<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (date of earliest event reported) April 19, 1999
------------
ADELPHIA COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 0-16014 23-2417713
(State or Other (Commission File Number) (I.R.S. Employer
Jurisdiction of Identification Number)
Incorporation)
Main at Water Street
Coudersport, PA 16915-1141
(Address of principal executive offices) (Zip Code)
------------
Registrant's telephone number, including area code (814) 274-9830
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<PAGE>
Item 5. Other Events
Adelphia Communication Corporation ("Adelphia") recently announced the
following transactions:
(i) The repurchase agreements with FPL Group, Inc. regarding Adelphia
stock and Olympus Communications, L.P. ("Olympus") partnership
interests held by FPL Group, Inc. (see Form 8-K filed on January 28,
1999).
(ii) The pending acquisition of FrontierVision Partners, L.P.
("FrontierVision") (see Form 8-K filed on February 23, 1999).
(iii) The pending acquisition of Century Communications Corp. ("Century")
(see Form 8-K filed on March 5, 1999).
(iv) The pending acquisition of Harron Communications Corp. ("Harron")
(see Form 8-K for event dated April 9, 1999).
Adelphia is making available the separate company financial statements for
Century, FrontierVision and Harron, and unaudited pro forma condensed
financial information for Adelphia. These documents are incorporated by
reference herein and are being filed as Exhibits 99.01, 99.02, 99.03, 99.04
and 99.05 to this report.
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 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, Adelphia. 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 the Company operates. Persons reading this
Form 8-K 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 Adelphia.
1
<PAGE>
Item 7. Financial Statements and Exhibits
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
23.01 Consent of Deloitte & Touche LLP. (Filed Herewith)
23.02 Consent of KPMG LLP. (Filed Herewith)
23.03 Consent of Deloitte & Touche LLP. (Filed Herewith)
99.01 Independent Auditors' Report by Deloitte & Touche LLP to the Board
of Directors and Stockholders of Century Communications Corp.
dated August 4, 1998, and the consolidated financial statements of
Century Communications Corp. and subsidiaries as of May 31, 1997
and 1998 and for each of the three years in the period ended May
31, 1998, all of which were also filed in the Century
Communications Corp. Form 10-K for the fiscal year ended May 31,
1998. (Filed Herewith)
99.02 Unaudited financial information for Century Communications Corp.
which was also filed in its Form 10-Q for the quarterly period
ended February 28, 1999. (Filed Herewith)
99.03 Independent Auditors' Report by KPMG LLP to the Partners of
FrontierVision Partners, L.P., dated March 19, 1999, and the
consolidated financial statements of FrontierVision Partners, L.P.
and subsidiaries as of December 31, 1997 and 1998 and for each of
the years in the three year period ended December 31, 1998. (Filed
Herewith)
99.04 Independent Auditors' Report by Deloitte & Touche LLP to the Board
of Directors and Stockholders of Harron Communications Corp. dated
March 19, 1999 (April 12, 1999 as to Note 16), and the
consolidated financial statements of Harron Communications Corp.
and subsidiaries as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998. (Filed
Herewith)
99.05 Unaudited pro forma condensed consolidated financial information
for Adelphia Communications Corporation as of December 31, 1998
and for the year ended March 31, 1998 and the nine months ended
December 31, 1998. (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 April 19, 1999
ADELPHIA COMMUNICATIONS CORPORATION
(Registrant)
/s/ Timothy J. Rigas
By: ______________________________________
Timothy J. Rigas
Executive Vice President, Treasurer
and
Chief Financial Officer
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
23.01 Consent of Deloitte & Touche LLP. (Filed Herewith)
23.02 Consent of KPMG LLP. (Filed Herewith)
23.03 Consent of Deloitte & Touche LLP. (Filed Herewith)
99.01 Independent Auditors' Report by Deloitte & Touche LLP to the Board
of Directors and Stockholders of Century Communications Corp.
dated August 4, 1998, and the consolidated financial statements of
Century Communications Corp. and subsidiaries as of May 31, 1997
and 1998 and for each of the three years in the period ended May
31, 1998, all of which were also filed in the Century
Communications Corp. Form 10-K for the fiscal year ended May 31,
1998. (Filed Herewith)
99.02 Unaudited financial information for Century Communications Corp.
which was also filed in its Form 10-Q for the quarterly period
ended February 28, 1999. (Filed Herewith)
99.03 Independent Auditors' Report by KPMG LLP to the Partners of
FrontierVision Partners, L.P., dated March 19, 1999, and the
consolidated financial statements of FrontierVision Partners, L.P.
and subsidiaries as of December 31, 1997 and 1998 and for each of
the years in the three year period ended December 31, 1998. (Filed
Herewith)
99.04 Independent Auditors' Report by Deloitte & Touche LLP to the Board
of Directors and Stockholders of Harron Communications Corp. dated
March 19, 1999 (April 12, 1999 as to Note 16), and the
consolidated financial statements of Harron Communications Corp.
and subsidiaries as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998. (Filed
Herewith)
99.05 Unaudited pro forma condensed consolidated financial information
for Adelphia Communications Corporation as of December 31, 1998
and for the year ended March 31, 1998 and the nine months ended
December 31, 1998. (Filed Herewith)
</TABLE>
4
<PAGE>
EXHIBIT 23.01
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
333-59999 and 333-61291 on Form S-3, Amendment No. 1 to Registration
Statements Nos. 333-48553, 333-58749, 333-63075, and 333-73025 on Form S-3,
Amendment No. 1 to Registration Statement No. 333-64603 on Form S-4, Amendment
No. 4 to Registration Statement No. 333-69819 on Form S-3, and Registration
Statement No. 333-75741 on Form S-8 of Adelphia Communications Corporation, of
our report dated August 4, 1998, with respect to the consolidated balance
sheets of Century Communications Corp. and subsidiaries as of May 31, 1998 and
1997, and the related consolidated statements of operations and cash flows for
each of the three years in the period ended May 31, 1998, which report is
included in this Current Report on Form 8-K of Adelphia Communications
Corporation.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Stamford, Connecticut
April 19, 1999
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements Nos.
333-59999 and 333-61291 on Form S-3, Amendment No. 1 to Registration
Statements Nos. 333-48553, 333-58749, 333-63075, and 333-73025 on Form S-3,
Amendment No. 1 to Registration Statement No. 333-64603 on Form S-4, Amendment
No. 4 to Registration Statement No. 333-69819 on Form S-3, and Registration
Statement No. 333-75741 on Form S-8 of Adelphia Communications Corporation, of
our report, dated March 19, 1999, relating to the consolidated balance sheets
of FrontierVision Partners, L.P. and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, partners' deficit
and cash flows for each of the years in the three year period ended December
31, 1998, which report appears in the April 19, 1999 Current Report on Form 8-
K of Adelphia Communications Corporation.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
April 19, 1999
<PAGE>
EXHIBIT 23.03
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
333-59999 and 333-61291 on Form S-3, Amendment No. 1 to Registration
Statements Nos. 333-48553, 333-58749, 333-63075, and 333-73025 on Form S-3,
Amendment No. 1 to Registration Statement No. 333-64603 on Form S-4, and
Amendment No. 4 to Registration Statement No. 333-69819 on Form S-3, and
Registration Statement No. 333-75741 on Form S-8 of Adelphia Communications
Corporation, of our report dated March 19, 1999, (April 12, 1999 as to Note
16) with respect to the consolidated balance sheets of Harron Communications
Corp. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and comprehensive
income and cash flows for each of the three years in the period ended December
31, 1998, which report is included in this Current Report on Form 8-K of
Adelphia Communications Corporation.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
April 19, 1999
<PAGE>
Exhibit 99.01
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, 1998 and 1997, and the
related consolidated statements of operations and cash flows for each of the
three years in the period ended May 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended May 31, 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
August 4, 1998
1
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Amounts in Thousands
<TABLE>
<CAPTION>
May 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments....................... $ 285,498 $ 151,947
Accounts receivable less allowance for doubtful
accounts of
$1,695 and $3,592 respectively....................... 16,109 48,958
Prepaid expenses and other current assets............. 3,465 14,649
Net assets of discontinued operations................. 37,323 --
---------- ----------
Total current assets.................................. 342,395 215,554
Property, plant and equipment--net...................... 565,965 715,418
Investment in marketable equity securities.............. 52,451 45,118
Equity investments in cable television and wireless
telephone systems--net................................. -- 102,097
Debt issuance costs, less accumulated amortization of
$16,013 and
$13,270, respectively.................................. 33,829 31,735
Cable television franchises, less accumulated
amortization of $324,835 and $322,309, respectively.... 344,612 401,775
Wireless telephone licenses, less accumulated
amortization of $214,494 in 1997....................... -- 347,206
Excess of purchase price over value of net assets
acquired, less accumulated amortization of $40,612 and
$58,920, respectively.................................. 166,570 280,643
Other assets............................................ 9,360 14,685
---------- ----------
$1,515,182 $2,154,231
========== ==========
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
Amounts in Thousands (Except Share Data)
<TABLE>
<CAPTION>
May 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current maturities of long-term debt.................. $ 20,050 $ 15,011
Accounts payable...................................... 35,983 26,711
Accrued expenses and other current liabilities........ 97,499 150,407
---------- ----------
Total current liabilities........................... 153,532 192,129
Long-term debt.......................................... 2,009,052 2,186,981
Deferred income taxes................................... 5,170 53,959
Minority interest in subsidiaries....................... 67,030 133,518
Other deferred income................................... 5,650 --
Commitments and contingencies (See Notes)
Preferred stock, par value $.01 per share authorized
100,000,000 shares, none issued........................ -- --
Subsidiary convertible redeemable preferred stock (at
aggregate liquidation value which approximates the fair
market value) par value $.01 per share, authorized,
issued and outstanding 102,187 shares (redemption value
of $1,823 per share)................................... -- 186,287
Common stockholders' deficiency:
Common stock, par value $.01 per share:
Class A, authorized 400,000,000 shares, issued,
65,684,888 and 62,695,127 shares, respectively, and
outstanding 31,954,085 and 30,968,289 shares,
respectively......................................... 657 627
Class B, authorized 300,000,000 shares, issued and
outstanding 42,726,115 and 45,126,115 shares,
respectively......................................... 427 451
Additional paid-in capital............................ 176,179 176,871
Other, including 33,730,803 and 31,726,838 treasury
shares, respectively................................. (132,501) (127,549)
Accumulated deficit................................... (770,014) (649,043)
---------- ----------
Total common stockholders' deficiency............... (725,252) (598,643)
---------- ----------
$1,515,182 $2,154,231
========== ==========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Amounts in Thousands (Except Share Data)
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Service income........................... $ 484,736 $ 459,646 $ 368,669
Costs and expenses
Cost of services......................... 103,932 100,789 82,274
Selling, general and administrative...... 122,307 111,467 85,591
Depreciation and amortization............ 154,029 159,547 124,436
---------- ---------- ----------
380,268 371,803 292,301
---------- ---------- ----------
Operating income........................... 104,468 87,843 76,368
Interest expense........................... 172,608 157,730 143,030
Other (income) expense..................... (1,533) 171 550
---------- ---------- ----------
Loss from continuing operations before
income tax (benefit), minority interest
and extraordinary item.................... (66,607) (70,058) (67,212)
Income tax (benefit)....................... (624) (23,363) (22,730)
---------- ---------- ----------
Loss from continuing operations before
minority interest and extraordinary item.. (65,983) (46,695) (44,482)
Minority interest in income of
subsidiaries.............................. (11,899) (7,170) (2,701)
---------- ---------- ----------
Loss from continuing operations............ (77,882) (53,865) (47,183)
Loss from discontinued operations, net of
income tax benefit of $13,597, $7,295 and
$11,596 and minority interest in losses of
$21,193, $22,584 and $10,970.............. (43,089) (80,428) (54,934)
---------- ---------- ----------
Loss before extraordinary item............. (120,971) (134,293) (102,117)
Extraordinary item--loss on early
retirement of debt, net of
income tax benefit of $5,379.............. -- (7,582) --
---------- ---------- ----------
Net loss................................. $ (120,971) $ (141,875) $ (102,117)
========== ========== ==========
Dividend on discontinued subsidiary
convertible redeemable preferred stock.... $ 5,225 $ 4,850 $ 4,256
========== ========== ==========
Net loss applicable to common shares....... $ (126,196) $ (146,725) $ (106,373)
========== ========== ==========
Net loss per common share--basic and
diluted
Loss from continuing operations.......... $ (1.11) $ (.78) $ (.70)
Loss from discontinued operations........ (.58) (1.08) (.74)
---------- ---------- ----------
Loss before extraordinary item........... (1.69) (1.86) (1.44)
Extraordinary item....................... -- (0.10) --
---------- ---------- ----------
Net loss per common share--basic and
diluted................................. $ (1.69) $ (1.96) $ (1.44)
========== ========== ==========
Weighted average number of common shares
outstanding during the period............. 74,770,000 74,675,000 73,748,000
========== ========== ==========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in Thousands
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------
1998 1997 1996
--------- ----------- ---------
<S> <C> <C> <C>
Operating Activities:
Cash received from subscribers and
others.................................. $ 616,043 $ 557,224 $ 456,210
Cash paid to suppliers, employees and
governmental agencies................... (327,271) (330,862) (255,777)
Interest paid............................ (129,148) (119,419) (122,090)
--------- ----------- ---------
Net Cash Provided by Operating
Activities............................ 159,624 106,943 78,343
--------- ----------- ---------
Investing Activities:
Capital expenditures..................... (113,222) (79,563) (62,205)
Cable television franchise expenditures.. (1,764) (2,105) (3,973)
Acquisition of other assets.............. (1,524) (885) --
Acquisition and exchanges of cable
television systems...................... (70,994) (13,928) (333,020)
--------- ----------- ---------
Net Cash Used in Investing Activities.. (187,504) (96,481) (399,198)
--------- ----------- ---------
Financing Activities:
Proceeds from long-term borrowings....... 813,659 1,043,000 728,500
Principal payments on long-term debt..... (575,550) (1,039,050) (415,957)
Debt issuance costs...................... (18,307) (9,017) (4,849)
Purchase of treasury stock............... (12,576) (2,358) (159)
Issuance of common stock................. 2,951 3,822 2,526
--------- ----------- ---------
Net Cash Provided by (Used in)
Financing Activities.................. 210,177 (3,603) 310,061
--------- ----------- ---------
Net Increase (Decrease) in Cash and Short-
Term Investments--Continuing Operations... 182,297 6,859 (10,794)
Cash Flows of Discontinued Operations--
Net....................................... (48,746) (19,504) (53,378)
Cash and Short-Term Investments--Beginning
of Year................................... 151,947 164,592 228,764
--------- ----------- ---------
Cash and Short-Term Investments--End of
Year...................................... $ 285,498 $ 151,947 $ 164,592
========= =========== =========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Amounts in Thousands
<TABLE>
<CAPTION>
Year Ended May 31,
--------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Reconciliation of Net Loss to Net Cash
Provided by Operating Activities
Net Loss..................................... $(120,971) $(141,875) $(102,117)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.............. 154,029 159,547 124,436
Minority interest in income of
subsidiaries--continuing operations....... 11,899 7,170 2,701
Deferred income taxes...................... (4,812) (32,905) (25,690)
Non cash interest charges.................. 39,138 30,006 27,087
Loss from discontinued operations--net..... 43,089 80,428 54,934
Change in assets and liabilities net of
effects of acquired cable television
systems:
Accounts receivable--
(increase)/decrease..................... 5,189 (10,799) 694
Prepaid expenses and other current
assets--decrease........................ 5,437 323 262
Accounts payable and accrued expenses--
increase/(decrease)..................... 26,626 15,048 (3,964)
--------- --------- ---------
Total adjustments...................... 280,595 248,818 180,460
--------- --------- ---------
Net Cash Provided by Operating Activities.... $ 159,624 $ 106,943 $ 78,343
========= ========= =========
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 1998, 1997 and 1996
(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
4). 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 11). In addition, the consolidated
financial statements include the accounts of Centennial Cellular Corp.,
("Centennial"), an approximately 34% owned company (at May 31, 1998) in which
the Company controls approximately 74% of the voting power of the common
shares and East Coast Pay Television Pty. Limited ("ECT"), an Australian
Company. All material intercompany transactions and balances have been
eliminated. As discussed more thoroughly in Note 2, Centennial Cellular Corp.
(the "Wireless Telephone Segment") and the Company's Australian operations,
including ECT, are presented as discontinued operations within the
accompanying consolidated financial statements. Accordingly, the consolidated
financial statements reflect their operating results and cash flows as
discontinued operations for each of the three years ended May 31, 1998 and the
consolidated balance sheet at May 31, 1998 segregates the net assets of these
discontinued operations.
Revenue recognition
Cable service income includes earned subscriber service revenues and charges
for installation and connections, net of programmers' share of pay television
revenues. Such programmers' share netted against service income amounted to
$131,792, $114,591 and $92,014 in 1998, 1997 and 1996 respectively.
Charges for installations and connections 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 until realized. Equity securities at May 31, 1998 and
1997 are stated at their fair market values. The adjusted cost basis of these
equity securities at May 31, 1998 and 1997 was $32,255. The Company recorded
an increase in the unrealized gain of $7,333 during the year ended May 31,
1998, a decrease in the unrealized gain of $7,950 during the year ended May
31, 1997 and an increase in the unrealized gain of $6,397 during the year
ended May 31, 1996. As of August 4, 1998, the market value of these securities
had declined approximately $12,250 from May 31, 1998.
Debt issuance costs
Costs associated with the issuance of the Company's debt securities and
credit facilities (Note 7) have been capitalized and are being amortized on a
straight-line basis over the expected lives of the issues.
7
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
Equity investments in cable television and wireless systems
The Company records such investments at purchased cost at the date of
acquisition and adjusts for the Company's share of net income or loss from the
acquisition date. At May 31, 1998, the Company's equity investments in cable
television and wireless systems related to discontinued operations are
included in Net Assets of Discontinued Operations in the accompanying
consolidated balance sheet. At May 31, 1997, the Company's equity investments
principally consisted of a $94,153 investment in wireless minority interests.
The difference of $123,024 between the cost of the Company's equity
investments in wireless systems and the underlying book value is amortized
over ten years. Accumulated amortization at May 31, 1997 was $69,878.
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>
<CAPTION>
Buildings....................................................... 15 - 25 years
<S> <C>
Cable television transmission and distribution systems and 8 - 15 years
related equipment..............................................
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 4). Such amounts are amortized using the
straight-line method over the lives of the franchises (generally ranging from
10 to 15 years).
Wireless telephone licenses
Wireless telephone licenses at May 31, 1998 are included in Net Assets of
Discontinued Operations in the accompanying consolidated balance sheet.
Wireless telephone licenses consists of amounts allocated under purchase
accounting. Such amounts are amortized, commencing with the date of
operations, using the straight-line method over a period of 10 and 40 years
for cellular and personal communications services ("PCS") licenses,
respectively. Centennial, during the fiscal year ended May 31, 1997,
capitalized interest costs of $2,752 related to the acquisition of the PCS
license.
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.
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
Effective with the quarter ended February 28, 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" ("SFAS 128"), which was effective for financial statements ending
after December 15, 1997. This statement superseded Accounting Principles Board
Opinion No. 15 ("APB 15") and replaces the presentation of primary earnings
per share ("EPS") and fully diluted EPS on the face of the statement of
operations with basic and diluted EPS. Basic EPS is calculated by dividing
loss applicable to common shares by weighted average common shares
outstanding. Diluted EPS reflects the potential dilution that could occur if
potential common stock instruments of the Company were exercised, converted or
issued. Adoption of SFAS 128 did not result in a change of EPS previously
reported by the Company using APB 15.
The loss per common share reflects a charge for the dividends on subsidiary
convertible redeemable preferred stock of $5,225, $4,850 and $4,256 for the
years ended May 31, 1998, 1997 and 1996, respectively. These dividends are
related to the Company's discontinued 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.
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. 129 "Disclosure of Information about Capital
Structure", Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," and Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information" in
1997, Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" and Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" in 1998. 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". The Company believes
these Statements will not have a material impact on the Consolidated Financial
Statements of the Company when adopted.
NOTE 2. Discontinued Operations
Centennial Cellular Corp.
On July 2, 1998, Centennial and CCW Acquisition Corp. ("Acquisition"), a
Delaware corporation organized at the direction of Welsh, Carson, Anderson &
Stowe VIII, L.P. ("WCAS VIII") entered into an Agreement and Plan of Merger
(the "Merger Agreement") providing for the merger of Acquisition with and into
Centennial (the "Merger"). Centennial will continue as the surviving
corporation (the "Surviving Corporation") in the Merger.
Subject to proration, pursuant to the Merger Agreement, outstanding Class A
Common Stock of Centennial will be converted into the right to receive $43.50
per share in cash or to retain up to 7.1% of the common stock of the Surviving
Corporation outstanding after the Merger. Class B Common Stock of Centennial
will be converted into the right to receive $43.50 per share in cash;
provided, that if the aggregate number of shares of Class A Common Stock
elected to be retained by Centennial's existing stockholders is less than 7.1%
of the shares outstanding after the Merger, then a number of shares of Class B
Common Stock equal to the pro rata portion of such shortfall will be converted
into shares of Class A Common Stock and retained. All outstanding Convertible
Redeemable Preferred Stock of Centennial and Second Series Convertible
Redeemable Preferred Stock of Centennial and, together with the Convertible
Redeemable Preferred Stock of Centennial, the ("Redeemable Preferred Stock")
will be converted into the right to receive $43.50 per share in cash on an as
converted basis.
Because 7.1% of the shares outstanding immediately after the effective time
of the Merger (the "Effective Time") must be retained by such existing
stockholders of Centennial in the Merger, stockholders who do not elect to
retain any shares may, due to proration, be required to retain some Common
Stock of Centennial. In addition, stockholders who elect to retain shares may,
due to proration, retain Common Stock of Centennial and receive cash in
amounts which vary from the amounts such holders elected.
In connection with the execution of the Merger Agreement, the Company,
Centennial's principal stockholder, entered into a Stockholder Agreement,
dated July 2, 1998, with Acquisition (the "Stockholder Agreement"). Pursuant
to the Stockholder Agreement, the Company agreed to vote its shares in favor
of the approval and adoption of the Merger Agreement. Because the Company
agreed to approve the Merger by written consent, consummation of the Merger
does not require approval by a majority of Centennial's stockholders who are
not affiliated with the Company or Acquisition. Pursuant to the Stockholder
Agreement, the Company has agreed to terminate the Services Agreement, whereby
the Company provides management services to Centennial, as of the effective
time of the Merger.
10
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
The consummation of the Merger is subject to certain conditions, including,
without limitation, Centennial obtaining a final order from the Federal
Communications Commission (the "FCC") approving the transfer of control of the
Company to WCAS VIII and its affiliates, the expiration of antitrust
regulatory waiting periods and Acquisition obtaining financing substantially
on the terms contemplated by the commitment letters it received in connection
with the Merger Agreement.
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 shall be paid by the party incurring such
expenses. However, in the event Centennial or Acquisition shall have
terminated the Merger Agreement as a result of either Centennial entering into
a definitive written agreement with respect to any merger, consolidation or
other business combination, tender or exchange offer, recapitalization
transaction, asset or stock purchase or other similar transaction with a third
party (an "Acquisition Transaction") or the Board of Directors of Centennial
having withdrawn, modified or amended in any manner adverse to Acquisition its
approval or recommendation of the Merger Agreement or approved, recommended or
endorsed any proposal for an Acquisition Transaction, then Centennial shall
reimburse Acquisition for documented fees and expenses (subject to a maximum
of $25,000) and pay Acquisition a termination fee of $40,000.
In connection with the Merger, Acquisition has received a commitment from a
third party for financing for Acquisition and certain existing and future
subsidiaries of Centennial in the aggregate amount of approximately $1.6
billion in the form of senior secured credit facilities and an unsecured
bridge loan. Additionally, an affiliate of WCAS VIII has agreed to purchase
approximately $150 million aggregate amount of subordinated notes of the
Surviving Corporation. Finally, WCAS VIII and other equity investors have
agreed to purchase approximately $350 million of common stock of the Surviving
Corporation. It is anticipated that this funding will be used to pay the
merger consideration described above and related fees and expenses.
