<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported) December 7, 1999
------------
ARAHOVA COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 0-16899 25-1844576
(State or Other (Commission File Number) (I.R.S. Employer
Jurisdiction of Identification Number)
Incorporation)
One North Main Street
Coudersport, PA 16915-1141
(Address of principal executive offices) (Zip Code)
------------
Registrant's telephone number, including area code (814) 274-9830
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Amendment No. 1 amends the current report on Form 8-K dated December 7,
1999 and originally filed on December 22, 1999 by adding Item 7, consisting of
financial statements of TCI Century Systems and pro forma financial
information.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in or
incorporated into this Form 8-K/A is forward-looking, such as information
relating to future capital raising or relating to the effects of future
mergers and acquisitions. These "forward-looking statements" can be identified
by the use of forward-looking terminology such as "believes", "expects",
"may", "will", "should", "intends" or "anticipates" or the negative thereof or
other variations thereon or comparable terminology or by discussions of
strategy that involve risks and uncertainties. Another form of forward-looking
statement can be characterized by an assumption (using terminology such as "as
if" or "gives effect to") that an event occurs at the beginning of a financial
period presented, with a corresponding effect throughout the period, even
though the event had actually occurred after the beginning of such period or
has not yet actually occurred at all. Any such forward-looking information
involves important risks and uncertainties that could significantly affect
expected results in the future from those expressed in any forward-looking
statements made by, or on behalf of, Arahova Communications, Inc. ("Arahova").
These risks and uncertainties include, but are not limited to, uncertainties
relating to economic conditions; the availability and cost of capital;
acquisitions and divestitures; government and regulatory policies; the pricing
and availability of equipment, materials, inventories and programming;
technological developments; the costs and other effects, such as expansion and
integration issues, of mergers and acquisitions; year 2000 issues; and changes
in the competitive environment in which Arahova operates. Persons reading this
Form 8-K/A are cautioned that no assurance can be given that any particular
future results will be achieved, and that actual events or results may differ
materially as a result of the risks and uncertainties facing Arahova.
Item 7. Financial Statements and Exhibits
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
99.01 Independent Auditors' Report by KPMG LLP to the Board of Directors
of Tele-Communications, Inc. dated February 14, 2000, and the
combined financial statements of TCI Century Systems as of
December 31, 1998 and for the year ended December 31, 1998. (Filed
Herewith)
99.02 Unaudited combined financial statements for TCI Century Systems
for the nine months ended September 30, 1999. (Filed Herewith)
99.03 Unaudited pro forma condensed consolidated financial information
for Arahova Communications, Inc. as of November 30, 1999 and for
the year ended May 31, 1999 and the six months ended November 30,
1999. (Filed Herewith)
</TABLE>
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 22, 2000
ARAHOVA COMMUNICATIONS, INC.
(Registrant)
/s/ Timothy J. Rigas
By: ______________________________________
Timothy J. Rigas
Executive Vice President (authorized
officer),
Chief Financial Officer, Chief
Accounting
Officer and Treasurer
3
<PAGE>
EXHIBIT 99.01
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tele-Communications, Inc.:
We have audited the accompanying combined balance sheet of the TCI Century
Systems (as defined in Note 1 to the combined financial statements) as of
December 31, 1998, and the related combined statements of operations and
parent's investment, and cash flows for the year ended December 31, 1998.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
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, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the TCI Century
Systems as of December 31, 1998, and the results of their operations and their
cash flows for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
Denver, Colorado
February 14, 2000
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Combined Balance Sheet
<TABLE>
<CAPTION>
December 31,
1998
------------
amounts in
thousands
<S> <C>
Assets
Cash............................................................... $ 2,507
Trade and other receivables, net................................... 8,276
Property and equipment, at cost:
Land............................................................. 1,781
Distribution systems............................................. 258,688
Support equipment and buildings.................................. 29,406
--------
289,875
Less accumulated depreciation.................................... 123,293
--------
166,582
--------
Franchise costs.................................................... 560,750
Less accumulated amortization.................................... 80,338
--------
480,412
--------
Other assets....................................................... 1,209
--------
$658,986
========
Liabilities and Parent's Investment
Accounts payable................................................... $ 583
Accrued expenses................................................... 6,288
Deferred income taxes (note 3)..................................... 144,919
--------
Total liabilities................................................ 151,790
Parent's investment (note 4)....................................... 507,196
--------
Commitments and contingencies (note 5)
$658,986
========
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Combined Statement of Operations and Parent's Investment
<TABLE>
<CAPTION>
Year ended
December 31,
1998
------------
amounts in
thousands
<S> <C>
Revenue............................................................ $159,042
Operating costs and expenses:
Operating (note 4)............................................... 64,356
Selling, general and administrative.............................. 29,715
Management fees (note 4)......................................... 6,846
Depreciation..................................................... 28,499
Amortization..................................................... 13,976
--------
143,392
--------
Operating income............................................... 15,650
Other expense...................................................... (581)
--------
Earnings before income taxes..................................... 15,069
Income tax expense (note 3)........................................ (6,112)
--------
Net earnings..................................................... 8,957
Parent's investment:
Beginning of year................................................ 514,367
Change in due to Tele-Communications, Inc. ("TCI") (note 4)...... (16,128)
--------
End of year...................................................... $507,196
========
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Combined Statement of Cash Flows
<TABLE>
<CAPTION>
Year ended
December 31,
1998
------------
amounts in
thousands
<S> <C>
Cash flows from operating activities:
Net earnings.................................................... $ 8,957
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization................................. 42,475
Deferred income tax benefit................................... (2,432)
Changes in operating assets and liabilities:
Change in receivables....................................... 1,541
Change in other assets...................................... 292
Change in accounts payable and accrued expenses............. (312)
--------
Net cash provided by operating activities................. 50,521
--------
Cash flows from investing activities:
Capital expended for property and equipment..................... (31,948)
Other investing activities...................................... (498)
--------
Net cash used in investing activities......................... (32,446)
--------
Cash flows from financing activities:
Change in due to TCI............................................ (16,128)
--------
Net cash used in financing activities......................... (16,128)
--------
Net increase in cash.......................................... 1,947
Cash:
Beginning of period......................................... 560
--------
End of period............................................... $ 2,507
========
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
For the year ended December 31, 1998
(1)Basis of Presentation
The combined financial statements include the accounts of five of TCI's
cable television systems and one related advertising sales office serving
certain customers within California (collectively, the "TCI Century Systems").
