1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 333-11893
INTERMEDIA CAPITAL PARTNERS IV, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-3247750
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
235 MONTGOMERY STREET, SUITE 420
SAN FRANCISCO, CA 94104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 616-4600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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INTERMEDIA CAPITAL PARTNERS IV, L.P.
INDEX TO REPORT ON FORM 10-Q
For the Quarter Ended March 31, 1998
TABLE OF CONTENTS
Page
----
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS .......................................... 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ......................................... 11
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ............................................. 20
ITEM 2. CHANGES IN SECURITIES ......................................... 20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................... 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........... 20
ITEM 5. OTHER INFORMATION ............................................. 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .............................. 26
SIGNATURES ....................................................................... 27
INFORMATION CONTAINED IN THIS REPORT INCLUDES "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE SECURITIES LAWS. ALL STATEMENTS, OTHER
THAN STATEMENTS OF HISTORICAL FACT, REGARDING ACTIVITIES, EVENTS OR DEVELOPMENTS
THAT THE COMPANY EXPECTS, BELIEVES OR ANTICIPATES WILL OR MAY OCCUR IN THE
FUTURE, INCLUDING SUCH MATTERS AS, THE COMPANY'S OPERATING STRATEGIES, CAPITAL
EXPENDITURES, THE EFFECTS OF COMPETITION, AND OTHER SUCH MATTERS, ARE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, THESE
FORWARD-LOOKING STATEMENTS ARE BASED UPON CERTAIN ASSUMPTIONS AND ARE SUBJECT TO
A NUMBER OF RISKS AND UNCERTAINTIES, AND THE COMPANY CAN GIVE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH EXPECTATIONS INCLUDE, BUT
ARE NOT LIMITED TO, THOSE DISCUSSED IN PART II, ITEM 5 "OTHER INFORMATION."
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31 MARCH 31
1997 1998
------------ ------------
(unaudited)
ASSETS
Cash and cash equivalents ....................................................... $ 6,388 $ 8,373
Accounts receivable, net of allowance for doubtful accounts of $1,685 and $1,616,
respectively ............................................................... 23,163 21,070
Escrowed investments held to maturity ........................................... 29,359 29,894
Interest receivable on escrowed investments ..................................... 1,418 466
Receivable from affiliate ....................................................... 686 1,338
Prepaids ........................................................................ 599 1,646
Other current assets ............................................................ 359 308
------------ ------------
Total current assets ....................................................... 61,972 63,095
Escrowed investments held to maturity ........................................... 31,148 16,105
Intangible assets, net .......................................................... 550,726 531,632
Property & equipment, net ....................................................... 310,455 316,551
Deferred income taxes ........................................................... 14,221 15,816
Other non-current assets ........................................................ 2,242 2,104
------------ ------------
Total assets ............................................................... $ 970,764 $ 945,303
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities ........................................ $ 32,708 $ 22,755
Payable to affiliates ........................................................... 3,813 4,457
Deferred revenue ................................................................ 15,856 18,005
Accrued interest ................................................................ 22,076 13,847
------------ ------------
Total current liabilities .................................................. 74,453 59,064
Deferred channel launch revenue ................................................. 4,154 3,892
Long-term debt .................................................................. 876,500 887,000
Other non-current liabilities ................................................... 131 142
------------ ------------
Total liabilities .......................................................... 955,238 950,098
------------ ------------
Commitments and contingencies
Minority interest
Mandatorily redeemable preferred shares ......................................... 13,239 13,468
PARTNERS' CAPITAL
Preferred limited partnership interest .......................................... 24,888 24,888
Junior preferred limited partnership interest ................................... (1,423)
General and limited partners' capital ........................................... (20,751) (39,878)
Note receivable from general partner ............................................ (1,850) (1,850)
------------ ------------
Total partners' capital .................................................... 2,287 (18,263)
------------ ------------
Total liabilities and partners' capital .................................... $ 970,764 $ 945,303
============ ============
See accompanying notes to consolidated financial statements
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INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
----------------------------
REVENUES 1997 1998
----------- -----------
Basic and cable services ........................... $ 41,288 $ 46,012
Pay service ........................................ 10,001 10,112
Other service ...................................... 9,530 9,228
----------- -----------
60,819 65,352
----------- -----------
COSTS AND EXPENSES
Program fees ....................................... 13,025 15,301
Other direct expenses .............................. 6,851 6,606
Depreciation and amortization ...................... 33,290 32,772
Selling, general and administrative expenses ....... 11,756 13,130
Management and consulting fees ..................... 838 838
----------- -----------
65,760 68,647
----------- -----------
Loss from operations ............................... (4,941) (3,295)
----------- -----------
OTHER INCOME (EXPENSE)
Interest and other income ........................ 1,378 1,203
Interest expense ................................. (19,263) (19,519)
Other expense .................................... (170) (305)
----------- -----------
(18,055) (18,621)
----------- -----------
Loss before income tax benefit and minority interest (22,996) (21,916)
Income tax benefit ................................. 1,488 1,595
----------- -----------
Net loss before minority interest .................. (21,508) (20,321)
Minority interest .................................. (214) (229)
----------- -----------
Net loss ........................................... $ (21,722) $ (20,550)
=========== ===========
See accompanying notes to consolidated financial statements
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INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
JUNIOR
PREFERRED PREFERRED
LIMITED LIMITED GENERAL LIMITED NOTES
PARTNER PARTNER PARTNER PARTNERS RECEIVABLE TOTAL
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 ......... $ (43) $ $ (7) $ (575) $ $ (625)
Cash contributions ................... 1,913 188,637 190,550
Notes receivable from General
Partner ............................ 1,850 (1,850)
In-kind contributions, historical
cost basis ......................... 237,805 237,805
Conversion of General Electric
Capital Corporation debt to equity . 25,000 11,667 36,667
Allocation of RMG's and IPWT's
historical equity balances ......... (2,719) (239,368) (242,087)
Distribution ......................... (119,775) (119,775)
Syndication costs .................... (69) (10) (911) (990)
Net loss ............................. (311) (27,418) (27,729)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 ......... 24,888 716 50,062 (1,850) 73,816
Cash contributions ................... 84 84
Transfer and conversion of
General Partner Interest
to Limited Partner Interest ........ (799) 799
Net loss ............................. (1) (71,612) (71,613)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 ......... 24,888 (20,751) (1,850) 2,287
Conversion of Limited Partner
Interest to Junior Preferred
Limited Partner Interest (unaudited) (1,423) 1,423
Net loss (unaudited) ................. (20,550) (20,550)
----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 1998
(unaudited) ........................ $ 24,888 $ (1,423) $ $ (39,878) $ (1,850) $ (18,263)
=========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements
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INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................ $ (21,722) $ (20,550)
Minority interest ............................... 214 229
Loss on disposal of fixed assets ................ 4
Depreciation and amortization ................... 33,625 33,160
Changes in assets and liabilities:
Accounts receivable ....................... (1,184) 2,093
Interest receivable on escrowed investments 1,496 952
Receivable from affiliate ................. (439) (652)
Prepaids .................................. 432 (1,047)
Other current assets ...................... 33 51
Deferred income taxes ..................... (1,488) (1,595)
Other non-current assets .................. 131 138
Accounts payable and accrued liabilities .. (2,914) (5,749)
Payable to affiliates ..................... (30) 644
Deferred revenue .......................... 519 2,218
Accrued interest .......................... (8,479) (8,229)
Deferred channel launch revenue ........... (331)
Other non-current liabilities ............. 22 11
---------- ----------
Cash flows from operating activities ............ 216 1,347
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment .......................... (21,788) (23,534)
Intangible assets ............................... (407) (836)
Proceeds from maturity of escrowed investments .. 13,927 14,508
---------- ----------
Cash flows from investing activities ............ (8,268) (9,862)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt .................... 6,000 10,500
Debt issue costs ................................ (64)
---------- ----------
Cash flows from financing activities ............ 5,936 10,500
---------- ----------
Net change in cash and cash equivalents .............. (2,116) 1,985
Cash and cash equivalents, beginning of period ....... 8,770 6,388
---------- ----------
Cash and cash equivalents, end of period ............. $ 6,654 $ 8,373
========== ==========
See accompanying notes to consolidated financial statements
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INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. THE COMPANY AND BASIS OF PRESENTATION
InterMedia Capital Partners IV, L.P. ("ICP-IV" or the "Company"), a
California limited partnership, was formed on March 19, 1996, as a successor to
InterMedia Partners IV, L.P. ("IP-IV") which was formed in October 1994, for the
purpose of acquiring and operating cable television systems in three geographic
clusters, all located in the southeastern United States.
