agreement.
In setting the executive officer compensation, which was the
responsibility of the Compensation Committee to recommend, and the
responsibility of the full Board of Directors to
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<PAGE>
approve, the Compensation Committee also took into account the increase in the
Company's revenues and cash flow, the closing of the merger of Centennial with
Welsh, Carson, Anderson & Stowe VIII, L.P., the entry into a partnership
agreement and associated agreements with TCI Communications, Inc. ("TCI")
pursuant to which the Company and TCI will consolidate their respective cable
television systems in the Los Angeles basin, under the Company's management, and
the entry into the Merger Agreement, and the respective contribution of each
executive officer to each of said transactions.
The Compensation Committee believes that the bonus award to Dr. Tow for
fiscal 1999 was appropriate in the circumstances. The Committee noted that, with
the consent of the Board of Directors of the Company, Dr. Tow acts as chief
executive officer of Citizens.
The base salaries of each of Bernard P. Gallagher, Scott N. Schneider
and Michael G. Harris are set in employment agreements which commenced on
January 1, 1997 and expire by their respective terms on June 30, 2003. The
agreements were approved by the full Board of Directors. The base salaries, cash
bonuses and payments referenced above (see Summary Compensation Table)
constitute the entire cash compensation paid to these executives for fiscal
1999. In making its recommendations for the base salaries contained in the
employment agreements, the Compensation Committee took into consideration the
recommendations of the Chief Executive Officer and Chief Operating Officer, as
applicable. Through the closing of the merger of Centennial in January of 1999,
Messrs. Gallagher, Schneider and Harris also rendered services, without
compensation, to Centennial pursuant to the Services Agreement, dated August 30,
1991, as subsequently amended, between the Company and Centennial. During this
period Mr. Gallagher served as Chairman and Chief Executive Officer of
Centennial, Mr. Schneider as its Senior Vice President, Chief Financial Officer
and Treasurer and Mr. Harris as its Senior Vice President, Engineering. The
Compensation Committee believes the compensation of these named executives to be
appropriate.
See Notes (3) and (4) to the Summary Compensation Table and "Stock
Options" above.
Compensation Committee
William M. Kraus
David Z. Rosenweig
The Compensation Committee's recommendations for compensation for
fiscal 1999 were accepted by the Board of Directors.
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<PAGE>
PERFORMANCE GRAPH
The following graph compares the total returns (assuming reinvestment
of dividends) on the Company's Class A Common Stock, the Nasdaq Stock Market --
US Index (which currently includes the Company) and a peer group index
consisting of four corporations in the cable television business selected by the
Company in good faith. The corporations included in the peer group are Adelphia,
Cablevision Systems Corp., TCA Cable TV Inc. and Jones Intercable Inc. The graph
assumes that each of the indices includes the reinvestment of dividends, if any.
[GRAPH]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
5/95 5/96 5/97 5/98 5/99
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Century Communications Corp. $102 $123 $72 $209 $698
- -------------------------------------------------------------------------------------------------
Peer Group $115 $110 $97 $228 $585
- -------------------------------------------------------------------------------------------------
Nasdaq Stock Market -- US Index $119 $173 $195 $247 $347
- -------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth, as of August 31, 1999, certain
information with respect to the beneficial ownership of shares of Class A Common
Stock or Class B Common Stock by each person known to the Company to own
beneficially more than 5% of the outstanding shares of Class A Common Stock or
Class B Common Stock. Each share of Class B Common Stock is convertible, at any
time, into one share of Class A Common Stock. Holders of Class A Common Stock
are entitled to one vote per share and holders of Class B Common Stock are
entitled to ten votes per share.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
------------------------------------------------
CLASS/NUMBER PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OF CLASS
- ------------------------------------ ------------------------------------- --------
<S> <C> <C> <C>
Leonard Tow.................................................... Class A: 510,516(2) 1.5%
50 Locust Avenue Class B: 42,322,059(3)(4)(5) 100
New Canaan, CT 06840
Claire L. Tow.................................................. Class A: 510,516(6) 1.5%
50 Locust Avenue Class B: 42,322,059(4)(5)(7) 100
New Canaan, CT 06840
David Z. Rosensweig............................................ Class A: 29,958(8) *
162 Brite Avenue Class B: 23,350,964(4)(5) 55.2
Scarsdale, NY 10583
Denver Investment Advisors LLC................................. Class A: 3,701,200(9) 10.9
1225 17th Street
26th Floor
Denver, CO 80202
Capital Guardian Trust Company................................. Class A: 3,565,000(10) 10.5
333 South Hope Street
Los Angeles, CA 90071
Citizens Utilities Company..................................... Class A: 1,807,095(11) 5.3
CU Capital Corp.
High Ridge Park
Stamford, CT 06905
</TABLE>
- -------------------
*Less than 1%
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote or secure the right to vote, secure the right to vote, or
direct the voting of, a security, or the sole or shared investment power
with respect to a security (i.e., the power to dispose of, or to direct
the disposition of, a security). In addition, for purposes of this table,
a person is deemed, as of any date, to have "beneficial ownership" of any
security that such person has the right to acquire within 60 days after
such date.
(2) Consists of 376,137 shares of Class A Common Stock as to which Dr. Tow
has sole voting and investment power. Includes the 134,379 shares set
forth in (6) below beneficially owned solely by Mrs. Tow, as to which
shares he disclaims beneficial ownership.
(3) Consists of 18,971,095 shares of Class B Common Stock as to which Dr. Tow
has sole, and 20,537,599 shares of Class B Common Stock as to which he
shares, voting and investment power. Includes the
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<PAGE>
2,813,365 shares set forth in (7) below beneficially owned solely by
Mrs. Tow, as to which shares he disclaims beneficial ownership.
(4) By virtue of the definition of "beneficial ownership," substantial
duplication is involved in the beneficial ownership of shares listed for
these stockholders. Eliminating duplication in the table, Dr. Tow owns of
record and beneficially 18,971,095 shares of Class B Common Stock, Dr.
Tow, Mrs. Tow and Mr. Rosensweig, as trustees, jointly own beneficially
20,537,599 shares of Class B Common Stock, and Mr. Rosensweig, as
trustee, owns, and Mrs. Tow has a beneficial interest in, 2,813,365
shares of Class B Common Stock.
(5) By virtue of the definition of "beneficial ownership," each person who
owns shares of Class B Common Stock is deemed to own an equal number of
shares of Class A Common Stock. Thus, Leonard Tow and Claire L. Tow are
each deemed to be beneficial owners of 42,832,575 shares of Class A
Common Stock and David Z. Rosensweig is deemed to be a beneficial owner
of 23,380,922 shares of Class A Common Stock. As a percent of the Class A
Common Stock, this ownership by the above-named persons is deemed to be
56.1%, 56.1% and 30.6%, respectively.
(6) Consists of 134,379 shares of Class A Common Stock as to which Mrs. Tow
has sole voting and investment power. Includes the 376,137 shares set
forth in (2) above beneficially owned solely by Dr. Tow, as to which
shares she disclaims beneficial ownership.
(7) Consists of 2,813,365 shares of Class B Common Stock which Mrs. Tow owns
beneficially, and 20,537,599 shares of Class B Common Stock as to which
she shares voting and investment power. Includes the 18,971,095 shares
set forth in (3) above beneficially owned solely by Dr. Tow, as to which
shares she disclaims beneficial ownership.
(8) Consists of 18,856 shares as to which Mr. Rosensweig is the record and
beneficial holder and 11,102 shares that Mr. Rosensweig has the right to
acquire pursuant to stock option grants under the 1994 Option Plan.
(9) Based solely upon information contained in Amendment No. 1 to a Statement
on Schedule 13G filed with the Commission on February 12, 1999. According
to said Schedule 13G, Denver Investment Advisors LLC is deemed to be the
beneficial owner of 3,701,200 shares of Class A Common Stock as a result
of acting as investment adviser to various investment companies
registered under Section 8 of the Investment Company Act of 1940.
(10) Based solely upon information contained in Amendment No. 2 to a Statement
on Schedule 13G filed with the Commission on February 11, 1999. According
to said Schedule 13G, Capital Guardian Trust Company is deemed to be the
beneficial owner of 3,565,000 shares of Class A Common Stock as a result
of acting as investment adviser to various institutional accounts.
SMALLCAP World Fund, Inc., which is advised by Capital Guardian Trust
Company, is the beneficial owner of 2,020,000 shares of Class A Common
Stock.
(11) Based solely upon information contained in a Statement on Schedule 13D
filed with the Commission on July 2, 1992. The Company has agreed
pursuant to an agreement dated July 2, 1992 between it and Citizens that,
subject to certain conditions, upon the request of Citizens, it will file
up to two registration statements under the Securities Act of 1933, as
amended (the "Act"), in order to permit Citizens to offer and sell,
pursuant to such registration statement(s), such shares of Class A Common
Stock.
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<PAGE>
(b) Security Ownership of Management
The following table sets forth, as of August 31, 1999, the information
regarding shares of the Company's Class A Common Stock beneficially owned by all
Directors and executive officers as a group. See "Election of Directors" for
ownership by the Directors and the Named Executives individually.
<TABLE>
<CAPTION>
SHARES OF STOCK
TITLE OF BENEFICIALLY PERCENT
NAME CLASS OWNED OF CLASS
---- -------- --------------- --------
<S> <C> <C> <C>
All directors and executive officers as a group (15 persons) Class A 1,121,102(1) 3.3%
Class B 42,322,059 100%
</TABLE>
- --------------------
(1) Consists of 882,459 shares owned directly by such persons and 10,115 shares
held through the Company's 401(K) Plan, 225,928 shares which may be acquired by
such persons pursuant to stock option grants and 2,600 shares granted pursuant
to the 1992 Management Equity Incentive Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Citizens have formed a joint venture, in which each of
them owns a 50% interest (the "Joint Venture"), that owns and operates the cable
television systems in certain areas of Southern California serving approximately
153,673 primary basic subscribers. The systems owned by the Joint Venture are
managed for the Joint Venture by the Company pursuant to a written management
agreement which provides, inter alia, that the Company will be reimbursed by the
Joint Venture for services rendered directly by its employees and out-of-pocket
expenses. At the effective time of the Merger between the Company and Adelphia,
Adephia will purchase Citizen's 50% interest in the Joint Venture for a purchase
price of approximately $157.5 million, comprised of approximately $27.7 million
in cash, approximately 1.85 million shares of Adelphia Class A common stock and
the assumption of indebtedness.
In addition, the Company, Adelphia and Dr. Leonard Tow, Chairman and
Chief Executive Officer of the Company, have agreed that the Company will sell
its shares of Class A Common Stock of Citizens to Dr. Tow at the effective time
of the Merger at fair market value, based on the closing market price of such
shares on the date the Merger Agreement was signed. Based on that closing price,
the aggregate purchase price will be approximately $39,800,000. As of May 31,
1999, these shares constituted approximately 2% of the outstanding stock of
Citizens.
Leavy Rosensweig & Hyman, of which David Z. Rosensweig is a member,
acts as general counsel to the Company and Centennial. The Company paid
approximately $1,742,786 to Leavy Rosensweig & Hyman during the fiscal year
ended May 31, 1999. Centennial paid approximately $288,000 to Leavy Rosensweig &
Hyman during the fiscal year ended May 31, 1999 (through January 7, 1999). See
"Executive Compensation and Other Information -- Compensation Committee
Interlocks and Insider Participation."
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<PAGE>
Cole, Raywid and Braverman, of which John P. Cole, Jr., a Director, is
a member, acts as a regulatory counsel for the Company and Centennial. The
Company and Centennial paid approximately $268,199 to Cole, Raywid and Braverman
during the fiscal year ended May 31, 1999.
William Kraus, a Director, acts as investor relations counsel for the
Company and, until January 7, 1999, acted as investor relations counsel for
Centennial. The Company and Centennial paid approximately $42,693 to William
Kraus during the fiscal year ended May 31, 1999.
The Company believes that the transactions between it and Leavy
Rosensweig & Hyman, Cole, Raywid and Braverman, William Kraus, and the Joint
Venture are on terms no less favorable to the Company than would have been
available from unaffiliated parties. The Company will continue to apply its
policy that any transaction between the Company and any of its officers,
directors and principal stockholders be on terms no less favorable to the
Company than would be obtainable at that time in comparable transactions with
unaffiliated parties.
As of May 31, 1999, there were an aggregate of $158,105 in outstanding
advances from the Company to Bernard P. Gallagher, a Director and President and
Chief Operating Officer of the Company. All of such advances were made in prior
fiscal years. Such advances were made on a demand basis and did not carry
interest.
