UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 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: (S-1) 333-3084
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION CAPITAL CORP.
(Exact name of registrants as specified in their respective charters)
Colorado 84-1317717
Colorado 84-1341424
(State or other jurisdiction of (I.R.S. EIN)
incorporation or organization)
360 South Monroe St., Suite 600
Denver, Colorado 80209
(Address of principal executive offices) (zip code)
Registrant's Telephone Number including area code: (303) 333-1215
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statement incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. X
There is no established trading market for any of the registrants'
securities. As of the date of this report, there were 1,000 shares of
common stock of Rifkin Acquisition Capital Corp. issued and outstanding,
all of which were owned by Rifkin Acquisition Partners, L.L.L.P.
Documents incorporated by reference: No.
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION CAPITAL CORP.
Table of Contents
Page
Part I
Item 1. Business................................................ 3
Item 2. Properties.............................................. 19
Item 3. Legal Proceedings....................................... 19
Item 4. Submission of Matters to a Vote of Security Holders..... 19
Part II
Item 5. Market for Registrants' Common Stock and
Related Stockholder Matters........................... 19
Item 6. Selected Financial Data................................. 20
Item 7. Mangement's Discussion and Analysis of Financial
Condition and Results of Operations................... 22
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk .......................................... 29
Item 8. Financial Statements and Supplementary Data............. 29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 49
Part III
Item 10. Directors and Executive Officers of the Registrants..... 49
Item 11. Executive Compensation.................................. 52
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ 53
Item 13. Certain Relationships and Related Transactions.......... 55
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...................................57
<PAGE>
PART I
ITEM 1 - BUSINESS
Some of the statements that follow are forward-looking statements. These
statements include, without limitation, statements relating to the
Company's future business plans, financial results, performance and
events. The words "anticipates," "believes," "considers," "expects,"
"intends," "plans," or "strategy" and similar expressions identify
forward-looking statements. For a list of some of the important factors
(but not necessarily all of the important factors) that could cause
actual results to differ from such forward-looking statements see "Item
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Special Note Regarding Forward-Looking
Statements."
General
Rifkin Acquisition Partners, L.L.L.P., a Colorado limited liability
limited partnership (the "Partnership"), through the Partnership and its
subsidiaries other than Rifkin Acquisition Capital Corp., a Colorado
corporation and a wholly-owned subsidiary of the Partnership ("RACC" and
together with the Partnership, the "Company"), owns, operates and
develops cable television systems in Georgia, Tennessee and Illinois (the
"Systems"). RACC does not have any operations, operating history,
assets, revenues, properties or employees, and was formed in January 1996
solely for the purpose as serving as a corporate co-issuer of 11 1/8%
Senior Subordinated Notes due 2006 issued by the Partnership and RACC in
January 1996 (the "Old Notes"). The Partnership is the successor to
Rifkin Acquisition Partners, L. P. a Colorado limited partnership ("RAP,
L.P.") that was formed in 1988 and reorganized as a Colorado limited
liability limited partnership in August 1995.
At December 31, 1998, the Systems of the Company passed approximately
261,200 homes and served approximately 191,100 basic customers, at a
basic penetration level of 73.1%. The Company is one of the largest
multiple system operators ("MSO") in Tennessee based on information
provided by the Tennessee Cable Television Association as of December 31,
1998. All of the Systems have capacities of 30 or more channels.
The Partnership pays a fee to R & A Management, LLC ("RML") of 3.5% of
the Company's revenues to manage the systems. Originally, Rifkin &
Associates, Inc. ("R & A") managed the Company's cable systems pursuant
to a Management Agreement (the "Management Agreement") among the Company,
Cable Equities of Colorado and R & A. R & A conveyed the Management
Agreement to RML in September 1998, and R & A is now the manging member
of RML. Monroe M. Rifkin is the sole director and shareholder of R & A.
For the year ended December 31, 1998, the Company had revenue of
approximately $89.9 million, and Adjusted EBITDA (see footnote (b) on
page 20) of approximately $42.8 million.
In August 1995, the Partnership effected a recapitalization in which a
group led by VS&A Communications Partners I, L.P., IEP Holdings I LLC
and Paine Webber Capital, Inc. acquired the interests of certain limited
partners in Rifkin Acquisition Partners, L.P. ("RAP, L.P.").
Concurrently, all of RAP, L.P.'s debt was repaid and the Company entered
into a new credit agreement (the "Credit Agreement") with a syndicate of
banks. In addition, in January 1996, the Company completed the issuance
of $125 million of 11 1/8% Senior Subordinated Notes due in 2006 (the
"Old Notes"), which were subsequently exchanged for publicly registered
notes (the "New Notes" and collectively with the Old Notes, the "Notes"),
and amended its Credit Agreement to provide ongoing borrowing
availability, including availability to finance acquisitions.
Recent Developments
In February 1999, the Partnership announced the planned acquisition by
Charter Communications, Inc. ("Charter") of all outstanding partnership
interests in the Partnership and InterLink Communications Partners, LLLP
("InterLink") and the assumption of the outstanding debt of InterLink and
the Partnership. The parties expect to finalize definitive agreements
of the transactions in early April 1999 and expect to close the
transactions during the third quarter of 1999.
1998 Acquisitions
Tennessee Systems
On December 31, 1998, the Company acquired certain operating assets
comprising six cable television systems from InterMedia Partners and
certain of their affiliated companies (the "InterMedia Systems" or the
"trade acquisition"). These cable systems are located in Crossville,
Monterey, Lewisburg, Hohenwald, Loretto and West Point, Tennessee. The
purchase price included the trade of certain existing cable systems of
the Company located in Tennessee, a payment of approxiately $719,000 and
the assumption of approximately $51,000 of working capital. Upon
acquisition the InterMedia Systems passed approximately 24,400 homes with
approximately 700 miles of plant, and served approximately 16,100 basic
service customers. Since the InterMedia Systems acquisition took place
on December 31, 1998, there are no revenues related to the acquisition
included in the year ended December 31, 1998 results.
Other Systems
During 1998, the Company also completed two separate transactions to
acquire certain cable television operating assets located in Georgia.
The aggregate purchase price for these systems was approximately $2.0
million. The revenues related to these other systems included in the
year ended December 31, 1998 were approximately $180,000.
1997 Acquisitions
Manchester Systems
On April 1, 1997, the Company acquired certain operating assets
comprising two cable television systems of American Cable TV Investors
5, Ltd. located in Manchester and Shelbyville, Tennessee (the "Manchester
Systems"). The purchase price for the Manchester Systems was
approximately $19.7 million including approximately $21,000 of net
working capital assumed. Upon acquisition (the "Manchester
Acquisition"), the Manchester Systems passed approximately 14,600 homes
with approximately 360 miles of plant, and served approximately 11,700
basic service customers. The revenues related to the Manchester Systems
acquisition included in the year ended December 31, 1998 and 1997 results
were approximately $4.9 million and $3.3 million, respectively.
1996 Acquisitions
Mid-Tennessee Systems
On March 1, 1996, the company acquired certain operating assets
comprising eleven cable television systems located in Tennessee (the
"Mid-Tennessee Systems"). The purchase price for the Mid-Tennessee
Systems was approximately $61.9 million including approximately $32,000
of net working capital assumed. Upon acquisition (the "Mid-Tennessee
Acquisition"), the Mid-Tennessee Systems passed approximately 42,700
homes with approximately 1,260 miles of plant, and served approximately
33,500 basic service customers. The revenues related to the Mid-
Tennessee Systems acquisition included in the year ended December 31,
1996 results were approximately $10.8 million.
RCT Systems
On April 1, 1996, the Company acquired all of the operating assets
comprising three cable television systems located in Tennessee (the "RCT
Systems"). The purchase price for the RCT Systems was approximately
$10.2 million, including approximately $377,000 of assumed liabilities.
Upon acquisition (the "RCT Acquisition"), the RCT Systems passed
approximately 14,300 homes with approximately 272 miles of plant, and
served approximately 12,200 basic service customers. The revenues
related to the RCT Systems acquisition included in the year ended
December 31, 1996 results were approximately $3.2 million.
Other Systems
During 1996, the Company also acquired the operating assets of three
other cable television systems all located in Tennessee, and purchased
from three separate cable companies. The aggregate purchase price for
these systems was approximately $2.0 million. The revenues related to
these other systems included in the year ended December 31, 1996 were
approximately $200,000.
Property Sales
Tennessee Systems
As indicated above, on December 31, 1998, the Company completed a trade
with InterMedia Partners (the "trade sale" together with the trade
acquisition heretofore the "InterMedia Swap"), resulting in the sale of
certain Tennessee cable systems located primarily in Paris and Piney
Flats, Tennessee (the "Rifkin systems"). The consideration was the
receipt of certain Tennessee cable systems from InterMedia and the
assumption of approximately $17,000 of working capital. At December 31,
1998, the Rifkin systems passed approximately 23,700 homes with 535 miles
of plant and served approximately 15,600 basic service customers.
Michigan Systems
On February 4, 1998, with an effective date of January 31, 1998, the
Company completed the sale of all operating assets comprising the
Company's properties within Michigan (the "Michigan Systems") to Bresnan
Communications Company ("Bresnan"). The sales price was $17.1 million
including the assumption of working capital and closing adjustments. At
December 31, 1997, the Michigan Systems passed approximately 14,300 homes
with 370 miles of plant and served approximately 11,200 customers.
Business Strategy
The Company's business strategy focuses on enhancing operational and
financial performance by: (i) consolidating operations of existing
clustered systems through strategic acquisitions; (ii) applying
aggressive and innovative customer acquisition and retention marketing
techniques; (iii) upgrading systems with state-of-the-art technology to
enhance existing service and to develop, on a cost-effective basis, new
ancillary revenue streams; and (iv) enhancing customer value by providing
exceptional customer service.
Consolidating Operations & Strategic Acquisitions. The Company believes
that consolidating operations will increase Adjusted EBITDA (as defined
herein) by allowing for operating efficiencies in such areas as
administration, marketing, customer service and advertising sales. The
Company continues to explore opportunities to consolidate headends in
order to reduce maintenance costs, as well as the cost of adding new
channels and implementing new technologies and services. The Company has
consolidated certain of the operations of the acquired Shelbyville and
Manchester Systems with certain of the operations of the Company's
existing systems in Tennessee. In addition, the Company plans in 1999
to interconnect clusters of four systems in Tennessee, serving over
80,000 customers, to allow for the efficient implementation of new
technologies.
Innovative Marketing. The Company markets and promotes its cable
television systems with the objective of increasing penetration and
average revenue per customer. The Company actively markets its basic and
premium program packages through innovative marketing tactics that
include direct mail and telemarketing efforts targeted to specific
customer and non-customer demographic profiles, newspaper and television
advertising and door-to-door sales. In selected markets, the Company is
also expanding its sources of revenue from services such as pay-per-view,
new product tiers, high speed data access and digitally delivered
programming.
System specific marketing plans and marketing budgets are developed
jointly between R & A Management, LLC and the Company's regional
marketing staff. In addition, the Company incorporates into marketing
plans retention marketing strategies such as customer value-building,
employee training and growth-related employee incentives to ensure that
marketing investments are maximized. Additional customers are also
gained by cable plant extensions built to new housing developments once
adequate density is available.
System Enhancements. The Company is committed to maintaining and
enhancing the technical integrity and channel capacity of its cable
systems as demonstrated by the fact that all of the Systems have
capacities of 30 or more channels. Within the next three years, the
Company intends to rebuild nearly all of the Systems to a bandwidth
between 450 MHz and 750 MHz. Additionally, the Company also is committed
to extending its distribution systems to keep pace with the growth in the
communities it serves as well as making continuous investments that
improve picture quality and plant reliability.
The Company is utilizing advances in technology to upgrade its cable
plant. The utilization of fiber optics and addressable technology (the
computerized authorization of individual converters or receivers to
descramble and receive specifically authorized video, audio or data
signals that have been scrambled for security purposes) in these rebuilds
will improve technical reliability, enhance picture quality and increase
channel capacity to offer new products and services, all of which is
expected to increase customer satisfaction and position the Company for
a competitive future.
Customer Value. The Company believes it has a high quality, well-trained
staff of customer service and sales representatives and local field
technicians to provide valuable customer service. To this end, the
Company continues to invest resources in training its customer service
representatives and field technicians. In addition, the Company
regularly evaluates the programming offered by its systems in order to
offer its customers innovative packages of basic and premium services,
including locally originated programming.
Systems
The Systems consist of three geographic clusters: Georgia, Tennessee and
Illinois. The following describes each of these geographic clusters and
illustrate the Company's growth over the past five years:
Georgia System. The table below sets forth certain information with
respect to the Georgia System.
Year Ended December 31,
1998 1997 1996 1995 1994
Homes Passed 82,116 77,272 71,152 66,307 60,898
Basic Customers 60,526 57,173 53,386 48,925 44,290
Basic Penetration 73.7% 74.0% 75.0% 73.8% 72.7%
Average Monthly Revenue
per Customer $42.26 $39.56 $37.35 $35.44 $33.61
The Georgia System is managed by R & A Management, LLC. On a combined
basis, this system consisted of approximately 1,690 miles of distribution
plant. The Georgia System serves unincorporated areas in northeast
Gwinnett County and certain incorporated communities therein, including
the cities of Lawrenceville, Duluth, Suwanee, Buford, Sugar Hill, Dacula
and Resthaven, as well as the Cities of Roswell and Mountain Park in
Fulton County. All of the communities served by the Georgia System are
suburbs of Atlanta.
Tennessee Systems. The table below sets forth certain information with
respect to the Tennessee Systems.
Year Ended December 31,
1998 1997 1996 1995 1994
Homes Passed 143,016 138,913 120,285 115,057 110,441
Basic Customers 107,908 107,558 96,768 93,765 89,205
Basic Penetration 75.5% 77.4% 80.4% 81.5% 80.8%
Average Monthly
Revenue per Customer(1) $37.90 $35.36(2)$32.38 $30.05 $28.73
(1) The calculation does not reflect the customers from the InterMedia Swap.
(2) Refer to Footnote (c) on Page 20.
The Tennessee Systems are managed by R & A Management, LLC. On a
combined basis, these systems consisted of approximately 4,090 miles of
distribution plant.
The Tennessee Systems serve the communities of Columbia, Cookeville,
Tullahoma, Lebanon, McMinnville, Pulaski, Lawrenceburg, Fayetteville,
Crossville, Lewisburg, Monterey, Hohenwald, Shelbyville and Manchester.
The communities served are primarily in central and south central
Tennessee.
The Illinois Systems. The table below sets forth certain information
with respect to the Illinois Systems.
Year Ended December 31,
1998 1997 1996 1995 1994
Homes Passed 36,114 35,924 35,739 35,469 35,320
Basic Customers 22,657 23,542 23,887 24,269 23,987
Basic Penetration 62.7% 65.5% 66.8% 68.4% 67.9%
Average Monthly
Revenue per Customer $38.36 $35.49 $32.70 $30.63 $29.57
The Illinois Systems are managed by R & A Management, LLC. On a combined
basis, these systems consisted of approximately 600 miles of distribution
plant.
The Illinois Systems serve the communities of Mt. Vernon, Centralia,
Sparta, Sesser, Steelville, Cairo and Nashville all located in southern
Illinois. These communities generally receive poor off-air reception
from St. Louis and require cable service to receive high quality
broadcast signals. Nearly 60% of the customers are in the Mt. Vernon and
Centralia systems.
The Cable Television Industry
A cable television system receives television, radio and data signals at
its headend facility that are transmitted by broadcasting stations,
microwave relay systems and communications satellites. These signals are
then electronically processed and distributed, primarily through coaxial
and, in some instances, fiber optic cable, to customers who pay a fee to
receive some or all of these signals.
Cable television systems generally consist of four principal operating
components. The first component, known as the headend facility, receives
television and radio signals and other programming and information by
means of special antennae, microwave relays and satellite earth stations.
The second component, the distribution network, which originates at the
headend and extends throughout the system's service area, typically
consists of coaxial or fiber optic cables placed on utility poles or
buried underground, and associated electronic equipment. The third
component of the system is a drop cable, which extends from the
distribution network into each customer's home and connects the
distribution system to the customer's television set. The fourth
component, a converter, is the home terminal device that converts the
services available on the cable system to channels which can be displayed
by the customer's television set if the television set is not cable
compatible. In addition, this component may serve as a descrambler to
permit reception of limited-distribution services by authorized viewers.
Cable systems may also originate their own television programming and
other information services for distribution throughout the system. Cable
television systems generally are constructed and operated pursuant to
nonexclusive franchises or similar licenses granted by local governmental
authorities for a specified term of years.
Cable television systems offer customers various levels or "tiers" of
basic cable services consisting of off-air television signals of network,
independent and educational programming from local broadcasters, a
limited number of television signals from so-called superstations
originating from distant cities, various satellite delivered, non-
broadcast channels (such as Cable-News Network ("CNN"), the USA Network
("USA"), Entertainment and Sports Programming Network ("ESPN"), The
Discovery Channel and Turner Network Television ("TNT")), certain
programming originated locally by the cable system such as public,
governmental and educational access programs and informational displays
featuring news, weather, stock market and financial reports and public
service announcements. For an extra monthly charge, cable systems also
typically offer premium television services to their customers. These
services, such as Home Box Office ("HBO"), Showtime, Cinemax and The
Movie Channel, are satellite-delivered channels consisting principally
of feature films, live sporting events, concerts and other special
entertainment features, usually presented without commercial interruption
for which a separate per channel charge may be levied by the cable
system.
Generally, a customer pays an initial installation charge and fixed
monthly fees for basic and premium television services and for other
services, including the rental of converters and remote control devices.
Monthly service fees constitute the primary source of revenues for cable
television systems. Cable systems also generate revenues from additional
fees paid by customers for pay-per-view programming of movies and special
events and from the sale of available advertising spots on advertiser-
supported cable programming. Cable systems also offer to their customers
home shopping services which pay the systems a share of revenues from
sales of products in the systems' service areas.
Programming and Service Offerings
Programming. R & A Management, LLC has various contracts to obtain basic
and premium programming for the Systems from program suppliers whose
compensation is typically based on a fixed fee per customer. The Systems
select basic, tier and premium programming based on the demographics in
the market, national research on the perceived value of the programming,
requests from customers, the available channel capacity in each system,
the cost of the networks and the availability of local advertising spots.
Some program suppliers provide volume discount pricing structures or
offer marketing and launch support to the Systems. In particular, R &
A Management, LLC has negotiated programming agreements for the Systems
with premium service suppliers that offer cost incentives under which
premium service unit prices decline as certain premium service growth
thresholds are met. The Systems' successful marketing of multiple
premium service packages emphasizing customer value has enabled the
Systems to take advantage of such cost incentives.
The Systems have 200 retransmission consents with 46 commercial broadcast
stations. None of these consents require direct payment of fees for
carriage; however, in some cases the Systems have entered into agreements
with certain stations to carry satellite-delivered cable programming
which is affiliated with the network carried by such stations. These
agreements have been renewed and will not expire until May 31, 1999 at
the earliest. There can be no assurance that such agreements can or will
be renewed under similar terms after their current term expiration. See
"Legislation and Regulation in the Cable Television Industry."
R & A Management, LLC is a member of a programming consortium consisting
of small to mid-size independent cable television operators serving, in
the aggregate, approximately 5.3 million cable customers. The consortium
was formed to help create efficiencies in the areas of securing and
administering programming contracts, as well as to establish more
favorable programming rates and contract terms for small to mid-size
operators. Currently, approximately 40% of the Systems' programming
contracts are negotiated directly with the networks by R & A Management,
LLC; the remaining 60% are negotiated through the consortium. The
Systems' programming contracts are generally for a fixed period of time
(three to ten years) and are subject to negotiated renewal. As existing
contracts expire, R & A Management, LLC intends to negotiate the renewals
through the programming consortium.
The Systems' cable programming costs have increased in recent years and
are expected to continue to increase due to carriage of additional
networks, increased costs to produce or purchase cable programming,
inflationary increases and other factors. However, the Company is
committed to minimizing these increases. Aside from renewing expired
programming contracts through the programming consortium, in certain
target markets the Company will launch new and more expensive networks
on new product tiers. In these markets, the Company will pay the
programming suppliers for only those customers who are willing to bear
an additional cost for the service rather than paying for the entire
customer base who may or may not find value in the programming. In
addition, in 1997, the Company began replacing more expensive networks
with lower priced product of similar content and quality. The Company
plans to continue cost-reducing product switchouts. Although there can
be no assurances, the Company believes it will continue to have access
to cable programming services at competitive prices.
Service Offerings. The Systems typically offer a choice of two tiers of
basic cable television programming service: a broadcast programming tier
(consisting generally of broadcast network and public television
programming available "over-the-air" in the franchise community and
"superstation" signals such as WTBS) and a satellite programming tier
(consisting primarily of satellite delivered services such as CNN, USA,
ESPN, The Discovery Channel and TNT). Approximately 92.4% of the
customers in the Systems subscribed to both tiers of service as of
December 31, 1998.