The TCI Century Systems are wholly-owned by various subsidiaries of TCI. On
March 9, 1999, AT&T Corp. ("AT&T") acquired TCI in a merger (the "AT&T
Merger"). In the AT&T Merger, TCI became a subsidiary of AT&T. All significant
inter-entity accounts and transactions have been eliminated in combination.
The combined net assets of TCI Century Systems are referred to as "Parent's
Investment."
The TCI Century Systems were acquired through a series of transactions
whereby TCI acquired various larger cable entities (the "Original Systems").
The TCI Century System's combined financial statements include an allocation
of certain purchase accounting adjustments, including the related deferred tax
effects, from TCI's acquisition of the Original Systems. Such allocation and
the related franchise cost amortization is based on the relative fair market
value of the systems involved. In addition, certain costs of TCI are charged
to the TCI Century Systems based on their number of customers (see note 4).
Although such allocations are not necessarily indicative of the costs that
would have been incurred by the TCI Century Systems on a stand alone basis,
management believes that the resulting allocated amounts are reasonable.
TCI entered into agreements with Century Communications Corp. ("Century")
whereby TCI would contribute cable television systems serving approximately
249,000 customers located in Southern California to a newly formed limited
partnership in which TCI would have an approximate 25% partnership interest.
Under the agreements, the new partnership would assume $215,000,000 of
intercompany interest bearing notes owed by the TCI Century Systems to TCI and
its affiliates (see note 4). TCI also agreed to exchange with the new
partnership a cable television system serving approximately 100,000 customers
in Southern California for cable television systems in Northern California
serving approximately 100,000 customers. The TCI Century Systems is comprised
of the systems serving these 349,000 customers. On October 1, 1999, a merger
was consummated in which Century merged with and into Adelphia Communications
Corporation ("Adelphia"). As a result of such merger, Adelphia assumed all of
Century's rights and obligations relating to the above described agreements.
The contribution and exchange transactions were consummated on December 7,
1999. The accompanying combined financial statements reflect the financial
position, results of operations and cash flows of the TCI Century Systems
prior to the contribution and exchange transactions, and, therefore, do not
include the effects of such transactions.
(2)Summary of Significant Accounting Policies
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1998 was not significant.
Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, labor and
applicable overhead related to installations, and interest during construction
are capitalized. During the year ended December 31, 1998, interest capitalized
was not significant.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for distribution systems and 3 to 40 years for support
equipment and buildings.
5
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or other
dispositions of property, the original cost and cost of removal of such
property are charged to accumulated depreciation, and salvage, if any, is
credited thereto. Gains or losses are only recognized in connection with the
sales of properties in their entirety.
Franchise Costs
Franchise costs include the difference between the cost of acquiring cable
television systems and amounts allocated to their tangible assets. Such
amounts are generally amortized on a straight-line basis over 40 years. Costs
incurred by the TCI Century Systems in negotiating and renewing franchise
agreements are amortized on a straight-line basis over the life of the
franchise, generally 10 to 20 years.
Impairment of Long-Lived Assets
Management periodically reviews the carrying amounts of property and
equipment and its identifiable intangible assets to determine whether current
events or circumstances warrant adjustments to such carrying amounts. If an
impairment adjustment is deemed necessary, based on an analysis of
undiscounted cash flows, such loss is measured by the amount that the carrying
value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets. Accordingly,
actual results could vary significantly from such estimates. Assets to be
disposed of are carried at the lower of their financial statement carrying
amount or fair value less costs to sell.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising and pay-per-
view programming is recognized in the period that services are delivered.
Installation revenue is recognized in the period the installation services are
provided to the extent of direct selling costs. Any remaining amount is
deferred and recognized over the estimated average period that customers are
expected to remain connected to the cable distribution system.
Combined Statement of Cash Flows
Transactions effected through the intercompany account with TCI have been
considered constructive cash receipts and payments for purposes of the
combined statement of cash flows.
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 at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(3)Income Taxes
The TCI Century Systems were included in the consolidated federal income tax
return of TCI. Income tax expense for the TCI Century Systems is based on
those items in the consolidated calculation applicable to the TCI Century
Systems. Intercompany tax allocation represents an apportionment of tax
expense or benefit (other than deferred taxes) among subsidiaries of TCI in
relation to their respective amounts of taxable earnings or losses. The
payable or receivable arising from the intercompany tax allocation is recorded
as an increase or
6
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
decrease in amounts due to TCI. Deferred income taxes are based on the book
and tax basis differences of the assets and liabilities within the TCI Century
Systems. The income tax amounts included in the accompanying combined
financial statements approximate the amounts that would have been reported if
the TCI Century Systems would have filed a separate income tax return.
Income tax benefit (expense) for the year ended December 31, 1998 consists
of:
<TABLE>
<CAPTION>
Current Deferred Total
-------- -------- --------
amounts in thousands
<S> <C> <C> <C>
Intercompany allocation........................ $ (8,544) $ -- $ (8,544)
Federal........................................ -- 1,904 1,904
State and local................................ -- 528 528
-------- ------- --------
$(8,544) $ 2,432 $ (6,112)
======== ======= ========
</TABLE>
Income tax benefit (expense) differs from the amounts computed by applying
the federal income tax rate of 35% for the year ended December 31, 1998 as a
result of the following:
<TABLE>
<CAPTION>
amounts in
thousands
<S> <C>
Computed "expected" tax expense.................................. $(5,274)
Amortization not deductible for tax purposes..................... (1,154)
State and local income taxes, net of federal income tax benefit.. 343
Other............................................................ (27)
-------
$(6,112)
=======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liabilities at December
31, 1998 are presented below:
<TABLE>
<CAPTION>
amounts in
thousands
<S> <C>
Deferred tax asset--principally due to non-deductible accruals.. $ 71
--------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation................................................. 30,031
Franchise costs, principally due to differences in
amortization and initial basis............................... 114,959
--------
Total gross deferred tax liabilities........................ 144,990
--------
Net deferred tax liability.................................. $144,919
========
</TABLE>
(4)Parent's Investment
Parent's investment in the TCI Century Systems at December 31, 1998 is
summarized as follows:
<TABLE>
<CAPTION>
amounts in
thousands
<S> <C>
Due to TCI........................................................ $581,956
Accumulated deficit............................................... (74,760)
--------
$507,196
========
</TABLE>
7
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
The non-interest bearing amount due to TCI includes TCI's equity in acquired
systems, advances for operations, acquisitions and construction costs, as well
as, the amounts owed as a result of the allocation of certain costs from TCI.
