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SEC Filings

S-1
CHARTER COMMUNICATIONS, INC. /MO/ filed this Form S-1 on 07/28/1999
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<PAGE>   496
 
                     CABLE MICHIGAN, INC. AND SUBSIDIARIES
 

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
                               DECEMBER 31, 1998
 
1. BACKGROUND AND BASIS OF PRESENTATION
 
     Prior to September 30, 1997, Cable Michigan, Inc. and subsidiaries (the
"Company") was operated as part of C-TEC Corporation ("C-TEC"). On September 30,
1997, C-TEC distributed 100 percent of the outstanding shares of common stock of
its wholly owned subsidiaries, RCN Corporation ("RCN") and the Company to
holders of record of C-TEC's Common Stock and C-TEC's Class B Common Stock as of
the close of business on September 19, 1997 (the "Distribution") in accordance
with the terms of the Distribution Agreement dated September 5, 1997 among
C-TEC, RCN and the Company. The Company consists of C-TEC's Michigan cable
operations, including its 62% ownership in Mercom, Inc. ("Mercom"). In
connection with the Distribution, C-TEC changed its name to Commonwealth
Telephone Enterprises, Inc. ("CTE"). RCN consists primarily of C-TEC's bundled
residential voice, video and Internet access operations in the Boston to
Washington, D.C. corridor, its existing New York, New Jersey and Pennsylvania
cable television operations, a portion of its long distance operations and its
international investment in Megacable, S.A. de C.V. C-TEC, RCN, and the Company
continue as entities under common control until the Company completes the Merger
(as described below).
 
     On June 3, 1998, the Company entered into an Agreement and Plan of Merger
(the "Agreement") among the Company, Avalon Cable of Michigan Holdings Inc.
("Avalon Holdings") and Avalon Cable of Michigan Inc. ("Avalon Sub"), pursuant
to which Avalon Sub will merge into the Company and the Company will become a
wholly owned subsidiary of Avalon Holdings (the "Merger").
 
     In accordance with the terms of the Agreement, each share of common stock,
par value $1.00 per share ("common stock"), of the Company outstanding prior to
the effective time of the Merger (other than treasury stock, shares owned by
Avalon Holdings or its subsidiaries, or shares as to which dissenters' rights
have been exercised) shall be converted into the right to receive $40.50 in cash
(the "Merger Consideration"), subject to certain possible closing adjustments.
 
     On November 6, 1998, the Company completed its merger into and with Avalon
Cable Michigan, Inc. The total consideration payable in conjunction with the
merger, including fees and expenses is approximately 431,600. Subsequent to the
merger, the arrangements with RCN and CTE (as described below) were terminated.
The Merger agreement also permitted the Company to agree to acquire the
remaining shares of Mercom that it did not own.
 
     Cable Michigan provides cable services to various areas in the state of
Michigan. Cable Michigan's cable television systems offer customer packages for
basic cable programming services which are offered at a per channel charge or
packaged together to form a tier of services offered at a discount from the
combined channel rate. Cable Michigan's cable television systems also provide
premium cable services to their customers for an extra monthly charge. Customers
generally pay initial connection charges and fixed monthly fees for cable
programming and premium cable services, which constitute the principle sources
of revenue for the Company.
 
     The consolidated financial statements have been prepared using the
historical basis of assets and liabilities and historical results of operations
of all wholly and majority owned subsidiaries. However, the historical financial
information presented herein reflects periods during which the Company did not
operate as an independent company and accordingly, certain assumptions were made
in preparing such financial information. Such information, therefore, may not
necessarily reflect the results of operations, financial condition or cash flows
of the Company
 
                                      F-352