The Systems also offer premium programming services (e.g., HBO, Cinemax,
Showtime) on both an a la carte basis and as part of discounted premium
service packages. Premium packages are designed to generate incremental
premium cash flow as well as enhance the perceived value of the Systems'
cable service. The Systems have successfully promoted innovative premium
service packages. Overall premium service penetration has increased
significantly in the Systems where such packages have been introduced.
Currently, the systems in Georgia; Centralia, Illinois; and Cookeville,
Fayetteville, Columbia, Lebanon and Tullahoma, Tennessee offer movie and
event pay-per-view. The other Systems offer pay-per-view on an event
only basis.
Expanded Service Offerings. New product tiers, which include programming
options that are not available on the basic or satellite tier, have been
implemented and continue to be developed by the Company. A new product
tier will typically contain four to nine programming services offered on
either an a la carte ($1 to $4 per channel) or a package basis ($5.95
including equipment rental). Signals are secured by addressable
technology. The Columbia, Tennessee system launched a new product tier
in 1996. The Georgia system launched a new product tier in June 1997, and
the Lebanon, Tennessee system launched a new product tier in November
1997.
The Company has launched digital cable service in Cookeville and
Tullahoma, Tennessee, and Centralia, Illinois. The service consists of
a New Product Tier, additional screens of multiplexed premium services
such as HBO and Showtime, and from 8 to 27 channels of Pay-Per-View. An
on-screen interactive program guide also is included in the digital
service.
Cable modem service is offered in the Georgia system and the Cookeville,
Lebanon and Columbia, Tennessee, systems. The service allows users
access to the internet at substantially higher speeds than are available
from other internet access providers. The family of services consists
of residential connections, commercial connections, and virtual private
network services. The Company also will undertake custom data network
solutions for various commercial and institutional clients.
To further enhance revenue, additional programs and products under
development include the launch of internet access services.
Systems Operations
The Company acquires, operates and develops cable television systems
based on the principle of increasing operating cash flow while
maintaining a high standard of technical and customer service.
The Company has a decentralized and locally responsive management
structure which provides significant management experience and stability
to every region. Annual operating budget preparation, strategic planning
and capital expenditure allocation decisions are made jointly between R
& A Management, LLC and the Company's system managers to ensure that
local needs are properly weighted with maximizing investor returns. Day
to day operating decisions are made by experienced local area/system
managers who are knowledgeable about local markets and responsive to the
specific needs of the Company's customers. The Company believes that
this management structure enhances the effectiveness of customer service
efforts and assists in the maintenance of good relations with franchise
authorities. Local area/system managers are rewarded for attaining
operating goals through incentive and bonus plans based on predefined
qualitative and quantitative measures of system-specific performance.
The Company believes that providing excellent customer and technical
service is essential in an increasingly competitive environment. To
accomplish service-related objectives, the Company places a special
emphasis on exceeding the Federal Communication Commission ("FCC") and
National Cable Television Association ("NCTA") customer service
standards. In addition to adhering to federally-mandated customer
service standards the Company has implemented additional programs,
including an on-time guarantee for installation and repair appointments,
designed to enhance customer satisfaction.
As part of the focus on service-related initiatives, the Company is
committed to fostering the personal and professional growth of its
employees, which includes a commitment to and investment in training.
The Company's employees receive training in customer service, sales and
customer retention skills from outside professionals and qualified
internal management personnel. Technical employees are encouraged to
enroll in courses available from the National Cable Television Institute
and attend regularly scheduled on-site seminars conducted by equipment
manufacturers to keep pace with the latest technological developments in
the cable television industry. The Company believes that training
programs, coupled with growth-oriented bonus and incentive plans for
front line and managerial staff: (i) enhance the overall level of
customer satisfaction; (ii) improve the quality of workmanship in the
field which results in fewer service calls from customers; (iii) lowers
service-related expenses; and (iv) strengthens the effectiveness of
marketing programs.
Marketing
The Company markets and promotes its cable television systems with the
objective of increasing penetration and average revenue per customer.
The Company actively markets its basic and premium program packages
through marketing tactics that include direct mail and telemarketing
efforts targeted to specific customer and non-customer demographic
profiles, newspaper and television advertising and door-to-door sales.
Each of the Company's customer service centers is supported by a
Marketing Director who coordinates marketing and door-to-door campaigns
throughout the geographic region. The Marketing Director is responsible
for maintaining quality in the Company's sales and service by supervising
and training direct sales representatives and assessing picture and
service quality within the Company's cable systems. In general, customer
service and sales representatives will follow up by telephone contact
with the customer following a new installation to assess the quality of
the installation and the overall service the customer is receiving and
to assure customer satisfaction. Customer service representatives are
also trained to market upgrades in service to customers and are informed
of current rates, programming packages and promotions.
The Systems utilize a contract third-party service for monthly customer
billing based on modern computer technology and utilizing software
developed specifically for the cable television industry. Billing
statements are printed and mailed directly to customers, who have
approximately 15 days after receipt of the statement to remit payment to
the central payment processing center. If after 30 days a customer has
not made a payment, the customer is charged a late payment fee. After
35 days, if the customer has not made a payment, a "Past Due Invoice" is
generated. In general, the Systems pursue collection of past due amounts
by telephoning the customer at 40 days past due and attempting to collect
payments through field technicians at 45 days past due. If this final
attempt to collect payment fails, the customer is then disconnected. A
final statement is sent within a week after disconnection, and,
approximately 15 days thereafter, the account is referred to a collection
agency. This approach to accounts receivable and collections has
resulted in bad debt expense for the Systems consistently averaging less
than 1% of its revenue.
Technology and Engineering
At December 31, 1998, the Systems maintained approximately 6,400 miles
of cable distribution plant that passed approximately 261,200 homes. The
following table sets forth certain information with regard to the channel
capacities of the Systems as of December 31, 1998.
54 or
33 to 53 More
Channels Channels Total
Number of Systems 19 21 40
Percent of Systems 47.5% 52.5% 100.0%
Miles of plant 1,561 4,799 6,360
Customers 42,246 148,845 191,091
The Company continually monitors and evaluates new technological
developments to optimize existing assets and to anticipate the
introduction of new services and program delivery capabilities. The use
of fiber optic cable as a transportation medium is playing a major role
in enhancing channel capacity and improving the performance and
reliability of cable television systems. Fiber optic cable is capable
of carrying hundreds of video, data and voice channels. The Company has
implemented and intends to continue to use fiber optic technology in
conjunction with its system rebuilds and upgrades. In the future, by
interconnecting headends of adjacent systems with one master facility,
the Company can reduce the number of headends, lower maintenance costs
and add new channels more cost effectively. The Company generally plans
to reduce the number of headends through consolidation to take advantage
of these efficiencies.
The Company intends to use digital compression technology to enhance the
current channel capacities of its cable systems. This technology is
expected to allow five to ten channels or more to be carried in the space
of one analog channel. Digital signals not only offer the potential for
allowing cable television systems to carry more programming but also for
improving the quality of the television signals carried. The Company
believes that the use of digital technology in the future offers the
potential for the Company to increase channel capacity in a more cost
efficient manner than completely rebuilding systems with higher capacity
distribution plant in certain small systems and to augment the analog
capacity of those systems that have been upgraded in recent years.
Customer and Community Relations
In order to succeed in a competitive environment, the Company recognizes
the need to meet and exceed the increasing demands and expectations of
its customers and communities. Through customer newsletters, surveys and
focus groups, the Company is able to identify and respond to the needs
of current and prospective customers in a system-specific fashion. These
means of communication, as well as cross-channel spots and billing
messages, permit the Company to position itself as a leading provider of
advanced information and entertainment services. This continuous
interaction and two-way communication is critical to instilling the level
of loyalty needed to obtain and retain customers in today's marketplace.
The Company is dedicated to developing strong community relations in the
locations served by its cable television systems and believes that good
relations with its local franchise authorities are primarily a result of
effective communications by the Company's local management with local
authorities. The Company also believes that consistent, high quality
performance of its local staff is important to maintain good community
relations. To improve the effectiveness of staff interaction with the
Company's customers, the Company has ongoing training programs for its
field and customer service staff.
The Company also places a high priority on using its facilities and
position in the community to the benefit of the towns and cities served
by its cable television systems. This commitment is especially apparent
in the area of education, as each of the Systems assists area schools by
supplementing their classroom curricula with cable-delivered educational
services and related equipment. In addition, the Systems contribute to
the communities they serve through production and carriage of locally-
originated programming, covering issues and events important to area
residents and otherwise underserved by local media. Ongoing support and
interest in the community is continuously demonstrated through the
involvement of the Systems' personnel in local causes, including
promotions designed to raise money and supplies for persons in need.
Franchises
Cable television systems are generally constructed and operated under
nonexclusive franchises granted by local governmental authorities. These
franchises typically contain many requirements, including time
limitations on commencement and completion of construction, conditions
of service, system channel capacity, nature of programming, the provision
of free cable service to schools and certain other public institutions
and the maintenance of insurance and indemnity bonds. The provisions of
local franchises are subject to federal regulation under the Cable Acts.
See "Legislation and Regulation in the Cable Television Industry."
The Systems' franchises provide for the payment of fees to the issuing
authority. Annual franchise fees imposed on the Systems range up to 5%
of gross revenues generated by a system. In substantially all of the
Systems, franchise fees are passed through to the customers as an
addition to the rates for cable television service. The Cable
Communications Policy Act of 1984 ("1984 Cable Act") prohibits
franchising authorities from imposing franchise fees in excess of 5% of
gross revenues and also permits the cable system operator to seek
renegotiation and modification of franchise requirements if warranted by
changed circumstances.
The table below categorizes the Systems' franchises by date of expiration
and presents the approximate number and percentage of basic service
customers for each category of franchises as of December 31, 1998.
Year of Percentage
Franchise Number of Percentage of Number of of Total
Expiration Franchises Total Franchises Customers Customers
1999-2001 17 15.0% 30,929 16.2%
2002-2004 19 16.8% 19,831 10.4%
After 2004 77 68.2% 140,331 73.4%
Total 113 100.0% 191,091 100.0%
No single franchise represents more than 12.4% of total customers of the
Systems, and the largest five franchises represent less than 29.2% of
total customers of the Systems.
The 1984 Cable Act provides, among other things, for an orderly franchise
renewal process where franchise renewal will not be unreasonably withheld
or, if renewal is withheld, the franchise authority must pay the operator
the "fair market value" for the system covered by such franchise but no
value will be allocated to the franchise itself. In addition, the 1984
Cable Act establishes comprehensive renewal procedures that require that
an incumbent franchisee's renewal application be assessed on its own
merit and not as part of a comparative process with competing
applications.
The Company believes that it generally has good relationships with its
franchising authorities. The Company has never had a franchise revoked
or failed to have a franchise renewed. In addition, all of the
franchises of the Company and such other entities eligible for renewal
have been renewed or extended at or prior to their stated expirations,
and no material franchise community has refused to consent to a franchise
transfer to the Company or any such predecessor.
Competition
General. Cable television systems face competition from alternative
methods of receiving and distributing television signals and from other
sources of news, information and entertainment, such as off-air
television broadcast programming, newspapers, movie theaters, live
sporting events, interactive computer programs, Internet services and
home video products, including videotape cassette recorders/players. The
extent to which cable service is competitive depends, in part, upon the
cable system's ability to provide a greater variety of programming at a
reasonable price to consumers than is available off-air or through other
alternative delivery sources. See "Legislation and Regulation in the
Cable Television Industry."
Direct Broadcast Satellite. During 1998, the Company continued to
experience a competitive impact from medium power and higher power direct
broadcast satellites ("DBS") that use higher frequencies to transmit
signals that can be received by dish antennas much smaller in size than
traditional home satellite dishes ("HSDs"). The DBS industry has grown
rapidly over the last several years and now serves more than 9 million
customers nationwide. Recently announced mergers could strengthen the
surviving DBS companies.
DBS has advantages as an alternative means of distributing video signals
to the home. Among the advantages are that the capital investment
(although initially high) for the satellite and uplinking segment of a
DBS system is fixed and does not increase with the number of customers
receiving satellite transmissions; that DBS is not currently subject to
local regulation of service and prices or required to pay franchise fees;
and that the capital costs for the ground segment of a DBS system (the
reception equipment) are directly related to and limited by the number
of service customers.
The primary disadvantage of DBS is its inability to provide local
broadcast television stations to customers in their local markets.
However, EchoStar and other potential DBS providers have announced their
intention to retransmit local broadcast television stations back into a
customer's local market. Both Congress and the U. S. Copyright Office
are currently reviewing proposals to allow such transmission and it is
possible that in the near future, DBS systems will be retransmitting
local television broadcast signals back into local television markets.
Additional DBS disadvantages presently include a limited ability to
tailor the programming package to the interests of different geographic
markets; signal reception being subject to line of sight angles; and
technology which requires a customer to rent or own one set-top box
(which is significantly more expensive than a cable converter) for each
television on which they want to view DBS programming.
Although the effect of competition from these DBS services cannot be
specifically measured or predicted, it is clear there has been
significant growth in DBS customers and the Company assumes that such DBS
competition will be substantial in the future as developments in
technology continue to increase satellite transmitter power, and decrease
the cost and size of equipment needed to receive these transmissions.
Further, the extensive national advertising of DBS programming packages,
including certain sports packages not available on cable television
systems, will likely continue the rapid growth in DBS customers.
Finally, if DBS develops the technology and gains the legal right to
rebroadcast local broadcast signals, it could increase the growth in DBS
customers.
Telephone Companies. The Telecommunications Act of 1996 (the "1996
Telecom Act") allows local telephone companies to provide a wide variety
of video services competitive with services provided by cable systems and
to provide cable services directly to customers. See "Legislation and
Regulation in the Cable Television Industry." Cable systems could be
placed at a competitive disadvantage if the delivery of video programming
services by local telephone companies becomes widespread because cable
systems are required to obtain local franchises to provide cable service
and must comply with a variety of obligations under such franchises.
Issues of cross-subsidization by local telephone companies pose strategic
disadvantages for cable operators seeking to compete with local telephone
companies providing video services. Additionally, the Cable Television
Consumer Protection and Competition Act of 1992 ("1992 Cable Act")
ensures that telephone company providers of video services will have
access to acquire all significant cable programming services. Although
the Company cannot predict the likelihood of success of any video
programming ventures by local telephone companies or the impact on the
Company of such competitive ventures, it is possible such ventures will
result in significant new competition.
Other Cable Companies. Cable systems generally operate pursuant to
franchises granted on a nonexclusive basis. The 1992 Cable Act gives
local franchise authorities control over basic cable service rates,
prohibits franchise authorities from unreasonably denying requests for
additional franchises, and permits franchise authorities to operate cable
systems. See "Legislation and Regulation in the Cable Television
Industry." It is possible that a franchising authority might grant a
second franchise to another cable company containing terms and conditions
more favorable than those afforded the Systems. Well-financed businesses
from outside the cable industry (such as the public utilities which own
the poles on which cable is attached) may become competitors for
franchises or providers of competing services. The 1996 Telecom Act
eliminates certain federal restrictions on utility holding companies and
thus frees all utility companies to now provide cable services. See
"Legislation and Regulation in the Cable Television Industry." Also,
during 1997 and 1998, there has been a significant increase in the number
of cities that have constructed their own cable television systems in a
manner similar to city-provided utility services. These systems
typically will compete directly with the existing cable operator without
the burdens of franchise fees or other local regulation. Although the
total number of municipal overbuild cable systems remains small, the
development in 1997 and 1998 would indicate an increasing trend in cities
authorizing such direct municipal competition with cable operators. In
general, a cable system's financial performance will be adversely
impacted where a competing cable service exists (referred to in the cable
industry as an "overbuild").
Although the Systems' franchises are non-exclusive, and in certain of its
service areas there are multiple franchisees, currently there is only one
instance where a competing franchisee has actually overbuilt the Systems.
In one small section in Gwinnett County, another franchised cable
operator with duplicate cable plant can provide cable service to
approximately 1,000 of the Northeast Gwinnett system's homes passed.
In October 1996, Bell Intermedia Services, Inc. ("BIMS"), a subsidiary
of Bell South, Inc., was granted a franchise by Gwinnett County and
Roswell, Georgia, to construct and operate a cable television system.
Subsequently, BIMS was granted a franchise in August 1997 by the City
of Duluth, Georgia. At this time, BIMS has activated approximately 30
residential housing subdivisions, primarily in Gwinnett County, with
hardwire cable. These activated subdivisions encompass approximately 900
occupied passings, of which approximately 650 are customers of the
Company and 140 are BIMS customers.
Additionally, in February 1996, Metro Cable, Inc., ("Metro Cable"), a
start up company, was granted by Gwinnett County a franchise to build and
operate a cable television system in Gwinnett County. The principals of
Metro Cable are local to Gwinnett County and the northeastern Georgia
area and have experience in the construction and operation of cable
television systems. Management believes that Metro Cable does not have
any active business operations at this time and cannot predict the timing
of Metro Cable's starting construction of its cable system.
The Company is not aware of any company or person that is actively
seeking a cable franchise from local franchise authorities for areas
presently served by the Systems other than those already granted to BIMS
and Metro Cable in Gwinnett County, Duluth and Roswell, Georgia.
Private Satellite Master Antenna Television. Cable operators face
additional competition from private satellite master antenna television
("SMATV") systems that serve condominiums, apartment complexes and other
private residential developments. The operators of these SMATV systems
often enter into exclusive agreements with apartment building owners or
homeowners' associations. Due to the widespread availability of
reasonably priced earth stations, SMATV systems now offer both improved
reception of local television stations and many of the same satellite-
delivered program services offered by franchised cable systems. Various
states have enacted laws to assure franchised cable systems access to
private residential complexes. These laws have been challenged in the
courts with varying results. Additionally, the 1984 Cable Act gives a
franchised cable operator the right to use existing compatible easements
within its franchise area; however, there have been conflicting judicial
decisions interpreting the scope of this right, particularly with respect
to easements located entirely on private property. Further, the FCC in
1997, adopted new rules that restrict the ability of cable operators to
maintain ownership of cable wiring inside multi-unit buildings, thereby
making it less expensive for SMATV competitors to reach those customers.
See Legislation and Regulation below. Finally, the FCC in 1998 ruled
that private cable operators can lease video distribution capacity from
local telephone companies and, thereby, distribute cable programming
services over the public rights-of-way without obtaining a franchise.
This could provide a significant regulatory advantage for private cable
operators in the future. The ability of the Company to compete for
customers in communities served by SMATV operators is uncertain.
Multichannel and Local Multipoint Distribution Service. Cable television
systems also compete with wireless program distribution services such as
multichannel, multipoint distribution service ("MMDS") which use low-
power microwave frequencies to transmit video programming over-the-air
to customers. The 1992 Cable Act ensures that MMDS operators have access
to acquire all significant cable television programming services.
Although there are MMDS operators who are authorized to provide or are
providing broadcast and satellite programming to customers in areas
served by the Company's cable systems, such competition is not yet
significant. Recent investments in, or acquisitions of, MMDS companies
by local phone companies, including BIMS acquiring a MMDS operation in
the Atlanta, Georgia market, are likely to substantially increase the
competitive impact of MMDS services in selected markets throughout the
country. BIMS activated a digital MMDS operation in mid-1998 which
affects portions of Roswell and Gwinnett County, Georgia. Due to "line-
of-sight" issues, the impact has been minimal. Additionally, the FCC has
proposed to allocate frequencies in the 28 GHz band for a new
multichannel wireless video service similar to MMDS. The Company is
unable to predict whether wireless video distribution services, such as
DBS and MMDS, will have a material impact on its future operations.
Finally, an emerging technology, local multipoint distribution services
("LMDS"), could also pose a significant threat to the cable television
industry, if and when it becomes established. LMDS, sometimes referred
to as cellular television, could have the capability of delivering more
than 100 channels of video programming to a customer's home. The
potential impact, however, of LMDS is difficult to assess due to the
newness of the technology and the absence of any current, fully-
operational LMDS systems.
In August 1995, Heartland Wireless Communications ("HWC") launched an
MMDS wireless television system in southeast Illinois near the community
of McLeansboro. The signal pattern of the MMDS operation covers a radius
of approximately 35 miles. The Illinois systems that could be affected
by this signal pattern are McLeansboro, Mt. Vernon, Wayne City,
Woodlawn, Grayville and Sesser/Valier. Collectively, these systems have
approximately 9,300 basic customers. Depending on the headend serving
a particular community, these systems offer between 31 and 60 basic
channels for between $28.95 and $31.95 per month. HWC's basic package
currently consists of 26 basic channels, including three local broadcast
channels and 23 cable satellite channels for $27.95 per month. HBO and
Cinemax can be added for an additional $9.95 per month. The company has
partnered with The Dish Network to provide 70 additional channels for an
additional $19.95 per month on a separate billing. HWC filed "Chapter
11" bankruptcy on December 4, 1998. The Company believes that HWC has had
no material effect on the Illinois systems.