As a result of TCI's 100% ownership of the TCI Century Systems, the non-
interest bearing amounts due to TCI have been classified as a component of
Parent's investment in the accompanying combined balance sheet. Such amounts
are due on demand.
The TCI Century Systems purchase, at TCI's cost, substantially all of their
pay television and other programming from affiliates of TCI. Charges for such
programming are included in operating expenses in the accompanying combined
financial statements.
Certain subsidiaries of TCI provide administrative services to the TCI
Century Systems and have assumed managerial responsibility of the TCI Century
Systems' cable television system operations and construction. As compensation
for these services, the TCI Century Systems pay a monthly fee calculated on a
per-subscriber basis.
The intercompany advances and expense allocation activity in amounts due to
TCI consists of the following:
<TABLE>
<CAPTION>
Year ended
December 31,
1998
------------
amounts in
thousands
<S> <C>
Beginning of year............................................... $598,084
Programming charges........................................... 41,227
Management fees............................................... 6,846
Tax allocations............................................... 8,544
Cash transfers................................................ (72,745)
--------
End of year..................................................... $581,956
========
</TABLE>
As described in note 1, on March 9, 1999, AT&T acquired TCI in a merger. In
connection with the AT&T Merger, AT&T's purchase price to acquire TCI was
allocated to TCI's net assets based on their preliminary fair values at March
9, 1999. TCI Century System's portion of the preliminary allocation resulted
in an increase in parent's investment.
On November 1, 1999, TCI caused the TCI Century Systems to effect a dividend
from the TCI Century Systems to TCI aggregating $215,000,000. Such dividend
resulted in an increase to intercompany notes owed to TCI and a corresponding
increase to accumulated deficit.
(5)Commitments and Contingencies
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under the 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
Although the Federal Communications Commission (the "FCC") has established
regulations required by the 1992 Cable Act, local government units (commonly
referred to as local franchising authorities) are primarily responsible for
administering the regulation of a cable system's basic service tier ("BST").
The FCC itself
8
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
directly administered rate regulation of any cable programming service tier
("CPST"). The FCC's authority to regulate CPST rates expired on March 31,
1999. The FCC has taken the position that it will still adjudicate CPST
complaints filed after this sunset date (but no later than 180 days after the
last CPST rate increase imposed prior to March 31, 1999), and will strictly
limit its review (and possible refund orders) to the time period predating the
sunset date. There are no pending CPST complaints remaining at the FCC
regarding the TCI Century Systems.
Under the FCC's rate regulations, most cable systems were required to reduce
their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price structure that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. Operators also have the opportunity
to bypass this "benchmark" regulatory structure in favor of the traditional
"cost-of-service" regulation in cases where the latter methodology appears
favorable. Premium cable services offered on a per-channel or per-program
basis remain unregulated, as do affirmatively marketed packages consisting
entirely of new programming product.
Management believes that the TCI Century Systems have complied in all
material respects with the provisions of the 1992 Cable Act and the 1996 Act,
including its rate setting provisions. If, as a result of the review process,
a system cannot substantiate its rates, it could be required to retroactively
reduce its rates to the appropriate benchmark and refund the excess portion of
rates received. Any refunds of the excess portion of CPST rates would be
retroactive to the date of complaint. Any refunds of the excess portion of BST
or equipment rates would be retroactive to one year prior to the
implementation of the rate reductions.
Certain plaintiffs have filed or threatened separate class action complaints
against cable systems across the United States alleging that the systems'
practice of assessing an administrative fee to subscribers whose payments are
delinquent constitutes an invalid liquidated damage provision, a breach of
contract, and violates local consumer protection statutes. Plaintiffs seek
recovery of all late fees paid to the subject systems as a class purporting to
consist of all subscribers who were assessed such fees during the applicable
limitation period, plus attorney fees and costs. In December 1999, a
settlement was reached with respect to one of the late fee class action
complaints, which involves certain of the TCI Century Systems. The settlement
did not have a material impact on TCI Century Systems' financial condition or
results of operations.
The TCI Century Systems have contingent liabilities related to legal
proceedings and other matters arising in the ordinary course of business.
Although it is possible the TCI Century Systems may incur losses upon
conclusion of the matters referred to above, an estimate of any loss or range
of loss cannot presently be made. Based upon the facts available, management
believes that, although no assurance can be given as to the outcome of these
actions, the ultimate disposition should not have a material adverse effect
upon the combined financial condition of the TCI Century Systems.
The TCI Century Systems lease business offices, have entered into pole
rental agreements and use certain equipment under lease arrangements. Rental
expense under such arrangements amounted to $2,624,000 for the year ended
December 31, 1998.
9
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
Future minimum lease payments under noncancellable operating leases for each
of the next five years are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
Years ending
December 31,
------------
<S> <C>
1999.................................. $1,820
2000.................................. 1,437
2001.................................. 1,049
2002.................................. 779
2003.................................. 648
Thereafter............................ 3,479
------
$9,212
======
</TABLE>
10
<PAGE>
EXHIBIT 99.02
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Combined Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
New Century Old Century
------------- ------------
September 30, December 31,
1999 1998
------------- ------------
amounts in thousands
<S> <C> <C>
Assets
Cash............................................... $ 3,216 $ 2,507
Trade and other receivables, net................... 10,181 8,276
Property and equipment, at cost:
Land............................................. 2,781 1,781
Distribution systems............................. 164,018 258,688
Support equipment and buildings.................. 18,679 29,406
---------- --------
185,478 289,875
Less accumulated depreciation.................... 16,871 123,293
---------- --------
168,607 166,582
---------- --------
Franchise costs and other intangible assets........ 896,442 560,750
Less accumulated amortization.................... 14,600 80,338
---------- --------
881,842 480,412
---------- --------
Other assets....................................... 2,135 1,209
---------- --------
$1,065,981 $658,986
========== ========
Liabilities and Parent's Investment
Accounts payable................................... $ 455 $ 583
Accrued expenses................................... 6,171 6,288
Deferred income taxes.............................. 350,319 144,919
Intercompany notes owed to Tele-Communications,
Inc. ("TCI") (note 3)............................. 215,000 --
---------- --------
Total liabilities.............................. 571,945 151,790
---------- --------
Parent's investment (note 3)....................... 494,036 507,196
---------- --------
Commitments and contingencies (note 4)
$1,065,981 $658,986
========== ========
</TABLE>
See accompanying notes to combined financial statements.
