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S-4/A
AVALON CABLE OF MICHIGAN INC/ filed this Form S-4/A on 07/22/1999
Entire Document
 
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                     CABLE MICHIGAN, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   RCN's corporate services group has historically provided substantial support
services such as finance, cash management, legal, human resources, insurance
and risk management. Prior to the Distribution, the corporate office of C-TEC
allocated the cost for these services pro rata among the business units
supported primarily based on assets; contribution to consolidated earnings
before interest, depreciation, amortization, and income taxes; and number of
employees. In the opinion of management, the method of allocating these costs
is reasonable; however, such costs are not necessarily indicative of the costs
that would have been incurred by the Company on a stand-alone basis.
 
   CTE, RCN and the Company have entered into certain agreements subsequent to
the Distribution, and governing various ongoing relationships, including the
provision of support services between the three companies, including a
distribution agreement and a tax-sharing agreement.
 
   The fee per year for support services from RCN will be 4.0% of the revenues
of the Company plus a direct allocation of certain consolidated cable
administration functions of RCN. The direct charge for customer service along
with the billing service and the cable guide service will be a pro rata share
(based on subscribers) of the expenses incurred by RCN to provide such customer
service and to provide such billing and cable guide service for RCN and the
Company.
 
   CTE has agreed to provide or cause to be provided to RCN and the Company
certain financial data processing services for a transitional period after the
Distribution. The fees for such services will be an allocated portion (based on
relative usage) of the cost incurred by CTE to provide such financial data
processing services to all three groups.
 
 
2. Summary of Significant Accounting Policies
 
 Use of estimates
 
   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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 Cash and temporary cash investments
 
   For purposes of reporting cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be temporary cash investments. Temporary cash investments are stated at
cost, which approximates market.
 
 Property, plant and equipment and depreciation
 
   Property, plant and equipment reflects the original cost of acquisition or
construction, including payroll and related costs such as taxes, pensions and
other fringe benefits, and certain general administrative costs.
 
   Depreciation is provided on the straight-line method based on the useful
lives of the various classes of depreciable property. The average estimated
lives of depreciable cable property, plant and equipment are:
 

<TABLE>
      <S>                                                           <C>
      Buildings.................................................... 12-25 years
      Cable television distribution equipment...................... 8.5-12 years
      Vehicles..................................................... 5 years
      Other equipment.............................................. 12 years
</TABLE>

 
   Maintenance and repair costs are charged to expense as incurred. Major
replacements and betterments are capitalized. Gain or loss is recognized on
retirements and dispositions.
 
                                      F-61