Wireless One, Inc. operates MMDS wireless television systems near
Manchester, Tennessee near the Company's Manchester, Tullahoma,
McMinnville and Lawrenceburg systems. Depending on the headend serving
each community, these systems offer between 33 and 60 basic channels for
between $26.90 and $32.40 per month. Wireless One, Inc. currently offers
a basic service package consisting of 30 channels, including local
broadcast channels and cable satellite channels, for $25.95 per month and
two premium channels, HBO and Showtime, for $11.95 and $9.95 per month,
respectively. Due to the hilly and wooded topography in the area, the
Manchester, Tullahoma, McMinnville and Lawrenceburg systems are minimally
affected by the signal pattern of the MMDS operation near Manchester.
To date, these MMDS operations have had no material impact on any of the
Company's Tennessee systems.
VHF/UHF Broadcasters. Most areas of the United States are covered by
traditional terrestrial VHF/UHF television broadcasts that typically
include three to ten channels. These broadcasters are often low to
medium power operators with a limited coverage area and provide local,
network and syndicated programming. The local content nature of the
programming may be important to the consumer, and VHF/UHF programming is
typically free of charge. The FCC has allocated additional digital
spectrum to licensed broadcasters. At least during the transition
period, each existing television station will be able to retain its
present analog frequencies and also transmit programming on a digital
channel that may permit multiple programming services per channel.
Other Potential Competition. Other new technologies may become
competitive with non-entertainment services that cable television systems
can offer. The FCC has authorized television broadcast stations to
transmit textual and graphic information useful both to consumers and to
businesses. The FCC also permits commercial and non-commercial FM
stations to use their subcarrier frequencies to provide non-broadcast
services including data transmissions. The FCC established an over-the-
air Interactive Video and Data Service that will permit two-way
interaction with commercial and educational programming along with
informational and data services. The expansion of fiber optic systems
by telephone companies and other common carriers will provide facilities
for the transmission and distribution of video programming, data and
other non-video services. The FCC has held spectrum auctions for
licenses to provide personal communications services ("PCS"). PCS could
enable license holders, including cable operators, to provide voice and
data services.
Advances in communications technology as well as changes in the
marketplace and the regulatory and legislative environment are constantly
occurring. Thus, it is not possible to predict the effect that ongoing
or future developments might have on the cable industry.
Employees
At December 31, 1998, the Systems had 339 full-time employees and 2 part-
time employees, none of whom are subject to a collective bargaining
agreement. The Company considers its relations with its employees to be
good. In addition, R & A Management, LLC, which is responsible for
providing management services to the Company, employs 73 persons. See
Item 13 - "Certain Relationships and Related Transactions."
Legislation and Regulation in the Cable Television Industry
The operation of cable television systems is extensively regulated by the
FCC, some state governments and most local governments. The 1996 Telecom
Act altered the regulatory structure governing the nation's
telecommunications providers. It removes barriers to competition in both
the cable television market and the local telephone market. Among other
things, it also reduces the scope of cable rate regulation.
The 1996 Telecom Act required the FCC to undertake a host of implementing
rulemakings, the final outcome of which cannot yet be determined.
Moreover, Congress and the FCC have frequently revisited the subject of
cable regulation. Future legislative and regulatory changes could
adversely affect the Company's operations. This section briefly
summarizes key laws and regulations affecting the operation of the
Company's cable systems and does not purport to describe all present,
proposed, or possible laws and regulations affecting the Company.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate
regulation regime on the cable television industry. Under that regime,
all cable systems are subject to rate regulation, unless they face
"effective competition" in their local franchise area. Federal law now
defines "effective competition" on a community-specific basis as
requiring either low penetration (less than 30%) by the incumbent cable
operator, appreciable penetration (more than 15%) by competing
multichannel video providers ("MVPs"), or the presence of a competing MVP
affiliated with a local telephone company.
Although the FCC rules control, local government units (commonly referred
to as local franchising authorities or "LFAs") are primarily responsible
for administering the regulation of the lowest level of cable -- the
basic service tier ("BST"), which typically contains local broadcast
stations and public, educational, and government ("PEG") access channels.
Before an LFA begins BST rate regulation, it must certify to the FCC
that it will follow applicable federal rules, and many LFAs have
voluntarily declined to exercise this authority. LFAs also have primary
responsibility for regulating cable equipment rates. Under federal law,
charges for various types of cable equipment must be unbundled from each
other and from monthly charges for programming services. The 1996
Telecom Act allows operators to aggregate costs for broad categories of
equipment across geographic and functional lines. This change should
facilitate the introduction of new technology.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-
delivered programming. Under the 1996 Telecom Act, the FCC can regulate
CPST rates only if an LFA first receives at least two rate complaints
from local customers and then files a formal complaint with the FCC.
When new CPST rate complaints are filed, the FCC now considers only
whether the incremental increase is justified and will not reduce the
previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had
their rate increases governed by a complicated price cap scheme that
allows for the recovery of inflation and certain increased costs, as well
as providing some incentive for expanding channel carriage. The FCC has
modified its rate adjustment regulations to allow for annual rate
increases and to minimize previous problems associated with regulatory
lag. Operators also have the opportunity of bypassing this "benchmark"
regulatory scheme in favor of traditional "cost-of-service" regulation
in cases where the latter methodology appears favorable. Premium cable
services offered on a per-channel or per-program basis remain
unregulated, as do affirmatively marketed packages consisting entirely
of new programming product. Federal law requires that the BST be offered
to all cable customers, but limits the ability of operators to require
purchase of any CPST before purchasing premium services offered on a per-
channel or per-program basis.
In an effort to ease the regulatory burden on small cable systems, the
FCC has created special rate rules applicable for systems with fewer than
15,000 customers owned by an operator with fewer than 400,000 customers.
The special rate rules allow for a vastly simplified cost-of-service
showing. The 1996 Telecom Act provides additional relief for small cable
operators. For franchising units with less than 50,000 customers and
owned by an operator with less than one percent of the nation's cable
customers (i.e., approximately 600,000 customers), CPST rate regulation
is automatically eliminated. The Company believes that the majority of
its systems qualify for one or both of these forms of small system rate
relief.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all systems
(regardless of size) on March 31, 1999. However, certain members of
Congress and FCC officials have called for the delay of this regulatory
sunset and further have urged more rigorous rate regulation (including
limits on programming cost pass-thourghs to cable customers) until a
greater degree of competition to incumbent cable operators has developed.
The 1996 Telecom Act relaxes existing uniform rate requirements by
specifying that uniform rate requirements do not apply where the operator
faces "effective competition," and by exempting bulk discounts to
multiple dwelling units, although complaints about predatory pricing
still may be made to the FCC.
Cable Entry Into Telecommunications. The 1996 Telecom Act provides that
no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public
safety and welfare, service quality, and consumer protection. State and
local governments also retain their authority to manage the public
rights-of-way and may require reasonable, competitively neutral
compensation for management of the public rights-of-way when cable
operators provide telecommunications service. The favorable pole
attachment rates afforded cable operators under federal law can be
gradually increased by utility companies owning the poles (beginning in
2001) if the operator provides telecommunications service, as well as
cable service, over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One
critical component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the
interconnection obligation imposed on all telecommunications carriers.
This requires, for example, that the incumbent local telephone company
must allow new competing telecommunications providers to connect to the
local telephone distribution facilities. In a January 1999 decision, the
Supreme Court upheld the FCC's fundamental interconnection requirements.
However the court ordered the FCC to reconsider to what extent the local
telephone company must make available for resale separate components of
its local telephone system.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act
allows telephone companies to compete directly with cable operators by
repealing the historic telephone company/cable cross-ownership ban.
Local exchange carriers ("LECs"), including the Bell Operating Companies,
can now compete with cable operators both inside and outside their
telephone service areas. Because of their resources, LECs could be
formidable competitors to traditional cable operators, and certain LECs
have begun offering cable service. See "Competition."
Under the 1996 Telecom Act, a LEC providing video programming to
customers will be regulated as a traditional cable operator (subject to
local franchising and federal regulatory requirements), unless the LEC
elects to provide its programming via an "open video system" ("OVS").
To qualify for OVS status, the LEC must reserve two-thirds of the
system's activated channels for unaffiliated entities. Additionally, a
January 1999 federal court of appeals decision held that OVS providers
can be required by local franchising authorities to obtain a franchise
prior to providing OVS services.
Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibition remains on LEC
buyouts (i.e., any ownership interest exceeding 10%) of co-located cable
systems, cable operator buyouts of co-located LEC systems, and joint
ventures between cable operators and LECs in the same market. The 1996
Telecom Act provides a few limited exceptions to this buyout prohibition,
including a carefully circumscribed "rural exemption." The 1996 Telecom
Act also provides the FCC with the limited authority to grant waivers of
the buyout prohibition (subject to LFA approval).
Electric Utility Entry Into Telecommunications/Cable Television. The
1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act.
Electric utilities must establish separate subsidiaries, known as
"exempt telecommunications companies" and must apply to the FCC for
operating authority. Again, because of their resources, electric
utilities could be formidable competitors to traditional cable systems.
Additional Ownership Restrictions. The 1996 Telecom Act eliminates
statutory restrictions on broadcast/cable cross-ownership (including
broadcast network/cable restrictions), but leaves in place existing FCC
regulations prohibiting local cross-ownership between co-located
television stations and cable systems. The 1996 Telecom Act also
eliminates the three year holding period required under the 1992 Cable
Act's "anti-trafficking" provision. The 1996 Telecom Act leaves in place
existing restrictions on cable cross-ownership with SMATV and MMDS
facilities, but lifts those restrictions where the cable operator is
subject to effective competition. In January 1995, however, the FCC
adopted regulations which permit cable operators to own and operate SMATV
systems within their franchise area, provided that such operation is
consistent with local cable franchise requirements.
Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable
system from devoting more than 40% of its activated channel capacity to
the carriage of affiliated national program services. A companion rule
establishing a nationwide ownership cap on any cable operator equal to
30% of all domestic cable customers has been stayed pending further
judicial review. The FCC is currently conducting a reconsideration of
its national customer ownership rules, and it is possible the Commission
will revise both the national customer cable operator ownership
limitation and the manner in which it attributes ownership to a cable
operator.
Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast
signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years between requiring a
cable system to carry the station ("must carry") or negotiating for
payments for granting permission to the cable operator to carry the
station ("retransmission consent"). Less popular stations typically
elect "must carry" and more popular stations typically elect
"retransmission consent." Must carry requests can dilute the appeal of
a cable system's programming offerings, and retransmission consent
demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Company's business. The
burden associated with must-carry obligations could dramatically increase
if television broadcast stations proceed with planned conversions to
digital transmissions and if the FCC determines that cable systems must
carry all analog and digital signals transmitted by the television
stations.
Access Channels. LFAs can include franchise provisions requiring cable
operators to set aside certain channels for public, educational and
governmental access programming. Federal law also requires cable systems
to designate a portion of their channel capacity (up to 15% in some
cases) for commercial leased access by unaffiliated third parties. The
FCC has adopted rules regulating the terms, conditions and maximum rates
a cable operator may charge for use of this designated channel capacity,
but use of commercial leased access channels has been relatively limited.
In February of 1997, the FCC released revised rules which mandated a
modest rate reduction which has made commercial leased access a more
attractive option for third party programmers, particularly for part-time
leased access carriage.
Access to Programming. To spur the development of independent cable
programmers and competition to incumbent cable operators, the 1992 Cable
Act imposed restrictions on the dealings between cable operators and
cable programmers. Of special significance from a competitive business
posture, the Act precludes video programmers affiliated with cable
companies from favoring cable operators over competitors and requires
such programmers to sell their programming to other multichannel video
distributors. This provision limits the ability of vertically integrated
cable programmers to offer exclusive programming arrangements to cable
companies. Recently, both Congress and the FCC have considered proposals
that would expand the program access rights of cable's competitors,
including the possibility of subjecting video programmers who are not
affiliated with cable operators to all program access requirements.
Inside Wiring. In a 1997 Order, the FCC established rules that require
an incumbent cable operator upon expiration or termination of a multiple
dwelling unit ("MDU") service contract to sell, abandon, or remove "home
run" wiring that was installed by the cable operator in an MDU building.
These inside wiring rules will encourage and facilitate building owners
in their attempts to replace existing cable operators with new video
programming providers who are willing to pay the building owner a higher
fee. Additionally, the FCC has proposed abrogating all exclusive MDU
contracts held by cable operators, but at the same time allowing
competitors to cable to enter into exclusive MDU service contracts.
Other FCC Regulations. In addition to the FCC regulations noted above,
there are other FCC regulations covering such areas as equal employment
opportunity, customer privacy, programming practices (including, among
other things, syndicated program exclusivity, network program
nonduplication, local sports blackouts, indecent programming, lottery
programming, political programming, sponsorship identification, and
children's programming advertisements), registration of cable systems and
facilities licensing, maintenance of various records and public
inspection files, frequency usage, lockbox availability, antenna
structure notification, tower marking and lighting, consumer protection
and customer service standards, technical standards, and consumer
electronics equipment compatibility. FCC requirements imposed in 1997
for Emergency Alert Systems and for providing hearing impaired Closed
Captioning on programming will result in new and potentially significant
costs for the Company. The FCC has the authority to enforce its
regulations through the imposition of substantial fines, the issuance of
cease and desist orders and/or the imposition of other administrative
sanctions, such as the revocation of FCC licenses needed to operate
certain transmission facilities used in connection with cable operations.
The FCC recently completed a rulemaking designed to encourage and
facilitate third-party sale of cable converters to cable customers.
Specifically, the FCC requires cable operators to segregate security
functions of set top boxes from all other functions by July 1, 2000.
Additionally, as of January 1, 2005, cable operators can no longer lease
or sell converter set top boxes that have integrated security and
navigation functions. The result of this rulemaking is that cable
customers will not necessarily obtain their set top boxes from the cable
operator, but instead, may purchase such set top boxes from third-party
vendors. Such third-party sales of previously unmodified cable set top
boxes could make it more difficult for cable operators to combat theft
of service.
Internet Service Regulation. The Company began offering high-speed
internet service to customers in 1997. Although there is no significant
federal regulation of cable system delivery of internet services at the
current time, and the FCC recently issued a report to Congress finding
no immediate need to impose such regulation, this situation may change
as cable systems expand their broadband delivery of internet services.
In particular, proposals have been advanced at the FCC that would
require cable operators to provide access to unaffiliated internet
service providers and online service providers. Certain internet service
providers also are attempting to use existing commercial leased access
provisions of the Communications Act to gain access to cable system
delivery. Finally, some local franchising authorities are considering
the imposition of mandatory internet access requirements as part of cable
franchise renewals or transfer approvals.
However, as the cable industry's delivery of internet services develops,
it is possible that greater federal and/or local regulation could be
imposed.
Copyright. Cable television systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals.
In exchange for filing certain reports and contributing a percentage of
their revenues to a federal copyright royalty pool (that varies depending
on the size of the system and the number of distant broadcast television
signals carried), cable operators can obtain blanket permission to
retransmit copyrighted material on broadcast signals. The possible
modification or elimination of this compulsory copyright license is the
subject of continuing legislative review and could adversely affect the
Company's ability to obtain desired broadcast programming. In addition,
the cable industry pays music licensing fees to BMI and is negotiating
a similar arrangement with the American Society of Composers, Authors and
Publishers ("ASCAP"). Copyright clearances for nonbroadcast programming
services are arranged through private negotiations.
State and Local Regulation. Cable television systems generally are
operated pursuant to nonexclusive franchises granted by a municipality
or other state or local government entity in order to cross public
rights-of-way. Federal law now prohibits franchise authorities from
granting exclusive franchises or from unreasonably refusing to award
additional franchises. Cable franchises generally are granted for fixed
terms and in many cases include monetary penalties for non-compliance and
may be terminable if the franchisee fails to comply with material
provisions.
The terms and conditions of franchises vary materially from jurisdiction
to jurisdiction. Each franchise generally contains provisions governing
cable operations, service rates, franchise fees, system construction and
maintenance obligations, system channel capacity, design and technical
performance, customer service standards, and indemnification protections.
A number of states subject cable television systems to the jurisdiction
of centralized state governmental agencies, some of which impose
regulation of a character similar to that of a public utility. Although
LFAs have considerable discretion in establishing franchise terms, there
are certain federal limitations. For example, LFAs cannot insist on
franchise fees exceeding 5% of the system's gross revenues, cannot
dictate the particular technology used by the system, and cannot specify
video programming other than identifying broad categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise
is renewed, the franchise authority may seek to impose new and more
onerous requirements such as significant upgrades in facilities and
services or increased franchise fees as a condition of renewal.
Similarly, if a franchise authority's consent is required for the
purchase or sale of a cable system or franchise, such authority may
attempt to impose more burdensome or onerous franchise requirements in
connection with a request for consent. Historically, franchises have
been renewed for cable operators that have provided satisfactory services
and have complied with the terms of their franchises.
<PAGE>
ITEM 2 - PROPERTIES
In connection with its operation of cable television systems, the Company
owns or leases real property for signal reception sites (antenna towers
and headends), microwave facilities and business offices. The Company
believes that its properties, both owned and leased, are in good
condition and are suitable and adequate for the Company's business
operations.
The Systems' distribution plant generally is attached to utility poles
under pole rental agreements with local public utilities, although in
some areas the plant is buried in underground ducts or trenches. The
physical components of the Systems require maintenance and periodic
upgrading to keep pace with technological advances.
ITEM 3 - LEGAL PROCEEDINGS
Other than customary administrative proceedings incidental to the conduct
of its business, the Company is not involved in any other pending legal
proceedings. The Company does not believe that any of these
administrative proceedings will have a material adverse effect on its
financial condition or results of operations or cash flows.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the the fiscal year covered by this report
to a vote of security holders.
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for any of the registrants'
equity securities. All 1,000 outstanding shares of common stock of RACC
are owned by the Partnership. RACC has not declared any cash dividends
on such common stock in the last two fiscal years and has no present
intention to pay cash dividends in the foreseeable future. The
Partnership interests of the Partnership are held by sixteen holders.
Within the past year, the Registrants have not issued any securities
without registration under the Securities Act.
ITEM 6 - SELECTED FINANCIAL DATA
The selected consolidated financial data set forth on the following pages
as of December 31, 1998 and 1997 and, for the years ended December 31,
1998, 1997 and 1996, have been derived from, and are qualified by
reference to, the audited financial statements of the Company included
herein. The selected consolidated financial data set forth on the
following page as of December 31, 1995 and 1994, and for the four months
ended December 31, 1995 and the eight months ended August 31, 1995, and
for the year ended December 31, 1994 have been derived from the Company's
audited financial statements not included herein. Because of the
Recapitalization, the Company's results of operations for the four month
period from September 1, 1995 to December 31, 1995 and for the year ended
December 31, 1996, 1997 and 1998 are not comparable to results for prior
periods. The Company's acquisitions of cable television systems during
the year ended December 31, 1996 included in the selected consolidated
financial data presented below, materially affect the comparability with
data from previous periods. Recent federal legislation and related
existing and pending FCC regulation applicable to cable television
companies could have a material adverse impact on the Company's business
in the future. The selected consolidated financial data set forth below
should be read in conjunction with, and is qualified by reference to,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements of the Company
(including accompanying notes) included thereto (amounts in thousands
except Operating Data).
<PAGE>
<TABLE>
The Company RAP L.P.