As of May 31, 1999, there were an aggregate amount of $237,507 in
outstanding advances from the Company to Scott N. Schneider, a Director and
Chief Financial Officer of the Company. All of such advances were made in prior
fiscal years. Such advances to Mr. Schneider carry an interest rate of 5%.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on Form
10-K:
1. INDEX OF FINANCIAL STATEMENTS
The following financial statements are included at the indicated page in this
Annual Report on Form 10-K and incorporated in this Item 14(a) by reference:
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report........................................ F-1
Consolidated Balance Sheets......................................... F-2
Consolidated Statements of Operations............................... F-4
Consolidated Statements of Cash Flows............................... F-5
Notes to Consolidated Financial Statements.......................... F-7
</TABLE>
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<PAGE>
2. FINANCIAL STATEMENT SCHEDULE
None.
3. REPORTS ON FORM 8-K
Form 8-K dated March 5, 1999 relating to the Company's announcement of its
pending acquisition by Adelphia Communications Corporation ("Adelphia") pursuant
to an Agreement and Plan of Merger dated as of March 5, 1999 by and among
Adelphia, Adelphia Acquisition Subsidiary, Inc. and the Registrant in a press
release issued on March 5, 1999.
4. EXHIBITS
The following documents are filed as part of this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
<S> <C>
EX-23 Independent Auditors' Consent from Deloitte & Touche LLP
dated Septemeber 21, 1999.
</TABLE>
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<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Century Communications Corp.
New Canaan, Connecticut
We have audited the accompanying consolidated balance sheets of Century
Communications Corp. and subsidiaries as of May 31, 1999 and 1998, and the
related consolidated statements of operations and cash flows for each of the
three years in the period ended May 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Century Communications Corp. and
subsidiaries as of May 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
July 29, 1999
(August 26, 1999 as to Note 17)
F-1
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Amounts in Thousands
<TABLE>
<CAPTION>
May 31,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments......................... $ 626,155 $ 285,498
Accounts receivable less allowance for doubtful accounts
of
$3,311 and $1,695, respectively........................ 16,775 16,109
Prepaid expenses and other current assets............... 3,705 3,465
Investment in marketable equity securities--current..... 49,143 --
Net assets of discontinued operations................... -- 37,323
---------- ----------
Total current assets.................................... 695,778 342,395
Property, plant and equipment--net........................ 585,693 565,965
Investment in marketable equity securities................ 25,756 52,451
Debt issuance costs, less accumulated amortization of
$22,464 and $16,013, respectively........................ 27,057 33,829
Cable television franchises, less accumulated amortization
of $361,498 and $324,835, respectively................... 296,280 344,612
Excess of purchase price over value of net assets
acquired, less accumulated amortization of $43,001 and
$40,612, respectively.................................... 158,869 166,570
Other assets.............................................. 10,866 9,360
---------- ----------
$1,800,299 $1,515,182
========== ==========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
Amounts in Thousands (Except Share Data)
<TABLE>
<CAPTION>
May 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current maturities of long-term debt................... $ 20,050 $ 20,050
Accounts payable....................................... 35,053 35,983
Accrued expenses and other current liabilities......... 102,260 97,499
---------- ----------
Total current liabilities............................ 157,363 153,532
Long-term debt........................................... 2,022,640 2,009,052
Deferred income taxes.................................... 5,290 5,170
Minority interest in subsidiaries........................ 74,915 67,030
Other deferred income.................................... 5,410 5,650
Commitments and contingencies (See Notes)
Common stockholders' deficiency:
Common stock, par value $.01 per share:
Class A, authorized 400,000,000 shares, issued,
67,232,335 and 65,684,888 shares, respectively, and
outstanding 33,423,167 and 31,954,085 shares,
respectively.......................................... 672 657
Class B, authorized 300,000,000 shares, issued and
outstanding 42,322,059 and 42,726,115 shares,
respectively.......................................... 423 427
Additional paid-in capital............................. 191,234 178,893
Other, including 33,809,168 and 33,730,803 treasury
shares, respectively.................................. (143,818) (135,215)
Accumulated deficit.................................... (513,830) (770,014)
---------- ----------
Total common stockholders' deficiency................ (465,319) (725,252)
---------- ----------
$1,800,299 $1,515,182
========== ==========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Amounts in Thousands (Except Share Data)
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue..................................... $ 519,584 $ 484,736 $ 459,646
---------- ---------- ----------
Costs and expenses:
Cost of services.......................... 111,603 103,932 100,789
Selling, general and administrative....... 115,790 122,307 111,467
Depreciation and amortization............. 158,153 154,029 159,547
Merger costs.............................. 7,922 -- --
---------- ---------- ----------
393,468 380,268 371,803
---------- ---------- ----------
Operating income............................ 126,116 104,468 87,843
Interest expense............................ 191,803 172,608 157,730
Gain on sale of assets...................... 5,646 -- --
Other income (expense)...................... 79 1,533 (171)
---------- ---------- ----------
Loss from continuing operations before
income tax benefit, minority interest and
extraordinary item......................... (59,962) (66,607) (70,058)
Income tax benefit.......................... (13,453) (624) (23,363)
---------- ---------- ----------
Loss from continuing operations before
minority interest and extraordinary item... (46,509) (65,983) (46,695)
Minority interest in income of
subsidiaries............................... (11,597) (11,899) (7,170)
---------- ---------- ----------
Loss from continuing operations............. (58,106) (77,882) (53,865)
---------- ---------- ----------
Discontinued operations:
Loss from discontinued operations, net of
income tax benefit of $13,597 and $7,295
and minority interest in losses of
$21,193 and $22,584 for the years ended
May 31, 1998 and 1997, respectively...... -- (43,089) (80,428)
Gain on sale of discontinued operations
(less applicable income taxes of $25,739)
in 1999.................................. 314,290 -- --
---------- ---------- ----------
314,290 (43,089) (80,428)
---------- ---------- ----------
Income (loss) before extraordinary item..... 256,184 (120,971) (134,293)
Extraordinary item--loss on early retirement
of debt, net of income tax benefit of
$5,379..................................... -- -- (7,582)
---------- ---------- ----------
Net income (loss)......................... $ 256,184 $ (120,971) $ (141,875)
========== ========== ==========
Dividend on discontinued subsidiary
convertible redeemable preferred stock..... $ -- $ 5,225 $ 4,850
========== ========== ==========
Net income (loss) applicable to common
shares..................................... $ 256,184 $ (126,196) $ (146,725)
========== ========== ==========
Net income (loss) per common share--basic
and diluted:
Loss from continuing operations........... (.77) $ (1.11) $ (.78)
Loss from discontinued operations......... -- (.58) (1.08)
Gain on sale of discontinued operations... 4.18 -- --
Extraordinary item--loss on early
retirement of debt....................... -- -- (0.10)
---------- ---------- ----------
Net income (loss) per common share--basic
and diluted.............................. $ 3.41 $ (1.69) $ (1.96)
========== ========== ==========
Weighted average number of common shares
outstanding during the period--basic and
diluted.................................... 75,088,000 74,770,000 74,675,000
========== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in Thousands
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Operating Activities:
Cash received from subscribers and
others.................................. $ 635,438 $ 616,043 $ 557,224
Cash paid to suppliers, employees and
governmental agencies................... (376,415) (327,271) (330,862)
Interest paid............................ (135,290) (129,148) (119,419)
--------- -------- ----------
Net Cash Provided by Operating
Activities............................ 123,733 159,624 106,943
--------- -------- ----------
Investing Activities:
Capital expenditures..................... (121,523) (113,222) (79,563)
Cable television franchise expenditures.. (1,307) (1,764) (2,105)
Acquisition of other assets.............. (2,668) (1,524) (885)
Acquisition of cable television systems.. (4,003) (70,994) (13,928)
Sale of discontinued operations.......... 360,115 -- --
Sale of radio stations................... 11,538 -- --
--------- -------- ----------
Net Cash Provided By (Used in)
Investing Activities.................. 242,152 (187,504) (96,481)
--------- -------- ----------
Financing Activities:
Proceeds from long-term borrowings....... -- 813,659 1,043,000
Principal payments on long-term debt..... (37,050) (575,550) (1,039,050)
Debt issuance costs...................... -- (18,307) (9,017)
Purchase of treasury stock............... (1,505) (12,576) (2,358)
Issuance of common stock................. 8,562 2,951 3,822
--------- -------- ----------
Net Cash (Used in) Provided by
Financing Activities.................. (29,993) 210,177 (3,603)
--------- -------- ----------
Net Increase in Cash and Short-Term
Investments--Continuing Operations........ 335,892 182,297 6,859
Cash Flows of Discontinued Operations--
Net....................................... 4,765 (48,746) (19,504)
Cash and Short-Term Investments--Beginning
of Year................................... 285,498 151,947 164,592
--------- -------- ----------
Cash and Short-Term Investments--End of
Year...................................... $ 626,155 $ 285,498 $ 151,947
========= ========= ============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Amounts in Thousands
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Reconciliation of Net Income (Loss) to Net
Cash Provided by Operating Activities
Net Income (Loss).......................... $ 256,184 $(120,971) $(141,875)
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization............ 158,153 154,029 159,547
Minority interest in income of
subsidiaries--continuing operations..... 11,597 11,899 7,170
Deferred income taxes.................... 121 (4,812) (32,905)
Non cash interest charges................ 57,393 39,138 30,006
Gain on sale of discontinued operations.. (340,029) -- --
Gain on sale of assets and other......... (7,237) -- --
Loss from discontinued operations--net... -- 43,089 80,428
Change in assets and liabilities net of
effects of acquired cable television
systems:
Accounts receivable--
(increase)/decrease................... (866) 5,189 (10,799)
Prepaid expenses and other current
assets--(increase)/decrease........... (268) 5,437 323
Accounts payable and accrued expenses--
(decrease)/increase................... (11,315) 26,626 15,048
--------- --------- ---------
Total adjustments.................... (132,451) 280,595 248,818
--------- --------- ---------
Net Cash Provided by Operating Activities.. $ 123,733 $ 159,624 $ 106,943
========= ========= =========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 1999, 1998 and 1997 (Amounts in
thousands except subscriber and share data)
NOTE 1. Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of Century
Communications Corp., all of its subsidiaries and certain partnership interests
(the "Company") from their respective dates of acquisition (see Note 5).
Included in subsidiaries are the 50% indirectly-owned: Century Venture Corp. and
Subsidiary, Century-ML Cable Venture and Subsidiary, and Citizens Century Cable
Television Venture (see Note 12). All material intercompany transactions and
balances have been eliminated. As discussed more thoroughly in Note 3,
Centennial Cellular Corp. (the "Wireless Telephone Segment") and the Company's
Australian operations, including ECT, were sold during the quarter ended
February 28, 1999. Accordingly, the consolidated financial statements reflect
the sale of these segments during the year ended May 31, 1999 and reflect the
operating results and cash flows of these segments as discontinued operations
for the years ended May 31, 1998 and 1997. The consolidated balance sheet at May
31, 1998 segregates the net assets of these discontinued operations.
Revenue recognition
Revenues includes earned subscriber service revenues and charges for
installation and connections, net of programmers' share of pay television
revenues. Such programmers' share netted against revenues amounted to $152,236,
$131,792 and $114,591 in 1999, 1998 and 1997, respectively. Also included within
revenues was investment income of $20,678, $8,187 and $3,880 in 1999, 1998 and
1997, respectively.
Charges for installations and connections, which are non-refundable, are
recognized into revenue upon completion of the installation or reconnection.
Subscriber services paid in advance are recognized as income when earned.
Investment in marketable equity securities
The Company classifies its investments in debt and equity securities as
available for sale in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and
Equity Securities".
Unrealized holding gains and losses, net of the related income tax effect on
these securities are excluded from earnings and are reported as a component of
stockholders' deficiency (included within other comprehensive income) until
realized. Equity securities at May 31, 1999 and 1998 are stated at their fair
market values. The adjusted cost basis of these equity securities was $58,011
and $32,255 at May 31, 1999 and 1998, respectively. The May 31, 1999 adjusted
cost basis includes approximately $25,756 of equity securities received during
fiscal 1999 in relation to the sale of the Company's Australian Operations. The
Company recorded a decrease in the unrealized gain of $3,308 during the year
ended May 31, 1999, an increase in the unrealized gain of $7,333 during the year
ended May 31, 1998 and a decrease in the unrealized gain of $7,950 during the
year ended May 31, 1997.
Debt issuance costs
Costs associated with the issuance of the Company's debt securities and credit
facilities (Note 8) have been capitalized and are being amortized on a
straight-line basis over the expected lives of the issues.