Additionally, pursuant to the Merger Agreement, Centennial has agreed that,
upon the request of Acquisition, it will commence offers to repurchase its two
outstanding issuances of public debt (the "Debt Offers"). As a condition to
the closing of the Merger, Centennial must consummate the Debt Offers prior to
the closing date of the Merger. There can be no assurance that Acquisition
will receive the funding referred to above or, if it does receive such
funding, there can be no assurance as to the timing or terms thereof.
Additionally, there can be no assurance that the Debt Offers will be
consummated. Finally, in the event that Acquisition must seek alternative
financing to consummate the Merger there can be no assurance that it will be
able to secure alternative financing on terms no less favorable than the terms
of the above commitments.
The Company owns 8,561,819 shares of Class B Common Stock of Centennial. The
Company also owns 3,978 shares of Second Series Convertible Redeemable
Preferred Stock of Centennial. If such Class B Common Stock and Second Series
Convertible Redeemable Preferred Stock are fully exchanged for cash, the
Company would receive an aggregate consideration of approximately $377,473 as
a result of the conversion into cash.
The Company anticipates recording a net gain upon the disposition of
Centennial of approximately $220,000 during fiscal 1999, net of income taxes
and the Company's share of estimated losses through the date of disposition.
The Company's share of the estimated losses is not expected to be material.
When the Centennial disposition is completed, the Company expects to reduce
its valuation allowance applied against its deferred tax assets by
approximately $80,000 to $90,000.
Australian Operations
On July 9, 1998, the Company and United International Holdings, Inc. ("UIH")
entered into an agreement pursuant to which UIH's UIH Asia/Pacific
Communications Inc. unit ("UAP") agreed to acquire the Company's
11
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
25% ownership interest in XYZ for approximately $24,600. Approximately 95% of
the sales price is payable in the form of UIH Series B Convertible Preferred
Stock which is convertible into UIH Class A stock at a conversion price of
$21.25 per share.
Also on July 9, 1998, ECT agreed to sell 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 Austar preferred stock. ECT
will utilize the $6,100 proceeds and its other current assets of approximately
$5,000 to liquidate its current liabilities, which approximate $25,000. The
Company anticipates recording an immaterial gain as a result of the sale of
its Australian assets. The sale of these Australian assets are contingent,
among other things, upon the receipt of all appropriate regulatory and other
customary approvals.
The consolidated financial statements and notes thereto reflect the
discontinued operations of Centennial and the Australian Operations. The net
assets of these discontinued operations have been separately classified in the
accompanying consolidated balance sheet at May 31, 1998 under the caption "Net
Assets of Discontinued Operations". The separate balance sheets of Centennial
and the Australian operations at May 31, 1998, which are included in the Net
Assets of Discontinued Operations, are detailed within Note 15.
Operating results of Centennial and the Australian Operations for the years
ended May 31, 1998, 1997 and 1996, are shown separately within the
accompanying consolidated statements of operations under the caption "Loss
from Discontinued Operations". The separate statements of operations of
Centennial and the Australian operations for the year ended May 31, 1998 are
detailed within Note 15. The operating results of Centennial and the
Australian Operations for the years ended May 31, 1997 and 1996 consist of the
following:
Centennial Cellular Corp.:
<TABLE>
<CAPTION>
Years Ended May 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenue.................................................. $ 151,023 $ 112,197
Costs and expenses....................................... (177,080) (131,306)
--------- ---------
Operating Loss......................................... (26,057) (19,109)
Income from equity investments........................... 15,180 10,473
Interest expense......................................... (33,379) (27,886)
Gain on sale of assets................................... 3,819 8,310
Income tax benefit....................................... 7,295 11,596
Minority interest in income of subsidiaries.............. (153) (15)
--------- ---------
Net Loss (a)........................................... $ (33,295) $ (16,631)
========= =========
</TABLE>
Australian Operations:
<TABLE>
<CAPTION>
Years Ended May 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenue................................................... $ 33,248 $ 14,571
Costs and expenses........................................ (89,073) (55,419)
--------- ---------
Operating Loss.......................................... (55,825) (40,848)
Interest expense.......................................... (9,634) (1,299)
Other loss................................................ (4,258) (7,126)
--------- ---------
Net Loss (a)............................................ $ (69,717) $ (49,273)
========= =========
</TABLE>
- - --------
(a) Prior to minority interest share of losses.
12
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
NOTE 3. Supplemental Disclosure of Non-Cash Investing and Financing Activities
The table below summarizes non-cash reclassifications that occurred during
the years ended May 31, 1998, 1997 and 1996. The reclassifications result
primarily from the Company's acquisitions.
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Property, plant and equipment...................... $ -- $ -- $(3,643)
Marketable securities.............................. 7,333 (7,951) 6,398
Cable television franchises........................ 5,000 (14,828) 5,314
Goodwill........................................... -- 14,828 3,004
Other assets....................................... -- -- (966)
------- -------- -------
$12,333 $ (7,951) $10,107
======= ======== =======
Current liabilities................................ $ 8,067 $ 3,005 $ --
Deferred taxes..................................... -- -- 2,809
Minority interest.................................. (3,067) (3,005) 900
Other stockholders' deficiency..................... 7,333 (7,951) 6,398
------- -------- -------
$12,333 $ (7,951) $10,107
======= ======== =======
</TABLE>
NOTE 4. Acquisitions
During the three years ended May 31, 1998, 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 $ 68,440 $ 23,383 $ 24,647
Year ended May 31, 1997................. -- $ -- $ -- $ --
Year ended May 31, 1996................. 6 $331,164 $212,693 $116,613
</TABLE>
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 May 31, 1996, the Company acquired the cable television systems serving
Anaheim, Hermosa Beach/Manhattan Beach, Fairfield and Rohnert Park/Yountville,
California for an aggregate purchase price of approximately $287,600. Funds
for this acquisition were provided by an existing bank credit facility. At
May 31, 1996, such cable television systems served an aggregate of
approximately 135,000 primary basic subscribers.
On May 8, 1996, the Company acquired the Orange County News Channel ("OCN")
for approximately $2,500.
On March 2, 1993, the Company and Citizens ("the Century/Citizens Joint
Venture") entered into an agreement to acquire the assets of two cable
television systems which serve in the aggregate approximately
13
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
45,000 primary basic subscribers. The aggregate purchase price for the cable
television systems was $92,900 subject to adjustment. Citizens and the Company
own and operate the cable television systems in a joint venture structure in
which each company has a 50% ownership interest. On September 30, 1994, the
Century/Citizens Joint Venture completed the acquisition of one of these cable
television systems serving approximately 24,000 primary basic subscribers. On
December 1, 1995, the second acquisition serving approximately 21,000 primary
basic subscribers was completed. The purchase price of approximately $51,900
at September 30, 1994 and $41,000 at December 1, 1995 was funded by the
Company and Citizens equally.
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 $68,440. On
October 15, 1997, the Century/Citizens Joint Venture completed the acquisition
of the Diamond Bar system for a purchase price of approximately $33,550. 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
$34,890. 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.
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 Riverside County, California. The purchase price for this
system is approximately $33,000. The Company currently expects to fund the
acquisition using 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.
Pro Forma Information
The summary pro forma information includes the results of the Company's
continuing operations and all of the above acquisitions and pending
acquisitions as of May 31, 1998 related to these continuing operations, in
each case as if such acquisitions had been consummated as of June 1, 1995
(unaudited).
<TABLE>
<CAPTION>
Year Ended May 31,
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue...................................... $ 491,249 $ 472,019 $ 428,819
Loss from continuing operations before
extraordinary item.......................... $ (79,456) $ (55,804) $ (66,978)
Net loss..................................... $(122,545) $(143,814) $(121,912)
Loss from continuing operations before
extraordinary item per common share......... $ (1.13) $ (.81) $ (.94)
Loss per common share--basic and diluted..... $ (1.71) $ (1.99) $ (1.67)
</TABLE>
Pro forma basic loss per common share for the years ended May 31, 1998, 1997
and 1996 is calculated using the weighted average number of common shares
outstanding during the period.
NOTE 5. Transactions with Related Parties
The Company purchased workers compensation and general liability insurance
from Sentry Insurance (holder of approximately 1% of Class B Common stock at
May 31, 1998) and its affiliated companies. In fiscal
14
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
1996, the Company also purchased group health, life and casualty insurance
coverage from Sentry Insurance. The Company paid a total of $4,665, $7,083 and
$8,467 for such insurance for the fiscal years ended May 31, 1998, 1997 and
1996, 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 $1,165, $1,352 and
$1,254 to Leavy, Rosensweig & Hyman for the fiscal years ended May 31, 1998,
1997 and 1996, 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.
The Company recorded deferred revenue during fiscal 1997 in the amount of
$6,000, representing a payment to be made to its 50% owned subsidiary,
Century-ML Cable Venture (the "Venture"), by Centennial Puerto Rico Wireless
Corp., an affiliated Company ("Puerto Rico Wireless"), to secure the use of
the Venture's fiber optic network as required by the Facilities Agreement
dated January 2, 1995 between the Venture and Puerto Rico Wireless. This
payment, which was received by the Venture during fiscal 1998, represents
Puerto Rico Wireless' share of the costs of constructing the Venture's fiber
optic network.
NOTE 6. Account Analysis
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
May 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Land................................................... $ 6,794 $ 8,651
Buildings.............................................. 33,175 35,674
Cable television and wireless telephone transmission
and
distribution systems and related equipment............ 908,513 1,021,686
Miscellaneous equipment and furniture and fixtures..... 54,470 57,226
Australian plant and equipment......................... -- 21,524
---------- ----------
1,002,952 1,144,761
Less accumulated depreciation.......................... (436,987) (429,343)
---------- ----------
$ 565,965 $ 715,418
========== ==========
</TABLE>
At May 31, 1997, gross property plant and equipment of $237,227 and
accumulated depreciation of $43,834 related to discontinued operations.
Depreciation expense was approximately $93,926, $98,429 and $80,448 for the
fiscal years ended May 31, 1998, 1997, and 1996, respectively. During fiscal
1998 and 1997 the Company wrote-off $42,476 and $117,855, respectively, of
fully depreciated property, plant and equipment.
15
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
May 31,
----------------
1998 1997
------- --------
<S> <C> <C>
Accrued interest.............................................. $33,249 $ 32,409
Accrued capital purchases..................................... -- 11,317
Accrued unpaid invoices....................................... -- 9,620
Australian A/P & accrued expenses............................. -- 17,070
Accrued other................................................. 39,409 58,821
Customer deposits & prepaids.................................. 24,841 21,170
------- --------
$97,499 $150,407
======= ========
</TABLE>
Accrued expenses and other current liabilities of $78,126 at May 31, 1997
related to discontinued operations.
16
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
NOTE 7. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
May 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Credit facility (a)...................................... $ -- $ 324,000
Credit facility (b)...................................... -- 165,000
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)........... 289,870 265,381
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 --
8 3/8% Senior Notes due 2017 (i)......................... 100,000 --
8 3/8% Senior Notes due 2007 (j)......................... 100,000 --
Senior Discount Notes due 2008, Series B (k)............. 258,132 --
Subsidiary 8 7/8% Senior notes due 2001 (l).............. -- 250,000
Subsidiary 9.47% Senior secured notes due 2002 (m)....... 100,000 100,000
Subsidiary 10 1/8% Senior notes due 2005 (n)............. -- 100,000
Subsidiary revolving credit and term loan (o)............ 54,000 53,500
Subsidiary credit facility (p)........................... -- 74,000
Subsidiary credit facility (q)........................... -- 5,000
Subsidiary credit facility (r)........................... 52,000 --
Other, including Australian operations (1997)............ 100 15,111
---------- ----------
Long-term debt--continuing operations.................. 2,029,102 2,201,992
---------- ----------
Australian Operations.................................... 10,546 --
Subsidiary 8 7/8% Senior notes due 2001 (l).............. 250,000 --
Subsidiary 10 1/8% Senior notes due 2005 (n)............. 100,000 --
Subsidiary credit facility (p)........................... 150,000 --
Subsidiary credit facility (q)........................... 10,000 --
---------- ----------
Long-term debt--discontinued operations................ 520,546 --
---------- ----------
Total.................................................. 2,549,648 2,201,992
========== ==========
Current maturities of long-term debt:
Continuing operations.................................. 20,050 15,011
Discontinued operations................................ 10,546 --
---------- ----------
$ 30,596 $ 15,011
========== ==========
</TABLE>
As of May 31, 1997, long-term debt related to discontinued operations
totaled $443,961.
- - --------
(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. At May 31, 1998, no amounts were
outstanding under the CCC-I credit facility.
17
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
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 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. At May 31, 1998, 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, 1998 and 1997 the 9 1/2% Notes were trading at 105% and 103.3% of par
or $157,500 and $154,950, 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, 1998 and
1997, the 9 3/4% Notes were trading at 107% and 104.2% of par or $214,000
and $208,400 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, 1998 and 1997, approximately $24,489 and $22,419 of interest,
respectively was amortized in the consolidated financial statements. At May
31, 1998 and 1997, the Notes were trading at 67% and 58.13% of par or
$297,480 and $258,097 respectively. The accreted value of the Discount
Notes at May 31, 1998 was $289,870.
18
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
(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, 1998
and 1997, the Notes were trading at 106.75% and 102.8% of par or $266,875
and $257,075, 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, 1998 and 1997 the Notes were trading at
104.25% and 97.11% of par or $260,625 and $242,775, 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 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 may be 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, 1998 the 8 3/4% Notes were trading at 103.75% of par or
$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, 1998, the 8 3/8% Notes were trading at 99.44% of par or
$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, 1998, the Senior Notes due 2007 were trading at
101.5% of par or $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
19
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
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 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 are 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 year ended May 31, 1998, approximately $8,473 of interest was
amortized in the consolidated financial statements related to the Senior
Discount Notes, Series B. At May 31, 1998, the Senior Discount Notes,
Series B were trading at 44% of par or $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, 1998, 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 November 15, 1993, Centennial issued $250,000 of eight year unsecured
Senior Notes (the 8 7/8% Notes). The interest on these notes is payable
semi-annually at an interest rate of 8 7/8%. The interest is computed on
the basis of a 360-day year (twelve 30 day months). The maturity date of
the 8 7/8% Notes is November 1, 2001 unless redeemed earlier at the option
of Centennial, however not prior to May 1, 1999. If early
20
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
redemption is sought during the twelve-month period beginning May 1 of each
of the following years, the redemption price is calculated using:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1999.............................................................. 105.25%
2000.............................................................. 103.50%
2001.............................................................. 101.75%
</TABLE>
The proceeds of the 8 7/8% Notes were used to retire all outstanding bank
debt. Costs associated with the bond offering were capitalized and are
being written off on a straight-line basis over the expected life of the
issue. At May 31, 1998 and 1997, the 8 7/8% Notes were trading at 104.01%
and 99.47% of par or $260,025 and $248,675, respectively. At May 31, 1998,
the $250,000 of 8 7/8% Notes were included in Net Assets of Discontinued
Operations in the accompanying consolidated balance sheet.
(m) 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, 1998 was approximately
$103,860.
(n) On May 11, 1995, Centennial issued $100,000 of ten year unsecured Senior
Notes ("the 10 1/8% Notes"). The interest on the 10 1/8% Notes is payable
semi-annually on the basis of a 360-day year (twelve 30 day months). The
10 1/8% Notes rank pari passu with Centennial's 8 7/8% Notes and may not
be redeemed prior to maturity on May 15, 2005. Costs associated with the
May 11, 1995 bond offering were capitalized and will be written off on a
straight-line basis over the expected life of the issue. At May 31, 1998
and 1997, the 10 1/8% Notes were trading at 110.87% and 104.25% of par or
$110,870 and $104,250, respectively. At May 31, 1998, the $100,000 of 10
1/8% Notes were included in Net Assets of Discontinued Operations in the
accompanying consolidated balance sheet.
Both the 8 7/8% and 10 1/8% Notes restrict Centennial from directly or
indirectly declaring or paying any dividends on its presently or
subsequently issued common stock, limit the ability of Centennial to incur
additional indebtedness and limit making any distributions of assets to its
stockholders. At May 31, 1998, Centennial was in compliance with all
covenants of the Notes.
(o) 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 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
21
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
applicable margin, as defined or (b) "Eurodollar Base Rate" plus an
applicable margin as defined or (c) "ABR" rate as defined. At May 31, 1998,
$54,000 was outstanding under the CVC credit facility.
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>
(p) Centennial Puerto Rico Wireless Corporation, a wholly owned subsidiary of
Centennial, has a four year, $180,000 revolving credit facility, as
amended, which converts to a four-year term loan on April 25, 2001 (the
"Puerto Rico Credit Facility"). The interest rate payable to CPRW on
borrowings under the Puerto Rico Credit Facility is based, at the election
of CPRW, on (a) the Base Rate, as defined, plus a margin of 1.50% or (b)
the Eurodollar Base Rate, as defined, plus a margin of 2.5%, adjusted for
the maintenance of certain specified ratios, as applicable. The Puerto
Rico Credit Facility is non-recourse to Centennial and the Company. The
Puerto Rico Credit Facility is secured by substantially all of the assets
of CPRW and its direct subsidiaries. At May 31, 1998, $150,000 was
outstanding under the Puerto Rico Credit Facility and included in Net
Assets of Discontinued Operations in the accompanying consolidated balance
sheet.
(q) On September 12, 1996, Centennial entered into a $75,000 credit facility
with Citibank, N.A., which was amended April 22, 1997 and then further
amended on July 28, 1997 and September 25, 1997 (the "Centennial Credit
Facility"). The Centennial Credit Facility terminates on January 31, 2001.
Approximately $35,000 of the facility was used to fund a wireless
telephone system acquisition and has since been repaid. The remainder will
be used for working capital and general corporate purposes. The interest
rate payable on borrowings under the Centennial Credit Facility is based
at the election of Centennial, on (a) the "Base Rate", as defined, plus a
margin of 2% or (b) the "Eurodollar Rate", as defined, plus a margin of
3%. The Centennial Credit Facility is secured by the pledge of stock of
certain of Centennial's subsidiaries not otherwise subject to restrictions
under its Senior Note Indentures. The Centennial Credit Facility is
further guaranteed by certain of Centennial's subsidiaries holding
Investment Interests. At May 31, 1998, $10,000 was outstanding under the
Centennial Credit Facility and included in Net Assets of Discontinued
Operations in the accompanying consolidated balance sheet.
(r) 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.
22
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
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, 1998 $52,000 was
outstanding under the facility.
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.
During the year ended May 31, 1996, all of the Company's obligations with
respect to prior Hedge Agreements expired. Subsequently, 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 1998 consolidated statement of
operations and interest paid in the 1998 consolidated statement of cash
flows. At May 31, 1998, the estimated fair value of the hedge agreement
represents an asset of approximately $413.
The aggregate annual principal payments related to continuing operations
for the next five years and thereafter are summarized as follows (amounts
in thousands):
<TABLE>
<CAPTION>
1999............................................................. $ 20,050
<S> <C>
2000............................................................. 20,050
2001............................................................. 179,720
2002............................................................. 243,840
2003............................................................. 489,530
2004 and thereafter.............................................. 1,576,910
----------
2,530,100
Less: unamortized discount....................................... (500,998)
----------
$2,029,102
==========
</TABLE>
23
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
At May 31, 1998, the Company and its subsidiaries were in compliance with
all covenants of the above noted agreements.
NOTE 8. Commitments and Contingencies
Stock Purchases
During the year ended May 31, 1998, the Company purchased 1,959,500 shares
of Class A Common Stock in the open market for an aggregate purchase price of
$12,151 pursuant to previous authorization by the Company's Board of
Directors. These shares have been accounted for as treasury shares. Subsequent
to May 31, 1998, the Company has not purchased any shares in the open market.
As of August 4, 1998, the Company is authorized to purchase 4,869,000
additional shares of Class A Common Stock after giving effect to the shares
purchased to date.
Leases
At May 31, 1998, the Company's approximate annual lease obligations and
expenses (under operating leases) were as follows:
<TABLE>
<CAPTION>
Pole rentals............................................................. $3,651
<S> <C>
Vehicles and equipment................................................... 515
Antenna site and property access......................................... 359
Warehouse, studio and office............................................. 4,047
------
$8,572
======
</TABLE>
The above leases are substantially all short-term or cancelable by either
party upon notice.
Letters of Credit
The Company is a party to several available letters of credit totaling
$8,463. No payments have been made under these agreements.
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.
NOTE 9. 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 7).
24
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber, and share data)
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 (See Note 8).
The following table presents changes in the Company's stockholders' equity
for the years ended May 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Class A Class B Additional
------------------ ------------------- Paid-in Accumulated
Shares Dollars Shares Dollars Capital Deficit Other Total
---------- ------- ---------- ------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1,
1995................... 59,484,685 $595 45,406,115 $454 $175,545 $(405,051) $(123,188) $(351,645)
Shares issued and
acquired in connection
with employee
incentive plans........ 461,595 4 2,971 (158) 2,817
Net paid in capital
contributed by
minority interests..... 1,238 1,238
Accretion in liquidation
value of
subsidiary preferred
stock.................. (4,256) (4,256)
Foreign currency
translation
adjustment............. (753) (753)
Unrealized appreciation
of marketable
securities............. 6,397 6,397
Vesting of subsidiary
stock options.......... 306 306
Net loss................ (102,117) (102,117)
---------- ---- ---------- ---- -------- --------- --------- ---------
Balance at May 31,
1996................... 59,946,280 $599 45,406,115 $454 $175,804 $(507,168) $(117,702) $(448,013)
Shares issued in
connection with
employee incentive
plans.................. 711,490 7 25,000 3,948 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
Change in unrealized
appreciation of
marketable securities.. (7,950) (7,950)
Income tax benefit--
subsidiary stock
options exercised...... 1,987 1,987
Net loss................ (141,875) (141,875)
---------- ---- ---------- ---- -------- --------- --------- ---------
Balance at May 31,
1997................... 62,695,127 $627 45,126,115 $451 $176,871 $(649,043) $(127,549) $(598,643)
Share issued in
connection with
employee incentive
plans.................. 589,761 6 4,533 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
Foreign currency
translation transferred
to discontinued
operations............. 291 291
Net loss................ (120,971) (120,971)
---------- ---- ---------- ---- -------- --------- --------- ---------
Balance at May 31,
1998................... 65,684,888 $657 42,726,115 $427 $176,179 $(770,014) $(132,501) $(725,252)
========== ==== ========== ==== ======== ========= ========= =========
</TABLE>
25
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
<TABLE>
<CAPTION>
May 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Other stockholders' deficiency items:
Treasury stock, at cost...................... $(152,697) $(140,121) $(137,762)
Unrealized appreciation of marketable
securities.................................. 20,196 12,863 20,813
Foreign currency translation adjustment...... -- (291) (753)
--------- --------- ---------
$(132,501) $(127,549) $(117,702)
========= ========= =========
</TABLE>
26
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
NOTE 10. Income Taxes
The Company and its consolidated subsidiaries, except for Century Venture
Corporation and Subsidiaries, Century-ML Cable Venture and Subsidiary,
Citizens Century Cable Television Venture, East Coast Pay Television Pty,
Ltd., and Centennial Cellular Corp. and Subsidiaries (collectively the
"Unconsolidated Tax Group"), file a consolidated federal income tax return.