<CAPTION>
Combined
Year Year Year Year Four Eight
Ended Ended Ended Ended Months Months Year
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Ended Ended Ended
1998 1997 1996 1995(a) 12/31/95 8/31/95 12/31/94
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $ 89,921 $ 84,325 $ 71,285 $50,208 $17,301 $ 32,907 $ 44,889
Costs and Expenses:
Operating expense 13,305 14,147 10,363 7,311 2,634 4,677 7,146
Programming expense 18,021 15,679 14,109 10,163 3,496 6,667 8,530
Selling, general and
administrative expense 13,757 12,695 11,353 7,054 2,486 4,568 6,090
Depreciation and amortization 37,214 38,631 35,298 15,825 8,200 7,625 13,154
Management fees 3,147 2,951 2,475 2,251 606 1,645 2,244
Costs associated with
transfer of net assets - - - 441 - 441 -
Loss on disposal of assets 3,437 7,835 1,357 506 275 231 128
Total costs and expenses 88,881 91,938 74,955 43,551 17,697 25,854 37,292
Operating income (loss) 1,040 (7,613) (3,670) 6,657 (396) 7,053 7,597
Gain from sale of cable systems (42,863) - - - - -
Interest expense 23,662 23,765 21,607 18,871 4,252 14,619 18,008
Income (loss) before income taxes
and extraordinary item 20,241 (31,378) (25,277) (12,214) (4,648) (7,566) (10,411)
Income tax expense (benefit) (4,178) (5,335) (3,646) (3,232) (1,674) (1,558) 1,558
Income (loss) before extraordinary item 24,419 (26,043) (21,631) (8,982) (2,974) (6,008) (11,969)
Extraordinary item- Loss on early
retirement of debt - - - 1,699 - - -
Net income (loss) $ 24,419 $(26,043) $(21,631) $(10,681) $(2,974) $ (7,707) $(11,969)
Other Financial Data:
Capital expenditures
(excluding acquisitions) $ 26,355 $ 28,009 $ 16,897 $ 7,479 $ 3,360 $ 4,119 $ 6,280
Adjusted EBITDA(b) 42,811 39,712 33,085 23,429 8,079 15,350 20,879
Operating Data:
Homes passed 261,246 266,465 241,317 174,054 - - 165,740
Basic customers 190,091 199,455 185,188 132,271 - - 124,059
Basic penetration 73.1% 74.9% 76.7% 76.0% - - 74.9%
Premium service units 117,258 108,729 108,118 80,385 - - 74,913
Premium penetration 61.4% 54.5% 58.4% 60.8% - - 60.4%
Average monthly revenue
per basic customer(c) $38.39 $36.54 $34.13 $32.65 - - $31.19
Balance Sheet Data (at end of period):
Total assets $317,304 $302,040 $299,833 - $ 238,045 - $ 95,210
Total debt 224,575 229,500 198,500 - 137,500 - 166,833
Redeemable partners' interests
and detachable warrants 10,180 7,387 4,862 - 3,600 - 2,739
Total partners' capital (deficit) 54,002 32,436 61,005 - 68,898 - (85,057)
<FN>
(a) Reflects the historical financial data of the Company for the eight months ended August 31, 1995 and the four months
ended December 31, 1995, combined for convenience purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and consolidated financial statements of the Company.
(b) Adjusted EBITDA represents income (loss) before interest expense, income taxes, depreciation and amortization, costs
associated with the transfer of net assets, loss on disposal of assets, incentive plan expense, escrow income and
extraordinary item, and gain from sale of cable systems. Industry analysts generally consider Adjusted EBITDA to be
an appropriate measure of the performance of multi-channel television operations. Adjusted EBITDA is not presented in
accordance with generally accepted accounting principles and should not be considered an alternative to, or more
meaningful than, operating income or operating cash flow as an indication of the Company's operating performance.
(c) The average monthly revenue per basic customer for the year ended December 31, 1996 has been calculated on a pro forma
basis, as if the acquisitions of certain Tennessee systems had occurred on December 31, 1995.
</TABLE>
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-K, including the sections entitled
"Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," constitute "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Reform Act"). The words "believes," "expects,"
"intends," "strategy," "considers" or "anticipates" and similar
expressions identify forward-looking statements.
Forward-looking statements include, but are not limited to, statements
under the following headings: (i) "Business - Business Strategy" about
the effect of consolidation of operations on Adjusted EBITDA, the
intention to rebuild the bandwidth of the Company's Systems and the
commitment to extend the Company's distribution systems; (ii) "Business
- - Programming and Service Offerings" about the Company's plans to
continue cost-reducing product switchouts and belief regarding continued
access to cable programming at reasonable prices; (iii) "Business -
Systems Operations" regarding the Company's belief that its management
structure enhances the effectiveness of customer service efforts and
assists in the maintenance of good relations among franchise authorities;
(iv) "Business - Technology and Engineering" about the Company's plans
to reduce the number of headends to lower costs and promote efficiency
and the Company's intention to use digital compression technology; (v)
"Business - Competition" about the materiality of the effect of certain
competitors; (vi) "Business - Legislation and Regulation in the Cable
Television Industry; about the Company's belief that the majority of its
systems qualify for small system rate relief; (vii) "Management's
Discussion and Analysis of Financial Conditions and Results of Operations
- - Liquidity and Capital Resources" about the sufficiency of the expected
cash flow of the Company; and (viii) "Management's Discussion and
Analysis of Financial Conditions and Results of Operations - Year 2000"
about the expected financial impact of the Year 2000 problem on the
Company.
The Company does not undertake to update, revise or correct any of the
forward-looking information. Such forward-looking statements involve
known and unknown risks, uncertainties, and other factors which may cause
the actual results, performance, or achievements of the Company to be
materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements.
Such factors include, among others, the following:
* Competition in the television programming industry, including
competition from other companies providing programming via cable,
DBS, telephone lines, SMATV, MMDS or LMDS. See "Business -
Competition";
* The Company's substantial leverage and the risk that the Company may
be unable to service or repurchase the Partnership's and RACC's
debt. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Liquidity and Capital
Resources";
* Certain restrictions imposed by the terms of the Company's
indebtedness, including the ability to incur additional
indebtedness, incur liens, pay distributions or make other
restricted payments, consummate asset sales, enter into certain
transactions with affiliates, merge or consolidate with other
persons or sell, assign, transfer, lease, convey or dispose of all
or substantially al of the assets of the Company. see "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations - Liquidity and Capital Resources;"
* Increases in the costs of cable programming the Company provides to
consumers in its Systems and the inability to have access to
sufficient cable programming. See "Business - Programming and
Service Offerings - Programming";
* The ongoing need for significant capital expenditures to expand the
Company's cable Systems, conduct routine replacement of cable
television plant and increase channel capacity of certain Systems.
See "Business - Business Strategy - System Enhancement" and
"Management's Discussion and Analysis of Financial Conditions and
Results of Operations - Liquidity and Capital Resources." The
inability of the Company to fund such capital expenditures could
have a materially adverse impact on the Company;
* The potential for the termination of franchises by local franchise
authorities or renewal of such franchises on less favorable terms,
either of which could have a materially adverse impact on the
Company's results of operations;
* The non-exclusivity of franchises which could permit other cable
programming providers the opportunity to compete directly with the
Company's Systems. See "Business - Competition - Other Cable
Companies";
* Changes in or the inability to comply with government regulation in
the cable television industry. See "Business - Legislation and
Regulation in the Cable Television Industry";
* The Company's dependence on key personnel in executing the Company's
plans, including Monroe M. Rifkin, Chairman of R & A, Kevin B.
Allen, Vice Chairman and Chief Executive Officer of R & A and
Jeffrey D. Bennis, President and Chief Operating Officer of R & A,
the loss of any of whom could have a materially adverse impact on
the Company;
* Uncertainties regarding Year 2000 issues which could materially
adversely impact the Company, including the failure to identify and
correct all computer codes and embedded chips or otherwise obtain
Year 2000 readiness or the failure of third parties with which the
company transacts business to achieve Year 2000 readiness. See
"Management's Discussion and Analysis of Financial Conditions and
Results of Operations - Year 2000";
* The dependence upon distributions to the Partnership from the
Partnership's subsidiaries. The Company derives a substantial
portion of operating income from its subsidiaries which funds are
necessary for the Company to meet its obligations; and
* Potential conflicts of interest arising out of the relationship
between the Company, RACC, and affiliates. R & A Management, LLC
("RML"), which is controlled by Monroe M. Rifkin through Mr.
Rifkin's ownership of RML's managing member R & A, manages all
aspects of the business and operations for he Company for a
management fee. Certain decisions concerning the management of the
Company may present conflicts of interest between the Company and
RML. See "Certain Relationships and Related Transactions."
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, the
Company cautions that, while it believes such assumptions or bases to be
reasonable and makes them in good faith, assumed facts or bases almost
always vary from actual results, and the differences between assumed
facts or bases and actual results can be material, depending upon the
circumstances. Where, in any forward-looking statement, the Company, or
its management expresses an expectation or belief as to the future
results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that
the statement of expectation or belief will result or be achieved or
accomplished.
Results of Operations
1998 compared to 1997
Revenue increased 6.7%, or approximately $5.6 million, to $89.9 million
for the year ended December 31, 1998 from $84.3 million for the year
ended December 31, 1997. This increase resulted from approximately $8.6
million in growth in basic customers and increases in basic and tier
rates, and approximately $1.2 million in total revenue as a result of the
systems acquired in Manchester and Shelbyville, Tennessee (the "ACT V
Acquisition") in April 1997 offset by approximately $4.2 million in total
revenue decreases due to the January 31, 1998 sale of systems serving
Bridgeport and Bad Axe, Michigan (the "Michigan Sale"). Basic customers
decreased 4.3% to approximately 191,000 at December 31, 1998 from
approximately 199,500 at December 31, 1997. This decrease was
attributable to the approximate 11,200 customers related to the Michigan
Sale, offset by an approximate 400 customer increase related to the
December 31, 1998 swap of systems in Paris and Piney Flats, Tennessee for
systems in Crossville and Lewisburg, Tennessee(the "Tennessee Swap") as
well as growth in Georgia (3,400 or 5.9%). Average monthly revenue per
customer increased 5.1% from $36.54 for the twelve months ended December
31, 1997 to $38.39 for 1998 primarily a result of acquisition timing and
rate increases. Premium service units increased 7.8% to approximately
117,300 as of December 31, 1998, from approximately 108,700 as of
December 31, 1997, as a result of the Michigan Sale (5,800) offset by
increases in Georgia (7,700), Tennessee (3,400) and Illinois (3,300).
The Company's premium penetration increased to 61.4% from 54.5% between
1998 and 1997.
Operating expense, which includes costs related to technical personnel,
franchise fees and repairs and maintenance, decreased 6.0%, or
approximately $800,000 to approximately $13.3 million for the twelve
months ended December 31, 1998, and decreased as a percentage of revenue
to 14.8% from 16.8%. Approximately $600,000 of the decrease related to
the Michigan Sale along with small decreases in numerous expense
categories due to tighter expense controls offset by an approximate
$200,000 increase related to the operating expense of the acquired
systems in the ACT V Acquisition.
Programming expense, which includes costs related to basic, tier and
premium services, increased 14.9%, or approximately $2.3 million to
approximately $18.0 million for the twelve months ended December 31, 1998
from approximately $15.7 million for the twelve months ended December 31,
1997, and increased as a percentage of revenue to 20.0% from 18.6%.
Approximately $300,000 of the increase relates to the programming
expenses of the acquired systems in the ACT V Acquisition, along with
lower programmer co-op credits offset by an approximate $1.0 million
decrease related to the Michigan Sale. The remainder of the increase is
due to program vendor rate increases and the addition of programming in
certain systems.
Selling, general and administrative expense, which includes expenses
related to on-site office and customer-service personnel, customer
billing and postage and marketing, increased 8.4%, or approximately $1.1
million to approximately $13.8 million for the twelve months ended
December 31, 1998 from $12.7 million for the same period in 1997. As a
percentage of revenue, selling, general and administrative expense
increased to 15.3% for the twelve months ended December 31, 1998 from
15.1% in 1997. Approximately $200,000 of the increase related to the
selling, general and administrative expense of the acquired systems in
the ACT V Acquisition, offset by an approximate $500,000 decrease related
to the Michigan Sale. The remainder of the increase related primarily
to increased wages and benefits.
Depreciation and amortization expense of approximately $37.2 million for
the twelve months ended December 31, 1998 increased approximately $1.4
million from the twelve months ended December 31, 1997. The increase in
depreciation resulted primarily from increases of approximately $26.4
million in 1998 and approximately $28.0 million in 1997 in property,
plant and equipment. The decreases in amortization expense resulted
primarily from the amortization of franchise cost related to the ACT V
Acquisition offset by the reduction in franchise cost related to the
Michigan Sale. As a percentage of revenue, depreciation and amortization
expenses decreased to 41.4% in 1998 from 45.8% in 1997.
Management fees, equal to 3.5% of gross revenue, of approximately $3.1
million in 1998 increased approximately $200,000 from the twelve months
ended December 31, 1997 due to the increase in the Company's revenue as
a result of rate increases and increased customers as well as the ACT V
Acquisition.
The gain from the sale of assets of approximately $42.9 million is a
result of the Michigan Sale ($6.0) and the Tennessee Swap ($36.9).
The loss on disposal of assets, primarily the write-off of replaced house
drops and rebuilt trunk and distribution equipment decreased to
approximately $3.4 million in 1998 from an approximate $7.8 million loss
in 1997.
Interest expense during 1998 decreased approximately $100,000 from the
twelve months ended December 31, 1997 and decreased as a percentage of
revenue from 28.2% to 26.3%. Interest expense was based on an average
debt balance of $227.0 million with an average interest rate of 10.6% and
an average debt balance of $214.0 million with an average interest rate
of 10.8% for 1998 and 1997, respectively. The debt decrease was primarily
a result of the increased borrowings related to the ACT V Acquisition
offset by the debt retirement related to the Michigan Sale as well as
increased cash provided by operating activities.
The Partnership is a "pass-through" entity for income tax purposes. All
income or loss flows through to the partners of the Partnership in
accordance with the Partnership Agreement. The income tax benefit
relates to deferred income taxes recorded as a result of the non-cash tax
liability of the Company's corporate subsidiaries in conjunction with the
application of Financial Accounting Standard No. 109 (FAS 109),
"Accounting for Income Taxes." An income tax benefit of approximately
$4.2 million was recorded in 1998 compared to an income tax benefit of
approximately $5.3 million from the twelve months ended December 31,
1997.
As a result of the factors discussed above, the Company experienced Net
Income of approximately $24.4 million in 1998, compared with an
approximate $26.0 million loss in 1997.
Adjusted EBITDA, defined as income (loss) before interest expense, income
taxes, depreciation and amortization, loss on disposal of assets, gain
from the sale of assets and the non-cash provision for the management
incentive plan, increased 7.8%, or approximately $3.1 million to $42.8
million in 1998 from $39.7 million for 1997. As a percent of revenue,
Adjusted EBITDA increased to 47.6% in 1998 from 47.1% for 1997. Industry
analysts generally consider Adjusted EBITDA to be an appropriate measure
of the performance of multi-channel television operations. Adjusted
EBITDA is not presented in accordance with generally accepted accounting
principles and should not be considered an alternative to, or more
meaningful than, operating income or operating cash flow as an indication
of the Company's operating performance.
1997 compared to 1996
Revenue increased 18.2%, or $13.0 million, to $84.3 million for the year
ended December 31, 1997 from $71.3 million for the year ended December
31, 1996. This increase resulted from the following: (a) approximately
$5.8 million from growth in basic customers and increases in basic and
tier rates, (b) approximately $2.3 million in total revenue as a result
of the March 1, 1996 acquisition of cable systems serving Hickory Hill,
Lebanon and McMinnville, Tennessee (the "Mid-Tennessee Acquisition"),
(c) approximately $1.1 million in total revenue as a result of the April
1, 1996 acquisition of cable systems serving Fayetteville, Lawrenceburg
and Pulaski, Tennessee (the "RCT Acquisition"), and (d) approximately
$3.3 million in total revenue as a result of the April 1, 1997
acquisition of cable systems serving Manchester and Shelbyville,
Tennessee (the "ACT V Acquisition"). Basic customers increased 7.7% to
approximately 199,500 at December 31, 1997 from approximately 185,200 at
December 31, 1996. This increase was attributable to the approximate
11,600 customers acquired in the ACT V Acquisition, as well as continued
growth in Georgia (4,100 or 7.8%) offset by losses in Tennessee (800 or
.8%) systems. Average monthly revenue per customer increased 7.1% from
$34.13 for the year ended December 31, 1996 to $36.54 for 1997. Premium
service units increased .6% to approximately 108,700 as of December 31,
1997, from approximately 108,100 as of December 31, 1996, as a result of
the ACT V Acquisition ( 7,400) offset by decreases in all markets due to
moving the Disney Channel from premium to tier. The Company's premium
penetration decreased to 54.5% from 58.4% between 1997 and 1996 due to
moving the Disney Channel from premium to tier in nearly all systems.
Operating expense, which includes costs related to technical personnel,
franchise fees and repairs and maintenance, increased 36.5%, or
approximately $3.8 million to approximately $14.1 million for the year
ended December 31, 1997 from approximately $10.4 million in 1996, and
increased as a percentage of revenue to 16.8% from 14.5%. Approximately
$500,000, $200,000 and $600,000 of the increase relates to the operating
expense of the acquired systems in the Mid-Tennessee Acquisition, RCT
Acquisition, and ACT V Acquisition, respectively. Approximately $900,000
of the increase relates to higher salaries and benefits as a result of
added technical personnel and annual wage increases and approximately
$400,000 of the increase relates to higher franchise fees as a result of
increased revenue.
Programming expense, which includes costs related to basic, tier and
premium services, increased 25.1%, or approximately $3.7 million, to
approximately $18.4 million for the year ended December 31, 1997 from
approximately $14.7 million for the year ended December 31, 1996, and
increased as a percentage of revenue to 21.9% from 20.7%. Approximately
$500,000, $300,000 and $800,000 of the increase relates to the
programming expenses of the acquired systems in the Mid-Tennessee
Acquisition, RCT Acquisition, and ACT V Acquisition, respectively. The
remainder of the increase is due to program vendor rate increases and the
addition of programming in certain systems.
Selling, general and administrative expense, which includes expenses
related to on-site office and customer-service personnel, customer
billing and postage and marketing, decreased 7.3%, or approximately
$800,000 to approximately $9.9 million for the year ended December 31,
1997 from $10.7 million for the same period in 1996. As a percentage of
revenue, selling, general and administrative expense decreased to 11.8%
for the year ended December 31, 1997 from 15.1% in 1996. The expense
decrease was due to an approximate $1.9 million increase in programmer
cooperative and marketing launch cost reimbursements, partially offset
by an approximate $200,000 increase resulting from the increase in the
provision for the management incentive plan which became effective
January 1, 1996, an approximate $100,000 increase from increases in
personnel and related benefits costs, an approximate $100,000 increase
from higher customer billing costs, and approximately $300,000, $200,000
and $400,000 related to the selling, general and administrative expense
of the acquired systems in the Mid-Tennessee Acquisition, RCT Acquisition
and ACT V Acquisition, respectively.
Depreciation and amortization expense of approximately $38.6 million for
the year ended December 31, 1997 increased approximately $3.3 million
from the year ended December 31, 1996 . The increases in depreciation
resulted primarily from increases of approximately $16.9 million in 1996
and approximately $28.0 million in 1997 in property, plant and equipment.
The increases in amortization expense resulted primarily from the
amortization of franchise cost related to the Mid-Tennessee Acquisition,
RCT Acquisition and ACT V Acquisition, respectively. As a percentage of
revenue, depreciation and amortization expenses decreased to 45.8% in
1997 from 49.5% in 1996.
Management fees, equal to 3.5% of gross revenue, of approximately $2.9
million in 1997 increased approximately $500,000 from the year ended
December 31, 1996 due to the increase in the Company's revenue as a
result of rate increases and increased customers as well as the Mid-
Tennessee Acquisition, RCT Acquisition and ACT V Acquisition.
The loss on disposal of assets, primarily the write-off of replaced house
drops and rebuilt trunk and distribution equipment, increased to
approximately $7.8 million in 1997 from approximately $1.4 million in
1996.
Interest expense during 1997 increased approximately $2.2 million from
the year ended December 31, 1996 and decreased as a percentage of
revenue from 30.3% to 28.2%. Interest expense was based on an average
debt balance of $220.5 million with an average interest rate of 10.8% and
an average debt balance of $202.9 million with an average interest rate
of 10.6% for 1997 and 1996, respectively. This increase was primarily a
result of the increased borrowings related to the ACT V Acquisition.
The Partnership is a "pass-through" entity for income tax purposes. All
income or loss flows through to the partners of the Partnership in
accordance with the Partnership Agreement. An income tax benefit of
approximately $5.3 million was recorded in 1997 compared to an income
tax benefit of approximately $3.7 million from the year ended December
31, 1996. The income tax benefit relates to deferred income taxes
recorded as a result of the non-cash tax liability of the Company's
corporate subsidiaries in conjunction with the application of Financial
Accounting Standard No. 109 (FAS 109), "Accounting for Income Taxes."
As a result of the factors discussed above, net loss increased 20.4%, or
approximately $4.4 million in 1997 compared with 1996.
Adjusted EBITDA, defined as income (loss) before interest expense, income
taxes, depreciation and amortization, loss on disposal of assets, non-
recurring interest income (related to the escrowed notes proceeds) and
the non-cash provision for the management incentive plan, increased 20%,
or approximately $6.6 million to $39.7 million in 1997 from $33.1 million
for 1996. As a percent of revenue, Adjusted EBITDA increased to 47.1%
in 1997 from 46.4% for 1996. Industry analysts generally consider
Adjusted EBITDA to be an appropriate measure of the performance of multi-
channel television operations. Adjusted EBITDA is not presented in
accordance with generally accepted accounting principles and should not
be considered an alternative to, or more meaningful than, operating
income or operating cash flow as an indication of the Company's operating
performance.
Liquidity and Capital Resources
The Company has relied upon cash generated by operations, borrowings and
equity contributions to fund capital expenditures and acquisitions,
service its indebtedness and finance its working capital needs. During
the comparable twelve month periods ended December 31, 1998 and 1997, net
cash provided by operations (including changes in working capital) of the
Company was approximately $17.3 million and $16.5 million, respectively.