F-7
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation is computed
principally using the straight-line method over the following estimated useful
lives of the assets:
<TABLE>
<S> <C>
Buildings....................................................... 15 - 25 years
Cable television transmission and distribution systems and
related equipment.............................................. 8 - 15 years
Miscellaneous equipment and furniture and fixtures.............. 3 - 15 years
</TABLE>
The cost of connections for new cable television subscribers are capitalized
at standard per subscriber rates for labor, materials and overhead. Expenditures
for maintenance and repairs are charged to operating expense as incurred, and
betterments, replacement equipment and additions are capitalized.
Cable television franchises
Cable television franchises principally consist of amounts allocated under
purchase accounting (see Note 5). Such amounts are amortized using the
straight-line method over the lives of the franchises (generally ranging from 10
to 15 years).
Excess of purchase price over value of net assets acquired
The excess of purchase price over value of net assets acquired ("goodwill") is
being amortized using the straight-line method over a period of 40 years.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
provides that the deferred tax provision is determined by the liability method.
Deferred tax assets and liabilities are recognized based on the differences
between the book and tax basis of assets and liabilities using
presently enacted tax rates.
Comprehensive income (loss)
The Company applies the provisions of the Financial Accounting Standards
Board's Statement of Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 requires the reporting and display of
comprehensive income, which is composed of net income (loss) and other
comprehensive income or loss items, in a full set of general purpose financial
statements. Other comprehensive income (loss) items for the Company include
unrealized appreciation of marketable securities and foreign currency
translation adjustments (1998 and 1997 only). Under generally accepted
accounting principles, these other comprehensive income (loss) items are
excluded from net income and reflected as a component of equity.
Segment Reporting
The Company applies the provisions of the Financial Accounting Standards
Board's Statement of Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes standards
for reporting information on operating segments in the financial statements. In
accordance with this standard, the Company has determined that it currently
operates in one business segment, the ownership and operation of cable
television systems in the United States.
F-8
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
Loss per common share
The Company applies the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"). Under SFAS 128 Basic
Earnings Per Share is calculated by dividing income (loss) applicable to common
shares by weighted average common shares outstanding. Diluted Earnings Per Share
reflects the potential dilution that could occur if potential common stock
instruments of the Company were exercised, converted or issued.
The loss per common share reflects a charge for the dividends on subsidiary
convertible redeemable preferred stock of $5,225 and $4,850 for the years ended
May 31, 1998 and 1997, respectively. These dividends are related to the
Company's previously owned wireless telephone segment.
Statement of cash flows
Short-term investments classified as cash equivalents in the consolidated
financial statements consist principally of overnight deposits, government
securities and commercial paper with acquired maturities of three months or
less.
Management estimates
The preparation of 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 the date of the financial statements and
the reported amounts of revenue and expenses during the reporting periods.
Actual results could differ from those estimates.
Valuation of long lived assets
The Company, on a quarterly basis, undertakes a review and valuation of the
net carrying value, recoverability and write-off period of all categories of its
long lived assets. The Company in its valuation considers current market values
of its properties, competition, prevailing economic conditions, government
policy including taxation, and the Company's and the industry's historical and
current growth patterns. The Company also considers its financial structure,
including the underlying cost of securities which support the Company's internal
growth and acquisitions, as well as the recoverability of the cost of its long
lived assets based on a comparison of estimated undiscounted operating cash
flows for the systems which generated long lived assets with the carrying value
of the long lived assets. The Company's long lived assets are stated at the
lower of cost or market and are amortized over their respective expected lives.
Disclosure of fair value of financial instruments
The carrying amount reported in the balance sheets for cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximates fair value because of the immediate short-term maturity of these
financial instruments.
Reclassifications
Certain prior year balances have been reclassified to conform with the current
year presentation.
F-9
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
New accounting pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" in 1998, which will be effective for the Company in fiscal 2002.
Additionally, during 1998 the AICPA's Accounting Standards Executive Committee
issued Statement of Position (SOP) 98-5 "Reporting on the Cost of Start-up
Activities", which will be effective for the Company in fiscal 2000. The Company
believes these Statements will not have a material impact on the Consolidated
Financial Statements of the Company when adopted.
NOTE 2. Agreement and Plan of Merger
On March 5, 1999, the Company and Adelphia Communications Corporation
("Adelphia") jointly announced the signing of a definitive agreement (the
"Merger Agreement") for the merger (the "Merger") of the Company with and into a
newly formed direct, wholly-owned subsidiary of Adelphia (the "Merger Sub"). The
Merger Sub will continue as the surviving company in the Merger. The Merger is
expected to close in the third calendar quarter of 1999. The consolidated
financial statements have been prepared on a historical basis and do not include
any adjustments that might result from the completion of the Merger.
Pursuant to the Merger Agreement, the Company's Class A Common stockholders
will have the right to elect, on a share-by-share basis to receive either
0.77269147 of a share of Adelphia Class A common stock or $44.14 in cash for
each share of the Company's Class A Common Stock that they own, and the
Company's Class B Common stockholders will have the right to elect, on a
share-by-share basis to receive either 0.84271335 of a share of Adelphia Class A
common stock or $48.14 in cash for each share of the Company's Class B Common
Stock that they own.
Notwithstanding an election made by one of the Company's stockholders, at the
effective time of the Merger (i) the aggregate number of shares of the Company's
Class A Common Stock that may be converted into the right to receive cash in the
Merger is equal to 20.76% of the number of shares of the Company's Class A
Common Stock outstanding immediately prior to the effective time of the Merger
(excluding shares held by dissenting stockholders), (ii) the aggregate number of
shares of the Company's Class A Common Stock which may be converted into the
right to receive shares of Adelphia Class A Common Stock in the Merger is equal
to 79.24% of the number of such shares of the Company's Class A Common Stock
outstanding immediately prior to the effective time of the Merger (excluding
shares held by dissenting stockholders), (iii) the aggregate number of shares of
the Company's Class B Common Stock that may be converted into the right to
receive cash in the Merger is equal to 24.54% of the number of shares of the
Company's Class B Common Stock outstanding immediately prior to the effective
time of the Merger (excluding shares held by dissenting stockholders) and (iv)
the aggregate number of shares of the Company's Class B Common Stock which may
be converted into the right to receive shares of Adelphia Class A Common Stock
in the Merger is equal to 75.46% of the number of shares of the Company's Class
B Common Stock outstanding immediately prior to the effective time of the Merger
(excluding shares held by dissenting stockholders).
If the aggregate number of shares of the Company's Class A Common Stock or the
Company's Class B Common Stock with respect to which elections have been made
exceeds the aggregate number of shares of the Company's common stock of that
class that may be converted into the right to receive a particular form of
consideration in the Merger, then each share of the Company's common stock
electing to receive the undersubscribed consideration will receive that
consideration; and each share of the Company's common stock electing to receive
the oversubscribed consideration will receive a portion of the Merger
consideration in cash and a portion of the Merger consideration in Adelphia
Class A Common Stock.
F-10
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger, the Merger Agreement and the transactions
contemplated by the Merger Agreement will be paid by the party incurring such
expenses. However, in the event the Company enters into or consummates a merger,
consolidation or other business combination with a third party within
twenty-four months after the date of termination of the Merger Agreement, the
Company shall reimburse Adelphia's costs and expenses in connection with the
Merger Agreement (subject to a maximum of $10,000) and pay Adelphia a
termination fee of $100,000.
On or about March 10, 1999, a lawsuit was commenced by the filing of a class
action complaint (the "Complaint") by one of the Company's Class A Common
stockholders on behalf of himself and all others similarly situated naming the
Company's Class B Common stockholders and all of the Company's Directors as
defendants for alleged breaches of fiduciary duty in connection with approval of
the Merger consideration. The Company and Adelphia were also named as defendants
for allegedly aiding and abetting in the foregoing breaches of fiduciary duty.
The Complaint seeks damages in an unspecified amount and such other relief as
may be appropriate. On July 21, 1999, the court granted the Company's and the
other defendants' motion for extension of time to answer or otherwise respond to
the complaint to the earlier of November 15, 1999 or twenty days after the
effective date of the Merger.
The closing of the Merger is subject to certain customary conditions,
including the approval of the Merger by the shareholders of the Company and
Adelphia, each party obtaining the required consents and all appropriate
regulatory and other approvals, including from the Federal Communications
Commission and local franchising authorities and under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). On April 20,
1999, the waiting period under the HSR Act for the Merger terminated. In
connection with the Merger, the Company has completed filing the material
applications seeking transfer of the Company's applicable franchise licenses
with the FCC and local franchising authorities. There is no assurance that the
Company will obtain such approvals or that the Merger will be consummated.
At the effective time of the Merger, Adelphia will purchase Citizens Utilities
Company's ("Citizens") 50% interest in the Century/Citizens Joint Venture, one
of the Company's 50% owned joint ventures, for a purchase price of approximately
$157,500, comprised of approximately $27,700 in cash, approximately 1.85 million
shares of Adelphia Class A common stock and the assumption of indebtedness. This
joint venture serves approximately 91,800 basic subscribers in California and is
jointly owned by the Company and Citizens Cable Company, a subsidiary of
Citizens.
In addition, the Company, Adelphia and Dr. Leonard Tow, Chairman and Chief
Executive Officer of the Company, have agreed that the Company will sell its
shares of Class A Common Stock of Citizens to Dr. Tow at the effective time of
the Merger at fair market value, based on the closing market price of such
shares on the date the Merger Agreement was signed. Based on that closing price,
the aggregate purchase price will be approximately $39,800. As of May 31, 1999,
these shares constituted approximately 2% of the outstanding stock of Citizens.
NOTE 3. Merger/Sale of Business Segments
Centennial Cellular Corp.
On January 7, 1999, Centennial Cellular Corp. ("Centennial"), a former
subsidiary of the Company, completed the previously announced merger of CCW
Acquisition Corp., a company organized at the direction of Welsh, Carson,
Anderson & Stowe, with and into Centennial (the "Centennial Merger"). As of the
completion of the Centennial Merger, the Services Agreement between the Company
and Centennial was terminated. As a
F-11
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
holder of 8,561,819 shares of Class B Common Stock and 3,978 shares of Second
Series Convertible Preferred Stock of Centennial, the Company received for its
interest in Centennial approximately $360,100 in cash. The Company recorded a
pre-tax gain upon the sale of Centennial of approximately $322,000 during the
year ended May 31, 1999.
Australian Operations
The Company sold to UIH Asia/Pacific Communications Inc. ("UAP"), a unit of
United International Holdings, Inc. ("UIH"), the Company's 25% ownership
interest in XYZ Entertainment Pty. Limited ("XYZ") for approximately $24,600.
Approximately 95% of the sales price was paid in the form of UIH Series B
Convertible Preferred Stock ("UIH Convertible Stock") which is convertible at
any time into approximately ten shares of UIH Class A Common Stock for each
share of UIH Convertible Stock, at a conversion price of $21.25 per share. The
Company may not sell, assign, pledge, transfer or otherwise convey any of these
UIH securities prior to September 11, 1999.
In fiscal 1999, East Coast Pay Television Pty. Limited ("ECT") sold
substantially all of its operating assets to Austar Entertainment Pty Ltd.
("Austar"), a wholly owned subsidiary of UAP, for approximately $6,100 in the
form of UIH Convertible Stock. ECT has finalized the shutdown of its operations,
including the liquidation of its current liabilities. On December 16, 1998, the
creditors of ECT (including the Company) entered into an Intercreditor Agreement
pursuant to which substantially all of the remaining assets of ECT have been
distributed among them and the Company has received 5,652 units of UIH
Convertible Stock, of which 1,156 units are to be transferred to the ECT
minority interest shareholders. The Company may not sell, assign, pledge,
transfer or otherwise convey any of the remaining 4,496 units of UIH Convertible
Stock prior to July 9, 1999. The Company will receive 92.4% of any additional
remaining assets of ECT. Such amounts are not expected to be material.
At July 26, 1999, the closing price of the UIH Class A Common Stock on the
Nasdaq National Market was $77 1/8.
The Company recorded a pre-tax gain of approximately $18,000 as a result of
the sale of its Australian business segment during the year ended May 31, 1999.
The Company reduced its valuation allowance applied against its deferred tax
assets by approximately $104,000 as a result of the sale of Centennial and the
Australian Operations.
The net assets of Centennial and the Australian Operations have been
classified in the accompanying May 31, 1998 consolidated balance sheet under the
caption "Net Assets of Discontinued Operations".