1
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Combined Statements of Operations and Parent's Investment
(unaudited)
<TABLE>
<CAPTION>
New Century Old Century
------------------ ------------------------------------
Seven months Two months Nine months
ended ended ended
September 30, 1999 February 28, 1999 September 30, 1998
------------------ ----------------- ------------------
amounts in thousands
<S> <C> <C> <C>
Revenue................. $ 100,503 $ 26,544 $117,310
Operating costs and
expenses:
Operating (note 3).... 43,611 11,977 47,722
Selling, general and
administrative....... 21,215 5,592 21,733
Management fees (note
3)................... 3,754 1,054 4,831
Depreciation and
amortization......... 31,506 7,019 32,384
--------- -------- --------
100,086 25,642 106,670
--------- -------- --------
Operating income.... 417 902 10,640
Other expense........... (146) (84) (585)
--------- -------- --------
Earnings before
income taxes....... 271 818 10,055
Income tax expense...... (111) (391) (4,078)
--------- -------- --------
Net earnings........ 160 427 5,977
Parent's investment:
Beginning of period... 708,330 507,196 514,367
Change in due to TCI
(note 3)............. 546 2,897 (17,713)
Dividend to TCI (note
3)................... (215,000) -- --
--------- -------- --------
End of period......... $ 494,036 $510,520 $502,631
========= ======== ========
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
New Century Old Century
------------------ ------------------------------------
Seven months Two months Nine months
ended ended ended
September 30, 1999 February 28, 1999 September 30, 1998
------------------ ----------------- ------------------
amounts in thousands
<S> <C> <C> <C>
Cash flows from
operating activities:
Net earnings.......... $ 160 $ 427 $ 5,977
Adjustments to
reconcile net
earnings to net cash
provided by operating
activities:
Depreciation and
amortization....... 31,506 7,019 32,384
Deferred income tax
benefit............ (4,374) (624) (1,623)
Changes in operating
assets and
liabilities:
Change in
receivables...... (1,062) (843) 4,716
Change in other
assets........... (871) (55) 14
Change in accounts
payable and
accrued
expenses......... 2,675 (2,920) (504)
-------- ------- --------
Net cash
provided by
operating
activities..... 28,034 3,004 40,964
-------- ------- --------
Cash flows from
investing activities:
Capital expended for
property and
equipment............ (26,944) (6,893) (22,216)
Other investing
activities........... 34 31 (339)
-------- ------- --------
Net cash used in
investing
activities..... (26,910) (6,862) (22,555)
-------- ------- --------
Cash flows from
financing activities:
Change in amounts due
to TCI............... 546 2,897 (17,713)
-------- ------- --------
Net cash
provided by
(used in)
financing
activities..... 546 2,897 (17,713)
-------- ------- --------
Net change in
cash........... 1,670 (961) 696
Cash at
beginning of
period......... 1,546 2,507 560
-------- ------- --------
Cash at end of
period......... $ 3,216 $ 1,546 $ 1,256
======== ======= ========
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
September 30, 1999
(unaudited)
(1)Basis of Presentation
The combined financial statements include the accounts of five of TCI's
cable television systems and one related advertising sales office serving
certain customers within California (collectively, the "TCI Century Systems").
The TCI Century Systems are wholly-owned by various subsidiaries of TCI. On
March 9, 1999, AT&T Corp. ("AT&T") acquired TCI in a merger (the "AT&T
Merger"). In the AT&T Merger, TCI became a subsidiary of AT&T. All significant
inter-entity accounts and transactions have been eliminated in combination.
The combined net assets of TCI Century Systems are referred to as "Parent's
Investment."
For financial reporting purposes the AT&T Merger was deemed to have occurred
on March 1, 1999. The combined financial statements for periods prior to March
1, 1999 are referred to herein as "Old Century", and the combined financial
statements for periods subsequent to February 28, 1999 are referred to herein
as "New Century." Due to the application of purchase accounting in connection
with the AT&T Merger, the predecessor combined financial statements of Old
Century are not comparable to the successor combined financial statements of
New Century. In the following text, "TCI Century Systems" refers to both Old
Century and New Century. See note 2.
The Old Century systems were acquired through a series of transactions
whereby TCI acquired various larger cable entities (the "Original Systems").
Old Century's combined financial statements include an allocation of certain
purchase accounting adjustments, including the related deferred tax effects,
from TCI's acquisition of the Original Systems. Such allocation was based on
the relative fair market value of the systems involved.
Certain costs of TCI are charged to the TCI Century Systems based on their
number of customers (see note 3). Although such allocations are not
necessarily indicative of the costs that would have been incurred by the TCI
Century Systems on a stand alone basis, management believes that the resulting
allocated amounts are reasonable.
TCI entered into agreements with Century Communications Corp. ("Century")
whereby TCI would contribute cable television systems serving approximately
249,000 customers located in Southern California to a newly formed limited
partnership in which TCI would have an approximate 25% partnership interest.
Under the agreements, the partnership would assume $215,000,000 of
intercompany interest bearing notes owed by TCI Century Systems to TCI and its
affiliates (see note 3). TCI also agreed to exchange with the new partnership
a cable television system serving approximately 100,000 customers in Southern
California for cable television systems in Northern California serving
approximately 100,000 customers. The TCI Century Systems is comprised of the
systems serving these 349,000 customers. On October 1, 1999, a merger was
consummated in which Century merged with and into Adelphia Communications
Corporation ("Adelphia"). As a result of such merger, Adelphia assumed all of
Century's rights and obligations relating to the above described agreements.