The provision (benefit) for income taxes are summarized as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current........................................... $ 7,984 $ 7,486 $ 2,844
Deferred.......................................... (22,205) (38,144) (37,170)
-------- -------- --------
$(14,221) $(30,658) $(34,326)
======== ======== ========
</TABLE>
Income tax expense is included in the Company's consolidated financial
statements as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Continuing operations............................ $ (624) $(23,363) $(22,730)
Discontinued operations.......................... (13,597) (7,295) (11,596)
-------- -------- --------
$(14,221) $(30,658) $(34,326)
======== ======== ========
</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,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Computed tax benefit at federal statutory rate
on loss from continuing operations before
income taxes and minority interest............. $(23,383) $(24,586) $(23,581)
Computed tax benefit of Unconsolidated Tax
Group.......................................... (7,006) (3,600) 1,968
Recognized tax benefit of Unconsolidated Tax
Group.......................................... 2,014 2,155 (790)
Nondeductible amortization resulting from
acquired subsidiaries.......................... 1,192 1,131 2,433
State and local income taxes, net of federal
income tax effect.............................. (4,622) (3,782) (2,760)
Tax benefits related to net operating and
capital loss carryforwards not recognized and
changes in valuation allowance................. 30,998 5,284 --
Other........................................... 183 35 --
-------- -------- --------
$ (624) $(23,363) $(22,730)
======== ======== ========
</TABLE>
27
<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,
-------------------
1998 1997
--------- --------
<S> <C> <C>
Deferred Tax Assets:
Tax loss carryforward.................................... $ 224,083 $200,974
Valuation allowance...................................... (129,179) (99,778)
--------- --------
$ 94,904 $101,196
========= ========
Deferred Tax Liabilities:
Amortization of intangible assets........................ $ 32,099 $ 86,575
Depreciation of fixed assets............................. 67,975 68,580
--------- --------
$ 100,074 $155,155
========= ========
Net deferred tax liabilities............................... $ 5,170 $ 53,959
========= ========
</TABLE>
At May 31, 1997, net deferred tax liabilities of $43,977 related to
discontinued operations.
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 $11,428 and net
operating loss carryforwards for federal income tax purposes of approximately
$539,287 expiring through 2002 and 2013, respectively.
Century Venture Corporation and Subsidiaries have an investment tax credit
carryover of approximately $2,032 and net operating loss carryforwards of
approximately $8,181 which will expire through 2002 and 2008, respectively.
The operations of CPRW and Century ML Cable Venture and Subsidiary are
subject to Puerto Rico income taxes.
28
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
NOTE 11. 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,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Combined Statement of Operations Data
Revenues................................................... $122,543 $110,811
Costs and expenses:
Costs of services........................................ 34,781 32,072
Selling, general and administrative...................... 21,272 18,681
Depreciation and amortization............................ 30,638 36,660
--------- ---------
86,691 87,413
--------- ---------
Operating income........................................... 35,852 23,398
Interest expense........................................... 15,833 13,114
--------- ---------
Income before taxes........................................ 20,019 10,284
Income tax provision....................................... 2,356 1,957
--------- ---------
Net Income............................................... $ 17,663 $ 8,327
========= =========
Combined Balance Sheet Data
Property, plant and equipment--net......................... $136,866 $102,572
Total assets............................................... 389,495 311,766
Long-term debt............................................. 206,000 153,500
Total liabilities.......................................... 255,940 195,875
</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 12. 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,
29
<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, 1998, approximately 226 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 Directors' Option Plan shall be administered by the Board of Directors
or a committee (the "Board Committee"). In administering the Directors' Option
Plan, the Board of Directors or the Board Committee may adopt rules and
regulations for carrying out the Directors' Option Plan. The 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
30
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
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 years ended May 31, 1998, 1997 and 1996 at an
exercise price of $7.75, $7.00 and $8.63 per share, respectively. As of May
31, 1998, 6,000 options were outstanding under the Directors' Option Plan, of
which 1,200 were exercisable.
A summary of the status of the Company's stock options as of May 31, 1996,
1997 and 1998 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Number Price
---------- --------
<C> <S> <C> <C>
1996 Outstanding at June 1, 1995........................ 2,961,041 $7.16
Granted............................................ 186,000 8.86
Exercised.......................................... (338,109) 3.53
Canceled........................................... (162,418) 7.43
----------
Outstanding at May 31, 1996........................ 2,646,514 7.73
1997 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
==========
</TABLE>
The number of the Company's options which were exercisable at May 31, 1998,
1997 and 1996 were 1,598,650, 1,566,966, and 1,568,965 respectively. The
weighted average exercise prices of such options were $6.62, $6.55, and $7.60
and at May 31, 1998, 1997 and 1996, respectively.
Of the Company's options granted during fiscal 1998, 1997 and 1996, 0,
1,175,072 and 27,500 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, 1998:
<TABLE>
<CAPTION>
Range of Number Weighted Average Weighted Number Weighted
Exercise Outstanding Remaining Average Exercisable Average
Prices at 5/31/98 Contractual Life Exercise Price at 5/31/98 Exercise Price
- - -------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$4.00--
$8.69 2,883,799 6.13 years $6.70 1,598,650 $6.62
</TABLE>
The estimated fair value of the Company's options granted during fiscal 1998
was immaterial. The fair value of options granted during fiscal 1997 and 1996
were $2.29 per share and $3.04 per share, respectively.
31
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
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,
1998, no 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.
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, 1998, 1997 and 1996 and the Company granted
170,000, 230,897 and 72,500 shares of restricted stock with weighted average
fair values at the date of grant of $6.87, $8.07 and $10.25 per share,
respectively. Through May 31, 1998, the Company had granted 968,027 shares of
restricted stock to nine officers and employees of the Company. The
restrictions primarily lapse at the rate of 20% per year over a five-year
period. As of May 31, 1998, 645,918 shares were available for awards under the
Equity Plan.
32
<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 loss and Consolidated net loss per common share for
the years ended May 31, 1998, 1997 and 1996 would have been increased to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Consolidated net loss applicable to common
shares:
As reported:
Loss from continuing operations............ $ (83,107) $ (58,715) $ (51,439)
Loss from discontinued operations.......... (43,089) (80,428) (54,934)
--------- --------- ---------
Loss before extraordinary item............. (126,196) (139,143) (106,373)
Extraordinary item......................... -- (7,582) --
--------- --------- ---------
Net loss................................... $(126,196) $(146,725) $(106,373)
========= ========= =========
Pro forma:
Loss from continuing operations............ $ (84,540) $ (59,424) $ (51,608)
Loss from discontinued operations.......... (43,089) (80,428) (54,934)
--------- --------- ---------
Loss before extraordinary item............. (127,629) (139,852) (106,542)
Extraordinary item......................... -- (7,582) --
--------- --------- ---------
Net loss................................... $(127,629) $(147,434) $(106,542)
========= ========= =========
Consolidated net loss per common share:
As reported:
Loss from continuing operations............ $ (1.11) $ (.78) $ (.70)
Loss from discontinued operations.......... (.58) (1.08) (.74)
--------- --------- ---------
Loss before extraordinary item............. (1.69) (1.86) (1.44)
Extraordinary item......................... -- (.10) --
--------- --------- ---------
Net loss per common share.................. $ (1.69) $ (1.96) $ (1.44)
========= ========= =========
Pro forma:
Loss from continuing operations............ $ (1.13) $ (.79) $ (.70)
Loss from discontinued operations.......... (.58) (1.08) (.74)
--------- --------- ---------
Loss before extraordinary item............. (1.71) (1.87) (1.44)
Extraordinary item......................... -- (0.10) --
--------- --------- ---------
Net loss per common share.................. $ (1.71) $ (1.97) $ (1.44)
========= ========= =========
</TABLE>
The fair value of options granted under the Company's stock option plans
during fiscal 1998 was immaterial. The fair values of options granted during
fiscal 1997 and 1996 were estimated on the dates of grant using the Black-
Scholes options-pricing model with the following weighted average assumptions
used: expected volatility of 40.82%, risk free interest rate of 6%, and
expected lives of option grants of 3 years. Proforma compensation cost related
to shares purchased under the Company's Employee Stock Purchase Plan is
measured based on the discount from market value.
33
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
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, 1998, 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,
1998, 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 portion of the contribution is
matched by the Company. Total expense under the plans was approximately
$1,367, $1,168 and $855, for the years ended May 31, 1998, 1997 and 1996,
respectively.
NOTE 13. 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 Act"), was
signed into law. The new law alters federal, state and local laws and
regulations regarding telecommunications providers and services,
34
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
including the cable television industry. The Act deregulates (except for basic
service) cable service rates over a three year period.
NOTE 14. Strategic Partnership
On December 10, 1997, the Company and TCI Communications, Inc. ("TCI")
signed a letter of intent 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 245,000 customers 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 500,000 customers in the area of
Southern California, including approximately 90,000 subscribers to be acquired
in an exchange of cable systems described below. The Company will manage the
newly combined cable systems and own approximately 75 percent of the
Partnership.
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
90,000 subscribers for the Company's Northern California cable systems,
serving approximately 90,000 subscribers in the communities of San Pablo,
Benicia, Fairfield and Rohnert Park, California.
The Company and TCI are currently involved in the due diligence process and
are continuing to negotiate with respect to these transactions. These
transactions are subject to the signing of definitive agreements and to all
appropriate regulatory and other approvals. There is no assurance that the
Company will obtain such approvals or that such transactions will be
consumated.
NOTE 15. Cable Television Operations and Discontinued Segments
The financial information which follows is that of Century Communications
Corp. before the consolidation of its discontinued operations: Centennial
Cellular Corp. and the Australian Operations; Centennial Cellular Corp., which
comprises the Company's discontinued wireless telephone business segment; the
Company's discontinued Australian Operations; as well as consolidated
information.
35
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
NOTE 15. Cable Television Operations and Discontinued Segments--(Continued)
BALANCE SHEET FINANCIAL DATA
May 31, 1998
<TABLE>
<CAPTION>
Century
Communications
Corp. before
consolidation of Centennial Reclassifications
Centennial Cellular Australian and
and Australia Corp. Operations Eliminations Consolidated
---------------- ---------- ---------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term
investments.......... $ 285,498 $ 14,620 $ 3,666 $ (18,286) $ 285,498
Accounts receivable--
net.................. 16,109 37,178 1,335 (38,513) 16,109
Prepaid expenses and
other current
assets............... 3,465 7,852 451 (8,303) 3,465
Net assets of
discontinued
operations........... -- -- -- 37,323 37,323
---------- -------- ------- ----------- ----------
Total current
assets............. 305,072 59,650 5,452 (27,779) 342,395
Property, plant and
equipment--net......... 565,965 263,661 11,005 (274,666) 565,965
Investment in marketable
equity securities...... 52,451 -- -- -- 52,451
Investment in Centennial
Cellular Corp. at
cost................... 139,685 -- -- (139,685) --
Equity investments in
cable television and
wireless telephone
systems--net........... 147,935 87,634 1,204 (236,773) --
Debt issuance cost--
net.................... 33,829 8,538 -- (8,538) 33,829
Cable television
franchise--net......... 344,612 -- 4,337 (4,337) 344,612
Wireless telephone
licenses--net.......... -- 295,943 -- (295,943) --
Excess of purchase price
over value of net
assets acquired--net... 166,570 124,533 -- (124,533) 166,570
Other assets............ 9,360 7,458 -- (7,458) 9,360
---------- -------- ------- ----------- ----------
$1,765,479 $847,417 $21,998 $(1,119,712) $1,515,182
========== ======== ======= =========== ==========
</TABLE>
36
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
NOTE 15. Cable Television Operations and Discontinued Segments--(Continued)
BALANCE SHEET FINANCIAL DATA
May 31, 1998
<TABLE>
<CAPTION>
Century
Communications
Corp. before
consolidation of Centennial Reclassifications
Centennial Cellular Australian and
and Australia Corp. Operations Eliminations Consolidated
---------------- ---------- ---------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND COMMON
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current Liabilities:
Current maturities of
long-term debt....... $ 20,050 $ -- $ 10,546 $ (10,546) $ 20,050
Accounts payable and
accrued expenses..... 133,482 74,685 16,367 (91,052) 133,482
---------- --------- --------- ----------- ----------
Total current
liabilities........ 153,532 74,685 26,913 (101,598) 153,532
Long-term debt.......... 2,009,052 510,000 -- (510,000) 2,009,052
Other deferred income... 10,650 2,200 -- (7,200) 5,650
Deferred income taxes... 5,170 26,584 -- (26,584) 5,170
Minority interest in
subsidiaries........... 67,030 -- -- -- 67,030
Due to parent........... -- -- 147,935 (147,935) --
Convertible redeemable
preferred stock........ -- 186,287 -- (186,287) --
Second series
convertible redeemable
preferred stock........ -- 7,252 -- (7,252) --
Common stockholders'
equity (deficiency):
Common stock, par
value
$.01 per share:
Class A............. 657 167 -- (167) 657
Class B............. 427 105 -- (105) 427
Additional paid-in
capital.............. 91,132 358,018 -- (272,971) 176,179
Other................. (132,501) (33,643) 875 32,768 (132,501)
Accumulated deficit... (439,670) (284,238) (153,725) 107,619 (770,014)
---------- --------- --------- ----------- ----------
Total common
stockholders'
equity
(deficiency)....... (479,955) 40,409 (152,850) (132,856) (725,252)
---------- --------- --------- ----------- ----------
$1,765,479 $ 847,417 $ 21,998 $(1,119,712) $1,515,182
========== ========= ========= =========== ==========
</TABLE>
37
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber and share data)
NOTE 15. Cable Television Operations and Discontinued Segments--(Continued)
STATEMENT OF OPERATIONS FINANCIAL DATA
Year Ended May 31, 1998
<TABLE>
<CAPTION>
Century
Communications
Corp. before
consolidation of Centennial Reclassifications
Centennial Cellular Australian and
and Australia Corp. Operations Eliminations Consolidated
---------------- ---------- ---------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Service income (1).... $484,736 $237,501 $ 35,257 $(272,758) $ 484,736
-------- -------- -------- --------- ---------
Costs and expenses:
Cost of services...... 103,932 54,818 -- (54,818) 103,932
Selling, general and
administrative....... 122,307 81,790 -- (81,790) 122,307
Depreciation and
amortization......... 154,029 114,194 10,849 (125,043) 154,029
Write down of
Australian assets.... -- -- 12,814 (12,814) --
Australian
operations........... -- -- 31,009 (31,009) --
-------- -------- -------- --------- ---------
380,268 250,802 54,672 (305,474) 380,268
-------- -------- -------- --------- ---------
Operating income
(loss)............. 104,468 (13,301) (19,415) 32,716 104,468
Income from equity
investments............ -- (13,069) -- 13,069 --
Interest................ 172,608 45,155 10,547 (55,702) 172,608
Other (income) expense.. (1,533) (5) 2,373 (2,368) (1,533)
-------- -------- -------- --------- ---------
Loss before income tax
benefit, and minority
interest............. (66,607) (45,382) (32,335) 77,717 (66,607)
Income tax (benefit).... (624) (13,597) -- 13,597 (624)
-------- -------- -------- --------- ---------
Loss before minority
interest............. (65,983) (31,785) (32,335) 64,120 (65,983)
Minority interest in
loss of subsidiaries... (11,899) (162) -- 162 (11,899)
-------- -------- -------- --------- ---------
Loss from continuing
operations........... (77,882) (31,947) (32,335) 64,282 (77,882)
Discontinued
operations........... -- -- -- (43,089) (43,089)
-------- -------- -------- --------- ---------
Net loss.............. $(77,882) $(31,947) $(32,335) $ 21,193(2) $(120,971)
======== ======== ======== ========= =========
</TABLE>
- - --------
(1) Intersegment sales are not significant. No single customer accounted for
more than 10% of revenues.
(2) Represents minority interest share of net loss.
38
<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,
1995 1995 1996 1996
---------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Revenues....................... $ 89,745 $ 91,202 $ 91,808 $ 95,914
Operating income............... 18,533 21,167 18,917 17,751
Loss from continuing
operations.................... (20,626) (8,695) (10,086) (7,776)
Loss from discontinued
operations.................... (1,291) (12,453) (13,538) (27,652)
Net loss....................... (21,917) (21,148) (23,624) (35,428)
Loss from continuing operations
per common share.............. (.29) (.13) (.16) (.12)
Loss from discontinued
operations per common share... (.02) (.17) (.18) (.37)
Net loss per common share (1).. (.31) (.30) (.34) (.49)
<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 before extraordinary
item.......................... (61,212) (17,257) (23,368) (32,456)
Net loss....................... (61,212) (17,257) (23,368) (40,038)
Loss from continuing operations
per common share.............. (.15) (.13) (.20) (.30)
Loss from discontinued
operations per common share... (.69) (.12) (.13) (.14)
Loss before extraordinary item
per Common share.............. (.84) (.25) (.33) (.44)
Net loss per common share (1).. (.84) (.25) (.33) (.54)
<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.............. (.22) (.28) (.32) (.29)
Loss from discontinued
operations per common share... (.12) (.32) (.09) (.05)
Net loss per common share (1).. (.34) (.60) (.41) (.34)
</TABLE>
- - --------
(1) See Note 1 Loss per common share.
39
<PAGE>
Exhibit 99.02
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
February 28,
1999 May 31,
(Unaudited) 1998
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments...................... $ 628,162 $ 285,498
Accounts receivable less allowance for doubtful
accounts of $2,712 and $1,695, respectively......... 32,981 16,109
Prepaid expenses and other current assets............ 7,066 3,465
Net assets of discontinued operations................ -- 37,323
---------- ----------
Total current assets............................... 668,209 342,395
Property, plant and equipment--net..................... 564,415 565,965
Investment in marketable equity securities............. 63,776 52,451
Debt issuance costs, less accumulated amortization of
$21,201 and $16,013, respectively..................... 28,641 33,829
Cable television franchises, less accumulated
amortization of $367,155 and $324,835, respectively... 302,186 344,612
Excess of purchase price over value of net assets
acquired, less accumulated amortization of $43,064 and
$40,612, respectively................................. 160,170 166,570
Other assets........................................... 12,067 9,360
---------- ----------
$1,799,464 $1,515,182
========== ==========
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
Amounts in Thousands (Except Share Data)
<TABLE>
<CAPTION>
February 28,
1999 May 31,
(Unaudited) 1998
------------ ----------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current maturities of long-term debt................ $ 20,050 $ 20,050
Accounts payable.................................... 42,160 35,983
Accrued expenses and other current liabilities...... 100,028 97,499
---------- ----------
Total current liabilities......................... 162,238 153,532
Long-term debt........................................ 2,017,532 2,009,052
Deferred income taxes................................. 3,278 5,170
Minority interest in subsidiaries..................... 73,888 67,030
Other deferred income................................. 5,470 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,
66,694,199 and 65,684,888 shares, respectively, and
outstanding 32,885,031 and 31,954,085 shares,
respectively....................................... 667 657
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.......................... 181,103 176,179
Other, including 33,809,168 and 33,730,803 treasury
shares, respectively............................... (147,271) (132,501)
Accumulated deficit................................. (497,864) (770,014)
---------- ----------
Total common stockholders' deficiency............. (462,942) (725,252)
---------- ----------
$1,799,464 $1,515,182
========== ==========
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Amounts in Thousands (Except Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Service income................. $ 131,278 $ 120,725 $ 387,726 $ 361,611
---------- ---------- ---------- ----------
Costs and expenses:
Cost of services............... 29,820 26,063 85,284 78,651
Selling, general and
administrative................ 29,093 30,175 87,696 92,676
Depreciation and amortization.. 43,290 39,546 125,864 116,561
---------- ---------- ---------- ----------
102,203 95,784 298,844 287,888
---------- ---------- ---------- ----------
Operating income................. 29,075 24,941 88,882 73,723
Gain (loss) on sale of assets.... (39) (19) 5,186 1,889
Interest expense................. 47,816 45,067 143,830 124,882
---------- ---------- ---------- ----------
Loss from continuing operations
before income tax (benefit) and
minority interest............... (18,780) (20,145) (49,762) (49,270)
Income tax benefit............... (27,621) (400) (19,104) (546)
---------- ---------- ---------- ----------
Income (loss) from continuing
operations before minority
interest........................ 8,841 (19,745) (30,658) (48,724)
Minority interest in income of
subsidiaries.................... (2,870) (2,521) (9,334) (8,702)
---------- ---------- ---------- ----------
Income (loss) from continuing
operations...................... 5,971 (22,266) (39,992) (57,426)
---------- ---------- ---------- ----------
Discontinued operations:
Loss from discontinued
operations, net of income tax
benefit of $7,844 and $13,527
and minority interest in losses
of $6,578 and $17,673 for the
three and nine months ended
February 28, 1998,
respectively................... -- (6,853) -- (39,874)
Gain on sale of discontinued
operations (less applicable
income taxes of $28,255)....... 312,142 -- 312,142 --
---------- ---------- ---------- ----------
312,142 (6,853) 312,142 (39,874)
---------- ---------- ---------- ----------
Net income (loss)................ $ 318,113 $ (29,119) $ 272,150 $ (97,300)
---------- ---------- ---------- ----------
Dividend on discontinued
subsidiary convertible
redeemable preferred stock...... $ -- $ 1,259 $ -- $ 3,777
---------- ---------- ---------- ----------
Net income (loss) applicable to
common shares $ 318,113 $ (30,378) $ 272,150 $ (101,077)
---------- ---------- ---------- ----------
Net income (loss) per common
share - basic
Income (loss) from continuing
operations...................... $ 0.08 $ (0.32) $ (0.53) $ (0.82)
Loss from discontinued
operations..................... -- (0.09) -- (0.53)
Gain on sale of discontinued
operations..................... 4.15 -- 4.16 --
---------- ---------- ---------- ----------
Net income (loss) per common
share - basic.................. $ 4.23 $ (0.41) $ 3.63 $ (1.35)
---------- ---------- ---------- ----------
Net income (loss) per common
share - diluted
Income (loss) from continuing
operations...................... $ 0.08 $ (0.32) $ (0.53) $ (0.82)
Loss from discontinued
operations..................... -- (0.09) -- (0.53)
Gain on sale of discontinued
operations .................... 4.08 -- 4.16 --
---------- ---------- ---------- ----------
Net income (loss) per common
share - diluted................ $ 4.16 $ (0.41) $ 3.63 $ (1.35)
---------- ---------- ---------- ----------
Weighted average number of common
shares outstanding during the
period - basic.................. 75,146,000 74,310,000 74,976,000 74,859,000
---------- ---------- ---------- ----------
Weighted average number of common
shares outstanding during the
period - diluted................ 76,449,000 74,310,000 74,976,000 74,859,000
---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Amounts in Thousands
<TABLE>
<CAPTION>
Nine Months Ended
February 28,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Operating Activities:
Cash received from subscribers and others............. $ 464,083 $ 448,577
Cash paid to suppliers, employees and governmental
agencies............................................. (285,569) (265,731)
Interest paid......................................... (102,846) (96,019)
--------- ---------
Net Cash Provided by Operating Activities........... 75,668 86,827
--------- ---------
Investing Activities:
Capital expenditures.................................. (79,997) (86,432)
Cable television franchise expenditures............... (339) (181)
Acquisition of other assets........................... (3,461) 1,454
Acquisition of cable television systems............... -- (33,548)
Sale of discontinued operations....................... 360,115 --
Sale of radio stations................................ 11,538 --
--------- ---------
Net Cash Used in Investing Activities............... 287,856 (118,707)
--------- ---------
Financing Activities:
Proceeds from long-term borrowings.................... -- 775,659
Principal payments on long-term debt.................. (29,050) (560,050)
Debt issuance costs................................... -- (17,824)
Purchase of treasury stock............................ (1,505) (12,421)
Issuance of common stock.............................. 4,930 1,361
--------- ---------
Net Cash (Used in) Provided by Financing
Activities......................................... (25,625) 186,725
--------- ---------
Net (Decrease) Increase in Cash and Short-Term
Investments--Continuing Operations..................... 337,899 154,845
Cash Flows of Discontinued Operations--Net.............. 4,765 (29,722)
Cash and Short-Term Investments--Beginning of Period.... 285,498 151,947
--------- ---------
Cash and Short-Term Investments--End of Period.......... $ 628,162 $ 277,070
========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(UNAUDITED)
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 28,
-------------------
1999 1998
--------- --------
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
NET INCOME (LOSS)........................................ $ 272,150 $(97,300)
--------- --------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 125,864 116,561
Minority interest in income of subsidiaries--continuing
operations............................................ 9,334 8,702
Deferred income taxes.................................. (1,892) (3,611)
Non cash interest charges.............................. 42,587 25,414
Gain on sale of discontinued operations................ (340,397) --
Gain on sale of assets and other....................... (6,008) --
Loss from discontinued operations--net................. -- 39,874
Change in assets and liabilities net of effects of
acquired cable television systems:
Accounts receivable--(increase)...................... (17,072) (5,714)
Prepaid expenses and other current assets--(increase)
decrease............................................ (3,629) 2,610
Accounts payable and accrued expenses--
increase/(decrease)................................. (5,269) 291
--------- --------
Total adjustments.................................. (196,482) 184,127
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................ $ 75,668 $ 86,827
========= ========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except subscriber, pop and share data)
NOTE 1. Interim Financial Statements
In the opinion of management, the accompanying interim unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the consolidated
financial position of Century Communications Corp. and subsidiaries (the
"Company") as of February 28, 1999 and the results of its consolidated
operations and cash flows for the periods ended February 28, 1999 and 1998.
