EXHIBIT 99.02
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Combined Balance Sheets
(unaudited)
New Century Old Century
------------- ------------
September 30, December 31,
1999 1998
------------- ------------
amounts in thousands
Assets
Cash............................................... $ 3,216 $ 2,507
Trade and other receivables, net................... 10,181 8,276
Property and equipment, at cost:
Land............................................. 2,781 1,781
Distribution systems............................. 164,018 258,688
Support equipment and buildings.................. 18,679 29,406
---------- --------
185,478 289,875
Less accumulated depreciation.................... 16,871 123,293
---------- --------
168,607 166,582
---------- --------
Franchise costs and other intangible assets........ 896,442 560,750
Less accumulated amortization.................... 14,600 80,338
---------- --------
881,842 480,412
---------- --------
Other assets....................................... 2,135 1,209
---------- --------
$1,065,981 $658,986
========== ========
Liabilities and Parent's Investment
Accounts payable................................... $ 455 $ 583
Accrued expenses................................... 6,171 6,288
Deferred income taxes.............................. 350,319 144,919
Intercompany notes owed to Tele-Communications,
Inc. ("TCI") (note 3)............................. 215,000 --
---------- --------
Total liabilities.............................. 571,945 151,790
---------- --------
Parent's investment (note 3)....................... 494,036 507,196
---------- --------
Commitments and contingencies (note 4)
$1,065,981 $658,986
========== ========
See accompanying notes to combined financial statements.
1
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Combined Statements of Operations and Parent's Investment
(unaudited)
New Century Old Century
------------------ ------------------------------------
Seven months Two months Nine months
ended ended ended
September 30, 1999 February 28, 1999 September 30, 1998
------------------ ----------------- ------------------
amounts in thousands
Revenue................. $ 100,503 $ 26,544 $117,310
Operating costs and
expenses:
Operating (note 3).... 43,611 11,977 47,722
Selling, general and
administrative....... 21,215 5,592 21,733
Management fees (note
3)................... 3,754 1,054 4,831
Depreciation and
amortization......... 31,506 7,019 32,384
--------- -------- --------
100,086 25,642 106,670
--------- -------- --------
Operating income.... 417 902 10,640
Other expense........... (146) (84) (585)
--------- -------- --------
Earnings before
income taxes....... 271 818 10,055
Income tax expense...... (111) (391) (4,078)
--------- -------- --------
Net earnings........ 160 427 5,977
Parent's investment:
Beginning of period... 708,330 507,196 514,367
Change in due to TCI
(note 3)............. 546 2,897 (17,713)
Dividend to TCI (note
3)................... (215,000) -- --
--------- -------- --------
End of period......... $ 494,036 $510,520 $502,631
========= ======== ========
See accompanying notes to combined financial statements.
2
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows
(unaudited)
New Century Old Century
------------------ ------------------------------------
Seven months Two months Nine months
ended ended ended
September 30, 1999 February 28, 1999 September 30, 1998
------------------ ----------------- ------------------
amounts in thousands
Cash flows from
operating activities:
Net earnings.......... $ 160 $ 427 $ 5,977
Adjustments to
reconcile net
earnings to net cash
provided by operating
activities:
Depreciation and
amortization....... 31,506 7,019 32,384
Deferred income tax
benefit............ (4,374) (624) (1,623)
Changes in operating
assets and
liabilities:
Change in
receivables...... (1,062) (843) 4,716
Change in other
assets........... (871) (55) 14
Change in accounts
payable and
accrued
expenses......... 2,675 (2,920) (504)
-------- ------- --------
Net cash
provided by
operating
activities..... 28,034 3,004 40,964
-------- ------- --------
Cash flows from
investing activities:
Capital expended for
property and
equipment............ (26,944) (6,893) (22,216)
Other investing
activities........... 34 31 (339)
-------- ------- --------
Net cash used in
investing
activities..... (26,910) (6,862) (22,555)
-------- ------- --------
Cash flows from
financing activities:
Change in amounts due
to TCI............... 546 2,897 (17,713)
-------- ------- --------
Net cash
provided by
(used in)
financing
activities..... 546 2,897 (17,713)
-------- ------- --------
Net change in
cash........... 1,670 (961) 696
Cash at
beginning of
period......... 1,546 2,507 560
-------- ------- --------
Cash at end of
period......... $ 3,216 $ 1,546 $ 1,256
======== ======= ========
See accompanying notes to combined financial statements.
3
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
September 30, 1999
(unaudited)
(1)Basis of Presentation
The combined financial statements include the accounts of five of TCI's
cable television systems and one related advertising sales office serving
certain customers within California (collectively, the "TCI Century Systems").
The TCI Century Systems are wholly-owned by various subsidiaries of TCI. On
March 9, 1999, AT&T Corp. ("AT&T") acquired TCI in a merger (the "AT&T
Merger"). In the AT&T Merger, TCI became a subsidiary of AT&T. All significant
inter-entity accounts and transactions have been eliminated in combination.
The combined net assets of TCI Century Systems are referred to as "Parent's
Investment."