As of March 31, 1998, ICP-IV's systems served the following number of
basic subscribers and encompassed the following number of homes passed:
Basic Homes
Subscribers Passed
----------- ---------
Nashville/Mid-Tennessee Cluster ......... 337,117 528,358
Greenville/Spartanburg Cluster .......... 145,824 204,898
Knoxville/East Tennessee Cluster ........ 100,553 145,832
--------- ---------
Total ......................... 583,494 879,088
========= =========
The accompanying unaudited interim consolidated financial statements
include the accounts of ICP-IV and its directly and indirectly majority-owned
subsidiaries, InterMedia Partners IV, Capital Corp. ("IPCC"), IP-IV, InterMedia
Partners Southeast ("IPSE"), InterMedia Partners of Tennessee ("IP-TN"),
InterMedia Partners of West Tennessee, L.P. ("IPWT"), and Robin Media Group,
Inc. ("RMG"). ICP-IV and its majority-owned subsidiaries are collectively
referred to as the "Company." All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and are presented in accordance with the rules and regulations of the Securities
and Exchange Commission applicable to interim financial information.
Accordingly, certain footnote disclosures have been condensed or omitted. In the
Company's opinion, the interim unaudited consolidated financial statements
reflect all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the Company's financial position as of
March 31, 1998, and its results of operations and cash flows for the three
months ended March 31, 1998. The results of operations for the three months
ended March 31, 1998 are not necessarily indicative of results that may be
expected for the year ending December 31, 1998. These consolidated financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto contained in its Form 10-K for the year
ended December 31, 1997.
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 these estimates.
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INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
2. ACQUISITIONS
On July 30, 1996 and August 1, 1996, the Company borrowed $558,000 under
a new bank term loan and revolving credit agreement (the "Bank Facility"),
issued $292,000 in senior notes (the "Notes"), and received equity contributions
from its partners of $360,000, consisting of: $190,550 in cash; $117,600
representing the fair market value of certain cable television systems (the
"Greenville/Spartanburg System") contributed, net of cash paid to the
contributing partner of $119,775; $13,333 representing the fair market value of
general and limited partner interests in IPWT, an affiliate; $36,667 in exchange
for notes receivable from IPWT; and $1,850 in the form of a note receivable from
InterMedia Capital Management IV, L.P. ("ICM-IV"), the former 1.1% general
partner of ICP-IV (see Note 6--Related Party Transactions). The Bank Facility,
the Notes and the equity contributions are referred to as the "Financing."
On July 30, 1996, the Company acquired cable television systems serving
as of the acquisition date approximately 360,100 basic subscribers in Tennessee,
South Carolina and Georgia through the Company's acquisition of controlling
equity interests in IPWT and Robin Media Holdings, Inc. ("RMH"), an affiliate,
and through the equity contribution of the Greenville/Spartanburg System to the
Company by affiliates of Tele-Communications, Inc. ("TCI").
Affiliates of TCI contributed cash and transferred their interests in
the Greenville/Spartanburg System to the Company in exchange for a 49.0% limited
partner interest in ICP-IV and an assumption of debt which was simultaneously
repaid by the Company with proceeds from the Financing. On March 31, 1998, TCI
converted 5.4% of its limited partner interest in ICP-IV into a $26,500 junior
preferred limited partner interest in ICP-IV with a preferred return of 12.75%
compounded annually and senior in priority to the limited partner interest,
other than the preferred limited partner interest. After giving effect to the
conversion, TCI owns a 49.6% limited partner interest in ICP-IV, including a
3.8% limited partner interest held by InterMedia Partners, a California limited
partnership ("IP") and a 1.2% interest held by ICM-IV. Effective January 2,
1998, TCI owns a 99.999% limited partner interest in IP, and effective August 5,
1997, TCI owns a 99.997% limited partner interest in ICM-IV (see Note 6--Related
Party Transactions).
TCI held substantial direct and indirect ownership interests in each of
RMH, IPWT and the Greenville/Spartanburg System. As a result of TCI's
substantial continuing interest in RMG, IPWT and the Greenville/Spartanburg
System after the Company's acquisitions, the acquired assets of these entities
have been accounted for at their historical basis as of the acquisition date.
Results of operations for these entities have been included in the Company's
consolidated results only from the acquisition date.
On August 1, 1996, the Company acquired certain cable television systems
of Viacom in metropolitan Nashville, Tennessee (the "Nashville System") for an
aggregate purchase price of $315,333. The Company's acquisition of the Nashville
System has been accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16 ("APB16") and the Nashville System's results of
operations have been included in the Company's consolidated results only from
August 1, 1996, the date of the acquisition.
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INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
During the year ended December 31, 1996, the Company acquired other
cable television systems serving as of the acquisition dates approximately
59,600 basic subscribers primarily in central and eastern Tennessee for an
aggregate purchase price of $102,701 (the "Miscellaneous Acquisitions"). These
acquisitions have also been accounted for as purchases in accordance with APB16.
Accordingly, results of operations of the Miscellaneous Acquisitions have been
included in the Company's consolidated results only from the dates of
acquisition.
3. ESCROWED INVESTMENTS HELD TO MATURITY
The Company's escrowed investments held to maturity are carried at
amortized cost and consist of U.S. Treasury Notes with maturities ranging from
four to sixteen months. The investments are held in an escrow account to be used
by the Company to make interest payments on the Company's senior notes (see Note
4 -- Long-term Debt). On February 1, 1997 and 1998, the Company paid interest of
$16,569 and $16,425, respectively, on the senior notes with the proceeds from
and interest earned on escrowed investments that matured on January 31, 1997 and
1998, respectively. The fair value and maturities of U.S. Treasury Notes held in
escrow are as follows:
DECEMBER 31, 1997 MARCH 31, 1998
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
Matures within 1 year .......... $ 29,359 $ 29,805 $ 29,894 $ 30,512
Matures between 1 and 2 years... 31,148 31,552 16,105 16,137
---------- ---------- ---------- ----------
Total .................. $ 60,507 $ 61,357 $ 45,999 $ 46,649
========== ========== ========== ==========
The fair values of the investments are based on quoted market prices.
4. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31, MARCH 31,
1997 1998
----------- -----------
Bank revolving credit facility, $475,000 commitment as of March
31, 1998, interest currently at LIBOR plus 1.00% (6.80%) or
ABR (8.5%) payable quarterly, matures
July 1, 2004 .............................................. $ 364,500 $ 375,000
Bank term loan, interest at LIBOR plus 2.00% (7.63%)
payable quarterly, matures January 1, 2005 ................ 220,000 220,000
11 1/4% senior notes, interest payable semi-annually,
due August 1, 2006 ........................................ 292,000 292,000
----------- -----------
$ 876,500 $ 887,000
=========== ===========
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INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The Company's bank debt is outstanding under the revolving credit
facility and term loan agreement executed by IP-IV and dated July 30, 1996. The
revolving credit facility currently provides for $475,000 of available credit.