The contribution and exchange transactions were consummated on December 7,
1999. The accompanying combined financial statements reflect the financial
position, results of operations and cash flows of the TCI Century Systems
prior to the contribution and exchange transactions, and, therefore, do not
include the effects of such transactions.
The accompanying interim combined financial statements are unaudited but, in
the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results for such
periods. The results of operations for any interim period are not necessarily
indicative of results for the
4
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
full year. These combined financial statements should be read in conjunction
with the combined financial statements and notes thereto in the TCI Century
Systems financial statements for the year ended December 31, 1998.
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 at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(2)AT&T Merger
The AT&T Merger has been accounted for using the purchase method of
accounting and has been deemed to be effective as of March 1, 1999 for
financial reporting purposes. Accordingly, TCI Century System's portion of the
preliminary allocation of AT&T's purchase price to acquire TCI has been
reflected in TCI Century System's combined financial statements as of March 1,
1999. A final allocation of AT&T's purchase price will be made upon receipt of
final third party appraisals.
The following table reflects the opening summarized balance sheet of New
Century as adjusted to give effect to the preliminary allocation of AT&T's
purchase price to acquire TCI as it relates to the net assets of the TCI
Century Systems:
<TABLE>
<CAPTION>
(amounts in
thousands)
<S> <C>
Assets
Cash.............................................................. $ 1,546
Trade and other receivables....................................... 9,119
Property and equipment............................................ 159,258
Franchise costs and other intangible assets....................... 895,787
Other assets...................................................... 1,264
----------
$1,066,974
==========
Liabilities and Parent's investment
Accounts payable and accrued expenses............................. $ 3,951
Deferred income taxes............................................. 354,693
----------
Total liabilities............................................... 358,644
----------
Parent's investment............................................... 708,330
----------
$1,066,974
==========
</TABLE>
As a result of the application of purchase accounting, New Century has
recorded its assets and liabilities at their estimated fair values on March 9,
1999. Deferred income taxes were recorded based on the difference in the
estimated fair values of New Century's assets and liabilities and their tax
basis using statutory effective tax rates. Franchise costs and other
intangible assets primarily represent the value attributable to the agreements
with local franchise authorities that allow access to homes in TCI Century's
service areas, and are primarily amortized over 40 years.
5
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
The following unaudited combined results of operations for the nine months
ended September 30, 1999 and 1998 were prepared assuming the AT&T Merger
occurred on January 1, 1998. These pro forma amounts are not necessarily
indicative of operating results that would have occurred if the AT&T Merger
had occurred on January 1, 1998.
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------
1999 1998
----------- -----------
(amounts in thousands)
<S> <C> <C>
Revenue................................................ $ 127,047 $ 117,310
Net earnings (loss).................................... $ (179) $ 2,528
</TABLE>
(3)Parent's Investment
Parent's investment in the TCI Century Systems at September 30, 1999 and
December 31, 1998 is summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
New Century Old Century
------------- ------------
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Due to TCI........................................... $708,876 $581,956
Accumulated deficit.................................. (214,840) (74,760)
-------- --------
$494,036 $507,196
======== ========
</TABLE>
The non-interest bearing amount due to TCI includes TCI's equity in acquired
systems, advances for operations, acquisitions and construction costs, as well
as the amounts owed as a result of the allocation of certain costs from TCI.
On November 1, 1999, TCI caused the TCI Century Systems to effect a dividend
from the TCI Century Systems to TCI aggregating $215,000,000 (the "Dividend").
The Dividend has been reflected in the September 30, 1999 combined balance
sheet and resulted in an increase to the intercompany notes owed to TCI and a
corresponding non-cash increase to accumulated deficit.
As a result of TCI's 100% ownership of the TCI Century Systems, the non-
interest bearing amounts due to TCI have been classified as a component of
Parent's investment in the accompanying combined balance sheets. Such amounts
are due on demand.
The TCI Century Systems purchase, at TCI's cost, certain pay television and
other programming through a certain indirect subsidiary of TCI. Charges for
such programming are included in operating expenses in the accompanying
combined financial statements.
Certain subsidiaries of TCI provide administrative services to the TCI
Century Systems and have assumed managerial responsibility of the TCI Century
Systems' cable television system operations and construction. As compensation
for these services, the TCI Century Systems pay a monthly fee calculated on a
per-subscriber basis.
6
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
The intercompany advances and expense allocation activity in amounts due to
TCI consist of the following:
<TABLE>
<CAPTION>
New Century Old Century
------------------ ------------------------------------
Seven months Two months Nine months
ended ended ended
September 30, 1999 February 28, 1999 September 30, 1998
------------------ ----------------- ------------------
(amounts in thousands)
<S> <C> <C> <C>
Beginning of period.... $708,330 $581,956 $598,084
Programming charges.. 28,725 8,249 30,519
Management fees...... 3,754 1,054 4,831
Tax allocations...... 4,485 1,015 5,701
Cash transfers....... (36,418) (7,421) (58,764)
-------- -------- --------
End of period.......... $708,876 $584,853 $580,371
======== ======== ========
</TABLE>
The TCI Century Systems are included in the consolidated federal income tax
return of AT&T. Income tax expense or benefit for the TCI Century Systems is
based on those items in the consolidated calculation applicable to the TCI
Century Systems. Income tax expense differs from amounts computed by applying
the federal income tax rate of 35% primarily as a result of state and local
income taxes and certain amortization expense of Old Century which is not
deductible for tax purposes. The payable or receivable arising from the
intercompany income tax allocation is recorded as an increase or decrease in
amounts due to TCI.
(4)Commitments and Contingencies
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under the 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
Although the Federal Communications Commission (the "FCC") has established
regulations required by the 1992 Cable Act, local government units (commonly
referred to as local franchising authorities) are primarily responsible for
administering the regulation of a cable system's basic service tier ("BST").