The February 28, 1999 and 1998 financial statements do not include all
disclosures required by generally accepted accounting principles. The
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's May 31, 1998 Annual
Report on Form 10-K, which includes a summary of significant accounting
policies and other disclosures. Certain reclassifications have been made to
prior period balances to conform with the current period's presentation. The
consolidated balance sheet at May 31, 1998 is audited.
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 an historical basis
and do not include any adjustments that might result from the outcome of the
Merger.
Pursuant to the Merger Agreement, the Company's Class A Common stockholders
will receive cash of approximately $9.16 per share and approximately 0.6122
shares of Adelphia Class A Common Stock (for a total market value of the
consideration of $44.14 based on Adelphia's March 4, 1999 closing price on the
Nasdaq National Market of $57 1/8) for each share of the Company's Class A
Common Stock that they own, and the Company's Class B Common stockholders will
receive approximately $11.81 in cash and approximately 0.6360 shares of
Adelphia Class A Common Stock (for a total market value of the consideration
of $48.14 based on Adelphia's March 4, 1999 closing price on the Nasdaq
National Market of $57 1/8) for each share of the Company's Class B Common
Stock that they own.
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 shall 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.
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 (including under
6
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber, and share data)
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and all
appropriate regulatory and other approvals, including from the Federal
Communications Commission and local franchising authorities. There is no
assurance that the Company will obtain such approvals or that such transaction
will be consummated.
NOTE 3. Merger/Sale of Business Segments
Centennial Cellular Corp.
On January 7, 1999, Centennial Cellular Corp. ("Centennial") 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
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 intends to
utilize these proceeds for general corporate purposes, including, but not
limited to, the financing of capital expenditures, investments and
acquisitions.
The Company recorded a pre-tax gain upon the sale of Centennial of
approximately $322,000 during the three months ended February 28, 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 UIH
securities prior to September 11, 1999.
On July 9, 1998, 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 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. The Company will receive 92.4% of any additional remaining
assets of ECT. Such amounts are not expected to be material.
At March 18, 1999, the closing price of the UIH Class A Common Stock on the
Nasdaq National Market was $40 1/8.
The Company recorded a pre-tax gain of approximately $18,300 as a result of
the sale of its Australian business segment during the three months ended
February 28, 1999.
The Company reduced its valuation allowance applied against its deferred tax
assets by approximately $103,000 as a result of the sale of Centennial and the
Australian Operations.
7
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber, and share data)
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".
Operating results of Centennial and the Australian Operations for the three
and nine months ended February 28, 1998 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 three and nine months ended February 28, 1998
consist of the following:
Centennial Cellular Corp.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
February 28, 1998 February 28, 1998
----------------- -----------------
<S> <C> <C>
Revenue................................... $ 59,179 $ 171,166
Costs and expenses........................ (67,538) (187,027)
-------- ---------
Operating Loss.......................... (8,359) (15,861)
Income from equity investments............ 2,391 9,843
Interest expense.......................... (11,461) (33,262)
Gain (loss) on sale of assets............. (4) 8
Income tax benefit........................ 7,844 13,527
Minority interest in income of
subsidiaries............................. (81) (337)
-------- ---------
Net Loss (a)............................ $ (9,670) $ (26,082)
======== =========
</TABLE>
Australian Operations:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
February 28, 1998 February 28, 1998
------------------ -----------------
<S> <C> <C>
Revenue.................................... $ 8,313 $ 27,814
Costs and expenses......................... (8,773) (49,035)
------- --------
Operating Loss........................... (460) (21,221)
Interest expense........................... (2,899) (8,199)
Other loss................................. (401) (2,044)
------- --------
Net Loss (a)............................. $(3,760) $(31,464)
======= ========
</TABLE>
- - --------
(a) Prior to minority interest share of losses.
NOTE 4. Revenue Recognition
Cable service income includes earned subscriber service revenue and charges
for installation and connections, net of programmers' share of pay television
revenue. Such programmers' share netted against service income amounted to
$39,310 and $111,445 for the three and nine months ended February 28, 1999,
respectively, and $34,005 and $96,411 for the three and nine months ended
February 28, 1998, respectively.
8
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber, and share data)
NOTE 5. Income Taxes
As discussed in Note 3, the Company sold Centennial and the Company's
Australian Operations in the quarter ended February 28, 1999, resulting in a
pre-tax gain of approximately $340,000. Consequently, in the three months
ended February 28, 1999, the Company was able to recognize a tax benefit from
the losses incurred from continuing operations for the first nine months of
fiscal 1999. The Company will recognize a tax benefit for the losses from
continuing operations incurred in the fourth quarter of fiscal 1999 and will
reduce the adjustment to the tax valuation allowance by a like amount.
NOTE 6. Income (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
calculation of Diluted Earnings Per Share for the three months ended February
28, 1999 included common share equivalents of 1,303,000 in the determination
of common shares outstanding utilized in the calculation.
NOTE 7. Segment Reporting
In June 1997, the Financial Accounting Standards Board issued SFAS 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.
NOTE 8. Comprehensive Income (Loss)
The Company has adopted the provisions of the Financial Accounting Standards
Board's Statement of Accounting Standards No. 130, "Reporting Comprehensive
Income". Comprehensive Income (loss) for the Company includes unrealized
appreciation of marketable securities and foreign currency translation
adjustments (1998 only) in addition to net income (loss) as reported in the
Company's Consolidated Financial Statements. Comprehensive income was $315,536
and $258,885 for the three and nine months ended February 28, 1999,
respectively, and comprehensive loss was $30,318 and $94,439 for the three and
nine months ended February 28, 1998, respectively.
NOTE 9. Acquisitions/Dispositions--Continuing Operations
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 has a 50%
interest (the
9
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber, and share data)
"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.
Dispositions
In June 1998, Century-ML Cable Venture, a 50% owned joint venture
partnership between the Company and ML Media Partners, L.P., sold
substantially all of the assets of its two radio stations for approximately
$11,500. The Company recorded a pre-tax gain of $5,506 in relation to the sale
of these two radio stations during the nine months ended February 28, 1999.
The summary pro forma information includes the results of the Company's
continuing operations and the above acquisitions and disposition, in each case
as if such acquisitions and disposition had been completed as of June 1, 1997.
<TABLE>
<CAPTION>
Nine Months Ended
February 28,
------------------
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
Revenue................................................... $387,698 $365,411
Loss from continuing operations........................... $(40,062) $(59,977)
Net income (loss)......................................... $272,080 $(99,851)
Loss from continuing operations per common share--basic &
diluted.................................................. $ (.53) $ (.85)
Income (loss) per common share--basic & diluted........... $ 3.63 $ (1.38)
</TABLE>
Pro forma net loss per common share for the nine months ended February 28,
1999 and 1998 is calculated using the weighted average number of common shares
outstanding during the period.
NOTE 10. 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 Riverside County, California. The purchase price for this
system is approximately $33,000. The Company currently expects to fund the
acquisition using 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 11. Long-Term Debt
At February 28, 1999, the Company's public debt securities of approximately
$1,860,532 in the aggregate have interest rates ranging from 8 3/8% to 9 3/4%,
with remaining maturities ranging from 1 1/2 to 18 3/4 years. 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.
10
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber, and share data)
Certain subsidiaries of the Company have four credit facilities (the CCC-I,
CCC- II, Century Venture Corp. and CCCTV credit facilities) with $1,155,000 of
total potential credit availability at February 28, 1999, of which $97,000 was
outstanding. Approximately $825,000 of borrowing capacity terminates under the
CCC-I and CCC-II credit facilities on August 31, 1999.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to
manage well-defined interest rate risks. The Company entered into a five-year
interest rate hedge agreement during October 1997 in relation to certain of
its fixed-rate bank debt. The hedge agreement is structured such that the
Company pays a variable rate of interest based on the higher of the
U.S. dollar six-month LIBOR or the U.S. dollar six-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 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 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.
At February 28, 1999, the Company and its subsidiaries were in compliance
with all covenants of their respective debt agreements.
NOTE 12. New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and other
Postretirement Benefits" and Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" in 1998.
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". The Company believes these Statements will not have a material
impact on the consolidated financial statements of the Company when adopted.
NOTE 13. Stock Purchases
During the nine months ended February 28, 1998, the Company purchased
1,959,500 additional shares of Class A Common Stock in the open market for an
aggregate purchase price of $12,151 pursuant to previous authorizations by the
Company's Board of Directors. These shares were accounted for as treasury
shares. During the nine months ended February 28, 1999, the Company did not
purchase any shares in the open market pursuant to these authorizations.
NOTE 14. 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
11
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber, and share data)
approximately 243,400 customers 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 customers in the area of Southern
California, including approximately 94,400 subscribers to be acquired in an
exchange of cable systems described below as well as approximately 19,000
subscribers related to the Company's pending acquisition of the cable
television system serving Moreno Valley and Riverside, California (See Note
8). 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.
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 subscribers for the Company's Northern California cable systems,
serving approximately 95,900 subscribers in the communities of San Pablo,
Benicia, Fairfield and Rohnert Park, California.
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 (including under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended) and all appropriate
regulatory and other approvals, including from the Federal Communications
Commission and local franchising authorities. 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.
12
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands except subscriber, and share data)
NOTE 15. Changes in Stockholders' Deficiency
<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Class A Class B Additional
------------------ ------------------- Paid-in Accumulated
Shares Dollars Shares Dollars Capital Deficit Other Total
---------- ------- ---------- ------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1,
1997................... 62,695,127 $627 45,126,115 $451 $176,871 $(649,043) $(127,549) $(598,643)
Shares issued in
connection with
employee incentive
plans.................. 589,761 6 4,533 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
Foreign currency
translation transferred
to discontinued
operations............. 291 291
Net loss................ (120,971) (120,971)
---------- ---- ---------- ---- -------- --------- --------- ---------
Balance at May 31,
1998................... 65,684,888 657 42,726,115 427 176,179 (770,014) (132,501) (725,252)
Shares issued in
connection with
employee incentive
plans.................. 580,255 6 25,000 4,924 4,930
Class A shares purchased
by the Company......... (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.. (13,265) (13,265)
Net income.............. 272,150 272,150
---------- ---- ---------- ---- -------- --------- --------- ---------
Balance at February 28,
1999................... 66,694,199 $667 42,322,059 $423 $181,103 $(497,864) $(147,271) $(462,942)
========== ==== ========== ==== ======== ========= ========= =========
</TABLE>
Other stockholders' deficiency items:
<TABLE>
<CAPTION>
February 28, 1999
(Unaudited) May 31, 1998
----------------- ------------
<S> <C> <C>
Treasury stock, at cost........................ $(154,202) $(152,697)
Unrealized appreciation of marketable
securities.................................... 6,931 20,196
--------- ---------
$(147,271) $(132,501)
========= =========
</TABLE>
13
<PAGE>
Exhibit 99.03
INDEPENDENT AUDITORS' REPORT
To the Partners of FrontierVision Partners, L.P.:
We have audited the accompanying consolidated balance sheets of
FrontierVision Partners, L.P. and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, partners' deficit
and cash flows for each of the years in the three year period ended December
31, 1998. These consolidated financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
FrontierVision Partners, L.P. and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
years in the three year period ended December 31, 1998 in conformity with
generally accepted accounting principles.
KPMG LLP
Denver, Colorado
March 19, 1999
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In Thousands
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................... $ 7,354 $ 6,873
Accounts receivable, net of allowance for doubtful
accounts of $666 and $640.......................... 13,443 8,071
Prepaid expenses and other.......................... 4,046 2,785
Investment in cable television systems, net:
Property and equipment............................ 342,754 247,724
Franchise cost and other intangible assets........ 820,524 637,725
---------- ---------
Total investment in cable television systems,
net.......................................... 1,163,278 885,449
---------- ---------
Deferred financing costs, net....................... 25,812 26,283
Organization costs, net............................. 280 377
Earnest money deposits.............................. 150 2,000
---------- ---------
Total assets.................................. $1,214,363 $ 931,838
========== =========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable.................................... $ 18,233 $ 2,770
Accrued liabilities................................. 17,169 15,126
Subscriber prepayments and deposits................. 3,312 1,828
Accrued interest payable............................ 9,547 5,064
Deferred income taxes............................... 11,856 --
Long term debt, including related party............. 1,355,144 994,955
---------- ---------
Total liabilities............................. 1,415,261 1,019,743
---------- ---------
Partners' deficit
General partner................................... (2,010) (880)
Limited partners--
Special Class A................................. (154,139) (66,723)
Class A......................................... (44,749) (20,302)
---------- ---------
Total partners' deficit....................... (200,898) (87,905)
---------- ---------
Commitments
Total liabilities and partners' deficit....... $1,214,363 $ 931,838
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Revenues....................................... $ 245,134 $145,126 $ 76,464
Expenses:
Operating expenses........................... 123,600 74,314 39,181
Corporate administrative expenses............ 6,965 4,418 2,930
Depreciation and amortization................ 114,280 65,627 35,849
Storm costs.................................. 522 -- --
--------- -------- --------
Total expenses............................. 245,367 144,359 77,960
--------- -------- --------
Operating income/(loss)........................ (233) 767 (1,496)
Interest expense, net.......................... (89,067) (48,166) (22,320)
Interest expense, related party................ (26,094) (22,264) (12,544)
Other expense.................................. (526) (57) (8)
--------- -------- --------
Loss before income tax benefit and
extraordinary item............................ (115,920) (69,720) (36,368)
Income tax benefit............................. 2,927 -- --
--------- -------- --------
Loss before extraordinary item................. (112,993) (69,720) (36,368)
Extraordinary item--Loss on early retirement of
debt.......................................... -- (5,046) --
--------- -------- --------
Net loss....................................... $(112,993) $(74,766) $(36,368)
========= ======== ========
Net loss allocated to:
Special Class A Limited Partners............... $ (87,416) $(57,842) $(27,072)
Class A Limited Partners....................... (24,447) (16,177) (8,932)
General Partner................................ (1,130) (747) (364)
--------- -------- --------
$(112,993) $(74,766) $(36,368)
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(In Thousands)
<TABLE>
<CAPTION>
Limited Partners
---------------------------------------
General Special
Partner Class A Class A Total
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1995............ $ 128 $ 9,361 $ 3,405 $ 12,894
Net loss............................ (364) (27,072) (8,932) (36,368)
Capital contributions............... 54 4,648 738 5,440
------- --------- -------- ---------
Balance, December 31, 1996............ $ (182) $ (13,063) $ (4,789) $ (18,034)
Net loss............................ (747) (57,842) (16,177) (74,766)
Capital contributions............... 49 4,182 664 4,895
------- --------- -------- ---------
Balance, December 31, 1997............ $ (880) $ (66,723) $(20,302) $ (87,905)
Net loss............................ (1,130) (87,416) (24,447) (112,993)
------- --------- -------- ---------
Balance, December 31, 1998............ $(2,010) $(154,139) $(44,749) $(200,898)
======= ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss.................................. $ (112,993) $ (74,766) $ (36,368)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Extraordinary item--Loss on early
retirement of debt...................... -- 5,046 --
Depreciation and amortization............ 114,280 65,627 35,849
Income tax benefit....................... (2,927) -- --
Gain on swap of systems.................. (2,362) -- --
Amortization of deferred debt issuance
costs................................... 3,274 2,133 1,236
Accretion of interest on Discount Notes.. 19,485 5,768 924
Accretion of interest on related party
indebtedness............................ 26,094 22,264 12,544
Changes in operating assets and
liabilities, net of effect of
acquisitions:
Accounts receivable.................... (3,147) (582) (1,946)
Receivable from seller................. -- 846 1,377
Prepaid expenses and other............. (870) (249) (1,266)
Accounts payable and accrued
liabilities........................... 15,698 2,906 3,664
Subscriber prepayments and deposits.... 1,086 (1,523) (2,393)
Accrued interest payable............... 4,483 (1,226) 5,870
---------- ---------- ----------
Total adjustments.................... 175,094 101,010 55,859
---------- ---------- ----------
Net cash flows from operating
activities.......................... 62,101 26,244 19,491
---------- ---------- ----------
Cash Flows From Investing Activities:
Cash paid for capital expenditures........ (65,570) (32,738) (9,304)
Pending acquisition costs................. (22) (146) --
Cash paid for franchise costs............. (12) (406) (2,009)
Cash paid for organization costs.......... (28) (23) --
Earnest money deposits.................... (200) (2,000) (500)
Proceeds from disposition of cable
television systems....................... -- -- 15,065
Cash paid in acquisition of cable
television systems....................... (307,595) (392,631) (421,467)
---------- ---------- ----------
Net cash flows from investing
activities.......................... (373,427) (427,944) (418,215)
---------- ---------- ----------
Cash Flows From Financing Activities:
Debt borrowings........................... 316,485 523,000 137,700
Payments on debt borrowings............... (76,875) (289,845) (33,600)
Proceeds from issuance of Subordinated
Notes.................................... -- -- 200,000
Proceeds from issuance of Discount Notes.. 75,000 150,000 --
Proceeds from related party indebtedness.. -- 31,104 102,042
Principal payments on capital lease
obligations.............................. -- (70) (16)
Increase in deferred financing fees....... (395) (11,357) (3,771)
Offering costs related to Subordinated
Notes.................................... -- (129) (7,417)
Offering costs related to Discount Notes.. (2,408) (6,585) --
Partner capital contributions............. -- 4,895 5,440
---------- ---------- ----------
Net cash flows from financing
activities.......................... 311,807 401,013 400,378
---------- ---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents............................... 481 (687) 1,654
Cash and Cash Equivalents, at beginning of
period.................................... 6,873 7,560 5,906
---------- ---------- ----------
Cash and Cash Equivalents, end of period... $ 7,354 $ 6,873 $ 7,560
========== ========== ==========
Supplemental Disclosure of Cash Flow
Information:
Cash paid for interest.................... $ 62,789 $ 42,226 $ 15,195
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(1) The Partnership
Organization and Capitalization:
FrontierVision Partners, L.P. ("FVP") is a Delaware limited partnership
formed April 17, 1995, for the purpose of acquiring and operating cable
television systems. FVP was initially capitalized in August 1995 with
approximately $16,600 of limited partner contributions, and approximately $168
from its sole general partner, FVP GP, L.P., a Delaware partnership. FVP's
limited partners include individuals, corporations and partnerships. FVP's
partners have committed to provide debt and equity capital commitments
totaling approximately $199,400 through two limited partnership and note
purchase agreements. As of December 31, 1998, FVP had received all of these
commitments. Of the total capital contributed to FVP by December 31, 1998,
approximately $27,100 is in the form of general and limited partner capital
contributions, approximately $52,700 in the form of 14% junior subordinated
notes (the "Junior Notes") and approximately $119,600 in the form of 12%
senior subordinated notes (the "Senior Notes").
Under the terms of the Limited Partnership Interest and Note Purchase
Agreement (the "FVP Partnership Agreement"), FVP agreed to issue partnership
interests, Senior Notes and Junior Notes to a limited partner, (less that
limited partner's debt and equity commitments) as a syndication fee. In 1995
and 1996, FVP credited the capital account of the limited partner with a total
of $428 related to limited partner capital contributions received, and issued
Senior Notes and Junior Notes totaling $2,604 related to this arrangement. The
amount issued related to the Senior Notes and the Junior Notes is reflected as
a deferred financing cost in the accompanying consolidated financial
statements and the amount issued related to limited partnership interests is
reflected as a partners' capital syndication fee.
FrontierVision Holdings, L.P. ("Holdings"), a Delaware limited partnership,
is directly and indirectly a wholly-owned subsidiary of FVP and was formed on
September 3, 1997 for the purpose of acting as co-issuer with its wholly-owned
subsidiary, FrontierVision Holdings Capital Corporation ("Holdings Capital"),
of $237,650 aggregate principal amount at maturity of 11 7/8% Senior Discount
Notes due 2007 (collectively the "Discount Notes"). On December 2, 1998,
Holdings, acting as a co-issuer with its wholly owned subsidiary,
FrontierVision Holdings Capital II Corporation, issued $91,298 aggregate
principal amount at maturity of 11 7/8% Senior Discount Notes Series B due
2007. FVP contributed to Holdings all of the outstanding partnership interests
of FrontierVision Operating Partners, L.P. ("FVOP") prior to the issuance of
the Discount Notes on September 19, 1997 (the "Formation Transaction") and
therefore, at that time, FVOP and its wholly-owned subsidiary, FrontierVision
Capital Corporation ("Capital"), became wholly-owned, consolidated
subsidiaries of Holdings. FVP is the 99.9% general partner of Holdings and
FrontierVision Holdings, LLC ("FV Holdings") is the 0.1% limited partner of
Holdings. As used herein, the "Partnership" refers collectively to FVP, FV
Holdings, Holdings, Holdings Capital, FVOP Inc. and FVOP.
Allocation of Profits, Losses and Distributions:
The Partnership may issue Class A, Special Class A, Class B, Special Class B
and Class C limited partnership interests. As of December 31, 1998, the
Partnership had only issued Class A, Special Class A and Class C limited
partnership interests.
Net losses are allocated to the partners in proportion to their combined
debt and capital contributions until the limited partners have been allocated
amounts equal to their capital contributions, except no losses shall be
allocated to any limited partner which would cause the limited partner's
capital account to become negative by an amount greater than the limited
partner's share of the Partnership's "minimum gain" (the excess of the
6
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
Partnership's nonrecourse debt over its adjusted basis in the assets
encumbered by nonrecourse debt). Thereafter, losses are allocated to the
general partner.
Profits are allocated first to the general and limited partners to the
extent of their negative capital accounts; then to the general and limited
partners to the extent of their capital contributions; then to the general and
limited partners until the Class A and Class B limited partners receive a 12%
preferred return on their capital contributions; thereafter, 83% to the Class
A and Class B limited partners and the general partner in proportion to their
capital contributions, 9% to the general partner and Class C limited partners
(the "General Partner Special Allocation"), and 8% to the Special Class A and
Special Class B limited partners.
Distributions are made first, 99% to the Class A and Class B limited
partners and 1% to the general partner until the Class A and Class B limited
partners have received a return of their contributed capital; second, 99% to
the Class A and Class B limited partners and 1% to the general partner until
the Class A and Class B limited partners receive a 12% preferred annual rate
of return on their capital contributions; thereafter, 83% to the Class A and
Class B limited partners and the general partner in proportion to their
capital contributions, 9% to the general partner and Class C limited partners
(the "general partner special allocation") and 8% to the Special Class A and
Special Class B limited partners. Under the terms of the FVP Partnership
Agreement, the general partner may issue Class C limited partnership interests
to employees of the Partnership which entitle the holder to receive
distributions from the Partnership. However, in no event shall the Class C
limited partners be entitled to receive more than 3% of the aggregate
distributions made. The percentage of the aggregate distributions made to the
Class C limited partners shall result in a reduction to the General Partner's
Special Allocation percentage. As of December 31, 1998, the Partnership had
received total combined debt and capital contributions of $43,132 and $154,229
from its Class A limited partners and from its Special Class A limited
partners, respectively.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Partnership and its direct and indirect wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Basis of Presentation
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the financial statements, the Partnership considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents.
Property and Equipment
Property and equipment are stated at cost and include the following:
distribution facilities, support equipment and leasehold improvements.
Replacements, renewals and improvements are capitalized and costs for
7
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
repairs and maintenance are charged to expense when incurred. The Partnership
capitalizes direct labor and overhead related to installation and construction
activities. Depreciation is computed on a straight-line basis using an average
estimated useful life of 8 years.
Franchise Costs, Covenants not to Compete, Subscriber Lists and Goodwill
Franchise costs, covenants not to compete, subscriber lists and goodwill
result from the application of the purchase method of accounting to business
combinations. Such amounts are amortized on a straight-line basis over the
following periods: 15 years for franchise costs (which reflects the
Partnership's ability to renew existing franchise agreements), 5 years for
covenants not to compete, 7 years for subscriber lists and 15 years for
goodwill.