Starting January 1, 1999, revolving credit facility commitments will be
permanently reduced semiannually by increments ranging from $22,500 to $47,500
through maturity on July 1, 2004. The term loan requires semiannual principal
payments of $500 starting January 1, 1999 through January 1, 2004, and final
principal payments in two equal installments of $107,250 on July 1, 2004 and
January 1, 2005. Advances under the Bank Facility are available under interest
rate options related to the base rate of the administrative agent for the Bank
Facility ("ABR") or LIBOR. Effective October 20, 1997, pursuant to an amendment
to the revolving credit facility and term loan agreement, interest rates on
borrowings under the term loan vary from LIBOR plus 1.75% to LIBOR plus 2.00% or
ABR plus 0.50% to ABR plus 0.75% based on the Company's ratio of senior debt to
annualized quarterly operating cash flow ("Senior Debt Ratio"). Interest rates
vary also on borrowings under the revolving credit facility from LIBOR plus
0.625% to LIBOR plus 1.50% or ABR to ABR plus 0.25% based on the Company's
Senior Debt Ratio. Prior to the amendment, interest rates on borrowings under
the term loan were at LIBOR plus 2.375% or ABR plus 1.125%; and, interest rates
on borrowings under the revolving credit facility varied from LIBOR plus 0.75%
to LIBOR plus 1.75% or ABR to ABR plus 0.50% based on the Senior Debt Ratio. For
purposes of this computation, senior debt, as defined, excludes the 11 1/4%
senior notes. The Bank Facility requires quarterly interest payments, or more
frequent interest payments if a shorter period is selected under the LIBOR
option, and quarterly payment of fees on the unused portion of the revolving
credit facility at 0.375% per annum when the senior leverage ratio is greater
than 4.0:1.0 and at 0.25% when the senior leverage ratio is less than or equal
to 4.0:1.0. At December 31, 1997, the interest rates were 6.75% and 8.50% on
borrowings of $347,000 and $17,500, respectively, outstanding under the
revolving credit facility. At March 31, 1998, the interest rates were 6.81%,
6.63% and 8.50% on borrowings of $353,000, $18,000 and $4,000, respectively,
outstanding under the revolving credit facility.
The Company has entered into interest rate swap agreements in the
aggregate notional principal amount of $120,000 to establish long-term fixed
interest rates on its variable senior bank debt. Under the swap agreements, the
Company pays quarterly interest at fixed rates ranging from 6.28% to 6.3225% and
receives quarterly interest payments equal to LIBOR. The differential to be paid
or received in connection with an individual swap agreement is accrued as
interest rates change over the period to which the payments or receipts relate.
The agreements expire between May 1999 and February 2000.
The estimated fair value of the interest rate swaps is based on the
current value in the market for transactions with similar terms and adjusted for
the holding period. At December 31, 1997 and March 31, 1998, the fair market
value of the interest rate swaps was $(2,198) and $(2,184), respectively.
Borrowings under the Bank Facility are secured by the capital stock and
partnership interests of IP-IV's subsidiaries, a negative pledge on other assets
of IP-IV and subsidiaries and a pledge of any intercompany notes.
The 11 1/4% senior notes will be redeemable at the option of the
Company, in whole or in part, subsequent to August 1, 2001 at specified
redemption prices which will decline in equal annual increments and range from
105.625% beginning August 1, 2001 to 100.0% of the principal amount beginning
August 1, 2004 through the maturity date, plus accrued interest.
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INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
As of December 31, 1997 and March 31, 1998, ICP-IV has $61,925 and
$46,465, respectively, in pledged securities, including interest, which
represent sufficient funds to provide for payment in full of interest on the
Notes through August 1, 1999 and that are pledged as security for repayment of
the Notes under certain circumstances. Proceeds from the pledged securities will
be used by ICP-IV to make interest payments on the Notes through August 1, 1999.
ICP-IV is the issuer of the Notes and, as a holding company, has no
direct operations. The Notes are structurally subordinated to borrowings of
IP-IV under the Bank Facility. The Bank Facility restricts IP-IV and its
subsidiaries from paying dividends and making other distributions to ICP-IV.
The debt agreements contain certain covenants which restrict the
Company's ability to encumber assets, make investments or distributions, retire
partnership interests, pay management fees currently, incur or guarantee
additional indebtedness and purchase or sell assets. The debt agreements include
financial covenants which require minimum interest and debt coverage ratios and
specify maximum debt to cash flow ratios.
Based on recent trading prices of the Notes, the fair value of these
securities at December 31, 1997 and March 31, 1998 is $324,500 and $328,500,
respectively. Borrowings under the Bank Facility are at rates that would be
otherwise currently available to the Company. Accordingly, the carrying amounts
of bank borrowings outstanding as of December 31, 1997 and March 31, 1998
approximate their fair value.
5. COMMITMENTS AND CONTINGENCIES
The Company is committed to provide cable television services under
franchise agreements with remaining terms of up to nineteen years. Franchise
fees of up to 5% of gross revenues are payable under these agreements.
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television station
signals. The Company has entered into long-term retransmission agreements with
all applicable stations in exchange for in-kind and/or other consideration.
The Company is subject to litigation and other claims in the ordinary
course of business. In the opinion of management, the ultimate outcome of any
existing litigation or other claims will not have a material adverse effect on
the Company's financial position or results of operations.
6. RELATED PARTY TRANSACTIONS
ICM-IV provides certain management services to ICP-IV and its
subsidiaries for a per annum fee of $3,350, of which ICM-IV defers 20% per
annum, payable in each following year, in order to support the Company's bank
debt.
InterMedia Management, Inc. ("IMI") is the managing member of InterMedia
Capital Management, LLC ("ICM-IV LLC"), the .001% general partner of ICP-IV
effective August 5, 1997. Prior to August 5, 1997, IMI was wholly owned by the
former managing general partner of ICM-IV, the former general partner of ICP-IV.
IMI has
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INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
entered into agreements with all of ICP-IV's subsidiaries to provide accounting
and administrative services at cost. IMI also provides such services to other
cable systems which are affiliates of the Company. Administrative fees charged
by IMI were $1,675 and $1,804 for the three months ended March 31, 1997 and
1998, respectively. Receivable from affiliate represents advances to IMI, net of
administrative fees charged by IMI and operating expenses paid by IMI on behalf
of ICP-IV's subsidiaries.
On August 5, 1997, ICM-IV LLC purchased from ICM-IV a .001% general
partner interest in ICP-IV. ICM-IV's remaining 1.123% general partner interests
in ICP-IV were converted to limited partner interests, and ICM- IV LLC was
appointed the managing general partner of the Company.
As an affiliate of TCI, ICP-IV is able to purchase programming services
from a subsidiary of TCI. Management believes that the overall programming rates
made available through this relationship are lower than ICP-IV could obtain
separately. Such volume rates may not continue to be available in the future
should TCI's ownership in ICP-IV significantly decrease. Programming fees
charged by the TCI subsidiary for the three months ended March 31, 1997 and 1998
amounted to $9,853 and $11,203, respectively. Payable to affiliates includes
programming fees payable to the TCI subsidiary of $3,556 and $3,942 as of
December 31, 1997 and March 31, 1998, respectively.
On January 1, 1998 an affiliate of TCI entered into an agreement with
the Company to manage the Company's advertising business and related services
for an annual fixed fee per advertising sales subscriber, as defined by the
agreement. In addition to the annual fixed fee, TCI will be entitled to varying
percentage shares of the incremental growth in annual cashflow from advertising
sales above specified targets. Management fees charged by the TCI subsidiary for
the three months ended March 31, 1998 amounted to $81.
7. SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
During the three months ended March 31, 1997 and 1998, the Company paid
interest of $27,406 and $27,360, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis is intended to assist in an
understanding of significant changes and trends related to the results of
operations and financial condition of the Company and should be read in
conjunction with the Company's Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's Form 10-K for the
year ended December 31, 1997. This discussion contains, in addition to
historical information, forward-looking statements that are based upon certain
assumptions and are subject to a number of risks and uncertainties. The
Company's actual results may differ significantly from the results predicted in
such forward-looking statements. This discussion and analysis should be read in
conjunction with the separate financial statements of the Company.
OVERVIEW
The Company generates substantially all of its revenues from monthly
subscription fees for basic, expanded basic (also referred to as cable
programming services, "CPS"), premium and ancillary services (such as rental of
converters and remote control devices) and installation charges. Additional
revenues have been generated from local and national advertising sales,
pay-per-view programming and home shopping commissions.
The Company has reported net losses primarily caused by high levels of
depreciation and amortization and interest expense. Management believes that net
losses are common for cable television companies and that the Company will incur
net losses in the future.
Historically, certain programmers have periodically increased the rates
charged for their services. Management believes that such rate increases are
common for the cable television industry and that the Company will experience
program fee rate increases in the future.