F-12
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
Operating results of Centennial and the Australian Operations for the years
ended May 31, 1998 and 1997 are shown separately within the accompanying
consolidated statements of operations under the caption "Loss from Discontinued
Operations". The operating results of Centennial and the Australian Operations
for the years ended May 31, 1998 and 1997 consist of the following:
Centennial Cellular Corp.:
<TABLE>
<CAPTION>
Years Ended May 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenue.................................................. $ 237,501 $ 151,023
Costs and expenses....................................... (250,802) (177,080)
--------- ---------
Operating Loss......................................... (13,301) (26,057)
Income from equity investments........................... 13,069 15,180
Interest expense......................................... (45,155) (33,379)
Gain on sale of assets................................... 5 3,819
Income tax benefit....................................... 13,597 7,295
Minority interest in income of subsidiaries.............. (162) (153)
--------- ---------
Net Loss (a)........................................... $ (31,947) $ (33,295)
========= =========
</TABLE>
Australian Operations:
<TABLE>
<CAPTION>
Years Ended May 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenue................................................... $ 35,257 $ 33,248
Costs and expenses........................................ (54,672) (89,073)
--------- ---------
Operating Loss.......................................... (19,415) (55,825)
Interest expense.......................................... (10,547) (9,634)
Other loss................................................ (2,373) (4,258)
--------- ---------
Net Loss (a)............................................ $(32,335) $(69,717)
========= =========
</TABLE>
- --------
(a) Prior to minority interest share of losses.
NOTE 4. Supplemental Disclosure of Non-Cash Investing and Financing Activities
The table below summarizes non-cash reclassifications that occurred during
the years ended May 31, 1999, 1998 and 1997. The reclassifications result
primarily from the Company's acquisitions.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Marketable securities.............................. $(3,308) $ 7,333 $ (7,951)
Cable television franchises........................ -- 5,000 (14,828)
Goodwill........................................... -- -- 14,828
------- ------- --------
$(3,308) $12,333 $ (7,951)
======= ======= ========
Current liabilities................................ $ -- $ 8,067 $ 3,005
Minority interest.................................. -- (3,067) (3,005)
Other stockholders' deficiency..................... (3,308) 7,333 (7,951)
------- ------- --------
$(3,308) $12,333 $ (7,951)
======= ======= ========
</TABLE>
F-13
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
NOTE 5. Acquisitions
During the three years ended May 31, 1999, the Company acquired the net assets
of cable television systems as follows:
<TABLE>
<CAPTION>
Amounts allocated to
--------------------
Number of Total Cable Property
Systems purchase television plant and
Acquired price franchises equipment
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended May 31, 1998................. 2 $69,650 $23,383 $24,647
</TABLE>
During the year ended May 31, 1999, the Company acquired approximately 2,280
subscribers for $3,985. This purchase price was substantially allocated to cable
television franchises ($2,331) and property, plant and equipment ($1,654).
These transactions have been accounted for as purchases and the results of
operations of the acquired systems have been included in the accompanying
consolidated financial statements from the dates of acquisition. The Company has
recorded the purchase price of the cable television systems at the fair market
value of acquired assets on the dates of acquisition with the excess purchase
price being recorded to cable television franchises.
Cable Television Acquisitions
On August 16, 1996, the Company entered into agreements to acquire two cable
television systems which served an aggregate of approximately 35,000 primary
basic subscribers, which agreements were subsequently assigned to a joint
venture in which each of the Company and Citizen Utilities Company have a 50%
interest (the "Century/Citizens Joint Venture"). These systems are primarily
located in Yorba Linda/Orange County and Diamond Bar, California. The aggregate
purchase price for these systems was approximately $69,650. On October 15, 1997,
the Century/Citizens Joint Venture completed the acquisition of the Diamond Bar
system for a purchase price of approximately $34,160. The Diamond Bar system
serves approximately 20,000 primary basic subscribers. On April 30, 1998, the
Century/Citizens Joint Venture completed the acquisition of the Yorba
Linda/Orange County systems for a purchase price of approximately $35,490. The
Yorba Linda/Orange County systems serve approximately 17,500 primary basic
subscribers. The Company funded its share of the purchase price for the Yorba
Linda/Orange County systems and the Diamond Bar system using available credit
facilities.
The pro forma effect of completed cable television acquisitions was not
material.
Pending Acquisition
In August 1998, the Company entered into an agreement to acquire a cable
television system which serves approximately 19,000 primary basic subscribers in
Moreno Valley and certain portions of Riverside County, California. The purchase
price for this system is approximately $33,000. The Company currently expects to
fund the acquisition using either cash on hand or available credit facilities.
The purchase of this system by the Company is subject to regulatory approvals.
There is no assurance that the Company will obtain such approvals or that such
acquisition will be consummated.
NOTE 6. Transactions with Related Parties
The Company purchased workers compensation and general liability insurance
from Sentry Insurance (a holder of approximately 1% of Class B Common stock
until June 1998) and its affiliated companies. The
F-14
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
Company paid a total of $4,112, $4,665 and $7,083 for such insurance for the
fiscal years ended May 31, 1999, 1998 and 1997, respectively.
Leavy Rosensweig & Hyman of which David Z. Rosensweig is a member, serves as
General Counsel to the Company. Mr. Rosensweig is also a director and secretary
of the Company. The Company paid approximately $1,743, $1,165 and $1,352 to
Leavy Rosensweig & Hyman for the fiscal years ended May 31, 1999, 1998 and 1997,
respectively.
The Company believes that all transactions between it, Sentry Insurance and
Leavy, Rosensweig & Hyman have been on terms no less favorable to the Company
than would have been available from nonaffiliated parties.
NOTE 7. Account Analysis
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
May 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Land.................................................... $ 6,017 $ 6,794
Buildings............................................... 33,381 33,175
Cable television and wireless telephone transmission
and distribution systems and related equipment......... 997,422 908,513
Miscellaneous equipment and furniture and fixtures...... 59,769 54,470
---------- ----------
1,096,589 1,002,952
Less accumulated depreciation........................... (510,896) (436,987)
---------- ----------
$ 585,693 $ 565,965
========== ==========
</TABLE>
Depreciation expense was approximately $101,370, $93,926 and $98,429 for the
fiscal years ended May 31, 1999, 1998, and 1997, respectively. During fiscal
1999, 1998 and 1997 the Company wrote-off approximately $25,212, $42,476 and
$117,855, respectively, of fully depreciated property, plant and equipment.
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
May 31,
----------------
1999 1998
-------- -------
<S> <C> <C>
Accrued interest.............................................. $ 32,369 $33,249
Accrued other................................................. 57,231 42,459
Customer deposits & prepaids.................................. 12,660 21,791
-------- -------
$102,260 $97,499
======== =======
</TABLE>
F-15
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
NOTE 8. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
May 31,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Credit facility (a)...................................... $ -- $ --
Credit facility (b)...................................... -- --
9 1/2% Senior notes due 2000 (c)......................... 150,000 150,000
9 3/4% Senior notes due 2002 (d)......................... 200,000 200,000
Zero Coupon Senior discount notes due 2003 (e)........... 316,618 289,870
9 1/2% Senior notes due 2005 (f)......................... 250,000 250,000
8 7/8% Senior Notes due 2007 (g)......................... 250,000 250,000
8 3/4% Senior Notes due 2007 (h)......................... 225,000 225,000
8 3/8% Senior Notes due 2017 (i)......................... 100,000 100,000
8 3/8% Senior Notes due 2007 (j)......................... 100,000 100,000
Senior Discount Notes due 2008, Series B (k)............. 282,022 258,132
Subsidiary 9.47% Senior secured notes due 2002 (l)....... 80,000 100,000
Subsidiary revolving credit and term loan (m)............ 47,000 54,000
Subsidiary credit facility (n)........................... 42,000 52,000
Other.................................................... 50 100
---------- ----------
Total debt............................................. 2,042,690 2,029,102
Current maturities....................................... 20,050 20,050
---------- ----------
$2,022,640 $2,009,052
========== ==========
</TABLE>
- --------
(a) On August 4, 1995, as amended August 12, 1996, CCC-I, Inc. ("CCC-I"), a
subsidiary of the Company, entered into a three-year, $525,000 unsecured
revolving credit facility which converts to a five year term loan. The
interest rates payable on borrowings under the amended credit facility
are based on, at the election of CCC-I, (a) the base rate of interest
announced by Citibank, N.A. plus 0% to 0.625% per annum based upon
certain conditions, or (b) the London Interbank Offering Rate plus 0.75%
to 1.625% per annum based upon certain conditions. On August 31, 1999,
the $525,000 of borrowing capacity terminates under the CCC-I credit
facility. At May 31, 1999, no amounts were outstanding under the CCC-I
credit facility.
The agreement expires on August 31, 2004 and provides for mandatory principal
repayments, among other possible reductions, in the following percentages:
<TABLE>
<CAPTION>
Last day Last day Last day Last day
Year of February of May of August of November
---- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C>
1999............................. -- -- -- 4.00%
2000............................. 4.00% 4.00% 4.00% 4.50%
2001............................. 4.50% 4.50% 4.50% 5.25%
2002............................. 5.25% 5.25% 5.25% 5.75%
2003............................. 5.75% 5.75% 5.75% 5.50%
2004............................. 5.50% 5.50% 5.50% --
</TABLE>
(b) On June 30, 1994, as amended August 12, 1996, CCC-II, Inc. ("CCC-II"), a
subsidiary of the Company entered into a three-year $350,000 unsecured
revolving credit facility which converts to a five-year term loan with a
syndicate of banks led by Citibank, N.A. as agent for the syndicate. The
interest rates payable
F-16
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
on borrowings under the amended credit facility are based on, at the
election of CCC-II, (a) the base rate of interest announced by Citibank,
N.A. plus 0% to 0.5% per annum based upon certain conditions, or (b) the
London Interbank Offering Rate plus 0.75% to 1.375% per annum based upon
certain conditions. On August 31, 1999, the $350,000 of borrowing capacity
terminates under the CCC-II credit facility. At May 31, 1999, no amounts
were outstanding under the CCC-II credit facility.
The agreement expires on August 31, 2004 and provides for mandatory principal
repayments, among other possible reductions, in the following percentages:
<TABLE>
<CAPTION>
Last day Last day Last day Last day
Year of February of May of August of November
---- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C>
1999............................. -- -- -- 2.50%
2000............................. 2.50% 2.50% 2.50% 5.00%
2001............................. 5.00% 5.00% 5.00% 5.00%
2002............................. 5.00% 5.00% 5.00% 6.25%
2003............................. 6.25% 6.25% 6.25% 6.25%
2004............................. 6.25% 6.25% 6.25% --
</TABLE>
(c) On August 21, 1992, the Company issued Senior Notes Due 2000 ("9 1/2%
Notes") in the principal amount of $150,000 which mature on August 15,
2000. The 9 1/2% Notes bear interest at 9 1/2% payable semiannually on
February 15 and August 15 of each year commencing February 15, 1993. At May
31, 1999 and 1998 the 9 1/2% Notes were trading at 105.14% and 105% of par
or $157,710 and $157,500, respectively.
(d) On February 13, 1992, the Company issued Senior Notes Due 2002 ("the 9 3/4%
Notes") in the principal amount of $200,000 which mature on February 15,
2002. The notes bear interest at 9 3/4% payable semiannually on February 15
and August 15 of each year commencing August 15, 1992. At May 31, 1999 and
1998, the 9 3/4% Notes were trading at 107.56% and 107% of par or $215,120
and $214,000, respectively.
(e) On April 1, 1993, the Company issued Zero Coupon Senior Discount Notes
Due 2003 ("the Discount Notes") in the discounted amount of $183,678
yielding 8.875% annually to maturity. The Discount Notes mature on March
15, 2003 at $444,000. There will be no periodic payments of interest on
the Discount Notes, and they may not be redeemed prior to maturity.
During the years ended May 31, 1999 and 1998, approximately $26,748 and
$24,489 of interest, respectively was amortized in the consolidated
financial statements. At May 31, 1999 and 1998, the Notes were trading at
71.47% and 67% of par or $317,327 and $297,480 respectively. The accreted
value of the Discount Notes at May 31, 1999 was $316,618.
(f) On March 6, 1995, the Company issued unsecured Senior Notes due 2005 ("the
9 1/2% Notes") in the principal amount of $250,000 which mature March 1,
2005. The Notes bear interest at 9 1/2% payable semi-annually on March 1
and September 1 of each year commencing September 1, 1995. At May 31, 1999
and 1998, the Notes were trading at 106.66% and 106.75% of par or $266,650
and $266,875, respectively.
(g) On January 17, 1997, the Company issued Senior Notes Due 2007 ("8 7/8%
Notes") in the principal amount of $250,000 which mature on January 15,
2007. The 8 7/8% Notes bear interest at 8 7/8% payable semiannually on
January 15 and July 15. At May 31, 1999 and 1998 the Notes were trading at
101.14% and 104.25% of par or $252,850 and $260,625, respectively.
The net proceeds received by the Company from the sale of the 8 7/8% Notes,
of approximately $244,607, were used to temporarily repay a portion of the
long-term debt outstanding under two credit agreements
F-17
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
executed by subsidiaries of the Company. The net proceeds were used to retire
$204,000 aggregate principal amount of 11 7/8% Senior Subordinated Debentures
due 2003 issued by the Company in October 1991 (the "11 7/8% Debentures").
