System Operating Expenses. System operating expenses increased $1.8 million
or 8.8% to $22.6 million in 1996 from $20.8 million in 1995. The 1996 expenses
reflect increased payroll expenses, pay-per-view expenses, marketing and other
miscellaneous costs, offset in part by reductions in programming costs
resulting from the lower rates incurred by Time Warner.
Non-System Operating Expenses. Non-system operating expenses increased $.5
million or 24.2% to $2.7 million in 1996 from $2.2 million in 1995 due to the
different amounts of corporate overhead and regional expenses incurred by Time
Warner in 1996 and CVI in 1995.
Depreciation, Amortization and Loss (Gain) on Disposal of Fixed
Assets. Depreciation, amortization and loss (gain) on disposal of fixed assets
increased $.5 million or 2.9% to $18.1 million in 1996 from $17.6 million in
1995. This net increase resulted primarily from the net write-up of assets in
1996 under the purchase method of accounting following the acquisition of the
Systems by Time Warner.
Operating Income. For the reasons discussed above, operating income
increased $.9 million or 30.5% to $3.9 million in 1996 from $3.0 million in
Interest Expense. Interest expense was $11.9 million in 1995 which related
to debt recorded at the System level by CVI. The Systems recorded no interest
expense in 1996 because Time Warner met the Systems' financing needs through
non-interest bearing capital advances.
Income Taxes (Benefit) Expense. Income tax (benefit) expense increased $5.1
million to an expense of $1.5 million in 1996 from a benefit of $3.6 million
in 1995. The increase in income tax (benefit) expense resulted from the
increase in operating income in 1996.
Net (Loss) Income. For the reasons discussed above, net (loss) income
increased $7.7 million to net income of $2.3 million in 1996 from a net loss
of $5.4 million in 1995.
Liquidity and Capital Resources
From January 4, 1996 until April 9, 1998, the Systems were owned by Time
Warner and their liquidity and capital resources needs were evaluated and met
based upon funding from Time Warner. The Systems' cash balances were generally
minimized with excess cash balances transferred to corporate cash management
The cable television business requires substantial capital for the
upgrading, expansion and maintenance of signal distribution equipment, as well
for home subscriber devices and wiring and for service vehicles. Subject to
the terms and provisions of the Charter Purchase Agreement, the Company will
continue to deploy fiber optic technology and to upgrade the Systems to a
minimum of 550 MHz and to 860 MHz where system characteristics warrant. The
deployment of fiber optic technology will allow future upgrades to the Systems
in a cost-effective manner. The Company believes that the application of
digital compression technology will likely reduce the requirement in the
future for upgrades to increase capacity beyond 860 MHz.
The working capital requirements of a cable television business are
generally not significant since subscribers are billed for services monthly in
advance, while the majority of expenses incurred (except for payroll) are paid
generally 30 to 60 days after their incurrence.
Prior to the acquisition of the Time Warner Systems on April 9, 1998 the
Company had no operations. Consequently, the results of operations for the
year ended December 31, 1998 include operating results for the period April 9,
1998 to December 31, 1998. The Company's net cash provided by operations was
$22.7 million in 1998. The Company's net cash used in investing activities was
$317.0 million in 1998 and the Company's net cash provided from financing
activities amounted to $302.8 million in 1998. The cash used in investing
activities and cash provided from financing activities in 1998 related
primarily to the payment of the cash purchase price