From December 31, 1997 to December 31, 1998, the Company's available cash
and cash equivalents increased from approximately $1.9 million to
approximately $2.3 million. Customer accounts receivable increased
approximately $300,000 while other receivables increased approximately
$500,000, both primarily a result of the timing of receipts. Customer
deposits and prepayments increased approximately $100,000 to
approximately $1.7 million from year to year primarily a result of the
timing of customer payments. Interest payable decreased approximately
$100,000 to approximately $7.2 million for the same comparable periods
due primarily to the effect of the timing of payments. Also, for the
same comparable periods, deferred taxes payable decreased approximately
$4.2 million to approximately $7.9 million as a result of differences in
book and tax depreciation and amortization lives and methods. Notes
payable decreased by $4.9 million from December 31, 1997 to December 31,
1998 due primarily to the borrowings related to the ACT V Acquisition
offset by the debt retirement related to the proceeds from the Michigan
Sale.
The Company has decreased its total consolidated debt to $224.6 million
as of December 31, 1998 from $229.5 million at December 31, 1997. The
Company has unused commitments under the Amended and Restated Credit
Agreement of $30.0 million, all of which is available for general
corporate and/or acquisition purposes. Access to the remaining
commitments under the Credit Agreement for general corporate purposes or
Permitted Acquisitions (as defined in the Amended and Restated Credit
Agreement) is subject to the Company's compliance with all covenants in
such facility and the Company's Total Funded Debt Ratio (defined as the
ratio of funded indebtedness of the Company to annualized Adjusted EBITDA
based on the most recent quarter) being below 5.50. As of December 31,
1998, the Company's Total Funded Debt Ratio was 4.65. Interest payments
on the Notes and interest and principal payments under the Amended and
Restated Credit Agreement represent significant liquidity requirements
for the Company. The Amended and Restated Credit Agreement provides for
two term loan facilities in a total amount of $65 million. Term Loan A
in the original amount of $25 million was paid down to $21.6 million
based upon a portion of the proceeds from the Michigan Sale, matures on
March 31, 2003 and begins amortizing on March 31, 2000. Term Loan B in
the amount of $40 million, matures March 31, 2004 and begins amortizing
March 31, 2002. The Amended and Restated Credit Agreement also provides
for an $80 million reducing revolving facility with a final maturity date
of March 31, 2003. The revolving facility was subject to permanent
annual commitment reductions commencing in 1997 with a remaining
commitment as of December 31, 1998 of $65.0 million. Borrowings under
the Amended and Restated Credit Agreement will bear interest at floating
rates and will require interest payments on various dates depending upon
the interest rate options selected by the Company.
In addition to its debt service obligations, the Company will require
liquidity for capital expenditures and working capital needs. The cable
television business requires substantial capital for construction,
expansion and maintenance of plant and the Company has committed
substantial capital resources to (i) expand its cable systems; (ii)
conduct routine replacement of cable television plant; and (iii) increase
the channel capacity of certain systems.
The Company expects that cash flow from operating activities and
available borrowings will be sufficient to meet its debt service
obligations, anticipated capital expenditure requirements and working
capital needs for the next twelve months, as well as through the maturity
date of the Notes.
The Amended and Restated Credit Agreement and the Indenture restrict,
among other things, the Company's and the Subsidiary Guarantors' ability
to incur additional indebtedness, incur liens, pay distributions or make
certain other restricted payments, consummate certain asset sales, enter
into certain transactions with affiliates, 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
Amended and Restated Credit Agreement also requires the Company to
maintain specified financial ratios and satisfy certain financial
condition tests. The obligations under the Amended and Restated Credit
Agreement are secured by (i) a pledge of all of the equity interest of
the Company's subsidiaries and (ii) subject to certain exceptions, a
perfected first priority security interest in all tangible and intangible
assets.
Year 2000
As many computer software, hardware, and other equipment with embedded
chips or processors (collectively, the Abusiness systems@) use only two
digits to represent the year, they may be unable to process accurately
certain data before, during or after the year 2000. As a result,
business and governmental entities are at risk for possible
miscalculations or systems failures causing disruptions in their business
operations. This is commonly known as the Year 2000 issue.
During 1998, the Company began an enterprise-wide, comprehensive effort
to assess and remediate Year 2000 issues in the following areas: (a) the
Company's technology systems, including software and computer and
peripheral hardware used in the Company's operations, (b) electronic data
interchange systems, (c) non-information technology systems (embedded
technology), including PBX and voice messaging systems, heating and air
conditioning systems, alarm systems, predictive dialers, radio
communication systems and other support role systems, and (d) Year 2000
compliance of entities or persons from which the Company retrieves or
receives data or products (including states, counties and other vendors)
and third parties which the Company has a material relationship. The
Company undertook this action to ensure their computer systems and
related software, facilities, and equipment, process and store
information in the Year 2000 and thereafter. The Company's Year 2000
remediation efforts include an assessment of its critical systems,
including customer service and billing systems, information systems, and
product reception and distribution systems.
The Company has a Year 2000 Task Force (ATask Force@) and includes
representatives from all business divisions. The Task Force is
responsible for overseeing the remediation efforts and ensures that all-
necessary action and resources are in place. The Task Force has
implemented a six phase plan to identify and repair Year 2000 affected
systems: (i) inventory systems to identify potentially date-sensitive
systems, including third party-products; (ii) assess the systems for Year
2000 compliance and evaluate the actions necessary to bring it into
compliance; (iii) remediation of the system by modifying, upgrading or
replacing the system; (iv) testing the corrected systems; (v) deploy the
corrected system; and (vi) monitor the corrected system.
Inventory assessment and remediation of the information systems is
substantially complete. Significant progress has been made to complete
the testing and deployment, which is scheduled for completion by June 30,
1999.
Inventory and assessment of the cable system facilities, which includes
the customer service, and product reception and distribution systems, are
substantially complete. Remediation, testing and deployment are
collectively approximately 50% complete and are scheduled to be completed
by September 30, 1999.
The Company is continuing its survey of the significant third-party
vendors and suppliers whose systems, services or products that are
important to the Company's operations. The Company has received
information that critical systems, services and products supplied to the
Company by third parties are Year 2000 compliant or are expected to be
Year 2000 compliant before the year 2000. Third-party vendors and
suppliers whose systems will not be compliant before the year 2000 have
been replaced, will be scheduled to be replaced or a contingency plan
will be developed to accommodate the vendor or supplier. Although the
Company believes that its own internal systems will be Year 2000
compliant, no assurance can be given that the systems of the external
sources of the Company's data, telephone and utility providers, customers
and other third parties which the Company has a materiel relationship
will be Year 2000 compliant. The Company will be continuing to contact
these entities during 1999 to assess their state of Year 2000 readiness
and to plan changes that may be necessary to prevent any Year 2000 impact
on the Company's systems. Depending on the length of time the
contingency plans remain in effect, they could have an adverse effect on
the Company's business, operations and financial condition.
The Task Force will coordinate the development of contingency plans in
the event the Company's plan to identify and repair Year 2000 affected
systems is not completed by their scheduled completion dates. The
Company expects to have solidified its contingency plans by no later than
June 30, 1999.
The remediation and testing of the Company's business systems will cost
an estimated $200,000. These costs are to be expensed in the period
incurred and funded through cash flows from operations. Expenses to date
have approximated $50,000. The financial impact is not expected to be
material to the Company's financial position or results of operations.
The scheduled completion dates and costs associated with the various
components of the Year 2000 compliance plan described above are estimated
and are subject to change.
The Company believes that it has and will continue to devote the
resources necessary to achieve Year 2000 readiness in a timely manner.
However, there can be no assurance that the Company's internal systems,
the systems of others on which the Company relies, or the systems of the
Company's customers will be Year 2000 ready in a timely and appropriate
manner or that the Company's contingency plans or the contingency plans
of others on which the Company relies will mitigate the effects of the
Year 2000 problem. Currently, the Company believes that the most
reasonable likely worst case scenario would be its inability to receive
and/or retransmit product to their customers and the failure of customer
service and billing systems. While the Company does not expect this
scenario to occur, if it did occur, it could result in the reduction of
the Company's operations, despite the successful execution of the
Company's business continuity and contingency plans, and accordingly,
have an adverse effect on the Company's business, operations and
financial condition.
The forgoing discussion under the heading "Year 2000" constitutes and is
denominated as "year 2000 readiness disclosure" within the meaning of the
Year 2000 Information and Readiness Disclosure Act.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Rifkin Acquisition Partners, L.L.L.P.
Rifkin Acquisition Partners, L.P.
Report of Independent Accountants F-1
Consolidated Balance Sheet F-2
Consolidated Statement of Operations F-3
Consolidated Statement of Cash Flows F-4
Consolidated Statement of Partners' Capital (Deficit) F-5
Notes to Consolidated Financial Statements F-6
Rifkin Acquisition Capital Corp.
Report of Independent Accountants F-17
Balance Sheet F-18
Notes to Balance Sheet F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 19, 1999
To the Partners of
Rifkin Acquisition Partners, L.L.L.P.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, partners' capital
(deficit) and cash flows present fairly, in all material respects, the
financial position of Rifkin Acquisition Partners, L.L.L.P. and its
subsidiaries (the "Company") at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
<PAGE>
<TABLE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
CONSOLIDATED BALANCE SHEET
<CAPTION>
12/31/98 12/31/97
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,324,892 $ 1,902,555
Customer accounts receivable, net of
allowance for doubtful accounts of
$444,839 in 1998 and $425,843 in 1997 1,932,140 1,371,050
Other receivables 5,637,771 4,615,089
Prepaid expenses and other 2,398,528 1,753,257
Property, plant and equipment at cost:
Cable television transmission and
distribution systems and
related equipment 149,376,914 131,806,310
Land, buildings, vehicles and
furniture and fixtures 7,421,960 7,123,429
156,798,874 138,929,739
Less accumulated depreciation (35,226,773) (26,591,458)
Net property, plant
and equipment 121,572,101 112,338,281
Franchise costs and other
intangible assets, net of
accumulated amortization of
$67,857,545 in 1998
and $53,449,637 in 1997 183,438,197 180,059,655
Total assets $ 317,303,629 $ 302,039,887
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 11,684,594 $ 11,690,894
Customer deposits and prepayments 1,676,900 1,503,449
Interest payable 7,242,954 7,384,509
Deferred tax liability, net 7,942 000 12,138,000
Notes payable 224,575,000 229,500,000
Total liabilities 253,121,448 262,216,852
Commitments and contingencies (Notes 8 and 14)
Redeemable partners' interests 10,180,400 7,387,360
Partners' capital (deficit):
General partner (1,991,018) (1,885,480)
Limited partners 55,570,041 34,044,912
Preferred equity interest 422,758 276,243
Total partners' capital 54,001,781 32,435,675
Total liabilities
and partners' capital $ 317,303,629 $ 302,039,887
<FN>
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
Years Ended
12/31/98 12/31/97 12/31/96
<S> <C> <C> <C>
Revenue:
Service $ 82,498,638 $ 78,588,503 $ 66,433,321
Installation and other 7,422,675 5,736,412 4,852,124
Total revenue 89,921,313 84,324,915 71,285,445
Costs and Expenses:
Operating expense 13,305,376 14,147,031 10,362,671
Programming expense 18,020,812 15,678,977 14,109,527
Selling, general and
administrative expense 13,757,090 12,695,176 11,352,870
Depreciation 15,109,327 14,422,631 11,725,246
Amortization 22,104,249 24,208,169 23,572,457
Management fees 3,147,246 2,951,372 2,475,381
Loss on disposal of assets 3,436,739 7,834,968 1,357,180
Total costs and expenses 88,880,839 91,938,324 74,955,332
Operating income (loss) 1,040,474 (7,613,409) (3,669,887)
Gain from the sale of
assets (Note 4) (42,863,060) - -
Interest expense 23,662,248 23,765,239 21,607,174
Income (loss) before
income taxes 20,241,286 (31,378,648) (25,277,061)
Income tax benefit (4,177,925) (5,335,000) ( 3,645,719)
Net income (loss) $ 24,419,211 $(26,043,648) $(21,631,342)
<FN>
The accompanying notes are an integral part of the consolidated financila statements.
</TABLE>
<PAGE>
<TABLE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Years Ended
12/31/98 12/31/97 12/31/96
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 24,419,211 $(26,043,648) $(21,631,342)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 37,213,576 38,630,800 35,297,703
Amortization of deferred loan costs 989,760 989,760 970,753
Gain on sale of assets (Note 4) (42,863,060) - -
Loss on disposal of fixed assets 3,436,739 7,834,968 1,357,180
Deferred tax benefit (4,196,000) (5,335,000) (3,654,000)
Increase in customer accounts receivables (300,823) (186,976) (117,278)
Increase in other receivables (474,599) (1,992,714) (994,681)
(Increase) decrease in prepaid expenses and other (684,643) 23,015 (494,252)
Increase in accounts payable and accrued liabilities 34,073 1,753,656 3,245,736
Increase (decrease) in customer deposits and prepayments (86,648) 231,170 164,824
Increase (decrease) in interest payable (141,555) 600,248 6,692,988
Net cash provided by operating activities 17,346,031 16,505,279 20,837,631
Cash flows from investing activities:
Acquisition of cable systems, net (Note 3) (2,212,958) (19,359,755) (71,797,038)
Additions to property, plant and equipment (26,354,756) (28,009,253) (16,896,582)
Additions to cable television franchises, net
of retirements (151,695) 72,162 (1,182,311)
Net proceeds from the sale of cable systems (Note 4) 16,533,564 - -
Net proceeds from the other sales of assets 247,216 306,890 197,523
Net cash used in investing activities (11,938,629) (46,989,956) (89,678,408)
Cash flows from financing activities:
Proceeds from isssuance of senior subordinated notes - - 125,000,000
Proceeds from long-term bank debt 22,500,000 38,000,000 18,000,000
Deferred loan costs - - (6,090,011)
Payments of long-term bank debt (27,425,000) (7,000,000) (82,000,000)
Partners' capital contributions - - 15,000,000
Equity distributions to partners (60,065) - -
Net cash provided by (used in) financing activities (4,985,065) 31,000,000 69,909,989
Net increase in cash 422,337 515,323 1,069,212
Cash and cash equivalents at beginning of period 1,902,555 1,387,232 318,020
Cash and cash equivalents at end of period $ 2,324,892 $ 1,902,555 $ 1,387,232
Supplemental Cash Flow Information:
Interest paid $ 22,737,443 $ 22,098,732 $ 13,866,995
Noncash investing activities:
Proceeds from the sale of Michigan assets held in escrow $ 500,000 $ - $ -
Trade value related to the trade sale of Tennessee assets $ 46,668,000 $ - $ -
Trade value related to trade acquisition of Tennessee
assets $ (46,668,000) $ - $ -
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
<CAPTION>
Preferred General Limited
Equity Interest Partner Partners Total
<S> <C> <C> <C> <C>
Partners' capital (deficit) at December 31, 1995 $ 562,293 $(1,085,311) $ 69,421,043 $ 68,898,025
Partners' capital contributions - 150,000 14,850,000 15,000,000
Accretion of redeemable partners' interest - (157,730) (1,104,110) (1,261,840)
Net loss (129,788) (216,313) (21,285,241) (21,631,342)
Partners' capital (deficit) at December 31, 1996 432,505 (1,309,354) 61,881,692 61,004,843
Accretion of redeemable partners' interest - (315,690) (2,209,830) (2,525,520)
Net loss (156,262) (260,436) (25,626,950) (26,043,648)
Partners' capital (deficit) at December 31, 1997 276,243 (1,885,480) 34,044,912 32,435,675
Accretion of redeemable partners' interest - (349,130) (2,443,910) (2,793,040)
Net income 146,515 244,192 24,028,504 24,419,211
Partners' equity distribution - (600) (59,465) (60,065)
Partners' capital (deficit) at December 31, 1998 $ 422,758 $(1,991,018) $ 55,570,041 $ 54,001,781
<FN>
The Partners' capital accounts for financial reporting purposes vary from the tax capital accounts.
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General Information and Summary of Significant Accounting Policies
General Information
Rifkin Acquisition Partners, L.L.L.P. ("the Partnership") was formed
pursuant to the laws of the State of Colorado. The Partnership and
its subsidiaries are hereinafter referred to on a consolidated basis
as the "Company." The Company owns, operates, and develops cable
television systems in Georgia, Tennessee, and Illinois. Rifkin
Acquisition Management, L.P., an affiliate of Rifkin & Associates,
Inc. (Note 7), is the general partner of the Partnership ("General
Partner").
The Partnership operates under a limited liability limited
partnership agreement (the "Partnership Agreement") which establishes
contribution requirements, enumerates the rights and responsibilities
of the partners and advisory committee, provides for allocations of
income, losses and distributions, and defines certain items relating
thereto. The Partnership Agreement provides that net income or loss,
certain defined capital events, and cash distributions, all as
defined in the Partnership Agreement, are generally allocated 99% to
the limited partners and 1% to the general partner.
Basis of Presentation
The consolidated financial statements include the accounts of the
following entities:
# Rifkin Acquisition Partners, L.L.L.P.
# Cable Equities of Colorado, Ltd. (CEC)
# Cable Equities of Colorado Management Corp. (CEM)
# Cable Equities, Inc. (CEI)
# Rifkin Acquisition Capital Corp. (RACC)
The financial statements for 1997 and 1996 also included the
following entities:
# Rifkin/Tennessee, Ltd. (RTL)
# FNI Management Corp. (FNI)
Effective January 1, 1998, both the RTL and FNI entities were
dissolved and the assets were transferred to the Partnership.
All significant intercompany accounts and transactions have been
eliminated.
Revenue and Programming
Customer fees are recorded as revenue in the period the service is
provided. The cost to acquire the rights to the programming
generally is recorded when the product is initially available to be
viewed by the customer.
Advertising and Promotion Expenses
Advertising and promotion expenses are charged to income during the
year in which they are incurred and were not significant for the
periods shown.
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost,
which in the case of assets constructed, includes amounts for
material, labor, overhead and interest, if applicable. Upon sale or
retirement of an asset, the related costs and accumulated
depreciation are removed from the accounts and any gain or loss is
recognized. Capitalized interest was not significant for the periods
shown.
1. General Information and Summary of Significant Accounting Policies--
(continued)
Property, Plant and Equipment--(continued)
Depreciation expense is calculated using the straight-line method
over the estimated useful lives of the assets as follows:
Buildings 27 - 30 years
Cable television transmission and
distribution systems and related equipment 3 - 15 years
Vehicles and furniture and fixtures 3 - 5 years
Expenditures for maintenance and repairs are expensed as incurred.
Franchise Costs
Franchise costs are amortized using the straight-line method over the
remaining lives of the franchises as of the date they were acquired,
ranging from one to twenty years. The carrying value of franchise
costs is assessed for recoverability by management based on an
analysis of undiscounted future expected cash flows from the
underlying operations of the Company. Management believes that there
has been no impairment thereof as of December 31, 1998.
Other Intangible Assets
Certain loan costs have been deferred and are amortized to interest
expense utilizing the straight-line method over the remaining term
of the related debt. Use of the straight-line method approximates
the results of the application of the interest method. The net
amounts remaining at December 31, 1998 and 1997 were $6,176,690 and
$7,166,450, respectively.
Cash and Cash Equivalents
All highly liquid debt instruments purchased with an original
maturity of three months or less are considered to be cash
equivalents.
Redeemable Partners' Interests
The Partnership Agreement provides that if a certain partner dies or
becomes disabled, that partner (or his personal representative) shall
have the option, exercisable by notice given to the partners at any
time within 270 days after his death or disability (except that if
that partner dies or becomes disabled prior to August 31, 2000, the
option may not be exercised until August 31, 2000 and then by notice
by that partner or his personal representative given to the partners
within 270 days after August 31, 2000) to sell, and require the
General Partner and certain trusts controlled by that partner to
sell, and the Partnership to purchase, up to 50% of the partnership
interests owned by any of such partners and certain current and
former members of management of Rifkin & Associates, Inc. that
requests to sell their interest, for a purchase price equal to the
fair market value of those interests determined by appraisal in
accordance with the Partnership Agreement. Accordingly, the current
fair value of such partnership interests have been reclassified
outside of partners' capital.
Use of Estimates
The preparation of the 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.
1. General Information and Summary of Significant Accounting Policies--
(continued)
New accounting pronouncement
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5 "Reporting on the Costs of Start-Up
Activities," which requires the Partnership to expense all start up
costs related to organizing a new business. This new standard also
includes one-time activities related to opening a new facility,
introduction of a new product or service, or conducting business with
a new class of customer or in a new territory. This standard is
effective for the Partnership's 1999 fiscal year. Management
believes that SOP 98-5 will have no material effect on its financial
position or the results of operations.