Acquisitions
During the year ended December 31, 1996 the Company acquired cable
television systems serving as of the acquisition dates approximately 567,200
basic subscribers in Tennessee, South Carolina and Georgia through (i) the
Company's acquisition on July 30, 1996 of controlling equity interests in IPWT
and RMG, (ii) the equity contribution on July 30, 1996 of the
Greenville/Spartanburg System to the Company by TCI, (iii) the purchase of the
Nashville System on August 1, 1996, (iv) the purchases on January 29, 1996 and
February 1, 1996 of cable television systems serving as of the acquisition dates
approximately 55,800 basic subscribers, and (v) the purchases on May 2, 1996,
July 1, 1996, and August 6, 1996 of cable television systems serving as of the
acquisition dates approximately 3,800 basic subscribers (together with the
January 29, 1996 and the February 1, 1996 acquisitions, the "Miscellaneous
Acquisitions").
The Miscellaneous Acquisitions and the purchase of the Nashville System
have been accounted for as purchases in accordance with APB16.
IPWT, RMG and the Greenville/Spartanburg System were acquired from
entities in which TCI had a significant ownership interest. Because of TCI's
substantial continuing interest in these entities as a 49.6% limited partner in
ICP-IV (as discussed in Note 2 to the Consolidated Financial Statements included
herein), these acquisitions were accounted for at their historical cost basis as
of the acquisition date. Results of these entities are included in the Company's
consolidated results of operations only from the date of acquisition.
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Rate Regulation and Competition
The Company's operations are regulated by the Federal Communications
Commission ("FCC") and local franchise authorities under the Cable Television
Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") and the
Telecommunications Act of 1996 (the "1996 Act"). Certain of the Company's cost
of service cases justifying rates for the CPS or expanded basic tier of service
are pending before the FCC. Additionally, pursuant to the FCC's regulations,
several local franchising authorities are reviewing the Company's basic rate
justifications and several other franchising authorities have requested that the
FCC review the Company's basic rate justifications. Management believes that the
Company has substantially complied in all material respects with related FCC
regulations and the outcome of these proceedings will not have a material
adverse effect on the Company.
The Company is subject to competition from alternative providers of
video services, including wireless service providers and local telephone
companies. BellSouth has applied for cable franchises in certain of the
Company's franchise areas and is acquiring a number of wireless cable companies
in regions where the Company operates. However, BellSouth has since acknowledged
it is postponing its request for cable franchises in these areas but continues
to pursue the provision of wireless cable services in certain areas in the
Southeast. On October 22, 1996 the Tennessee Cable Telecommunications
Association and the Cable Television Association of Georgia filed a formal
complaint with the FCC challenging certain alleged acts and practices that
BellSouth is taking in certain areas of Tennessee and Georgia including, among
others, subsidizing its deployment of cable television facilities with regulated
services revenues that are not subject to competition. The Company is joined by
several other cable operators in the complaint. The cross-subsidization claims
are currently pending before the FCC's Common Carrier Bureau. The Company cannot
predict the likelihood of success on this complaint. See Part II, Item 5 "Other
Information -- Certain Factors Affecting Future Results -- Competition in Cable
Television Industry; Rapid Technological Change."
The Company cannot predict the extent to which competition will
materialize or, if competition materializes, the extent of its effect on the
Company.
Transactions with Affiliates
Due to TCI's equity ownership in the Company, the Company is able to
purchase programming services from Satellite Services, Inc. ("SSI"), a
subsidiary of TCI. Management believes that the aggregate programming rates
obtained through this relationship are lower than the rates the Company could
obtain through arm's-length negotiations with third parties. The loss of the
relationship with TCI could adversely affect the financial position and results
of operations of the Company. During the three months ended March 31, 1997 and
1998, the Company paid 75.7% and 73.2%, respectively, of its program fees to
SSI.
The Company and its affiliated entities, InterMedia Partners, a
California limited partnership, and InterMedia Partners III, L.P. and their
consolidated subsidiaries (together the "Related InterMedia Entities") have
entered into agreements ("Administrative Agreements") with IMI, pursuant to
which IMI provides accounting, operational, marketing, engineering, legal,
regulatory compliance and other administrative services at cost. IMI is the
managing member of ICM-IV LLC, a limited liability company formed in 1997, which
was appointed the managing general partner of ICP-IV effective August 5, 1997.
Prior to August 5, 1997, IMI was wholly owned by the former managing general
partner of ICM-IV, the former general partner of ICP-IV. Generally, IMI charges
costs to the Related InterMedia Entities based on each entity's number of basic
subscribers as a percentage of total basic subscribers for all of the Related
InterMedia Entities. In addition to changes in IMI's aggregate cost of providing
such services, changes in the number of the Company's basic subscribers and/or
changes in the number of basic subscribers for the other Related InterMedia
Entities will affect the level of IMI costs charged to the Company. IMI
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charged $1.7 million and $1.8 million to the Company for the three months ended
March 31, 1997 and 1998, respectively.
ICM-IV provides certain management services to the Company for an annual
fee of $3,350. See Part II, Item 5 "Other Information -- Certain Factors
Affecting Future Results -- Related Party Transactions."
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, statement of
operations and other data of the Company expressed in dollar amounts (in
thousands) and as a percentage of revenue.
Three Months Ended March 31,
-----------------------------------------------------------
1997 1998
--------------------------- ---------------------------
Percentage Percentage
Amount of Revenue Amount of Revenue
---------- ---------- ---------- ----------
(unaudited)
Statement of Operations Data:
Revenue .............................. $ 60,819 100.0% $ 65,352 100.0%
Costs and Expenses:
Program fees ...................... 13,025 21.4 15,301 23.4
Other direct expenses(1) .......... 6,851 11.3 6,606 10.1
Selling, general and administrative
expenses(2) ..................... 11,756 19.3 13,130 20.1
Management and consulting fees .... 838 1.4 838 1.3
Depreciation and amortization ..... 33,290 54.7 32,772 50.1
---------- ---------- ---------- ----------
Loss from operations ................. (4,941) (8.1) (3,295) (5.0)
Interest and other income ............ 1,378 2.3 1,203 1.8
Interest expense ..................... (19,263) (31.7) (19,519) (29.9)
Other expenses ....................... (170) (0.3) (305) (0.5)
Income tax benefit ................... 1,488 2.4 1,595 2.4
Minority interest .................... (214) (0.4) (229) (0.4)
---------- ---------- ---------- ----------
Net loss ............................. $ (21,722) (35.7)% $ (20,550) (31.4)%
========== ========== ========== ==========
Other Data:
EBITDA(3) ............................ $ 28,3 49 46.6% $ 29,477 45.1%
- - ----------
(1) Other direct and operating expenses consist of expenses relating to
installations, plant repairs and maintenance and other operating costs
directly associated with revenues.
(2) Selling, general and administrative expenses consist mainly of costs
related to system offices, customer service representatives and sales
and administrative employees.
(3) EBITDA is defined as earnings before interest, income taxes,
depreciation and amortization, minority interest and other expense.
EBITDA is a commonly used measure of performance in the cable industry.
However, it does not purport to represent cash flows from operating
activities in related Consolidated Statements of Cash Flows and should
not be considered in isolation or as a substitute for measures of
performance in accordance with generally accepted accounting principles.
For information concerning cash flows from operating, investing and
financing activities, see Unaudited Financial Statements included
elsewhere in this Report.
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Revenues
The Company's revenues for the three months ended March 31, 1998
increased to $65.4 million as compared with $60.8 million for the three months
ended March 31, 1997 due primarily to i) basic subscriber rate increases which
resulted in increased revenue of approximately $4.4 million and ii) increased
number of basic subscribers which accounted for approximately $0.3 million of
the increased revenue, offset by iii) a $0.3 million decrease in other service
revenue. The $0.3 million decrease in other service revenue is due primarily to
a decrease of $1.0 million in revenue earned from certain programmers to promote
and launch their new services, offset by an increase in advertising sales of
$0.6 million.
The Company served approximately 583,500 basic subscribers at March 31,
1998 compared to 578,800 basic subscribers at March 31, 1997. Average monthly
basic service revenue per basic subscriber for the three months ended March 31,
1998 was $26.47 compared to $23.92 for the three months ended March 31, 1997.
The increase represents rate increases implemented by the Company's cable
systems during the three months ended March 31, 1998, including rate increases
for additional channels offered by certain of the cable systems which have been
upgraded pursuant to the Company's Capital Improvement Program.