The FCC itself directly administered rate regulation of any cable programming
service tier ("CPST"). The FCC's authority to regulate CPST rates expired on
March 31, 1999. The FCC has taken the position that it will still adjudicate
CPST complaints filed after this sunset date (but no later than 180 days after
the last CPST rate increase imposed prior to March 31, 1999), and will
strictly limit its review (and possible refund orders) to the time period
predating the sunset date. There are no pending CPST complaints remaining at
the FCC regarding the TCI Century Systems.
Under the FCC's rate regulations, most cable systems were required to reduce
their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price structure that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. Operators also have the opportunity
to bypass this "benchmark" regulatory structure in favor of the traditional
"cost-of-service" regulation in cases where the latter methodology appears
favorable. Premium cable services offered on a per-channel or per-program
basis remain unregulated, as do affirmatively marketed packages consisting
entirely of new programming product.
Management believes that the TCI Century Systems have complied in all
material respects with the provisions of the 1992 Cable Act and the 1996 Act,
including its rate setting provisions. If, as a result of the review process,
a system cannot substantiate its rates, it could be required to retroactively
reduce its rates to the appropriate benchmark and refund the excess portion of
rates received. Any refunds of the excess portion of
7
<PAGE>
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
CPST rates would be retroactive to the date of complaint. Any refunds of the
excess portion of BST or equipment rates would be retroactive to one year
prior to the implementation of the rate reductions.
Certain plaintiffs have filed or threatened separate class action complaints
against cable systems across the United States alleging that the systems'
practice of assessing an administrative fee to subscribers whose payments are
delinquent constitutes an invalid liquidated damage provision, a breach of
contract, and violates local consumer protection statutes. Plaintiffs seek
recovery of all late fees paid to the subject systems as a class purporting to
consist of all subscribers who were assessed such fees during the applicable
limitation period, plus attorney fees and costs. In December 1999, a
settlement was reached with respect to one of the late fee class action
complaints which involves certain of the TCI Century Systems. The settlement
did not have a material impact on TCI Century Systems' financial condition or
results of operations.
The TCI Century Systems have contingent liabilities related to legal
proceedings and other matters arising in the ordinary course of business.
Although it is possible the TCI Century Systems may incur losses upon
conclusion of the matters referred to above, an estimate of any loss or range
of loss cannot presently be made. Based upon the facts available, management
believes that, although no assurance can be given as to the outcome of these
actions, the ultimate disposition should not have a material adverse effect
upon the combined financial condition of the TCI Century Systems.
8
<PAGE>
Exhibit 99.03
ARAHOVA COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma financial information presented on the following
pages is derived from the historical financial statements of Arahova and TCI
Century Systems. TCI Century Systems is comprised of the combined financial
information of five cable television systems and one related advertising sales
office, wholly-owned by various subsidiaries of Tele-Communications, Inc.
("TCI"), serving certain customers within California. The unaudited pro forma
condensed consolidated balance sheet information as of November 30, 1999 gives
pro forma effect to the formation of the joint venture limited partnership in
the Los Angeles, CA area by Arahova with TCI (the "Joint Venture") and the
swap of cable systems between the Joint Venture and TCI on December 7, 1999.
The unaudited pro forma condensed consolidated statements of continuing
operations information for the year ended May 31, 1999 and the six months
ended November 30, 1999 have been presented as if the acquisition of Arahova
by Adelphia Communications Corporation ("Adelphia"), the swap of cable systems
with TCI, and the formation of the Joint Venture, all occurred on June 1,
1998.
The unaudited pro forma financial information gives effect to the
acquisition of Arahova by Adelphia, the swap of cable systems with TCI, and
the formation of the Joint Venture under the purchase method of accounting and
is based upon the assumptions and adjustments described in the accompanying
notes to the unaudited pro forma condensed consolidated financial statements
presented on the following pages.
The pro forma adjustments do not reflect any operating efficiencies and cost
savings that may be achievable with respect to the combined companies. The pro
forma adjustments do not include any adjustments to historical revenues for
any future price changes or any adjustments to selling and marketing expenses
for any future operating changes.
The unaudited pro forma financial information is not necessarily indicative
of the financial position or operating results that would have occurred had
the acquisition of Arahova by Adelphia, the swap of cable systems with TCI,
and the formation of the Joint Venture been consummated on the dates for which
such transactions are being given effect. The pro forma adjustments reflecting
the acquisition of Arahova by Adelphia, the swap of cable systems with TCI and
the formation of the Joint Venture are based upon the assumptions set forth in
the notes to the unaudited pro forma condensed consolidated financial
statements.
The unaudited pro forma financial statements presented on the following
pages should be read in conjunction with the audited and unaudited historical
financial statements (including the notes thereto) of Arahova, which are
contained in its respective annual report on Form 10-K for the year ended May
31, 1999 and quarterly report on Form 10-Q for the quarters ended August 31,
1999 and November 30, 1999, which are incorporated herein by reference, and of
TCI Century Systems, which are included elsewhere in this current report on
Form 8-K/A.
1
<PAGE>
ARAHOVA COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
TCI Century
Arahova Systems Pro Forma
TCI Century Pro Forma Pro Forma Arahova
Arahova (a) Systems*(a) Adjustments (b) Adjustments (c) Consolidated
----------- ----------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Property, plant and
equipment--net......... $ 780,604 $ 168,607 $ (55,052) $ -- $ 894,159
Intangible assets--net.. 5,792,230 881,842 (289,098) (350,319) 6,034,655
Cash and cash
equivalents............ 215,659 3,216 (140,640) -- 78,235
Other assets--net....... 193,818 12,316 10,615 -- 216,749
----------- ---------- --------- --------- ----------
Total assets.......... $ 6,982,311 $1,065,981 $(474,175) $(350,319) $7,223,798
=========== ========== ========= ========= ==========
Liabilities and
Stockholders' Equity
(Deficiency):
Subsidiary debt......... $ 1,002,882 $ -- $(423,657) $ -- $ 579,225
Parent debt............. 1,892,147 -- -- -- 1,892,147
Deferred income taxes... 1,641,567 350,319 -- (350,319) 1,641,567
Intercompany notes owed
to Tele-Communications,
Inc. ("TCI")........... -- 215,000 (215,000) -- --
Other liabilities....... 289,854 6,626 13,612 -- 310,092
----------- ---------- --------- --------- ----------
Total liabilities..... 4,826,450 571,945 (625,045) (350,319) 4,423,031
----------- ---------- --------- --------- ----------
Parent's interest in
subsidiary and other
minority interests..... 167,386 -- (386,000) 494,036 275,422
----------- ---------- --------- --------- ----------
Stockholders' equity
(deficiency):
Common stock and
additional paid-in
capital................ 3,082,437 -- -- -- 3,082,437
Accumulated deficit..... (7,656) -- -- -- (7,656)
Related party
receivables--net....... (1,086,306) -- 536,870 -- (549,436)
Partners' equity........ -- 494,036 -- (494,036) --
----------- ---------- --------- --------- ----------
Stockholders' equity
(deficiency)......... 1,988,475 494,036 536,870 (494,036) 2,525,345
----------- ---------- --------- --------- ----------
Total............... $ 6,982,311 $1,065,981 $(474,175) $(350,319) $7,223,798
=========== ========== ========= ========= ==========
</TABLE>
- --------
*As of September 30, 1999
2
<PAGE>
ARAHOVA COMMUNICATIONS, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1999
(Dollars in thousands)
(a) Represents historical amounts.