Reclassification of financial statement presentation
Certain reclassifications have been made to the 1997 and 1996
financial statements to conform with the 1998 financial statement
presentation. Such reclassification had no effect on the net loss
as previously stated.
2. Subsequent Event
On February 12, 1999, the Company signed a letter of intent for the
partners to sell all of their partnership interests to Charter
Communications ("Charter"). The Company and Charter are expected to
sign a purchase agreement and complete the sale during the third
quarter of 1999.
3. Acquisition of Cable Properties
1998 Acquisitions
At various times during the second half of 1998, the Company
completed three separate acquisitions of cable operating assets. Two
of the acquisitions serve communities in Gwinnett County, Georgia
(the "Georgia Systems"). These acquisitions were accounted for using
the purchase method of accounting.
The third acquisition resulted from a trade of the Company's systems
serving the communities of Paris and Piney Flats, Tennessee for the
operating assets of another cable operator serving primarily the
communities of Lewisburg and Crossville, Tennessee (the "Tennessee
Trade"). The trade was for cable systems that are similar in size
and was accounted for based on fair market value. Fair market value
was established at $3,000 per customer relinquished, which was based
on recent sales transactions of similar cable systems. The
transaction included the payment of approximately $719,000, net, of
additional cash (Note 4).
The combined purchase price was allocated based on estimated fair
values from an independent appraisal to property, plant and equipment
and franchise cost as follows (dollars in thousands):
<TABLE>
<CAPTION>
Georgia Tennessee
Systems Trade Total
<S> <C> <C> <C>
Fair value of assets relinquished (Note 4) $ - $ 46,668 $ 46,668
Cash paid 1,392 719 2,111
Acquisition Costs
(appraisal, transfer fees and direct costs) 26 76 102
Total acquistion cost $ 1,418 $ 47,463 $ 48,881
Allocation:
Current assets $ (2) $ 447 $ 445
Current liabilities (1) (397) (398)
Property, plant and equipment 333 11,811 12,144
Franchise Cost 1,088 35,602 36,690
Total cost allocated $ 1,418 $ 47,463 $ 48,881
</TABLE>
3. Acquisition of Cable Properties--(continued)
1998 Acquisitions--(continued)
The fair value of assets relinquished from the Tennessee Trade was
treated as a noncash transaction on the Consolidated Statement of
Cash Flows. The cash acquisition costs were funded by proceeds from
the Company's reducing revolving loan with a financial institution.
The following combined pro forma information presents a summary of
consolidated results of operations for the Company as if the
Tennessee Trade acquisitions had occurred at the beginning of 1997,
with pro forma adjustments to show the effect on depreciation and
amortization for the acquired assets, management fees on additional
revenues and interest expense on additional debt (dollars in
thousands):
Years Ended
(Unaudited)
12/31/98 12/31/97
Total revenues $89,921 $84,325
Net income (loss) 19,447 (29,631)
The pro forma financial information is not necessarily indicative of
the operating results that would have occurred had the Tennessee
Trade actually been acquired on January 1, 1997.
1997 Acquisitions
On April 1, 1997, the Company acquired the cable operating assets of
two cable systems serving the Tennessee communities of Shelbyville
and Manchester (the "Manchester Systems"), for an aggregate purchase
price of approximately $19.7 million of which $495,000 was paid as
escrow in 1996. The acquisition was accounted for using the purchase
method of accounting, and was funded by proceeds from the Company's
reducing revolving loan with a financial institution. No pro forma
information giving the effect of the acquisitions is shown due to the
results being immaterial.
1996 Acquisitions
On March 1, 1996, the Company acquired certain cable operating assets
("Mid-Tennessee Systems") from Mid-Tennessee CATV, L.P., and on April
1, 1996 acquired the cable operating assets ("RCT Systems") from
Rifkin Cablevision of Tennessee, Ltd. Both Mid-Tennessee CATV, L.P.
and Rifkin Cablevision of Tennessee, Ltd. were affiliates of the
General Partner. The acquisition costs were funded by $15 million
of additional partner contributions and the remainder from a portion
of the proceeds received from the issuance of $125 million of 11 1/8%
Senior Subordinated Notes due 2006 (see Note 6).
The acquisitions were recorded using the purchase method of
accounting. The results of operations of the Mid-Tennessee Systems
have been included in the consolidated financial statements since
March 1, 1996, and the results of the RCT Systems have been included
in the consolidated financial statements since April 1, 1996. The
combined purchase price was allocated based on estimated fair values
from an independent appraisal to property, plant and equipment and
franchise cost as follows (dollars in thousands):
Cash paid, net of acquired cash $71,582
Acquisition costs (appraisal, transfer
fees, and direct costs) 215
Total acquisition cost $71,797
Allocation:
Current assets $ 624
Current liabilities (969)
Property, plant and equipment 24,033
Franchise cost and other intangible assets 48,109
Total cost allocated $71,797
3. Acquisition of Cable Properties--(continued)
1996 Acquisitions--(continued)
The following combined pro forma information presents a summary of
consolidated results of operations for the Company as if the Mid-
Tennessee Systems and the RCT Systems acquisitions had occurred at
the beginning of 1996, with pro forma adjustments to show the effect
on depreciation and amortization for the acquired assets, management
fees on additional revenues and interest expense on additional debt
(dollars in thousands):
Year Ended
(Unaudited)
12/31/96
Total revenues $74,346
Net loss (22,558)
The pro forma financial information is not necessarily indicative of
the operating results that would have occurred had the Mid-Tennessee
Systems and the RCT Systems actually been acquired on January 1,
1996.
4. Sale of Assets
On February 4, 1998, the Company sold all of its operating assets in
the state of Michigan (the "Michigan Sale") to another cable
operator for cash. In addition, on December 31, 1998, the Company
traded certain cable systems in Tennessee (the "Tennessee Trade")
for similar-sized cable systems (Note 3). Both sales resulted in a
gain recognized by the Company as follows (dollars in thousands):
Michigan Tennessee
Sale Trade Total
Fair value of assets relinquished $ - $ 46,668 $ 46,668
Original cash proceeds 16,931 - 16,931
Adjustments for value of assets
and liabilities assumed 120 (17) 103
Net proceeds 17,051 46,651 63,702
Net book value of assets sold 11,061 9,778 20,839
Net gain from sale $ 5,990 $ 36,873 $ 42,863
The Michigan Sale proceeds amount includes $500,000 that is
currently being held in escrow. This amount and the fair value of
assets relinquished, related to the Tennessee Trade, were both
treated as noncash transactions on the Consolidated Statement of
Cash Flows.
The cash proceeds from the Michigan Sale were used by the Company to
reduce its revolving and term loans with a financial institution.
5. Income Taxes
Although the Partnership is not a taxable entity, two corporations
(the "subsidiaries") are included in the consolidated financial
statements. These subsidiaries are required to pay taxes on their
taxable income, if any.
The following represents a reconciliation of pre-tax losses as
reported in accordance with generally accepted accounting principles
and the losses attributable to the partners and included in their
individual income tax returns:
5. Income Taxes--(continued)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96
<S> <C> <C> <C>
Pre-tax income (loss) as reported $ 20,241,286 $(31,378,648) $(25,277,061)
(Increase) decrease due to:
Separately taxed book results
of corporate subsidiaries 9,397,000 15,512,000 9,716,000
Effect of different depreciation
and amortization methods for
tax and book purposes (1,360,000) (2,973,000) (3,833,000)
Additional tax gain from the sale
of Michigan(Note 4) 2,068,000 - -
Book gain from trade sale of
Tennessee assets(Note 4) (36,873,000) - -
Additional tax loss from dissolution
of FNI stock (7,235,000) - -
Other 81,714 (45,052) (22,539)
Tax loss attributed to the partners $(13,680,000) $(18,884,700) $(19,416,600)
</TABLE>
The Company accounts for income taxes under the liability method.
Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are
expected to reverse.
As a result of a change in control in 1995 (Note 1), the book value
of the Company's net assets was increased to reflect their fair
market value. In connection with this revaluation, a deferred
income tax liability in the amount of $22,801,000 was established to
provide for future taxes payable on the revised valuation of the net
assets. A deferred tax benefit of $4,196,000, $5,335,000 and
$3,654,000 was recognized for the years ended December 31, 1998,
1997 and 1996, respectively, reducing the liability to $7,942,000.
Deferred tax assets (liabilities) were comprised of the following at
December 31, 1998 and 1997:
12/31/98 12/31/97
Deferred tax assets resulting
from loss carryforwards $ 11,458,000 $ 9,499,000
Deferred tax liabilities resulting
from depreciation and amortization (19,400,000) (21,637,000)
Net deferred tax liability $ (7,942,000) $(12,138,000)
As of December 31, 1998 and 1997, the subsidiaries have net
operating loss carryforwards ("NOLs") for income tax purposes of
$30,317,000 and $25,264,000, respectively, substantially all of
which are limited. The NOLs will expire at various times between
the years 2000 and 2013.
In 1998, one of the corporate entities was dissolved. The existing
NOL's were used to offset taxable income down to $87,751, resulting
in a current tax for 1998 of $18,075.
Under the Internal Revenue Code of 1986, as amended (the ACode@),
the subsidiaries generally would be entitled to reduce their future
federal income tax liabilities by carrying the unused NOLs forward
for a period of 15 years to offset their future income taxes. The
subsidiaries= ability to utilize any NOLs in future years may be
restricted, however, in the event the subsidiaries undergo an
Aownership change@ as defined in Section 382 of the Code. In the
event of an ownership change, the amount of NOLs attributable to the
period prior to the ownership change that may be used to offset
taxable income in any year thereafter generally may not exceed the
fair market value of the subsidiary immediately before the ownership
change (subject to certain adjustments) multiplied by the applicable
long-term, tax exempt rate published by the Internal Revenue Service
for the date of the ownership change. Two of the subsidiaries
underwent an ownership change on September 1, 1995 pursuant to
Section 382 of the Code. As such, the NOLs of the subsidiaries are
subject to limitation from that date forward. It is the opinion of
management that the NOLs will be released from this limitation prior to
their expiration dates and, as such, have not been limited in their
calculation of deferred taxes.
The provision for income tax expense (benefit) differs from the
amount which would be computed by applying the statutory federal
income tax rate of 35% to pre-tax income before extraordinary loss
as a result of the following:
<TABLE>
Years Ended
12/31/98 12/31/97 12/31/96
<S> <C> <C> <C>
Tax expense (benefit) computed
at statutory rate $ 7,084,450 $ (10,982,527) $ (8,846,971)
Increase (decrease) due to:
Tax benefit (expense) for non-corporate loss (10,373,252) 5,900,546 5,446,721
Permanent differences between
financial statement income and
taxable income (36,200) 84,500 48,270
State income tax (247,000) (377,500) (252,590)
Tax benefit from dissolved corporation (148,925) - -
Other (456,998) 39,981 (41,149)
Income Tax Benefit $ (4,177,925) $ (5,335,000) $ (3,645,719)
</TABLE>
6. Notes Payable
Debt consisted of the following:
December 31, December 31,
1998 1997
Senior Subordinated Notes $ 125,000,000 $ 125,000,000
Tranche A Term Loan 21,575,000 25,000,000
Tranche B Term Loan 40,000,000 40,000,000
Reducing Revolving Loan 35,000,000 36,500,000
Senior Subordinated Debt 3,000,000 3,000,000
$ 224,575,000 $ 229,500,000
The Notes and loans are collateralized by substantially all of the
assets of the Company.
On January 26, 1996, the Company and its wholly-owned subsidiary,
RACC (the "Issuers"), co-issued $125,000,000 of 11 1/8% Senior
Subordinated Notes (the "Notes") to institutional investors. These
notes were subsequently exchanged on June 18, 1996 for publicly
registered notes with identical terms. Interest on the Notes is
payable semi-annually on January 15 and July 15 of each year. The
Notes, which mature on January 15, 2006, can be redeemed in whole or
in part, at the Issuers' option, at any time on or after January 15,
2001, at redeemable prices contained in the Notes plus accrued
interest. In addition, at any time on or prior to January 15, 1999,
the Issuers, at their option, may redeem up to 25% of the principle
amount of the Notes issued to institutional investors of not less
than $25,000,000. At December 31, 1998 and 1997, all of the Notes
were outstanding (see also Note 10).
The Company has a $25,000,000 Tranche A term loan with a financial
institution. This loan requires quarterly payments of $1,875,000
plus interest commencing on March 31, 2000. Any unpaid balance is
due March 31, 2003. The agreement requires that what it defines as
excess proceeds from the sale of a cable system be used to retire
Tranche A term debt. As a result of the Michigan sale (Note 4),
there was $3,425,000 of excess proceeds used to pay principal in
1998. The interest rate on the Tranche A term loan is either the
bank's prime rate plus .25% to 1.75% or LIBOR plus 1.5% to 2.75%.
The specific rate is dependent upon the senior funded debt ratio
which is recalculated quarterly. The weighted average effective
interest rate at December 31, 1998 and 1997 was 7.59% and 8.24%,
respectively.
In addition, the Company has a $40,000,000 Tranche B term loan,
which requires principal payments of $2,000,000 on March 31, 2002,
$18,000,000 on March 31, 2003, and $20,000,000 on March 31, 2004.
The Tranche B term loan bears an interest rate of 9.75% and is
payable quarterly.
The Company also has a reducing revolving loan providing for
borrowing up to $20,000,000 at the Company's discretion, subject to
certain restrictions, and an additional $60,000,000 available to
finance acquisitions subject to certain restrictions. On March 4,
1998, the reducing revolving loan agreement was amended to revise the
scheduled reduction in revolving commitments. The additional
financing amounts available at December 31, 1998 and 1997 were
$45,000,000 and $52,500,000, respectively. At December 31, 1998, the
full $20,000,000 available had been borrowed, and $15,000,000 had
been drawn against the $45,000,000 commitment. At December 31, 1997,
the full $20,000,000 available had been borrowed, and $16,500,000 had
been drawn against the $52,500,000 commitment. The amount available
for borrowing will decrease annually during its term with changes
over the four years following December 31, 1998 as follows: 1999 -
$2,500,000 reduction per quarter, and 2000 through 2002 - $3,625,000
per quarter. Any unpaid balance is due on March 31, 2003. The
revolving loan bears an interest rate of either the bank's prime
rate plus .25% to 1.75% or LIBOR plus 1.5% to 2.75%. The specific
rate is dependent upon the senior funded debt ratio which is
recalculated quarterly. The weighted average effective interest
rates at December 31, 1998 and 1997 was 8.08% and 8.29%,
respectively. The reducing revolving loan includes a commitment fee
of 1/2% per annum on the unborrowed balance.
Certain mandatory prepayments may also be required, commencing in
fiscal 1997, on the Tranche A term loan, the Tranche B term loan,
and the reducing revolving credit based on the Company's cash flow
calculations, proceeds from the sale of a cable system or equity
contributions. Based on the 1998 calculation and the Michigan sale,
$3,425,000 of prepayments were required. Optional prepayments are
allowed, subject to certain restrictions. The related loan
agreement contains covenants limiting additional indebtedness,
dispositions of assets, investments in securities, distribution to
partners, management fees and capital expenditures. In addition,
the Company must maintain certain financial levels and ratios. At
December 31, 1998, the Company was in compliance with these
covenants.
The Company also has $3,000,000 of senior subordinated debt payable
to a Rifkin Partner. The debt has a scheduled maturity, interest
rate and interest payment schedule identical to that of the Notes,
as discussed above.
Based on the outstanding debt as of December 31, 1998, the minimum
aggregate maturities for the five years following 1998 are none in
1999, $7,500,000 in 2000, $16,500,000 in 2001, $23,075,000 in 2002
and $29,500,000 in 2003.
7. Related Party Transactions
The Company entered into a management agreement with Rifkin &
Associates, Inc. (Rifkin). The management agreement provides that
Rifkin will act as manager of the Company's CATV systems and be
entitled to annual compensation of 3.5% of the Company's revenue.
Effective September 1, 1998, Rifkin conveyed its CATV management
business to R & A Management, LLC (RML). The result of this
transaction included the conveyance of the Rifkin management
agreement (Rifkin Agreement) to RML (RML Agreement). Expenses
incurred pursuant to the Rifkin Agreement and the RML Agreement are
disclosed in total on the Consolidated Statement of Operations.
The Company is associated with a company to purchase certain cable
television programming at a discount. Rifkin acted as the agent and
held the deposit funds required for the Company to participate.
7. Related Party Transactions--(continued)
Effective September 1, 1998, Rifkin conveyed this contract and
deposit amount to RML. The deposit amount recorded at December 31,
1998 and 1997 was $2,139,274 and $1,225,274, respectively. The
Company subsequently received $1,225,274 of the December 31, 1998
balance.
The Company paid approximately $550,000 to a law firm in connection
with the public offering in 1996. A partner of this law firm is a
relative of one of the Company's partners.
8. Commitments and Rental Expense
The Company leases certain real and personal property under
noncancelable operating leases expiring through the year 2007.
Future minimum lease payments under such noncancelable leases as of
December 31, 1998 are: $316,091 in 1999; $249,179 in 2000;
$225,768 in 2001; $222,669 in 2002; and $139,910 in 2003; and
$344,153 thereafter, totaling $1,497,770.
Total rental expense and the amount included therein which pertains
to cancelable pole rental agreements were as follows for the periods
indicated:
Total Cancelable
Rental Pole Rental
Period Expense Expense
Year Ended December 31, 1998 $1,592,080 $1,109,544
Year Ended December 31, 1997 $1,577,743 $1,061,722
Year Ended December 31, 1996 $1,294,084 $874,778
9. Compensation Plans and Retirement Plans
Equity Incentive Plan
In 1996, the Company implemented an Equity Incentive Plan (the
"Plan") in which certain Rifkin & Associates' executive officers and
key employees, and certain key employees of the Company are eligible
to participate. Plan participants in the aggregate, have the right
to receive (i) cash payments of up to 2.0% of the aggregate value of
all partnership interests of the Company (the "Maximum Incentive
Percentage"), based upon the achievement of certain annual Operating
Cash Flow (as defined in the Plan) targets for the Company for each
of the calendar years 1996 through 2000, and (ii) an additional cash
payment equal to up to 0.5% of the aggregate value of all
partnership interests of the Company (the "Additional Incentive
Percentage"), based upon the achievement of certain cumulative
Operating Cash Flow targets for the Company for the five-year period
ended December 31, 2000. Subject to the achievement of such annual
targets and the satisfaction of certain other criteria based on the
Company's operating performance, up to 20% of the Maximum Incentive
Percentage will vest in each such year; provided, that in certain
events vesting may accelerate. Payments under the Plan are subject
to certain restrictive covenants contained in the Notes.
No amounts are payable under the Plan except upon (i) the sale of
substantially all of the assets or partnership interests of the
Company or (ii) termination of a Plan participant's employment with
Rifkin & Associates or the Company, as applicable, due to (a) the
decision of the Advisory Committee to terminate such participant's
employment due to disability, (b) the retirement of such participant
with the Advisory Committee's approval or (c) the death of such
Participant. The value of amounts payable pursuant to clause (i)
above will be based upon the aggregate net proceeds received by the
holders of all of the partnership interests in the Company, as
determined by the Advisory Committee, and the amounts payable
pursuant to clause (ii) above will be based upon the Enterprise
Value determined at the time of such payment. For purposes of the
Plan, Enterprise Value generally is defined as Operating Cash Flow
for the immediately preceding calendar year times a specified
multiple and adjusted based on the Company's working capital.
The amount expensed for the years ended December 31, 1998, 1997 and
1996 relating to this plan were $1,119,996, $859,992 and $660,000,
respectively.
9. Compensation Plans and Retirement Plans--(continued)
Retirement Benefits
The Company has a 401(k) plan for employees that have been employed
by the Company for at least one year. Employees of the Company can
contribute up to 15% of their salary, on a before-tax basis, with a
maximum 1998 contribution of $10,000 (as set by the Internal Revenue
Service). The Company matches participant contributions up to a
maximum of 50% of the first 3% of a participant's salary
contributed. All participant contributions and earnings are fully
vested upon contribution and Company contributions and earnings vest
20% per year of employment with the Company, becoming fully vested
after five years. The Company's matching contributions for the
years ended December 31, 1998, 1997 and 1996 were $50,335, $72,707
and $42,636, respectively.
10. Fair Value of Financial Instruments
The Company has a number of financial instruments, none of which are
held for trading purposes. The following method and assumptions
were used by the Company to estimate the fair values of financial
instruments as disclosed herein:
Cash and Cash Equivalents, Customer Accounts Receivable, Other
Receivables, Accounts Payable and Accrued Liabilities and Customer
Deposits and Prepayments: The carrying value amount approximates
fair value because of the short period to maturity.
Debt: The fair value of bank debt is estimated based on interest
rates for the same or similar debt offered to the Company having the
same or similar remaining maturities and collateral requirements.
The fair value of public Senior Subordinated Notes is based on the
market quoted trading value. The fair value of the Company's debt
is estimated at $236,137,500 and is carried on the balance sheet at
$224,575,000.