The 11 7/8% Debentures were called by the Company on April 15, 1997 at a
redemption price of 105% of the principal amount thereof. Accordingly, the
amount required to retire the 11 7/8% Debentures at such time was $214,200
plus accrued interest of $12,113. The effect of the redemption resulted in an
extraordinary loss on early retirement of debt in fiscal 1997 of
approximately $7,582, net of income taxes of $5,379, reflecting the call
premium and write-off of deferred financing costs. The balance of the net
proceeds was used by the Company for general corporate purposes, including
but not limited to the financing of capital expenditures, investments,
purchases of the Company's securities and acquisitions.
On April 4, 1997, the Company filed a registration statement with the SEC
relating to the shelf registration of $500,000 of the Company's debt
securities, augmenting the remaining $2,000 available under the July 1994
registration statement. The registration became effective July 15, 1997.
(h) On September 29, 1997, the Company issued 8 3/4% Senior Notes due 2007 (the
"8 3/4% Notes") in the principal amount of $225,000, which mature on
October 1, 2007. The 8 3/4% Notes bear interest at 8 3/4% payable
semiannually on April 1 and October 1 of each year commencing April 1,
1998. At May 31, 1999 and 1998 the 8 3/4% Notes were trading at 101.125%
and 103.75% of par or $227,531 and $233,438.
(i) On November 13, 1997, the Company issued 8 3/8% Senior Notes due 2017 (the
"8 3/8% Notes") in the principal amount of $100,000, which mature on
November 15, 2017. The 8 3/8% Notes bear interest at 8 3/8% payable
semiannually on May 15 and November 15 of each year commencing May 15,
1998. At May 31, 1999 and 1998, the 8 3/8% Notes were trading at 99.50% and
99.44% of par or $99,500 and $99,440.
(j) On December 10, 1997, the Company issued 8 3/8% Senior Notes due 2007 (the
"Senior Notes due 2007") in the principal amount of $100,000, which mature
on December 15, 2007. The Senior Notes due 2007 bear interest at 8 3/8%
payable semiannually on June 15 and December 15 of each year commencing
June 15, 1998. At May 31, 1999 and 1998, the Senior Notes due 2007 were
trading at 101.125% and 101.5% of par or $101,125 and $101,500.
The net proceeds received by the Company from the issuance of the 8 3/4%
Notes, the 8 3/8% Notes and the Senior Notes due 2007 of $410,449 were used
by the Company to temporarily repay portions of the long-term debt
outstanding under the Company's CCC-I and CCC-II credit agreements.
(k) On January 15, 1998, the Company issued $605,000 principal amount at
maturity of Senior Discount Notes due 2008, Series A ("Senior Discount
Notes") to a qualified institutional buyer under a private placement
offering pursuant to Rule 144A and Regulation S of the Securities Act of
1933, as amended (the "Private Placement Offering"). The Senior Discount
Notes were sold at a discount of 41.266% from the principal amount due at
maturity (the "Original Issue Discount"). The Original Issue Discount began
accruing on the Senior Discount Notes on January 15, 1998 and will continue
accruing during the period in which the Senior Discount Notes remain
outstanding. The Original Issue Discount represents an annual yield to
maturity of 9.05% based on the issue price of the Senior Discount Notes.
There will be no periodic payments of interest on the Senior Discount
Notes. The Senior Discount Notes are senior unsecured obligations of the
Company, may not be redeemed prior to maturity and will not be entitled to
the benefit of any sinking fund.
The net proceeds received by the Company from the sale of the Senior Discount
Notes were approximately $246,106. The Company used $96,000 of the net
proceeds from the sale of the Senior Discount Notes to
F-18
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
temporarily repay portions of the long-term debt outstanding under both the
CCC-I and CCC-II credit agreements. The remainder of the net proceeds have
been and continue to be used for capital expenditures, operations,
acquisitions and other investments. Further borrowings may be made under the
CCC-I and CCC-II Credit Agreements until August 31, 1999 for general
corporate purposes, including, but not limited to, the financing of capital
expenditures, investments, purchases of the Company's securities and
acquisitions.
On March 2, 1998, the Company filed a registration statement with the SEC
relating to the exchange of all outstanding Senior Discount Notes due 2008,
Series A for Senior Discount Notes, Series B (the "Senior Discount Notes,
Series B"). The terms of the Senior Discount Notes, Series B are identical in
all material respects to the Senior Discount Notes, except that the Senior
Discount Notes, Series B were registered under the Securities Act of 1933, as
amended, and therefore the transfer of the Senior Discount Notes, Series B
are not restricted. This registration statement became effective on March 17,
1998.
During the years ended May 31, 1999 and 1998, approximately $23,890 and
$8,473, respectively of interest was amortized in the consolidated financial
statements related to the Senior Discount Notes, Series B. At May 31, 1999
and 1998, the Senior Discount Notes, Series B were trading at 45.19% and 44%
of par or $273,400 and $266,200.
On January 7, 1998, the Company filed a shelf registration statement with the
SEC for $500,000 of the Company's debt securities, augmenting the remaining
$77,000 under the shelf registration statement filed on April 4, 1997. The
registration statement became effective on January 28, 1998. The debt
securities may be issued from time to time, in series, on terms to be
specified in one or more prospective supplements at the time of the offering.
If so specified with respect to any particular series, the debt securities
may be convertible into shares of the Company's Class A Common Stock. As of
May 31, 1999, there was $577,000 available for issuance under this shelf
registration.
The Company's public debt securities rank pari passu with all existing and
future Senior Indebtedness (as that term is defined in the respective
Indentures under which the public debt securities were issued) of the
Company, are senior in right of payment to all existing and future
subordinated indebtedness of the Company, and may not be redeemed prior to
maturity.
(l) On December 31, 1992, Century-ML Cable Corporation ("CML") and Century/ML
Cable Venture ("CCV"), subsidiaries of the Company through which the
Company owns a 50% interest in cable television systems in Puerto Rico,
entered into separate note agreements (the "Note Agreements") with a
group of institutional lenders providing for the issuance by CML of
$100,000 aggregate principal amount of its 10-year 9.47% Senior Secured
Notes Due 2002. Interest on the Notes is payable semiannually and
principal will be payable in installments of 20% of the original
principal amount beginning on September 30, 1998, with final maturity at
September 30, 2002. The Notes are subject to various other prepayment
provisions, including prepayment with premium at the option of CML at any
time prior to their expressed maturity and prepayment with premium at the
option of the holders thereof upon the occurrence of certain events
involving changes in control of CML and CCV. The Notes are entitled to
the benefits of certain security agreements and guarantees, including a
guaranty by CCV of the payment of all principal of, premium, if any, and
interest on the notes. The notes are secured by substantially all of the
assets of CCV. The estimated fair value of the notes at May 31, 1999 was
approximately $84,905.
(m) On July 31, 1995, a subsidiary of the Company, Century Venture Corp.
("CVC") entered into a three year, $80,000 revolving credit facility which
converts to a five year term loan. The proceeds of the facility were used
by CVC to repay existing indebtedness of CVC and will be used for working
capital and general
F-19
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
corporate purposes. The repayment by CVC of its existing indebtedness
discharged all of CVC's obligations under its then-existing credit agreement
and, as a result, such agreement was terminated. The interest rates payable
on borrowings under the new credit facility are based on, at the election of
CVC, (a) "C/D Base Rate" plus an applicable margin, as defined or (b)
"Eurodollar Base Rate" plus an applicable margin as defined or (c) "ABR" rate
as defined. At May 31, 1999, $47,000 was outstanding under the CVC credit
facility. The estimated fair value of the CVC credit facility approximates
its carrying value at May 31, 1999.
The agreement expires on February 28, 2004 and provides for a reduction in the
aggregate commitment, among other possible reductions, in the following
amounts:
<TABLE>
<CAPTION>
Last day Last day Last day Last day
Year of February of May of August of November
---- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C>
1998............................. $ -- $ -- $1,875 $1,875
1999............................. 1,875 1,875 2,500 2,500
2000............................. 2,500 2,500 3,125 3,125
2001............................. 3,125 3,125 3,750 3,750
2002............................. 3,750 3,750 3,750 3,750
2003............................. 3,750 3,750 6,667 6,667
2004............................. 6,666 -- -- --
</TABLE>
(n) On April 15, 1997, Citizens Century Cable Television Venture ("CCCTV")
entered into an agreement for the provision of a three-year, $200,000
revolving credit facility with Bank of America and Societe General, which
converts into a five-year term loan. The facility is secured by the
assets of CCCTV. The loan is non-recourse to both Citizens and the
Company. Borrowings under the facility are to be repaid in semi-annual
installments commencing June 30, 2000 and expiring on March 31, 2005. The
agreement provides for mandatory principal repayments, among other
possible reductions, in the following percentages:
<TABLE>
<CAPTION>
Last day Last day Last day Last day
Year of March of June of September of December
---- -------- -------- ------------- -----------
<S> <C> <C> <C> <C>
2000............................. -- 2.33% 2.33% 2.33%
2001............................. 4.00% 4.00% 4.00% 4.00%
2002............................. 5.00% 5.00% 5.00% 5.00%
2003............................. 5.25% 5.25% 5.25% 5.25%
2004............................. 7.13% 7.13% 7.13% 7.13%
2005............................. 7.50% -- -- --
</TABLE>
The facility requires mandatory prepayments of principal refinancing under
certain circumstances (as specified in the agreement). Borrowings under the
facility bear interest, at the option of CCCTV, at either the base rate or the
Eurodollar rate, plus the applicable margin (as defined in the agreement). The
principal use of proceeds will be to fund acquisitions as well as general
corporate purposes. As of May 31, 1999 $42,000 was outstanding under the
facility. The estimated fair value of the CCCTV credit facility approximates
its carrying value at May 31, 1999.
The subsidiaries' credit facilities and the Company's public debt securities,
among other things, require the maintenance of certain financial and operating
covenants, restrict the use of proceeds from such borrowing, limit the
incurrence of additional indebtedness, restrict the purchase or redemption of
its capital stock and limit the ability to pay dividends and management fees
and make capital expenditures. So long as applicable financial and other
covenants, including certain interest expense ratio tests, are met in
connection with the Merger, the Merger may be accomplished without creating a
default under the indentures applicable to the
F-20
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
Company's public debt securities. If any issue of the Company's public debt
securities is downgraded to designated levels at the time of the Merger, the
holders of such issue could require the Company to repurchase such debt
securities at a price equal to 101% of the principal amount thereof.
The Company entered into a five-year interest rate hedge agreement during
October 1997 in relation to certain of its fixed rate debt. The hedge
agreement is structured such that the Company pays a variable rate of interest
based on the higher of the U.S.D. six (6) month LIBOR or the U.S.D. six (6)
month LIBOR set in arrears and receives a fixed rate of interest of 6.695%
based on a notional amount of $35,000. Subject to the terms of the hedge
agreement, if the six month LIBOR is set at or below 4.75% at the beginning of
any period, the hedge agreement would terminate for that period alone and the
Company would receive a 50 basis points subsidy for that period alone. The net
gain or loss, which has not been material, is included in interest expense in
the accompanying 1999 and 1998 consolidated statement of operations and
interest paid in the 1999 and 1998 consolidated statement of cash flows. At
May 31, 1999, the estimated fair value of the hedge agreement represents an
asset of approximately $40.
The aggregate annual principal payments related to continuing operations for
the next five years and thereafter are summarized as follows (amounts in
thousands):
<TABLE>
<S> <C>
2000............................................................. $ 20,050
2001............................................................. 174,620
2002............................................................. 239,140
2003............................................................. 487,505
2004............................................................. 29,607
2005............................................................. 1,542,128
----------
2,493,050
Less: unamortized discount....................................... (450,360)
----------
$2,042,690
==========
</TABLE>
At May 31, 1999, the Company and its subsidiaries were in compliance with all
covenants of the above noted agreements.
NOTE 9. Commitments and Contingencies
Leases
At May 31, 1999, the Company's approximate annual lease obligations and
expenses (under operating leases) were as follows:
<TABLE>
<S> <C>
Pole rentals............................................................ $3,377
Vehicles and equipment.................................................. 649
Antenna site and property access........................................ 507
Warehouse, studio and office............................................ 4,260
------
$8,793
======
</TABLE>
The above leases are substantially all short-term or cancelable by either
party upon notice.
F-21
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
Letters of Credit
The Company is a party to several available letters of credit totaling $8,148.
No payments have been made under these agreements.