Program Fees
Program fees for the three months ended March 31, 1998 increased to
$15.3 million, as compared with $13.0 million for the three months ended March
31, 1997 due primarily to higher rates charged by certain programmers and
increased number of channels offered by certain of the Company's systems to
their basic subscribers. Average monthly basic program cost per basic subscriber
for the three months ended March 31, 1998 was $5.45 compared to $4.13 for the
three months ended March 31, 1997. Program fees for the three months ended March
31, 1998 represent 27.3% of basic and pay service revenues compared to 25.4% for
the three months ended March 31, 1997. The increase as a percentage of basic and
pay service revenues reflects the impact of program fee rate increases outpacing
revenue growth for the period.
Other Direct Expenses
Other direct expenses, which include costs related to technical
personnel, franchise fees and repairs and maintenance, decreased to $6.6 million
for the three months ended March 31, 1998 compared to $6.9 million for the three
months ended March 31, 1997. The decrease is due primarily to (i) a decrease in
franchise fee expense which resulted from passing through franchise fees to
subscribers by certain of the Company's cable systems beginning late 1997,
partially offset by (ii) an increase in payroll expense due primarily to wage
increases. Other direct expenses as a percentage of total revenues decreased to
10.1% for the three months ended March 31, 1998 compared to 11.3% for the three
months ended March 31, 1997.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the three
months ended March 31, 1998 increased to $13.1 million compared to $11.8 million
for the three months ended March 31, 1997 due primarily to (i) non-recurring
billing conversion expenses incurred by certain of the Company's cable systems,
(ii) increased payroll costs due to annual wage increases as well as
non-recurring market rate adjustments for certain of the Company's job
positions, (iii) increased marketing expenses, and (iv) expenses incurred by
certain of the Company's systems to identify illegal tapping of its cable
services. SG&A as a percentage of total revenues remained relatively constant at
20.1% for the three months ended March 31, 1998 compared to 19.3% for the three
months ended March 31, 1997.
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Depreciation and Amortization
Depreciation and amortization expense for the three months ended March
31, 1998 decreased to $32.8 million compared to $33.3 million for the three
months ended March 31, 1997 as a result of the Company's use of an accelerated
depreciation method that results in higher depreciation expense being recognized
in the earlier years and lower expense in the later years, offset by capital
expenditures of $131.3 million for twelve months ended March 31, 1998.
Interest Expense
Interest expense increased to $19.5 million for the three months ended
March 31, 1998 compared to $19.3 million for the three months ended March 31,
1997 due primarily to higher debt balances, offset by lower interest rates
during the three months ended March 31, 1998 compared to the same period in
1997.
Income Tax Benefit
As partnerships, the tax attributes of ICP-IV and its subsidiaries other
than RMG and IPCC accrue to the partners. Income tax benefit of $1.5 million and
$1.6 million for the three months ended March 31, 1997 and 1998, respectively,
has been recorded based on RMG's stand alone tax provision. The increase in
income tax benefit is due primarily to an increase in RMG's effective tax rate,
offset by a decrease in RMG's loss before income tax benefit due primarily to a
decrease in interest expense and depreciation and amortization expense.
Net Loss
The Company's net loss for the three months ended March 31, 1998
decreased to $20.6 million from $21.7 million for the three months ended March
31, 1997. The decrease is due primarily to the decrease in loss from operations.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain statement of cash flows
information of the Company (in thousands) for the three months ended March 31,
1997 and 1998.
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1998
---------- ----------
(UNAUDITED)
Statement of Cash Flows Data:
Cash flows from operating activities $ 216 $ 1,347
Cash flows from investing activities (8,268) (9,862)
Cash flows from financing activities 5,936 10,500
THREE MONTHS ENDED MARCH 31, 1997
The Company's cash balance decreased by $2.1 million from $8.8 million
as of January 1, 1997 to $6.7 million as of March 31, 1997.
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Cash Flows From Operating Activities
The Company generated cash flows from operating activities of $0.2
million for the three months ended March 31, 1997 reflecting (i) income from
operations of $28.3 million before non-cash charges to income for depreciation
and amortization of $33.3 million, (ii) interest and other income received of
$2.9 million, primarily from escrowed investments, (iii) interest paid of $27.4
million, and (iv) other working capital uses and non-operating expenses of $3.6
million.
Cash Flows From Investing Activities
The Company purchased property and equipment of $21.8 million during the
three months ended March 31, 1997 consisting primarily of cable system upgrades
and rebuilds, plant extensions, converters and initial subscriber installations.
The Company received $13.9 million in proceeds from maturity of its
escrowed investments on January 31, 1997. These proceeds and related interest
received were used to fund interest payment obligations on the Notes of $16.6
million on February 1, 1997. During the three months ended March 31, 1997, the
Company paid approximately $0.3 million for the right to provide cable services
to a multiple dwelling unit in Greenville/Spartanburg.
Cash Flows From Financing Activities
The Company's cash flows from financing activities for the three months
ended March 31, 1997 consisted primarily of net borrowings of $6.0 million under
the bank revolving credit facility, which were used, along with cash available
from operations, to fund the Company's capital requirements.
THREE MONTHS ENDED MARCH 31, 1998
The Company's cash balance increased by $2.0 million from $6.4 million
as of January 1, 1998 to $8.4 million as of March 31, 1998.
Cash Flows From Operating Activities
The Company generated cash flows from operating activities of $1.3
million for the three months ended March 31, 1998 reflecting (i) income from
operations of $29.5 million before non-cash charges to income for depreciation
and amortization of $32.8 million; (ii) interest and other income received of
$2.2 million, primarily from its escrowed investments; (iii) interest paid of
$27.4 million; and (iv) other working capital uses and non-operating expenses of
$3.0 million.
Cash Flows From Investing Activities
The Company purchased property and equipment of $23.5 million during the
three months ended March 31, 1998 consisting primarily of cable system upgrades
and rebuilds, plant extensions, converters and initial subscriber installations.
During the three months ended March 31, 1998, the Company also paid
approximately $0.8 million for the right to provide cable services to several
multiple dwelling units in Nashville and Greenville/Spartanburg.
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The Company received $14.5 million in proceeds from maturity of its
escrowed investments on January 31, 1998. These proceeds and related interest
received were used to fund interest payment obligations on the Notes of $16.4
million on February 1, 1998.
Cash Flows From Financing Activities
The Company's cash flows from financing activities for the three months
ended March 31, 1998 represented net borrowings of $10.5 million under the bank
revolving credit facility.
The Company funded its capital expenditures and interest payments on the
11.25% senior notes, the bank term loan and the revolving credit facility
primarily with proceeds from the maturity of its escrowed investments and
related accrued interest, as described above, borrowings from the bank revolving
credit facility and cash available from operations.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
The Company has plans to make substantial expenditures for technological
upgrades and rebuilds over the next several years under its Capital Improvement
Program, which is reviewed and modified periodically by management. Management
believes that substantial growth in revenues and operating cash flows is not
achievable without implementing at least a significant portion of the Capital
Improvement Program.
For each of the years through maturity of the Notes, the Company's
principal sources of liquidity are expected to be cash generated from operations
and borrowings under the Company's revolving credit facility. The revolving
credit facility provides for borrowings up to $475.0 million in the aggregate,
with permanent semi-annual commitment reductions beginning in 1999, and matures
in 2004. As of March 31, 1998, the Company had $375.0 million outstanding under
the revolving credit facility, leaving availability of $100.0 million. Prior to
January 1, 1999, the Company has no mandatory amortization requirements under
the Bank Facility.
Management believes that the Company will be able to realize substantial
growth rates in revenue over the next several years through a combination of
household growth, increased penetration and new product offerings that the
Company will be able to make available as technological upgrades are completed
under the Capital Improvement Program.