11. Cable Reregulation
Congress enacted the Cable Television Consumer Protection and
Competition Act of 1992 (the Cable Act) and has amended it at
various times since.
The total effects of the present law are, at this time, still
unknown. However, one provision of the present law further
redefines a small cable system, and exempts these systems from rate
regulation on the upper tiers of cable service. The Partnership is
awaiting an FCC rulemaking implementing the present law to determine
whether its systems qualify as small cable systems.
12. Summarized Financial Information
CEM, CEI and CEC (collectively, the "Guarantors") are all wholly-
owned subsidiaries of the Company and, together with RACC,
constitute all of the Partnership's direct and indirect
subsidiaries. As discussed in Note 1, RTL and FNI were dissolved on
January 1, 1998 and the assets were transferred to the Company;
however, prior thereto, RTL and FNI, as wholly-owned subsidiaries
of the Company, were Guarantors. Each of the Guarantors provides a
full, unconditional, joint and several guaranty of the obligations
under the Notes discussed in Note 6. Separate financial statements
of the Guarantors are not presented because management has
determined that they would not be material to investors.
The following tables present summarized financial information of the
Guarantors on a combined basis as of December 31, 1998 and 1997 and
for the years ended December 31, 1998, 1997 and 1996.
12. Summarized Financial Information--(continued)
Balance Sheet 12/31/98 12/31/97
Cash $ 373,543 $ 780,368
Accounts and other receivables, net 3,125,830 3,012,571
Prepaid expenses 791,492 970,154
Property, plant and equipment net 48,614,536 66,509,120
Franchise costs and other intangible
assets, net 56,965,148 103,293,631
Accounts payable and accrued
liabilities 22,843,354 18,040,588
Other liabilities 980,536 1,122,404
Deferred taxes payable 7,942,000 12,138,000
Notes payable 140,050,373 167,200,500
Equity (deficit) (61,945,714) (23,935,648)
Statements of Operations
Year ended Year ended Year ended
12/31/98 12/31/97 12/31/96
Total revenue $ 29,845,826 $ 47,523,592 $ 42,845,044
Total costs and expenses (31,190,388) (53,049,962) (43,578,178)
Interest expense (14,398,939) (17,868,497) (16,238,221)
Income tax benefit 4,177,925 5,335,000 3,645,719
Net loss $(11,565,576) $ (18,059,867) $ (13,325,636)
13. Quarterly Information (Unaudited)
The following interim financial information of the Company presents
the 1998 and 1997 consolidated results of operations on a quarterly
basis (in thousands):
Quarters Ended 1998
March 31(a) June 30 Sept. 30 Dec. 31(b)
Revenue $22,006 $22,296 $22,335 $23,284
Operating income (loss) 6,285 511 (1,522) 38,630
Net income (loss) 1,437 (4,458) (5,907) 33,347
(a) First quarter includes a $5,900 gain from the sale of Michigan
assets (Note 4).
(b) Fourth quarter includes a $36,873 gain from the trade sale of
certain Tennessee assets (Note 4).
Quarters Ended 1997
March 31 June 30 Sept. 30 Dec. 31
Revenue $19,337 $21,331 $21,458 $22,199
Operating loss (1,220) (2,818) (2,777) (798)
Net loss (5,998) (6,890) (8,127) (5,029)
14. Litigation
The Company could possibly be named as defendant in various actions
and proceedings arising from the normal course of business. In all
such cases, the Company will vigorously defend itself against the
litigation and, where appropriate, will file counterclaims.
Although the eventual outcome of potential lawsuits cannot be
predicted, it is management's opinion that any such lawsuit will not
result in liabilities that would have a material affect on the
Company's financial position or results of operations.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 19, 1999
To the Stockholder of
Rifkin Acquisition Capital Corp.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Rifkin Acquisition Capital
Corp. ("RACC") at December 31, 1998 and 1997 in conformity with generally
accepted accounting principles. This balance sheet is the responsibility
of RACC's management; our responsibility is to express an opinion on this
balance sheet based on our audit. We conducted our audit of this balance
sheet in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the balance sheet, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall balance sheet presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
<PAGE>
RIFKIN ACQUISITION CAPITAL CORP.
BALANCE SHEET
12/31/98 12/31/97
Assets
Cash $ 1,000 $ 1,000
Total assets $ 1,000 $ 1,000
Stockholder's Equity
Stockholder's Equity
Common Stock; $1.00 par value;
10,000 shares authorized, 1000
shares issued and outstanding $ 1,000 $ 1,000
Total stockholder's equity $ 1,000 $ 1,000
The accompanying notes are an integral part of the balance sheet.
<PAGE>
RIFKIN ACQUISITION CAPITAL CORP.
NOTES TO BALANCE SHEET
1. Organization and Summary of Significant Accounting Policies
Organization
Rifkin Acquisition Capital Corp. ("RACC"), a Colorado Corporation,
was formed on January 24, 1996, as a wholly-owned subsidiary of
Rifkin Acquisition Partners, L.L.L.P. (the "Partnership") for the
purpose of co-issuing, with the Partnership, $125.0 million in
Senior Subordinated Notes (the "Notes") which were used to repay
advances under the Partnership's term debt and to fund the
Partnership's acquisitions of certain cable television systems.
Upon closing of the Notes issuance on January 26, 1996, none of the
Notes were issued by RACC; accordingly, no debt is reflected on its
balance sheet. In addition, RACC does not, and is not expected to
have, any other operations; as such, no statements of operations,
stockholder's equity or cash flows are presented.
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes and there were no disagreements with the
Accountants.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
General Partner
The General Partner of the Partnership is Rifkin Acquisition Management,
L.P., a Colorado limited partnership that is controlled by Monroe M.
Rifkin. As General Partner, it has responsibility for the overall
management of the business and operations of the Company. The Company
entered into a Management Agreement with Rifkin & Associates and
subsequently assigned to R & A Management, LLC ("RML"). R & A is the
managing member of RML. With RML's structure as a Limited Liability
Company, RML has no executive officers. See "Certain Relationships and
Related Transactions."
R & A Management, LLC
The Company has a Management Agreement with RML with respect to the day-
today management and operation of the Company's cable television systems.
The principal offices of RML are located at 360 South Monroe Street,
Suite 600, Denver, Colorado, 80209, and the telephone number is (303)
333-1215.
Advisory Committee
The Advisory Committee of the Partnership consults with and advises the
General Partner with respect to the business and affairs of the Company
and any subsidiary thereof. Without the prior approval of the Advisory
Committee, the General Partner cannot amend the Company's budget in any
material respect, materially increase capital expenditures in any fiscal
year, amend or waive any provision of the Management Agreement, or adopt
or amend the management incentive plan provided for by the Partnership
Agreement. The Advisory Committee consists of designees of the General
Partner and the Partnership's Limited Partners, including one designee
of the General Partner, three designees of VS&A Communications Partners
II, L.P., two designees of Greenwich Street (RAP) Partners I, L.P., one
designee of IEP Holdings I LLC and one designee of PaineWebber Capital,
Inc. Members of the Advisory Committee are not compensated for their
services, but are reimbursed for all reasonable out-of-pocket expenses
incurred by them in performing services relating to the Company. The
members of the Advisory Committee are Monroe M. Rifkin, Jeffrey T.
Stevenson, S. Gerard Benford, John S. Suhler, Avy Stein, Greg Flynn,
David H. Morse, Dhananjay Pai and Daniel Gill. The Advisory Committee has
adopted a policy of having Mr. Rifkin abstain from any Advisory Committee
votes that may present a conflict of interest between Mr. Rifkin and the
Company. In addition, the Partnership Agreement requires that Mr. Rifkin
first present to the Partnership any acquisition opportunities of cable
television systems that are similar and reasonably contiguous to the
Company's Systems.
RACC
RACC does not have any operations, and accordingly does not have any
management personnel other than its corporate officers.
Director and Executive Officers of Rifkin & Associates ; Director and
Executive Officers of RACC:
Advisory Committee of the Partnership
Monroe M. Rifkin is the sole director of Rifkin & Associates and RACC.
The executive officers of Rifkin & Associates and RACC and the members
of the Advisory Committee are listed on the following page.
Rifkin & Associates
Name Age Position
Monroe M. Rifkin 68 Chairman
Kevin B. Allen 37 Vice Chairman and Chief Executive Officer
Jeffrey D. Bennis 40 President and Chief Operating Officer
Stephen E. Hattrup 46 Senior Vice President - Operations
Dale D. Wagner 49 Senior Vice President - Finance and
Administration
Paul A. Bambei 44 Vice President - Operations
Lee A. Clayton 41 Vice President - Marketing
Suzanne M. Cyman 39 Vice President - Programming/
Strategic Planning
Bruce A. Rifkin 41 Vice President -Operations
and Advertising Sales
Irene D. McPhail 44 Vice President - Operations
Peter N. Smith 49 Senior Vice President -Engineering and
Advanced Technologies
RACC
Name Age Position
Monroe M. Rifkin 68 Director, President and Treasurer
Jeffrey D. Bennis 40 Vice President
Stephen E. Hattrup 46 Vice President
Dale D. Wagner 49 Vice President, Secretary,
and Assistant Treasurer
Advisory Committee
Name Age
S. Gerard Benford 60
Avy H. Stein 44
David H. Morse 37
Dhananjay M. Pai 36
Monroe M. Rifkin 68
Gregory P. Flynn 42
Jeffrey T. Stevenson 38
John S. Suhler 53
Daniel M. Gill 34
Executive Officers
Monroe M. Rifkin is a cable television industry executive with over
thirty years of experience. He founded Rifkin & Associates ("R & A") in
1982 and has served as its Director and Chairman since May 1998. Prior
to that, Mr. Rifkin served as R & A's Chairman and Chief Executive
Officer from 1982 to May 1998. He was formerly with American Television
and Communications Corporation ("ATC"), serving as its Chief Executive
Officer from 1968 to 1982 and as its Chairman from 1974 to 1982. Mr.
Rifkin served as a board member of the National Cable Television
Association from 1968 to 1984 and as its Chairman from 1983 to 1984. He
holds a B.A. in Finance from New York University.
Kevin B. Allen has been Vice Chairman and Chief Executive Officer of R
& A since May 1998 where he is responsible for overseeing all business
activities of R & A while continung to have direct responsibility for all
corporate development and acquisition activities. Mr. Allen served as
President of R&A Enterprises, the development arm of R & A, from August
1996 to May 1998 when he was charged with the duty of acquiring new
systems for R&A and its affiliated companies. Previously, Mr. Allen
served as Vice President of BT Securities Corporation since 1992 where
he was responsible for developing and maintaining a range of corporate
finance relationships with clients around the world. He holds a B.S. in
Aerospace Engineering from the University of Colorado, a Master's degree
in Mechanical Engineering from the Massachusetts Institute of Technology
and an M.B.A. from the Wharton School of Business at the University of
Pennsylvania.
Jeffrey D. Bennis has been President and Chief Operating Officer of R &
A since April 1994. He is responsible for overall management of R & A's
operating cable television systems and is involved in the development of
policy and strategic direction. Mr. Bennis served as Vice President -
Marketing/Programming of R & A from July 1991 to March 1994. Mr. Bennis
was elected to the boards of directors of the National Cable Television
Association and C-SPAN in May 1995. Mr. Bennis executed marketing plans
with Clairol, Inc., a subsidiary of Bristol-Myers Squibb Company from
June 1980 to June 1991, where he most recently served as Director of
Marketing for the Hair Care and Skin Care Divisions. He holds an
undergraduate degree from the Pennsylvania State University and an M.B.A.
from the University of Connecticut. Jeffrey D. Bennis is the son-in-law
of Monroe M. Rifkin.
Stephen E. Hattrup has been the Senior Vice President - Operations for
R & A since April 1994. He is responsible for overseeing all operations
of R & A systems. Additionally, he is responsible for evaluating the
integrity of potential system acquisitions. Mr. Hattrup served as Vice
President - Operations from September 1988 to March 1994. Previously,
he served as Vice President and Treasurer of ATC. Mr. Hattrup holds an
undergraduate degree from Wichita State University and a M.S. in Finance
from the University of Kansas.
Dale D. Wagner, Senior Vice President - Finance and Administration of R
& A since April 1994, has over twenty-five years of experience in
arranging and maintaining financing for cable systems. He is responsible
for R & A's overall financial and accounting activities. Mr. Wagner
served as Vice President - Finance from January 1986 to March 1994.
Prior to joining R & A, Mr. Wagner was employed at ATC from 1981 to 1986
in various positions including Vice President - Finance and
Administration for ATC's National Division. Prior to joining ATC, Mr.
Wagner was employed by Cable Com-General, Inc. in various capacities,
including Vice President - Finance for that company's cable television
division. Mr. Wagner holds a degree in Accounting from Wichita State
University.
Paul A. Bambei has served as Vice President - Operations of R & A since
January 1987. He is responsible for system operations for all R & A
properties in Georgia, Tennessee, Michigan, Illinois, Indiana, Missouri
and New Mexico. He also has served as Vice President - Marketing of R
& A from March 1984 until December 1986. Prior to joining R & A, Mr.
Bambei was employed by ATC from 1974 to 1984 in various capacities in
marketing and operations. He holds a degree in communications from
Southeast Missouri State University.
Lee A. Clayton has served as Vice President of Marketing since October
1997. Her responsibilities include evaluating product offerings and
prices, as well as overseeing acquisition, retention and communication
efforts. Previously, Ms. Clayton was a partner at Bortz & Company, where
she was employed from mid-1988 and where she founded Competitive
Strategies Group which designed competitive plans for major cable MSO's.
Ms. Clayton holds a degree in Economics from Trinity College.
Suzanne M. Cyman has served as R&A's Vice President of
Programming/Strategic Development since July 1997. She is responsible
for negotiating all programming contracts for R & A systems, as well as
serving on special assignments as needed in domestic and international
cable systems. She served as the Vice President of Marketing from July
1994 to July 1997. Previously, she was Vice President at Vista
Communications and Fanch Communications beginning in 1988. She holds an
undergraduate degree in Public Affairs Management with an emphasis in
Economics from Michigan State University.
Bruce A. Rifkin is Vice President-Operations and Advertising Sales, a
position he has held since January 1994. Mr. Rifkin joined R & A in 1988
as Director-Advertising Sales. Prior to joining R & A, Mr. Rifkin was
employed in commercial real estate management and development. Bruce A.
Rifkin is a son of Monroe M. Rifkin.
Peter N. Smith has served as Vice President - Engineering/New Business
Development of R & A since March 1984. Mr. Smith is responsible for the
construction of several of the largest cable television systems in the
United States. Mr. Smith was employed by ATC from 1973 to 1984 in
various engineering capacities including Vice President - Engineering of
the National Division. He holds a degree in Electrical Engineering from
Franklin University.
Irene D. McPhail has served as Vice President - Operations since April
1998, overseeing R & A's Miami Beach system, and has nearly twenty years
of cable television management experience. Prior to joining R & A, from
1997 to 1998, Ms. McPhail was the owner and principal of Re-Source, LLC,
a management consulting firm specializing in the cable television and
telecommunications industry. Ms. McPhail was employed by Nynex Video
Service Operations Company from 1995 to 1998, where she led the
development of business, organizational and marketing strategies for
cable television systems in two major metropolitan cities. Prior to that
she was employed by Cablevision Systems from 1979 to 1995. Some of the
positions she held while at Cablevision Systems include General Manager
of some of Cablevision's largest systems, including those in New York
City, Connecticut and Chicago. Ms. McPhail holds a degree in
Communication Arts from the New York Institute of Technology.
Advisory Committee
S. Gerard Benford has served as Executive Vice President of VS&A
Communications Partners, L.P. since 1990. Since November 1994, Mr.
Benford has also been Executive Vice President of VS&A Communications
Partners II, L.P. and General Partner of VS&A Equities II, L.P. Mr.
Benford has been Vice President of VS&A RAP, Inc. since August 1995.
Avy H. Stein has been employed by Willis Stein & Partners, L.L.C. as a
Managing Director since 1995. Prior to joining Willis Stein & Partners,
L.L.C., Mr. Stein was, from 1989 to 1995 employed by Continental Illinois
Venture Corporation as its Managing Director.
David H. Morse has been employed by Equity Partners, L.P., I, the parent
organization of IEP Holdings I LLC, or its predecessors and their
affiliates since 1993 and currently serves as Partner responsible for
originating, structuring and managing equity and debt investments. From
August 1989 to February 1993, Mr. Morse worked in the Corporate Finance
Group of General Electric Capital Corporation most recently as a Vice
President. From 1984 through 1987, Mr. Morse worked at Chemical Bank in
New York City most recently as Assistant Treasurer. Mr. Morse also
serves as a director of Reid Plastics, Inc.
Dhananjay M. Pai is President of PaineWebber Capital Inc., which is a
principal investment affiliate of PaineWebber Incorporated. Mr. Pai is
also a First Vice President of PaineWebber Incorporated. Before joining
PaineWebber in April 1990, Mr. Pai was a Vice President in the Mergers
and Acquisitions Department at Drexel Burnham Lambert, Inc.
Gregory P. Flynn has been employed by Lexington Equity Partners II LLC
since January 1997 as its Managing Partner. Prior to joining Lexington
Equity Partners II LLC, Mr. Flynn was a Managing Director for
Internationale Nederlanden (U.S.) Management Co., Inc. from 1994 through
1996. In addition, Mr. Flynn served as a Managing Director, from 1989
to 1994, for Internationale Nederlanden (U.S) Capital Corporation.
Jeffrey T. Stevenson has been the President of VS&A Communications
Partners, L.P. since 1989. Since November 1994 he has served as
President of VS&A Communications Partners II, L.P. and General Partner
of VS&A Equities II, L.P. Mr. Stevenson has been President of VS&A RAP,
Inc. since August 1995.
John S. Suhler has been the President and Co-Chief Executive Officer of
Veronis, Suhler & Associates Inc. since October 1981. He has served as
a General Partner of VS&A Equities, L.P. since March 1987. VS&A
Equities, L.P. is the general partner of VS&A Communications, L.P. Mr.
Suhler is also a founding General Partner of VS&A Equities II, L.P., a
position he has held since November 1994. VS&A Equities II, L.P. is the
general partner of VS&A Communications Partners II, L.P.
Daniel M. Gill has been employed by Willis Stein & Partners, L.L.C. as
a Managing Director since 1995. Prior to joining Willis Stein &
Partners, L.L.C., Mr. Stein was, from 1990 to 1995 employed by
Continental Illinois Venture Corporation as its Managing Director.
ITEM 11 - EXECUTIVE COMPENSATION
General. No employee of the Partnership is an executive officer of the
Company. The executive officers of RACC, in their capacity as such, do
not serve as executive officers of the Partnership or any of the
Guarantors. Services of the executive officers and other employees of R
& A and RML are provided to the Company, and the Company pays R & A a fee
pursuant to the Management Agreement for such services. The executive
officers and other employees of R & A and RML and/or RACC who provide
services to the Company are compensated solely in their capacity as
executive officers of R & A and therefore receive no compensation from
the Company except as provided by the Equity Incentive Plan described
below. R & A engages in certain management services for other affiliates
of Monroe M. Rifkin. No portion of the management fee paid by the
Company is allocated to specific employees for the services performed by
R & A for the Company. The General Partner of the Partnership receives
no compensation for its services to the Company in such capacity. See
"Certain Relationships and Related Transactions--Management Agreement
with R & A and R & A Management , LLC."
Equity Incentive Plan. In 1996, the Company implemented an Equity
Incentive Plan (the "Plan") in which certain R & A executive officers and
key employees, and certain key employees of the Company, are eligible to
participate. Plan participants in the aggregate, have the right to
receive (i) cash payments of up to 2.0% of the aggregate value of all
partnership interests of the Company (the "Maximum Incentive
Percentage"), based upon the achievement of certain annual Operating Cash
Flow (as defined in the Plan) targets for the Company for each of the
calendar years 1996 through 2000, and (ii) an additional cash payment
equal to up to 0.5% of the aggregate value of all partnership interests
of the Company (the "Additional Incentive Percentage"), based upon the
achievement of certain cumulative Operating Cash Flow targets for the
Company for the five-year period ended December 31, 2000. Subject to the
achievement of such annual targets and the satisfaction of certain other
criteria based on the Company's operating performance, up to 20% of the
Maximum Incentive Percentage will vest in each such year, provided, that
in certain events vesting may accelerate. Payments under the Plan are
subject to certain restrictive covenants contained in the Notes.