Cable Modem Services
The Company is presently in the initial deployment stage of high-speed cable
modem services. On May 1, 1998, the Company entered into an agreement with @Home
Network ("@Home"), a provider of high-speed internet services via cable
infrastructure, to deliver high-speed internet services in certain of the
Company's markets covering approximately 1,315,000 homes passed. The agreement
has a term of six years and contains mutual exclusivity provisions relating to
the provision of high-speed internet services in certain of the Company's
systems covering the same approximately 1,315,000 homes passed. In connection
with the agreement, the Company has received a warrant to purchase 5,260,000
shares of @Home's Series A Common Stock at an exercise price equal to $5.25 per
share, subject to adjustment. The warrant becomes exercisable on a schedule
based upon and subject to the commercial deployment (as defined) of the @Home
services by the Company, which must be certified by the Company and @Home on or
after March 31 of each year during the term of the warrant for the 12 month
period ending March 31. As of both March 31, 1999 and May 31, 1999 no portion of
the warrant had become exercisable, therefore no asset has been recorded. From
March 31, 1999 through May 31, 1999, the Company has passed approximately
110,000 homes or 8.4% of the commercial deployment specified in the Agreement.
As of May 31, 1999, the closing price of the @Home Series A Common Stock on the
Nasdaq National Market (adjusted for stock splits) was $63 3/8 per share.
Litigation
The Company and its subsidiaries are involved in litigation and regulatory
matters which involve certain claims which arise in the normal course of
business, none of which individually, or in the aggregate, in the opinion of
management, is expected to have a materially adverse effect on the Company's
consolidated financial position or results of operations.
Merger Related Costs
The Company has employment agreements with four executive officers including
Dr. Leonard Tow, Chairman and Chief Executive Officer of the Company. The terms
of these employment agreements expire on June 30, 2003, except that Dr. Tow's
agreement continues for an additional five-year advisory period. Each of these
employment agreements is terminable by the executive officer upon a "change of
control" or a "threatened change of control" of the Company. One of the events
that is considered to be a threatened change of control under each employment
agreement is the acquisition by any person of securities of the Company such
that the person files or is required to make a filing pursuant to Regulation 13D
under the Securities Exchange Act of 1934, as amended. Such an event has
occurred and, therefore, for purposes of these employment agreements, a
"threatened change of control" has occurred. Subsequent to May 31, 1999, each of
these executive officers has exercised his right to terminate his employment
agreement but has agreed to continue working for the Company through the closing
of the Merger.
Pursuant to the employment agreement, upon such termination, each executive
officer is entitled to receive his base salary through the end of the term of
his employment agreement, an annual cash bonus for the remainder of the term
equal to his most recently awarded cash bonus, continuation of medical, dental,
life and disability insurance for the remainder of the term on the same basis as
provided while the agreement was in effect and the
F-22
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
use of office space for one year. In addition, upon termination, all of his
Company stock options vest and become exercisable and the restrictions on all of
his shares of restricted stock of the Company lapse. The total cost to the
Company of the termination of the executive employment agreements (excluding the
impact of stock options and tax reimbursements related thereto, which will vary
depending upon the price of the stock, timing of the exercise of the options,
and certain elections available to each officer with respect to the receipt of
Merger consideration) is currently estimated to be approximately $150,000.
Substantially all of these costs will be recorded by the Company during the
first quarter of fiscal 2000.
Additionally, the Company will incur certain employee severance related costs
related to the Merger and the continuance of the employment of key personnel
through the completion of the Merger. The total cost to the Company of these
employee severance related costs will be approximately $11,000. These costs will
be recorded by the Company upon completion of the Merger.
The Company also incurred incremental legal, consulting and compensation costs
of $7,922 through May 31, 1999 in connection with its proposed Merger.
NOTE 10. Common Stockholders' Deficiency
Common Stock
The voting rights with respect to the two classes of Common Stock are as
follows: Class A shares entitle the holder to one vote per share, Class B shares
entitle the holder to ten votes per share. Shares of Class B Common Stock are
convertible into shares of Class A Common Stock on a one-for-one basis upon
transfer from the current Class B stockholders. The Company is restricted from
paying cash dividends on its common stock by its credit agreements (Note 8).
Treasury Stock
During fiscal 1998 and 1997, the Company purchased 1,959,000 and 171,500
shares, respectively, of the Company's Class A Common Stock in the open market.
These shares were accounted for as treasury shares in the respective fiscal
years. During the year ended May 31, 1999, the Company did not purchase any
shares in the open market pursuant to these authorizations.
F-23
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
The following table presents changes in the Company's stockholders' equity for
the years ended May 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Class A Class B Additional Total Comprehensive
------------------ ------------------- Paid-in Accumulated Stockholders' Income
Shares Dollars Shares Dollars Capital Deficit Other Deficiency (Loss)
---------- ------- ---------- ------- ---------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1,
1996............. 59,946,280 $599 45,406,115 $454 $178,427 $(507,168) $(120,325) $(448,013)
Shares issued in
connection with
employee incentive
plans............ 711,490 7 25,000 4,294 (346) 3,955
Class A shares
purchased
by the Company... (2,359) (2,359)
Class B shares
converted to
Class A shares... 305,000 3 (305,000) (3) --
Class A shares
issued in
connection
with acquisitions.. 1,732,357 18 (18) --
Subsidiary
preferred stock
dividends........ (4,850) (4,850)
Foreign currency
translation
adjustment....... 462 462 $ 462
Change in
unrealized
appreciation of
marketable
securities....... (7,950) (7,950) (7,950)
Income tax
benefit--
subsidiary stock
options exercised.. 1,987 1,987
Net loss.......... (141,875) (141,875) (141,875)
---------- ---- ---------- ---- -------- --------- --------- --------- ---------
Balance at May 31,
1997............. 62,695,127 $627 45,126,115 $451 $179,840 $(649,043) $(130,518) $(598,643) $(149,363)
=========
Share issued in
connection with
employee incentive
plans............ 589,761 6 4,278 255 4,539
Class A Shares
purchased
by the Company... (12,576) (12,576)
Class B shares
converted to
Class A shares... 2,400,000 24 (2,400,000) (24) --
Subsidiary
preferred stock
dividends........ (5,225) (5,225)
Change in
unrealized
appreciation of
marketable
securities....... 7,333 7,333 $ 7,333
Foreign currency
translation
transferred
to discontinued
operations....... 291 291 291
Net loss.......... (120,971) (120,971) (120,971)
---------- ---- ---------- ---- -------- --------- --------- --------- ---------
Balance at May 31,
1998............. 65,684,888 $657 42,726,115 $427 $178,893 $(770,014) $(135,215) $(725,252) $(113,347)
=========
Shares issued in
connection with
employee
incentive plans.. 1,118,391 11 25,000 12,341 (3,790) 8,562
Class A Shares
purchased
by the Company
from employees... (1,505) (1,505)
Class B shares
converted to
Class A shares... 429,056 4 (429,056) (4) --
Change in
unrealized
appreciation of
marketable
securities....... (3,308) (3,308) $ (3,308)
Net income........ 256,184 256,184 256,184
---------- ---- ---------- ---- -------- --------- --------- --------- ---------
Balance at May 31,
1999............. 67,232,335 $672 42,322,059 $423 $191,234 $(513,830) $(143,818) $(465,319) $ 252,876
========== ==== ========== ==== ======== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
May 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Other stockholders' deficiency items:
Treasury stock............................... $(154,202) $(152,697) $(140,121)
Unrealized appreciation of marketable
securities.................................. 16,888 20,196 12,863
Foreign currency translation adjustment...... -- -- (291)
Unearned compensation on restricted stock.... (6,504) (2,714) (2,969)
--------- --------- ---------
$(143,818) $(135,215) $(130,518)
========= ========= =========
Accumulated other comprehensive income:
Accumulated other comprehensive income--
beginning of year........................... $ 20,196 $ 12,572 $ 20,060
Foreign currency translation adjustment...... -- 291 462
Change in unrealized appreciation of
marketable securities....................... (3,308) 7,333 (7,950)
--------- --------- ---------
Accumulated other comprehensive income--end
year........................................ $ 16,888 $ 20,196 $ 12,572
========= ========= =========
</TABLE>
F-24
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
NOTE 11. Income Taxes
The Company and its consolidated subsidiaries, except for Century Venture
Corporation and Subsidiaries, Century-ML Cable Venture and Subsidiary and
Citizens Century Cable Television Venture (collectively the "Unconsolidated Tax
Group"), file a consolidated federal income tax return. The Company sold
Centennial and the Company's Australian Operations during the fiscal year ended
May 31, 1999 and as a result, Centennial and ECT are no longer part of the
Unconsolidated Tax Group. The sale of these discontinued segments resulted in a
pre-tax gain of approximately $340,000. Consequently the Company was able to
recognize a tax benefit of $13,453 during the year ended May 31, 1999 for the
losses incurred from continuing operations during fiscal 1999.
The provisions (benefits) from continuing and discontinued operations for
income taxes are summarized as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
--------------------------
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Current............................................. $12,165 $ 7,984 $ 7,486
Deferred............................................ 121 (22,205) (38,144)
------- -------- --------
$12,286 $(14,221) $(30,658)
======= ======== ========
</TABLE>
Income tax expense (benefit) is included in the Company's consolidated
financial statements as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Continuing operations............................ $(13,453) $ (624) $(23,363)
Discontinued operations.......................... 25,739 (13,597) (7,295)
-------- -------- --------
$ 12,286 $(14,221) $(30,658)
======== ======== ========
</TABLE>
Deferred income taxes result primarily from nondeductible depreciation and
amortization resulting from book and tax basis differences of certain acquired
subsidiaries.
The effective income tax rate of the Company's continuing operations differs
from the statutory rate as a result of the effect of the following items:
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Computed tax benefit at federal statutory rate on
loss from continuing operations before income
taxes and minority interest..................... $(20,347) $(23,383) $(24,586)
Computed tax benefit of Unconsolidated Tax
Group........................................... (8,761) (7,006) (3,600)
Recognized tax benefit of Unconsolidated Tax
Group........................................... 9,197 2,014 2,155
Nondeductible amortization resulting from
acquired subsidiaries........................... 1,192 1,192 1,131
Non-deductible compensation and Merger costs..... 4,658 -- --
State and local income taxes, net of federal
income tax effect............................... (1,434) (4,622) (3,782)
Tax benefits related to net operating, capital
loss and tax credit carryforwards not recognized
and changes in valuation allowance.............. 1,971 30,998 5,284
Other............................................ 71 183 35
-------- -------- --------
$(13,453) $ (624) $(23,363)
======== ======== ========
</TABLE>
F-25
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and (liabilities) are as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------
1999 1998
-------- ---------
<S> <C> <C>
Deferred Tax Assets:
Tax loss and credit carryforward......................... $184,099 $ 224,083
Basis difference in investments.......................... -- 64,447
Valuation allowance...................................... (89,584) (193,626)
-------- ---------
$ 94,515 $ 94,904
======== =========
Deferred Tax Liabilities:
Amortization of intangible assets........................ $ 30,210 $ 32,099
Depreciation of fixed assets............................. 69,596 67,975
-------- ---------
$ 99,806 $ 100,074
======== =========
Net deferred tax liabilities............................... $ 5,291 $ 5,170
======== =========
</TABLE>
The Company and its subsidiaries, except for the Unconsolidated Tax Group,
have an investment tax credit carryover (after the 35% reduction mandated by TRA
86) for federal income tax purposes of approximately $9,353 and net operating
loss carryforwards for federal income tax purposes of approximately $439,041
expiring through 2002 and 2013, respectively.
Century Venture Corporation and Subsidiaries have an investment tax credit
carryover of approximately $873 and net operating loss carryforwards of
approximately $5,500 which will expire through 2002 and 2008, respectively.
The operations of Century ML Cable Venture and Subsidiary are subject to
Puerto Rico income taxes.
F-26
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
NOTE 12. Joint Ventures
The combined operations and certain other information related to the 50%
indirectly owned Century Venture Corp. and Subsidiaries, Century-ML Cable
Venture and Subsidiary and Citizens Century Cable Television Venture included in
the consolidated financial statements of the Company are as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Combined Statement of Operations Data
Revenues.................................................. $ 132,365 $ 122,543
Costs and expenses:
Costs of services....................................... 40,051 34,781
Selling, general and administrative..................... 21,327 21,272
Depreciation and amortization........................... 35,874 30,638
--------- ---------
97,252 86,691
--------- ---------
Operating Income.......................................... 35,113 35,852
Gain on sale of assets.................................... (5,497) --
Interest expense.......................................... 15,579 15,833
--------- ---------
Income before taxes....................................... 25,031 20,019
Income tax provision...................................... 9,257 2,356
--------- ---------
Net Income.............................................. $ 15,774 $ 17,663
========= =========
Combined Balance Sheet Data
Property, plant and equipment--net........................ $ 142,221 $ 136,866
Total assets.............................................. 371,003 389,495
Long-term debt............................................ 169,000 206,000
Total liabilities......................................... 221,675 255,940
</TABLE>
The Company's joint venture partner, ML Media Partners, L.P. ("Media
Partners") has the right to cause a sale of Century-ML Cable Venture and
Subsidiary. If Media Partners proposes such a sale, the Company will have the
right to purchase Media Partners' interest for the appraised fair market value
of Media Partners' 50% interest in Century-ML Cable Venture and Subsidiary.