Impairment of Long-lived Assets
The Partnership periodically reviews the carrying amount of its property,
plant and equipment and its intangible assets to determine whether current
events or circumstances warrant adjustments to such carrying amounts. If an
impairment adjustment is deemed necessary, 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.
Deferred Financing Costs and Deferred Bond Issue Costs
Deferred financing costs and deferred bond issue costs are being amortized
using the straight line method over the life of the loans and the bonds.
Accumulated amortization at December 31, 1998 and 1997 is $5,106 and $1,808,
respectively.
Revenue Recognition
Revenues are recognized in the period in which the related services are
provided to the subscribers. Installation revenue is recognized in the period
that 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 television
system.
Derivative Financial Instruments
The Partnership manages risk arising from fluctuations in interest rates by
using interest rate swap agreements, as required by its credit agreements.
These agreements are treated as off-balance sheet financial instruments. The
interest rate swap agreements are being accounted for as a hedge of the debt
obligation, and accordingly, the net settlement amount is recorded as an
adjustment to interest expense in the period incurred.
Income Taxes
The Partnership and its direct and indirect subsidiaries, except for
FrontierVision Cable New England, Inc., New England CableVision of
Massachusettes, Inc., Main Security Surveillance, Inc., FrontierVision
Operating Partners, Inc., Capital, Holdings Capital and Holdings II Capital,
are limited partnerships or limited liability companies and pay no income
taxes as entities. All of the income, gains, losses, deductions and credits of
the Partnership are passed through to its partners. Nominal taxes are assessed
by certain state and local jurisdictions. The basis in the Partnership's
assets and liabilities differs for financial and tax reporting purposes. At
December 31, 1998, the book basis of the Partnership's net assets exceeded its
tax basis by $20.4 million.
8
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
FrontierVision Cable New England, Inc., New England CableVision of
Massachusettes, Inc., Main Security Surveillance, Inc., FrontierVision
Operating Partners, Inc., Capital, Holdings Capital and Holdings II Capital
are corporations and are subject to federal and state income taxes which have
not been significant. Deferred taxes relate principally to the difference
between book and tax basis of the cable television assets owned by New England
Cablevision of Massachusetts, Inc., partially offset by the tax effect of
related net operating loss carryforwards.
New Accounting Standards
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS 133"), which is effective for all fiscal years
beginning after June 15, 1999. SFAS 133 establishes accounting and reporting
standards for derivative instruments and hedging activities by requiring that
all derivative instruments be reported as assets or liabilities and measured
at their fair values. Under SFAS 133, changes in the fair values of derivative
instruments are recognized immediately in earnings unless those instruments
qualify as hedges of the (1) fair values of existing assets, liabilities, or
firm commitments, (2) variability of cash flows of forecasted transactions, or
(3) foreign currency exposures of net investments in foreign operations.
Although management of the Company has not completed its assessment of the
impact of SFAS 133 on its consolidated results of operations and financial
position, management estimates that the impact of SFAS 133 will not be
material.
The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, Reporting the Costs of Start-up Activities, ("SOP
98-5"), which is effective for all fiscal years beginning after December 15,
1998. SOP 98-5 provides guidance on the financial reporting of start-up costs
and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. Had SOP 98-5 been adopted by
the Partnership as of December 31, 1998, the Company would have recorded an
increase to net loss of $280, as the cumulative effect of a change in
accounting principle.
Reclassification
Certain amounts have been reclassified for comparability.
(3) Storm Related Costs
During mid-January of 1998, certain of the communities served by the
Partnership in Maine experienced devastating ice storms. For the year ended
December 31, 1998, the Partnership has recognized a loss due to service
outages and increased labor costs of approximately $522 due to the ice storms.
Additionally, the Partnership has incurred approximately $540 of capital
expenditures to replace damaged subscriber drops. The Partnership received
$183 subsequent to December 31, 1998 related to a claim on its business
interruption insurance for the storm damage.
9
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
(4) Investment in Cable Television Systems
The Partnership's investment in cable television systems is comprised of the
following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Property and equipment................................ $ 435,531 $297,229
Less--accumulated depreciation........................ (92,777) (49,505)
---------- --------
Property and equipment, net......................... 342,754 247,724
---------- --------
Franchise costs....................................... 717,614 523,096
Covenants not to compete.............................. 16,856 14,983
Subscriber lists...................................... 146,411 106,270
Goodwill.............................................. 53,937 44,702
---------- --------
934,818 689,051
Less--accumulated amortization........................ (114,294) (51,326)
---------- --------
Franchise costs and other intangible assets, net.... 820,524 637,725
---------- --------
Total investment in cable television systems, net..... $1,163,278 $885,449
========== ========
</TABLE>
(5) Acquisitions and Dispositions
Acquisitions
The Partnership has completed several acquisitions since its inception
through December 31, 1998. All of the acquisitions have been accounted for
using the purchase method of accounting, and, accordingly, the purchase price
has been allocated to the assets acquired and liabilities assumed based upon
the estimated fair values at the respective dates of acquisition. Such
allocations are subject to adjustments as final appraisal information is
received by the Partnership. Amounts allocated to property and equipment and
to intangible assets will be respectively depreciated and amortized,
prospectively from the date of acquisition based upon remaining useful lives
and amortization periods.
10
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
The following table lists the acquisitions and the purchase price for
transactions occurring in the most recent two years.
<TABLE>
<CAPTION>
Primary
Location Date Acquisition
Predecessor Owner of Systems Acquired Cost(a)
----------------- ---------- -------- -----------
<S> <C> <C> <C>
Bluegrass Cable Partners,
L.P. ......................... Kentucky March 20, 1997 $ 10,400
Clear Cable T.V., Inc. and
B&G Cable T.V.
Systems, Inc. ................ Kentucky March 31, 1997 $ 1,800
Milestone Communications of
New York, L.P. ............... Ohio March 31, 1997 $ 3,000
Triax Associates I, L.P.
("Triax I")................... Ohio May 30, 1997 $ 34,800
Phoenix Front Row Cablevision.. Ohio May 30, 1997 $ 6,900
PCI Incorporated............... Michigan August 29, 1997 $ 13,600
SRW, Inc.'s Blue Ridge Cable Tennessee and
Systems, L.P. ................ North Carolina September 3, 1997 $ 4,100
A-R Cable Services--ME, Inc.
("Cablevision")............... Maine October 31, 1997 $ 78,600
Harold's Home Furnishings, Pennsylvania and
Inc. ......................... Maryland October 31, 1997 $ 1,600
TCI Cablevision of Vermont,
Inc. and Westmarc Development Vermont and
Joint Venture ("TCI-VT/NH")... New Hampshire December 2, 1997 $ 34,800
Cox Communications, Inc.
("Cox-Central Ohio").......... Ohio December 19, 1997 $204,100
TVC-Sumpter Limited Partnership
and North Oakland Cablevision
Partners Limited Partnership.. Michigan March 6, 1998 $ 14,400
TCI Cablevision of Ohio,
Inc. ......................... Ohio April 1, 1998 $ 10,000
New England Cablevision of
Massachusetts, Inc.
("NECMA")..................... Massachusetts April 3, 1998 $ 44,900
Ohio Cablevision Network, Inc.
("TCI-Bryan")................. Ohio July 31, 1998 $ 37,400
Unity Cable Television, Inc. .. Maine September 30, 1998 $ 800*
Appalachian Cablevision of
Ohio.......................... Ohio September 1, 1998 $ 300
State Cable TV Corporation Maine and
("State")..................... New Hampshire October 23, 1998 $190,200*
Paint Valley Cable............. Ohio October 30, 1998 $ 1,900*
CASCO.......................... Maine November 30, 1998 $ 3,200*
</TABLE>
- - --------
(a) Acquisition cost represents the purchase price allocation between tangible
and intangible assets including certain purchase accounting adjustments as
of December 31, 1998.
* Subject to adjustment.
11
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
The combined purchase price of certain of these acquisitions has been
allocated to the acquired assets and liabilities as follows:
<TABLE>
<CAPTION>
1998 1997 1996
Acquisitions(a) Acquisitions(a) Acquisitions(a)
--------------- --------------- ---------------
<S> <C> <C> <C>
Property and equipment........ $ 79,526 $ 48,805 $169,240
Franchise costs and other
intangible assets............ 244,492 344,490 268,836
-------- -------- --------
Subtotal.................... 324,018 393,295 438,076
-------- -------- --------
Net working capital
(deficit).................... 410 (164) (7,107)
Deferred income taxes......... (14,783) -- --
Less--Earnest money deposits
applied...................... (2,050) (500) (9,502)
-------- -------- --------
Total cash paid for
acquisitions............... $307,595 $392,631 $421,467
======== ======== ========
</TABLE>
- - --------
(a) The combined purchase price includes certain purchase price adjustments
for acquisitions consummated prior to the respective periods.
The Partnership has reported the operating results of its acquired cable
systems from the dates of their respective acquisition.
Unaudited pro forma summarized operating results of the Partnership,
assuming the Triax I, Cablevision, TCI-VT/NH, Cox-Central Ohio, NECMA, TCI-
Bryan and State Cable acquisitions (the "Acquisitions") had been consummated
on January 1, 1997, are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------
Historical Pro Forma
Results Acquisitions Results
---------- ------------ ---------
<S> <C> <C> <C>
Revenue................................... $ 245,134 $ 31,842 $ 276,976
Operating, selling, general and
administrative expenses.................. (131,087) (20,245) (151,332)
Depreciation and amortization............. (114,280) (15,546) (129,826)
--------- -------- ---------
Operating loss............................ (233) (3,949) (4,182)
Interest and other expenses............... (112,760) (23,253) (136,013)
--------- -------- ---------
Net loss.................................. $(112,993) $(27,202) $(140,195)
========= ======== =========
<CAPTION>
Year Ended December 31, 1997
----------------------------------
Historical Pro Forma
Results Acquisitions Results
---------- ------------ ---------
<S> <C> <C> <C>
Revenue................................... $ 145,126 $105,533 $ 250,659
Operating, selling, general and
administrative expenses.................. (78,732) (56,312) (135,044)
Depreciation and amortization............. (65,627) (47,543) (113,170)
--------- -------- ---------
Operating income.......................... 767 1,678 2,445
Interest and other expenses............... (75,533) (51,026) (126,559)
--------- -------- ---------
Net loss.................................. $ (74,766) $(49,348) $(124,114)
========= ======== =========
</TABLE>
The pro forma financial information presented above has been prepared for
comparative purposes only and does not purport to be indicative of the
operating results which actually would have resulted had the Acquisitions
12
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
been consummated on the dates indicated. Furthermore, the above pro forma
financial information does not include the effect of certain acquisitions and
dispositions of cable systems because these transactions were not material on
an individual or aggregate basis.
Dispositions
The Partnership has completed two dispositions from its inception through
December 1998.
On July 24, 1996, the Partnership sold certain cable television system
assets located primarily in Chatsworth, Georgia to an affiliate of Helicon
Partners for an aggregate sales price of approximately $7,900.
On September 30, 1996, the Partnership sold certain cable television system
assets located in Virginia to Shenandoah Cable Television Company, an
affiliate of Shenandoah Telephone Company, for an aggregate sales price of
approximately $7,100.
On January 7, 1999, the Partnership sold certain cable television system
assets located in the Southeast region to Helicon Partners I, LP, for an
aggregate sales price of approximately $5,220.
(6) Debt
The Partnership's debt was comprised of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Bank Credit Facility (a)--
Revolving Credit Facility, interest based on
various floating rate options (7.25% average at
December 31, 1998), payable monthly............... $ 172,000 $ --
Term loans, interest based on various floating
libor rate options (7.46% and 8.33% weighted
average at December 31, 1998 and 1997,
respectively), payable monthly.................... 498,125 432,000
11% senior Subordinated Notes due 2006 (b)........... 200,000 200,000
11 7/8% senior Discount Notes due 2007 (c)........... 249,532 155,047
12% Senior Notes, due June 30, 2004 and 2007 (d)..... 158,593 141,642
14% Junior Notes, due June 30, 2004 and 2007 (d)..... 75,409 66,266
Other................................................ 1,485 --
---------- --------
Total debt......................................... $1,355,144 $994,955
========== ========
</TABLE>
- - --------
(a) Bank Credit Facility
On December 19, 1997, the Partnership entered into a Second Amended and
Restated Credit Agreement (the "Amended Credit Facility") increasing the
available senior debt by $535.0 million, for a total availability of
$800.0 million. The amount available under the Amended Credit Facility
includes two term loans of $250.0 million each ("Facility A Term Loan" and
"Facility B Term Loan") and a $300.0 million revolving credit facility
("Revolving Credit Facility"). The Facility A Term Loan and the Revolving
Credit Facility both mature on September 30, 2005. The entire outstanding
principal amount of the Revolving Credit Facility is due on September 30,
2005, with escalating principal payments due quarterly beginning December
31, 1998 under the Facility A Term Loan. The Facility B Term Loan matures
March 31, 2006 with 95% of the principal being repaid in the last two
quarters of the term of the facility.
13
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
Under the terms of the Amended Credit Facility, with certain exceptions,
the Partnership has a mandatory prepayment obligation upon a change of
control of the Partnership and the sale of any of its operating systems.
This obligation may be waived with the consent of the majority of the
lenders. Further, beginning with the year ending December 31, 2001, the
Partnership is required to make prepayments equal to 50% of its excess
cash flow, as defined in the Amended Credit Facility. The Partnership also
pays commitment fees ranging from 1/2%-- 3/8% per annum on the average
unborrowed portion of the total amount available under the Amended Credit
Facility.
The Amended Credit Facility also requires the Partnership to maintain
compliance with various financial covenants including, but not limited to,
covenants relating to total indebtedness, debt ratios, interest coverage
ratio and fixed charges ratio. In addition, the Amended Credit Facility
has restrictions on certain partnership distributions by the Partnership.
All partnership interests in the Partnership and all assets of the
Partnership and its subsidiaries are pledged as collateral for the Amended
Credit Facility.
(b) Senior Subordinated Notes
On October 7, 1996, FVOP issued, pursuant to a public offering (the
"Offering"), $200,000 aggregate principal amount of Senior Subordinated
Notes due 2006 (the "Subordinated Notes"). Net proceeds from the Offering
of $192,500, after costs of approximately $7,500, were available to FVOP
on October 7, 1996.
In connection with the anticipated issuance of the Subordinated Notes in
connection with the Offering, FVOP entered into deferred interest rate
setting agreements to reduce the FVOP's interest rate exposure in
anticipation of issuing the Subordinated Notes. The cost of such
agreements, amounting to $1,390, are recognized as a component of interest
expense over the term of the Subordinated Notes.
The Subordinated Notes are unsecured subordinated obligations of FVOP (co-
issued by Capital) that mature on October 15, 2006. Interest accrues at
11% per annum beginning from the date of issuance, and is payable each
April 15 and October 15, commencing April 15, 1997.
The Subordinated Notes Indenture (the "Indenture") has certain
restrictions on incurrence of indebtedness, distributions, mergers, asset
sales and changes in control of FVOP.
(c) Senior Discount Notes
On September 19, 1997, Holdings issued, pursuant to a private offering,
the Discount Notes. The Discount Notes were sold at approximately 63.1% of
the stated principal amount at maturity of $237,650 and provided net
proceeds of $144,750, after underwriting fees of approximately $5,250.
On December 2, 1998, Holdings issued, pursuant to a private offering, the
Discount Notes, Series B. The Discount Notes were sold at at approximately
82.149% of the stated principal amount at maturity of $91,298 and provided
net proceeds of $72,750, after underwriting fees of approximately $2,250.
The Discount Notes are unsecured obligations of Holdings and Holdings
Capital (collectively, the "Issuers"), ranking pari passu in right of
payment to all existing and future unsecured indebtedness of the Issuers
and will mature on September 15, 2007. The discount on the Discount Notes
is being accreted using the interest method over four years until
September 15, 2001, the date at which cash interest begins to accrue. Cash
interest will accrue at a rate of 11 7/8% per annum and will be payable
each March 15 and September 15, commencing March 15, 2002.
The Discount Notes are redeemable at the option of the Issuers, in whole
or in part, at any time on or after September 15, 2001, at redemption
prices set forth in the Indenture for the Discount Notes (the "Discount
14
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
Notes Indenture"), plus any unpaid interest, if any, at the date of the
redemption. The Issuers may redeem, prior to September 15, 2001, up to 35%
of the principal amount at maturity of the Discount Notes with the net cash
proceeds received from one or more public equity offerings or strategic
equity investments at a redemption prices set forth in the Discount Notes
Indenture, plus any unpaid interest, if any, at the date of the redemption.
The Discount Notes Indenture has certain restrictions on incurrence of
indebtedness, distributions, mergers, asset sales and changes in control
of Holdings.
J.P. Morgan Investment Corporation and First Union Capital Partners, Inc.
("Equity Holders") are affiliates of the Partnership, owning in the
aggregate, a 37.6% limited partnership interest in FVP. Affiliates of the
Equity Holders received underwriting fees of approximately $3.6 million in
connection with the issuance of the Notes and received compensation in the
aggregate of approximately $3.1 million in connection with the issuance of
the Discount Notes.
(d) Senior and Junior Notes
The Senior and Junior Notes are unsecured obligations of FVP, ranking pari
passu in right of payment to all existing and future indebtedness of FVP.
The Senior Notes bear interest at a rate of 12% per annum, compounded
annually, and are payable June 30, 2004 and 2007 or, if earlier, the last
day of the term of the Partnership. The Junior Notes bear interest at a
rate of 14% per annum, compounded annually, and are payable June 30, 2004
and 2007 or, if earlier, the last day of the term of the Partnership.
Under the terms of the Senior Notes and the Junior Notes, no cash interest
payments are required.
(e) Interest Rate Protection Agreements
In order to convert effectively certain of the interest payable at
variable rates under the Amended Credit Facility to interest at fixed
rates, the Partnership has entered into interest rate swap agreements for
notional amounts totaling $187,500, and maturing between November 15, 1999
and October 7, 2001. According to these agreements, the Partnership pays
or receives the difference between (1) an average fixed rate of 5.84% and
(2) a floating rate of the three month libor applied to the same $187,500
notional amount every three months during the term of the interest rate
swap agreement. On April 7, 1998, the Partnership terminated one of its
interest rate swap agreements for a notional amount of $82,500 and entered
into a new interest rate swap agreement for $100,000. There was no
termination fee associated with this transaction.
On April 8, 1998, the Partnership entered into a collar interest rate swap
agreement ("Collar Agreement") for a notional amount of $100,000, maturing
on January 8, 2001. The Collar Agreement provides for different exchanges
between the Partnership and the counterparty depending on the level of the
floating three month LIBOR rate (5.32% at December 31, 1998). Such
exchanges occur every three months during the term of the Collar
Agreement. The different exchanges are as follows:
(1) When LIBOR is below 5.05%, the Partnership pays to the counterparty the
difference between the fixed rate of 5.65% and the LIBOR rate, applied
to the $100,000 notional amount;
(2) When LIBOR is between 5.65% and 6.65%, the Partnership receives from
the counterparty the difference between the fixed rate of 5.65% and
LIBOR rate, applied to the $100,000 notional amount;
(3) When LIBOR is in excess of 6.65% or between 5.65% and 5.05%, the Collar
Agreement has no financial effect.
15
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
On October 3, 1997, in order to convert certain of the future interest
payable at variable rates under indebtedness, the Partnership entered into
a forward interest rate swap agreement. This commenced on October 15,
1998, for a notional amount totaling $150,000, maturing on October 15,
2001. According to this agreement, the Partnership will pay or receive the
difference between (1) a fixed rate of 6.115% and (2) a floating rate
based on three month libor applied to the same $150,000 notional amount
every three months during the term of the interest rate swap agreement.
For the years ended December 31, 1998 and 1997, the Partnership recognized
an increase in interest expense of approximately $585 and $312,
respectively, as a result of the interest rate swap agreements.
Information concerning the Partnership's interest rate agreements at
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Amount to be
Interest rate Notional paid upon
Expiration date to be received amount termination(i)
---------------- -------------- -------- --------------
<S> <C> <C> <C>
November 15, 1999..................... 5.912% $ 65,000 $ 472.5
November 15, 1999..................... 5.188% 22,500 12.1
January 8, 2001....................... 5.650% 100,000 1,215.3
October 7, 2001....................... 5.940% 100,000 2,731.9
October 15, 2001...................... 6.115% 150,000 4,340.7
-------- --------
$437,500 $8,772.5
======== ========
</TABLE>
--------
(i) The estimated amount that the Partnership would pay to terminate the
agreements on December 31, 1998. This amount takes into consideration
current interest rates, the current creditworthiness of the
counterparties and represents the fair value of the interest rate
agreements.
The debt of the Partnership, excluding future interest accretion, matures as
follows:
<TABLE>
<CAPTION>
Year Ended December 31--
- - ------------------------
<S> <C>
1999................................................................ $ 11,144
2000................................................................ 24,575
2001................................................................ 34,575
2002................................................................ 44,575
2003................................................................ 55,825
Thereafter.......................................................... 1,184,450
----------
$1,355,144
==========
</TABLE>
(7) Deferred Financing Costs
The Partnership refinanced its Senior Credit Facility in December, 1997.
Accordingly, the deferred financing costs related to the initial debt were
written off. The effect of this write-off was a $5,046 charge to expense and
was recorded as an extraordinary item. Additional costs related to the Amended
Credit Facility were recorded as deferred financing costs during 1997.
(8) Fair Values of Financial Instruments
The carrying amounts of cash and cash equivalents approximate their fair
value due to the nature and length of maturity of the investments.
16
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
The estimated fair value of the Partnership's Amended Credit Facility is
based on floating market rates at December 31, 1998; therefore, there is no
material difference in the fair market value and the carrying value of such
debt instruments. The Notes have an aggregate principal amount of $200,000
with a 11% coupon rate. The fair value for the Notes at December 31, 1998 is
$222,000. The Discount Notes have an aggregate principal amount at maturity of
$328,948 with a 11 7/8% coupon. At December 31, 1998, the approximate fair
value of the Partnership's Discount Notes was $273,030. The fair value of the
Subordinated Notes and the Discount Notes is estimated based on Portal Market
quotations of the issue. The fair value of the Junior and Senior Notes is not
determinable as a result of the related party nature of such instruments.
(9) Commitments and Contingencies
The Partnership has annual commitments under lease agreements for office
space, equipment, pole rental and land upon which certain of its towers and
antennae are constructed. Rent expense for the years ended December 31, 1998,
1997 and 1996 was $5,806, $4,065 and $2,365, respectively.
Estimated future noncancelable lease payments under such lease obligations
subsequent to December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31--
- - ------------------------
<S> <C>
1999.................................................................... $1,404
2000.................................................................... 1,104
2001.................................................................... 781
2002.................................................................... 646
2003.................................................................... 390
Thereafter.............................................................. 737
------
$5,062
======
</TABLE>
In October 1992, Congress enacted the Cable Television Consumer and
Competition Act of 1992 (the "1992 Cable Act") which greatly expanded federal
and local regulation of the cable television industry. The Federal
Communications Commission ("FCC") adopted comprehensive regulations, effective
September 1, 1993, governing rates charged to subscribers for basic cable and
cable programming services which allowed cable operators to justify regulated
rates in excess of the FCC benchmarks through cost of service showings at both
the franchising authority level for basic service and at the FCC level in
response to complaints on rates for cable programming services. The FCC also
adopted comprehensive and restrictive regulations allowing operators to modify
their regulated rates on a quarterly or annual basis using various
methodologies that account for the changes in the number of regulated
channels, inflation, and increases in certain external costs, such as
franchise and other governmental fees, copyright and retransmission consent
fees, taxes, programming fees and franchise related obligations. The FCC has
also adopted regulations that permit qualifying small cable operators to
justify their regulated service and equipment rates using a simplified cost-
of-service formula.
As a result of such actions, the Partnership's basic and tier service rates
and its equipment and installation charges (the "Regulated Services") are
subject to the jurisdiction of local franchising authorities and the FCC. The
Partnership believes that it has complied in all material respects with the
rate regulation provisions of the federal law. However, the Partnership's
rates for Regulated Services are subject to review by the FCC, if a complaint
has been filed, or by the appropriate franchise authority if it is certified
by the FCC to regulate basic rates. 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
17
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
refunds of the excess portion of tier service rates would be retroactive to
the date of complaint. Any refunds of the excess portion of all other
Regulated Service rates would be retroactive to one year prior to the
implementation of the rate reductions.