(b) Represents the net effects of: (i) approximately $33,000 acquisition
price for a cable system in the Moreno Valley/Riverside County area of
southern California ("Moreno"), acquired from American Cable TV Investors
V, Ltd.; (ii) intercompany advances of $507,000 and additional borrowings
of $471,000 under a new Arahova credit facility which closed on December
7, 1999, net of repayments of existing Arahova subsidiary debt of
$894,000 and intercompany notes owed to TCI of $215,000; (iii)
preliminary adjustments recorded in connection with applying purchase
accounting to the Moreno acquisition, including an initial allocation of
$7,300 and $41,100 to Property, plant and equipment--net and Intangible
assets--net, respectively; and (iv) the recording of the system swap with
TCI.
(c) Represents the net effects of: (i) the formation of the Joint Venture and
TCI's 25% minority ownership interest in the Joint Venture and (ii) the
removal of TCI Century Systems deferred tax liability due to the Joint
Venture being a partnership.
3
<PAGE>
ARAHOVA COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONTINUING OPERATIONS
YEAR ENDED MAY 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Old TCI
Century Systems New TCI TCI Century
Eleven Months Century Systems Arahova Systems Pro Forma
Old Ended One Month Ended Pro Forma Pro Forma Arahova
Arahova (a) February 28, 1999 (a) March 31, 1999 (a) Adjustments Adjustments Consolidated
----------- --------------------- ------------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 519,584 $147,830 $14,000 $ 98,150(b) $ -- $779,564
--------- -------- ------- -------- ------- --------
Operating Expenses:
Direct operating and
programming........... 111,603 61,936 6,016 140,855(b) -- 320,410
Selling, general and
administrative........ 115,790 34,013 2,741 (3,427)(c) -- 149,117
Depreciation and
amortization.......... 158,153 37,237 4,178 50,400(d) (11,266)(h) 238,702
Merger and
integration costs..... 7,922 -- -- -- -- 7,922
--------- -------- ------- -------- ------- --------
Total................ 393,468 133,186 12,935 187,828 (11,266) 716,151
--------- -------- ------- -------- ------- --------
Operating income
(loss)................ 126,116 14,644 1,065 (89,678) 11,266 63,413
--------- -------- ------- -------- ------- --------
Other (expense) income:
Interest expense--
net................... (191,803) -- -- 13,470(e) -- (178,333)
Minority interest in
income of
subsidiaries.......... (11,597) -- -- (3,506)(f) -- (15,103)
Gain on sale
of assets............. 5,646 -- -- -- -- 5,646
Other.................. 79 (114) 30 -- -- (5)
--------- -------- ------- -------- ------- --------
Total................ (197,675) (114) 30 9,964 -- (187,795)
--------- -------- ------- -------- ------- --------
(Loss) income before
income taxes........... (71,559) 14,530 1,095 (79,714) 11,266 (124,382)
Income tax benefit
(expense).............. 13,453 (5,953) (385) 22,732(g) -- 29,847
--------- -------- ------- -------- ------- --------
Net (loss) income ...... $ (58,106) $ 8,577 $ 710 $(56,982) $11,266 $(94,535)
========= ======== ======= ======== ======= ========
</TABLE>
4
<PAGE>
ARAHOVA COMMUNICATIONS, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
CONTINUING OPERATIONS
YEAR ENDED MAY 31, 1999
(Dollars in thousands)
(a) Represents historical amounts. The consolidated financial statements for
periods prior to October 1, 1999 for Arahova are referred to herein as
"Old Arahova", and the consolidated financial statements for periods
subsequent to September 30, 1999 are referred to herein as "New Arahova".
On March 9, 1999, AT&T Corp. acquired TCI in a merger. For financial
reporting purposes such merger was deemed to have occurred on March 1,
1999. The combined financial statements for periods prior to March 1,
1999 for the TCI Century Systems are referred to herein as "Old TCI
Century Systems," and the combined financial statements for periods
subsequent to February 28, 1999 are referred to herein as "New TCI
Century Systems."
(b) Represents the net effects of: (i) historical amounts for the twelve
months ended March 31, 1999 for Moreno; (ii) reclassification of
programming expense from a reduction of revenues to direct operating and
programming expense and reclassification of interest income from revenues
to a decrease in interest expense--net to conform to Adelphia's
presentation; and (iii) the effect of the system swap with TCI.
(c) Represents the net effects of: (i) historical amounts for the twelve
months ended March 31, 1999 for Moreno and (ii) the effects of the system
swap with TCI.
(d) Represents the net effects of: (i) depreciation and amortization expense
for the twelve months ended March 31, 1999 for Moreno, giving effect to
the application of purchase accounting; (ii) additional amortization
expense resulting from deferred loan financing fees relating to the
credit facility which closed on December 7, 1999; (iii) the effects of
the system swap with TCI; and (iv) additional depreciation and
amortization expense resulting from the merger of Arahova into Adelphia,
giving effect to the application of purchase accounting. Pro forma
depreciation and amortization is calculated on a straight-line basis
consistent with Adelphia's accounting policy and with Adelphia's
depreciation and amortization periods. The cost basis of the purchased
assets utilized in these calculations is based on preliminary asset
allocations among property, plant and equipment (primarily operating
plant and equipment depreciated over 5 to 12 years) and intangible assets
(primarily purchased franchises and goodwill amortized over 40 years) and
is subject to final allocation adjustments.
