bankruptcy, liquidation or dissolution of a subsidiary, following payment by
such subsidiary of its liabilities, such subsidiary may not have sufficient
assets remaining to make payments to us as a shareholder or otherwise.
OUR PROGRAMMING COSTS ARE INCREASING. WE MAY NOT HAVE THE ABILITY TO PASS THESE
INCREASES ON TO OUR CUSTOMERS, WHICH WOULD ADVERSELY AFFECT OUR PROFITABILITY
AND CASH FLOW.
Programming has been and is expected to continue to be our largest single
expense item. The combined programming costs of Charter Holdings, CCA Group, and
CharterComm Holdings were equal to approximately 21% of revenues in 1998. In
recent years the cable industry has experienced a rapid escalation in the cost
of programming, in particular, sports programming. Our programming costs for the
services carried on our basic and expanded basic levels of service increased by
approximately 12%, on a per customer basis, from 1997 to 1998. This escalation
may continue and we may not be able to pass programming cost increases on to our
customers. In addition, as we upgrade the channel capacity of our systems and
add programming to our basic and expanded basic tiers, and reposition premium
services to the basic tier, we may face additional market constraints on our
ability to pass programming costs on to our customers. The inability to pass
these increases on to our customers will affect our profitability and cash flow.
OUR PRINCIPAL EQUITY HOLDER MAY HAVE INTERESTS ADVERSE TO YOUR INTERESTS.
Paul G. Allen beneficially owns approximately 96% of our outstanding equity
interests on a fully diluted basis. Accordingly, Mr. Allen has the ability to
control fundamental corporate transactions requiring equity holder approval,
including without limitation, election of directors, approval of merger
transactions involving us and sales of all or substantially all of our assets.
Mr. Allen may make decisions which are adverse to your interests. There can be
no assurance that the interests of either Mr. Allen or his affiliates will not
conflict with the interests of the holders of the notes.
OUR MANAGEMENT WILL BE RESPONSIBLE FOR MANAGING OTHER CABLE OPERATIONS AND WILL
NOT DEVOTE THEIR FULL TIME TO OUR OPERATIONS. THIS COULD IMPAIR OUR OPERATING
RESULTS AND GIVE RISE TO CONFLICTS OF INTEREST.
Mr. Allen has agreed to acquire and may, from time to time in the future,
acquire cable systems in addition to those owned or acquired by us. To date,
affiliates of Mr. Allen have signed agreements to purchase cable systems with a
total of approximately 1.8 million customers. Charter Communications, Inc., of
which Mr. Allen is the majority owner, as well as some of the officers of
Charter Communications, Inc. who currently manage our cable systems, will have a
substantial role in managing these outside systems. Charter Communications, Inc.
and its officers and employees now devote substantially all of their time to
managing our systems. However, when such persons begin to manage outside cable
systems as well, the time they devote to managing our systems will be
correspondingly reduced. This could impair our results of operations. Moreover,
allocating managers' time and other resources of Charter Communications, Inc.
between our systems and outside systems held by Mr. Allen could give rise to
conflicts of interest. Charter Communications, Inc. does not have or plan to
create formal procedures for determining whether and to what extent outside
cable television systems described above will receive priority with respect to