The Partnership's agreements with franchise authorities require the payment
of annual fees which approximate 3% of system franchise revenue. Such
franchises are generally nonexclusive and are granted by local governmental
authorities for a specified term of years, generally for extended periods of
up to fifteen years.
(10) Year 2000 Compliance
The Partnership has under way a project to review and modify, as necessary,
its computer applications, hardware and other equipment to make them Year 2000
compliant. The Partnership has also initiated formal communications with third
parties having a substantial relationship to its business, including
significant suppliers and financial institutions, to determine the extent to
which the Partnership may be vulnerable to such third parties' failures to
achieve Year 2000 compliance.
Failure to achieve Year 2000 compliance by the Partnership, its principal
suppliers and certain financial institutions with which it has relationship
could negatively affect the Partnership's ability to conduct business for an
extended period. There can be no assurances that all Partnership information
technology systems and components will be fully Year 2000 compliant; in
addition, other companies on which the Partnership's systems and operations
rely may not be fully compliant on a timely basis, and any such failure could
have a material adverse effect on the Partnership's financial position,
results of operations or liquidity.
(11) Subsequent Event
On February 22, 1999, FVP entered into a definitive agreement with Adelphia
Communications Corporation to sell all outstanding partnership interests of
FVP in exchange for cash, the assumption of certain liabilities and 7,000,000
shares of Adelphia Class A common stock.
18
<PAGE>
Exhibit 99.04
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Harron Communications Corp.:
We have audited the accompanying consolidated balance sheets of Harron
Communications Corp. and subsidiaries (the "Company") as of December 31, 1998
and 1997, and the related consolidated statements of income, stockholders'
equity and comprehensive income, and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Harron Communications Corp.
and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 19, 1999 (April 12, 1999 as to Note 16)
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
ASSETS ------------- -------------
<S> <C> <C>
Investment in communications systems:
Property, plant and equipment................. $ 263,403,285 $ 218,360,882
Accumulated depreciation and amortization..... (130,181,567) (118,670,257)
------------- -------------
Net property, plant and equipment......... 133,221,718 99,690,625
Intangible assets, net of accumulated
amortization of $42,835,456 in 1998 and
$37,200,132 in 1997.......................... 81,139,660 9,876,287
------------- -------------
Total investments......................... 214,361,378 109,566,912
Cash and cash equivalents....................... 3,645,097 6,114,388
Accounts receivable, net of allowance for
doubtful accounts of $302,713 in 1998 and
$485,075 in 1997............................... 5,645,661 5,522,614
Short-term investments and marketable
securities..................................... 96,775,048 97,241,555
Investment in and advances to affiliate......... 10,413,236
Notes receivable, stockholders and affiliates... 6,775,528 4,264,362
Prepaid expenses and other assets............... 13,353,302 21,123,779
------------- -------------
TOTAL..................................... $ 350,969,250 $ 243,833,610
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Debt.......................................... $ 284,179,226 $ 200,300,842
Accounts payable and accrued liabilities...... 23,857,491 19,463,373
Deferred tax liability........................ 9,626,200 19,206,300
------------- -------------
Total liabilities......................... 317,662,917 238,970,515
------------- -------------
Commitments and contingencies
Minority interest in consolidated subsidiary.... 1,000,000 1,000,000
Stockholders' equity:
Common stock--$10 par value; authorized
100,000 shares; issued and outstanding 48,168
shares in 1998 and 1997...................... 481,685 481,685
Retained earnings (accumulated deficit)....... 23,316,448 (5,178,324)
Accumulated other comprehensive income........ 8,508,200 8,559,734
------------- -------------
Total stockholders' equity................ 32,306,333 3,863,095
------------- -------------
TOTAL..................................... $ 350,969,250 $ 243,833,610
============= =============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES............................. $121,185,028 $112,127,149 $117,439,633
COSTS AND EXPENSES:
Operating expenses................. 50,829,303 46,120,293 47,440,942
General and administrative
expenses.......................... 26,742,456 22,905,504 27,655,757
Depreciation and amortization...... 20,692,390 19,852,074 22,212,065
------------ ------------ ------------
Total costs and expenses....... 98,264,149 88,877,871 97,308,764
------------ ------------ ------------
OPERATING INCOME..................... 22,920,879 23,249,278 20,130,869
------------ ------------ ------------
OTHER (EXPENSE) INCOME:
Interest expense................... (17,380,916) (14,024,115) (15,189,223)
Interest income.................... 5,654,830 8,365,950 960,840
Loss on retirement of fixed
assets............................ (1,616,880) (2,746,224) (1,288,956)
Other, net......................... 1,394,581 478,339 (655,644)
Gains on businesses and assets
sold.............................. 1,336,500 14,718,639 30,847,265
Life insurance proceeds............ 9,423,311 -- --
Equity in net loss of affiliate.... (582,764) -- --
------------ ------------ ------------
Total other (expense) income... (1,771,338) 6,792,589 14,674,282
------------ ------------ ------------
INCOME BEFORE INCOME TAX (BENEFIT)
PROVISION AND EXTRAORDINARY ITEM.... 21,149,541 30,041,867 34,805,151
INCOME TAX (BENEFIT) PROVISION....... (7,345,231) 12,214,687 10,791,633
------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM..... 28,494,772 17,827,180 24,013,518
EXTRAORDINARY ITEM--Loss on early
extinguishment of debt, net of tax
benefit of $2,281,617............... -- 3,331,217 --
------------ ------------ ------------
NET INCOME........................... $ 28,494,772 $ 14,495,963 $ 24,013,518
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Retained Accumulated
Earnings Other Total
Number Par Comprehensive (Accumulated Treasury Comprehensive Stockholders'
of Shares Value Income Deficit) Stock Income Equity
--------- -------- ------------- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1996.................... 48,386 $483,865 -- $(43,192,403) -- -- $(42,708,538)
Comprehensive income
Net income............. -- -- $24,013,518 24,013,518 -- -- 24,013,518
Other comprehensive
income--unrealized gain
on marketable
securities, net of tax
of $2,969,000.......... -- -- 4,100,071 -- -- 4,100,071 4,100,071
-----------
Comprehensive Income.... -- -- $28,113,589 -- -- -- --
-----------
Purchase of 109 shares
of treasury stock....... -- -- -- -- $(248,791) -- (248,791)
Retirement of treasury
stock................... (109) (1,090) -- (247,701) 248,791 -- --
------ -------- ------------ --------- ---------- ------------
BALANCE, JANUARY 1,
1997.................... 48,277 $482,775 -- $(19,426,586) -- $4,100,071 $(14,843,740)
Comprehensive income
Net income............. -- -- $14,495,963 14,495,963 -- -- 14,495,963
Other comprehensive
income--unrealized gain
on marketable
securities, net of tax
of $3,147,337.......... -- -- 4,459,663 -- -- 4,459,663 4,459,663
-----------
Comprehensive Income.... -- -- $18,955,626 -- -- -- --
-----------
Purchase of 109 shares
of treasury stock....... -- -- -- -- $(248,791) -- (248,791)
Retirement of treasury
stock................... (109) (1,090) -- (247,701) 248,791 -- --
------ -------- ------------ --------- ---------- ------------
BALANCE, DECEMBER 31,
1997.................... 48,168 481,685 -- (5,178,324) -- 8,559,734 3,863,095
Comprehensive income
Net income.............. -- -- $28,494,772 28,494,772 -- -- 28,494,772
Other comprehensive
income--unrealized loss
on marketable
securities, net of tax
of $1,432,939........... -- -- (51,534) -- -- (51,534) (51,534)
-----------
Comprehensive Income.... -- -- $28,443,238 -- -- -- --
-----------
------ -------- ------------ --------- ---------- ------------
BALANCE, DECEMBER 31,
1998.................... 48,168 $481,685 $ 23,316,448 $ -- $8,508,200 $ 32,306,333
====== ======== ============ ========= ========== ============
</TABLE>
4
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................... $ 28,494,772 $ 14,495,963 $ 24,013,518
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in net loss of
affiliate.................. 582,764 -- --
Loss on retirement of fixed
assets..................... 1,616,880 2,746,224 1,288,956
Depreciation and
amortization............... 20,692,390 19,852,074 22,212,065
Other, net.................. 43,265 168,501 93,542
Gain on sale of businesses
and assets................. (1,336,500) (14,718,639) (30,847,264)
Write-off of deferred
financing costs............ -- 4,039,119 --
Reversal of deferred taxes.. (7,989,000) -- --
Changes in assets and
liabilities which provided
(used) cash:
Accounts receivable....... (123,047) 998,247 5,474,571
Receivables from
stockholders and
affiliates............... (2,511,166) 7,703,309 (1,109,678)
Prepaid expenses and other
assets................... 7,574,477 (10,169,142) 284,339
Deferred income taxes..... (24,853) 7,535,000 4,960,000
Accounts payable and
accrued liabilities...... 4,394,118 (3,046,362) (3,031,931)
------------- ------------- ------------
Net cash provided by
operating activities.... 51,414,100 29,604,294 23,338,118
------------- ------------- ------------
INVESTING ACTIVITIES:
Purchase of cable television
systems, net of cash
acquired................... (90,126,033) -- --
Investment in affiliate..... (3,800,000) -- --
Purchase of property, plant
and equipment, other than
purchase of cable
television systems......... (33,645,198) (26,654,376) (11,501,087)
Increase in intangible
assets, other than purchase
of cable television
systems.................... (3,375,770) (5,120,408) (211,659)
Proceeds from sale of
businesses and assets...... -- 35,822,638 27,969,319
Loan to affiliate........... (7,000,000) (3,000,000) --
Net purchases of available
for sale securities........ (1,151,274) (70,554,000) --
------------- ------------- ------------
Net cash used in
investing activities.... (139,098,275) (69,506,146) 16,256,573
------------- ------------- ------------
FINANCING ACTIVITIES:
Proceeds from issuance of
debt, net of issuance costs
and prepayment penalties... 85,500,000 195,000,000 5,668,837
Repayment of debt........... (285,116) (163,086,144) (35,326,321)
Purchase of treasury stock.. -- (248,791) (248,791)
Sale of minority interest... -- 1,000,000 --
------------- ------------- ------------
Net cash provided by
financing activities.... 85,214,884 32,665,065 (29,906,275)
------------- ------------- ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS.......... (2,469,291) (7,236,787) 9,668,416
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR............. 6,114,388 13,351,175 3,662,759
------------- ------------- ------------
CASH AND CASH EQUIVALENTS, END
OF YEAR....................... $ 3,645,097 $ 6,114,388 $ 13,351,175
============= ============= ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during year for:
Interest.................... $ 16,485,137 $ 15,190,611 $ 16,448,605
============= ============= ============
Income taxes................ $ 435,150 $ 11,425,578 $ 3,857,822
============= ============= ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES--
During 1997, the Company entered into capital lease agreements for
equipment in the amount of $25,695.
During 1996, the Company entered into capital lease agreements for
equipment in the amount of $99,531.
During 1996, the Company received marketable equity securities valued
at $11,930,000 (see Note 3).
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of Harron Communications Corp. and
subsidiaries (the "Company") include its cable and television broadcast
operations. All majority-owned subsidiaries which the Company controls are
included in consolidation and all significant intercompany transactions have
been eliminated. Certain reclassifications have been made of previously
reported amounts to conform with reclassifications used in the current year.
Use of 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 revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to customers who are delinquent.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, including the cost of
material, labor and overhead incurred during periods of construction. Normal
maintenance and repairs are charged to operating expenses as incurred.
Expenditures which materially extend the useful life of an asset are
capitalized.
Intangible Assets
Intangible assets are made up of franchise costs, deferred charges and other
intangibles. Franchise costs include the cost of acquired cable television
franchises and subscriber lists and are amortized over 10 years. Deferred
charges relating to debt issues are being amortized over 8 years. Other
intangible assets include covenants not to compete and the aggregate excess of
purchase price over the value of net identifiable assets of cable television
systems acquired by the Company and are amortized computed using the straight-
line method ranging from 5 to 20 years.
Carrying Value of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets, including
goodwill and other intangible assets, based upon current anticipated
undiscounted cash flows, and recognizes impairment when it is probable that
such estimated cash flows will be less than the carrying value of the asset.
Measurement of the amount of the impairment, if any, is based upon the
difference between the carrying value and the fair value.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid debt instruments with an
original maturity of three months or less when purchased.
6
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
Marketable Securities
The Company values its investments in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in
Debt and Equity Securities. This statement requires that securities be
classified as trading, available for sale or held to maturity. The Company's
investments, which consist of short-term debt and marketable equity
securities, are classified as available for sale and are carried at fair
value. Changes in unrealized gains and losses are recorded as other
comprehensive income or loss and accumulated in stockholders' equity.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes (see Note 9).
New Accounting Pronouncements
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income.
This statement establishes standards for reporting and disclosing
comprehensive income. As this statement only required additional disclosures
in the Company's consolidated financial statements, its adoption did not have
any impact on the Company's consolidated financial position or results of
operations.
In 1998, the Company adopted SFAS 131, Disclosures about Segments of an
Enterprise and Related Information (see Note 15). As this statement only
required additional disclosures in the Company's consolidated financial
statements, its adoption did not have any impact on the Company's consolidated
financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. This statement is effective for all
fiscal years beginning after June 15, 1999. The Company is evaluating the
effects that the adoption of SFAS No. 133 may have on its consolidated
position or results of operations.
(2) Acquisitions
In January 1998, the Company signed an asset purchase agreement to purchase
the assets of a cable television system that serves communities in New York
(the "New York Acquisition"). The New York Acquisition was completed in June
1998 for a price of $27.2 million. The Company accounted for the New York
Acquisition under the purchase method of accounting. As such, the Company
allocated the purchase price of the system based on the fair value of the
assets acquired and liabilities assumed as determined by an independent
appraisal. The excess consideration over the fair value of the net tangible
assets has been allocated to various intangible assets, which are being
amortized over periods of 10 to 15 years.
In January 1998, the Company signed an asset purchase agreement to purchase
the assets of a cable television system that serves communities in New
Hampshire (the "New Hampshire Acquisition"). The New Hampshire Acquisition was
completed in October 1998 for a price of $119.5 million. The purchase
agreement provided the Company the option to assign all or a portion of the
New Hampshire Acquisition to another entity.
7
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
In October 1998, the Company assigned a portion of the New Hampshire
Acquisition to an affiliate, MetroCast Cablevision Holdings, LLC
("MetroCast"), and purchased its portion of the system for $63.5 million.
The Company accounted for the New Hampshire Acquisition under the purchase
method of accounting. As such, the Company allocated the purchase price of the
system based on the fair value of the assets acquired and liabilities assumed
as determined by an independent appraisal. The excess consideration over the
fair value of the net tangible assets has been assigned to franchise costs and
is being amortized over a period of 10 years.
The results of the New York and New Hampshire Acquisitions have been
included with those of the Company since the acquisition dates. The following
summarized unaudited pro forma information for the years ended December 31,
1998 and 1997 has been presented as if the New York and New Hampshire
Acquisitions had occurred on January 1, 1997. This unaudited pro forma
information is based on the historical results of operations adjusted for
certain acquisition costs. The unaudited pro forma information may not be
indicative of the results that actually would have occurred, or the results
that may be obtained in the future, if the acquisitions had occurred on
January 1, 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues.............................................. $131,353,989 $127,500,123
Operating income...................................... 23,471,652 21,241,651
Income before extraordinary item...................... 24,473,994 8,833,739
Net income............................................ 24,473,994 5,502,522
</TABLE>
In October 1998, simultaneous with the New Hampshire Acquisition, a wholly
owned subsidiary of the Company acquired a 27.1% equity interest in MetroCast
for an investment of $3,800,000. Summarized consolidated financial information
for MetroCast is as follows:
<TABLE>
<CAPTION>
December 31,
1998
--------------
<S> <C>
Current assets................................................... $ 620,495
===========
Total assets..................................................... $56,746,372
===========
Current liabilities.............................................. $ 2,393,625
===========
Total liabilities................................................ $45,393,625
===========
Members' equity.................................................. $11,352,747
===========
<CAPTION>
For the Period
May 5, 1998
(Inception)
Through
December 31,
1998
--------------
<S> <C>
Net revenue...................................................... $ 2,594,160
===========
Net loss......................................................... $(2,147,253)
===========
</TABLE>
Total liabilities includes a note payable and accrued interest of $7,196,000
on a note payable to the Company. The note bears interest at a rate of 12% and
matures in 2007. The Company has recorded the related
8
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
note receivable and accrued interest in "Investment in and advances to
affiliate" on its consolidated balance sheet at December 31, 1998.
The Company, through a three year management agreement, manages the
operations of MetroCast. Compensation for these services is 4% of MetroCast's
gross revenues. Net loss above consists of management fees paid to the Company
which amounted to approximately $104,000 which were earned for the period from
October 1998 through December 1998. Management fee revenue is included in
revenues in the Company's consolidated statement of income for the year ended
December 31, 1998. Officers of the Company own approximately 1.4% of
MetroCast.
The Company is accounting for its investment in MetroCast under the equity
method of accounting. As of December 31, 1998, the Company's investment in
MetroCast, including advances, was $10,413,236.
(3) Businesses and Assets Sold
The Company recognized gains on businesses and assets sold during 1998, 1997
and 1996 as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Harron Cablevision of Texas................ -- $ 9,575,000 --
Smith Television of New York--WKTV (see
Note 4)................................... -- 3,821,000 --
Harron Television of Monterey (KION)....... $1,337,000 1,323,000 $ 4,638,000
Direct Broadcast Satellite................. -- -- 23,722,000
Metrobase Cable Advertising................ -- -- 2,487,000
---------- ----------- -----------
Total...................................... $1,337,000 $14,719,000 $30,847,000
========== =========== ===========
</TABLE>
In July 1997, the Company sold the assets of Harron Cablevision of Texas
("Dallas") for $34,500,000 in cash. For the period ended June 30, 1997 and the
year ended December 31, 1996, Dallas had net revenues of $4,672,000 and
$8,746,000, respectively, and net losses of $1,221,000 and $3,009,000,
respectively. The sale resulted in a gain of $9,575,000.
In April 1996, Harron Television of Monterey ("HTM"), a partnership, whose
sole general partner is the Company, entered into a series of agreements (the
"Agreements") that established the terms of the transfer and use of certain of
the tangible and intangible assets of its television station (KION; formerly
KCCN) in Monterey, California. Under the Agreements, the buyer manages and is
responsible for the operations of KION; however, HTM maintains legal title to
the assets and remains the licensee of the station. At closing, HTM received a
non-refundable payment of $5,575,000 and obtained a bank loan of $4,825,000
(see below) as consideration for the rights to use of the station. HTM
recorded a gain of $4,638,000 representing the difference between the non-
refundable cash payment received and the net book value of the intangible
assets transferred. In addition, as part of the Agreements, the buyer has an
option to purchase the assets of the television station for $3,600,000,
expiring in April 1999. In October 1997, the buyer made an interim payment for
the option of $750,000. In January 1999, the buyer notified the Company of its
intention to exercise its option to purchase the assets of KION for
$2,850,000.
As noted above, HTM received a bank loan for $4,825,000. Although HTM is
obligated under the loan, the buyer has guaranteed payment of the loan and is
obligated to make monthly payments, commencing in January 1997, equal to the
principal and interest on the loan. HTM has recorded the debt outstanding and
is reducing the
9
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
debt and recognizing a gain as the payments are received from the buyer. The
gain recorded in 1998 and 1997 for payments received is $1,337,000 and
$1,323,000, respectively.
In October 1996, the Company sold the assets and business of its Direct
Broadcast Satellite ("DBS") operations to Pegasus Communications, Inc.
("Pegasus") concurrent with an initial public offering for Pegasus. The sales
price was $29,824,000, consisting of $17,894,000 in cash and 852,110 shares of
Pegasus common stock value at the initial public offering price of
$11,930,000. For the period ended September 30, 1996, DBS has net revenues of
$2,704,000 and a net loss of $1,448,000. The sale resulted in a gain of
$23,722,000.
In September 1996, the Company sold the assets and business of Metrobase
Cable Advertising ("Metrobase") for $4,500,000 in cash consideration and
retained net receivables. The Company has granted the buyer the exclusive
rights to air commercial advertising for certain cable systems in return for a
fee based on a percentage of revenues. For the period ended September 30,
1996, Metrobase had net revenues of $5,003,000 and net income of $259,000. The
sale resulted in a gain of $2,487,000.
(4) Television Broadcast Stations
WKTV and WETM
In 1992, the Company became a 40% stockholder in Smith Television of New
York (STNY), while Smith Broadcasting Group, Inc. ("Smith") and affiliates
became 60% stockholders in STNY. At the same time, an agreement was entered
into with STNY for the sale of the Company's television broadcast station
located in Utica, New York (WKTV). WKTV was sold for promissory notes due in
October 1997 in the amount of approximately $9,200,000 bearing interest at 8%.
Concurrent with the sale, STNY purchased from Smith, the assets of a
television broadcast station located in Elmira, New York (WETM). In January
1994, the Company increased its ownership interest in STNY to 49% by
purchasing the 9% interest held by Smith affiliates for $300,000.
In September 1997, the Company received $11,164,267 from Smith as payment
for the promissory notes plus accrued interest. Interest income on the notes
was recognized in the amount of $3,806,240. In addition, the Company
recognized the deferred gain on the sale of WKTV of $3,821,000.
KEYT
In January 1994, the Company, STNY and an affiliate of Smith entered into an
agreement to acquire the partnership interests of Smith Broadcasting of Santa
Barbara Limited Partnership (SBSBLP). The principal asset of SBSBLP is a
television broadcast station, KEYT-TV, located in Santa Barbara, California.
Pursuant to the agreement, the Company acquired a 21.6% limited partnership
interest through a wholly owned subsidiary of the Company and a 38.4% general
partnership interest through its investment in STNY (which owns a 78.4%
interest in SBSBLP). In addition, the Company had a $4,000,000 note receivable
from SBSBLP due November 1, 1997. The note accrued interest at 15% through
January 1995, and 20% thereafter. In 1997, the Company received $6,211,513
from Smith. This amount represented full payment on the $4,000,000 note
receivable plus interest income of $2,211,513 that was recognized in 1997.
10
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
Summarized consolidated financial information for STNY (including KEYT) is
as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current assets...................... $ 6,665,000 $ 6,436,000 $ 5,160,000
============ ============ ============
Total assets........................ $ 21,856,000 $ 22,612,000 $ 21,453,000
============ ============ ============
Current liabilities................. $ 3,116,000 $ 2,773,000 $ 30,617,000
============ ============ ============
Total liabilities................... $ 33,811,000 $ 35,167,000 $ 32,803,000
============ ============ ============
Stockholders' and partners'
deficiency......................... $(11,955,000) $(12,555,000) $(11,350,000)
============ ============ ============
Net revenue......................... $ 20,789,000 $ 16,801,000 $ 16,493,000
============ ============ ============
Net income (loss)................... $ 600,000 $ (1,205,000) $ (1,671,000)
============ ============ ============
</TABLE>
Net income (loss) above includes interest expense of $0, $1,670,000 and
$2,505,000 in 1998, 1997 and 1996, respectively, on notes payable to the
Company.
The Company is accounting for its 49% ownership interest in STNY and its
21.6% limited partnership interest in SBSBLP using the equity method of
accounting. At December 31, 1998 and 1997, the Company's investment in these
entities had been reduced to $0.
(5) Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
Years of December 31,
----------- ----------------------------
Useful Life 1998 1997
----------- ------------- -------------
<S> <C> <C> <C>
Central reception facilities,
distribution systems and technical
equipment.......................... 10 to 15 $ 210,915,316 $ 180,486,552
Vehicles, office and other
equipment.......................... 3 to 10 18,778,548 16,016,918
Buildings and improvements.......... 10 to 25 14,599,208 14,167,063
Construction in progress............ 17,434,183 6,070,431
Other............................... 1,676,030 1,619,918
------------- -------------
263,403,285 218,360,882
Accumulated deprecation and
amortization....................... (130,181,567) (118,670,257)
------------- -------------
$ 133,221,718 $ 99,690,625
============= =============
</TABLE>
The Company's policy is to capitalize interest incurred on debt during the
course of rebuilding cable system plants that exceed one year in construction.