Management believes that, with the Company's ability to realize
operating efficiencies and sustain substantial growth rates in revenue, it will
be able to generate cash flows from operating activities which, together with
available borrowing capacity under the revolving credit facility, will be
sufficient to fund required interest payments and planned capital expenditures
over the next several years. However, the Company may not be able to generate
sufficient cash from operations or accumulate sufficient cash from other
activities or sources to repay in full the principal amounts outstanding under
the Notes on maturity. In order to satisfy its repayment obligations with
respect to the Notes due August 1, 2006, the Company may be required to
refinance the Notes. There can be no assurance that financing will be available
at that time in order to accomplish any necessary refinancing on terms favorable
to the Company. See Part II, Item 5 "Other Information -- Certain Factors
Affecting Future Results -- Substantial Leverage; Deficiency of Earnings to
Cover Fixed Charges"; and "-- Future Capital Requirements."
Borrowings under the revolving credit facility and the term loan are
available under interest rate options related to the base rate of the
administrative agent for the Bank Facility ("ABR") (which is based on the
administrative agent's published prime rate) and LIBOR. Interest rates vary
under each option based on IP-IV's senior leverage ratio, as defined. Effective
October 20, 1997, pursuant to an amendment to the revolving credit facility and
term loan agreement, interest rates on borrowings under the term loan vary from
LIBOR plus 1.75% to
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LIBOR plus 2.00% or ABR plus 0.50% to ABR plus 0.75%. Interest rates vary also
on borrowings under the revolving credit facility from LIBOR plus 0.625% to
LIBOR plus 1.50% or ABR to ABR plus 0.25%. Prior to the amendment, interest
rates on borrowings under the term loan were at LIBOR plus 2.375% or ABR plus
1.125%; and, interest rates on borrowings under the revolving credit facility
varied from LIBOR plus 0.75% to LIBOR plus 1.75% or ABR to ABR plus 0.50%.
Interest periods are specified as one, two or three months for LIBOR loans. The
Bank Facility requires quarterly interest payments, or more frequent interest
payments if a shorter period is selected under the LIBOR option. The Bank
Facility also requires IP-IV to pay quarterly a commitment fee of 0.25% or
0.375% per year, depending on the senior leverage ratio of IP-IV, on the unused
portion of available credit.
The obligations of IP-IV under the Bank Facility are secured by a first
priority pledge of the capital stock and/or partnership interests of IP-IV's
subsidiaries, a negative pledge on other assets of IP-IV and subsidiaries and a
pledge of any intercompany notes. The obligations of IP-IV under the Bank
Facility are guaranteed by IP-IV's subsidiaries.
The Bank Facility and the Indenture, as defined herein, restrict, among
other things, the Company's ability to incur additional indebtedness, incur
liens, pay distributions or make certain other restricted payments, consummate
certain asset sales and enter into certain transactions with affiliates. In
addition, the Bank Facility and Indenture restrict the ability of a subsidiary
to pay distributions or make certain payments to ICP-IV, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. The Bank
Facility also requires the Company to maintain specified financial ratios and
satisfy certain financial condition tests. Such restrictions and compliance
tests, together with the Company's substantial leverage and the pledge of
substantially all of IP-IV's equity interests in its subsidiaries, could limit
the Company's ability to respond to market conditions, to provide for
unanticipated capital investments or to take advantage of business
opportunities. As of March 31, 1998 the Company was in compliance with all of
the debt covenants as provided by the Bank Facility and the Indenture.
COMMITMENTS AND CONTINGENCIES
The Company has continuing commitments under franchise agreements and
FCC regulations and is subject to litigation and other claims in the ordinary
course of business. See Note 5 to the Consolidated Financial Statements included
herein. See Part II, Item 5 "Other Information -- Certain Factors Affecting
Future Results -- Regulation of the Cable Television Industry" and "--
Expiration of Franchises."
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements in this report which are prefaced with words such as expects,
anticipates, believes and similar words and other statements of similar sense,
are forward-looking statements. These statements are based on the Company's
current expectations and estimates as to prospective events and circumstances
which may or may not be within the Company's control and as to which there can
be no firm assurances given. These forward-looking statements, like any other
forward-looking statements, involve risks and uncertainties that could cause
actual results to differ materially from those projected or anticipated.
In addition to other risks and uncertainties that may be described
elsewhere in this document, certain risks and uncertainties that could affect
the Company's financial results include the following: the development, market
acceptance and successful production of new products and enhancements; and
competitors' product introductions and enhancements.
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YEAR 2000
The Company is in the process of conducting a review of its computer
systems to identify the systems that could be affected by the "Year 2000" issue
and is developing an implementation plan to resolve the issue. The Year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company relies on third party software for all significant
information systems applications. The Company has initiated formal
communications with all of its significant suppliers in determining the impact
on the Company if those third parties fail to remediate their own Year 2000
issues. Representations have been received from certain of the Company's primary
suppliers indicating that they are either fully compliant or have plans in place
to ensure compliance. The Company will incur internal staff costs as well as
consulting and other expenses related to enhancements necessary to prepare the
systems for the year 2000. The expense of the Year 2000 project as well as the
related potential effect on the Company's earnings is not expected to have a
material effect on its financial position or results of operations. There can be
no assurance that the Company's third party suppliers will all be fully
compliant and the failure of the Company or its primary suppliers to resolve the
Year 2000 issue adequately could have a material adverse effect on the Company.
(For a description of the above risks and uncertainties, see the Certain
Factors Affecting Future Results section under Item 5 of PART II.)
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company is a party
or to which the Company's properties are subject. The Company knows of no
threatened or pending material legal action against it or its properties.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
INTERMEDIA PARTNERS IV, CAPITAL CORP.
InterMedia Partners IV, Capital Corp., a Delaware corporation ("IPCC"),
is the wholly owned subsidiary of the Company and was formed solely for the
purpose of serving as a co-issuer of the Notes. The Notes are the joint and
several obligation of the Company and IPCC. Separate financial statements and
other disclosure concerning IPCC have not been provided because IPCC's financial
position is not deemed to be material and it does not have any operations.
CERTAIN FACTORS AFFECTING FUTURE RESULTS
SUBSTANTIAL LEVERAGE; DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
The Company has indebtedness that is substantial in relation to
partners' capital. On March 31, 1998, the Company's total debt balance was
approximately $887.0 million and partners' capital had a deficit balance of
approximately $18.3 million. In addition, subject to the restrictions in the
indenture for the Notes (the "Indenture"), ICP-IV and its subsidiaries (other
than IPCC) may incur additional indebtedness from time to time to finance
acquisitions and capital expenditures or for general corporate purposes. The
high level of the Company's indebtedness will have important consequences,
including: (i) a substantial portion of the Company's cash flow from operations
must be dedicated to debt service and will not be available for general
corporate purposes or for the Capital Improvement Program; (ii) the Company's
ability to obtain additional debt financing in the future for working capital,
capital expenditures, acquisitions or for the Capital Improvement Program may be
limited; and (iii) the Company's level of indebtedness could limit its
flexibility in reacting to changes in the industry and economic conditions
generally. See "-- Future Capital Requirements."
There can be no assurance that the Company will generate earnings in
future periods sufficient to cover its fixed charges, including its debt service
obligations with respect to the Notes. In the absence of such earnings or
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other financial resources, the Company could face substantial liquidity
problems. ICP-IV's ability to pay interest on the Notes and to satisfy its other
debt obligations will depend upon its future operating performance, including
the successful implementation of the Capital Improvement Program, and will be
affected by prevailing economic conditions and financial, business and other
factors, many of which are beyond the Company's control. Based upon expected
increases in revenue and cash flow, the Company anticipates that its cash flow,
together with available borrowings, including borrowings under the Bank
Facility, will be sufficient to meet its operating expenses and capital
expenditure requirements and to service its debt requirements for the next
several years. See Part I, Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations." However, in order to satisfy its
repayment obligations with respect to the Notes, ICP-IV may be required to
refinance the Notes on their maturity. There can be no assurance that financing
will be available at that time in order to accomplish any necessary refinancing
on terms favorable to the Company or at all. If the Company is unable to service
its indebtedness, it will be forced to adopt an alternative strategy that may
include actions such as reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness or seeking additional
equity capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all. Management believes that substantial
growth in revenues and operating cash flows is not achievable without
implementing at least a significant portion of the Capital Improvement Program.
See Part I, Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION
The Notes are the general obligations of ICP-IV and IPCC and rank pari
passu with all senior indebtedness of ICP-IV and IPCC, if any. The Company's
operations are conducted through the direct and indirect subsidiaries of IP-IV.