NOTE 13. Employee Benefit Plans
Stock Option Plans
The Company's 1985 Stock Option Plan (the "1985 Option Plan"), adopted by
the Board of Directors and approved by the stockholders on December 5, 1985,
expired by its terms on May 31, 1995. Accordingly, the Board of Directors
adopted and the stockholders ratified the Company's 1994 Stock Option Plan (the
"1994 Option Plan") on October 26, 1994. Upon ratification of the 1994 Option
Plan, no more grants are to be made under the 1985 Option Plan. The 1985 Stock
Option Plan and the 1994 Stock Option Plan, collectively the "Option Plans",
permit the issuance of "incentive stock options," as defined in Section 422 of
the Internal Revenue Code of 1986, as amended, as well as non-qualified options.
The 1985 Option Plan and the 1994 Option Plan provide for the grant of options
to purchase up to 6,897,079 and 5,000,000 shares, respectively, of Class A
Common Stock to directors, officers and other key employees of the Company and
its subsidiaries. The Option Plans are administered by a committee of the Board
of Directors (the "Stock Option Committee") that determines the recipients and
provisions of options granted under the Option Plans, including the option
price,
F-27
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
term and number of shares subject to option. The Board of Directors may amend
the Option Plans, except that the approval of the stockholders is necessary to
increase the total number of shares which may be issued or shares subject to
options, to change the minimum purchase price for shares subject to options, to
change the maximum period during which options may be exercised, to extend the
period during which options may be granted under the Option Plans, or to
materially increase benefits to option recipients. Generally, the option price
of incentive and non-qualified stock options granted may be as determined by the
Stock Option Committee, but must be at least equal to 100% of the fair market
value of the shares on the date of the grant. The maximum term of each option is
ten years.
For any participant who owns shares possessing more than 10% of the voting
rights of the Company's outstanding common stock, the exercise price of any
incentive stock option must be at least equal to 110% of the fair market value
of the shares subject to such option on the date of grant and the term of the
option may be no longer than five years. Options become exercisable at such time
or times as the Stock Option Committee may determine when it grants options. All
options granted on or before December 31, 1985 must be exercised in the sequence
in which they were granted. The Option Plans permit the exercise of options by
the payment of cash or mature shares of Class A Common Stock equal in value to
the option price. Under the terms of the Option Plan with respect to options
granted on or before December 31, 1986, the aggregate fair market value of the
Class A Common Stock (determined at the date of the option grant) for which any
employee may be granted incentive stock options in any calendar year may not
exceed $100, plus certain carry-over allowances from the previous three years.
Options granted under the Option Plans are not transferable by the holder other
than by will or the laws of descent and distribution.
As of May 31, 1999, approximately 174 employees were participating in the
Option Plans.
Director Option Plan
The Company's 1993 Non-Employee Directors' Stock Option Plan (the
"Directors' Option Plan") was adopted on October 26, 1994. The Directors' Option
Plan replaced the Non-Employee Director Option Plan adopted in 1989 (the "1989
Director Option Plan") which was terminated by the Board of Directors. Under the
Directors' 1993 Option Plan a total of 323,123 shares of Class A Common Stock
were reserved for issuance. Options for 1,000 shares of Class A Common Stock
will be automatically granted under the Directors' 1993 Option Plan to each
person who is elected or re-elected a non-employee Director on the date of the
annual meeting of shareholders of the Company in each of the years 1994 through
2003.
The Company's Board of Directors may amend the Directors' Option Plan and
amend the terms and conditions of any option granted under the Directors' Option
Plan, except that the approval of the stockholders is necessary to increase the
total number of shares which may be issued or transferred under the Directors'
Option Plan and to change the minimum purchase price for shares subject to
options.
Options granted under the Directors' Option Plan are nonqualified
options not qualifying as incentive stock options under Section 422 of the Code.
The option price that shares of the Company's Class A Common Stock may be
purchased upon exercise of any option granted under the Directors' Option Plan,
will be the fair market value of such shares on the last trading day prior to
the date of the grant of such option. The Directors' Option Plan permits the
exercise of options in cash, mature shares of Class A Common Stock valued at the
fair market value on the date of purchase or a combination thereof. The maximum
term of each option is five years and six months immediately succeeding the date
of grant. Options granted under the Directors' Option Plan are not transferable
by the holder other than by will or the laws of descent and distribution. Under
the 1993 Directors' Option Plan, options to purchase 3,000 shares of Class A
Common Stock were granted during each of the fiscal
F-28
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
years ended May 31, 1999, 1998 and 1997 at an exercise price of $20.9375, $7.75
and $7.00 per share, respectively. As of May 31, 1999, 9,000 options were
outstanding under the Directors' Option Plan, of which 2,400 were exercisable.
A summary of the status of the Company's stock options as of May 31, 1997,
1998 and 1999 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Number Price
---------- --------
<S> <C> <C>
1997 Outstanding at June 1, 1996........................ 2,646,514 $ 7.73
Granted............................................ 2,915,909 6.70
Exercised.......................................... (401,440) 5.46
Canceled........................................... (1,703,933) 8.69
----------
Outstanding at May 31, 1997........................ 3,457,050 6.66
1998 Granted............................................ 10,000 6.44
Exercised.......................................... (340,836) 6.34
Canceled........................................... (242,415) 6.66
----------
Outstanding at May 31, 1998........................ 2,883,799 6.70
1999 Granted............................................ 118,000 18.85
Exercised.......................................... (816,098) 6.39
Canceled........................................... (59,003) 9.75
----------
Outstanding at May 31, 1999........................ 2,126,698 7.41
==========
</TABLE>
At the effective time of the Merger, there will be an acceleration of
vesting under the Company's option plans. All unvested options under the option
plans will become fully vested and exercisable upon the completion of the
Merger. These options will then, like all other outstanding options, either be
exercised or assumed by Adelphia, at the option of the holder. At May 31, 1999,
there were 843,320 and 6,600 unvested options outstanding under the 1994 Option
Plan and the Directors' Option Plan, respectively.
The number of the Company's options which were exercisable at May 31, 1999,
1998 and 1997 were 1,276,878, 1,598,650, and 1,566,966 respectively. The
weighted average exercise prices of such options were $6.83, $6.62, and $6.55 at
May 31, 1999, 1998 and 1997, respectively.
Of the Company's options granted during fiscal 1999, 1998 and 1997, 0, 0
and 1,175,072 options, respectively, had exercise prices that were at least
equal to 110% of the fair market value of the Company's Class A Common Stock at
the date of grant.
The following table summarizes information about the Company's options
outstanding at May 31, 1999:
<TABLE>
<CAPTION>
Range of Number Weighted Average Weighted Number Weighted
Exercise Outstanding Remaining Average Exercisable Average
Prices at 5/31/99 Contractual Life Exercise Price at 5/31/99 Exercise Price
-------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 4.00--
$ 5.375 21,220 7.91 Years $ 5.14 2,660 $ 4.99
$ 6.25--
$ 8.6875 2,012,478 4.27 Years $ 6.84 1,266,218 $ 6.79
$14.38 40,000 8.92 Years $14.38 8,000 $14.38
$20.94--
$24.875 53,000 8.96 Years $24.65 -- --
--------- --------- ---------- ------ --------- ------
$ 4.00--
$24.875 2,126,698 4.51 Years $ 7.41 1,276,878 $ 6.83
========= ========= ========== ====== ========= ======
</TABLE>
F-29
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
The estimated fair value of the Company's options granted during fiscal 1998
was immaterial. The fair value of options granted during fiscal 1999 and 1997
were $6.96 per share and $2.29 per share, respectively.
Employee Stock Purchase Plan
On December 5, 1985, the Company adopted the 1985 Employee Stock Purchase
Plan. On October 26, 1994, the Board of Directors and shareholders approved an
amendment to the Company's 1985 Employee Stock Purchase Plan (the "Amended
Purchase Plan"). Under the Amended Purchase Plan, eligible employees (which
generally includes all full-time employees of the Company) may subscribe for
shares of Class A Common Stock at a purchase price of 85% of the average market
price (as defined) of the Class A Common Stock on the first day or last day of
the purchase period, whichever is lower. Payment of the purchase price of the
shares will be made in installments through payroll deductions, with no right of
prepayment. The Company has reserved 1,125,767 shares of Class A Common Stock
for issuance under the Amended Purchase Plan. The Amended Purchase Plan is
administered by the Compensation Committee. As of May 31, 1999, 36,819 shares of
Class A Common Stock were subscribed for under the Amended Purchase Plan.
Equity Incentive Plan
The Company's 1992 Equity Incentive Plan (the "Equity Plan") was adopted by
the Board of Directors and approved by the stockholders on October 28, 1992 and
amended on October 31, 1997. The plan permits the issuance of up to 1,613,945
shares of the Company's Class A Common Stock for high levels of performance and
productivity by officers and other management employees of the Company. The
Equity Plan is administered by the Company's Board of Directors. The plan
authorizes the Board of Directors to grant stock based awards that include but
are not limited to, restricted stock, performance shares and deferred stock. The
Board of Directors determines the recipients and provisions of the grants under
the Equity Plan, including the grant price, term and number of shares subject to
grant. These stock based awards vest over the options' respective vesting
periods. Recipients are not required to provide consideration to the Company
other than rendering service. Under SFAS 123, compensation cost is recognized
over the vesting period of the shares granted based upon the market value of the
restricted stock at the date of grant. The restricted stock awards are recorded
at the market value of the Company's stock on the date of grant. Initially, the
total market value of the restricted shares is treated as unearned compensation
and is charged to expense over the options'respective vesting periods.
Generally, an employee will realize compensation taxable as ordinary income,
and the Company will be entitled to a corresponding tax deduction in an amount
equal to the sum of any cash received by the employee plus the fair market value
of any shares of Class A Common Stock received by the employee.
During the years ended May 31, 1999, 1998 and 1997 the Company granted
270,000, 170,000 and 230,897 shares of restricted stock with weighted average
fair values at the date of grant of $19.21, $6.87 and $8.07 per share,
respectively. Through May 31, 1999, the Company had granted 1,238,027 shares of
restricted stock to 20 officers and employees of the Company. As of May 31,
1999, 581,200 shares of restricted stock were outstanding and 375,918 shares
were available for awards under the Equity Plan. Pursuant to the Merger
Agreement, all restricted shares will become fully vested and will cease to be
restricted upon the completion of the Merger. Restricted stock compensation
charged to expense during the years ended May 31, 1999, 1998 and 1997 was
$2,644, $896 and $1,168, respectively.
The Company also granted 25,000 shares of the Company's Class B Common Stock
during the year ended May 31, 1998 with a fair value of $5.50 at the date of
grant (based upon the fair value of the Company's Class A Common Stock on that
date) to one executive of the Company. These shares are subject to substantially
the same restrictions as set forth in the Equity Plan.