For financial reporting purposes the AT&T Merger was deemed to have occurred
on March 1, 1999. The combined financial statements for periods prior to March
1, 1999 are referred to herein as "Old Century", and the combined financial
statements for periods subsequent to February 28, 1999 are referred to herein
as "New Century." Due to the application of purchase accounting in connection
with the AT&T Merger, the predecessor combined financial statements of Old
Century are not comparable to the successor combined financial statements of
New Century. In the following text, "TCI Century Systems" refers to both Old
Century and New Century. See note 2.
The Old Century systems were acquired through a series of transactions
whereby TCI acquired various larger cable entities (the "Original Systems").
Old Century's combined financial statements include an allocation of certain
purchase accounting adjustments, including the related deferred tax effects,
from TCI's acquisition of the Original Systems. Such allocation was based on
the relative fair market value of the systems involved.
Certain costs of TCI are charged to the TCI Century Systems based on their
number of customers (see note 3). Although such allocations are not
necessarily indicative of the costs that would have been incurred by the TCI
Century Systems on a stand alone basis, management believes that the resulting
allocated amounts are reasonable.
TCI entered into agreements with Century Communications Corp. ("Century")
whereby TCI would contribute cable television systems serving approximately
249,000 customers located in Southern California to a newly formed limited
partnership in which TCI would have an approximate 25% partnership interest.
Under the agreements, the partnership would assume $215,000,000 of
intercompany interest bearing notes owed by TCI Century Systems to TCI and its
affiliates (see note 3). TCI also agreed to exchange with the new partnership
a cable television system serving approximately 100,000 customers in Southern
California for cable television systems in Northern California serving
approximately 100,000 customers. The TCI Century Systems is comprised of the
systems serving these 349,000 customers. On October 1, 1999, a merger was
consummated in which Century merged with and into Adelphia Communications
Corporation ("Adelphia"). As a result of such merger, Adelphia assumed all of
Century's rights and obligations relating to the above described agreements.
The contribution and exchange transactions were consummated on December 7,
1999. The accompanying combined financial statements reflect the financial
position, results of operations and cash flows of the TCI Century Systems
prior to the contribution and exchange transactions, and, therefore, do not
include the effects of such transactions.
The accompanying interim combined financial statements are unaudited but, in
the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results for such
periods. The results of operations for any interim period are not necessarily
indicative of results for the
4
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
full year. These combined financial statements should be read in conjunction
with the combined financial statements and notes thereto in the TCI Century
Systems financial statements for the year ended December 31, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(2)AT&T Merger
The AT&T Merger has been accounted for using the purchase method of
accounting and has been deemed to be effective as of March 1, 1999 for
financial reporting purposes. Accordingly, TCI Century System's portion of the
preliminary allocation of AT&T's purchase price to acquire TCI has been
reflected in TCI Century System's combined financial statements as of March 1,
1999. A final allocation of AT&T's purchase price will be made upon receipt of
final third party appraisals.
The following table reflects the opening summarized balance sheet of New
Century as adjusted to give effect to the preliminary allocation of AT&T's
purchase price to acquire TCI as it relates to the net assets of the TCI
Century Systems:
(amounts in
thousands)
Assets
Cash.............................................................. $ 1,546
Trade and other receivables....................................... 9,119
Property and equipment............................................ 159,258
Franchise costs and other intangible assets....................... 895,787
Other assets...................................................... 1,264
----------
$1,066,974
==========
Liabilities and Parent's investment
Accounts payable and accrued expenses............................. $ 3,951
Deferred income taxes............................................. 354,693
----------
Total liabilities............................................... 358,644
----------
Parent's investment............................................... 708,330
----------
$1,066,974
==========
As a result of the application of purchase accounting, New Century has
recorded its assets and liabilities at their estimated fair values on March 9,
1999. Deferred income taxes were recorded based on the difference in the
estimated fair values of New Century's assets and liabilities and their tax
basis using statutory effective tax rates. Franchise costs and other
intangible assets primarily represent the value attributable to the agreements
with local franchise authorities that allow access to homes in TCI Century's
service areas, and are primarily amortized over 40 years.
5
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
The following unaudited combined results of operations for the nine months
ended September 30, 1999 and 1998 were prepared assuming the AT&T Merger
occurred on January 1, 1998. These pro forma amounts are not necessarily
indicative of operating results that would have occurred if the AT&T Merger
had occurred on January 1, 1998.
Nine months ended
September 30,
------------------------
1999 1998
----------- -----------
(amounts in thousands)
Revenue................................................ $ 127,047 $ 117,310
Net earnings (loss).................................... $ (179) $ 2,528
(3)Parent's Investment
Parent's investment in the TCI Century Systems at September 30, 1999 and
December 31, 1998 is summarized as follows (amounts in thousands):
New Century Old Century
------------- ------------
September 30, December 31,
1999 1998
------------- ------------
Due to TCI........................................... $708,876 $581,956
Accumulated deficit.................................. (214,840) (74,760)
-------- --------
$494,036 $507,196
======== ========
The non-interest bearing amount due to TCI includes TCI's equity in acquired
systems, advances for operations, acquisitions and construction costs, as well
as the amounts owed as a result of the allocation of certain costs from TCI.