ICP-IV and IPCC hold no significant assets other than their investments in and
advances to ICP-IV's subsidiaries, and ICP-IV and IPCC have no independent
operations and, therefore, are dependent on the cash flow of ICP-IV's
subsidiaries and other entities to meet their own obligations, including the
payment of interest and principal obligations on the Notes when due.
Accordingly, ICP-IV's and IPCC's ability to make interest and principal payments
when due and their ability to purchase the Notes upon a Change of Control or
Asset Sale (as defined in the Indenture) is dependent upon the receipt of
sufficient funds from ICP-IV's subsidiaries and will be severely restricted by
the terms of existing and future indebtedness of ICP-IV's subsidiaries. The Bank
Facility was entered into by IP-IV and prohibits payment of distributions by any
of ICP-IV's subsidiaries to ICP-IV or IPCC prior to February 1, 2000, and
permits such distributions thereafter only to the extent necessary for ICP-IV to
make cash interest payments on the Notes at the time such cash interest is due
and payable, provided that no default or event of default with respect to the
Bank Facility exists or would exist as a result.
RESTRICTIONS IMPOSED BY LENDERS
The Bank Facility and, to a lesser extent, the Indenture contain a
number of significant covenants that, among other things, restrict the ability
of the Company to dispose of assets or merge, incur debt, pay distributions,
repurchase or redeem capital stock, create liens, make capital expenditures and
make certain investments or acquisitions and otherwise restrict corporate
activities. The Bank Facility also contains, among other covenants, requirements
that IP-IV maintain specified financial ratios, including maximum leverage and
minimum interest coverage, and prohibits IP-IV and its subsidiaries from
prepaying the Company's other indebtedness (including the Notes). The ability of
the Company to comply with such provisions may be affected by events that are
beyond the Company's control. The breach of any of these covenants could result
in a default under the Bank Facility. In the event of any such default, lenders
party to the Bank Facility could elect to declare all amounts borrowed under the
Bank Facility, together with accrued interest and other fees, to be due and
payable. If the indebtedness under the Bank Facility were to be accelerated, all
indebtedness outstanding under such Bank Facility would be required to be paid
in full before IP-IV would be permitted to distribute any assets or cash to
ICP-IV. There can be no assurance that the assets of ICP-IV and its subsidiaries
would be sufficient to repay all borrowings under the Bank
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Facility and the other creditors of such subsidiaries in full. In addition, as a
result of these covenants, the ability of the Company to respond to changing
business and economic conditions and to secure additional financing, if needed,
may be significantly restricted, and the Company may be prevented from engaging
in transactions that might otherwise be considered beneficial to the Company.
FUTURE CAPITAL REQUIREMENTS
Consistent with the Company's business strategy, and in order to comply
with requirements imposed by certain of its franchising authorities and to
address existing and potential competition, the Company has implemented the
Capital Improvement Program. Pursuant to the Capital Improvement Program, the
Company is expanding and upgrading the systems' plant to improve channel
capacity and system reliability and to allow for interactive services such as
enhanced pay-per-view, home shopping, data transmission (including Internet
access) and other interactive services to the extent they become technologically
viable and economically practicable. The Company expects to upgrade certain of
its existing systems with a digital-capable, high-capacity, broadband hybrid
fiber/coaxial network architecture to accomplish these objectives. Although the
Company anticipates that it will continue to upgrade portions of its systems
over the next several years, there can be no assurance that the Company will be
able to upgrade its cable television systems at a rate that will allow it to
remain competitive with competitors that either do not rely on cable into the
home (e.g., direct broadcast satellite ("DBS") service and multipoint
multichannel distribution service ("MMDS") systems) or have access to
significantly greater amounts of capital and an existing communications network
(e.g., certain telephone companies). The Company's business requires continuing
investment to finance capital expenditures and related expenses for expansion of
the Company's subscriber base and system development. There can be no assurance
that the Company will be able to fund its Capital Improvement Program or any of
its other capital expenditures. The Company's inability to upgrade its cable
television systems or make its other planned capital expenditures could have a
material adverse effect on the Company's operations and competitive position and
could have a material adverse effect on the Company's ability to service its
debt, including the Notes.
LIMITED OPERATING HISTORY; DEPENDENCE ON MANAGEMENT
ICP-IV was organized in March 1996. The partners of IP-IV transferred
their partnership interests to ICP-IV in 1996. Therefore, there is limited
historical financial information about the Company upon which to base an
evaluation of its performance. Pursuant to the acquisitions in 1996, the Company
substantially increased the size of its operations. Therefore, the historical
financial data of the Company may not be indicative of the Company's future
results of operations. Further, there can be no assurance that the Company will
be able to successfully implement its business strategy. The future success of
the Company will be largely dependent upon the efforts of senior management.
COMPETITION IN CABLE TELEVISION INDUSTRY; RAPID TECHNOLOGICAL CHANGE
Cable television systems face competition from other sources of news,
information and entertainment, such as off-air television broadcast programming,
newspapers, movie theaters, live sporting events, interactive computer programs
and home video products, including video tape cassette recorders. Competing
sources of video programming include, but are not limited to, off-air broadcast
television, DBS, MMDS, satellite master antenna television ("SMATV"), Local
Multipoint Distribution Service ("LMDS") and other new technologies. Other new
technologies may become competitive with services that cable communications
systems can offer. In addition, with respect to non-video services, the FCC has
authorized television broadcast stations to transmit, in subscriber frequencies,
text and graphic information useful both to consumers and to businesses. The FCC
has recently adopted a final Table of Allotments and Rules for the assignment of
channels for high definition television ("HDTV").
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Furthermore, the cable television industry is subject to rapid and significant
changes in technology. The effect of any future technological changes on the
viability or competitiveness of the Company's business cannot be predicted.
In addition, the Telecommunications Act of 1996 has repealed the
cable/telephone cross-ownership ban, and telephone companies will now be
permitted to provide cable television service within their service areas.
Certain of such potential service providers have greater financial resources
than the Company, and in the case of local exchange carriers seeking to provide
cable service within their service areas, have an installed plant and switching
capabilities, any of which could give them competitive advantages with respect
to cable television operators such as the Company.
BellSouth has applied for cable franchises in certain of the Company's
franchise areas and is acquiring a number of wireless cable companies in regions
where the Company operates. However, BellSouth has since acknowledged it is
postponing its request for cable franchises in these areas but continues to
pursue the provision of wireless cable services in certain cities in the
Southeast. On October 22, 1996 the Tennessee Cable Telecommunications
Association ("TCTA") and the Cable Television Association of Georgia filed a
formal complaint with the FCC challenging certain acts and practices that
BellSouth is taking in connection with its deployment of video distribution
facilities in certain areas of Tennessee and Georgia. In addition, the TCTA also
filed a petition for investigation with the Tennessee Regulatory Authority
concerning certain alleged acts and practices that BellSouth is taking in
connection with its construction and deployment of cable facilities in
Tennessee. The Company is joined by several other cable operators in the
complaint. The Company cannot predict the likelihood of success in this
complaint or the petition nor can there be any assurance that the Company will
be successful with either the complaint or the petition. Furthermore, the
Company cannot predict either the extent to which competition from BellSouth or
other potential service providers will materialize or, if such competition
materializes, the extent of its effect on the Company.
REGULATION OF THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation at the
federal, state and local levels, and many aspects of such regulation are
currently the subject of judicial proceedings and administrative or legislative
proposals. In February 1996, Congress passed, and the President signed into law,
major telecommunications reform legislation, the Telecommunications Act of 1996.
Among other things, the 1996 Act reduces in some circumstances and by 1999 will
eliminate, rate regulation for CPS packages for all cable television systems and
immediately eliminates regulation of this service tier for small cable
operators. The FCC is undertaking numerous rulemaking proceedings to interpret
and implement the provisions of the 1996 Act. The 1996 Act and the FCC's
implementing regulations could have a significant effect on the cable television
industry. In addition, the Cable Television Consumer Protection and Competition
Act of 1992 (the "1992 Cable Act") imposed substantial regulation on the cable
television industry, including rate regulation, and significant portions of the
1992 Act remain in effect despite the enactment of the 1996 Act and remain
highly relevant to the Company's operations.