No amounts are payable under the Plan except upon (i) the sale of
substantially all of the assets or partnership interests of the Company
or (ii) termination of a Plan participant's employment with R & A or the
Company, as applicable, due to (a) the decision of the Advisory Committee
to terminate such participant's employment due to disability, (b) the
retirement of such participant with the Advisory Committee's approval or
(c) the death of such Participant. The value of amounts payable pursuant
to clause (i) above will be based upon the aggregate net proceeds
received by the holders of all of the partnership interests in the
Company, as determined by the Advisory Committee, and the amounts payable
pursuant to clause (ii) above will be based upon the Enterprise Value
determined at the time of such payment. For purposes of the Plan,
Enterprise Value generally is defined as Operating Cash Flow for the
immediately preceding calendar year times a specified multiple and
adjusted based on the Company's working capital.
The provision relating to the Plan for the years ended December 31, 1998
and 1997 was $1,119,996 and $859,992, respectively.
Retirement Benefits. During 1996, a Company-sponsored 401(k) plan was
implemented for its employees that have been employed by the Company for
at least one year. Employees of the Company can contribute up to 15% of
their salary, on a before-tax basis, with a maximum 1998 contribution of
$10,000 (as set by the Internal Revenue Service). The Company matches
participant contributions up to a maximum of 50% of the first 3% of a
participant's salary contributed. All participant contributions and
earnings are fully vested upon contribution and Company contributions and
earnings vest 20% per year of employment with the Company, becoming fully
vested after five years. The Company's matching contributions for the
years ended December 31, 1998 and 1997 were $50,335 and $72,707,
respectively.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Partnership
In February 1999, the Partnership announced the planned acquisition by
Charter Communictions ("Charter") of all outstanding partnership
interests in the Partnership and InterLink Communications Partners, LLLP
("InterLink") and the assumption of the outstanding debt of InterLink and
the Partnership. The parties expect to finalize definitive agreements
for the transactions by April 7, 1999 and expect to close the
transactions during the third quarter of 1999.
The following table sets forth certain information, as of December 31,
1998, concerning the beneficial ownership of partnership interests in the
Partnership owned by each person known by the Company to own beneficially
more than a five percent interest and by the executive officers of R &
A as a group.
Name and Addressof Beneficial Owners Percentage
(1)
VS&A Communications Partners II, L.P 28.7(2)
350 Park Avenue
New York, NY 10022
Greenwich Street (RAP) Partners I, L.P 27.5(3)
388 Greenwich Street
New York, NY 10003
ING Equity Partners II, L.P. 27.5(4)
520 Madison Avenue, 33rd Floor
New York, NY 10022
Willis Stein & Partners 27.5(5)
227 West Monroe Street, Suite 4300
Chicago, IL 60606
ING Equity Partners, L.P. I. 22.0(6)
520 Madison Avenue, 33rd Floor
New York, NY 10022
PaineWebber Capital, Inc 5.5(7)
1285 Avenue of the Americas
New York, NY 10019
PW Partners 1995, L.P. 5.5(8)
1285 Avenue of the Americas
New York, NY 10019
Monroe M. Rifkin 35.5(9)
360 S. Monroe Street
Denver, CO 80209
Other executive officers
of R & A as a group (5 persons) 2.4
(1) Pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended, a person or entity is deemed to have beneficial
ownership of securities if such person or entity has, directly or
indirectly, through any contract or other arrangement, the power to
vote such securities or investment power including the power to
dispose or direct the disposition of such securities. The percentage
interests set forth in this table include the percentage ownership
each person or entity is deemed to beneficially own as determined
under Rule 13d-3, including the percentage interest over which voting
or dispositive power is shared with another person or entity. The
disclosure requirements of Rule 13d-3, in certain instances, will
result in disclosure that indicates that more than one person or
entity beneficially owns such percentage interest because either
voting or dispositive power is shared.
(2) Includes a 0.4% interest held by VS&A RAP, Inc., a wholly-owned
subsidiary of VS&A Communications Partners II, L.P.
(3) Greenwich Street (RAP) Partners I, L.P. ("Greenwich") beneficially
owns such partnership interest directly. In 1998, InterLink
Communications Partners, LLLP ("InterLink") acquired ownership of all
of the limited partnership interests of Greenwich (and indirect
ownership of the general partnership interest in Greewich, through a
wholly-owned limited liability company) and Greenwich is no longer an
affiliate of Greenwich Street Capital Partners, Inc.
(4) Represents a 27.5% limited partnership interest directly held by
Greenwich (the "Greenwich Interest"). ING Equity Partners II, L.P.
("ING Equity"), through ING Media Partners II, L.P. and ING Media C
Corp., two entities controlled by ING Equity, is deemed to
beneficially own the Greenwich Interest by virtue of its ownership
interest and voting power in InterLink , which directly holds all of
the limited partnership interests in Greenwich and through a wholly-
owned limited liability company, indirectly holds the general
partnership interest in Greenwich. The consent of the Advisory
Committee of Interlink is needed in order to dispose of the Greenwich
interest and ING Equity has the power to appoint two of the five
members of the Advisory Committee. See footnote 1 for an explanation
of the definition of beneficial ownership under Rule 13d-3. ING
Equity Partners II, L.P. is an affiliate of ING Equity Partners L.P.
I.
(5) Represents the 27.5% Greenwich Interest. Willis Stein & Partners
("WS"), through WS InterLink Corp., an entity controlled by WS, is
deemed to beneficially own the Greenwich Interest by virtue of its
ownership interest and voting power in InterLink, which directly holds
all of the limited partnership interests in Greenwich and, through a
wholly-owned limited liability company, indirectly holds the general
partnership interest in Greenwich. The consent of the Advisory
Committee of Interlink is needed in order to dispose of the Greenwich
Interest and WS has the power to appoint two of the five members of
the Advisory Committee. See footnote 1 for an explanation of the
definition of beneficial ownership under Rule 13d-3.
(6) Such limited partnership interest is held directly by IEP Holdings I
LLC, which is controlled by ING Equity Partners L.P. I. ING Equity
Partners L.P. I is an affiliate of ING Equity Partners II, L.P.
(7) Paine Webber Capital, Inc. is an affiliate of PW Partners 1995 L.P.
(8) PW Partners 1995 is an affiliate of Paine Webber Capital, Inc.
(9) Includes a 7.0% limited partnership interest held by entities
controlled by Mr. Rifkin and the Rifkin Trusts. Mr. Rifkin is a co-
trustee of such trusts and exercises shared voting power with respect
to the interest held therein. Also includes a 1.0% general
partnership interest held by the General Partner. The beneficial
ownership of such interest is attributed to Mr. Rifkin by virtue of
his ownership of 80% of the voting stock of the general partner of the
General Partner. Finally, includes the 27.5% Greenwich Interest. Mr.
Rifkin is deemed to beneficially own the Greenwich Interest by virtue
of his ownership interest and voting power in InterLink, which
directly holds all of the limited partnership interests in Greenwich
and , through a wholly-owned limited liability company, indirectly
holds the general partnership interest in Greenwich. See footnote 1
for an explanation of the definition of beneficial ownership under
Rule 13d-3.
RACC
All issued and outstanding shares of RACC's Common Stock, par value $1.00
per share, are directly owned by the Partnership. Consequently, none of
the executive officers of RACC own any equity interests therein.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreement With R & A and R & A Management, LLC
R & A managed the Company's cable systems pursuant to the Management
Agreement among the Company and Cable Equities of Colorado, Ltd.
(collectively, the "Owners") and R & A, as manager. R & A conveyed the
management agreement to RML in September 1998, and is the managing member
of RML. Monroe M. Rifkin, a beneficial owner of more than 5% of the
partnership interests in the Partnership and a member of the
Partnership's Advisory Committee, controls RML as the sole director and
shareholder of R & A, RML's managing member. RML serves as the central
manager for the Owners and provides, among other services, operational
management direction; accounting; monthly revenue collection and bill
payment; programming negotiation and related services; marketing and
public relations assistance; engineering assistance; and strategic
planning. Under the terms of the Management Agreement, the Company pays
an annual management fee to RML equal to 3.5% of the Company's gross
revenues and reimburses certain costs. The Company has established a $1
million escrow account for the payment of any management fees to RML in
the event that payment of management fees would otherwise be prohibited
by the Amended and Restated Credit Agreement or any other loan agreement
of the Company or any subsidiary. The aggregate management fees paid by
the Company to R & A and RML for the years ended December 31, 1998 and
1997 were $3.1 million and $3.0 million, respectively. Neither RML nor
any of its affiliated entities may compete with the Company in offering
cable television or competing services in any geographic area in which
the Company holds a cable television franchise or operates a cable
television system.
The Management Agreement will continue in effect with respect to each
cable television system owned by the Company for the duration of the
Company's cable television franchise for that system and any extension
or renewal of such franchise, unless earlier terminated. The Management
Agreement may be terminated by the Owners if the General Partner is
removed pursuant to the Partnership Agreement as a result of Mr. Rifkin's
death or disability or his failure to serve as Chairman or exercise
active control over day-to-day operations of the General Partner or the
Company, provided, however, that the Management Agreement may not be
terminated prior to September 1, 2000 if such removal is the result of
Mr. Rifkin's death or disability. If the Management Agreement is
terminated other than as a result of the removal of the General Partner
as described above (other than as a result of Mr. Rifkin's death or
disability), or for cause (if RML takes action which causes substantial
detriment to the cable systems), then the Company is obligated to make
a severance payment of $500,000 to RML.
Services to be Rendered by VS&A
Pursuant to the Partnership Agreement and subject to the approval of the
Advisory Committee, VS&A will provide management and media industry
advisory services to the Company from time to time with respect to debt
and equity funding and the evaluation of potential acquisitions. VS&A
will be paid reasonable compensation not to exceed $50,000 in any year
in consideration for such services and is reimbursed for all reasonable
out-of-pocket expenses incurred by it in connection therewith. No
amounts were paid pursuant to this provision during 1998.
Senior Subordinated Debt Held by Monroe M. Rifkin
Until January 1996, the Company had outstanding senior subordinated debt
(the "Old Rifkin Note") of $3 million payable to Monroe M. Rifkin,
Chairman and Chief Executive Officer of R & A. Aggregate interest
payments made by the Company in respect of the Old Rifkin Note were
$200,000 and $364,000 in 1994 and 1995, respectively. On January 26,
1996, in connection with the Notes offering, the Company amended and
restated the Old Rifkin Note and issued a new Note to Mr. Rifkin (the
"New Rifkin Note"). The New Rifkin Note bears a rate of interest and has
a scheduled maturity identical to that of the Exchange Notes and ranks
pari passu with the Notes.
The New Rifkin Note contains no covenants other than the obligation to
pay principal and interest thereon. Aggregate interest payments made by
the Company related to the New Rifkin Note in 1998 and 1997 were $333,750
and $336,104, respectively. Events of default under the New Rifkin Note
are limited to the failure to pay principal and interest thereunder, and
a right to accelerate the Rifkin Note upon an acceleration of the Notes.
Any rescission of acceleration by the Trustee or the holders of the
Notes operates to rescind acceleration of the New Rifkin Note provided
that there is no then existing payment default under the Rifkin Note.
In the event of any redemption, defeasance or other retirement for value
of the Notes or any portion thereof prior to their scheduled maturity,
Mr. Rifkin shall have the right to require the Company to redeem, defease
or retire the New Rifkin Note to the same extent as the Notes, subject
to the limitations in the Indenture regarding restricted payments. See
"Description of Exchange Notes-Covenants."
Except for any redemption, repurchase or retirement of the New Rifkin
Note by the Company as described above, Mr. Rifkin has agreed for as long
as any Notes are outstanding not to sell, transfer, pledge, hypothecate,
encumber, or otherwise dispose of the New Rifkin Note, provided that Mr.
Rifkin may transfer the New Rifkin Note to any trust controlled by him
or any corporation wholly and directly owned by him.
Certain Relationships with Legal Counsel
Baker & Hostetler LLP, Denver, Colorado, has acted as legal counsel to
the Company in connection with the offering of the Old Notes and has
acted as legal counsel to the Company in connection with the Company's
exchange of New Notes for Old Notes and may from time to time be engaged
by the Company with respect to other matters. A partner of Baker &
Hostetler LLP is a son of Monroe M. Rifkin. The company paid
approximately $64,000 in 1998 to Baker & Hostetler LLP in connection
with general matters.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) Exhibits:
The following exhibits are filed pursuant to Item 601 of Regulation
S-K.
Exhibit
Number Description
2.1 Asset Sale Agreement dated as of January 2, 1996, between Mid-
Tennessee Cable Limited Partnership and Rifkin/MT Management, L.P. (1)
2.2 Assignment and Assumption Agreement dated January 2, 1996 between
Rifkin Acquisition Partners, L.L.L.P. and Rifkin/MT Management, L.P. (1)
2.3 Amended and Restated Purchase and Sale Agreement dated March 29,
1996 by and between Rifkin Cablevision of Tennessee, Ltd. and Rifkin
Acquisition Partners, L.L.L.P. (1)
2.4 Purchase Agreement dated January 31, 1996 among BT Securities
Corporation, Smith Barney Inc., First Union Capital Markets Corp.,
PaineWebber Incorporated, Rifkin Acquisition Partners, L.L.L.P.,
Rifkin Acquisition Capital Corp., Cable Equities of Colorado, Ltd.,
Rifkin/Tennessee, Ltd., Cable Equities of Colorado Management Corp.,
Cable Equities, Inc., and FNI Management Corp. (1)
3.1 Certificate of Limited Partnership and Registration Statement of
Rifkin Acquisition Partners, L.L.L.P. (1)
3.2 Second Amended and Restated Limited Partnership Agreement of Rifkin
Acquisition Partners, L.L.L.P. dated August 31, 1995 as amended. (1)
3.3 Amendment No. 1 to the Second Amended and Restated Limited
Partnership Agreement of Rifkin Acquisition Partners, L.L.L.P. dated
January 31, 1996. (3)
3.4 Articles of Incorporation of Rifkin Acquisition Capital Corp. (1)
3.5 Bylaws of Rifkin Acquisition Capital Corp. (1)
3.6 Articles of Incorporation of RT Investments Corp. (1)
3.7 Bylaws of RT Investments Corp. (1)
3.8 Amended and Restated Agreement of Limited Partnership of Rifkin
Acquisition Management, L.P. dated May 12 1989, as amended. (1)
3.9 Certificate of Limited Partnership of Rifkin Acquisition Management,
L.P. (1)
4.1 Indenture dated January 15, 1996 among Rifkin Acquisition Partners,
L.L.L.P., Rifkin Acquisition Capital Corp., as Issuers, Cable
Equities of Colorado Mangement Corp., FNI Management Corp., Cable
Equities of Colorado, Ltd., Cable Equities, Inc. and
Rifkin/Tennessee, Ltd., as Subsidiary Guarantors, and Marine Midland
Bank as Trustee related to the 11 1/8% Senior Subordinated Notes due
2006 (including form of certificate to be delivered in connection
with transfers to the institutional accredited investors). (1)
4.2 Registration Rights Agreement dated as of January 31, 1996 among
Rifkin Acquisition Partners, L.L.L.P., Rifkin Acquisition Capital
Corp., Cable Equities of Colorado Management Corp., FNI Management
Corp., Cable Equities of Colorado., Ltd., Cable Equities, Inc.,
Rifkin/Tennessee, Ltd., BT Securities Corporation, Smith Barney
Inc., First Union Capital Markets Corp. and PaineWebber
Incorporated. (1)
Exhibit
Number Description
4.3 Pledge Agreement dated as of January 31, 1996 made by Rifkin
Acquisition Partners, L.L.L.P. and Rifkin Acquisition Capital Corp.
to Marine Midland Bank. (1)
4.4 Amended and Restated Promissory Note dated January 31, 1996 in the
principal amount of $3,000,000 payable by Rifkin Acquisition
Partners to Monroe M. Rifkin. (1)
4.5 Amended and restated Credit Agreement dated as of March 1, 1996
among Rifkin Acquisition Partners, L.L.L.P., as Borrower, the
several banks and other financial institutions from time to time
parties thereto, First Union National Bank of North Carolina, as
administrative agent and Bankers Trust Company, as syndication
agent. (1)
4.6 11 1/8% Senior Subordinated Note due 2006 in the principal sum of
$118,750,000 payable by Rifkin Acquisition Partners, L.L.L.P. and
Rifkin Acquisition Capital Corp. to Cede & Co. or registered
assigns. (1)
4.7 11 1/8% Senior Subordinated Note due 2006 in the principal sum of
$4,250,000 payable by Rifkin Acquisition Partners, L.L.L.P. and
Rifkin Acquisition Capital Corp. to Cede & Co. or registered
assigns. (1)
4.8 11 1/8% Senior Subordinated Note due 2006 in the principal sum of
$2,000,000 payable to Rifkin Children Trust III or registered
assigns. (1)
10.1 Amended and Restated Management Agreement dated August 31, 1995
among Rifkin Acquisition Partners, L.P., Rifkin/Tennessee, Ltd.,
Cable Equities of Colorado, Ltd. and R & A, Inc., as amended by the
Amendment of Management Agreement dated as of January 26, 1996 among
Rifkin Acquisition Partners, L.L.L.P., Rifkin/Tennessee, Ltd., Cable
Equities of Colorado, Ltd. and R & A Management, LLC, (1)
10.2 Franchise Agreement to Provide Cable and Noncable Services between
County of Gwinnett, Georgia and Cable Equities of Colorado, Ltd.
dated December 5, 1995. (1)
10.3 Franchise Agreement to Provide Cable and Noncable Services between
City of Roswell, Georgia and Cable Equities of Colorado, Ltd. dated
February 5, 1996. (1)
10.4. Ordinance of City of Columbia, Tennessee granting Rifkin/Tennessee,
Ltd the right to erect, maintain and operate a cable television
system in the City of Columbia, Tennessee passed and adopted January
3, 1991. (1)
10.5 Cable Television Franchise Ordinance between Rifkin/Tennessee, Ltd.
and City of Cookeville, Tennessee, passed January 19, 1995. (1)
10.6 Form of Exchange Agreement by and between Bankers Trust Company,
Rifkin Acquisition Partners, L.L.L.P. and Rifkin Acquisition Capital
Corp. (1)
10.7 Asset Purchase Agreement by and between American Cable Investors 5,
Ltd. and Rifkin Acquisition Partners, L.L.L.P. dated as of November
29, 1996. (2)
10.8 Asset Purchase Agreement by and between Bresnan Communications
Company and Rifkin Acquisition Partners, L.L.L.P. dated as of
October 16, 1997. (3)
21.1 Subsidiaries of the Registrants. (1)
(1) Incorporated by reference from Registration Statement on Form
S-1, as amended, Registration No. 333-3084.
(2) Incorporated by reference from Form 10-K, dated December 31,
1996, Registration No. 333-3084.
(3) Incorporated by reference from Form 10-K, dated December 31,
1997, Registration No. 333-3084.
(b) Financial Statement Schedules:
None.
(c) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by this
report.
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Been Registered
Securities Pursuant to Section 12 of the Act
No annual report to security holders covering the Registrants' last
fiscal year or proxy statement, form of proxy or other proxy solicitation
material has been sent to holders of Notes.
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.
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
By: Rifkin Acquisition Management, L.P.
a Colorado limited partnership, its
general partner
By: RT Investments Corp., a Colorado
corporation, its general partner
By: /s/Monroe M. Rifkin
Monroe M. Rifkin
Its: President/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name and Title Date
By: /s/Monroe M. Rifkin March 31, 1999
Monroe M. Rifkin
President, Treasurer & Director of RT
Investments Corp. (Principal Executive
Officer)
By: /s/Dale D. Wagner March 31, 1999
Dale D. Wagner
Vice President & Assistant Treasurer of
RT Investments Corp. (Principal Financial
and Accounting Officer)
By: /s/Jeffrey D. Bennis March 31, 1999
Jeffrey D. Bennis
Vice President & Director of RT
Investments Corp.
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.
RIFKIN ACQUISITION CAPITAL CORP.
By: /s/Monroe M. Rifkin
Monroe M. Rifkin
Its: President/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name and Title Date
By: /s/Monroe M. Rifkin March 31, 1999
Monroe M. Rifkin
Its: President/Treasurer and Director
(Principal Executive Officer)
By: /s/Dale D. Wagner March 31, 1999
Dale D. Wagner
Its: Vice President, Secretary &
Assistant Treasurer (Principal
Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001011701
<NAME> RIFKIN ACQUISITION CAPITAL CORP
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,325
<SECURITIES> 0
<RECEIVABLES> 1,932
<ALLOWANCES> 445
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 156,799
<DEPRECIATION> 35,227
<TOTAL-ASSETS> 317,304
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 224,575
0
0
<COMMON> 0
<OTHER-SE> 92,729
<TOTAL-LIABILITY-AND-EQUITY> 317,304
<SALES> 0
<TOTAL-REVENUES> 89,921
<CGS> 0
<TOTAL-COSTS> 85,444
<OTHER-EXPENSES> (39,426)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,662
<INCOME-PRETAX> 20,241
<INCOME-TAX> (4,178)
<INCOME-CONTINUING> 24,419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,419
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>The amount shown for current assets and current liabilities is
zero due to an unclassified balance sheet in the financial
statements.
</FN>
</TABLE>