(e) Represents the net effects of: (i) interest expense on incremental
borrowings from intercompany advances and additional borrowings under the
Arahova credit facility which closed on December 7, 1999 net of
repayments of existing Arahova subsidiary debt; (ii) reclassification of
interest income from revenues to interest expense--net to conform to
Adelphia's presentation; and (iii) the effects of the system swap with
TCI.
(f) Represents the effects of TCI's minority ownership interest in the Joint
Venture.
(g) Represents the estimated effect on the income tax provision of the
acquisition of Arahova by Adelphia, the swap of cable systems with TCI
and the formation of the Joint Venture.
(h) Represents reduction of amounts resulting from calculating depreciation
and amortization on a straight-line basis consistent with Adelphia's
accounting policy and with Adelphia's depreciation and amortization
periods. The cost basis of the purchased assets utilized in these
calculations is based on preliminary asset allocations among property,
plant and equipment (primarily operating plant and equipment depreciated
over 5 to 12 years) and intangible assets (primarily purchased franchises
and goodwill amortized over 40 years) and is subject to final allocation
adjustments.
5
<PAGE>
ARAHOVA COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONTINUING OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Old Arahova New Arahova
Four Months Two Months TCI Century
Ended Ended Arahova Systems Pro Forma
September 30, November 30, TCI Century Pro Forma Pro Forma Arahova
1999 (a) 1999 (a) Systems* (a) Adjustments Adjustments Consolidated
------------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 231,230 $117,633 $86,503 $(16,853)(b) $ -- $ 418,513
--------- -------- ------- -------- ------- ---------
Operating Expenses:
Direct operating and
programming........... 92,455 37,712 37,595 (5,979)(b) -- 161,783
Selling, general and
administrative........ 47,610 20,087 22,228 (1,921)(b) -- 88,004
Depreciation and
amortization.......... 59,665 32,383 27,328 10,270(c) (12,254)(g) 117,393
Stock compensation..... 26,232 -- -- -- -- 26,232
Merger and integration
costs................. 174,153 3,140 -- -- -- 177,293
--------- -------- ------- -------- ------- ---------
Total................ 400,115 93,322 87,151 2,370 (12,254) 570,705
--------- -------- ------- -------- ------- ---------
Operating (loss)
income................. (168,885) 24,311 (648) (19,223) 12,254 (152,192)
--------- -------- ------- -------- ------- ---------
Other (expense) income:
Interest expense--
net................... (53,929) (27,689) -- (3,686)(d) -- (85,304)
Minority interest in
income
of subsidiaries....... (4,911) (5,874) -- (2,084)(e) -- (12,869)
Other.................. 337 -- (176) -- -- 161
--------- -------- ------- -------- ------- ---------
Total................ (58,503) (33,563) (176) (5,770) -- (98,012)
--------- -------- ------- -------- ------- ---------
(Loss) income before
income taxes........... (227,388) (9,252) (824) (24,993) 12,254 (250,204)
Income tax (expense)
benefit................ (5,837) 1,596 274 29,823(f) -- 25,856
--------- -------- ------- -------- ------- ---------
Net (loss) income....... $(233,225) $ (7,656) $ (550) $ 4,830 $12,254 $(224,348)
========= ======== ======= ======== ======= =========
</TABLE>
- --------
*Six months ended September 30, 1999
6
<PAGE>
ARAHOVA COMMUNICATIONS, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
CONTINUING OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1999
(Dollars in thousands)
(a) Represents historical amounts. The consolidated financial statements for
periods prior to October 1, 1999 for Arahova are referred to herein as
"Old Arahova", and the consolidated financial statements for periods
subsequent to September 30, 1999 are referred to herein as "New Arahova".
The consolidated financial statements for periods prior to October 1,
1999 for the Arahova systems are referred to herein as "Old Arahova" and
the consolidated financial statements for periods subsequent to September
30, 1999 are referred to herein as "New Arahova."
(b) Represents the net effects of: (i) historical amounts for the six months
ended October 31, 1999 for Moreno; and (ii) the effects of the system
swap with TCI.
(c) Represents the net effects of: (i) depreciation and amortization expense
for the six months ended October 31, 1999 for Moreno, giving effect to
the application of purchase accounting; (ii) additional amortization
expense resulting from deferred loan financing fees relating to the
credit facility which closed on December 7, 1999; (iii) the effects of
the system swap with TCI; and (iv) additional depreciation and
amortization expense resulting from the merger of Arahova into Adelphia,
giving effect to the application of purchase accounting. Pro forma
depreciation and amortization is calculated on a straight-line basis
consistent with Adelphia's accounting policy and with Adelphia's
depreciation and amortization periods. The cost basis of the purchased
assets utilized in these calculations is based on preliminary asset
allocations among property, plant and equipment (primarily operating
plant and equipment depreciated over 5 to 12 years) and intangible assets
(primarily purchased franchises and goodwill amortized over 40 years) and
is subject to final allocation adjustments.
(d) Represents the net effects of: (i) interest expense on incremental
borrowings from intercompany advances and additional borrowings under the
Arahova credit facility which closed on December 7, 1999, net of
repayments of existing Arahova subsidiary debt; and (ii) the effects of
the system swap with TCI.
(e) Represents the effects of TCI's minority ownership interest in the Joint
Venture.
(f) Represents the estimated effect on the income tax provision of the
acquisition of Arahova by Adelphia, the swap of cable systems with TCI
and the formation of the Joint Venture.
(g) Represents a reduction of amounts resulting from calculating depreciation
and amortization on a straight-line basis consistent with Adelphia's
accounting policy and with Adelphia's depreciation and amortization
periods. The cost basis of the purchased assets utilized in these
calculations is based on preliminary asset allocations among property,
plant and equipment (primarily operating plant and equipment depreciated
over 5 to 12 years) and intangible assets (primarily purchased franchises
and goodwill amortized over 40 years) and is subject to final allocation
adjustments.
7