F-30
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
with respect to their stock option, and stock purchase plans. Had compensation
cost for the Company's stock option and stock purchase plans been determined
based on the fair value of the awards on the grant dates in accordance with the
accounting provisions of Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's
Consolidated net income (loss) and Consolidated net income (loss) per common
share for the years ended May 31, 1999, 1998 and 1997 would have been increased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Consolidated net income (loss) applicable to
common shares:
As reported:
Loss from continuing operations............. $(58,106) $ (83,107) $ (58,715)
Loss from discontinued operations........... -- (43,089) (80,428)
Gain on sale of discontinued operations..... 314,290 -- --
-------- --------- ---------
Income (loss) before extraordinary item..... 256,184 (126,196) (139,143)
Extraordinary item.......................... -- -- (7,582)
-------- --------- ---------
Net income (loss)........................... $256,184 $(126,196) $(146,725)
======== ========= =========
Pro forma:
Loss from continuing operations............. $(59,764) $ (84,540) $ (59,424)
Loss from discontinued operations........... -- (43,089) (80,428)
Gain on sale of discontinued operations..... 314,290 -- --
-------- --------- ---------
Income (loss) before extraordinary item..... 254,526 (127,629) (139,852)
Extraordinary item.......................... -- -- (7,582)
-------- --------- ---------
Net income (loss)........................... $254,526 $(127,629) $(147,434)
======== ========= =========
Consolidated net income (loss) per common
share--basic & diluted:
As reported:
Loss from continuing operations............. $ (.77) $ (1.11) $ (.78)
Loss from discontinued operations........... -- (.58) (1.08)
Gain on sale of discontinued operations..... 4.18 -- --
-------- --------- ---------
Income (loss) before extraordinary item..... 3.41 (1.69) (1.86)
Extraordinary item.......................... -- -- (.10)
-------- --------- ---------
Net income (loss) per common share.......... $ 3.41 $ (1.69) $ (1.96)
======== ========= =========
Pro forma:
Loss from continuing operations............. $ (.79) $ (1.13) $ (.79)
Loss from discontinued operations........... -- (.58) (1.08)
Gain on sale of discontinued operations..... 4.18 -- --
-------- --------- ---------
Income (loss) before extraordinary item..... 3.39 (1.71) (1.87)
Extraordinary item.......................... -- -- (0.10)
-------- --------- ---------
Net income (loss) per common share.......... $ 3.39 $ (1.71) $ (1.97)
======== ========= =========
</TABLE>
F-31
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
The fair values of options granted during fiscal 1999 and 1997 were estimated
on the dates of grant using the Black-Scholes options-pricing model with the
following weighted average assumptions used:
<TABLE>
<CAPTION>
May 31, May 31,
1999 1997
------- -------
<S> <C> <C>
Expected volatility............................................. 46.12% 40.82%
Risk free interest rate......................................... 5.75% 6%
Expected lives of option grants................................. 3 Years 3 Years
</TABLE>
Proforma compensation cost related to shares purchased under the Company's
Employee Stock Purchase Plan is measured based on the discount from market
value.
Incentive Award Plan
An Incentive Award Plan (the "Incentive Plan") was adopted by the Board of
Directors and approved by the stockholders of the Company on December 5, 1985.
The Incentive Plan permits the grant of awards to key employees of the Company
and its subsidiaries, which may include directors and officers, payable in cash
or shares of Class A Common Stock. The Company has reserved 559,529 shares of
Class A Common Stock for issuance under the Incentive Plan. The awards are
payable in five to ten equal annual installments on January 1 of the succeeding
years after the grant of the award, provided that the recipient is an employee
on the installment payment date. The Incentive Plan is administered by the
Compensation Committee, which selects the recipients of awards as well as the
amount of such awards. The Board of Directors may amend the Incentive Plan.
Awards granted under the Incentive Plan may not be transferred by the recipients
and may be forfeited in the event of the recipient's termination of employment.
At May 31, 1999, no grants were outstanding.
Stock Equivalent Plan
The Company's 1985 Stock Equivalent Plan (the "Equivalent Plan") was adopted
by the Board of Directors and approved by the stockholders on December 5, 1985.
The Equivalent Plan permits the grants of units of Class A Common Stock
Equivalents ("units") to key employees of the Company and its subsidiaries,
including officers and directors. The Equivalent Plan is administered by the
Compensation Committee which selects the employees to be granted units,
determines the number of units covered by each grant, determines the time or
times when units will be granted and the conditions subject to which any amount
may become payable with respect to the units, and prescribes the form of
instruments evidencing units granted under the Plan. Payments for units may be
made by the Company in cash or in mature shares of Class A Common Stock at the
fair market value of the units on the date of payment. The Company has reserved
566,155 shares of Class A Common Stock for issuance under the Equivalent Plan.
Under the terms of the Equivalent Plan, the total number of units included in
all grants to any participant may not exceed 10% of the total number of units
for which grants may be made under the Equivalent Plan. Units granted under the
Equivalent Plan are not transferable by the holder other than by will or the
laws of descent and distribution. As of May 31, 1999, no units have been granted
under the Equivalent Plan.
Retirement Plans
Effective April 1, 1992, the Company adopted a 401(k) defined contribution
retirement plan covering employees of its wholly-owned cable subsidiaries who
are not covered by collective bargaining arrangements. Effective July 1, 1992,
the Company adopted a similar 401(k) plan covering employees of its wholly-owned
cable subsidiaries who are covered by collective bargaining agreements.
If a participant decides to contribute, a
F-32
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
portion of the contribution is matched by the Company. Total expense under the
plans was approximately $1,473, $1,367 and $1,168, for the years ended May 31,
1999, 1998 and 1997, respectively.
NOTE 14. Regulatory Matters
On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 ("the 1992 Cable Act"). The 1992 Act substantially
reregulated the cable television industry and imposed numerous requirements,
including provisions regarding rates which may be regulated by the applicable
local franchising authority and those to be regulated by the FCC, exclusive
programming arrangements, the carriage of broadcast signals, customer service
standards, leased access channels, VCR compatibility and various other matters.
On February 8, 1996, "The Telecommunications Act of 1996" ("the 1996 Act"),
was signed into law. The new law alters federal, state and local laws and
regulations regarding telecommunications providers and services, including the
cable television industry. The 1996 Act deregulated (except for basic service)
cable service rates on March 31, 1999.
NOTE 15. Strategic Partnership
On November 18, 1998, the Company and TCI Communications, Inc. ("TCI") entered
into a definitive agreement to establish a strategic partnership (the
"Partnership"). TCI will contribute to the Partnership all the assets related to
the businesses of certain cable television systems owned and operated by TCI
serving approximately 243,400 primary basic subscribers in the area of southern
California. The Company will contribute to the Partnership all the assets
related to the businesses of certain cable television systems owned and operated
by the Company serving approximately 528,700 primary basic subscribers in the
area of southern California, including approximately 94,400 primary basic
subscribers to be acquired in an exchange of cable systems described below as
well as approximately 19,000 primary basic subscribers related to the Company's
pending acquisition of the cable television system serving Moreno Valley and
Riverside, California (See Note 5). The Company will manage the newly combined
cable systems and own approximately 69.5 percent of the Partnership. The cable
systems contributed by each party will be valued based upon annualized cash flow
of such contributed systems as of the closing date of the transaction, subject
to certain fees and expenses. These values will be used in the process of
determining the ownership percentages of the respective parties at the closing
date of the transaction.
The Company is expected to manage the Partnership in return for a management
fee payable by the Partnership calculated based on a percentage of the annual
total gross revenues of the Partnership, in addition to payment of certain fees
and expenses. However, under the Agreement of Limited Partnership, the
Partnership may not, among other things, without the approval of the TCI partner
or the unanimous vote of all the members of the Partnership committee, enter
into certain transactions with affiliates, issue any Partnership or other equity
interest, permit any subsidiary to issue any equity interest, effectuate certain
mergers or other business combinations or incur in excess of certain levels of
indebtedness.
As part of the Partnership Transaction, the Company and TCI have agreed to
exchange cable systems owned by the Company in certain communities in northern
California for certain cable systems owned by TCI in southern California,
allowing each of them to unify operations in existing service areas. TCI will
exchange its East San Fernando Valley cable system serving approximately 94,400
primary basic subscribers for the Company's northern California cable systems
(San Pablo, Benecia, Fairfield and Rohnert Park, California), serving
approximately 95,900 primary basic subscribers.
F-33
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
It is anticipated that the Partnership will be funded by approximately
$900,000 of indebtedness. There is no assurance that such financing will be
available to the Partnership or that the Partnership will be able to obtain such
financing on terms favorable to the Partnership.
The closing of the foregoing transactions is subject to, among other things,
each party obtaining the required consents and all appropriate regulatory and
other approvals, including from the Federal Communications Commission and local
franchising authorities and under the HSR Act. On February 18, 1999, the waiting
period under the HSR Act for the Partnership Transaction terminated. In
connection with the Partnership Transaction, the Company has completed filing
the material applications seeking transfer of the Company's applicable franchise
licenses with the FCC and local franchising authorities. There is no assurance
that the Company will obtain such approvals or that such transactions will be
consummated.
F-34
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
NOTE 16. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
August 31, November 30, February 28, May 31,
1996 1996 1997 1997
---------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Revenues....................... $112,728 $115,172 $113,542 $118,204
Operating income (loss)........ 24,648 22,668 24,332 16,195
Loss from continuing
operations.................... (10,004) (8,698) (13,963) (21,200)
Loss from discontinued
operations.................... (51,208) (8,559) (9,405) (11,256)
Loss from extraordinary item... -- -- -- (7,582)
Net loss....................... (61,212) (17,257) (23,368) (40,038)
Loss from continuing operations
per common share--basic....... (.15) (.13) (.20) (.30)
Loss from discontinued
operations per common share--
basic......................... (.69) (.12) (.13) (.14)
Loss from extraordinary item
per common share--basic....... -- -- -- (.10)
Net loss per common share--
basic (1)..................... (.84) (.25) (.33) (.54)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
August 31, November 30, February 28, May 31,
1997 1997 1998 1998
---------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Revenues....................... $119,564 $121,322 $120,725 $123,125
Operating income............... 24,589 24,193 24,941 30,745
Loss from continuing
operations.................... (15,376) (19,784) (22,266) (20,456)
Loss from discontinued
operations.................... (9,193) (23,828) (6,852) (3,216)
Net loss....................... (24,569) (43,612) (29,118) (23,672)
Loss from continuing operations
per common share--basic....... (.22) (.28) (.32) (.29)
Loss from discontinued
operations per common share--
basic......................... (.12) (.32) (.09) (.05)
Net loss per common share--
basic(1)...................... (.34) (.60) (.41) (.34)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
August 31, November 30, February 28, May 31,
1998 1998 1999 1999
---------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Revenues....................... $126,716 $129,732 $131,278 $131,858
Operating income............... 30,826 28,981 29,075 37,234
Income (loss) from continuing
operations.................... (20,838) (25,125) 5,971 (18,114)
Gain on sale of discontinued
operations.................... -- -- 312,142 2,148
Net income (loss).............. (20,838) (25,125) 318,113 (15,966)
Income (loss) from continuing
operations per common share--
basic......................... (.28) (.33) .08 (.24)
--diluted..................... (.28) (.33) .08 (.24)
Gain on sale of discontinued
operations per common share--
basic......................... -- -- 4.15 .03
--diluted..................... -- -- 4.08 .03
Net income (loss) per common
share--basic(1)............... (.28) (.33) 4.23 (.21)
--diluted (1)................. (.28) (.33) 4.16 (.21)
</TABLE>
- --------
(1) See Note 1 Loss per common share.
F-35
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
NOTE 17. Subsequent Event
On August 26, 1999, CCC-I and CCC-II borrowed $525,000 and $350,000,
respectively, under the CCC-I and CCC-II credit facilities (See Note 8) and has
invested these proceeds in short-term time deposits.
F-36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this Amendment No.
1 to Annual Report on Form 10-K for the fiscal year ended May 31, 1999 to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 23rd
day of September, 1999.
CENTURY COMMUNICATIONS CORP.
By: /s/ Leonard Tow
_________________________________
LEONARD TOW
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K for the fiscal year ended May 31, 1999
has been signed below by the following persons in the capacities indicated on
the 23rd day of September, 1999.
<TABLE>
<S> <C>
/s/ Leonard Tow
- ----------------------------------------------------- Chief Executive Officer (principal executive
LEONARD TOW officer), Chairman and Director
/s/ Scott N. Schneider
- ----------------------------------------------------- Senior Vice President, Chief Financial Officer,
SCOTT N. SCHNEIDER Treasurer (principal financial officer and
principal accounting officer) and Director
/s/ Bernard P. Gallagher President and Chief Operating Officer and
- ----------------------------------------------------- Director
BERNARD P. GALLAGHER
/s/ William Kraus Director
- -----------------------------------------------------
WILLIAM KRAUS
/s/ Claire Tow Director
- -----------------------------------------------------
CLAIRE TOW
/s/ David Z. Rosensweig Director
- -----------------------------------------------------
DAVID Z. ROSENSWEIG
/s/ John P. Cole, Jr. Director
- -----------------------------------------------------
JOHN P. COLE, JR.
Director
- -----------------------------------------------------
MICHAEL G. HARRIS
/s/ David R. Miller Director
- -----------------------------------------------------
DAVID R. MILLER
</TABLE>
II-1
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Stockholders
Century Communications Corp.
We consent to the incorporation by reference in Century Communications Corp.'s
Registration Statement Nos. 333-24617 and 333-43863 on form S-3, Registration
Statement Nos. 33-50769, 33-50767, 33-56375, 33-56383, 33-10947, 33-23690,
33-34388, 333-51345, 33-34387, 33-23718, 33-23717, and 33-13126 on Form S-8,
and 333-47161 on Form S-4, of our report dated July 29, 1999 (August 26, 1999 as
to Note 17), appearing in this Amendment No.1 to Annual Report on Form 10-K/A1
of Century Communications Corp. for the year ended May 31, 1999.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
September 21, 1999