On November 1, 1999, TCI caused the TCI Century Systems to effect a dividend
from the TCI Century Systems to TCI aggregating $215,000,000 (the "Dividend").
The Dividend has been reflected in the September 30, 1999 combined balance
sheet and resulted in an increase to the intercompany notes owed to TCI and a
corresponding non-cash increase to accumulated deficit.
As a result of TCI's 100% ownership of the TCI Century Systems, the non-
interest bearing amounts due to TCI have been classified as a component of
Parent's investment in the accompanying combined balance sheets. Such amounts
are due on demand.
The TCI Century Systems purchase, at TCI's cost, certain pay television and
other programming through a certain indirect subsidiary of TCI. Charges for
such programming are included in operating expenses in the accompanying
combined financial statements.
Certain subsidiaries of TCI provide administrative services to the TCI
Century Systems and have assumed managerial responsibility of the TCI Century
Systems' cable television system operations and construction. As compensation
for these services, the TCI Century Systems pay a monthly fee calculated on a
per-subscriber basis.
6
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
The intercompany advances and expense allocation activity in amounts due to
TCI consist of the following:
New Century Old Century
------------------ ------------------------------------
Seven months Two months Nine months
ended ended ended
September 30, 1999 February 28, 1999 September 30, 1998
------------------ ----------------- ------------------
(amounts in thousands)
Beginning of period.... $708,330 $581,956 $598,084
Programming charges.. 28,725 8,249 30,519
Management fees...... 3,754 1,054 4,831
Tax allocations...... 4,485 1,015 5,701
Cash transfers....... (36,418) (7,421) (58,764)
-------- -------- --------
End of period.......... $708,876 $584,853 $580,371
======== ======== ========
The TCI Century Systems are included in the consolidated federal income tax
return of AT&T. Income tax expense or benefit for the TCI Century Systems is
based on those items in the consolidated calculation applicable to the TCI
Century Systems. Income tax expense differs from amounts computed by applying
the federal income tax rate of 35% primarily as a result of state and local
income taxes and certain amortization expense of Old Century which is not
deductible for tax purposes. The payable or receivable arising from the
intercompany income tax allocation is recorded as an increase or decrease in
amounts due to TCI.
(4)Commitments and Contingencies
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under the 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
Although the Federal Communications Commission (the "FCC") has established
regulations required by the 1992 Cable Act, local government units (commonly
referred to as local franchising authorities) are primarily responsible for
administering the regulation of a cable system's basic service tier ("BST").
The FCC itself directly administered rate regulation of any cable programming
service tier ("CPST"). The FCC's authority to regulate CPST rates expired on
March 31, 1999. The FCC has taken the position that it will still adjudicate
CPST complaints filed after this sunset date (but no later than 180 days after
the last CPST rate increase imposed prior to March 31, 1999), and will
strictly limit its review (and possible refund orders) to the time period
predating the sunset date. There are no pending CPST complaints remaining at
the FCC regarding the TCI Century Systems.
Under the FCC's rate regulations, most cable systems were required to reduce
their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price structure that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. Operators also have the opportunity
to bypass this "benchmark" regulatory structure in favor of the traditional
"cost-of-service" regulation in cases where the latter methodology appears
favorable. Premium cable services offered on a per-channel or per-program
basis remain unregulated, as do affirmatively marketed packages consisting
entirely of new programming product.
Management believes that the TCI Century Systems have complied in all
material respects with the provisions of the 1992 Cable Act and the 1996 Act,
including its rate setting provisions. If, as a result of the review process,
a system cannot substantiate its rates, it could be required to retroactively
reduce its rates to the appropriate benchmark and refund the excess portion of
rates received. Any refunds of the excess portion of
7
TCI CENTURY SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
CPST rates would be retroactive to the date of complaint. Any refunds of the
excess portion of BST or equipment rates would be retroactive to one year
prior to the implementation of the rate reductions.
Certain plaintiffs have filed or threatened separate class action complaints
against cable systems across the United States alleging that the systems'
practice of assessing an administrative fee to subscribers whose payments are
delinquent constitutes an invalid liquidated damage provision, a breach of
contract, and violates local consumer protection statutes. Plaintiffs seek
recovery of all late fees paid to the subject systems as a class purporting to
consist of all subscribers who were assessed such fees during the applicable
limitation period, plus attorney fees and costs. In December 1999, a
settlement was reached with respect to one of the late fee class action
complaints which involves certain of the TCI Century Systems. The settlement
did not have a material impact on TCI Century Systems' financial condition or
results of operations.
The TCI Century Systems have contingent liabilities related to legal
proceedings and other matters arising in the ordinary course of business.
Although it is possible the TCI Century Systems may incur losses upon
conclusion of the matters referred to above, an estimate of any loss or range
of loss cannot presently be made. Based upon the facts available, management
believes that, although no assurance can be given as to the outcome of these
actions, the ultimate disposition should not have a material adverse effect
upon the combined financial condition of the TCI Century Systems.
8