The Company elected the benchmark or cost-of-service methodologies to
justify its basic and CPS tier rates in effect prior to May 15, 1994, but relied
primarily upon the cost-of-service methodology to justify regulated service
rates in effect after May 14, 1994. The FCC released a series of orders in 1996
and 1997 in which it found the Company's rates in the majority of cases to be
reasonable, but several cost-of-service cases are still pending before the FCC.
Additionally, pursuant to the FCC's regulations, several local franchising
authorities are reviewing the Company's basic rate justifications and several
other franchising authorities have requested that the FCC review the Company's
basic rate justifications. Although the Company generally believes that its
rates are justified under the FCC's benchmark or cost-of-service methodologies,
it cannot predict the ultimate resolution of these remaining cases.
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Management believes that the regulation of the cable television industry
will remain a matter of interest to Congress, the FCC and other regulatory
bodies. The FCC, Congress and local franchising authorities continue to be
concerned that cable rates are rising too rapidly. The FCC has begun to explore
ways of addressing this issue, for example, a bill was recently introduced in
Congress which would repeal the deregulation of CPS tiers now scheduled for
March 1999. The outcome of this bill or other similar bills cannot be predicted
at this time. There can be no assurance as to what, if any, future actions such
legislative and regulatory authorities may take or the effect thereof on the
industry or the Company.
RELATED PARTY TRANSACTIONS
Conflicts of interests may arise due to certain contractual
relationships of the Company and the Company's relationship with InterMedia
Partners, a California limited partnership ("IP"), InterMedia Partners II, L.P.
("IP-II"), InterMedia Partners III, L.P. ("IP-III"), and their consolidated
subsidiaries and its other affiliates. IMI, which is wholly owned by Robert J.
Lewis, provides administrative services at cost to the Company and to the
operating companies of IP and IP-III and their consolidated subsidiaries
(together the "Related InterMedia Entities"). Conflicts of interest may arise in
the allocation of management and administrative services as a result of such
relationships. In addition, the Related InterMedia Entities and IP-II and their
respective related management partnerships have certain relationships, and will
likely develop additional relationships in the future with TCI, which could give
rise to conflicts of interest.
EXPIRATION OF FRANCHISES
In connection with a renewal of a franchise, the franchising authority
may require the Company to comply with different conditions with respect to
franchise fees, channel capacity and other matters, which conditions could
increase the Company's cost of doing business. Although management believes that
it generally will be able to negotiate renewals of its franchises, there can be
no assurance that the Company will be able to do so and the Company cannot
predict the impact of any new or different conditions that might be imposed by
franchising authorities in connection with such renewals. Failure to obtain
franchise renewals or the imposition of new or different conditions could have a
material adverse effect on the Company.
LOSS OF BENEFICIAL RELATIONSHIP WITH TCI
The Company's relationship with TCI currently enables the Company to (i)
purchase programming services and equipment from a subsidiary of TCI at rates
that management believes are generally lower than the Company could obtain
through arm's-length negotiations with third parties, (ii) share in TCI's
marketing test results, (iii) share in the results of TCI's research and
development activities and (iv) consult with TCI's operating personnel with
expertise in engineering, technical, marketing, advertising, accounting and
regulatory matters. While the Company expects the relationship to continue,
there can be no assurance that such benefits will continue to be available in
the future should TCI's ownership in the Company significantly decrease. The
loss of the relationship with TCI could adversely affect the financial position
and results of operations of the Company. Further, the Bank Facility provides
that an event of default will exist if TCI does not own beneficially 35.0% or
more of ICP-IV's non-preferred partnership interests. See Part I, Item 2
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview -- Transactions with Affiliates."
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, ICP-IV and IPCC are required
to make an offer to purchase all outstanding Notes at a purchase price equal to
101.0% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of purchase. There can be no assurance that ICP-IV
and IPCC will have available
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funds sufficient to purchase the Notes upon a Change of Control. In addition,
any Change of Control, and any repurchase of the Notes required under the
Indenture upon a Change of Control, would constitute an event of default under
the Bank Facility, with the result that the obligations of the borrowers
thereunder could be declared due and payable by the lenders. Any acceleration of
the obligations under the Indenture or the Bank Facility would make it unlikely
that IP-IV could make adequate distributions to ICP-IV in order to service the
Notes and, accordingly, that IP-IV could make adequate distributions to ICP-IV
as required to permit ICP-IV and IPCC to effect a purchase of the Notes upon a
Change of Control.
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF EXCHANGE NOTE PRICE
The Notes, registered pursuant to the exchange offer completed in
January 1997 (the "Exchange Notes") are securities for which there is a limited
market. The Company does not intend to apply for listing of the Exchange Notes
on any securities exchange or for the inclusion of the Exchange Notes in any
automated quotation system. NationsBanc Capital Markets, Inc. ("NationsBanc")
and Toronto Dominion Securities (USA) Inc. ("Toronto Dominion") have made a
market in the Notes, however such market making activities may be discontinued
at any time without notice. Accordingly, there can be no assurance as to the
continued development or liquidity of any market for the Exchange Notes. The
Exchange Notes could trade at prices that may be higher or lower than their
initial offering price depending upon many factors, including prevailing
interest rates, the Company's operating results and the markets for similar
securities. Historically, the market for non-investment-grade debt has been
subject to disruptions that have caused substantial volatility in the prices of
securities similar to the Exchange Notes. There can be no assurance that the
market for the Exchange Notes will continue to develop, or that such a market
would not be subject to similar disruptions.
YEAR 2000
The Company is in the process of conducting a review of its computer
systems to identify the systems that could be affected by the "Year 2000" issue
and is developing an implementation plan to resolve the issue. The Year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company relies on third party software for all significant
information systems applications. The Company has initiated formal
communications with all of its significant suppliers in determining the impact
on the Company if those third parties fail to remediate their own Year 2000
issues. Representations have been received from certain of the Company's primary
suppliers indicating that they are either fully compliant or have plans in place
to ensure compliance. The Company will incur internal staff costs as well as
consulting and other expenses related to enhancements necessary to prepare the
systems for the year 2000. The expense of the Year 2000 project as well as the
related potential effect on the Company's earnings is not expected to have a
material effect on its financial position or results of operations. There can be
no assurance that the Company's third party suppliers will all be fully
compliant and the failure of the Company or its primary suppliers to resolve the
Year 2000 issue adequately could have a material adverse effect on the Company.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGES
- - ------ ------- --------------
3.3 Amended and Restated Agreement of Limited Partnership of
InterMedia Capital Partners IV, L.P. dated as of March 31, 1998
by and among InterMedia Capital Management, LLC,
InterMedia Capital Management IV, L.P. and various other limited
partners (Exhibits and schedules omitted. The Company agrees to
furnish to furnish a copy of any exhibit or schedule to the
Commission upon request) .............................................................
24.1 Power of Attorney (included on page 27)...............................................
27.1 Schedule of Financial Data for InterMedia Capital
Partners IV, L.P......................................................................
(b) Reports on Form 8-K:
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the fiscal quarter ended March 31, 1998.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTERMEDIA CAPITAL PARTNERS IV, L.P.
By: InterMedia Capital Management,
LLC, its General Partner
By: InterMedia Management, Inc., its
Managing Member
By: /s/ ROBERT J. LEWIS
-------------------------------
Robert J. Lewis
President
Date: May 14, 1998.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Robert J. Lewis and Edon V. Hartley, and each of
them, his true and lawful attorneys-in-fact and agents, each with full power of
substation and resubstation, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this report, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, and
fully to all intents and purposes as he might or could do in person, hereby
ratifying and conforming all that each of said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
/s/ ROBERT J. LEWIS President, Chief Executive Officer and Sole May 14, 1998
- - ------------------------------- Director of InterMedia Management, Inc.
Robert J. Lewis (principal executive officer)
/s/ EDON V. HARTLEY Chief Financial Officer of InterMedia May 14, 1998
- - ------------------------------- Management, Inc.
Edon V. Hartley (principal financial officer)
/s/ THOMAS R. STAPLETON Vice President of InterMedia Management, Inc. May 14, 1998
- - ------------------------------- (principal accounting officer)
Thomas R. Stapleton
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