The 1996 Telecom Act, among other things, immediately deregulated the rates for
certain small cable operators and in certain limited circumstances rates on the
basic service tier, and as of March 31, 1999, deregulates rates on the cable
programming service tier (CPST). The FCC is currently developing permanent
regulations to implement the rate deregulation provisions of the 1996 Telecom
Act. The Company cannot predict the ultimate effect of the 1996 Telecom Act on
the Company's financial position or results of operations.
The FCC may further restrict the ability of cable television operators to
implement rate increases or the United States Congress may enact legislation
that could delay or suspend the scheduled March 1999 termination of CPST rate
regulation. This continued rate regulation, if adopted, could limit the rates
charged by the Company.
A number of states subject cable systems to the jurisdiction of centralized
state governmental agencies, some of which impose regulation of a character
similar to that of a public utility. State governmental agencies are required to
follow FCC rules when prescribing rate regulation, and thus, state regulation of
cable television rates is not allowed to be more restrictive than the federal or
local regulation. The Company is subject to state regulation in Connecticut.
6. EMPLOYEE BENEFIT PLANS:
APPRECIATION RIGHTS PLAN
Certain employees of Charter Investment participate in the 1995 Charter
Communications, Inc. Appreciation Rights Plan (the "Plan"). As a result of the
acquisition of Charter Investment by Mr. Allen, the plan was terminated and all
amounts were paid by Charter Investment in the fourth quarter of 1998. The cost
of this plan was allocated to the Company based on the number of basic
customers. Management considers this allocation to be reasonable for the
operations of the Company.
7. ACCOUNTING STANDARD NOT YET IMPLEMENTED:
In June 1998, the financial Accounting Standards Board (FASB) adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999. The Company has
not yet quantified the impacts of adopting SFAS No. 133 on its consolidated
financial statements nor has it determined the timing of its adoption of SFAS
No. 133. However, SFAS No. 133 could increase volatility in earnings (loss).