Interest capitalized was $689,005 and $409,785 in 1998 and 1997, respectively.
Depreciation expense was $14,967,716, $15,959,125 and $16,541,275 in 1998,
1997 and 1996, respectively.
11
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
(6) Intangible Assets
At December 31, 1998 and 1997, intangible assets consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Franchise costs.................................... $103,813,280 $ 30,366,221
Deferred charges................................... 6,760,489 4,849,303
Other.............................................. 13,401,347 11,860,895
------------ ------------
Total............................................ 123,975,116 47,076,419
Accumulated amortization........................... (42,835,456) (37,200,132)
------------ ------------
$ 81,139,660 $ 9,876,287
============ ============
</TABLE>
(7) Short-Term Investments and Marketable Securities
In accordance with SFAS No. 115, the Company classified its investments as
available for sale. Securities available for sale at December 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Market
December 31, 1998 Cost Gains Losses Value
- - ----------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Certificates of deposit........ $ 2,116,058 -- $ (415) $ 2,115,643
Commercial paper............... 2,363,247 -- -- 2,363,247
Money market and other short-
term investments.............. 28,822,586 -- -- 28,822,586
Asset backed securities........ 12,829,178 $ 7,496 -- 12,836,674
Corporate bonds................ 15,481,348 -- (16,282) 15,465,066
Equity securities.............. 12,023,519 13,059,242 -- 25,082,761
U.S. Government and Agency
Obligations................... 10,060,177 28,894 -- 10,089,071
----------- ----------- -------- -----------
$83,696,113 $13,095,632 $(16,697) $96,775,048
=========== =========== ======== ===========
<CAPTION>
Gross Gross
Unrealized Unrealized Market
December 31, 1997 Cost Gains Losses Value
- - ----------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Commercial paper............... $29,524,699 -- $ (338) $29,524,361
Corporate bonds................ 9,105,304 $ 477 (14,555) 9,091,226
Equity securities.............. 12,011,000 14,563,408 -- 26,574,408
U.S. Government and Agency
Obligations................... 21,499,932 138,352 (10,983) 21,627,301
Mutual funds and other......... 10,424,259 -- -- 10,424,259
----------- ----------- -------- -----------
$82,565,194 $14,702,237 $(25,876) $97,241,555
=========== =========== ======== ===========
</TABLE>
Differences between cost and market of approximately $13,079,000 (less
deferred taxes of approximately $4,517,000) and approximately $14,676,000
(less deferred taxes of approximately $6,117,000) were credited to a separate
component of shareholders' equity called Accumulated Other Comprehensive
Income as of December 31, 1998 and 1997, respectively.
12
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
(8) Debt
Debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Term loan............................................. $ 75,000,000 $ 60,000,000
Revolving credit loan................................. 205,500,000 135,000,000
Other secured debt.................................... 3,679,226 5,300,842
------------ ------------
$284,179,226 $200,300,842
============ ============
</TABLE>
In June 1998, the Company amended its bank debt to increase commitments from
$250,000,000 to $375,000,000. The commitments are made up of a $75,000,000
term loan and a $300,000,000 revolving credit loan. The $75,000,000 term loan
commitment is payable in three equal installments of $25,000,000. Two payments
of $25,000,000 are due in 2006 and one payment of $25,000,000 is due in 2007.
The $300,000,000 revolving credit commitment expires in 2006. The unused
portion of this revolving credit commitment was $94,500,000 as of December 31,
1998. The Company pays a quarterly commitment fee of 0.5% on the unused
amount.
Interest on the term loan and revolving credit loan is based upon various
rates at the option of the Company and is also dependent on the leverage ratio
of the Company. The effective rate of interest for these borrowings at
December 31, 1998 was 7.7%.
In 1997, the Company refinanced certain bank debt by obtaining commitments
for $250,000,000 representing a $60,000,000 term loan and a $150,000,000
revolving credit line. In connection with the 1997 refinancing, the Company
recorded an extraordinary loss, net of taxes of $3,331,217 representing
prepayment penalties and the write-off of debt issuance costs associated with
original borrowings.
Other secured debt consists primarily of a note payable of $2,665,000 in
connection with the license management agreement (see Note 3) and a building
mortgage note.
The debt agreements are collateralized by substantially all assets of the
Company. These debt agreements require the Company to maintain certain
financial ratios and stipulate, among other things, limitations on additional
borrowings, investments, transactions with affiliates, payments of dividends
and repurchase of capital stock.
Future aggregate debt maturities for the five years subsequent to December
31, 1998 are as follows:
<TABLE>
<S> <C>
1999................................................................. $2,865,998
2000................................................................. 154,337
2001................................................................. 21,217
2002................................................................. 20,479
2003................................................................. 22,482
</TABLE>
13
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
(9) Income Taxes
In March 1998, the shareholders of the Company made an election under the
Internal Revenue Code to treat the Company as a qualified sub-chapter S
Corporation effective January 1, 1998. Accordingly, the Company recorded a
reversal of a portion of the deferred tax liabilities at December 31, 1997 in
the 1998 consolidated statement of income. However, the Company was subject to
a corporate level tax for certain built-in gains present at the date of
conversion which may be realized within a ten-year period following its
election to be treated as a sub-chapter S Corporation. A total of $7,989,000
related to the deferred tax liability at December 31, 1997 was reversed into
income in the consolidated statement of income for the year ended December 31,
1998.
Prior to January 1, 1998, the Company accounted for income taxes under the
provisions of SFAS No. 109, which requires an asset and liability approach for
financial accounting and reporting of income taxes. Under this approach,
deferred taxes are recognized for the estimated taxes ultimately payable or
recoverable based on enacted tax law. Changes in enacted tax rates will be
reflected in the tax provision as they occur. Deferred income taxes reflect
the net tax effects of (a) temporary differences between carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes, and (b) operating loss and tax credit carryforwards.
The income tax (benefit) provision includes the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal................................. -- $ 4,133,000 $ 3,305,000
State................................... $ 643,769 547,000 2,527,000
----------- ----------- -----------
Total current......................... 643,769 4,680,000 5,832,000
----------- ----------- -----------
Deferred:
Federal................................. (6,210,000) 6,654,000 3,695,000
State................................... (1,779,000) 881,000 1,265,000
----------- ----------- -----------
Total deferred........................ (7,989,000) 7,535,000 4,960,000
----------- ----------- -----------
Income tax (benefit) provision............ $(7,345,231) $12,215,000 $10,792,000
=========== =========== ===========
</TABLE>
The Company's effective income tax rate is disproportionate from the
statutory rate, due primarily in 1998 to the sub-chapter S election discussed
above and in 1997 and 1996 to utilization of state net operating loss
carryforwards, state taxes and nondeductible expenses.
Total income tax expense was different from the amounts computed by applying
the statutory federal income tax rate to income before income taxes due to the
following:
<TABLE>
<CAPTION>
1997 1996
---- -----
<S> <C> <C>
Income tax expense at statutory rate.............................. 35.0% 35.0%
Increase (reduction) in taxes resulting from:
State tax net of federal benefit................................ 3.1 8.7
Amortization.................................................... 0.6 0.8
Non-deductible expenses......................................... 0.6 0.6
Other........................................................... 1.4 --
Utilization of net operating loss and investment tax credit
carryforwards.................................................. -- (14.1)
---- -----
Income tax provision............................................ 40.7% 31.0%
==== =====
</TABLE>
14
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
Significant items comprising the Company's deferred tax assets and
liabilities as of December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Difference between book and tax basis of property,
plant and equipment................................. $ 4,951,000 $15,110,500
State taxes.......................................... 1,023,400 4,293,000
Unrealized gain on marketable securities............. 4,570,800 6,117,000
Gain on sale of DBS operations....................... 2,337,000 2,337,000
Partnership investments/notes receivables............ 762,500
Other................................................ 123,900
----------- -----------
Total deferred tax liabilities..................... 13,006,100 28,620,000
----------- -----------
Deferred tax assets:
Partnership investments/note receivables............. 235,500
Accrued liabilities.................................. 502,000
State taxes.......................................... 61,300 1,552,200
Alternative minimum tax carryforward................. 1,085,000 825,000
Difference between book and tax basis of property and
intangible assets................................... 2,233,600 6,053,500
Other................................................ 245,500
----------- -----------
9,413,700
Net deferred tax assets............................ 3,379,900 9,413,700
----------- -----------
Net deferred tax liability............................. $ 9,626,200 $19,206,300
=========== ===========
</TABLE>
As of December 31, 1998, the Company has alternative minimum tax credit
carryforwards available of approximately $1,085,000 for federal income tax
purposes.
(10) Employee Savings Plan
The Company has a 401(k) savings plan which provides that employees of the
Company who have completed one year of service, as defined in the plan, and
who are not covered by a collective bargaining agreement may contribute from
1% to 15% of their earnings. The Company provides for matching of employee
contributions up to 6% of earnings. The Company's expense related to the
savings plan amounted to $428,987, $255,234 and $303,801 in 1998, 1997 and
1996, respectively.
15
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
(11) Commitments and Contingencies
The Company is obligated under noncancellable operating leases, primarily
for vehicles and office space, that expire in various years through 2004.
Rental expense under these leases aggregated approximately $1,098,000,
$1,168,000 and $1,280,000 in 1998, 1997 and 1996, respectively. Future minimum
lease payments under such noncancellable operating leases for the five years
subsequent to December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
- - ------------------------
<S> <C>
1999................................................................ $ 801,917
2000................................................................ 346,890
2001................................................................ 84,441
2002................................................................ 30,441
2003................................................................ 26,668
Thereafter.......................................................... 115,345
----------
Total............................................................... $1,405,702
==========
</TABLE>
The Company has cancellable operating leases for pole rent with utility
companies. Pole rent amounted to approximately $1,157,000, $1,176,000 and
$1,264,000 in 1998, 1997 and 1996, respectively.
The Company is obligated under certain license agreements for film contracts
not yet available for telecasting of approximately $1,673,000 at December 31,
1998.
(12) Related Party Transactions
A stockholder of the Company died in January 1998 and the Company received
approximately $9,423,000 representing life insurance proceeds.
The Company had committed to repurchase a total of 1,100 shares of stock
from the estate of a stockholder. In 1997 and 1996, the Company repurchased
109 shares for $248,791. No purchases were made in 1998. As of December 31,
1998, 280 shares remain under the commitment.
Stockholders owed the Company approximately $6,776,000 and $4,264,000 at
December 31, 1998 and 1997, respectively. These amounts, evidenced by
interest-bearing notes, are due in varying amounts through 2000 and are
secured by stockholders' shares in the Company.
One of the members of the Executive Committee of the Board of Directors is a
partner in the law firm that is the Company's general counsel. Legal fees
incurred with the law firm amounted to approximately $463,000, $515,000 and
$480,000 in 1998, 1997 and 1996, respectively. In addition, another member of
the Executive Committee is employed by a firm which represented the Company
resulting in consulting fees paid to this firm of approximately $137,000,
$1,281,000 and $347,000 in 1998, 1997 and 1996, respectively.
See Notes 2 and 4 for a discussion of transactions with equity method
investees.
In October 1997, the Company formed a subsidiary and contributed $2,000,000
in exchange for a 67% interest in the entity. In addition, a shareholder of
the Company contributed $1,000,000 in exchange for the remaining 33% interest.
This subsidiary in turn invested the $3,000,000 in a publicly traded
environmental company in exchange for notes secured by a first mortgage lien
on property owned by the publicly traded company. The notes receivable are
included in "Prepaid expenses and other assets" on the Company's consolidated
balance sheet.
16
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
(13) Derivative Financial Instruments
The Company has derivative financial instruments which are used to manage
interest rate risks.
In June 1997, the Company entered into three-year interest rate protection
agreements on notional amounts totaling $180,000,000 which limit the LIBOR
interest rates at ranges from 5.55% and 5.61% to a cap rate of 8%.
The Company is exposed to credit losses in the event of nonperformance by
the counterparties to its interest rate protection agreements but has no off-
balance sheet credit risk of accounting loss. The Company anticipates,
however, that counterparties will be able to fully satisfy their obligations
under the contracts. The Company does not obtain collateral or other security
to support financial instruments subject to credit risk but monitors the
credit standing of counterparties.
(14) Disclosures About Fair Value of Financial Instruments
The fair value of the Company's long-term debt is estimated based on the
discounted amount of future cash flows using an estimate of the Company's
current incremental borrowing rate. The carrying values approximate the fair
values at December 31, 1998 and 1997.
The fair values of the Company's interest rate protection agreements are
based on current interest rate conditions as well as an estimate of market
volatility. At December 31, 1998 and 1997, the fair value of the interest rate
protection agreements were ($3,228,000) and ($999,068), respectively.
17
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
(15) Segment Information
The following represents the Company's significant business segments: Cable
and Broadcast Television. The components of net income (loss) below operating
income (loss) are not separately evaluated by the Company's management on a
segment basis (see the Company's consolidated statement of income).
<TABLE>
<CAPTION>
Broadcast Corporate &
Cable Television Other (1) Total
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
1998
Revenues................... $112,635,214 $8,446,040 $ 103,774 $121,185,028
Operating income before
depreciation and
amortization (2).......... 52,980,376 1,423,430 (10,790,537) 43,613,269
Depreciation and
amortization.............. 18,460,547 914,692 1,317,151 20,692,390
Total asssets.............. 142,807,766 17,138,736 191,022,748 350,969,250
Capital expenditures....... 32,830,873 436,375 377,950 33,645,198
1997
Revenues................... $103,325,810 $8,801,339 $ -- $ 112,127,14
Operating income before
depreciation and
amortization (2).......... 49,280,085 2,155,761 (8,334,494) 43,101,352
Depreciation and
amortization.............. 16,963,182 1,397,738 1,491,154 19,852,074
Total assets............... 133,387,559 17,529,276 92,916,775 243,833,610
Capital expenditures....... 25,800,318 690,390 163,668 26,654,376
1996
Revenues................... $100,008,344 $9,787,060 $ 7,644,229 $117,439,633
Operating income before
depreciation and
amortization (2).......... 46,865,502 2,416,399 (6,938,967) 42,342,934
Depreciation and
amortization.............. 17,824,718 1,514,561 2,872,786 22,212,065
Total assets............... 128,001,768 21,139,616 34,493,850 183,635,234
Capital expenditures....... 10,871,641 423,966 205,480 11,501,087
</TABLE>
- - --------
(1) Other includes segments not meeting certain quantative guidelines for
reporting. Other includes the Company's DBS and advertising operations
(through December 31, 1996) and elimination entries related to the
segments presented. Corporate and other assets consist primarily of the
Company's investments.
(2) Operating income before depreciation and amortization in commonly
referred to in the Company's businesses as "operating cash flow".
Operating cash flow is a measure of a company's ability to generate cash
to service its obligations, including debt service obligations, and to
finance capital and other expenditures. In part due to the capital
intensive nature of the Company's businesses and the resulting
significant level of noncash depreciation and amortization expense,
operating cash flow is frequently used as one of the bases for comparing
businesses in the Company's industry, although the Company's measure of
operating cash flow may not be comparable to similarity titled measures
of other companies. Operating cash flow does not purport to represent net
income or net cash provided by operating activities, as those terms are
defined under generally accepted accounting principles, and should not be
considered as an alternative to such measurements as an indicator of the
Company's performance.
18
<PAGE>
HARRON COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
(16) Subsequent Events
Cable Television Operations
In February 1999, the Company purchased the assets of a cable television
system that serves communities in Michigan for approximately $4.4 million.
In April 1999, the Company entered into an agreement with Adelphia
Communications Corporation to sell all of its cable operations for
approximately $1.17 billion, subject to certain customary conditions,
including regulatory and other approvals. The transaction is expected to close
in March 2000.
******
19
<PAGE>
Exhibit 99.05
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
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 Adelphia
Communications Corporation and subsidiaries ("Adelphia"), FrontierVision
Partners, L.P. and subsidiaries ("FrontierVision"), Century Communications
Corp. and subsidiaries ("Century"), Harron Communications Corp. and
subsidiaries ("Harron") and Olympus Communications, L.P. and subsidiaries
("Olympus"). The unaudited pro forma condensed consolidated balance sheet
information as of December 31, 1998 gives pro forma effect to (i) the
securities offerings completed by Adelphia and its 67% owned subsidiary,
Hyperion Telecommunications, Inc. ("Hyperion") after December 31, 1998, (ii)
the repurchase of Adelphia Class A common stock and Series C Cumulative
Convertible preferred stock from subsidiaries of Florida Power and Light
("FPL") after December 31, 1998, (iii) the pending acquisitions of
FrontierVision, Century, Harron and the interests in Olympus held by Telesat
Cablevision, Inc. ("Telesat"), a subsidiary of FPL, and (iv) the intended
securities offering to be completed prior to closing such acquisitions, as if
all such transactions had been consummated on December 31, 1998. The unaudited
pro forma condensed consolidated statements of continuing operations
information for the year ended March 31, 1998 and the nine months ended
December 31, 1998 have been presented as if (i) the financing and securities
offerings of Adelphia and Hyperion completed after April 1, 1997, including
the securities offerings completed by Adelphia and Hyperion after December 31,
1998 as discussed above, (ii) the repurchase of Adelphia Class A common stock
from FPL, (iii) the pending acquisitions of FrontierVision, Century, Harron
and Telesat's interests in Olympus, and (iv) the intended securities offering
to be completed prior to closing such acquisitions had all been consummated on
April 1, 1997.
The unaudited pro forma financial information gives effect to the pending
acquisitions of FrontierVision, Century, Harron and Telesat's interests in
Olympus 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 allocations of the total purchase price for the
acquisition of FrontierVision, Century, Harron and Telesat's interests in
Olympus are based on preliminary estimates and are subject to final allocation
adjustments.
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 nor 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 stock repurchase, acquisitions and securities offerings been consummated
on the dates for which such transactions are being given effect. The pro forma
adjustments reflecting the consummation of the stock repurchase, acquisitions
and securities offerings are based upon the assumptions set forth in the notes
to the unaudited pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated 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 Adelphia and Olympus, which are contained in their respective
annual reports on Form 10-K and quarterly reports on Form 10-Q not included in
this current report on Form 8-K, and of FrontierVision, Century and Harron,
which are included elsewhere in this current report on Form 8-K.
1
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Adelphia Olympus FrontierVision
Pro Forma Pro Forma Pro Forma
Adelphia Olympus FrontierVision Century* Harron Adjustments Adjustments Adjustments
(a) (a) (a) (a) (a) (b) (c) (d)
----------- ---------- -------------- ---------- -------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Property, plant
and equipment--
net.............. $ 1,207,655 $ 355,470 $ 342,754 $ 564,415 $133,222 $ -- $ 24,568 $ --
Intangible
assets--net...... 1,029,159 577,171 820,524 462,356 81,139 -- 104,913 943,408
Cash and cash
equivalents...... 398,644 44,617 7,354 628,162 3,645 872,787 (108,000) (550,000)
Investment in and
amounts due from
Olympus.......... 191,408 -- -- -- -- -- (191,408) --
Other assets--
net.............. 467,591 34,741 43,731 144,531 132,963 14,300 10,782 --
----------- ---------- ---------- ---------- -------- --------- ---------- ---------
Total assets.... $ 3,294,457 $1,011,999 $1,214,363 $1,799,464 $350,969 $ 887,087 $(159,145) $ 393,408
=========== ========== ========== ========== ======== ========= ========== =========
Liabilities,
Preferred Stock,
Common Stock and
Other
Stockholders'
Equity
(Deficiency):
Subsidiary debt.. $ 1,717,240 $ 726,982 $1,355,144 $2,037,582 284,179 $(312,150) $ -- $(234,002)
Parent debt...... 1,810,212 -- -- -- -- 252,300 -- --
Deferred income
taxes............ 109,609 40,951 11,856 3,278 9,626 -- -- --
Other
liabilities...... 253,493 380,013 48,261 147,658 23,858 -- (319,833) 19,826
----------- ---------- ---------- ---------- -------- --------- ---------- ---------
Total
liabilities..... 3,890,554 1,147,946 1,415,261 2,188,518 317,663 (59,850) (319,833) (214,176)
----------- ---------- ---------- ---------- -------- --------- ---------- ---------
Minority
interests........ 48,784 -- -- 73,888 1,000 -- -- --
----------- ---------- ---------- ---------- -------- --------- ---------- ---------
Hyperion
Redeemable
Exchangeable
Preferred Stock.. 228,674 -- -- -- -- -- -- --
----------- ---------- ---------- ---------- -------- --------- ---------- ---------
Series A
Cumulative
Redeemable
Exchangeable
Preferred Stock.. 148,191 -- -- -- -- -- -- --
----------- ---------- ---------- ---------- -------- --------- ---------- ---------
Convertible
preferred stock,
common stock and
other
stockholders'
equity
(deficiency):
Convertible
preferred stock.. 1 -- -- -- -- 20 -- --
Common stock..... 421 -- -- 1,090 482 174 -- 70
Additional paid-
in capital....... 738,102 -- -- 181,103 8,508 1,101,256 -- 406,616
Accumulated
deficit.......... (1,760,270) -- -- (497,864) 23,316 (5,300) 24,741 --
Treasury stock at
cost and other... -- -- -- (147,271) -- (149,213) -- --
Partners'
deficiency....... -- (135,947) (200,898) -- -- -- 135,947 200,898
----------- ---------- ---------- ---------- -------- --------- ---------- ---------
Convertible
preferred stock,
common stock and
other
stockholders'
equity
(deficiency).... (1,021,746) (135,947) (200,898) (462,942) 32,306 946,937 160,688 607,584
----------- ---------- ---------- ---------- -------- --------- ---------- ---------
Total........... $ 3,294,457 $1,011,999 $1,214,363 $1,799,464 $350,969 $ 887,087 $(159,145) $ 393,408
=========== ========== ========== ========== ======== ========= ========== =========
<CAPTION>
Century Harron
Pro Forma Pro Forma Pro Forma
Adjustments Adjustments Adelphia
(e) (f) Consolidated
------------ ------------ -------------
<S> <C> <C> <C>
Assets:
Property, plant
and equipment--
net.............. $ 805,941 $ 188,473 $ 3,622,498
Intangible
assets--net...... 4,323,765 1,131,579 9,474,014
Cash and cash
equivalents...... (726,000) (336) 570,873
Investment in and
amounts due from
Olympus.......... -- -- --
Other assets--
net.............. -- (125,559) 723,080
------------ ------------ -------------
Total assets.... $4,403,706 $1,194,157 $14,390,465
============ ============ =============
Liabilities,
Preferred Stock,
Common Stock and
Other
Stockholders'
Equity
(Deficiency):
Subsidiary debt.. $ 100,000 885,591 $ 6,560,566
Parent debt...... -- -- 2,062,512
Deferred income
taxes............ 1,100,000 344,502 1,619,822
Other
liabilities...... -- (2,630) 550,646
------------ ------------ -------------
Total
liabilities..... 1,200,000 1,227,463 10,793,546
------------ ------------ -------------
Minority
interests........ -- (1,000) 122,672
------------ ------------ -------------
Hyperion
Redeemable
Exchangeable
Preferred Stock.. -- -- 228,674
------------ ------------ -------------
Series A
Cumulative
Redeemable
Exchangeable
Preferred Stock.. -- -- 148,191
------------ ------------ -------------
Convertible
preferred stock,
common stock and
other
stockholders'
equity
(deficiency):
Convertible
preferred stock.. -- -- 21
Common stock..... (603) (482) 1,152
Additional paid-
in capital....... 2,559,174 (8,508) 4,986,251
Accumulated
deficit.......... 497,864 (23,316) (1,740,829)
Treasury stock at
cost and other... 147,271 -- (149,213)
Partners'
deficiency....... -- -- --
------------ ------------ -------------
Convertible
preferred stock,
common stock and
other
stockholders'
equity
(deficiency).... 3,203,706 (32,306) 3,097,382
------------ ------------ -------------
Total........... $4,403,706 $1,194,157 $14,390,465
============ ============ =============
</TABLE>
- - -----
*As of February 28, 1999.
2
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1998
(Dollars in thousands, except per share amounts)
(a) Represents historical amounts.
(b) Represents the net effects of: (i) sale on January 14, 1999 of 8,600,000
shares of Adelphia Class A common stock with net proceeds of approximately
$371,450, which was used to repay subsidiary debt, (ii) the offering
completed on January 13, 1999 of $100,000 of 7 1/2% Senior Notes due 2004
and $300,000 of 7 3/4% Senior Notes due 2009, with net proceeds of
approximately $393,700 which was used to repay approximately $147,700 of
parent debt and approximately $246,000 of subsidiary debt, (iii) the
repurchase of Adelphia Class A common stock and Series C Cumulative
Convertible preferred stock for a total of approximately $149,213 from
FPL, (iv) the receipt of net proceeds from the intended securities
offerings of approximately $200,000 of Adelphia 5 1/2% Convertible
preferred stock, $300,000 of Adelphia Class A common stock at an assumed
price of $64 per share and $250,000 of Adelphia Class B common stock at an
assumed price of $64 per share less the underwriting discount and (v) the
offering completed on March 2, 1999 by Hyperion of $300,000 of 12% Senior
Subordinated Notes due 2007, with net proceeds of approximately $292,000
which will be used for acquisition of its local partners' interests,
capital expenditures, investments in networks, and working capital and
general corporate purposes.
(c) Represents the net effects of Adelphia's purchase of Telesat's interests
in Olympus for $108,000 and the associated preliminary adjustments to the
historical balance sheet of Olympus recorded in conjunction with applying
purchase accounting including an initial allocation of $28,237 and
$112,946 of the purchase price to Property, plant and equipment--net and
Intangible assets--net, respectively. The purchase by Adelphia of
Telesat's interests in Olympus will result in the consolidation of Olympus
with Adelphia; accordingly, this also includes elimination of all
significant intercompany accounts and balances, reclassification of
$10,782 of other affiliate receivables and the elimination of
approximately $24,741 of accrued priority return expensed by Olympus but
not recorded by Adelphia until received.
(d) Represents the net effects of: (i) issuance of 7,000,000 shares of
Adelphia Class A common stock at $58.10 per share, (ii) $550,000 cash
portion of the acquisition, (iii) preliminary adjustments recorded in
conjunction with applying purchase accounting including an initial
allocation of $943,408 of the purchase price to Intangible assets--net,
(iv) the elimination of $234,002 of affiliate debt not assumed in the
acquisition and (v) certain other working capital adjustments.
(e) Represents the net effects of (i) issuance of approximately 48,700,000
shares of Adelphia Class A common stock at $56.30 per share, (ii) $826,000
cash portion of the acquisition, a portion of which is assumed to be
funded under Adelphia's subsidiaries' credit facilities, (iii) preliminary
estimate of deferred tax liability impact due to acquisition and (iv)
preliminary adjustments recorded in conjunction with applying purchase
accounting including an initial allocation of $805,941 and $4,323,765 of
the purchase price to Property, plant and equipment--net and Intangible
assets--net, respectively.
(f) Represents the net effects of: (i) $1,169,770 cash acquisition funded
through additional borrowings under Adelphia's subsidiaries' credit
facilities, net of repayment of existing Harron subsidiary debt, (ii) non-
cable television assets excluded from the acquisition, (iii) preliminary
adjustments recorded in conjunction with applying purchase accounting
including an initial allocation of $196,858 and $1,131,936 of the purchase
price to Property, plant and equipment--net and Intangible assets--net,
respectively and (iv) preliminary estimate of deferred tax liability
impact due to acquisition.
3
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF CONTINUING OPERATIONS
Year Ended March 31, 1998
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Adelphia Olympus FrontierVision
Adelphia Olympus* FrontierVision* Century** Harron* Pro Forma Pro Forma Pro Forma
(a) (a) (a) (a) (a) Adjustments Adjustments Adjustments
--------- --------- --------------- --------- -------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $ 528,442 $ 176,363 $145,126 $ 484,736 $112,127 $ -- $ -- $ --
--------- --------- -------- --------- -------- ------- ------- -------
Operating
expenses:
Direct operating
and
programming..... 167,288 56,905 74,314 103,932 42,982 -- -- (21,873)(l)
Selling, general
and
administrative.. 95,731 41,729 4,418 122,307 26,044 9,715(b) (9,566)(i) 21,873 (l)
Depreciation and
amortization.... 145,041 43,337 65,627 154,029 19,852 -- 5,647 (j) 12,746 (m)
--------- --------- -------- --------- -------- ------- ------- -------
Total........... 408,060 141,971 144,359 380,268 88,878 9,715 (3,919) 12,746
--------- --------- -------- --------- -------- ------- ------- -------
Operating income
(loss)........... 120,382 34,392 767 104,468 23,249 (9,715) 3,919 (12,746)
--------- --------- -------- --------- -------- ------- ------- -------
Other income
(expense)
Priority
investment
income from
Olympus......... 47,765 -- -- -- -- (47,765)(c) -- --
Interest
expense--net.... (247,107) (56,750) (70,430) (172,608) (5,658) (36,041)(d) 6,600(k) 22,264(n)
Equity in loss
of Olympus and
other joint ventures.. (66,089) -- -- -- -- 58,627(e) -- --
Equity in loss
of Hyperion
joint ventures.. (12,967) -- -- -- -- -- -- --
Minority
interest in
income of
subsidiaries.... -- -- -- (11,899) -- -- -- --
Hyperion
preferred stock
dividends....... (12,682) -- -- -- -- (14,439)(f) -- --
Gain on sale of
assets.......... 2,538 1,522 -- -- 11,973 -- -- --
Other........... -- 1,085 (57) 1,533 478 -- -- --
--------- --------- -------- --------- -------- ------- ------- -------
Total........... (288,542) (54,143) (70,487) (182,974) 6,793 (39,618) 6,600 22,264
--------- --------- -------- --------- -------- ------- ------- -------
(Loss) income
before income
taxes and
extraordinary loss.. (168,160) (19,751) (69,720) (78,506) 30,042 (49,333) 10,519 9,518
Income tax
benefit
(expense)........ 5,606 (51) -- 624 (12,215) 169,097(g) -- --
--------- --------- -------- --------- -------- ------- ------- -------
(Loss) income
from continuing
operations....... (162,554) (19,802) (69,720) (77,882) 17,827 119,764 10,519 9,518
Dividend
requirements
applicable to
preferred stock.. (18,850) -- -- -- -- (19,775)(h) -- --
--------- --------- -------- --------- -------- ------- ------- -------
(Loss) income
applicable to
common
stockholders from
continuing
operations....... $(181,404) $ (19,802) $(69,720) $ (77,882) $ 17,827 $99,989 $10,519 $ 9,518
========= ========= ======== ========= ======== ======= ======= =======
Basic and diluted
loss from
continuing
operations per
weighted average
share
of common stock
................. $ (6.07)
=========
Weighted average
shares of common
stock outstanding
(in thousands)... 29,875
=========
<CAPTION>
Century Harron Pro Forma
Pro Forma Pro Forma Adelphia
Adjustments Adjustments Consolidated
------------- -------------- --------------
<S> <C> <C> <C>
Revenues......... $ 123,605(o) $ (8,801)(q) $1,561,598
------------- -------------- --------------
Operating
expenses:
Direct operating
and
programming..... 131,792(o) (4,035)(q) 551,305
Selling, general
and
administrative.. -- (4,445)(q) 307,806
Depreciation and
amortization.... 102,659(p) 46,437(r) 595,375
------------- -------------- --------------
Total........... 234,451 37,957 1,454,486
------------- -------------- --------------
Operating income
(loss)........... (110,846) (46,758) 107,112
------------- -------------- --------------
Other income
(expense)
Priority
investment
income from
Olympus......... -- -- --
Interest
expense--net.... 8,187(o) (70,158)(q) (621,701)
Equity in loss
of Olympus and
other joint ventures.. -- -- (7,462)
Equity in loss
of Hyperion
joint ventures.. -- -- (12,967)
Minority
interest in
income of
subsidiaries.... -- -- (11,899)
Hyperion
preferred stock
dividends....... -- -- (27,121)
Gain on sale of
assets.......... -- -- 16,033
Other........... -- (5,696)(q) (2,657)
------------- -------------- --------------
Total........... 8,187 (75,854) (667,774)
------------- -------------- --------------
(Loss) income
before income
taxes and
extraordinary loss.. (102,659) (122,612) (560,662)
Income tax
benefit
(expense)........ -- 4,649(q) 167,710
------------- -------------- --------------
(Loss) income
from continuing
operations....... (102,659) (117,963) (392,952)
Dividend
requirements
applicable to
preferred stock.. -- -- (38,625)
------------- -------------- --------------
(Loss) income
applicable to
common
stockholders from
continuing
operations....... $(102,659) $(117,963) $ (431,577)
============= ============== ==============
Basic and diluted
loss from
continuing
operations per
weighted average
share
of common stock
................. $ (3.91)(s)
==============
Weighted average
shares of common
stock outstanding
(in thousands)... 110,423(s)
==============
</TABLE>
- - -----
*Year ended December 31, 1997.
**Year ended May 31, 1998.
4
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF CONTINUING OPERATIONS
Year Ended March 31, 1998
(Dollars in thousands)
(a) Represents historical amounts.
(b) Represents the elimination of allocated overhead costs to Olympus.
(c) Represents the elimination of priority investment income from Olympus.
(d) Gives effect to the application of the net proceeds of (i) approximately
$292,000 from the March 2, 1999 12% Senior Subordinated Notes issued by
Hyperion, (ii) approximately $371,450 from the January 14, 1999 offering
of 8,600,000 shares of Adelphia Class A common stock, (iii) approximately
$393,700 from the January 13, 1999 7 1/2% and 7 3/4% Senior Notes issued
by Adelphia, (iv) $330,000 from the financing of the Western New York
Partnership, (v) approximately $268,000 from the 1998 offering of
8,805,315 shares of Adelphia Class A common stock, and (vi) approximately
$244,000 from the August 27, 1997 offering of 12 1/4% Senior Secured Notes
issued by Hyperion, as if such transactions had occurred April 1, 1997.
Also gives effect to the elimination of $6,600 of interest income received
from Olympus.
(e) Represents the elimination of equity in loss of Olympus.
(f) Gives effect to an increase in Hyperion preferred stock dividends as if
the October 1997 issuance of $200,000 12 7/8% Senior Exchangeable
Preferred Stock had occurred on April 1, 1997.
(g) Represents the estimated income tax provision after giving effect to the
pending acquisitions of FrontierVision, Century, Harron, and Olympus and
related pro forma adjustments.
(h) Gives effect to an increase in Adelphia preferred stock dividends as if
the July 7, 1997 issuance of $150,000 of 13% Cumulative Exchangeable
Preferred Stock and $100,000 of 8 1/8% Series C Cumulative Convertible
preferred stock and the intended sale of $200,000 of Adelphia 5 1/2%
Convertible preferred stock as if they had occurred on April 1, 1997.
(i) Represents the elimination of allocated overhead costs from Adelphia.
(j) Represents the additional depreciation and amortization expense resulting
from the acquisition of Olympus. Pro forma depreciation and amortization
is calculated on a straight-line basis over periods that are consistent
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 5-12 years) and
intangible assets (primarily purchased franchises and goodwill amortized
over 40 years) and is subject to final allocation adjustments.
(k) Represents the elimination of interest expense paid to Adelphia.
(l) Represents reclassification between direct operating and programming and
selling, general and administrative expenses to conform with Adelphia's
presentation.
(m) Represents the additional depreciation and amortization expense resulting
from the acquisition of FrontierVision. Pro forma depreciation and
amortization is calculated on a straight-line basis over periods that are
consistent with Adelphia's accounting policy. The cost basis of the
purchased assets utilized in these calculations is based on a preliminary
asset allocation to intangible assets (primarily purchased franchises and
goodwill amortized over 40 years) and is subject to final allocation
adjustments. Additionally, amount represents pro forma reduction of
depreciation and amortization expense to adjust historical expense amounts
to Adelphia's depreciation and amortization periods.
(n) Represents the elimination of affiliate interest expense paid by
FrontierVision on affiliate debt not assumed in the acquisition.
5
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF CONTINUING OPERATIONS--(Continued)
Year Ended March 31, 1998
(Dollars in thousands)
(o) Represents 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.
(p) Represents the additional depreciation and amortization expense resulting
from the acquisition of Century. Pro forma depreciation and amortization
is calculated on a straight-line basis over periods that are consistent
with Adelphia's accounting policy. 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 5-12 years) and intangible assets (primarily
purchased franchises and goodwill amortized over 40 years) and is subject
to final allocation adjustments. Additionally, amount represents pro forma
reduction of depreciation and amortization expense to adjust historical
expense amounts to Adelphia's depreciation and amortization periods.
(q) Represents amounts resulting from the non-cable television operations
excluded from the acquisition and the incremental interest expense
incurred from additional borrowings under Adelphia's subsidiaries' credit
facilities to fund the acquisition.
(r) Represents the net effect of depreciation and amortization expense of non-
cable television assets excluded from the acquisition and the additional
depreciation and amortization expense resulting from the acquisition of
Harron. Pro forma depreciation and amortization is calculated on a
straight-line basis over periods that are consistent with Adelphia's
accounting policy. 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 5-12 years) and intangible assets (primarily purchased
franchises and goodwill amortized over 40 years) and is subject to final
allocation adjustments.
(s) Gives effect to the repurchase and issuance of Class A common stock in
connection with: (i) the repurchase of approximately 1,091,524 shares from
FPL, (ii) 8,600,000 shares issued January 14, 1999, (iii) 8,805,315 shares
issued in the 1998 offering, (iv) 7,000,000 shares to be issued in the
FrontierVision acquisition, (v) approximately 48,700,000 shares to be
issued in the Century acquisition, (vi) approximately 8,777,814 shares
estimated to be issued in the intended offering to be completed prior to
closing the acquisitions of FrontierVision, Century, Harron and Telesat's
interest in Olympus, as if such transactions had been consummated on April
1, 1997. Diluted loss from continuing operations per common share is equal
to basic loss from continuing operations per common share because
Adelphia's existing and expected convertible preferred stock had or would
have an antidilutive effect; however, the convertible preferred stock
could have a dilutive effect on earnings per share in future periods.
6
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF CONTINUING OPERATIONS
Nine Months Ended December 31, 1998
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Adelphia Olympus
Adelphia Olympus FrontierVision Century* Harron Pro Forma Pro Forma
(a) (a) (a) (a) (a) Adjustments Adjustments
--------- -------- -------------- --------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........ $ 507,155 $164,724 $191,315 $ 387,726 $93,548 $ -- $ --
--------- -------- -------- --------- ------- ------- --------
Operating
expenses:
Direct
operating and
programming.... 167,963 56,586 95,907 85,284 36,728 -- --
Selling,
general and
administrative.. 107,249 39,153 5,216 87,696 23,424 10,456(b) (10,456)(h)
Depreciation
and
amortization... 140,823 39,683 90,608 125,864 16,702 -- 4,235(i)
--------- -------- -------- --------- ------- ------- --------
Total.......... 416,035 135,422 191,731 298,844 76,854 10,456 (6,221)
--------- -------- -------- --------- ------- ------- --------
Operating income
(loss).......... 91,120 29,302 (416) 88,882 16,694 (10,456) 6,221
--------- -------- -------- --------- ------- ------- --------
Other income
(expense)
Priority
investment
income from
Olympus........ 36,000 -- -- -- -- (36,000)(c) --
Interest
expense--net... (191,593) (48,129) (88,667) (143,830) (9,079) (26,829)(d) 7,932(j)
Equity in
(loss) income
of Olympus
and other joint
ventures....... (48,891) -- -- -- -- 49,005(e) --
Equity in loss
of Hyperion
joint
ventures....... (9,580) -- -- -- -- -- --
Minority
interest in
losses (income)
of
subsidiaries... 25,772 -- -- (9,334) -- -- --
Hyperion
preferred stock
dividends...... (21,536) -- -- -- -- -- --
Gain on sale of
assets......... -- 7,215 -- 5,186 -- -- --
Other.......... 1,113 316 (398) -- 5,354 -- --
--------- -------- -------- --------- ------- ------- --------
Total.......... (208,715) (40,598) (89,065) (147,978) (3,725) (13,824) 7,932
--------- -------- -------- --------- ------- ------- --------
(Loss) income
before income
taxes
and extraordinary loss.. (117,595) (11,296) (89,481) (59,096) 12,969 (24,280) 14,153
Income tax
benefit
(expense)....... 6,802 (115) 2,927 19,104 7,345 72,124(f) --
--------- -------- -------- --------- ------- ------- --------
(Loss) income
from continuing
operations...... (110,793) (11,411) (86,554) (39,992) 20,314 47,844 14,153
Dividend
requirements
applicable
to preferred stock.. (20,718) -- -- -- -- (8,250)(g) --
--------- -------- -------- --------- ------- ------- --------
(Loss) income
applicable to
common
stockholders
from continuing
operations...... $(131,511) $(11,411) $(86,554) $ (39,992) $20,314 $39,594 $ 14,153
========= ======== ======== ========= ======= ======= ========
Basic and
diluted loss
from continuing
operations per
weighted average
share of common stock
................ $ (3.63)
=========
Weighted average
shares of common
stock outstanding (in thousands).. 36,226
=========
<CAPTION>
FrontierVision Century Harron Pro Forma
Pro Forma Pro Forma Pro Forma Adelphia
Adjustments Adjustments Adjustments Consolidated
--------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues........ $ -- $ 98,208(n) $ (6,688)(p) $1,435,988
--------------- ------------- -------------- ---------------
Operating
expenses:
Direct
operating and
programming.... (35,242)(k) 111,445(n) (3,211)(p) 515,460
Selling,
general and
administrative.. 35,242(k) -- (2,950)(p) 295,030
Depreciation
and
amortization... (31,828)(l) 66,652(o) 35,228(q) 487,967
--------------- ------------- -------------- ---------------
Total.......... (31,828) 178,097 29,067 1,298,457
--------------- ------------- -------------- ---------------
Operating income
(loss).......... 31,828 (79,889) (35,755) 137,531
--------------- ------------- -------------- ---------------
Other income
(expense)
Priority
investment
income from
Olympus........ -- -- -- --
Interest
expense--net... 19,570(m) 13,237(n) (47,783)(p) (515,171)
Equity in
(loss) income
of Olympus
and other joint
ventures....... -- -- -- 114
Equity in loss
of Hyperion
joint
ventures....... -- -- -- (9,580)
Minority
interest in
losses (income)
of
subsidiaries... -- -- -- 16,438
Hyperion
preferred stock
dividends...... -- -- -- (21,536)
Gain on sale of
assets......... -- -- -- 12,401
Other.......... -- -- (7,018)(p) (633)
--------------- ------------- -------------- ---------------
Total.......... 19,570 13,237 (54,801) (517,967)
--------------- ------------- -------------- ---------------
(Loss) income
before income
taxes
and extraordinary loss.. 51,398 (66,652) (90,556) (380,436)
Income tax
benefit
(expense)....... -- -- (8,390)(p) 99,797
--------------- ------------- -------------- ---------------
(Loss) income
from continuing
operations...... 51,398 (66,652) (98,946) (280,639)
Dividend
requirements
applicable
to preferred stock.. -- -- -- (28,968)
--------------- ------------- -------------- ---------------
(Loss) income
applicable to
common
stockholders
from continuing
operations...... $51,398 $(66,652) $(98,946) $ (309,607)
=============== ============= ============== ===============
Basic and
diluted loss
from continuing
operations per
weighted average
share of common stock
................ $ (2.76)(r)
===============
Weighted average
shares of common
stock outstanding (in thousands).. 112,242(r)
===============
</TABLE>
- - -----
*Nine months ended February 28, 1999.
7
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF CONTINUING OPERATIONS
Nine Months Ended December 31, 1998
(Dollars in thousands)
(a) Represents historical amounts.
(b) Represents the elimination of allocated overhead costs to Olympus.
(c) Represents the elimination of priority investment income from Olympus.
(d) Gives effect to the application of the net proceeds of (i) approximately
$292,000 from the March 2, 1999 12% Senior Subordinated Notes issued by
Hyperion, (ii) approximately $371,450 from the January 14, 1999 offering
of 8,600,000 shares of Adelphia Class A common stock, (iii) approximately
$393,700 from the January 13, 1999 7 1/2% and 7 3/4% Senior Notes issued
by Adelphia, (iv) $330,000 from the financing of the Western New York
Partnership and (v) approximately $268,000 from the 1998 offering of
8,805,315 shares of Adelphia Class A common stock as if such transactions
had occurred April 1, 1997. Also gives effect to the elimination of $7,932
of interest income received from Olympus.
(e) Represents the elimination of equity in loss of Olympus.
(f) Represents the estimated income tax provision after giving effect to the
pending acquisitions of FrontierVision, Century, Harron, and Olympus and
related pro forma adjustments.
(g) Gives effect to the intended issuance of $200,000 of Adelphia 5 1/2%
convertible preferred stock as if such issuance had occurred on April 1,
1997.
(h) Represents the elimination of allocated overhead costs from Adelphia.
(i) Represents the additional depreciation and amortization expense resulting
from the acquisition of Olympus. Pro forma depreciation and amortization
is calculated on a straight-line basis over periods that are consistent
with Adelphia's accounting policy. 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 5-12 years) and intangible assets (primarily
purchased franchises and goodwill amortized over 40 years) and is subject
to final allocation adjustments.
(j) Represents the elimination of interest expense paid to Adelphia.
(k) Represents reclassification between direct operating and programming and
selling, general and administrative expenses to conform with Adelphia's
presentation.
(l) Represents pro forma reduction of FrontierVision historical depreciation
and amortization expense to conform to Adelphia's depreciation and
amortization periods net of additional depreciation and amortization
expense resulting from the acquisition of FrontierVision. Pro forma
depreciation and amortization is calculated on a straight-line basis over
periods that are consistent with Adelphia's accounting policy. The cost
basis of the purchased assets utilized in these calculations is based on a
preliminary asset allocation to intangible assets (primarily purchased
franchises and goodwill amortized over 40 years) and is subject to final
allocation adjustments.
(m) Represents the elimination of affiliate interest expense paid by
FrontierVision on affiliate debt not assumed in the acquisition.
(n) Represents 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.
(o) Represents the additional depreciation and amortization expense resulting
from the acquisition of Century. Pro forma depreciation and amortization
is calculated on a straight-line basis over periods that are consistent
8
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF CONTINUING OPERATIONS--(Continued)
Nine Months Ended December 31, 1998
(Dollars in thousands)
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 5-12 years) and intangible assets
(primarily purchased franchises and goodwill amortized over 40 years) and
is subject to final allocation adjustments. Additionally, amount represents
pro forma reduction of depreciation and amortization to adjust historical
expense amounts to Adelphia's depreciation and amortization periods.
(p) Represents the non-cable television operations excluded from the
acquisition and the incremental interest expense incurred from additional
borrowings under Adelphia's subsidiaries' credit facilities to fund the
acquisition.
(q) Represents the net effect of depreciation and amortization expense of non-
cable television assets excluded from the acquisition and the additional
depreciation and amortization expense resulting from the acquisition of
Harron. Pro forma depreciation and amortization is calculated on a
straight-line basis over periods that are consistent with Adelphia's
accounting policy. 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 5-12 years) and intangible assets (primarily purchased
franchises and goodwill amortized over 40 years) and is subject to final
allocation adjustments.
(r) Gives effect to the repurchase and issuance of Class A common stock in
connection with: (i) the repurchase of approximately 1,091,524 shares from
FPL, (ii) 8,600,000 shares issued January 14, 1999, (iii) 8,805,315 shares
issued in the 1998 offering, (iv) 7,000,000 shares to be issued in the
FrontierVision acquisition, (v) approximately 48,700,000 shares to be
issued in the Century acquisition and (vi) approximately 8,777,814 shares
estimated to be issued in the intended offering to be completed prior to
closing the acquisitions of FrontierVision, Century, Harron and Telesat's
interest in Olympus, as if such transactions had been consummated on April
1, 1997. Diluted loss from continuing operations per common share is equal
to basic loss from continuing operations per common share because
Adelphia's existing and expected convertible preferred stock had or would
have an antidilutive effect; however, the convertible preferred stock
could have a dilutive effect on earnings per share in future periods.
9